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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 March 31, 2021

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)

______________________________

Delaware

3841

20-8777622

(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 Filer

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 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 class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

SILK

Nasdaq Global Select Market

As of April 30, 2021, the number of outstanding shares of the registrant's common stock, par value $0.001 per share, was 34,482,310.


TABLE OF CONTENTS

Part I: Financial Information

Page

Item 1.

Unaudited Condensed Financial Statements

4

Condensed Balance Sheets

4

Condensed Statements of Operations and Comprehensive Loss

5

Condensed Statements of Stockholders' Equity

6

Condensed Statements of Cash Flows

7

Notes to Condensed Financial Statements

8

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations 

24

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

30

Item 4.

Controls and Procedures

31

Part II: Other Information

Item 1.

Legal Proceedings

31

Item 1A.

Risk Factors

31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

67

Item 3.

Defaults Upon Senior Securities

67

Item 4.

Mine Safety Disclosures

67

Item 5.

Other Information

67

Item 6.

Exhibits

68

Signatures

70

 

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 to obtain regulatory approvals or clearances or otherwise;

the expected use of our products by physicians;

our expectations regarding the number of procedures that will be 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 current products and any new products we create;

the expected growth of our business and our organization;

our expectations regarding government and third-party payer coverage and reimbursement;

our ability to retain and recruit key personnel, including the continued expansion of our 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 and our business;

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 ability to identify and develop new and planned products and/or acquire new products; 

our expectations regarding the continued impact of the COVID-19 pandemic on our business;

developments and projections relating to our competitors or our industry; and

our intended use of net proceeds from our public offerings.

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

2


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 Financial Statements

 

Silk Road Medical, Inc.

Condensed Balance Sheets

(unaudited)

(in thousands, except share and per share data)

March 31,

December 31,

2021

2020

Assets

Current assets:

Cash and cash equivalents

$

94,575 

$

69,466 

Short-term investments

41,497 

78,016 

Accounts receivable, net

11,106 

9,070 

Inventories

11,960 

9,989 

Prepaid expenses and other current assets

4,757 

6,787 

Total current assets

163,895 

173,328 

Property and equipment, net

2,777 

2,844 

Restricted cash

310 

310 

Other non-current assets

2,680 

2,832 

Total assets

$

169,662 

$

179,314 

Liabilities and stockholders' equity

Current liabilities:

Accounts payable

$

2,923 

$

2,598 

Accrued liabilities

13,291 

16,957 

Total current liabilities

16,214 

19,555 

Long-term debt

48,574 

48,533 

Other liabilities

3,720 

3,726 

Total liabilities

68,508 

71,814 

Commitments and contingencies (Note 7)

 

 

Stockholders' equity:

Preferred stock, $0.001 par value

Shares authorized: 5,000,000 at March 31, 2021 and December 31, 2020

Shares issued and outstanding: none at March 31, 2021 and December 31, 2020

Common stock, $0.001 par value

Shares authorized: 100,000,000 at March 31, 2021 and December 31, 2020

Shares issued and outstanding: 34,438,290 and 34,249,649 at March 31, 2021 and December 31, 2020, respectively

34 

34 

Additional paid-in capital

350,699 

346,318 

Accumulated other comprehensive income

6 

39 

Accumulated deficit

(249,585)

(238,891)

Total stockholders' equity

101,154 

107,500 

Total liabilities and stockholders' equity

$

169,662 

$

179,314 

 

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

4


Silk Road Medical, Inc.

Condensed Statements of Operations and Comprehensive Loss

(unaudited)

(in thousands, except share and per share data)

Three Months Ended

March 31,

2021

2020

Revenue

$

22,053 

$

18,933 

Cost of goods sold

5,538 

5,250 

Gross profit

16,515 

13,683 

Operating expenses:

Research and development

5,484 

3,131 

Selling, general and administrative

21,194 

19,692 

Total operating expenses

26,678 

22,823 

Loss from operations

(10,163)

(9,140)

Interest income

95 

404 

Interest expense

(623)

(1,202)

Other income (expense), net

(3)

(3)

Net loss

(10,694)

(9,941)

Other comprehensive loss:

Unrealized gain (loss) on investments, net

(33)

440 

Net change in other comprehensive loss

(33)

440 

Net loss and comprehensive loss

$

(10,727)

$

(9,501)

Net loss per share, basic and diluted

$

(0.31)

$

(0.32)

Weighted average common shares used to compute net loss per share, basic and diluted

34,336,433 

31,338,310 

 

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

5


Silk Road Medical, Inc.

