apen-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-35706

APOLLO ENDOSURGERY, INC.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)						16-1630142 (I.R.S. Employer Identification No.)


1120 S. Capital of Texas Highway, Building 1, Suite #300, Austin, Texas (Address of principal executive offices)						78746 (Zip Code)
Registrant’s telephone number, including area code (512) 279-5100

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.001 per share

APEN

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting 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. (Check one):


Large accelerated filer o						Accelerated filer o
Non-accelerated filer x						Smaller reporting company ☒
						Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

As of April 30, 2021, there were 27,035,842 shares of the issuer’s $0.001 par value common stock issued and outstanding.

APOLLO ENDOSURGERY, INC. AND SUBSIDIARIES

FOR THE QUARTER ENDED MARCH 31, 2021

TABLE OF CONTENTS



		Page
PART I. FINANCIAL INFORMATION		1
Item 1.	Unaudited Condensed Consolidated Financial Statements	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss	2
	Condensed Consolidated Statements of Changes in Stockholders’ Equity	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	19

Item 4.	Controls and Procedures	19

PART II. OTHER INFORMATION		21
Item 1.	Legal Proceedings	21

Item 1A.	Risk Factors	21

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46

Item 3.	Defaults Upon Senior Securities	46

Item 4.	Mine Safety Disclosures	46

Item 5.	Other Information	46

Item 6.	Exhibits	46

	Signatures	48

PART I - FINANCIAL INFORMATION

ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

APOLLO ENDOSURGERY, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except for share data)


	March 31, 2021		December 31, 2020
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	31,710	$	36,235
Accounts receivable, net of allowance for doubtful accounts of $606 and $634, respectively	9,463		8,218
Inventory	10,546		10,306
Prepaid expenses and other current assets	4,173		3,771
Total current assets	55,892		58,530
Restricted cash	938		965
Property, equipment and right-of-use assets, net	5,854		6,221
Goodwill	5,290		5,290
Intangible assets, net of accumulated amortization of $13,686 and $13,231, respectively	5,618		6,017
Other assets	392		414
Total assets	$	73,984	$	77,437
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	4,576	$	3,675
Accrued expenses	6,907		7,357
Current portion of long-term debt	1,112		636
Total current liabilities	12,595		11,668
Long-term debt	36,998		37,192
Convertible debt	19,363		19,387
Long-term liabilities	2,337		2,439
Total liabilities	71,293		70,686
Commitments and contingencies
Stockholders' equity:
Common stock; $0.001 par value; 100,000,000 shares authorized; 27,035,842 and 25,819,329 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively	27		26
Additional paid-in capital	277,994		276,569
Accumulated other comprehensive income	2,044		2,929
Accumulated deficit	(277,374)		(272,773)
Total stockholders' equity	2,691		6,751
Total liabilities and stockholders' equity	$	73,984	$	77,437

See accompanying notes to the condensed consolidated financial statements.

APOLLO ENDOSURGERY, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except for share data)

(unaudited)


	Three Months Ended March 31,
		2021		2020
Revenues		$	13,857	$	10,718
Cost of sales		6,350		5,081
Gross margin		7,507		5,637
Operating expenses:
Sales and marketing		4,790		6,330
General and administrative		4,069		3,339
Research and development		1,928		2,147
Amortization of intangible assets		474		496
Total operating expenses		11,261		12,312
Loss from operations		(3,754)		(6,675)
Other expenses:
Interest expense, net		1,352		1,244
Other (income) expense, net		(564)		2,294
Net loss before income taxes		(4,542)		(10,213)
Income tax expense		59		43
Net loss		$	(4,601)	$	(10,256)
Other comprehensive (loss)/income:
Foreign currency translation		(885)		1,812
Comprehensive loss		$	(5,486)	$	(8,444)
Net loss per share, basic and diluted		$	(0.17)	$	(0.49)
Shares used in computing net loss per share, basic and diluted		26,306,442		21,117,126

See accompanying notes to the condensed consolidated financial statements.

APOLLO ENDOSURGERY, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(In thousands, except for share data)

(unaudited)


	Three Months Ended March 31, 2021 and 2020
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total
	Shares	Amount
Balances at December 31, 2019	20,951,963	$	21	$	250,634	$	1,630	$	(250,162)	$	2,123
Issuance of restricted stock units	11,341	—		—		—		—		—
Issuance of common stock for convertible debt interest	164,797	—		467		—		—		467
Stock-based compensation	—	—		401		—		—		401
Foreign currency translation	—	—		—		1,812		—		1,812
Net loss	—	—		—		—		(10,256)		(10,256)
Balances at March 31, 2020	21,128,101	$	21	$	251,502	$	3,442	$	(260,418)	$	(5,453)

Balances at December 31, 2020	25,819,329	$	26	$	276,569	$	2,929	$	(272,773)	$	6,751
Exercise of common stock options	21,493	—		60		—		—		60
Exercise of common stock warrants	999,855	1		(1)		—		—		—
Issuance of restricted stock units	11,337	—		—		—		—		—
Issuance of common stock for convertible debt interest	161,184	—		572		—		—		572
Conversion of convertible debt	22,644	—		74		—		—		74
Stock-based compensation	—	—		720		—		—		720
Foreign currency translation	—	—		—		(885)		—		(885)
Net loss	—	—		—		—		(4,601)		(4,601)
Balances at March 31, 2021	27,035,842	$	27	$	277,994	$	2,044	$	(277,374)	$	2,691

See accompanying notes to the condensed consolidated financial statements.

