ACUTUS MEDICAL, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes and other financial information included elsewhere in this Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q, including information with respect to our plans and strategy for our business, includes "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In some cases, you can identify these statements by forward-looking words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "should," "estimate" or "continue," and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled "Risk Factors" included in this Form 10-Q. The forward-looking statements in this Form 10-Q represent our views as of the date of this Form 10-Q. Except as may be required by law, we assume no obligation to update these forward-looking statements or the reasons that results could differ from these forward-looking statements. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Form 10-Q. Overview We are an arrhythmia management company focused on improving the way cardiac arrhythmias are diagnosed and treated. Despite several decades of effort by the incumbents in this field, the clinical and economic challenges associated with arrhythmia treatment continue to be a huge burden for patients, providers and payors. We are committed to advancing the field of electrophysiology with a unique array of products and technologies which will enable more physicians to treat more patients more effectively and efficiently. Through internal product development, acquisitions and global partnerships, we have established a global sales presence delivering a broad portfolio of highly differentiated electrophysiology products. Our goal is to provide our customers with a complete solution for catheter-based treatment of cardiac arrhythmias in each of our geographic markets. Our product portfolio includes novel access catheters, diagnostic and mapping catheters, ablation catheters, mapping and imaging consoles and accessories, as well as supporting algorithms and software programs. Our foundational and most highly differentiated product is our AcQMap imaging and mapping system. Our paradigm-shifting AcQMap System offers a novel approach to mapping the drivers and maintainers of arrhythmias with unmatched speed and precision. With the ability to rapidly and accurately identify ablation targets and to confirm both ablation success and procedural completion, we believe our AcQMap System addresses the primary unmet need in electrophysiology procedures today. We were incorporated in theState of Delaware onMarch 25, 2011 and are headquartered inCarlsbad, California . Early versions of our AcQMap System and certain related accessory products have been used inthe United States sinceMay 2018 andWestern Europe sinceJuly 2016 in a limited, pilot launch capacity, where our focus was on optimizing workflow and validating our value proposition. We fully commenced the launch of our commercial-grade console and software products in the first quarter of 2020. Critical to our launch were a series of recent strategic transactions and regulatory approvals, including:Food and Drug Administration (the "FDA") 510(k) clearance and CE Mark of our second-generation AcQMap console and SuperMap software suite; the addition of an integrated family of transseptal crossing and steerable introducer systems to our product portfolio through our acquisition ofRhythm Xience, Inc. ("Rhythm Xience"); and the acquisition of our AcQBlate Force sensing product line fromBiotronik SE & Co. KG ("Biotronik"). Since our full launch, we have continued to enhance our product portfolio and global presence by entering into bi-lateral distribution agreements with Biotronik inMay 2020 , which added a full suite of diagnostic and ablation catheters to our product portfolio and significantly expanded our international distribution and market development capabilities. We market our electrophysiology products worldwide to hospitals and electrophysiologists that treat patients with arrhythmias. We have strategically developed a direct selling presence inthe United States and select markets inWestern Europe where cardiac ablation is a standard of care and third-party reimbursement is well-established. In these markets, we install our AcQMap console and workstation with customer accounts and then sell our disposable products to those accounts for use with our system. In other international markets, we leverage our partnership with Biotronik to install our AcQMap console and workstation with customer accounts and then to sell our disposable products to those accounts. Once an AcQMap console and workstation is established in a customer account, our revenue from that account becomes predominantly recurring in nature and derived from the sale of our portfolio of disposable products used with our system. Our currently marketed disposable products include access sheaths, transseptal crossing tools, diagnostic and mapping catheters, ablation catheters and accessories. We plan to leverage the geographically concentrated nature of procedure volumes and the recurring nature of our sales to drive an increasingly efficient commercial model. 30 -------------------------------------------------------------------------------- Table of Contents For the six months endedJune 30, 2021 and 2020, we generated revenue of$8.3 million and$2.7 million , respectively, of which 51%, was from customers located outside ofthe United States for both periods. Since our inception, we have generated significant losses. Our net loss was$57.9 million and$41.3 million for the six months endedJune 30, 2021 and 2020, respectively. As ofJune 30, 2021 andDecember 31, 2020 , we had an accumulated deficit of$418.9 million and$361.0 million , respectively, and working capital of$84.2 million and$129.5 million , respectively. Prior to our initial public offering ("IPO") onAugust 10, 2020 , our operations have been financed primarily by aggregate net proceeds from the sale of our convertible preferred stock and principal of our converted debt of$253.9 million , as well as other indebtedness. We intend to continue to make significant investments in our sales and marketing organization. We believe increasing the number of sales representatives and expanding our international marketing programs will help facilitate further adoption of our products among existing customer accounts as well as broaden awareness of our products to new accounts. We also expect to continue to make substantial investments in our ongoing clinical trials and in additional clinical trials that are designed to provide clinical evidence of