Condensed Statements of Stockholders' Equity

(unaudited)

(in thousands, except share data)

Common Stock

Additional
Paid-in

Accumulated

Accumulated
Other Comprehensive

Shares

Amount

Capital

Deficit

Income

Total

Balances at December 31, 2020

34,249,649 

$

34 

$

346,318 

$

(238,891)

$

39 

$

107,500 

Exercise of stock options

163,151 

— 

848 

— 

— 

848 

Issuance of common stock upon release of restricted stock units

25,490 

— 

— 

— 

Stock-based compensation

— 

— 

3,533 

— 

— 

3,533 

Net loss

— 

— 

— 

(10,694)

— 

(10,694)

Unrealized loss on investments, net

— 

— 

— 

— 

(33)

(33)

Balances at March 31, 2021

34,438,290 

$

34 

$

350,699 

$

(249,585)

$

6 

$

101,154 

(in thousands, except share data)

Common Stock

Additional
Paid-in

Accumulated

Accumulated
Other Comprehensive

Shares

Amount

Capital

Deficit

Income

Total

Balances at December 31, 2019

31,255,267 

$

31 

$

263,384 

$

(191,526)

$

2 

$

71,891 

Exercise of stock options

140,370 

— 

274 

— 

— 

274 

Stock-based compensation

— 

— 

1,293 

— 

— 

1,293 

Net loss

— 

— 

— 

(9,941)

— 

(9,941)

Unrealized gains on investments, net

— 

— 

— 

— 

440 

440 

Balances at March 31, 2020

31,395,637 

$

31 

$

264,951 

$

(201,467)

$

442 

$

63,957 

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

6


Silk Road Medical, Inc.

Condensed Statements of Cash Flows

(unaudited)

(in thousands)

Three Months Ended

March 31,

2021

2020

Cash flows from operating activities

Net loss

$

(10,694)

$

(9,941)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization expense

239 

184 

Stock-based compensation expense

3,533 

1,293 

Amortization of premiums on investments, net

186 

79 

Amortization of debt discount and debt issuance costs

41 

12 

Amortization of right-of-use asset

158 

146 

Non-cash interest expense

83 

Change in provision for doubtful accounts receivable

(9)

Provision for excess and obsolete inventories

24 

92 

Changes in assets and liabilities:

Accounts receivable

(2,036)

(60)

Inventories

(1,790)

(1,871)

Prepaid expenses and other current assets

583 

983 

Other assets

(6)

55 

Accounts payable

218 

1,274 

Accrued liabilities

(2,423)

(3,912)

Other liabilities

(5)

(203)

Net cash used in operating activities

(11,972)

(11,795)

Cash flows from investing activities

Purchases of property and equipment

(67)

(134)

Purchases of investments

(1,974)

Proceeds from maturity of investments

36,300 

2,000 

Net cash provided by (used in) investing activities

36,233 

(108)

Cash flows from financing activities

Proceeds from issuance of common stock

848 

274 

Net cash provided by financing activities

848 

274 

Net change in cash, cash equivalents and restricted cash

25,109 

(11,629)

Cash, cash equivalents and restricted cash, beginning of period

69,776 

39,491 

Cash, cash equivalents and restricted cash, end of period

$

94,885 

$

27,862 

Supplemental disclosure of cash flow information

Cash paid for interest

$

582 

$

1,108 

Noncash investing and financing activities:

Accounts payable and accrued liabilities for purchases of property and equipment

$

106 

$

22 

 

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

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Table of Contents

 

Silk Road Medical, Inc.

Notes to Condensed 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 late 2015.

Public Offerings

In May 2020, the Company completed an underwritten public offering of 6,808,154 shares of its common stock, of which 1,923,076 shares were offered for sale by the Company and the remaining 4,885,078 shares were offered for sale by certain selling stockholders, at a public offering price of $39.00 per share. The Company received cash proceeds of approximately $70,543,000 after deducting underwriting discounts and commissions of approximately $3,750,000 and expenses of approximately $707,000. Also in May 2020, the underwriters fully exercised their option to purchase 1,021,223 additional shares of common stock from the selling stockholders. The Company did not receive any of the proceeds from the sale of the shares of its common stock by the selling stockholders.

