HYPR 10-Q
Hyperfine, Inc. (HYPR)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM
_________________
(Mark One)
EXCHANGE ACT OF 1934
For the quarterly period ended
or
EXCHANGE ACT OF 1934
For the transition period from ___________to_________
Commission File Number:
_________________
(Exact name of registrant as specified in its charter)
_________________
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(State or other jurisdiction of incorporation or organization) |
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(IRS Employer Identification No.)
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(Address of principal executive offices) |
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(Zip Code) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
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Trading Symbol(s) |
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Name of each exchange |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ |
Accelerated filer ☐ |
Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of November 1, 2023, the registrant had
TABLE OF CONTENTS
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Page |
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3 |
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PART I |
5 |
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Item 1. |
5 |
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5 |
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Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) |
6 |
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Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) |
7 |
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8 |
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Notes to Condensed Consolidated Financial Statements (unaudited) |
9 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
21 |
Item 3. |
31 |
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Item 4. |
31 |
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PART II |
32 |
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Item 1. |
32 |
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Item 1A. |
32 |
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Item 2. |
Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities |
32 |
Item 3. |
32 |
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Item 4. |
32 |
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Item 5. |
32 |
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Item 6. |
33 |
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35 |
All brand names or trademarks appearing in this report are the property of their respective holders. Use or display by us of other parties’ trademarks, trade dress, or products in this report is not intended to, and does not, imply a relationship with, or endorsements or sponsorship of, us by the trademark or trade dress owners. Unless the context requires otherwise, references in this report to the “Company,” “we,” “us,” and “our” refer to Hyperfine, Inc. and its wholly-owned subsidiaries, including Hyperfine Operations, Inc., or Legacy Hyperfine, and Liminal Sciences, Inc., or Liminal, as the case may be.
2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that relate to future events or our future financial performance regarding, among other things, the plans, strategies and prospects, both business and financial, of the Company. These statements are based on the beliefs and assumptions of our management team. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events or results of operations, are forward-looking statements. These statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates” or “intends” or similar expressions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
3
These and other risks and uncertainties are described in greater detail under the caption “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, in Item 1A of Part II of this Quarterly Report on Form 10-Q, and in other filings that we make with the Securities and Exchange Commission (the “SEC”). The risks described under the heading “Risk Factors” are not exhaustive. New risk factors emerge from time to time, and it is not possible to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements, which speak only as of the date hereof. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
4
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
HYPERFINE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands, except share and per share amounts)
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September 30, |
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December 31, |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Accounts receivable, less allowance of $ |
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Unbilled receivables |
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Inventory |
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Prepaid expenses and other current assets |
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Due from related parties |
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— |
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Total current assets |
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Property and equipment, net |
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Other long term assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable |
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$ |
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$ |
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Deferred grant funding |
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Deferred revenue |
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Due to related parties |
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— |
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Accrued expenses and other current liabilities |
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Total current liabilities |
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Long term deferred revenue |
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Total liabilities |
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STOCKHOLDERS' EQUITY |
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Class A Common stock, $ par value; |
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Class B Common stock, $ par value; |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Total stockholders' equity |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
HYPERFINE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)
(in thousands, except share and per share amounts)
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Three Months Ended |
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Nine Months Ended |
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2023 |
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2022 |
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2023 |
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2022 |
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Sales |
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Device |
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$ |
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$ |
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$ |
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$ |
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Service |
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Total sales |
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Cost of sales |
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Device |
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Service |
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Total cost of sales |
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Gross margin |
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Operating Expenses: |
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Research and development |
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General and administrative |
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Sales and marketing |
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Total operating expenses |
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Loss from operations |
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( |
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( |
) |
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( |
) |
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( |
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Interest income |
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Other income (expense), net |
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( |
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( |
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( |
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Loss before provision for income taxes |
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( |
) |
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( |
) |
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( |
) |
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( |
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Provision for income taxes |
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Net loss and comprehensive loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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Net loss per common share attributable to common stockholders, basic and diluted |
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$ |
( |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
HYPERFINE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
(in thousands, except share amounts)
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Class A Common Stock |
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Class B Common Stock |
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Additional |
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Accumulated |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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Paid-in Capital |
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Deficit |
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Equity |
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Balance, December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Issuance of restricted stock |
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— |
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— |
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— |
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— |
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— |
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— |
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Exercise of stock options |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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Balance, March 31, 2023 |
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( |
) |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Issuance of restricted stock |
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— |
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— |
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— |
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— |
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— |
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— |
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Exercise of stock options |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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Balance, June 30, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Issuance of restricted stock |
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— |
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— |
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— |
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— |
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— |
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— |
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Exercise of stock options |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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Balance, September 30, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Class A Common Stock |
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Class B Common Stock |
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Additional |
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Accumulated |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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Paid-in Capital |
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Deficit |
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Equity |
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Balance, December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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Balance, March 31, 2022 |
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( |
) |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Issuance of restricted stock |
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— |
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— |
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— |
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— |
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— |
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— |
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Exercise of stock options |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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Balance, June 30, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Issuance of restricted stock |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Balance, September 30, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
7
HYPERFINE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
|
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Nine Months Ended |
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|
2023 |
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2022 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation |
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Stock-based compensation expense |
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Loss on disposal of property and equipment, net |
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— |
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Payments received on net investment in lease |
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Changes in assets and liabilities: |
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Accounts receivable, net |
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( |
) |
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( |
) |
Unbilled receivables |
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( |
) |
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( |
) |
Inventory |
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( |
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Prepaid expenses and other current assets |
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( |
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Due from related parties |
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Prepaid inventory |
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— |
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Other long term assets |
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Accounts payable |
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( |
) |
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Deferred grant funding |
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( |
) |
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( |
) |
Deferred revenue |
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( |
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Due to related parties |
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( |
) |
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Accrued expenses and other current liabilities |
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( |
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Net cash used in operating activities |
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( |
) |
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( |
) |
Cash flows from investing activities: |
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Purchases of property and equipment |
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( |
) |
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( |
) |
Net cash used in investing activities |
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( |
) |
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( |
) |
Cash flows from financing activities: |
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|
||
Proceeds from exercise of stock options |
|
|
|
|
|
|
||
Net cash provided by financing activities |
|
|
|
|
|
|
||
Net decrease in cash and cash equivalents and restricted cash |
|
|
( |
) |
|
|
( |
) |
Cash, cash equivalents and restricted cash, beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash, end of period |
|
|
|
|
|
|
||
Reconciliation of cash, cash equivalents, and restricted cash reported in the balance sheets |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
|
|
|
|
|
||
Restricted cash |
|
|
|
|
|
|
||
Total cash, cash equivalents and restricted cash |
|
$ |
|
|
$ |
|
||
Supplemental disclosure of noncash information: |
|
|
|
|
|
|
||
Noncash acquisition of fixed assets |
|
$ |
|
|
$ |
— |
|
|
Write-off of notes receivable |
|
$ |
— |
|
|
$ |
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
HYPERFINE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(all amounts are in thousands, except share and per share amounts)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Hyperfine, Inc. (together with its subsidiaries, as applicable, “Hyperfine” or the “Company”), formerly known as HealthCor Catalio Acquisition Corp. (“HealthCor”), was incorporated as a Cayman Islands exempted company on November 18, 2020. The Company’s legal name became Hyperfine, Inc. in connection with the closing (the “Closing”) of the business combination with HealthCor (the “Business Combination”) on December 22, 2021 (the “Closing Date”). In connection with the Closing, Hyperfine, Inc., a Delaware corporation (“Legacy Hyperfine”), and Liminal Sciences, Inc., a Delaware corporation (“Liminal”), merged with and into separate wholly owned subsidiaries of HealthCor and became wholly-owned subsidiaries of the Company (the “Mergers”), and changed their names to Hyperfine Operations, Inc. and Liminal Operations, Inc., respectively. Liminal subsequently changed its name to Liminal Sciences, Inc.