the safety and effectiveness of our existing and future generations of products. We expect to continue to make investments in research and development and regulatory affairs to develop future generations of products based on our technology, supported with appropriate regulatory submissions. We may in the future seek to acquire or invest in additional businesses, products or technologies that we believe could complement or expand our portfolio, enhance our technical capabilities or otherwise offer growth opportunities. We will also incur costs as a public company that we have not previously incurred or have previously incurred at lower rates, including increased costs for employee-related expenses, director and officer insurance premiums, audit and legal fees, investor relations fees, fees to members of our board of directors and expenses for compliance with public-company reporting requirements under the Exchange Act and rules implemented by theSecurities and Exchange Commission (the "SEC"), as well as Nasdaq rules. Because of these and other factors, we expect to continue to incur substantial net losses and negative cash flows from operations for at least the next several years. Key Business Metric We regularly review a number of operating and financial metrics, including the following key business metric, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. We believe that the following metric is representative of our current business. However, we anticipate this metric may change or may be substituted for additional or different metrics as our business grows and as we introduce new products. Installed Base Once an AcQMap console and workstation is established in a customer account, our revenue from that account becomes predominantly recurring in nature and derived from the sale of our portfolio of disposable products used with our system. We believe our installed base is one of the key indicators of our ability to drive customer adoption of our products. We define our installed base as the cumulative number of AcQMap consoles and workstations placed into service at customer sites. Beginning in late 2019, we began to install our second-generation AcQMap console and workstation with customers under evaluation contracts. Under these evaluation contracts, we place our AcQMap console and workstation with customers for no upfront fee to the customer during the applicable evaluation period and seek to reach agreement with the customer for the purchase of the console and workstation in the form of a contractual commitment to purchase a minimum amount of our disposable products or a cash purchase. Our total installed base as ofJune 30, 2021 and 2020 is set forth in the table below: As of June 30, 2021 2020 (unaudited) Acutus Direct US 42 20 Europe 18 18 Total Acutus Direct 60 38 Biotronik 10 - Total installed base 70 38 31
-------------------------------------------------------------------------------- Table of Contents Our net increase in installed base for the three and six months endedJune 30, 2021 and 2020, exclusive of transfers between Acutus and Biotronik, is set forth in the table below: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 (unaudited) (unaudited) Acutus Direct US 3 7 5 10 Europe 2 - 4 1 Total Acutus Direct 5 7 9 11 Net systems to Biotronik 3 - 3 - Total net system placements 8 7 12 11 Growth in our quarterly installed base can fluctuate due to a number of factors, including the commercial effectiveness of our sales representatives and strategic partners such as Biotronik, and the procurement and budgeting cycles of many of our customers, especially those where unused funds may be forfeited or future budgets may be reduced if purchases are not made by their fiscal year end. We also believe the timing of installations has been impacted and will continue to be impacted by the timing of product introductions and transitions. In addition, the growth of our market in certain geographic regions and our continued efforts to service these regions impact unit volumes quarter to quarter. Factors Affecting Our Performance There are a number of factors that have impacted, and we believe will continue to impact, or that we expect to impact, our results of operations and growth. These factors include: •Market Acceptance. The growth of our business will depend substantially on our ability to increase our installed base. Once an AcQMap console and workstation is established in a customer account, our revenue from that account becomes predominantly recurring in nature and derived from the sale of our portfolio of disposable products used with our system. Our ability to increase our installed base will depend on our ability to gain broader acceptance of our AcQMap System by continuing to make physicians and other hospital staff aware of the benefits of the AcQMap System, thereby generating increased demand for system installations and the frequency of use of our disposable products. Although we are attempting to increase our installed base through our established relationships and focused sales efforts, we cannot provide assurance that our efforts will be successful. •Commercial Organization Size and Effectiveness. As ofJune 30, 2021 , our commercial organization consisted of 80 individuals with substantial applicable medical device, sales and clinical experience, including sales managers, sales representatives and mappers. We intend to continue to make significant investments in our commercial organization by increasing the number of our sales representatives, sales managers and mappers, as well as by expanding our global marketing and training programs, to help facilitate further adoption of our products among existing and new customer accounts. The rate at which we grow our commercial organization and the speed at which newly hired personnel become effective can impact our revenue growth or our costs incurred in anticipation of such growth. •Strategic Partnerships and Acquisitions. We have in the past, and may in the future, enter into strategic partnerships and acquire complementary businesses, products or technologies. For example, we have entered into strategic partnerships withInnovative Health and Stereotaxis and, most recently, we entered into ourGlobal Alliance for Electrophysiology with Biotronik inMay 2020 . In addition, we added an integrated family of transseptal crossing and steerable introducer systems to our product portfolio through our acquisition of Rhythm Xience inJune 2019 and acquired our AcQBlate Force Sensing Ablation System from Biotronik inJuly 2019 . Our strategic partnerships and acquisitions have