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, 2020, and related disclosures, have been derived from the audited financial statements at that date but does not include all of the information required by U.S. GAAP for complete financial statements. These unaudited condensed financial statements have been prepared on the same basis as the Company’s annual 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 financial information. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any other interim period or for any other future year.

The accompanying interim unaudited condensed financial statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2020 included in the Company's annual report on Form 10-K filed with the SEC on March 1, 2021.

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 judgment when making estimates related to provisions for accounts receivable and excess and obsolete inventories, the valuation of deferred tax assets, the reserves for sales returns, and stock-based compensation. 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.

 

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Table of Contents

 

Silk Road Medical, Inc.

Notes to Condensed Financial Statements

(unaudited)

Due to the coronavirus (“COVID-19”) pandemic, there has been continued uncertainty and disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of March 31, 2021. The Company has also considered information available to it as of the date of issuance of these financial statements and is not aware of any specific events or circumstances that would require an update to its estimates or judgments, or a revision to the carrying value of its assets or liabilities. These estimates may change as new events occur and additional information becomes available. Actual results could differ materially from these estimates.

Fair Value of Financial Instruments

The Company has evaluated the estimated fair value of its financial instruments as of March 31, 2021 and December 31, 2020. The carrying amounts of certain of the Company’s financial instruments, which include cash equivalents, short-term investments, restricted cash, accounts receivable, accounts payable and accrued liabilities approximate their respective fair values because of the short-term nature of these instruments. Management believes that its long-term debt bears interest at the prevailing market rates for instruments with similar characteristics (Level 2 within the fair value hierarchy); accordingly, the carrying value of this instrument approximates its fair value.

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 March 31, 2021 and December 31, 2020, the Company’s cash equivalents are entirely comprised of investments in money market funds.

Restricted cash as of March 31, 2021 and December 31, 2020 consists of a letter of credit of $310,000 representing collateral for the Company's facility lease.

Investments

Short-term investments consist of debt securities classified as available-for-sale and have original maturities greater than 90 days, but less than one year as of the balance sheet date. Long-term investments have maturities greater than one year as of the balance sheet date. All investments are recorded at fair value based on the fair value hierarchy. Money market funds and United States treasury bills with an original maturity less than 90 days are classified within Level 1 of the fair value hierarchy, and commercial paper, corporate bonds/notes, United States Government securities, and asset-backed securities are classified within Level 2 of the fair value hierarchy. Unrealized gains and losses, deemed temporary in nature, are reported as a separate component of accumulated other comprehensive income (loss). The cost of available-for-sale investments sold is based on the specific-identification method. Realized gains and losses are included in earnings and are derived for specific-identification method for determining the costs of investments sold and were insignificant for the three months ended March 31, 2021 and 2020. Amortization of premiums and accretion of discounts are reported as a component of interest income.

A decline in the fair value of any security below cost that is deemed other than temporary results in a charge to earnings and the corresponding establishment of a new cost basis for the investment. The Company evaluates the securities in an unrealized loss position for expected credit losses by considering factors such as historical experience, market data, issuer-specific factors, current economic conditions and credit ratings.

Concentration of Credit Risk, and Other Risks and Uncertainties

The Company is subject to risks related to public health crises such as the global pandemic associated with COVID-19, which has spread to most countries and all 50 states within the United States. The COVID-19 outbreak has negatively impacted, and may continue to negatively impact the Company’s operations, its revenue and overall financial condition by significantly decreasing the number of TCAR procedures performed. The number of TCAR procedures performed, similar to other surgical procedures, has significantly decreased as health care organizations globally have prioritized the treatment of patients with COVID-19. For example, in the United States, governmental authorities have recommended, and in certain cases required, that elective, specialty and other procedures and appointments, be suspended or canceled

 

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Table of Contents

 

Silk Road Medical, Inc.