The Company is an innovative health technology business with a mission to revolutionize patient care globally through transformational, accessible, clinically relevant ultra-low-field (“ULF”) magnetic resonance (“MR”) diagnostic brain imaging and data solutions. The Company's Swoop® Portable MR Imaging® System (“Swoop® system”) produces high-quality images at a lower magnetic field strength than conventional magnetic resonance imaging (“MRI”) scanners. The Swoop® system is a portable, ULF magnetic resonance imaging device for producing images that display the internal structures of the head where full diagnostic examination is not clinically practical. When interpreted by a trained physician, these images provide information that can be useful in determining a diagnosis. Healthcare professionals can use the Swoop® system to make effective clinical diagnoses and decisions in various care settings where MRI devices have previously been inaccessible. The easy-to-use interface and portable design of the Company's Swoop® system make it accessible anywhere in a hospital, clinic, or patient care site and it does not require any special facilities accommodations to operate safely for patients or the clinical team. Unlike X-ray computed tomography (“CT”) or positron emission tomography (“PET”), ULF MR does not expose patients to harmful ionizing radiation. The Company's Swoop® system received initial 510(k) clearance for brain imaging from the U.S. Food and Drug Administration (“FDA”) in 2020. In February and October 2023, the Company received additional 510(k) clearances from the FDA of the latest updates to its Swoop® system AI-powered software. The combination of these two software updates significantly improved diffusion-weighted imaging (“DWI”), incorporated deep-learning based denoising in the post-processing of DWI images for crisper images, and improved image quality for all Swoop® system sequences. The Swoop® system has received marketing authorization for brain imaging in several countries, including the European Union (CE marking), the United Kingdom (UK Conformity Assessment (“UKCA”)), Canada, Australia and New Zealand. All of the Company’s revenue to date has been generated from sales of the Swoop® system and related services. In December 2022, the Company suspended its Liminal program to develop a device to non-invasively measure key vital signs in the brain. In addition to Legacy Hyperfine and Liminal, the Company has an indirect wholly-owned subsidiary in the United Kingdom that did not have any significant operations during 2022 nor the nine months ended September 30, 2023.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The unaudited accompanying condensed consolidated financial statements include the accounts of the Company and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the accounting disclosure rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. All intercompany transactions and balances have been eliminated.
These condensed consolidated financial statements should be read in conjunction with the financial statements and notes included in the Company’s audited consolidated financial statements as of and for the years ended December 31, 2022 and 2021. The condensed consolidated balance sheet as of December 31, 2022 included herein was derived from the audited consolidated financial statements as of that date.
The accompanying condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods. The results for
9
HYPERFINE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(all amounts are in thousands, except share and per share amounts)
the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for any subsequent quarter, the year ending December 31, 2023, or any other period.
Except as described elsewhere in this Note 2 under the heading “Recently Issued Accounting Pronouncements”, there have been no material changes to the Company’s significant accounting policies as described in the audited consolidated financial statements as of December 31, 2022 and 2021.
Risks and Uncertainties
The Company relies on single source manufacturers and suppliers for the supply of its products. Disruption from these manufacturers or suppliers has and would have a negative impact on the Company’s business, financial position and results of operations in its condensed consolidated financial statements.
Concentrations of Credit Risk
Our cash and cash equivalents are deposited with several major financial institutions. At times, deposits in these institutions exceed the amount of insurance provided on such deposits. The Company reduces this risk by maintaining such deposits with high quality financial institutions that management believes are creditworthy and the Company monitors this credit risk and makes adjustments to the concentrations as necessary. We have not experienced any losses in such accounts and do not believe that we are exposed to any significant risk of loss on these balances.
With respect to accounts receivable, credit risk is mitigated by the Company’s ongoing credit evaluation of its customers’ financial condition. As of September 30, 2023 and December 31, 2022, the Company had
Segment Information
The Company’s Chief Operating Decision Maker (“CODM”) is its Chief Executive Officer (“CEO”). Legacy Hyperfine represents one operating segment. Also, as noted above, in December 2022, the Company suspended its program to develop a device to non-invasively measure key vital signs in the brain, which was the focus of Liminal. Substantially all of the Company’s long-lived assets are located in the United States. Other than $
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions about future events that affect the amounts reported in its condensed consolidated financial statements and accompanying notes. Future events and their effects cannot be determined with certainty. On an ongoing basis, management evaluates these estimates and assumptions. Significant estimates and assumptions included:
10
HYPERFINE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(all amounts are in thousands, except share and per share amounts)
The Company bases these estimates on historical and anticipated results and trends and on various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to future events. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates, and any such differences may be material to the Company’s condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
On September 29, 2022 the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2022-04 “Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations.” The amendments in this update require entities that use supplier finance programs in connection with the purchase of goods and services to disclose the key terms of the programs and information about their obligations outstanding at the end of the reporting period, including a roll-forward of those obligations. The guidance does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. The amendments in this update are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, except for the roll-forward requirement, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The guidance should be applied retrospectively to all periods in which a balance sheet is presented, except for the roll-forward requirement, which should be applied prospectively. The Company's adoption of ASU 2022-04 will have no impact on the Company's condensed consolidated financial statements.
On March 28, 2023, the FASB issued Accounting Standards Update No. 2023-01, Leases (Topic 842): Common Control Arrangements (“ASU 2023-01”). The amendments in ASU 2023-01 improve current U.S. GAAP by clarifying the accounting for leasehold improvements associated with common control leases, thereby reducing differences in practice. Additionally, the amendments are designed to provide investors with financial information that better reflects the economics of those transactions. The new standard is effective for the Company for its fiscal year beginning January 1, 2024, with early adoption permitted. The Company determined that the impact of adopting this guidance will have no impact on the Company’s condensed consolidated financial statements.
Recently Adopted Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The standard also requires that financial assets measured at amortized cost be presented at the net amount anticipated to be collected via an allowance for credit losses that is deducted from the amortized cost basis. Pursuant to ASU 2016-13, the Company is required to measure all expected credit losses based upon historical experience, current conditions, and reasonable (and supportable) forecasts that affect the collectability of the financial asset. The Company
11
HYPERFINE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(all amounts are in thousands, except share and per share amounts)
3. REVENUE RECOGNITION
Disaggregation of Revenue
The Company disaggregates revenue from contracts with customers by product type. The Company believes that these categories aggregate the payor types by nature, amount, timing and uncertainty of its revenue streams.
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
Pattern of Recognition |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Device |
|
Point in time |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Service |
|
Over time |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Contract Balances
Contract balances represent amounts presented in the condensed consolidated balance sheets when either the Company has transferred goods or services to the customer, or the customer has paid consideration to the Company under the contract. These contract balances include trade accounts receivable and deferred revenue. Deferred revenue represents consideration received from customers at the beginning of the subscription period for services that are transferred to the customer over the respective subscription period. The accounts receivable balances represent amounts billed to customers for goods and services where the Company has an unconditional right to payment of the amount billed.
The following table provides information about receivables and deferred revenue from contracts with customers:
|
|
|
|
|
|
|
||
|
|
September 30, |
|
|
December 31, |
|
||
Accounts receivable, net |
|
$ |
|
|
$ |
|
||
Unbilled receivables - current |
|
$ |
|
|
$ |
|
||
Unbilled receivables - non-current(1) |
|
$ |
|
|
$ |
|
||
Deferred revenue |
|
$ |
|
|
$ |
|
||
Long term deferred revenue |
|
$ |
|
|
$ |
|
||
______________________
(1)
The Company recognizes a receivable when it has an unconditional right to payment. Typical payment terms require the Company's customers to pay the Company within
Accounts Receivable, Unbilled Services, and Deferred Revenue
Accounts receivable are recorded at net realizable value. Unbilled receivables arise when performance obligations are satisfied for which revenue has been recognized but the customers have not been billed. Contractual provisions and payment schedules may or may not correspond to the timing of the performance of services under the contract.