helped us establish a global sales presence delivering a broad portfolio of highly differentiated electrophysiology products. Our ability to grow our revenue will depend substantially on our ability to leverage our strategic partnerships and acquisitions to achieve distribution at a global scale, broaden our product portfolio and enable and accelerate global connectivity. •Continued Investment in Innovation. Our business strategy relies significantly on innovation to develop and introduce new products and to differentiate our products from our competitors. In 2020, research and 32 -------------------------------------------------------------------------------- Table of Contents development continued to provide both new products as well as generational improvements to the current product lines through the release of five major versions of software, six disposable products including our first therapy device, and a significant improvement to our mapping system hardware. Additionally, research efforts evolved into development projects for advanced therapies, improved navigational accuracy, and enhanced mapping capabilities. We expect our research and development expenditures to increase as we make additional investments to support our growth strategies. We plan to increase our research and development expenditures with internal initiatives, as well as potentially licensing or acquiring technology from third parties. For example, inApril 2021 , the Company and Biotronik entered into a Feasibility and Development Agreement to pursue the development of hardware, software and IT infrastructure to implement the Qubic Connect System. We also expect expenditures associated with our manufacturing organization to grow over time as production volume increases and we bring new products to market. Our internal and external investments will be focused on initiatives that we believe will offer the greatest opportunity for growth and profitability. With a significant investment in research and development, a strong focus on innovation and a well-managed innovation process, we believe we can continue to innovate and grow. Introducing additional, innovative products is also expected to help support our existing installed base and help drive demand for additional installations of our system. If, however, our future innovations are not successful in meeting customers' needs or prove to be too costly relative to their perceived benefit, we may not be successful. Moreover, as cost of products sold, operating expenses and capital expenditures fluctuate over time, we may experience short-term, negative impacts to our results of operations and cash flows, but we are undertaking such investments in the belief that they will contribute to long-term growth. •Product and Geographic Mix; Timing. Our financial results, including our gross margins, may fluctuate from period to period due to a variety of factors, including: average selling prices; production volumes; the cost of direct materials; the timing of customer orders or medical procedures and the timing and number of system installations; the number of available selling days in a particular period, which can be impacted by a number of factors such as holidays or days of severe inclement weather in a particular geography; the mix of products sold and the geographic mix of where products are sold; the level of reimbursement available for our products; discounting practices; manufacturing costs; product yields; headcount; and cost-reduction strategies. For example, gross margins on the sale of our products by our direct selling organization inthe United States andWestern Europe are higher than gross margins on the sale of our products by Biotronik in other parts of the world. Moreover, gross margins on the sale of our proprietary products are generally higher than gross margins on the sale of products we source through our strategic partnerships with third parties. Future selling prices and gross margins for our products may fluctuate due to a variety of other factors, including the introduction by others of competing products or the attempted integration by third parties of capabilities similar to ours into their existing products. We aim to mitigate downward pressure on our selling prices by increasing the value proposition offered by our products through innovation. While we have not yet experienced significant seasonality in our results, it is not uncommon in our industry to experience seasonally weaker revenue during the summer months and end-of-year holiday season. •Regulatory Approvals/Clearances and Timing and Efficiency of New Product Introductions. InMay 2021 , we received FDA approval to initial an atrial fibrillation investigational device exemption trial inthe United States with the AcQBlate Force Sensing Ablation System. Additionally, we received CE Mark approval for a broad suite of electrophysiology products that includes the AcQCross family of universal transseptal crossing devices, the next-generation AcQGuide MAX and AcQGuide VUE large bore delivery sheaths and the next-generation AcQMap mapping catheter inMay 2021 . We also received FDA clearance of our AcQCross family of universal transseptal crossing devices inApril 2021 . Further, we received CE Mark inDecember 2020 inEurope for the use of our AcQBlate Force Sensing Ablation System and are seeking FDA Premarket Approval for this system inthe United States , as well as regulatory clearance or approval of our other pipeline products inthe United States and in international markets. Our ability to grow our revenue will depend on our obtaining necessary regulatory approvals or clearances for our products. In addition, as we introduce new products, we expect to build our inventory of components and finished goods in advance of sales, which may cause quarterly fluctuations in our results of operations. •Competition. Our industry is intensely competitive, subject to rapid change and significantly affected by new product introductions and other market activities of industry participants. Our most significant competitors are large, well-capitalized companies. We must continue to successfully compete considering our competitors' existing and future products and related pricing and their resources to successfully market to the physicians who could use our products. Publications of clinical results by us, our competitors and other third parties can also have a significant influence on whether, and the degree to which, we are able to gain market share and increase utilization of our products. 33 -------------------------------------------------------------------------------- Table of Contents •COVID-19 Pandemic. Beginning in earlyMarch 2020 , the COVID-19 pandemic and the measures imposed to contain this pandemic disrupted and are expected to continue to impact our business. For example, onMarch 19, 2020 , theExecutive Department of the State of California issued Executive Order N-33-20, ordering all individuals in theState of California to stay home or at their place of residence except as needed to maintain continuity of operations of the federal critical infrastructure sectors. Our primary operations are located inCarlsbad, California . As a result of such order, the majority of our employees have telecommuted, which may impact certain of our operations over the near term and long term. Moreover, beginning inMarch 2020 , access to hospitals and other customer sites was restricted to essential personnel, which negatively impacted our ability to install our AcQMap consoles and workstations in new accounts and for our sales representatives and mappers to promote the use of our products with physicians. Moreover, hospitals and other therapeutic centers suspended many elective procedures, resulting in a significantly reduced volume of procedures using our products. In addition, all clinical trials inEurope were suspended with follow-ups for clinical trials done via telecom, and we believe enrollment timing in our planned clinical trials will be slowed due to COVID-19 driven delayed access to enrollment sites. As a result of the interruptions to our business due to COVID-19, we enacted a cash conservation program, which included delaying certain non-critical capital expenditures and other projects and implementing a hiring freeze, headcount reductions and temporary compensation reductions (throughAugust 2020 ). The effects of the pandemic began to decrease in lateApril 2020 as electrophysiology labs began reopening and procedure volumes began increasing as compared to COVID-19 related low points inMarch 2020 . Our IPO inAugust 2020 provided resources sufficient to restore compensation reductions to pre-COVID levels, as well as to restart hiring and capital expenditures in support of our growth. Over the past 12-months, we have continued to observe intermittent suspension of many elective procedures associated with the resurgence of COVID-19 in geographies where we sell, market and distribute our products. Access restrictions in certain hospitals have slowed our ability to install our AcQMap consoles and workstations in new accounts and for our sales representatives and mappers to promote the use of our products with physicians. In addition, the impact of COVID-19 has varied by region and by healthcare facility, making our ability to forecast the sustained impact on our business from COVID-19. We continue to see intermittent suspension of many elective procedures in many hospitals, resulting in reduced volume of procedures using our products. The magnitude of the impact of the COVID-19 pandemic on our productivity, results of operations and financial position, and its disruption to our business and our clinical programs and timelines, will depend, in part, on the length and severity of the pandemic, associated restrictions and other measures designed to prevent the spread of COVID-19 and on our ability to conduct business in the ordinary course. Quarantines, shelter-in-place and similar government orders have also impacted, and may continue to impact, our third-party manufacturers and suppliers, and could in turn adversely impact the availability or cost of materials, which could disrupt our supply chain. The markets we serve are likely to see continued impacts from COVID-19 for the foreseeable future, and the emergence of new variants of COVID-19 creates significant uncertainty as to how long COVID-19 will continue to impact our business. In addition, we may experience meaningful variability in our quarterly revenue and gross profit/loss as a result of a number of factors, including, but not limited to: inventory write-offs and write-downs; costs, benefits and timing of new product introductions; the availability and cost of components and raw materials; and fluctuations in foreign currency exchange rates. Additionally, we may experience quarters in which our costs and operating expenses, in particular our research and development expenses, fluctuate depending on the stage and timing of product development. While certain of these factors may present significant opportunities for us, they all pose significant risks and challenges that we must address. See the section titled "Risk Factors" for more information. Components of Results of Operations Revenue Our revenue consists of: (i) revenue from the sale of our disposable products; (ii) systems; and (iii) service/other revenue. Inthe United States and select markets inWestern Europe where we have developed a direct selling presence, we install our AcQMap console and workstation with our customer accounts and then generate revenue from the sale of our disposable products to these accounts for use with our system. We also generate revenue from the direct sale of our AcQMap console into hospital 34 -------------------------------------------------------------------------------- Table of Contents accounts as well as revenue through long-term customer commitments on disposable purchases. In other international markets, we leverage our partnership with Biotronik to install our AcQMap console and workstation with customer accounts and then generate revenue from Biotronik's sale of our disposable products to these accounts for use with our system. Our currently marketed disposable products include access sheaths, transseptal crossing tools, diagnostic and mapping catheters, ablation catheters and accessories. For each of the six months endedJune 30, 2021 and 2020, approximately 51% of our sales were denominated in currencies other thanU.S. dollars, primarily in Euros and the British Pound Sterling. Our revenue is subject to fluctuation based on the foreign currency in which our products are sold. Costs and Operating Expenses Cost of Products Sold Cost of products sold consist primarily of raw materials, direct labor, manufacturing overhead associated with the production and sale of our disposable products and, to a more limited extent, production and depreciation of our AcQMap console and workstation that we install with our customer accounts. We depreciate equipment over a three-year period. Cost of products sold also includes expenditures for warranty, field service, freight, royalties and inventory reserve provisions. We expect cost of products sold to increase in absolute dollars in future periods as our revenue increases. Research and Development Expenses Research and development expenses consist primarily of salaries and employee-related costs (including stock-based compensation) for personnel directly engaged in research and development activities, clinical trial expenses, equipment costs, materials costs, allocated rent and facilities costs and depreciation. Research and development expenses related to possible future products are expensed as incurred. We also accrue and expense costs for activities associated with clinical trials performed by third parties as incurred. All other costs relative to setting up clinical trial sites are expensed as incurred. Clinical trial site costs related to patient enrollment are accrued as patients are entered into the trials. Selling, General and Administrative Expenses Selling, general and administrative expenses consist primarily of salaries and employee-related costs (including stock-based compensation) for personnel in sales, executive, finance and other administrative functions, allocated rent and facilities costs, legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services, marketing costs and insurance costs. We expect our selling, general and administrative expenses to increase in absolute dollars for the foreseeable future, though they may vary from period to period as a percentage of revenue, as we expand our sale force and increase the number of our mappers, increase our professional education and physician training, as well as to support our expanded infrastructure and incur increased costs associated with operating as a public company. These increases are expected to include increased costs for fees to members of our board of directors, increased employee-related expenses, and increased director and officer insurance premiums, audit and legal fees, investor relations fees and expenses for compliance with public company reporting requirements under the Exchange Act and rules implemented by theSEC , as well as stock exchange rules. Other Income (Expense) Change in Fair Value of Warrant Liability We accounted for certain of our freestanding warrants to purchase shares of our common stock and preferred stock as liabilities at fair value. OnAugust 10, 2020 , in connection with the closing of our IPO, the warrants no longer met the definition of a derivative. Accordingly, the fair value of the common and preferred stock warrant liability was reclassified to stockholders' equity in the condensed consolidated balance sheet. Interest Income Interest income consists primarily of interest earned on our cash, cash equivalents and marketable securities. 35 -------------------------------------------------------------------------------- Table of Contents Interest Expense Interest expense primarily relates to our credit agreement withOrbimed Royalty Opportunities II, LP andDeerfield Private Design Fund II, L.P. (the "2019 Credit Agreement"). Results of Operations for the Three Months EndedJune 30, 2021 and 2020 The results of operations presented below should be reviewed in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this quarterly report on Form 10-Q. The following table sets forth our results of operations for the three months endedJune 30, 2021 and 2020: Three Months Ended June 30, Change (dollars in thousands) 2021 2020 $ % (unaudited) Revenue(1)$ 4,709 $ 1,134 $ 3,575 315 % Costs and operating expenses: Costs of products sold(2) 7,492 2,663 4,829 181 % Research and development(2) 9,174 8,176 998 12 % Selling, general and administrative(2) 15,601 9,125 6,476 71 % Change in fair value of contingent consideration (258) 635 (893) (141) % Total costs and operating expenses 32,009 20,599 11,410 55 % Loss from operations (27,300) (19,465) (7,835) 40 % Other income (expense): Change in fair value of warrant liability - (2,453) 2,453 * Interest income 29 95 (66) (69) % Interest expense (1,456) (1,370) (86) 6 % Total other expense, net (1,427) (3,728) 2,301 (62) % Net loss$ (28,727) $ (23,193) $ (5,534) 24 % Other comprehensive income (loss) Unrealized (loss) gain on marketable securities 4 (14) 18 * Foreign currency translation adjustment 92 96 (4) (4) % Comprehensive loss$ (28,631) $ (23,111) $ (5,520) 24 % * - Not meaningful (1)The following table sets forth our revenue for disposables, systems, and service/other for the three months endedJune 30, 2021 and 2020 (in thousands): Three Months Ended June 30, 2021 2020 (unaudited) Acutus Direct Disposables$ 2,816 $ 899 Systems 672 - Service/Other 33 12 Total Acutus direct revenue 3,521 911 Distribution agreements 1,188 223 Total revenue$ 4,709 $ 1,134 36
-------------------------------------------------------------------------------- Table of Contents The following table provides revenue by geographic location for the three months endedJune 30, 2021 and 2020 (in thousands): Three Months Ended June 30, 2021 2020 (unaudited) Acutus Direct United States$ 2,344 $ 544 Europe 1,177 367 Total Acutus direct revenue 3,521 911 Distribution Agreements United States 143 15 Europe 1,045 208 Total revenue through distribution agreements 1,188 223 Total revenue$ 4,709 $ 1,134 (2)The following table sets forth the stock-based compensation expense included in our results of operations for the three months endedJune 30, 2021 and 2020 (in thousands): Three Months Ended June 30, 2021 2020 (unaudited) Cost of products sold $ 223$ 58 Research and development 630 167 Selling, general and administrative 2,923
932
Total stock-based compensation$ 3,776 $
1,157
Revenue
Revenue was$4.7 million for the three months endedJune 30, 2021 , compared to$1.1 million for the three months endedJune 30, 2020 . This increase of$3.6 million , or 315%, was primarily attributable to a$2.2 million increase in purchase volume of our disposable products used in electrophysiology procedures as a result of a higher installed base and a$1.0 million increase in AcQMap System sales. Costs and Operating Expenses Cost of Products Sold Cost of products sold was$7.5 million for the three months endedJune 30, 2021 , compared to$2.7 million for the three months endedJune 30, 2020 . This increase of$4.8 million , or 181%, was primarily driven by an increase of$2.8 million due to the growth in revenue and a$1.8 million increase in depreciation and freight expense to support the higher installed base. Gross margin was negative 59% for the three months endedJune 30, 2021 , and negative 135% for the three months endedJune 30, 2020 . This improvement in gross margin was primarily attributable to increased revenue and higher production volumes. Research and Development Expenses Research and development expenses were$9.2 million for the three months endedJune 30, 2021 , compared to$8.2 million for the three months endedJune 30, 2020 . This increase of$1.0 million , or 12%, was primarily attributable to$1.3 million in increased compensation and related costs from higher headcount, partially offset by$0.4 million in decreased materials and supplies costs related to lower engineering project spending. Selling, General and Administrative Expenses Selling, general and administrative expenses were$15.6 million for the three months endedJune 30, 2021 , compared to$9.1 million for the three months endedJune 30, 2020 . This increase of$6.5 million , or 71%, was primarily attributable to$5.2 million in increased compensation and$1.2 million in increased insurance costs in connection with our operations as a public company, partially offset by$0.5 million in decreased consulting expenses. 