Notes to Condensed Financial Statements

(unaudited)

to focus limited resources and personnel and hospital capacity toward the treatment of COVID-19 and to avoid exposing patients to COVID-19. These measures and challenges will likely continue for the duration of the pandemic, which is uncertain, and will continue to negatively impact the Company’s revenue while the pandemic continues.

Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, investments and accounts receivable to the extent of the amounts recorded on the balance sheet. Cash, cash equivalents, and investments are deposited in financial institutions which, at times, may be in excess of federally insured limits. Cash equivalents are invested in highly rated money market funds and United States treasury bills. The Company invests in a variety of financial instruments, such as, but not limited to, commercial paper, corporate bonds/notes, United States Government securities, asset-backed securities and, by policy, limits the amount of credit exposure with any one financial institution or commercial issuer. The Company has not experienced any material losses on its deposits of cash and cash equivalents or investments during the three months ended March 31, 2021 and 2020.

The Company’s accounts receivable are due from a variety of health care organizations in the United States. At March 31, 2021 and December 31, 2020, no customer represented 10% or more of the Company’s accounts receivable. For the three months ended March 31, 2021 and 2020, there were no customers that represented 10% or more of revenue.

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 expected credit losses on customer accounts.

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 Transcarotid Stent System, manufactured by Cordis, a Cardinal Health Company. 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 government and 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.

Voluntary Recall

In January and February 2021, the Company announced the voluntary recall of certain lots of our ENROUTE Transcarotid Stent System, manufactured by one of its third-party suppliers, Cordis. The decision to recall these lots was based on complaints received about tips detaching from the stent delivery system as well as internal testing that the Company conducted. The Company believes the root cause of the detachment was a single operator at Cordis, who, over a specific timeframe, produced lots in which a small number of units were not reliably manufactured to specification.

As a result of the voluntary recall the Company reflected a current asset of $4,160,000 on its balance sheet as of December 31, 2020, relating to the replacement lots and other direct costs to be received from Cordis. This amount includes $2,227,000 of recalled ENROUTE stent delivery systems held in the Company's inventory as of December 31, 2020, $1,696,000 of ENROUTE stent delivery systems in the process of being returned from its customers and other direct costs of $237,000. In addition, the Company established an accrual of $1,696,000 relating to its obligation to

 

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Table of Contents

 

Silk Road Medical, Inc.

Notes to Condensed Financial Statements

(unaudited)

provide replacement ENROUTE stent delivery systems to its customers as of December 31, 2020. As of March 31, 2021, the Company has a current asset of $2,924,000 on its balance sheet, relating to the replacement lots and other direct costs to be received from Cordis. This amount comprises a receivable of $2,601,000 relating to both recalled ENROUTE stent delivery systems held in the Company’s inventory as of March 31, 2021 and pending replacement from Cordis, $111,000 of ENROUTE stent delivery systems to be returned from its customers and other direct costs of $212,000. In addition, as of March 31, 2021, the Company has a remaining accrual of $541,000 relating to its obligation to provide replacement ENROUTE stent delivery systems to its customers.

Leases

The Company accounts for leases in accordance with (“ASC”) 842, "Leases." The Company considers if an arrangement is a lease at inception if it obtains the right to control the use of an identified asset under a leasing arrangement with an initial term greater than twelve months. The Company determines whether a contract conveys the right to control the use of an identified asset for a period of time if the contract contains both the right to obtain substantially all of the economic benefits from the use of the identified asset and the right to direct the use of the identified asset. The Company also evaluates the nature of each lease 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. Variable lease costs represent payments that are dependent on usage, a rate or index. Variable lease costs, which consists primarily of taxes, insurance and common area maintenance costs, are expensed as incurred, as the Company has elected to account separately for contracts that contain lease and non-lease components, consistent with its historical practice. The Company does not have any finance leases.

Revenue Recognition

The Company recognizes revenue in accordance with ASC Topic 606, "Revenue from Contracts with Customers."  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.

As of March 31, 2021 and December 31, 2020, the Company recorded $227,000 and $71,000, respectively, of unbilled receivables, which are included in accounts receivable, net on the condensed balance sheet, as the Company has an unconditional right to payment as of the end of the applicable period.  

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.

 

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Silk Road Medical, Inc.