Deferred revenue is a contract liability that consists of customer payments received in advance of performance and billings in excess of revenue recognized, net of revenue recognized from the balance at the beginning of the period.
The amount of revenue recognized during the three and nine months ended September 30, 2023 that was included in the deferred revenue balance at the beginning of the period was $
12
HYPERFINE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(all amounts are in thousands, except share and per share amounts)
The amount of revenue recognized during the three and nine months ended September 30, 2022 that was included in the deferred revenue balance at the beginning of the period was $
Timing of Billing and Performance
Difference in the timing of revenue recognition and associated billings and cash collections result in recording of billed accounts receivable, unbilled accounts receivable (including contract assets), and deferred revenue on the consolidated balance sheet. Amounts are billed in accordance with the agreed-upon contractual terms, resulting in recording unbilled accounts receivable in instances where the right to bill is contingent solely on the passage of time, and contract assets in instances where the right to consideration is conditional on something other than the passage of time.
Revenue from Leasing Arrangements
Revenue from leasing arrangements is not subject to the revenue standard for contracts with customers and remains separately accounted for under ASC 842, including leases for the three and nine months ended September 30, 2023 and the year ended December 31, 2022. The Company records operating lease rental revenue as service revenue on a straight-line basis over the lease term. The Company recorded service revenue from lease arrangements of $
Costs of Obtaining or Fulfilling Contracts
The Company incurs incremental costs of obtaining contracts with customers. Incremental costs of obtaining contracts, which include commissions paid as a result of obtaining contracts with customers, are capitalized to the extent that the Company expects to recover such costs. Capitalized costs are amortized in a pattern that is consistent with the Company’s transfer to the customer of the related goods and services. Such costs are recorded in Other long term assets and were $
Transaction price allocated to remaining performance obligations
As of September 30, 2023 and December 31, 2022, the Company had remaining performance obligations amounting to $
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair value.
The Company measures fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The Company utilizes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
Level 1 — Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.
13
HYPERFINE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(all amounts are in thousands, except share and per share amounts)
Level 2 — Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
Level 3 — Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Company has no assets or liabilities valued with Level 3 inputs.
The carrying value of cash and cash equivalents, accounts payable and accrued expenses and other current liabilities approximates their fair values due to the short-term or on demand nature of these instruments.
The Company had
The Company had $
5. INVENTORIES
A summary of inventories is as follows:
|
|
September 30, |
|
|
December 31, |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Finished goods |
|
|
|
|
|
|
||
Total inventories |
|
$ |
|
|
$ |
|
||
Manufacturing overhead costs primarily include management’s best estimate and allocation of the labor costs incurred related to acquiring finished goods from the Company’s contract manufacturer. Labor costs include wages, taxes and benefits for employees involved in warehousing, logistics coordination, material sourcing, and production planning activities.
6. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, are recorded at historical cost and consist of the following:
|
|
September 30, |
|
|
December 31, |
|
||
Laboratory equipment |
|
$ |
|
|
$ |
|
||
Research devices |
|
|
|
|
|
|
||
Sales and marketing devices |
|
|
|
|
|
|
||
Computer equipment |
|
|
|
|
|
|
||
Construction in progress |
|
|
|
|
|
|
||
Tooling |
|
|
|
|
|
|
||
Trade show assets |
|
|
|
|
|
|
||
Leased devices |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less: Accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
$ |
|
|
$ |
|
||
Depreciation expense amounted to $
14
HYPERFINE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(all amounts are in thousands, except share and per share amounts)
Depreciation expense amounted to $
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
|
|
|
|
|
|
|
||
|
|
September 30, |
|
|
December 31, |
|
||
Bonus |
|
$ |
|
|
$ |
|
||
Contracted services |
|
|
|
|
|
|
||
Legal fees |
|
|
|
|
|
|
||
Payroll and related benefits |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total accrued expenses and other current liabilities |
|
$ |
|
|
$ |
|
||
8. EQUITY INCENTIVE PLAN
The Company's 2021 Equity Incentive Plan (the “Hyperfine Plan”) is administered by the Company's board of directors and its compensation committee, which may grant restricted stock units (“RSUs”) and options to purchase shares either as incentive stock options or non-qualified stock options, and other stock-based awards. The option grants are subject to certain terms and conditions, option periods and conditions, exercise rights and privileges as set forth in the Hyperfine Plan.
Stock option activity
The following table summarizes the changes in the Company’s outstanding stock options for the three and nine months ended September 30, 2023:
|
|
Number of |
|
|
Outstanding at January 1, 2023 |
|
|
|
|
Granted (1) (2) (3) (4) |
|
|
|
|
Exercised |
|
|
( |
) |
Forfeited / Cancelled / Expired (5) |
|
|
( |
) |
Outstanding at September 30, 2023 |
|
|
|
|
_____________________________________________
15
HYPERFINE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(all amounts are in thousands, except share and per share amounts)
In general, employee awards will vest based on continued service which is generally over
Restricted stock unit activity
The following table summarizes the changes in the Company’s outstanding RSUs for the nine months ended September 30, 2023:
|
|
Number of |
|
|
Outstanding at January 1, 2023 |
|
|
|
|
Granted |
|
|
|
|
Vested |
|
|
( |
) |
Forfeited |
|
|
( |
) |
Outstanding at September 30, 2023 |
|
|
|
|
The following table presents details of stock-based compensation expenses by functional line item noted within the Company's operating expenses:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Cost of sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sales and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||
9. NET LOSS PER SHARE
Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock of the Company outstanding during the period. Diluted net loss per share is computed by giving effect to all common equivalent shares of the Company, including outstanding stock options, RSUs and Earn-Out Shares (defined below), to the extent dilutive. Basic and diluted net loss per share was the same for each period presented as the inclusion of all common equivalent shares of the Company outstanding would have been anti-dilutive.
16
HYPERFINE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(all amounts are in thousands, except share and per share amounts)
The following table presents the calculation of basic and diluted net loss per share for the Company’s common stock:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net Loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Numerator for Basic and Dilutive EPS – Loss available to common stockholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator for Basic and Dilutive EPS - Weighted-average common stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic and dilutive net loss per share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Since the Company was in a net loss position for all periods presented, net loss per share attributable to Class A and Class B common stockholders was the same on a basic and diluted basis, as the inclusion of all common equivalent shares outstanding would have been anti-dilutive.
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Outstanding options to purchase common stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Outstanding RSUs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Earn-Out Shares (1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total anti-dilutive common equivalent shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
_________________________
(1) The Company will issue to holders of Legacy Hyperfine and Liminal securities as of immediately prior to the effective time of the Mergers, in accordance with their pro rata share, up to
10. INCOME TAXES
The Company accounts for income taxes under ASC 740, “Income Taxes” (“ASC 740”). ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statement and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.
Income taxes for the three and nine months ended September 30, 2023 and 2022 are recorded at the Company’s estimated annual effective income tax rate, subject to adjustments for discrete events, if they occur. The Company’s estimated annual effective tax rate was
17
HYPERFINE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(all amounts are in thousands, except share and per share amounts)
A valuation allowance is required when it is more likely than not that some portion or all of the Company’s deferred tax assets will not be realized. The realization of deferred tax assets depends on the generation of sufficient future taxable income during the period in which the Company’s related temporary differences become deductible. The Company has recorded a full valuation allowance against its net deferred tax assets as of September 30, 2023 and 2022 since management believes that based on the earnings history of the Company, it is more likely than not that the benefits of these assets will not be realized.
11. RELATED PARTY TRANSACTIONS
The Company utilizes and subleases office and lab space in Connecticut which is being leased from an unrelated landlord by 4Catalyzer Corporation (“4C”), which is owned by a related party. The Company pays rent to 4C on a month-to-month basis. A total of approximately $
In January 2018, the Company entered into a Promissory Note (the “Note”) with one of its employees (the “Borrower”) in the amount of $
Legacy Hyperfine and Liminal each entered into a Master Services Agreement with 4C effective as of July 7, 2021 pursuant to which Legacy Hyperfine and Liminal may engage 4C to provide services such as general administration, facilities, information technology, financing, legal, human resources and other services, through future statements of work and under terms and conditions to be determined by the parties with respect to any services to be provided.