APOLLO ENDOSURGERY, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)


	Three Months Ended March 31,
	2021		2020
Cash flows from operating activities:
Net loss	$	(4,601)	$	(10,256)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	904		955
Amortization of deferred financing costs	133		154
Non-cash interest	446		356
Provision for (benefit from) doubtful accounts receivable	(18)		77

Stock-based compensation	720		401
Unrealized foreign exchange on intercompany payables	(545)		2,240

Changes in operating assets and liabilities:
Accounts receivable	(1,443)		1,430
Inventory	(236)		(1,522)
Prepaid expenses and other assets	(347)		(113)
Accounts payable and accrued expenses	678		15
Net cash used in operating activities	(4,309)		(6,263)
Cash flows from investing activities:
Purchases of property and equipment	(221)		(272)
Purchases of intangibles and other assets	(76)		(46)

Net cash used in investing activities	(297)		(318)
Cash flows from financing activities:
Proceeds from exercise of stock options	60		—



Payments of deferred financing costs	—		(206)

Net cash provided by/(used in) financing activities	60		(206)
Effect of exchange rate changes on cash	(6)		(95)
Net change in cash, cash equivalents and restricted cash	(4,552)		(6,882)
Cash, cash equivalents and restricted cash at beginning of year	37,200		30,921
Cash, cash equivalents and restricted cash at end of period	$	32,648	$	24,039

Supplemental disclosure of cash flow information:
Cash paid for interest	$	775	$	814
Cash paid for income taxes	4		7
Right-of-use assets recognized in exchange for lease obligations (non-cash)	—		36

See accompanying notes to the condensed consolidated financial statements.

APOLLO ENDOSURGERY, INC. AND SUBSIDIARIES

Notes to Unaudited Interim Condensed Consolidated Financial Statements

(In thousands, except for share data)

(1) Organization and Business Description

Apollo Endosurgery, Inc. is a Delaware corporation with both domestic and foreign wholly-owned subsidiaries. Throughout these Notes, "Apollo" and the "Company" refer to Apollo Endosurgery, Inc. and its consolidated subsidiaries.

Apollo is a medical technology company primarily focused on the development of next-generation, less invasive medical devices to advance gastrointestinal therapeutic endoscopy. The Company develops and distributes devices that are used by surgeons and gastroenterologists for a variety of procedures related to gastrointestinal conditions including closure of gastrointestinal defects, managing gastrointestinal complications and the treatment of obesity.

The Company's core products include the OverStitch™ Endoscopic Suturing System, the OverStitch Sx™ Endoscopic Suturing System, X-TackTM Endoscopic HeliX Tacking System (collectively "ESS") and the ORBERA® Intragastric Balloon ("IGB").

The Company has offices in the United Kingdom and Italy that oversee commercial activities outside the U.S. and a products manufacturing facility in Costa Rica. All other activities are managed and operated from facilities in Austin, Texas.

(2) Significant Accounting Policies

(a) Basis of Presentation

The Company prepared its interim condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP"). They do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying condensed consolidated financial statements include the Company's accounts and the accounts of its wholly-owned subsidiaries. The Company has eliminated all intercompany balances and transactions.

The Company has made estimates and judgments affecting the amounts reported in its condensed consolidated financial statements and the accompanying notes. The actual results that the Company experiences may differ materially from the Company's estimates. The accounting estimates that require the Company's most significant, difficult and subjective judgments include revenue recognition and inventory valuation.

(b) Unaudited Interim Results

In management's opinion, the unaudited financial information for the interim periods presented includes all adjustments necessary for a fair presentation of the results of operations, financial position, and cash flows. All adjustments are of a normal recurring nature unless otherwise disclosed. Revenues, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year. This interim information should be read in conjunction with the audited consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.

In March 2020, ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, was issued to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients for contracts that reference LIBOR, if certain criteria are met, that can be applied through December 31, 2022. As reference rate reform is still an ongoing process, the Company will continue to evaluate the timing and potential impact of adoption for optional expedients when deemed necessary.

(3) Concentrations

Consolidated financial instruments that potentially subject the Company to a concentration of credit risk principally consist of cash and cash equivalents and accounts receivable. At March 31, 2021, the Company's cash, cash equivalents and restricted cash are held in deposit accounts at five different banks totaling $32,648. The Company has not experienced any losses in such accounts, and management does not believe the Company is exposed to any significant credit risk. Management further believes that credit risk in the Company's accounts receivable is substantially mitigated by the Company's evaluation process, relatively short collection terms, and the high level of creditworthiness of its customers. The Company continually monitors the compliance of its customers with the Company's payment terms, but generally requires no collateral.

APOLLO ENDOSURGERY, INC. AND SUBSIDIARIES

Notes to Unaudited Interim Condensed Consolidated Financial Statements (continued)

(In thousands, except for share data)

The Company had no concentrations greater than 10% of the Company's net accounts receivable as of March 31, 2021. The Company had no single customer that comprised more than 10% of the Company's total revenues for the three months ended March 31, 2021 and 2020.

(4) Inventory

Inventory consists of the following as of:


	March 31, 2021		December 31, 2020
	(unaudited)
Raw materials	$	2,745	$	2,344

SEC Form 10-Q filed by Apollo Endosurgery, Inc.