Notes to Condensed Financial Statements

(unaudited)

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 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 and considers other factors that it believes could significantly impact its expected returns, which provisions are classified within accrued liabilities on the condensed balance sheet.  The Company elected to expense shipping and handling costs as incurred and includes them in the cost of goods sold. In those cases 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.

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, restricted stock units and shares issued under its employee stock purchase plan. 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.

 

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Silk Road Medical, Inc.

Notes to Condensed Financial Statements

(unaudited)

The Company accounts for stock-based compensation for restricted stock units at their fair value, based on the closing market price of the Company's common stock on the date of grant. These costs are recognized on a straight-line basis over the requisite service period, which is usually the vesting period.

The Company accounts for stock-based compensation for its employee stock purchase plan based on the estimated fair value of the options on the date of grant. The Company estimates the grant date fair value using an option pricing model for each purchase period. These costs are recognized on a straight-line basis over the offering period.

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 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 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.

Comprehensive Loss

Comprehensive loss consists of net loss and changes in unrealized gains and losses on investments classified as available-for-sale. For the three months ended March 31, 2021 and 2020, the Company’s unrealized gains and losses on available-for-sale investments represent the only component of other comprehensive loss that are excluded from the reported net loss and that are presented in the condensed statements of operations and comprehensive loss. Accumulated other comprehensive income or loss is presented in the accompanying condensed balance sheets as a component of stockholders' equity.

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, common stock options, and restricted stock units 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.

Net loss per share was determined as follows (in thousands, except share and per share data):

Three Months Ended

March 31,

2021

2020

Net loss

$

(10,694)

$

(9,941)

Weighted average common stock outstanding used to compute net loss per share, basic and diluted

34,336,433 

31,338,310 

Net loss, basic and diluted

$

(0.31)

$

(0.32)

 

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Silk Road Medical, Inc.

Notes to Condensed Financial Statements

(unaudited)

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:

March 31,

2021

2020

Common stock options

4,288,835

4,842,641

Restricted stock units

251,138

38,225

4,539,973

4,880,866

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. Primarily all of the Company’s long-lived assets are based in the United States. Long-lived assets are comprised of property and equipment and the Company's right-of-use asset. All of the Company’s revenue was in the United States for the three months ended March 31, 2021 and 2020, based on the shipping location of the external customer.

 

3.    Recent Accounting Pronouncements

Effective January 1, 2021, the Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326):"Measurement of Credit Losses on Financial Instruments," which requires measurement and recognition of expected credit losses for most financial assets and certain other instruments. Unrealized losses on available-for-sale debt securities that are attributed to credit risk are recorded through earnings rather than to other comprehensive income. Credit losses relating to available-for-sale debt securities are now recorded through an allowance for credit losses. In addition, Topic 326 also provides new guidance related to the measurement of expected credit losses on the Company’s allowance for bad debt for accounts receivable, which is estimated upon assessment of various factors including historical collection experience, current and future economic market conditions and a review of the current aging status and financial condition of the Company’s customers. The Company adopted the new standard using a modified retrospective transition method, which required a cumulative-effect adjustment, if any, to the opening balance of retained earnings to be recognized on the date of adoption. The Company did not have any cumulative-effect adjustments as of the date of adoption.

Effective January 1, 2021, the Company adopted ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which enhances and simplifies various aspects of the income tax accounting guidance related to intra-period tax allocation, interim period accounting for enacted changes in tax law, and the year-to-date loss limitation in interim period tax accounting. ASU 2019-12 also amends other aspects of the guidance to reduce complexity in certain areas. The adoption did not have a material impact on the Company's financial statements and related disclosures.

 

4.    Fair Value Measurements

The Company measures certain financial assets and liabilities at fair value on a recurring basis, including cash equivalents, investments, and the Company's previously outstanding preferred stock warrants. 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.

 

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Silk Road Medical, Inc.

Notes to Condensed Financial Statements

(unaudited)

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability. 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. The corporate bonds/notes, commercial paper, asset-backed securities and U.S. government securities are classified as Level 2 as they are valued based upon quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets.

The following tables sets forth by level within the fair value hierarchy the Company’s assets that are reported at fair value as of March 31, 2021 and December 31, 2020, using the inputs defined above (in thousands):

March 31, 2021

Level 1

Level 2

Level 3

Total

Assets: