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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
REGISTRATION STATEMENT
Under
The Securities Act of 1933
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For transition period from               to
Commission File Number   001-38847     
SILK ROAD MEDICAL, INC.
(Exact name of registrant as specified in its charter)

Delaware384120-8777622
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification Number)
1213 Innsbruck Dr. Sunnyvale, CA 94089 (408) 720-9002
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Erica J. Rogers
Chief Executive Officer
1213 Innsbruck Dr. Sunnyvale, CA 94089 (408) 720-9002
(Name, address, including zip code, and telephone number, including area code, of agent for service)
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. 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, 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
Non-accelerated filerSmaller 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 7(a)(2)(B) of the Securities Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Act). Yes No
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockSILKNasdaq Global Market
As of October 31, 2019, the number of outstanding shares of the registrant's common stock, par value $0.001 per share, was 30,865,553.




TABLE OF CONTENTS
Page

1


CAUTIONARY NOTES REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business, operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology.
These forward-looking statements include, but are not limited to, statements about:
our plans to conduct further clinical trials;
our plans and expected timeline related to our products, or developing new products, to address additional indications or otherwise;
the expected use of our products by physicians;
our expectations regarding the number of procedures performed with our products, the number of physicians we expect to train, and the number of our sales territories;
our ability to obtain, maintain and expand regulatory clearances for our products and any new products we create;
the expected growth of our business and our organization;
our expected uses of the net proceeds from our initial public offering;
our expectations regarding government and third-party payer coverage and reimbursement;
our ability to retain and recruit key personnel, including the continued development of a sales and marketing infrastructure;
our ability to obtain an adequate supply of materials and components for our products from our third-party suppliers, most of whom are single-source suppliers;
our ability to manufacture sufficient quantities of our products with sufficient quality;
our ability to obtain and maintain intellectual property protection for our products;
our ability to expand our business into new geographic markets;
our compliance with extensive Nasdaq requirements and government laws, rules and regulations both in the United States and internationally;
our estimates of our expenses, ongoing losses, future revenue, capital requirements and our need for, or ability to obtain, additional financing;
our expectations regarding the time during which we will be an emerging growth company under the JOBS Act;
our ability to identify and develop new and planned products and/or acquire new products; and
2


developments and projections relating to our competitors or our industry.
We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. These forward-looking statements are based on management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate and management’s beliefs and assumptions and are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.
These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. We assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations.
You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with the SEC as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.
3


Part I. Financial Information
Item 1: Unaudited Condensed Consolidated Financial Statements
Silk Road Medical, Inc.
Condensed Consolidated Balance Sheets
(unaudited)


(in thousands, except share and per share data)September 30,December 31,
20192018
Assets
Current assets:
Cash and cash equivalents$112,277  $24,990  
Accounts receivable, net6,932  4,520  
Inventories9,275  5,744  
Prepaid expenses and other current assets3,503  1,408  
Total current assets131,987  36,662  
Property and equipment, net2,697  2,880  
Restricted cash310  310  
Other non-current assets3,575  1,029  
Total assets$138,569  $40,881  
Liabilities, redeemable convertible preferred stock and stockholders' equity (deficit)
Current liabilities:
Accounts payable$1,965  $1,252  
Accrued liabilities10,476  7,586  
Total current liabilities12,441  8,838  
Long-term debt44,785  44,201  
Redeemable convertible preferred stock warrant liability  16,091  
Other liabilities3,900  1,069  
Total liabilities61,126  70,199  
Commitments and contingencies (Note 7)
Redeemable convertible preferred stock issuable in series, $0.001 par value
Shares authorized: None and 24,069,615 at September 30, 2019 and December 31, 2018, respectively
Shares issued and outstanding: None and 21,233,190 at September 30, 2019 and December 31, 2018, respectively
Liquidation preference: None and $121,144 at September 30, 2019 and December 31, 2018, respectively
  105,235  
Stockholders' equity (deficit):
Preferred stock, $0.001 par value
Shares authorized: 5,000,000 and none at September 30, 2019 and December 31, 2018, respectively
Shares issued and outstanding: none
    
