APOLLO ENDOSURGERY, INC.
This quarterly report ("Quarterly Report") contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). These statements involve known and unknown risks, uncertainties and other
factors that may cause our actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. In some cases, you can
identify forward-looking statements by terms such as "anticipates," "believes,"
"could," "estimates," "expects," "intends," "may," "plans," "potential,"
"predicts," "projects," "should," "will," "would," and similar expressions
intended to identify forward-looking statements. Forward-looking statements
reflect our current views with respect to future events, are based on
assumptions, and are subject to risks, uncertainties and other important
factors. In particular, statements, whether express or implied, concerning
future operating results or the ability to generate sales, income or cash flow
are forward-looking statements. They involve risks, uncertainties and
assumptions that are beyond our ability to control or predict, including those
discussed in Part II, Item 1A , of this Quarterly Report, such as the
continuing effects of the COVID-19 pandemic on our financial condition and
results of operations. Given these risks, uncertainties and other important
factors, you should not place undue reliance on these forward-looking statements
as predictions of future events. Also, forward-looking statements represent our
estimates and assumptions only as of the date of this Quarterly Report. Except
as required by law, we assume no obligation to update any forward-looking
statements publicly, or to update the reasons actual results could differ
materially from those anticipated in any forward-looking statements, even if new
information becomes available in the future.
The following discussion should be read in conjunction with the condensed
consolidated financial statements and accompanying notes, and our Annual
Report on Form 10-K for the year ended December 31, 2021 filed on February 22,
2022 with the Securities and Exchange Commission ("SEC"). "Apollo", Orbera®,
OverStitch®, X-Tack®, the Apollo logo and other trademarks, service marks and
trade names of Apollo are registered and unregistered marks of Apollo
Endosurgery, Inc. in the United States and other jurisdictions.
Overview
We are a medical technology company primarily focused on the development of
next-generation, less invasive medical devices to advance gastrointestinal
therapeutic endoscopy. Our Endoscopy product portfolio consists of the
OverStitch® Endoscopic Suturing System, the OverStitch SxTM Endoscopic Suturing
System, X-Tack® Endoscopic HeliX Tacking System (collectively "ESS") and ORBERA®
Intragastric Balloon ("IGB"). Our products are used by gastroenterologists and
bariatric surgeons in a variety of settings to treat multiple gastrointestinal
conditions including closure of acute perforations and chronic fistulas; tissue
closure after the removal of abnormal lesions in the esophagus, stomach or colon
(also known as endoscopic submucosal dissections, endoscopic mucosal resections
and endoscopic full thickness resections); treatment of swallowing disorders
(peroral endoscopic myotomy); and esophageal stent fixation and obesity.
We have offices in the United Kingdom and Italy that oversee commercial
activities outside the U.S. ("OUS") and a products manufacturing facility in
Costa Rica . All other activities are managed and operated from facilities in
Austin, Texas .
Since its market introduction in 2008, over 80,000 OverStitch units have been
sold for procedures worldwide. We estimate that approximately 60% of OverStitch
uses in the United States were for advanced gastrointestinal therapies. The
other uses were for endoscopic sleeve gastroplasty ("ESG"), approximately 25%,
and bariatric revision, approximately 15%. Outside the United States , we
estimate that the majority of OverStitch uses, approximately 65%, were for ESG.
The other uses outside the United States were for bariatric revision,
approximately 20%, and for advanced gastrointestinal therapies, approximately
15%.
Recent research suggests that there may be a significant untapped market for
applying the OverStitch SxTM Endoscopic Suturing System, or OverStitch, to
obesity treatments, including endoscopic revisions of bariatric surgeries. In
the aggregate, over 200 published investigator-initiated clinical trials,
involving over 6,500 ESG procedures and conducted by a variety of physicians
around the world, have consistently demonstrated clinically significant excess
body weight loss (in excess of 50%) and low complication rates (0.8%). In
another recently conducted randomized controlled trial, participants we assigned
to either an ESG procedure or an ESG procedure plus taking the weight loss drug
semaglutide. Patients in the ESG-only arm demonstrated an 18.7% total body
weight loss at 12 months and patients undergoing ESG and taking semaglutide had
an average of 25.2% total body weight loss. We believe these results demonstrate
the potential for a meaningfully expanded market opportunity for obesity
treatment given the currently limited use in the United States of OverStitch for
ESG and bariatric revision, as well as the ability for ESG to be performed in
individuals with lower body mass indices, or BMI, thereby making the option
available to more people.
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In July 2022 , we received marketing authorization for the Apollo ESGTM, Apollo
ESG SxTM, Apollo REVISETM and Apollo REVISE SxTM systems through the FDA's De
Novo Classification process. The Apollo ESG and Apollo ESG Sx Systems are
intended to be used by trained gastroenterologists or surgeons to facilitate
weight loss in adults with obesity with Body Mass Index (BMI) between 30 and 50
kg/m2 who have not been able to lose weight or maintain weight loss through more
conservative measures. The Apollo REVISE and Apollo REVISE Sx Systems are
intended to be used by trained gastroenterologists or surgeons that perform
bariatric procedures to facilitate weight loss in adult patients with obesity
with BMI between 30 and 50kg/m2 by enabling transoral outlet reduction (TORe) as
a revision to a previous bariatric procedure. The De Novo was approved largely
based on the MERIT trial, a multi-center, prospective randomized clinical trial
evaluating the safety and effectiveness of ESG compared to a medically monitored
regimen of diet and healthy lifestyle.
We believe the authorization of these new endoscopic systems represents a major
step forward in addressing the global obesity epidemic. Beginning in the third
quarter of 2022, we expect to begin education, marketing and training programs
to expand visibility of the ESG procedures and thereby increase awareness, use
and adoption of our suturing technologies in weight loss procedures in the U.S. Impact of COVID-19 on Our Business
After the COVID-19 pandemic began inMarch 2020 , our business, financial condition, and results of operations were disrupted by the various measures imposed to contain the pandemic, primarily during 2020. Beginning in the latter half of 2020, our sales began to recover primarily as certain public health interventions implemented by various countries to reduce COVID-19 transmission risks were eased and procedures that use our products increased. Demand for our products and our business has generally recovered and been sustained over levels at the beginning of the COVID-19 pandemic in 2020, though there can be no assurance that recovery will continue or that current demand levels will be sustained. In particular, new variants or outbreaks of the virus, including the Omicron and other variants, have caused and may in the future cause health systems and other healthcare providers in our markets to restrict or limit procedures, which have harmed and may continue to harm our sales recovery or growth and result in fluctuation of our product sales. Despite availability of COVID-19 vaccines, the COVID-19 pandemic, including emerging variant strains of the virus, remains active and continues to represent uncertainty concerning our sales outlook and risk to our business operations, including due to reduced demand for or limitations on procedures that use our products and supply chain disruptions. Business challenges and periodic disruption resulting from COVID-19 will likely continue for the duration of the pandemic, which is uncertain. We cannot assure you that our recent recovery in sales will be indicative of future results or that we will not experience future sales or business disruptions due to COVID-19, including variants, which could be significant. See Part II, Item 1A. Risk Factors-Risks Related to Our Business-Our business will be adversely affected by the effects of the recent COVID-19 outbreak .
Financial Operations Overview
Revenues
Our principal source of revenues are sales of our endoscopy products. The majority of our sales come from direct markets where sales are made to the final end customers, typically healthcare providers and institutions. In other markets, we sell our products to distributors who resell our products to end users. Revenues between periods will be impacted by several factors, including new COVID-19 variants or outbreaks, physician procedures and therapy preferences, patient procedures and therapy preferences, buying patterns of distributors, other market trends, the stability of the average sales price we charge or realize on products and changes in foreign exchange rates used to translate foreign currency denominated sales intoU.S. dollars, which have recently come under pressure and have impacted and may continue to impact our reported OUS revenue, and inflationary pressures and macroeconomic uncertainty and their effect on consumer demand for the procedures that use our products.
Other revenue includes amounts recognized for our digital aftercare support program, manufacturing services, and freight charged to customers.
Cost of Sales
Cost of sales for purchased products consists of the actual purchase price from manufacturers plus an allocation of our internal manufacturing overhead cost. Cost of sales for products we manufacture include raw materials, labor, and manufacturing overhead. Raw materials used in our manufacturing activity are generally not subject to substantial commodity price volatility, and most of our manufacturing costs are incurred inU.S. dollars. Cost of sales also include royalties, shipping, excess and obsolete inventory charges, inspection and related costs incurred in making our products available for sale or use. In periods of reduced production volume, unabsorbed manufacturing overhead costs are charged to expense when incurred. Manufacturing overhead as a percentage of revenue between periods can fluctuate as a result of manufacturing rates and the degree to which manufacturing overhead is allocated to production during the period. We expect to continue to improve gross margins as we complete certain identified gross margin improvement projects and improve capacity utilization of our manufacturing facility. 15 --------------------------------------------------------------------------------
Sales and Marketing Expense
Sales and marketing expense primarily consists of salaries, commissions, benefits and other related costs, including stock-based compensation, for personnel employed in sales, marketing and medical education. In addition, our sales and marketing expense includes costs associated with physician training, industry events, advertising and other promotional activities.
General and Administrative Expense
General and administrative expense primarily consists of salaries, benefits and other related costs, including stock-based compensation, for personnel employed in corporate management, finance, legal, compliance, information technology and human resources. General and administrative expense also includes facility cost, insurance, audit fees, legal fees, bad debt expense and costs to develop and maintain our intellectual property portfolio.
Research and Development Expense
Research and development expense includes product development, clinical trial costs, reimbursement project costs, quality and regulatory compliance, consulting services, outside prototyping services, outside research activities, materials and other costs associated with development of our products. Research and development expense also includes salaries, benefits and other related costs, including stock-based compensation, for personnel dedicated to these activities. Research and development expense may fluctuate between periods depending on the activity associated with our various product development and clinical obligations.
Amortization of Intangible Assets
Definite-lived intangible assets primarily consist of customer relationships, product technology, trade names, patents, trademarks and capitalized software. Intangible assets are amortized over the asset's estimated useful life.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures is in conformity withU.S. generally accepted accounting principles and the Company's discussion and analysis of its financial condition and operating results require the Company's management to make judgments, assumptions and estimates that affect the amounts reported in its condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical evidence and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates, and such differences may be material. Note 2, "Significant Accounting Policies" in Part I, Item 1 of this Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8 of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 (the "2021 Form 10-K"), and "Critical Accounting Policies and Estimates" in Part II, Item 7 of the 2021 Form 10-K describe the significant accounting policies and methods used in the preparation of the Company's condensed consolidated financial statements. There have been no material changes to the Company's critical accounting policies and estimates since the 2021 Form 10-K. 16 --------------------------------------------------------------------------------
Results of Operations
Comparison of the Three and Six Months Ended
Three Months Ended Three Months Ended
June 30, 2022 June 30, 2021
Dollars % of Revenues Dollars % of Revenues
Revenues $ 19,307 100.0 % $ 16,610 100.0 %
Cost of sales 8,348 43.2 % 7,487 45.1 %
Gross margin 10,959 56.8 % 9,123 54.9 %
Operating expenses:
Sales and marketing 9,129 47.3 % 6,005 36.2 %
General and administrative 5,039 26.1 % 5,338 32.1 %
Research and development 2,917 15.1 % 2,550 15.4 %
Amortization of intangible assets 452 2.3 % 471 2.8 %
Total operating expenses 17,537 90.8 % 14,364 86.5 %
Loss from operations (6,578) (34.0) % (5,241) (31.6) %
Interest expense, net 1,206 6.2 % 1,334 8.0 %
Gain on forgiveness of PPP loan - - % (2,852) (17.2) %
Other expense (income), net 2,593 13.4 % (775) (4.7) %
Net loss before income taxes (10,377) (53.6) % (2,948) (17.7) %
Income tax expense 49 0.3 % 71 0.4 %
Net loss $ (10,426) (53.9) % $ (3,019) (18.1) %
Six Months Ended Six Months Ended
June 30, 2022 June 30, 2021
Dollars % of Revenues Dollars % of Revenues
Revenues $ 35,969 100.0 % $ 30,467 100.0 %
Cost of sales 15,637 43.5 % 13,837 45.4 %
Gross margin 20,332 56.5 % 16,630 54.6 %
Operating expenses:
Sales and marketing 17,349 48.2 % 10,795 35.4 %
General and administrative 10,270 28.6 % 9,407 30.9 %
Research and development 5,630 15.7 % 4,478 14.7 %
Amortization of intangible assets 908 2.5 % 945 3.1 %
Total operating expenses 34,157 95.0 % 25,625 84.1 %
Loss from operations (13,825) (38.5) % (8,995) (29.5) %
Interest expense, net 2,428 6.8 % 2,686 8.8 %
Gain on forgiveness of PPP loan - - % (2,852) (9.4) %
Other expense (income), net 2,351 6.5 % (1,339) (4.4) %
Net loss before income taxes (18,604) (51.8) % (7,490) (24.5) %
Income tax expense 236 0.7 % 130 0.4 %
Net loss $ (18,840) (52.5) % $ (7,620) (24.9) %
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Revenues
Product sales by product group and geographic market for the periods shown were
as follows:
Three Months Ended Three Months Ended
June 30, 2022 June 30, 2021 % Increase/ (Decrease)
Total Total
U.S. OUS Revenues U.S. OUS Revenues U.S. OUS Total Revenues
ESS $ 8,370 $ 4,671 $ 13,041 $ 6,860 $ 3,764 $ 10,624 22.0 % 24.1 % 22.8 %
IGB 2,237 3,839 6,076 2,094 3,659 5,753 6.8 % 4.9 % 5.6 %
Other 186 4 190 232 1 233 (19.8) % 300.0 % (18.5) %
Total revenues $ 10,793 $ 8,514 $ 19,307 $ 9,186 $ 7,424 $ 16,610 17.5 % 14.7 % 16.2 %
% Total revenues 55.9 % 44.1 % 55.3 % 44.7 %
Six Months Ended Six Months Ended
June 30, 2022 June 30, 2021 % Increase/ (Decrease)
Total Total
U.S. OUS Revenues U.S. OUS Revenues U.S. OUS Total Revenues
ESS $ 15,590 $ 8,182 $ 23,772 $ 12,255 $ 7,008 $ 19,263 27.2 % 16.8 % 23.4 %
IGB 4,301 7,506 11,807 3,564 7,152 10,716 20.7 % 4.9 % 10.2 %
Other 383 7 390 474 14 488 (19.2) % (50.0) % (20.1) %
Total revenues $ 20,274 $ 15,695 $ 35,969 $ 16,293 $ 14,174 $ 30,467 24.4 % 10.7 % 18.1 %
% Total revenues 56.4 % 43.6 % 53.5 % 46.5 %
Total revenues for the three months ended June 30, 2022 were $19.3 million ,
compared to $16.6 million for the three months ended June 30, 2021 , an increase
of 16.2% primarily due to improved global demand and increased utilization for
our ESS products. For the three months ended June 30, 2022 , U.S. ESS sales grew
22.0%, an increase of $1.5 million , primarily due to increased utilization in
our OverStitch product sales and price increases. IGB grew 6.8% in the U.S. due
to continuing demand for this elective procedure. Total OUS sales increased $1.1
million or 14.7%, for the three months ended June 30, 2022 and was primarily
driven by higher demand in our international distributor markets for both ESS
and IGB products, offset in part by $0.6 million in foreign currency translation
impact.
Total revenues for the six months ended June 30, 2022 were $36.0 million ,
compared to $30.5 million for the six months ended June 30, 2021 , an increase of
18.1% due to improved demand for all our products, especially in our U.S. market
where sales increased $4.0 million or 24.4%. For the six months ended June 30,
2022 , U.S. ESS sales grew 27.2%, as we continue to see increased utilization in
our OverStitch product sales, price increases, and higher demand for our X-Tack
product which was launched in the first quarter of 2021. IGB also grew 20.7% in
the U.S. due to higher demand for this elective procedure at the beginning of
2022. Total OUS sales increased $1.5 million or 10.7%, for the six months ended
June 30, 2022 and was primarily driven by higher demand in our international
distributor markets for both ESS and IGB products, offset in part by $0.9
million in foreign currency translation impact.
Direct market product sales accounted for approximately 79.0% of total product
sales for both the three and six months ended
Non-GAAP Product Sales Percentage Change in Constant Currency
To supplement our financial results we are providing a non-GAAP financial
measure, product sales percentage change in constant currency, which removes the
impact of changes in foreign currency exchange rates that affect the
comparability and trend of our product sales. Product sales percentage change in
constant currency is calculated by translating current foreign currency sales
using last year's exchange rate. This supplemental measure of our performance is
not required by, and is not determined in accordance with GAAP.
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Non-GAAP product sales percentage change in constant currency were as follows:
Three Months Ended Six Months Ended
June 30, 2022 June 30, 2022
% Increase/Decrease in Constant Currency % Increase in Constant Currency
Total Total
OUS Revenues OUS Total Revenues OUS Revenues OUS Total Revenues
ESS $ 5,083 $ 13,454 35.0 % 26.6 % $ 8,728 $ 24,318 24.5 % 26.2 %
IGB 4,029 6,265 10.1 % 8.9 % 7,814 12,115 9.3 % 13.1 %
Total revenues $ 9,117 $ 19,909 22.8 % 19.9 % $ 16,549 $ 36,823 16.8 % 20.9 %
We believe the non-GAAP financial measure included herein is helpful in
understanding our current financial performance. We use this supplemental
non-GAAP financial measure internally to understand, manage and evaluate our
business, and make operating decisions. We believe that making non-GAAP
financial information available to investors, in addition to GAAP financial
information, may facilitate more consistent comparisons between our performance
over time with the performance of other companies in the medical device
industry, which may use similar financial measures to supplement their GAAP
financial information. However, our non-GAAP financial measure is not meant to
be considered in isolation or as a substitute for the comparable GAAP metric.
Cost of Sales
Costs of product sales for the periods shown were as follows:
Three Months Ended Three Months Ended
June 30, 2022 June 30, 2021
Dollars % Total Revenues Dollars % Total Revenues
Materials, labor and purchased goods $ 5,698 29.5 % $ 5,127 30.9 %
Overhead 1,566 8.1 % 1,493 9.0 %
Other indirect costs 1,084 5.6 % 867 5.2 %
Total cost of sales $ 8,348 43.2 % $ 7,487 45.1 %
Six Months Ended Six Months Ended
June 30, 2022 June 30, 2021
Dollars % Total Revenues Dollars % Total Revenues
Materials, labor and purchased goods $ 10,557 29.3 % $ 9,507 31.1 %
Overhead 3,076 8.6 % 2,813 9.2 %
Other indirect costs 2,004 5.6 % 1,517 5.1 %
Total cost of sales $ 15,637 43.5 % $ 13,837 45.4 %
Gross Margin
Gross margin as a percentage of revenue was 56.8% and 56.5% for the three and
six months ended June 30, 2022 , respectively, compared to 54.9% and 54.6% for
the same periods in 2021. The increase in gross margin percentage for both the
three and six months ended June 30, 2022 was attributed to margin expansion on
our ESS product sales, primarily from improved overhead efficiencies, the impact
of cost improvement projects in 2021, as well as moderate price increases in the
U.S. This increase was partially offset by impact of foreign currency changes on
revenue and a higher mix of distributor sales outside the U.S. , which have a
lower gross margin profile.
Operating Expenses
Sales and Marketing Expense. Sales and marketing expense increased $3.1 million
and $6.6 million for the three and six months ended June 30, 2022 , respectively,
primarily due to higher compensation, marketing spend, and increased travel in
the second quarter and first half of 2022 compared to the second quarter and
first half of 2021 as we continue to expand our U.S. salesforce headcount and
invest in our marketing campaigns and initiatives. We expect our sales and
marketing expenses to continue to increase in future periods as we stay focused
on investing in our sales channel and marketing programs targeting sales growth
and product utilization.
General and Administrative Expense. General and administrative expense decreased
$0.3 million for the three months ended June 30, 2022 primarily due to higher
non-cash stock-based compensation expense in the three months ended June 30,
2021 related to vesting of performance-based stock partially offset by higher
professional services costs and software spend in the three months ended June
30, 2022 .
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For the six months ended
Research and Development Expense. Research and development expense increased$0.4 million and$1.2 million for the three and six months endedJune 30, 2022 , respectively, primarily due to higher compensation in 2022 compared to the same periods in 2021 due to expansion of our team to address key clinical needs, continued product development, and enhancing capabilities in reimbursement and market access. Amortization of Intangible Assets. Amortization of intangible assets remained unchanged for the three and six months endedJune 30, 2022 when compared to the same periods in 2021. Loss from Operations Loss from operations for the three and six months endedJune 30, 2022 of$6.6 million and$13.8 million , respectively, increased$1.3 million and$4.8 million , respectively, compared to$5.2 million and$9.0 million , respectively, for the same periods in 2021 due to higher operating expenses noted above partially offset by higher revenues in 2022.
Other (Income) Expenses
Interest Expense, net. Net interest expense decreased by$0.1 million and$0.3 million for the three and six months endedJune 30, 2022 , respectively, when compared to the same periods in 2021 due to lower interest expense on our term loan.
Gain on Forgiveness of PPP Loan. The PPP loan was forgiven on
Other Expense (Income), net. Other expense (income), net primarily consists of realized and unrealized foreign exchange losses on short-term intercompany loans denominated inU.S. dollars payable by our foreign subsidiaries. Fluctuations in currency exchange rates resulted in unrealized losses of$2.6 million and$2.2 million for the three and six months endedJune 30, 2022 , respectively, compared to unrealized gains of$0.8 million and$1.4 million for the three and six months endedJune 30, 2021 , respectively. Income tax expense. Income tax expense related to foreign income taxes on income generated in our OUS tax jurisdictions was$0.0 million and$0.2 million for the three and six months endedJune 30, 2022 compared to$0.1 million and$0.1 million in the same periods in 2021.
Liquidity and Capital Resources
We have experienced operating losses since inception and have an accumulated deficit of$316.3 million as ofJune 30, 2022 . To date, we have funded our operating losses and acquisitions through equity offerings, term loans, and the issuance of debt instruments. Our ability to fund future operations and meet debt covenant requirements will depend upon our level of future revenue and operating cash flow and our ability to access future draws on our existing credit facility, or additional funding through either equity offerings, issuances of debt instruments or both. Management believes its existing cash and cash equivalents, additional term loans available upon certain thresholds under the Term Loans and access to financing sources will be sufficient to meet covenant, liquidity and capital requirements for the next twelve months and beyond. Management periodically evaluates our liquidity requirements, alternative uses of capital, capital needs and available resources. Any future cash requirements will depend on many factors including market acceptance of our products, the cost of our research and development activities, the cost and timing of additional regulatory clearance and approvals, the cost and timing of identified gross margin improvement projects, the cost and timing of clinical programs, the ability to maintain covenant compliance with our lending facility, and the cost of sales, marketing, and manufacturing activities. We may be required to seek additional equity or debt financing. As a result of this process, we have in the past, and may in the future, explore alternatives to finance our business plan, including, but not limited to, sales of common stock, preferred stock, convertible securities or debt financings, reduction of planned expenditures, or other sources, although there can be no assurances that such additional funding could be obtained. If we are unable to raise additional capital when desired, our business operating results and financial condition could be adversely affected. There were no material changes to our cash requirements from contractual and other obligations for the six months endedJune 30, 2022 from those disclosed in the 2021 Form 10-K . 20 --------------------------------------------------------------------------------
Cash Flows
The following table provides information regarding our cash flows:
Six Months Ended
2022 2021
Net cash used in operating activities $ (14,763) $ (6,409)
Net cash used in investing activities (1,107) (678)
Net cash (used in)/provided by financing activities (46) 1,050
Effect of exchange rate changes on cash (152) 79
Net change in cash, cash equivalents and restricted cash $ (16,068) $ (5,958)
Operating Activities
Cash used in operating activities of $14.8 million for the six months ended June
30, 2022 was primarily the result of a net loss of $18.8 million offset by
non-cash items of $8.2 million , primarily related to depreciation, amortization,
foreign exchange on intercompany loans, non-cash interest, and stock-based
compensation. Cash used by operating assets and liabilities of $4.1 million
related to higher accounts receivable as a result of the increase in revenue,
increase in raw materials in correlation with the upward trend in sales, offset
by changes in accounts payable and accrued expenses.
Cash used in operating activities of $6.4 million for the six months ended June
30, 2021 was primarily the result of a net loss of $7.6 million offset by
non-cash items of $1.9 million primarily related to gain on forgiveness of PPP
loan, depreciation, amortization, foreign exchange on intercompany loans,
non-cash interest and stock-based compensation. Additionally, cash used by
operating assets and liabilities of $0.7 million related to accounts receivable
due to the increase in revenues offset by changes in accounts payable and
accrued expenses.
Investing Activities
Cash used in investing activities of$1.1 million and$0.7 million for the six months endedJune 30, 2022 and 2021, respectively, were primarily related to equipment purchases and expansion of ourCosta Rica manufacturing facility associated with our product development and gross margin improvement projects, as well as ongoing investments in our intellectual property portfolio.
Financing Activities
Cash used in financing activities for the six months endedJune 30, 2022 was related to shares withheld to satisfy tax obligation in connection with vesting of restricted stock units of$0.4 million which was offset by proceeds received from exercise of stock options of$0.3 million . Cash provided by financing activities of$1.1 million for the six months ended six months endedJune 30, 2021 was for proceeds received from exercise of stock options.
Recent Accounting Pronouncements
See Note 2(c) to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report for a discussion of recently enacted accounting pronouncements.
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