The Company incurred and recorded expenses from 4C of $
Legacy Hyperfine and Liminal entered into Technology and Services Exchange Agreements (each, a “TSEA” and collectively, the “TSEA”) with other participant companies controlled by the Rothbergs. A TSEA by and among Butterfly Network, Inc., AI Therapeutics, Inc., Quantum-Si Incorporated, 4Bionics, Tesseract Health, Inc., Detect, Inc. (f/k/a Homodeus Inc.), Legacy Hyperfine and Liminal was signed in November 2020; a TSEA by and among Quantum-Si Incorporated, AI Therapeutics, Inc., 4Bionics, Tesseract Health, Inc., Detect, Inc., Legacy Hyperfine and Liminal was signed in February 2021 (and which Protein Evolution, Inc. joined in August 2021); and a TSEA by and among Legacy Hyperfine, Liminal, AI Therapeutics, Inc., Tesseract Health, Inc. and Detect, Inc. was signed in July 2021 and became effective upon the Closing. Under the TSEA, Legacy Hyperfine, Liminal and other participant companies may, in their discretion, permit the use of non-core technologies, which include any technologies, information or equipment owned or otherwise controlled by the participant company that are not specifically related to the core business area of the participant, such as software, hardware, electronics, fabrication and supplier information, vendor lists and contractor lists, by other participant companies. There were
18
HYPERFINE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(all amounts are in thousands, except share and per share amounts)
12. COMMITMENTS AND CONTINGENCIES
Commitments
The Company sponsors a 401(k) defined contribution plan covering all eligible U.S. employees. Contributions to the 401(k) plan are discretionary. The Company did
During 2020, the Company was awarded a $
Purchase Commitments
The Company’s purchase commitments and obligations include all open purchase orders and contractual obligations in the ordinary course of business, including commitments with contract manufacturers and suppliers, for which the Company has not received the goods or services. A majority of these purchase obligations are due within a year. Although open purchase orders are considered enforceable and legally binding, the terms generally allow the Company the option to cancel, reschedule, and adjust its requirements based on the Company’s business needs prior to the delivery of goods or performance of services.
Operating Leases
On March 31, 2023, the Company entered into a lease agreement for approximately
Contingencies
The Company is, from time to time, a party to litigation that arises in the normal course of its business operations. The Company is not presently a party to any litigation for which it believes a loss is probable requiring an amount to be accrued or a possible loss contingency requiring disclosure.
19
HYPERFINE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(all amounts are in thousands, except share and per share amounts)
The Company has indemnification obligations under some agreements that the Company enters into with other parties in the ordinary course of business, including business partners, investors, contractors, and the Company’s officers, directors and certain employees. The Company has agreed to indemnify and defend the indemnified party against claims and related losses suffered or incurred by the indemnified party from actual or threatened third-party claims because of the Company’s activities or non-compliance with certain representations and warranties made by the Company. It is not possible to determine the maximum potential loss under these indemnification provisions due to the Company’s limited history of prior indemnification claims and the unique facts and circumstances involved in any particular case. The Company has
The Company agreed to pay $
13. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date the financial statements were issued and has determined that there were no subsequent events required to be disclosed.
20
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our condensed consolidated results of operations and financial condition. The discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto contained in this Quarterly Report on Form 10-Q and the consolidated financial statements and notes thereto for the year ended December 31, 2022 contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 22, 2023. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” sections of our Annual Report on Form 10-K for the year ended December 31, 2022, and of this Quarterly Report on Form 10-Q. Actual results may differ materially from those contained in any forward-looking statements. Unless the context otherwise requires, references to “we”, “us”, “our”, and “the Company” are intended to mean the business and operations of Hyperfine, Inc. and its consolidated subsidiaries. The unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2023 and 2022, respectively, present the financial position and results of operations of Hyperfine, Inc. and its wholly owned subsidiaries.
Overview
We are an innovative health technology business with a mission to revolutionize patient care globally through transformational, accessible, clinically relevant ultra-low-field (“ULF”) magnetic resonance (“MR”) diagnostic brain imaging and data solutions. Our Swoop® Portable MR Imaging® System (“Swoop® system”) produces high-quality images at a lower magnetic field strength than conventional magnetic resonance imaging (“MRI”) scanners. The Swoop® system is a portable, ULF magnetic resonance imaging device for producing images that display the internal structures of the head where full diagnostic examination is not clinically practical. When interpreted by a trained physician, these images provide information that can be useful in determining a diagnosis. Healthcare professionals can use the Swoop® system to make effective clinical diagnoses and decisions in various care settings where MRI devices have previously been inaccessible. The easy-to-use interface and portable design of our Swoop® system make it accessible anywhere in a hospital, clinic, or patient care site and it does not require any special facilities accommodations to operate safely for patients or the clinical team. Unlike X-ray computed tomography (“CT”) or positron emission tomography (“PET”), ULF MR does not expose patients to harmful ionizing radiation.
The demand for MR imaging has been increasing due to the aging population and the rising prevalence of neurological,neurodegenerative, and cardiovascular conditions. Healthcare professionals and insurers recognize imaging as an effective, non-invasive diagnostic tool for evaluation and ongoing monitoring. The Swoop® system is the next generation brain imaging device designed to increase access to MRI in a cost-effective manner and expand the current $35 billion imaging market.
Despite its advantages, many healthcare institutions worldwide lack the facilities, qualified operators, and capital necessary to acquire and maintain expensive conventional MRI devices. The Swoop® system, the world’s first U.S. Food and Drug Administration (“FDA”)-cleared, portable, ULF, magnetic resonance brain imaging system capable of providing imaging at multiple sites of care, can inform the timely diagnosis and treatment of acute conditions inside and outside the hospital. We designed the Swoop® system to address the limitations of current imaging technologies and make MR imaging accessible nearly anytime and anywhere in a professional healthcare setting. We believe the adoption of the Swoop® system by healthcare professionals has clinical and economic benefits across healthcare communities in both high and low resource settings. Following the COVID-19 pandemic, we have observed an accelerated pace in the migration of care from the traditional hospital setting to less resource-intensive care facilities such as ambulatory surgery centers (“ASC”), community clinics, and other community based locations where technologies like the Swoop® system can offer high clinical and cost-effective value to clinicians, their patients, and payors.
The Swoop® system is AI-powered and integrates deep learning, a form of AI, for the reconstruction and denoising of T1, T2, and fluid-attenuated inversion recovery (“FLAIR”) sequences. The Swoop® system also incorporates deep learning denoising in the diffusion-weighted imaging (“DWI”) sequences for image post-processing. The integration of deep learning does not require any additional steps from the user. As a result, deep learning enhances the image quality and, consequently, the diagnostic value of images generated at ULF. The algorithms are designed to improve the image quality of our scan output, while reducing the impact of scan artifacts. The images created with these algorithms were validated by expert radiologists. As we move forward, we are continuously investing in improving our AI-powered image quality, leveraging each imaging-focused software release to further improve the Swoop® System performance.
21
Legacy Hyperfine received initial 510(k) clearance for brain imaging from the FDA in 2020 and eight subsequent clearances from FDA after the initial clearance. We have received our most recent clearance from the FDA in October 2023 for the latest update of our Swoop® system software. This updated software expanded the Swoop® system’s AI denoising capabilities by incorporating deep learning denoising in the DWI sequence. The Swoop® system has also received marketing authorization for brain imaging in several countries, including the European Union (CE marking), the United Kingdom (UKCA), Canada, Australia and New Zealand.
In December 2022, we suspended the development of our brain sensing platform which was the focus of Liminal and was in the early stages of development to non-invasively measure key vital signs in the brain. Also, in December 2022, we announced an organizational restructuring designed to decrease our costs and create a more streamlined organization to support our business. As a result, we terminated approximately 13% of our global workforce including, among others, the employees of our Liminal subsidiary. In connection with the restructuring, we incurred $1.0 million of costs consisting primarily of cash severance costs, other severance benefits, fixed asset impairment costs and other related restructuring costs. We completed the restructuring as of the first quarter of 2023.
Key Performance Metrics
We review the key performance measures discussed below to evaluate the business and measure performance, identify trends, formulate plans and make strategic decisions.
Installed Base
The Swoop® system total installed base consists of three components, discussed in further detail below: Commercial system units (which make up total revenue), grant fulfillment units, and research units. The Swoop® system total installed base (or total installed units) is the number of Swoop® system devices sold to or deployed to hospitals, other healthcare providers, and research institutions. We view the total installed base as a key metric of the growth of our business and is measured from period over period. As of September 30, 2023, we had a total of 133 Swoop® systems deployed, including 21 research units which are deployed, at no cost to the institutions, to validate and expand clinical use cases.
Presented below is a breakout of the total Swoop® systems installed units as of September 30, 2023 and 2022:
|
|
TOTAL INSTALLED UNITS |
|
|||||
|
|
As of September 30, |
|
|
As of September 30, |
|
||
Commercial system units |
|
|
91 |
|
|
|
57 |
|
Grant fulfillment units |
|
|
21 |
|
|
|
20 |
|
|
|
|
112 |
|
|
|
77 |
|
Research units |
|
|
21 |
|
|
|
23 |
|
Total Installed Units |
|
|
133 |
|
|
|
100 |
|
Commercial system units reflect device sales and subscription sales through commercial agreements (commercial sales) or through research transfer agreements ("RTA") sales. Commercial sales of Swoop® system units are made to hospitals and other healthcare providers for commercial use purposes and RTA sales represent the sale of Swoop® system units for research use purposes. Our device revenue for the three and nine months ended September 30, 2023 and 2022 is derived from commercial sales and RTA sales.
Grant fulfillment units consist of shipments of Swoop® system units to hospitals and other clinical facilities designated by the Bill & Melinda Gates Foundation (the “BMGF”). The corresponding funding for these installations from the BMGF is recorded as a reduction in the research and development expenses when realized during the period.
22
Research units represent installed units, at no cost to the institutions, to expand clinical use cases, and throughout the research study we have access to research results and data. The research units are recorded as a fixed asset with the related depreciation recorded as research and development expense over the life of the research unit. During the nine months ended September 30, 2023, four research units were decommissioned and returned to the Company due to the completion of the underlying research.
Factors Affecting Results of Operations
The following factors have been important to our business and we expect them to impact our results of operations and financial condition in future periods:
Technical innovation
We have developed our Swoop® system through extensive research and development activities. Moreover, our team is dedicated to clinical support programs designed to integrate the Swoop® system into an array of diverse healthcare environments and applications. We believe that, from our commercial and clinical experience, we are gaining invaluable insights into the Swoop® system’s utility. We believe these learnings will enable us to further improve our product and develop new services and tools in the future. We are continuously improving our image quality and imaging capabilities. Building upon this foundation and our expertise in ULF brain imaging, we plan to develop new imaging applications, broadening the range of clinical uses for our technology. Additionally, we are leveraging our strengths in AI and cloud technology to explore the Swoop® system’s role as a brain imaging clinical decision support platform. While these technical innovations may increase our research and development expenses, we expect them to have a positive impact on our results of operations and profitability in the future.
Commercialization efforts of the Swoop® system
While our results have included revenue from outside the United States, our primary commercial focus is on the United States. Legacy Hyperfine received initial 510(k) clearance from the FDA in 2020. We are focused on building relationships and executing contracts with U.S. hospital systems. We are building a direct sales and field support organization in the United States and have recently made changes within our sales and clinical support teams who are working in strong collaboration to increase adoption, support successful implementations and support routine use at customer sites.
Expand sales in international markets
The countries in which we have begun commercializing our Swoop® system include Canada, Australia, New Zealand and Pakistan. We obtained a Medical Device License issued by Health Canada, UKCA certification in the United Kingdom, CE marking in the EU and regulatory authorization in Australia and New Zealand.
While we will maintain our commercial focus in the United States in 2023 and 2024, our commitment to the vision of providing affordable and accessible imaging that enables earlier detection and timely management of health conditions worldwide is currently made possible by grant funding from the BMGF. Through our engagement with the BMGF, we have deployed and continue to deploy the Swoop® system in low-middle income settings without readily-accessible MRI technology. The multiple grants provided by our research partnership with the BMGF, which commenced funding in the spring of 2020, support the deployment of 25 Swoop® system and accessories to investigators. As of September 30, 2023, 21 Swoop® system units were provisioned and delivered to the BMGF and the majority of the milestones for service deliverables were also met. The ongoing investigation is designed to provide data to validate the potential use of the Swoop® system in measuring the impact of maternal anemia, malnutrition, infection, and birth-related injury. In May 2023, we were awarded an additional grant of $3.4 million grant from the BMGF to continue to develop a scalable approach to measuring neurodevelopment via ULF brain imaging in neonates, infants, and young children in low-to-middle income countries.
23
Results of Operations
The following is a discussion of our results of operations for the three and nine months ended September 30, 2023 and 2022. Our accounting policies are described under "Summary of Significant Accounting Policies" in Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
|
|
Three Months Ended |
|
|
Change |
|
|
Nine Months Ended |
|
|
Change |
|
||||||||||||
($ Amounts in thousands) |
|
2023 |
|
|
2022 |
|
|
% |
|
|
2023 |
|
|
2022 |
|
|
% |
|
||||||
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Device |
|
$ |
1,728 |
|
|
$ |
1,945 |
|
|
|
(11.2 |
)% |
|
$ |
6,670 |
|
|
$ |
4,305 |
|
|
|
54.9 |
% |
Service |
|
|
602 |
|
|
|
403 |
|
|
|
49.4 |
% |
|
|
1,676 |
|
|
|
1,085 |
|
|
|
54.5 |
% |
Total sales |
|
|
2,330 |
|
|
|
2,348 |
|
|
|
(0.8 |
)% |
|
$ |
8,346 |
|
|
$ |
5,390 |
|
|
|
54.8 |
% |
Cost of Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Device |
|
|
835 |
|
|
|
1,215 |
|
|
|
(31.3 |
)% |
|
$ |
3,321 |
|
|
$ |
3,511 |
|
|
|
(5.4 |
)% |
Service |
|
|
371 |
|
|
|
445 |
|
|
|
(16.6 |
)% |
|
|
1,302 |
|
|
|
1,272 |
|
|
|
2.36 |
% |
Cost of sales |
|
|
1,206 |
|
|
|
1,660 |
|
|
|
(27.3 |
)% |
|
$ |
4,623 |
|
|
$ |
4,783 |
|
|
|
(3.3 |
)% |
Gross margin |
|
|
1,124 |
|
|
|
688 |
|
|
|
63.37 |
% |
|
|
3,723 |
|
|
|
607 |
|
|
|
513.34 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Research and development |
|
|
5,739 |
|
|
|
7,338 |
|
|
|
(21.8 |
)% |
|
$ |
16,531 |
|
|
$ |
22,937 |
|
|
|
(27.9 |
)% |
General and administrative |
|
|
4,615 |
|
|
|
3,198 |
|
|
|
44.3 |
% |
|
|
16,103 |
|
|
|
26,570 |
|
|
|
(39.4 |
)% |
Sales and marketing |
|
|
2,529 |
|
|
|
3,434 |
|
|
|
(26.4 |
)% |
|
|
7,575 |
|
|
|
11,345 |
|
|
|
(33.2 |
)% |
Total operating expenses |
|
|
12,883 |
|
|
|
13,970 |
|
|
|
(7.8 |
)% |
|
|
40,209 |
|
|
|
60,852 |
|
|
|
(33.9 |
)% |
Loss from operations |
|
|
(11,759 |
) |
|
|
(13,282 |
) |
|
|
(11.5 |
)% |
|
$ |
(36,486 |
) |
|
$ |
(60,245 |
) |
|
|
(39.4 |
)% |
Interest income |
|
|
1,021 |
|
|
|
170 |
|
|
|
500.59 |
% |
|
$ |
2,920 |
|
|
$ |
203 |
|
|
|
1,338.42 |
% |
Other expense, net |
|
|
(19 |
) |
|
|
(59 |
) |
|
|
(67.8 |
)% |
|
|
12 |
|
|
|
(63 |
) |
|
|
(119.0 |
)% |
Loss before provision for income taxes |
|
|
(10,757 |
) |
|
|
(13,171 |
) |
|
|
(18.3 |
)% |
|
$ |
(33,554 |
) |
|
$ |
(60,105 |
) |
|
|
(44.2 |
)% |
Provision for income taxes |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Net loss and comprehensive loss |
|
$ |
(10,757 |
) |
|
$ |
(13,171 |
) |
|
|
(18.3 |
)% |
|
$ |
(33,554 |
) |
|
$ |
(60,105 |
) |
|
|
(44.2 |
)% |
Comparison of the Three and Nine Months Ended September 30, 2023 and 2022 ($ Amounts shown in tables in thousands)
Sales
|
|
Three Months Ended |
|
|
Change |
|
|
Nine Months Ended |
|
|
Change |
|
||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
Amount |
|
|
% |
|
|
2023 |
|
|
2022 |
|
|
Amount |
|
|
% |
|
||||||||
Device |
|
$ |
1,728 |
|
|
$ |
1,945 |
|
|
$ |
(217 |
) |
|
|
(11.2 |
)% |
|
$ |
6,670 |
|
|
$ |
4,305 |
|
|
$ |
2,365 |
|
|
|
54.9 |
% |
Service |
|
|
602 |
|
|
|
403 |
|
|
|
199 |
|
|
|
49.4 |
% |
|
|
1,676 |
|
|
|
1,085 |
|
|
|
591 |
|
|
|
54.5 |
% |
Total sales |
|
$ |
2,330 |
|
|
$ |
2,348 |
|
|
$ |
(18 |
) |
|
|
(0.8 |
)% |
|
$ |
8,346 |
|
|
$ |
5,390 |
|
|
$ |
2,956 |
|
|
|
54.8 |
% |
Device sales decreased by $0.2 million, or 11.2%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022. This decrease was driven primarily by a decrease in the volume of device sales, partially offset by an increase in the sales price of the device.
Service sales increased by $0.2 million, or 49.4%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022. This increase was driven by an increase in the volume of commercial system units installed as generally all commercial systems installations generate recurring service revenue. Service sales revenue is generally recognized over time as we are providing the customer with ongoing access to our resources and software upgrades throughout the subscription period. This type of revenue is recurring in nature and we expect will continue to grow as more devices are sold.
Device sales increased by $2.4 million, or 54.9%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. This increase was driven by an increase in the sales price of the device.
24
Service sales increased by $0.6 million, or 54.5%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. This increase was driven by an increase in commercial system units installed.
Cost of sales
|
|
Three Months Ended |
|
|
Change |
|
|
Nine Months Ended |
|
|
Change |
|
||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
Amount |
|
|
% |
|
|
2023 |
|
|
2022 |
|
|
Amount |
|
|
% |
|
||||||||
Device |
|
$ |
835 |
|
|
$ |
1,215 |
|
|
$ |
(380 |
) |
|
|
(31.3 |
)% |
|
$ |
3,321 |
|
|
$ |
3,511 |
|
|
$ |
(190 |
) |
|
|
(5.4 |
)% |
Service |
|
|
371 |
|
|
|
445 |
|
|
|
(74 |
) |
|
|
(16.6 |
)% |
|
|
1,302 |
|
|
|
1,272 |
|
|
|
30 |
|
|
|
2.4 |
% |
Total cost of sales |
|
$ |
1,206 |
|
|
$ |
1,660 |
|
|
$ |
(454 |
) |
|
|
(27.3 |
)% |
|
$ |
4,623 |
|
|
$ |
4,783 |
|
|
$ |
(160 |
) |
|
|
(3.3 |
)% |
Cost of device sales decreased by $0.4 million, or 31.3%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022. This decrease was driven by a decrease in volume of products sold.
Cost of service sales decreased by $0.1 million, or 16.6%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022. This decrease was driven primarily by a decrease in personnel and related costs.
Cost of device sales decreased by $0.2 million, or 5.4%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. This decrease was driven primarily by a decrease in personnel and related costs.
Cost of service sales slightly increased by $30.0 thousand, or 2.4%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. This increase is related to increase in personnel and related costs.
Research and development
|
|
Three Months Ended |
|
|
Change |
|
|
Nine Months Ended |
|
|
Change |
|
||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
Amount |
|
|
% |
|
|
2023 |
|
|
2022 |
|
|
Amount |
|
|
% |
|
||||||||
Research and development |
|
$ |
5,739 |
|
|
$ |
7,338 |
|
|
$ |
(1,599 |
) |
|
|
(21.8 |
)% |
|
$ |
16,531 |
|
|
$ |
22,937 |
|
|
$ |
(6,406 |
) |
|
|
(27.9 |
)% |
Research and development expenses decreased by $1.6 million, or 21.8%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022. This decrease was driven primarily by a decrease in personnel related costs of $1.2 million as a result of decreased headcount and a decrease in consulting costs of $0.4 million.
Research and development expenses decreased by $6.4 million, or 27.9%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. This decrease was driven primarily by a decrease in personnel related costs of $5.9 million as a result of decreased headcount and a decrease in consulting costs of $1.6 million partially offset by $1.2 million of lower grant fulfilments recorded as credits to research and development expenses.
General and administrative
|
|
Three Months Ended |
|
|
Change |
|
|
Nine Months Ended |
|
|
Change |
|
||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
Amount |
|
|
% |
|
|
2023 |
|
|
2022 |
|
|
Amount |
|
|
% |
|
||||||||
General and administrative |
|
$ |
4,615 |
|
|
$ |
3,198 |
|
|
$ |
1,417 |
|
|
|
44.3 |
% |
|
$ |
16,103 |
|
|
$ |
26,570 |
|
|
$ |
(10,467 |
) |
|
|
(39.4 |
)% |
25
General and administrative expenses increased by $1.4 million, or 44.3%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022. This increase was driven primarily by an increase in stock-based compensation expenses of $3.6 million due to stock-based compensation expenses of $0.8 million in the three months ended September 30, 2023 as compared to a net credit of $2.8 million in the three months ended September 30, 2022 as a result of a credit to stock-based compensation expense for the previously recognized expense of $4.5 million related to forfeited awards of our former Chief Executive Officer (“CEO”), partially offset by a decrease in accounting, auditing and SEC expenses of $0.8 million, a decrease in personnel related costs of $0.4 million, a decrease in insurance expenses of $0.3 million, a decrease in legal expenses of $0.3 million, and a decrease in recruitment expenses of $0.3 million.
General and administrative expenses decreased by $10.5 million, or 39.4%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. This decrease was driven primarily by a decrease in personnel related costs of $5.9 million of which $4.2 million pertains to stock-based compensation costs, a decrease in accounting, auditing and SEC expenses of $1.6 million, a decrease in insurance expenses of $1.0 million, a decrease in legal expenses and patent fees of $0.8 million, a decrease in software costs of $0.5 million, a decrease in recruitment expenses of $0.3 million, a decrease in consulting cost of $0.2 million, and a decrease in allowance for credit losses of $0.2 million.