37 -------------------------------------------------------------------------------- Table of Contents Change in Fair Value of Contingent Consideration For the three months endedJune 30, 2021 and 2020, we recorded changes in fair value of contingent consideration of a decrease of$0.3 million and an increase of$0.6 million , respectively, for the change in the fair value of the contingent consideration for the acquisition of Rhythm Xience. Other Income (Expense) Other expense, net was$1.4 million for the three months endedJune 30, 2021 , compared to$3.7 million for the three months endedJune 30, 2020 . This decrease of$2.3 million was primarily attributable to a prior year change of$2.5 million in the fair value of the warrant liability. 38 -------------------------------------------------------------------------------- Table of Contents Results of Operations for the Six Months EndedJune 30, 2021 and 2020 The results of operations presented below should be reviewed in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this quarterly report on Form 10-Q. The following table sets forth our results of operations for the six months endedJune 30, 2021 and 2020: Six Months Ended June 30, Change (dollars in thousands) 2021 2020 $ % (unaudited) Revenue(1)$ 8,300 $ 2,717 $ 5,583 205 % Costs and operating expenses: Costs of products sold(2) 14,447 5,857 8,590 147 % Research and development(2) 18,544 16,149 2,395 15 % Selling, general and administrative(2) 31,853 19,360 12,493 65 % Change in fair value of contingent consideration (1,411) (1,584) 173 (11) % Total costs and operating expenses 63,433 39,782 23,651 59 % Loss from operations (55,133) (37,065) (18,068) 49 % Other income (expense): Change in fair value of warrant liability - (1,872) 1,872 * Interest income 69 370 (301) (81) % Interest expense (2,844) (2,724) (120) 4 % Total other expense, net (2,775) (4,226) 1,451 (34) % Net loss$ (57,908) $ (41,291) $ (16,617) 40 % Other comprehensive income (loss) Unrealized (loss) gain on marketable securities 10 (41) 51 * Foreign currency translation adjustment (134) 69 (203) * Comprehensive loss$ (58,032) $ (41,263) $ (16,769) 41 % * - Not meaningful (1)The following table sets forth our revenue for disposables, systems, and service/other for the six months endedJune 30, 2021 and 2020 (in thousands): Six Months Ended June 30, 2021 2020 (unaudited) Acutus Direct Disposables$ 4,599 $ 1,919 Systems 1,285 520 Service/Other 68 18 Total Acutus direct revenue 5,952 2,457 Distribution agreements 2,348 260 Total revenue$ 8,300 $ 2,717 39
-------------------------------------------------------------------------------- Table of Contents The following table provides revenue by geographic location for the six months endedJune 30, 2021 and 2020 (in thousands): Six Months Ended June 30, 2021 2020 (unaudited) Acutus Direct United States$ 3,812 $ 1,313 Europe 2,140 1,144 Total Acutus direct revenue 5,952 2,457 Distribution Agreements United States 256 15 Europe 2,092 245 Total revenue through distribution agreements 2,348 260 Total revenue$ 8,300 $ 2,717 (2)The following table sets forth the stock-based compensation expense included in our results of operations for the six months endedJune 30, 2021 and 2020 (in thousands): Six Months Ended June 30, 2021 2020 (unaudited) Cost of products sold $ 380$ 166 Research and development 1,071 378 Selling, general and administrative 5,235
2,354
Total stock-based compensation$ 6,686 $
2,898
Revenue
Revenue was$8.3 million for the six months endedJune 30, 2021 , compared to$2.7 million for the six months endedJune 30, 2020 . This increase of$5.6 million , or 205%, was primarily attributable to a$3.4 million increase in purchase volume of our disposable products used in electrophysiology procedures as a result of a higher installed base and a$1.6 million increase in AcQMap System sales. Costs and Operating Expenses Cost of Products Sold Cost of products sold was$14.4 million for the six months endedJune 30, 2021 , compared to$5.9 million for the six months endedJune 30, 2020 . This increase of$8.6 million , or 147%, was primarily driven by an increase of$4.6 million due to the growth in revenue, a$3.3 million increase in depreciation and freight expense to support the higher installed base, and a$1.0 million excess and obsolete charge primarily related to our disposable products. Gross margin was negative 74% for the three months endedJune 30, 2021 , and negative 116% for the six months endedJune 30, 2020 . This improvement in gross margin was primarily attributable to increased revenue and higher production volumes, partially offset by the write-off of excess and obsolete inventory in the first quarter of 2021, related to our transition to fully in-house manufacturing and product line transition for our transseptal crossing device portfolio, as well as for slow moving inventory related to certain products impacted by COVID-19 headwinds. Research and Development Expenses Research and development expenses were$18.5 million for the six months endedJune 30, 2021 , compared to$16.1 million for the six months endedJune 30, 2020 . This increase of$2.4 million , or 15%, was primarily attributable to$2.5 million in increased compensation and related costs from higher headcount. Selling, General and Administrative Expenses Selling, general and administrative expenses were$31.9 million for the six months endedJune 30, 2021 , compared to$19.4 million for the six months endedJune 30, 2020 . This increase of$12.5 million , or 65%, was primarily attributable to 40 -------------------------------------------------------------------------------- Table of Contents$10.5 million in increased compensation and$2.3 million in increased insurance costs in connection with our operations as a public company. Change in Fair Value of Contingent Consideration For the six months endedJune 30, 2021 and 2020, we recorded changes in fair value of contingent consideration of$1.4 million and$1.6 million , respectively, for the decrease in the fair value of the contingent consideration for the acquisition of Rhythm Xience. Other Income (Expense) Other expense, net was$2.8 million for the six months endedJune 30, 2021 , compared to$4.2 million for the six months endedJune 30, 2020 . This decrease of$1.5 million was primarily attributable to a prior year change of$1.9 million in the fair value of the warrant liability. Liquidity and Capital Resources 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 ofJune 30, 2021 andDecember 31, 2020 , we had cash and cash equivalents and marketable securities of$81.0 million and$139.8 million , respectively. For the six months endedJune 30, 2021 and the year endedDecember 31, 2020 , our net losses were$57.9 million and$102.0 million , respectively, and our net cash used in operating activities was$49.9 million and$85.2 million , respectively. We had an accumulated deficit of$418.9 million and$361.0 million as ofJune 30, 2021 andDecember 31, 2020 , respectively. Prior to our IPO inAugust 2020 , our operations had been financed primarily by aggregate net proceeds from the sale of our convertible preferred stock and principal of our converted debt of$253.9 million , as well as other indebtedness. OnAugust 10, 2020 , we issued 10,147,058 shares of common stock in our IPO, which included 1,323,529 shares of common stock issued upon the exercise in full by the underwriters of an option to purchase additional shares of our common stock, at the public offering price less underwriting discounts and commissions. The price to the public was$18.00 per share, for net proceeds to us of$166.3 million . InJuly 2021 , we issued 6,325,000 shares of common stock in a public offering, which included 825,000 shares of common stock issued upon the underwriter's exercise in full of an option to purchase additional shares of common stock. The price to the public for each share was$14.00 for approximately$82.7 million in net proceeds to us. Our future liquidity and capital funding requirements will depend on numerous factors, including: •our revenue growth; •our research and development efforts; •our sales and marketing activities; •our success in leveraging our strategic partnerships, including with Biotronik, as well as entrance into any other strategic partnerships or strategic transactions in the future; •our ability to raise additional funds to finance our operations; •the outcome, costs and timing of any clinical trial results for our current or future products; •the emergence and effect of competing or complementary products; •the availability and amount of reimbursement for procedures using our products; •our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights; •our ability to retain our current employees and the need and ability to hire additional management and sales, scientific and medical personnel; •the terms and timing of any collaboration, licensing or other arrangements that we have or may establish; •debt service requirements; •the extent to which we acquire or invest in businesses, products or technologies; and 41 -------------------------------------------------------------------------------- Table of Contents •the impact of the COVID-19 pandemic. Our primary uses of capital are, and we expect will continue to be, investment in our commercial organization and related expenses, clinical research and development services, laboratory and related supplies, legal and other regulatory expenses, general administrative costs and working capital. In addition, we have acquired, and may in the future seek to acquire or invest in, additional businesses, products or technologies that we believe could complement or expand our portfolio, enhance our technical capabilities or otherwise offer growth opportunities. For example, inJune 2019 , we acquired Rhythm Xience, a medical device company specializing in the design and manufacture of transseptal crossing and steerable introducer systems, for$3.0 million in cash. The cash payment did not include the potential$17.0 million in earn out consideration to be paid based on the achievement of certain regulatory milestones and revenue milestones. InFebruary 2020 , we issued to the former owners of Rhythm Xience 119,993 shares of our Series D convertible preferred stock and paid them$2.5 million in the first quarter of 2020 and an additional$2.5 million in the first quarter of 2021 in connection with the regulatory and revenue milestones earned to date. In addition, pursuant to the Biotronik license agreement, we paid Biotronik a$3.0 million upfront fee at the time the agreement was signed, as well as a technology transfer fee consisting of$7.0 million in cash inDecember 2019 and$5.0 million in shares of our Series D convertible preferred stock inFebruary 2020 . We are required to payBiotronik and VascoMed GmbH (the "Biotronik Parties") up to$10.0 million , of which$2.0 million has been paid as ofJune 30, 2021 , upon the achievement of various regulatory and sales-related milestones, as well as unit-based royalties on any sales of force sensing catheters. We will also incur costs as a public company that we have not previously incurred or have previously incurred at lower rates. With the closing of our IPO and secondary offering, our current cash, cash equivalents and marketable securities are sufficient to fund operations for at least the next 12 months. However, we will need to raise additional funds through the issuance of additional debt, equity or both. Until such time, if ever, that we can generate revenue sufficient to achieve profitability, we expect to finance our operations through equity or debt financings, which may not be available to us on the timing needed or on terms that we deem to be favorable. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we are unable to maintain sufficient financial resources, our business, financial condition and results of operations will be materially and adversely affected. We may be required to delay, limit, reduce or terminate our product discovery and development activities or future commercialization efforts. There can be no assurance that we will be able to obtain the needed financing on acceptable terms or at all. Debt Obligations OnMay 20, 2019 , we entered into the 2019 Credit Agreement. The 2019 Credit Agreement provided us with a senior term loan facility in aggregate principal amount of$70.0 million , of which we borrowed$40.0 million upon closing. Of the remaining$30.0 million , none is available for borrowing. The 2019 Credit Agreement bears interest per annum at 7.75% plus LIBOR for such interest period, and the principal amount of term loans outstanding under the 2019 Credit Agreement is due onMay 20, 2024 . The 2019 Credit Agreement can be prepaid but is subject to prepayment penalties. The 2019 Credit Agreement provides for final payment fees of an additional$4.6 million that are due upon prepayment, on the maturity date or upon acceleration. Our obligations under the 2019 Credit Agreement are secured by substantially all of our assets, including our intellectual property, and is guaranteed by our subsidiary. The 2019 Credit Agreement contains customary affirmative and restrictive covenants, including with respect to our ability to enter into fundamental transactions, incur additional indebtedness, grant liens, pay any dividend or make any distributions to our holders, make investments and merge or consolidate with any other person or engage in transactions with our affiliates, but does not include any financial covenants, other than a minimum liquidity requirement. 42 -------------------------------------------------------------------------------- Table of Contents Cash Flows The following table shows a summary of our cash flows for the six months endedJune 30, 2021 and 2020 (in thousands): Six Months Ended June 30, 2021 2020 (unaudited) Net cash used in operating activities$ (49,915) $ (34,761) Net cash provided by investing activities 34,022 52,650 Net cash used in financing activities (2,149) (3,115)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(65) 69
Net change in cash, cash equivalents and restricted cash
Operating Activities During the six months endedJune 30, 2021 , operating activities used$49.9 million of cash, an increase of$15.2 million from the six months endedJune 30, 2020 . This increase was attributable to higher net losses of$16.6 million and unfavorable changes in working capital of$3.7 million , partially offset by an increase in non-cash items of$5.1 million , including an increase in stock-based compensation expense of$3.8 million , an increase in depreciation expense of$1.8 million , an increase in the amortization of premiums on marketable securities of$0.8 million , and a decrease in the fair value of warrant liability of$1.9 million . Investing Activities During the six months endedJune 30, 2021 , investing activities provided$34.0 million of cash, a decrease of$18.6 million from the six months endedJune 30, 2020 . This decrease was attributable to a decrease from the prior year of sales of marketable securities of$12.5 million , an increase in the purchases of marketable securities of$9.1 million , and an increase in purchases of property and equipment of$1.4 million , partially offset by an increase in proceeds from maturities of marketable securities of$4.4 million . Financing Activities During the six months endedJune 30, 2021 , financing activities used$2.1 million of cash, a decrease of$1.0 million from the six months endedJune 30, 2020 . The decrease is primarily related to a prior year payment of deferred offering costs of$0.7 million and increase in proceeds from stock option exercises of$0.4 million . Contractual Obligations and Commitments We enter into agreements in the normal course of business with contract research organizations for clinical trials and with vendors for preclinical trials and other services and products for operating purposes which are cancellable at any time by us, generally upon 30 days prior written notice. Further, the agreement to acquire Rhythm Xience requires us to pay the former owners of Rhythm Xience up to$17.0 million in additional earn out consideration based on the achievement of certain regulatory and revenue milestones. InFebruary 2020 , we issued to the former owners of Rhythm Xience 119,993 shares of our Series D convertible preferred stock valued at$2.2 million and paid them$2.5 million in the first quarter of 2020 and an additional$2.5 million in the first quarter of 2021 in connection with the regulatory and revenue milestones earned to date. In addition, pursuant to the Biotronik license agreement, we issued to Biotronik$5.0 million in shares of our Series D convertible preferred stock inFebruary 2020 , and we are required to pay the Biotronik Parties up to$10.0 million , of which$2.0 million has been paid as ofJune 30, 2021 , upon the achievement of various regulatory and sales-related milestones, as well as unit-based royalties on any sales of force sensing catheters. Off-Balance Sheet Arrangements As ofJune 30, 2021 andDecember 31, 2020 , we did not have, and we do not currently have, any off-balance sheet arrangements, as defined in theSEC rules and regulations. 43 -------------------------------------------------------------------------------- Table of Contents Critical Accounting Policies and Estimates Management's discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue and expenses. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. During the six months endedJune 30, 2021 , there have been no material changes to our critical accounting policies and estimates from those disclosed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our annual report on Form 10-K for the year endedDecember 31, 2020 , as filed with theSEC onMarch 19, 2021 . Our significant accounting policies are described in Note 2 to our condensed consolidated financial statements. Recent Accounting Pronouncements See Note 2 to our condensed consolidated financial statements for a description of recent accounting pronouncements applicable to our condensed consolidated financial statements. Item 3. Quantitative and Qualitative Disclosures about Market Risk As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this item. Item 4. Controls and Procedures Disclosure Controls and Procedures We maintain "disclosure controls and procedures," as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified inSEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. With respect to the quarter endedJune 30, 2021 , under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective. Management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected. 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 quarter endedJune 30, 2021 which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 44
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