Common stock, $0.001 par value
Shares authorized: 100,000,000 and 29,879,220 at September 30, 2019 and December 31, 2018, respectively
Shares issued and outstanding: 30,775,980 and 1,135,310 at September 30, 2019 and December 31, 2018, respectively
31  1  
Additional paid-in capital260,647  4,557  
Accumulated deficit(183,235) (139,111) 
Total stockholders' equity (deficit)77,443  (134,553) 
Total liabilities, redeemable convertible preferred stock and stockholders' equity (deficit)$138,569  $40,881  


The accompanying notes are an integral part of these condensed consolidated financial statements.
4

Silk Road Medical, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(unaudited)
(in thousands, except share and per share data)Three Months Ended
September 30,
Nine Months Ended
September 30,
2019201820192018
Revenue$17,026  $9,614  $44,721  $23,087  
Cost of goods sold4,170  2,882  11,206  7,207  
Gross profit12,856  6,732  33,515  15,880  
Operating expenses:
Research and development3,187  2,442  9,008  6,868  
Selling, general and administrative17,064  8,973  45,064  23,108  
Total operating expenses20,251  11,415  54,072  29,976  
Loss from operations(7,395) (4,683) (20,557) (14,096) 
Interest income565  28  1,215  65  
Interest expense(1,176) (1,065) (3,736) (3,065) 
Other income (expense), net(1) (3,233) (21,046) (4,915) 
Net loss and comprehensive loss(8,007) (8,953) (44,124) (22,011) 
Net loss and comprehensive loss attributable to non-controlling interest  1    1  
Net loss and comprehensive loss attributable to Silk Road Medical, Inc. common stockholders$(8,007) $(8,952) $(44,124) $(22,010) 
Net loss per share, basic and diluted $(0.26) $(8.49) $(2.18) $(24.14) 
Weighted average common shares used to compute net loss per share, basic and diluted30,764,354  1,054,794  20,249,580  911,873  


The accompanying notes are an integral part of these condensed consolidated financial statements.
5

Silk Road Medical, Inc.
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)
(unaudited)
(in thousands, except share data)Redeemable Convertible
Preferred Stock
Common StockAdditional
Paid-in Capital
Accumulated DeficitTotal
SharesAmountSharesAmount
Balances at December 31, 2018
21,233,190  $105,235  1,135,310  $1  $4,557  $(139,111) $(134,553) 
Exercise of stock options
—  —  251,305  —  375  —  375  
Exercise of Series C preferred stock warrants
4,915  30  —  —  —  —    
Employee stock-based compensation
—  —  —  —  241  —  241  
Nonemployee stock-based compensation
—  —  —  —  21  —  21  
Net loss and comprehensive loss
—  —  —  —  —  (24,158) (24,158) 
Balances at March 31, 2019
21,238,105  105,265  1,386,615  1  5,194  (163,269) (158,074) 
Exercise of stock options
—  —  176,576  1  363  —  364  
Exercise of Series C preferred stock warrants287,446  1,754  —  —  —  —  —  
Exercise of common stock warrants
—  —  3,764  —  31  —  31  
Net exercise of Series C preferred stock warrants upon IPO1,653,004  37,121  —  —  —  —    
Net exercise of common stock warrants upon IPO—  —  2,204  —  —  —    
Conversion of preferred stock to common stock upon IPO(23,178,555) (144,140) 23,178,555  23  144,117  —  144,140  
Issuance of common stock in connection with IPO, net of underwriting discount, commissions and offering costs of $2,561
—  —  6,000,000  6  109,033  —  109,039  
Employee stock-based compensation
—  —  —  —  814  —  814  
Nonemployee stock-based compensation
—  —  —  —  22  —  22  
Net loss and comprehensive loss
—  —  —  —  —  (11,959) (11,959) 
Balances at June 30, 2019
    30,747,714  31  259,574  (175,228) 84,377  
Exercise of stock options—  —  28,266  —  68—  68  
Decrease in IPO offering costs—  —  —  —  80—  80  
Employee stock-based compensation—  —  —  —  902—  902  
Nonemployee stock-based compensation—  —  —  —  23—  23  
Net loss and comprehensive loss—  —  —  —  —  (8,007) (8,007) 
Balances at September 30, 2019  $  30,775,980  $31  $260,647  $(183,235) $77,443  

The accompanying notes are an integral part of these condensed consolidated financial statements.
6

Silk Road Medical, Inc.
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)
(unaudited)
(in thousands, except share data)Redeemable Convertible
Preferred Stock
Common StockAdditional
Paid-in Capital
Accumulated DeficitNon-controlling InterestTotal
SharesAmountSharesAmount
Balances at December 31, 201721,233,190  $105,235  663,270  $1  $2,977  $(101,556)   $(98,578) 
Exercise of stock options
—  —  186,944  —  284  —  —  284  
Employee stock-based compensation
—  —  —  —  164  —  —  164  
Nonemployee stock-based compensation
—  —  —  —  (2) —  —  (2) 
Cumulative effect of change in accounting principle - ASC 606 adoption—  —  —  —  —  87  —  87  
Cumulative effect of change in accounting treatment - ASU 2016-09—  —  —  —  13  (13) —    
Net loss and comprehensive loss
—  —  —  —  —  (5,408) —  (5,408) 
Balances at March 31, 2018
21,233,190  105,235  850,214  1  3,436  (106,890)   (103,453) 
Exercise of stock options
—  —  106,732  —  148  —  —  148  
Employee stock-based compensation
—  —  —  —  178  —  —  178  
Nonemployee stock-based compensation
—  —  —  —  151  —  —  151  
Net loss and comprehensive loss
—  —  —  —  —  (7,651) —  (7,651) 
Balances at June 30, 2018
21,233,190  105,235  956,946  1  3,913  (114,541)   (110,627) 
Exercise of stock options—  —  140,892  —  216—  —  216  
NeuroCo common stock issuance—  —  —  —  —  —  1  1  
Employee stock-based compensation—  —  —  —  179—  —  179  
Nonemployee stock-based compensation—  —  —  —  15—  —  15  
Net loss and comprehensive loss—  —  —  —  —  (8,952) (1) (8,953) 
Balances at September 30, 201821,233,190  $105,235  1,097,838  $1  $4,323  $(123,493) $  $(119,169) 


The accompanying notes are an integral part of these condensed consolidated financial statements.
7

Silk Road Medical, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)Nine Months Ended September 30,
20192018
Cash flows from operating activities
Net loss$(44,124) $(22,011) 
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense530  325  
Stock-based compensation expense2,023  685  
Change in fair value of redeemable convertible preferred stock warrant liability21,030  4,907  
Amortization of debt discount and debt issuance costs34  57  
Amortization of right-of-use asset440  —  
Non-cash interest expense595  1,153  
Provision for sales returns and allowances1,163  1,255  
Provision for excess and obsolete inventories78    
Changes in assets and liabilities
Accounts receivable(3,575) (1,515) 
Inventories(3,609) (1,925) 
Prepaid expenses and other current assets(2,096) (437) 
Other assets764  (58) 
Accounts payable712  (565) 
Accrued liabilities2,255  1,379  
Other liabilities(569) 445  
Net cash used in operating activities(24,349) (16,305) 
Cash flows from investing activities
Purchases of property and equipment(337) (2,168) 
Net cash used in investing activities(337) (2,168) 
Cash flows from financing activities
Proceeds from long-term debt  15,000  
Proceeds from initial public offering, net of underwriting discount, commissions and offering costs paid109,352    
Proceeds from issuance of common stock806  649  
Proceeds from exercise of redeemable convertible preferred stock warrants1,784    
Proceeds from exercise of common stock warrants31    
Non-controlling interest  1  
Net cash provided by financing activities111,973  15,650  
Net change in cash, cash equivalents and restricted cash87,287  (2,823) 
Cash, cash equivalents and restricted cash, beginning of period25,300  33,841  
Cash, cash equivalents and restricted cash, end of period$112,587  $31,018  
Supplemental disclosure of cash flow information
Cash paid for interest$3,107  $1,855  
Non-cash investing and financing activities:
Accounts payable and accrued liabilities for purchases of property and equipment$9  $26  
Landlord paid tenant improvements$  794  
Right-of-use asset obtained in exchange for lease obligation$3,982  $—  
Net exercise of convertible preferred stock warrants to preferred stock$37,121  $  
Conversion of convertible preferred stock to common stock upon initial public offering$144,140  $  


The accompanying notes are an integral part of these condensed consolidated financial statements.
8

Silk Road Medical, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

1.    Formation and Business of the Company
The Company
Silk Road Medical, Inc. (the “Company”) was incorporated in the state of Delaware on March 21, 2007. The Company has developed a technologically advanced, minimally-invasive solution for patients with carotid artery disease who are at risk for stroke. The Company's portfolio of TCAR products enable a new procedure, referred to as transcarotid artery revascularization, or TCAR, that combines the benefits of endovascular techniques and surgical principles. The Company manufactures and sells in the United States its portfolio of TCAR products which are designed to provide direct access to the carotid artery, effective reduction in stroke risk throughout the procedure, and long-term restraint of carotid plaque. The Company commercialized its products in the United States in April 2016.
Reverse Stock Split
On March 13, 2019, the Company's Board of Directors approved an amendment to the Company's amended and restated certificate of incorporation to effect a 2.7-for-1 reverse stock split of the Company's common stock and redeemable convertible preferred stock. The par values of the common stock and redeemable convertible preferred stock were not adjusted as a result of the reverse stock split. All common stock, redeemable convertible preferred stock, stock options and warrants, and related per share amounts in the condensed consolidated financial statements have been retroactively adjusted for all periods presented to give effect to the reverse stock split. The reverse stock split was effected on March 27, 2019.
Public Offerings
In April 2019, the Company issued and sold 6,000,000 shares of its common stock in its initial public offering (“IPO”) at a public offering price of $20.00 per share, for net proceeds of approximately $109,119,000 after deducting underwriting discounts and commissions of approximately $8,400,000 and expenses of approximately $2,481,000. Upon the closing of the IPO, all shares of redeemable convertible preferred stock then outstanding converted into shares of common stock and the Company's outstanding warrants to purchase shares of common and redeemable convertible preferred stock were exercised, or automatically net exercised absent a prior election. The exercises resulted in the reclassification of the fair value of the related redeemable convertible preferred stock warrant liability to additional paid-in capital.
In August 2019, the Company completed a secondary public offering of 4,200,000 shares of its common stock sold by certain selling stockholders, and the exercise in full of the underwriters' option to purchase 630,000 additional shares of its common stock from certain selling stockholders, at a public offering price of $39.50 per share. The Company did not receive any of the proceeds from the sale of the shares of its common stock by the selling stockholders.

9

Silk Road Medical, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
2.    Summary of Significant Accounting Policies
Basis of Preparation
The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP, and applicable rules and regulations of the Securities and Exchange Commission, or SEC, regarding interim financial reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP have been condensed or omitted, and accordingly the balance sheet as of December 31, 2018, and related disclosures, have been derived from the audited consolidated financial statements at that date but does not include all of the information required by U.S. GAAP for complete consolidated financial statements. These unaudited condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for the fair statement of the Company’s condensed consolidated financial information. The results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for any other interim period or for any other future year.
The accompanying interim unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2018 included in the Company’s prospectus dated April 3, 2019 filed pursuant to Rule 424(b)(4) with the SEC on April 4, 2019.
Principles of Consolidation
Through December 17, 2018, the condensed consolidated financial statements of the Company include the accounts of Silk Road Medical, Inc. and its consolidated variable interest entity (“VIE”), NeuroCo, Inc. On December 17, 2018, the Company acquired all assets and assumed all liabilities of its VIE. As a result of the Merger, NeuroCo merged into the Company with the Company being the surviving corporation. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements. Management uses significant judgment when making estimates related to the common stock valuation and related stock-based compensation, the valuation of the redeemable convertible preferred stock warrants, the valuation of deferred tax assets, provisions for doubtful accounts receivable and excess and obsolete inventories, clinical trial accruals, and the reserves for sales returns. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.
Fair Value of Financial Instruments
The Company has evaluated the estimated fair value of its financial instruments as of September 30, 2019 and December 31, 2018. The carrying amounts of cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities approximate their respective fair values because of the short-term nature of these instruments. Prior to its IPO, fair value accounting was applied to the redeemable convertible preferred stock warrant liability.
10

Silk Road Medical, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents. Cash equivalents are considered available-for-sale marketable securities and are recorded at fair value, based on quoted market prices. As of September 30, 2019 and December 31, 2018, the Company’s cash equivalents are entirely comprised of investments in money market funds.
Restricted cash as of September 30, 2019 and December 31, 2018 consists of a letter of credit of $310,000 representing collateral for the Company's facility lease.
Concentration of Credit Risk, and Other Risks and Uncertainties
Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents and accounts receivable to the extent of the amounts recorded on the condensed consolidated balance sheet.
The Company’s policy is to invest in money market funds, which are classified as cash equivalents on the condensed consolidated balance sheet. The Company's cash is held in Company accounts at two financial institutions and such amounts may exceed federally insured limits. The Company's money market funds are invested in highly rated money market funds.
The Company provides for uncollectible amounts when specific credit problems are identified. In doing so, the Company analyzes historical bad debt trends, customer credit worthiness, current economic trends and changes in customer payment patterns when evaluating the adequacy of the allowance for doubtful accounts.
The Company’s accounts receivable are due from a variety of health care organizations in the United States. At September 30, 2019 and December 31, 2018, no customer represented 10% or more of the Company’s accounts receivable. For the three and nine months ended September 30, 2019 and September 30, 2018, there were no customers that represented 10% or more of revenue.
The Company manufactures certain of its commercial products in-house. Certain of the Company’s product components and sub-assemblies continue to be manufactured by sole suppliers, the most significant of which is the ENROUTE stent. Disruption in component or sub-assembly supply from these manufacturers or from in-house production would have a negative impact on the Company’s financial position and results of operations.
The Company is subject to certain risks, including that its devices may not be approved or cleared for marketing by governmental authorities or be successfully marketed. There can be no assurance that the Company’s products will achieve widespread adoption in the marketplace, nor can there be any assurance that existing devices or any future devices can be developed or manufactured at an acceptable cost and with appropriate performance characteristics. The Company is also subject to risks common to companies in the medical device industry, including, but not limited to, new technological innovations, dependence upon third-party payers to provide adequate coverage and reimbursement, dependence on key personnel and suppliers, protection of proprietary technology, product liability claims, and compliance with government regulations.
Existing or future devices developed by the Company may require approvals or clearances from the FDA or international regulatory agencies. In addition, in order to continue the Company’s operations, compliance with various federal and state laws is required. If the Company were denied or delayed in receiving such approvals or clearances, it may be necessary to adjust operations to align with the Company’s currently approved portfolio. If clearance for the products in the current portfolio were withdrawn by the FDA, this would have a material adverse impact on the Company.
11

Silk Road Medical, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Deferred Public Offering Costs
Specific incremental legal, accounting and other fees and costs directly attributable to a proposed or actual offering of securities may properly be deferred and charged against the gross proceeds of the offering. As of September 30, 2019 and December 31, 2018, there were $0 and $950,000, respectively, of offering costs primarily consisting of legal and accounting fees that were capitalized in other non-current assets on the condensed consolidated balance sheet.
Leases
The Company adopted Accounting Standards Codification (“ASC”) 842, "Leases," on January 1, 2019 and used the modified retrospective method for all leases not substantially completed as of the date of adoption and the package of practical expedients available in the standard. As a result of adopting ASC 842, the Company recorded an operating lease right-of-use ("ROU") asset of $3,982,000 included within other non-current assets and operating lease liabilities of $5,190,000 included within accrued liabilities and other liabilities on the condensed consolidated balance sheet related to its facility lease, based on the present value of the future lease payments on the date of adoption. The operating lease right-of-use asset also includes adjustments for prepayments and excludes lease incentives. The adoption did not have an impact on prior periods or on its condensed consolidated statements of operations and comprehensive loss.
In accordance with ASC 842, the disclosure impact of adoption on the condensed consolidated balance sheet were as follows (in thousands):
Balance Sheet:Balance at December 31, 2018Adjustments Due to ASC 842Balance at January 1, 2019
Other non-current assets$  $3,982  $3,982  
Accrued liabilities139  582  721  
Other liabilities1,069  3,400  4,469  

The Company recognizes ROU assets and lease liabilities when it obtains the right to control an asset under a leasing arrangement with an initial term greater than twelve months. The Company evaluates the nature of each lease at the inception of an arrangement to determine whether it is an operating or financing lease and recognizes the right-of-use asset and lease liabilities based on the present value of future minimum lease payments over the expected lease term. The Company’s leases do not generally contain an implicit interest rate and therefore the Company uses the incremental borrowing rate it would expect to pay to borrow on a similar collateralized basis over a similar term in order to determine the present value of its lease payments. The Company’s considers renewal options in the determination of the lease term if the option to renew is reasonably certain. The Company has elected to account separately for contracts that contain lease and non-lease components consistent with its historical practice. Variable lease payments will be expensed as incurred.
12

Silk Road Medical, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Redeemable Convertible Preferred Stock Warrant Liability
Prior to its IPO, the Company accounted for its warrants for shares of redeemable convertible preferred stock as a liability based upon the characteristics and provisions of each instrument. Redeemable convertible preferred stock warrants classified as a liability were initially recorded at their fair value on the date of issuance and were subject to remeasurement at each subsequent balance sheet date. Any change in fair value as a result of a remeasurement was recognized as a component of other income (expense), net in the condensed consolidated statements of operations and comprehensive loss. The Company recorded adjustments to the estimated fair value of the redeemable convertible preferred stock warrants until they were exercised. Upon their exercise, the final fair value of the warrant liability was reclassified to stockholders’ equity (deficit). Subsequent to its IPO, the Company no longer recorded any related periodic fair value adjustments.
Redeemable Convertible Preferred Stock
Prior to its IPO, the Company recorded its redeemable convertible preferred stock at fair value on the dates of issuance, net of issuance costs, and classified the redeemable convertible preferred stock outside of stockholders’ equity (deficit) on the balance sheet as events triggering the liquidation preferences were not solely within the Company’s control. Upon the closing of the Company's IPO, all shares of convertible preferred stock then outstanding converted into an aggregate of 23,178,555 shares of common stock resulting in the reclassification of $144,140,000 from outside of stockholders’ equity (deficit) to additional paid-in capital.
Revenue Recognition
On January 1, 2018, the Company adopted ASC Topic 606, "Revenue from Contracts with Customers," using the modified retrospective method applied to contracts which were not completed as of that date.  Revenue for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period revenue amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 605, "Revenue Recognition." Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps:
(i) identify the contract(s) with a customer;
(ii) identify the performance obligations in the contract;
(iii) determine the transaction price;
(iv) allocate the transaction price to the performance obligations in the contract; and
(v) recognize revenue when (or as) the entity satisfies a performance obligation.
Under ASC 606, assuming all other revenue recognition criteria have been met, the Company will recognize revenue earlier for arrangements where the Company has satisfied its performance obligations but have not issued invoices.  As of September 30, 2019 and December 31, 2018, the Company recorded $149,000 and $128,000, respectively, of unbilled receivables, which are included in accounts receivable, net on the condensed consolidated balance sheet, as the Company has an unconditional right to payment as of the end of the applicable period.  
13

Silk Road Medical, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The Company’s revenue is generated from the sale of its products to hospitals and medical centers in the United States through direct sales representatives. Revenue is recognized when obligations under the terms of a contract with customers are satisfied, which occurs with the transfer of control of the Company’s products to its customers, either upon shipment of the product or delivery of the product to the customer under the Company’s standard terms and conditions.  The Company’s products are readily available for usage as soon as the customer possesses it. Upon receipt, the customer controls the economic benefits of the product, has significant risks and rewards, and the legal title. The Company has present right to payment; therefore, the transfer of control is deemed to happen at a point in time. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring the goods.
For sales where the Company’s sales representative hand delivers product directly to the hospital or medical center from the sales representative’s trunk stock inventory, the Company recognizes revenue upon delivery, which represents the point in time when control transfers to the customer. Upon delivery there are legally-enforceable rights and obligations between the parties which can be identified, commercial substance exists and collectability is probable. For sales which are sent directly from the Company to hospitals and medical centers, the transfer of control occurs at the time of shipment or delivery of the product.  There are no further performance obligations by the Company or the sales representative to the customer after delivery under either method of sale. As allowed under the practical expedient, the Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which it recognizes revenue at the amount to which it has the right to invoice for services performed.
The Company is entitled to the total consideration for the products ordered by customers as product pricing is fixed according to the terms of customer contracts and payment terms are short. Payment terms fall within the one-year guidance for the practical expedient which allows the Company to forgo adjustment of the promised amount of consideration for the effects of a significant financing component. The Company excludes taxes assessed by governmental authorities on revenue-producing transactions from the measurement of the transaction price.
Costs associated with product sales include commissions and royalties. The Company applies the practical expedient and recognizes commissions and royalties as expense when incurred because the expense is incurred at a point in time and the amortization period is less than one year.  Commissions are recorded as selling expense and royalties are recorded as cost of goods sold in the condensed consolidated statements of operations and comprehensive loss.
The Company accepts product returns at its discretion or if the product is defective as manufactured. The Company establishes estimated provisions for returns based on historical experience.  The Company elected to expense shipping and handling costs as incurred and includes them in the cost of goods sold. Where the Company bills shipping and handling costs to customers, it will classify the amounts billed as a component of revenue.
Cost of Goods Sold
The Company manufactures certain of its portfolio of TCAR products at its facility and purchases other products from third party manufacturers. Cost of goods sold consists primarily of costs related to materials, components and subassemblies, manufacturing overhead costs, direct labor, reserves for excess, obsolete and non-sellable inventories as well as distribution-related expenses. A significant portion of the Company’s cost of goods sold currently consists of manufacturing overhead costs. These overhead costs include the cost of quality assurance, material procurement, inventory control, facilities, equipment and operations supervision and management. Cost of goods sold also includes depreciation expense for production equipment and certain direct costs such as shipping costs and royalties.
14

Silk Road Medical, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Stock–Based Compensation
The Company accounts for stock-based compensation in accordance with Financial Accounting Standards Board (“FASB”) ASC 718, "Compensation-Stock Compensation." ASC 718 requires the recognition of compensation expense, using a fair-value based method, for costs related to all share-based payments including stock options. ASC 718 requires companies to estimate the fair value of all share-based payment option awards on the date of grant using an option pricing model. The fair value of stock options is recognized over the period during which an optionee is required to provide services in exchange for the option award, known as the requisite service period (usually the vesting period), on a straight-line basis. For performance-based stock options, the Company will assess the probability of performance conditions being achieved in each reporting period. The amount of stock-based compensation expense recognized in any one period related to performance-based stock options can vary based on the achievement or anticipated achievement of the performance conditions. The Company accounts for option forfeitures as they occur.
Income Taxes
The Company accounts for income taxes under the liability method, whereby deferred tax assets and liabilities are determined based on the difference between the condensed consolidated financial statements and tax bases of assets and liabilities using the enacted tax rates in effect for the year in which the differences are expected to affect taxable income. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized. As the Company has historically incurred operating losses, it has established a full valuation allowance against its net deferred tax assets, and there is no provision for income taxes.
The Company also follows the provisions of ASC 740-10, "Accounting for Uncertainty in Income Taxes." ASC 740-10 prescribes a comprehensive model for the recognition, measurement, presentation and disclosure in financial statements of any uncertain tax positions that have been taken or expected to be taken on a tax return. No liability related to uncertain tax positions is recorded on the condensed consolidated financial statements. It is the Company's policy to include penalties and interest expense related to income taxes as part of the provision for income taxes.
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 outstanding during the period, without consideration for potential dilutive common shares. Diluted net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, redeemable convertible preferred stock and warrants, and common stock options are considered to be potentially dilutive securities. Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential dilutive common shares would have been anti-dilutive.
The Company allocates no loss to participating securities because they have no contractual obligation to share in the losses of the Company. The shares of the Company’s redeemable convertible preferred stock participate in any dividends declared by the Company and are therefore considered to be participating securities.
15

Silk Road Medical, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Net loss per share was determined as follows (in thousands, except share and per share data):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2019201820192018
Net loss $(8,007) $(8,952) $(44,124) $(22,010) 
Weighted average common stock outstanding used to compute net loss per share, basic and diluted30,764,354  1,054,794  20,249,580  911,873  
Net loss per share, basic and diluted$(0.26) $(8.49) $(2.18) $(24.14) 

The following potentially dilutive securities outstanding have been excluded from the computation of diluted weighted average shares outstanding because such securities have an antidilutive impact due to the Company's net loss, in common stock equivalent shares:
September 30,
20192018
Redeemable convertible preferred stock outstanding  21,233,190  
Redeemable convertible preferred stock warrants outstanding  2,672,502  
Common stock options4,677,878  4,292,056  
Common stock warrants outstanding  7,527  
4,677,878  28,205,275  

Comprehensive Loss
For the three and nine months ended September 30, 2019 and September 30, 2018, there was no difference between comprehensive loss and the Company’s net loss.
Segment and Geographical Information
The Company operates and manages its business as one reportable and operating segment. The Company’s chief executive officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance. All of the Company’s long-lived assets are based in the United States. Long-lived assets are comprised of property and equipment. All of the Company’s revenue was in the United States for the three and nine months ended September 30, 2019 and September 30, 2018, based on the shipping location of the external customer.

3.    Recent Accounting Pronouncements
Recently Adopted Accounting Standards
In February 2016, the FASB issued ASU No. 2016-02, "Leases," that supersedes ASC 840, "Leases." Subsequently, the FASB issued several updates to ASU No. 2016-02, codified in ASC Topic 842 (“ASC 842”). The Company adopted ASC 842 on January 1, 2019 using the modified retrospective method for all leases not substantially completed as of the date of adoption.  The Company elected to apply the package of practical expedients, which allowed the Company to not reassess: (i) whether expired or existing contracts contain leases; (ii) lease classification for any expired or existing leases; and (iii) initial direct costs for any existing lease.
16

Silk Road Medical, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Recently Issued Accounting Standards
In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Statements." This update provides financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The update replaces the incurred loss impairment methodology in current U.S. GAAP 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. ASU No. 2016-13 is effective for public entities for annual periods beginning after December 15, 2019. The Company is evaluating the impact of adopting this guidance to its consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement," which changed the disclosure requirements for fair value measurements by removing, adding and modifying certain disclosures. The standard is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the impact of adopting this guidance to its consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-15, "Cloud Computing Arrangements," which aligns the requirements for capitalizing implementation costs in a Cloud Computing Arrangement service contract with the requirements for capitalizing implementation costs incurred for an internal-use software license. The standard is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the impact of adopting this guidance to its consolidated financial statements and related disclosures.

4.    Fair Value Measurements
The Company measures certain financial assets and liabilities at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:
Level 1 – quoted prices in active markets for identical assets or liabilities;
Level 2 – observable inputs other than quoted prices in active markets for identical assets and liabilities;
Level 3 – unobservable inputs.
The Company’s cash equivalents are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Management believes that borrowings under its term loan bear interest at the prevailing market rates for instruments with similar characteristics (a Level 2 input); accordingly, the carrying value of this instrument approximates its fair value.

In August 2014 through April 2016, the Company issued warrants to purchase 2,672,502 shares of Series C redeemable convertible preferred stock at the exercise price of $6.11 per share. As a derivative liability, the redeemable convertible warrants were initially recorded at fair value and were subject to remeasurement at each balance sheet date through the date of the Company's initial public offering in April 2019. Any change in fair value as a result of a remeasurement was recognized as a component of other income (expense), net in the condensed consolidated statements of operations and comprehensive loss. The Company’s redeemable convertible warrant liability was classified within Level 3 of the fair value hierarchy.
17

Silk Road Medical, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
At December 31, 2018, the fair value of the redeemable convertible warrant liability was determined by using an option pricing model to allocate the total enterprise value to the various securities within the Company's capital structure. As of December 31, 2018, the fair value of the redeemable convertible warrant liability was based on both the estimated fair value of the Company's common stock and on valuation models discounted at current implied market rates which are based on Level 3 inputs. Additionally, the model's inputs reflect assumptions that market participants would use in pricing the instrument in a current period transaction and included:
December 31,
2018
Time to liquidity (years)0.57
Expected volatility62.5 
Discounted cash flow rate12.0 
Risk-free interest rate2.6 
Marketability discount rate14 

The final fair value of the redeemable convertible warrants was remeasured on the date of the Company's initial public offering in April 2019. The final fair value of the redeemable convertible warrant liability was based on the estimated fair value of the Company's common stock at the time of its initial public offering. Subsequent to April 2019, there were no changes in fair value.
The following table sets forth the fair value of the Company’s financial liabilities measured on a recurring basis as of December 31, 2018 (in thousands), as of September 30, 2019, there was no redeemable convertible warrant liability:
December 31, 2018
Level 1Level 2Level 3Total
Liabilities
Redeemable convertible warrant liability$  $  $16,091  $16,091  

The changes in the redeemable convertible warrant liability are summarized below (in thousands):