Sales and marketing
|
|
Three Months Ended |
|
|
Change |
|
|
Nine Months Ended |
|
|
Change |
|
||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
Amount |
|
|
% |
|
|
2023 |
|
|
2022 |
|
|
Amount |
|
|
% |
|
||||||||
Sales and marketing |
|
$ |
2,529 |
|
|
$ |
3,434 |
|
|
$ |
(905 |
) |
|
|
(26.4 |
)% |
|
$ |
7,575 |
|
|
$ |
11,345 |
|
|
$ |
(3,770 |
) |
|
|
(33.2 |
)% |
Sales and marketing expenses decreased by $0.9 million, or 26.4%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022. This decrease was driven primarily by a decrease in personnel related costs of $0.4 million as a result of decreased headcount and a decrease in stock-based compensation costs, a decrease in consulting costs of $0.3 million, and a decrease in marketing expense of $0.2 million.
Sales and marketing expenses decreased by $3.8 million, or 33.2%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. This decrease was driven primarily by a decrease in personnel related costs of $2.2 million as a result of decreased headcount, a decrease in digital marketing and marketing events costs of $0.8 million, a decrease in consulting costs of $0.6 million, and a decrease in recruitment costs of $0.2 million.
Interest income
|
|
Three Months Ended |
|
|
Change |
|
|
Nine Months Ended |
|
|
Change |
|
||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
Amount |
|
|
% |
|
|
2023 |
|
|
2022 |
|
|
Amount |
|
|
% |
|
||||||||
Interest income |
|
$ |
1,021 |
|
|
$ |
170 |
|
|
$ |
851 |
|
|
|
500.6 |
% |
|
$ |
2,920 |
|
|
$ |
203 |
|
|
$ |
2,717 |
|
|
|
1,338.4 |
% |
Interest income increased by $0.9 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022. The increase was driven primarily by a higher interest rates and higher cash balances in money market funds and demand deposit accounts during the three months ended September 30, 2023 compared to the three months ended September 30, 2022.
Interest income increased by $2.7 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. The increase was driven primarily by a higher interest rates and higher cash balances in money market funds and demand deposit accounts during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.
26
Other income (expense), net
|
|
Three Months Ended |
|
|
Change |
|
|
Nine Months Ended |
|
|
Change |
|
||||||||||||||||||||
|
|
2023 |
|
|
2022 |
|
|
Amount |
|
|
% |
|
|
2023 |
|
|
2022 |
|
|
Amount |
|
|
% |
|
||||||||
Other income (expense), net |
|
$ |
(19 |
) |
|
$ |
(59 |
) |
|
$ |
40 |
|
|
|
(67.8 |
)% |
|
$ |
12 |
|
|
$ |
(63 |
) |
|
$ |
75 |
|
|
|
(119.0 |
)% |
Other income (expense), net had a favorable increase in other income of $40 thousand for the three months ended September 30, 2023 compared to the three months ended September 30, 2022. This favorable increase in other income was driven primarily by an increase in interest income from customer financing of approximately $11 thousand and a net realized gain on foreign currencies of approximately $29 thousand.
Other income (expense), net had a favorable increase in other income of $75 thousand for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. This favorable increase in other income was driven primarily by an increase in interest income from customer financing of approximately $31 thousand and a net realized gain on foreign currencies of approximately $44 thousand.
Liquidity and Capital Resources
We have funded our operations primarily with proceeds from the issuance of common and preferred stock. We have incurred significant cash burn and recurring net losses, which includes a net loss of $33.6 million for the nine months ended September 30, 2023, and an accumulated deficit of $243.0 million as of September 30, 2023. As of September 30, 2023, we had cash and cash equivalents of $85.4 million. As we continue to invest in research and development of our products and sales and marketing, we expect to continue to incur a significant cash burn and recurring net losses for the foreseeable future until such time that our product and services sales generate enough gross profit to cover our operating expenses. However, we can provide no assurance that our product and service sales will generate a net profit in the future or that our cash resources will be sufficient to continue our commercialization and development activities.
Our ability to access capital when needed is not assured and, if capital is not available when, and in the amounts needed, we could be required to delay, scale back or abandon some or all of our development programs, commercialization of our products, and other operations which could materially harm our operations, financial condition and operating results. We expect that our existing cash and cash equivalents, together with proceeds from the sales of our products and services, will enable us to conduct our planned operations for at least the next 12 months. Factors that could accelerate cash needs include: (i) delays in achieving scientific and technical milestones; (ii) unforeseen capital expenditures and fabrication costs related to manufacturing; (iii) changes we may make in our business or commercialization and hiring strategy; (iv) costs of running a public company; (v) higher inflation and increases in product transportation and labor costs; and (vi) other items affecting our forecasted level of expenditures and use of cash resources including potential acquisitions. As part of the prioritization of our projects and expenditures, in December 2022, we suspended the development of our Liminal brain sensing platform, which was the focus of Liminal and was in the early stages of development to non-invasively measure key vital signs in the brain.
We expect to use our cash to further invest in the development of our products and services, commercial expansion, and for working capital and general corporate purposes.
Our future cash requirements will depend on many factors, including market adoption of our products; the cost and timing of establishing additional sales, marketing and distribution capabilities; the cost of our research and development activities; our ability to enter into and maintain collaborations; the cost and timing of potential future regulatory clearances or approvals for our products; and the effect of competing technological and market developments. We cannot assure you that we will be able to obtain additional funds on acceptable terms, or at all. If we raise additional funds by issuing equity or equity-linked securities, our stockholders may experience dilution. Future debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt or equity financing that we raise may contain terms that are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish some rights to our technologies or our products, or grant licenses on terms that are not favorable to us. If
27
we do not have or are not able to obtain sufficient funds, we may have to delay development or commercialization of our products. We also may have to reduce marketing, customer support or other resources devoted to our products and services or cease operations.
Cash
As of September 30, 2023, we had cash and cash equivalents of $85.4 million. Our future capital requirements may vary from those currently planned and will depend on various factors including further development costs, commercialization strategy, international expansion, and regulatory costs. If we need additional funds and are unable to obtain funding on a timely basis, we may need to curtail significantly our product development and commercialization efforts to provide sufficient funds to continue our operations, which could adversely affect our business prospects.
Cash flows
The following table summarizes our cash flows for the periods indicated:
|
|
Nine Months Ended |
|
|||||
(In thousands) |
|
2023 |
|
|
2022 |
|
||
Net cash used in operating activities |
|
$ |
(31,871 |
) |
|
$ |
(56,994 |
) |
Net cash used in investing activities |
|
|
(546 |
) |
|
|
(427 |
) |
Net cash provided by financing activities |
|
|
146 |
|
|
|
2 |
|
Net decrease in cash, cash equivalents, and restricted cash |
|
$ |
(32,271 |
) |
|
$ |
(57,419 |
) |
Net cash used in operating activities
For the nine months ended September 30, 2023, net cash used in operating activities of $31.9 million was due primarily to a net loss of $33.6 million and changes in operating assets and liabilities of $2.6 million, partially offset by non-cash items of $4.4 million. Non-cash items were primarily stock-based compensation expense of $3.5 million and depreciation expense of $0.8 million. Changes in operating assets and liabilities were driven primarily by an increase in inventory of $2.5 million, a decrease in accrued expenses and other liabilities of $0.8 million, a decrease in deferred revenue of $0.4 million, an increase in accounts receivable of $0.3 million, and an increase in unbilled receivables of $0.2 million, partially offset by a decrease in prepaid expenses and other current assets of $1.0 million, a decrease in prepaid inventory of $0.3 million, and an increase in accounts payable of $0.2 million.
For the nine months ended September 30, 2022, net cash used in operating activities of $57.0 million was due primarily to a net loss of $60.1 million and changes in operating assets and liabilities of $6.5 million, partially offset by non-cash items of $9.6 million. Non-cash items were primarily stock-based compensation expense of $8.9 million, including $2.5 million related to costs associated with 0.6 million RSU awards granted to our former CEO, and depreciation expense of $0.8 million. Changes in operating assets and liabilities were driven primarily by an increase in accounts receivable of $2.1 million, a decrease in due to related party of $1.9 million, a decrease in accounts payable of $1.5 million, a decrease in deferred grant funding of $1.4 million, an increase in unbilled receivables of $1.4 million, and an increase in prepaid expenses and other current assets of $0.4 million, partially offset by an increase in deferred revenue of $1.1 million, an increase in accrued expenses and other liabilities of $0.8 million, a decrease in inventory of $0.3 million, and a decrease in other long term assets of $0.1 million.
Net cash used in investing activities
For the nine months ended September 30, 2023, net cash used in investing activities of $0.5 million was from fixed assets purchased.
For the nine months ended September 30, 2022, net cash used in investing activities of $0.4 million was from fixed assets purchased.
28
Net cash provided by financing activities
For the nine months ended September 30, 2023, net cash provided by financing activities of $0.1 million was proceeds from option exercises.
For the nine months ended September 30, 2022, net cash provided by financing activities of $2.0 thousand was proceeds from option exercises.
Contractual obligations
We sponsor a 401(k) defined contribution plan covering all eligible U.S. employees. Contributions to the 401(k) plan are discretionary. We did not make any matching contributions to the 401(k) plan for the three and nine months ended September 30, 2023 and 2022.
In April 2020, we received a $1.6 million grant from the BMGF for the provision and equipping of 20 sites with our portable MR brain imaging system to enable the performance of a multi-site study focused on optimizing diagnostic image quality through February 2023. During the third quarter of 2021, we were awarded an additional $3.3 million grant, of which $2.5 million was received from the BMGF in September 2021. During the second quarter of 2022, we received the remaining amount of $0.8 million. On March 29, 2023, the term of the BMGF grant agreement was extended to February 28, 2024. On May 16, 2023, we were awarded an additional $3.4 million grant from the BMGF to continue to develop a scalable approach to measuring neurodevelopment via low-field magnetic resonance imaging (MRI) in neonates, infants, and young children in low-to-middle income countries through February 2026, of which $0.5 million was received by September 30, 2023. Refer to Note 12 in the notes to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2023 and 2022 included elsewhere in this Quarterly Report on Form 10-Q for a discussion of the BMGF grant. Any grant funds, plus any income, that have not been used for, or committed to, the project must be returned promptly to the BMGF upon expiration of or termination of the agreement. All of these grants are designed to support the deployment of a total of 25 Swoop® system devices and other services to investigators, which commenced in the spring of 2021. As of September 30, 2023, 21 Swoop® system units were provisioned and delivered to the BMGF and certain milestones for service deliverables were also met. These grants are designed to provide data to validate the use of our Swoop® system in measuring the impact of maternal anemia, malnutrition, infection and birth related injury.
Our purchase commitments and obligations include all open purchase orders and contractual obligations in the ordinary course of business, including commitments with contract manufacturers and suppliers, for which we have not received the goods or services. A majority of these purchase obligations are due within a year. Although open purchase orders are considered enforceable and legally binding, the terms generally allow us the option to cancel, reschedule, and adjust our requirements based on our business needs prior to the delivery of goods or performance of services.
We had no other significant contractual obligations as of September 30, 2023.
For information on contingencies, refer to Note 12 in the notes to our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2023 and 2022 included elsewhere in this Quarterly Report on Form 10-Q.
29
Critical Accounting Policies and Significant Judgments and Estimates
Our 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 with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about items that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Except as described in Note 2 “Summary of Significant Accounting Policies – Recently Issued Accounting Pronouncements”, to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, there have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 22, 2023.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our unaudited condensed consolidated financial statements and notes thereto for the three and nine months ended September 30, 2023 and 2022 included elsewhere in this Quarterly Report on Form 10-Q.
30
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk in the ordinary course of business. Market risk represents the risk of loss that may impact our results of operations or financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates, inflation risk, and foreign exchange risk. We do not hold, issue or enter into any financial instruments for speculative or trading purposes. We do not have significant exposure to foreign currencies.
Interest Rate Risk
Our cash, cash equivalents and restricted cash as of September 30, 2023 consisted of $86.0 million in money market funds, demand deposit and savings accounts. Such interest-earning instruments carry a degree of interest rate risk. The goals of our investment policy are liquidity and capital preservation. We believe that we do not have any material exposure to changes in the fair value of these assets as a result of changes in interest rates due to the short-term nature of our cash equivalents. Based on our balance sheet position at September 30, 2023, the annualized effect of a 0.5 percentage point decrease in interest rates would be to decrease earnings before income taxes by $0.4 million.
Inflation Risk
Inflation has increased in recent periods and may increase in the future. We rely on a single contract manufacturer; inflation generally affects us by increasing our cost of manufacturing and a higher cost of certain key components. To the extent our costs are impacted by general inflationary pressures, we may not be able to fully offset such higher costs through price increases or manufacturing efficiencies. Our inability or failure to do so could harm our business, financial condition, and results of operations.
Foreign Exchange Risk
We operate our business primarily within the United States and currently execute the majority of our transactions in U.S. dollars. We have not utilized hedging strategies with respect to such foreign exchange exposure. This limited foreign currency translation risk is not expected to have a material impact on our condensed consolidated financial statements.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2023. Based upon that evaluation, our principal executive officer and principal financial officer have concluded that, as of September 30, 2023, the end of the period covered by this report, our disclosure controls and procedures were effective at a reasonable assurance level to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting, identified in connection with the evaluation of such internal control that occurred during the three months ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
31
PART II — OTHER INFORMATION
Item1. Legal Proceedings
We are not currently a party to any material legal proceedings.
Item 1A. Risk Factors
Our business, results of operations and financial condition are subject to various risks and uncertainties including the risk factors described under the caption “Risk Factors” in our most recent Annual Report on Form 10-K, filed with the SEC on March 22, 2023 (the “2022 Annual Report on Form 10-K”). There have been no material changes to the risk factors described in the 2022 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Issuer Purchases of Equity Securities
We did not repurchase any of our equity securities during the three months ended September 30, 2023.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
32
Item 6. Exhibits
See Exhibit Index.
EXHIBIT INDEX
Exhibit Number |
|
Exhibit Description |
|
Filed Herewith |
|
Incorporated by Reference herein from Form or Schedule |
|
Filing Date |
|
SEC File/ Reg. Number |
10.1+ |
|
|
|
|
Form 8-K (Exhibit 10.1) |
|
7/18/2023 |
|
001-39949 |
|
10.2+ |
|
Letter Agreement, dated as of July 17, 2023, by and between Hyperfine, Inc. and Khan Siddiqui, M.D. |
|
|
|
Form 8-K (Exhibit 10.2) |
|
7/18/2023 |
|
001-39949 |
10.3+ |
|
|
|
|
Form 8-K (Exhibit 10.3) |
|
7/18/2023 |
|
001-39949 |
|
10.4+ |
|
|
|
|
Form 8-K (Exhibit 10.1) |
|
10/3/2023 |
|
001-39949 |
|
10.5+ |
|
|
|
|
Form 8-K (Exhibit 10.2) |
|
10/3/2023 |
|
001-39949 |
|
31.1 |
|
|
X |
|
|
|
|
|
|
|
31.2 |
|
|
X |
|
|
|
|
|
|
|
32* |
|
|
X |
|
|
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its Inline XBRL tags are embedded within the Inline XBRL document. |
|
X |
|
|
|
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document. |
|
X |
|
|
|
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
|
X |
|
|
|
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
|
X |
|
|
|
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document. |
|
X |
|
|
|
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
|
X |
|
|
|
|
|
|
104 |
|
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101). |
|
X |
|
|
|
|
|
|
+ Management contract or compensatory plan or arrangement.
* The certifications attached as Exhibit 32 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Hyperfine, Inc. under the
33
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
HYPERFINE, INC. |
|
Date: November 9, 2023 |
|
By: /s/ Maria Sainz |
|
|
|
Maria Sainz |
|
|
|
President and Chief Executive Officer |
|
|
|
|
|
Date: November 9, 2023 |
|
By: /s/ Brett Hale |
|
|
|
Brett Hale |
|
|
|
Chief Administrative Officer, Chief Financial Officer, Treasurer and Corporate Secretary |
|
35