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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________

FORM 10-Q

______________________________

(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, 2023

OR

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

For the transition period from               to

Commission File Number   001-38847     

______________________________

SILK ROAD MEDICAL, INC.

(Exact name of registrant as specified in its charter)

______________________________

Delaware

20-8777622

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

1213 Innsbruck Dr., Sunnyvale, CA 94089

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (408) 720-9002

_______________________________

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, $0.001 par value

SILK

Nasdaq Stock Market LLC

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 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).  Yes ☐    No 

As of April 30, 2023, the number of outstanding shares of the registrant's common stock, par value $0.001 per share, was 38,728,649.


TABLE OF CONTENTS

Part I: Financial Information

Page

Item 1.

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 

22

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

28

Item 4.

Controls and Procedures

29

Part II: Other Information

Item 1.

Legal Proceedings

30

Item 1A.

Risk Factors

30

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

70

Item 3.

Defaults Upon Senior Securities

70

Item 4.

Mine Safety Disclosures

70

Item 5.

Other Information

70

Item 6.

Exhibits

71

Signatures

72

 

As used in this report, references to “Silk Road Medical,” the “Company,” “we,” “our” or “us,” unless the context otherwise requires, refer to Silk Road Medical, Inc.

“Silk Road Medical,” the “Silk Road Medical” logo, “TCAR,” “ENROUTE,” the “ENROUTE” logo, “ENHANCE,” “Enflate” and our other registered or common law trade names, trademarks or service marks appearing in this Quarterly Report on Form 10-Q are our property. Trade names, trademarks and service marks of other companies appearing in this Quarterly Report on Form 10-Q are the property of their respective owners. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies unless otherwise stated. Solely for convenience, the trademarks and tradenames referred to in this Quarterly Report on Form 10-Q appear without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor to these trademarks and tradenames.

1


CAUTIONARY NOTE 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 within the meaning of the federal securities laws and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. 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, or the use of future dates.

These forward-looking statements include, but are not limited to, statements about the following subjects:

our goal to establish transcarotid artery revascularization, or TCAR, as the standard of care for the treatment of carotid artery disease;

our 2023 strategic priorities to grow, strengthen and diversify our business;

our plans to conduct further clinical trials and anticipated enrollment, clinical sites, completion, results and timing thereof;

our plans and expected timeline related to our products, including timing of commercial launch, 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, including market awareness, acceptance and adoption of our products and anticipated increased utilization of our products and market penetration;

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 and the sufficiency of our current manufacturing capabilities;

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 and the anticipated timing thereof, including in Japan and China;

our compliance with extensive Nasdaq and U.S. Securities and Exchange Commission, or SEC, requirements and government laws, rules and regulations both in the United States and internationally;

our expectations regarding operating trends, future financial performance and expense management and our estimates of our future expenses, ongoing losses, future revenue, including per procedure revenue and the effect thereon of new products, gross margins, operating leverage, 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; 

2


our expectations regarding operating in a more normal health care operating environment;

our experience with inflationary and price pressures and increased labor costs and labor and staffing shortages;

developments and projections relating to our market opportunity and penetration, 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 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 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 changes in our expectations. 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.

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: Condensed Financial Statements

 

Silk Road Medical, Inc.

Condensed Balance Sheets

(unaudited)

(in thousands, except share and per share data)

March 31,

December 31,

2023

2022

Assets

Current assets:

Cash and cash equivalents

$

50,427 

$

55,358 

Short-term investments

138,640 

158,316 

Accounts receivable, net

19,956 

18,007 

Inventories

17,182 

19,293 

Prepaid expenses and other current assets

4,049 

3,924 

Total current assets

230,254 

254,898 

Long-term investments

15,285 

Property and equipment, net

8,897 

9,372 

Restricted cash

155 

155 

Other non-current assets

4,996 

5,260 

Total assets

$

259,587 

$

269,685 

Liabilities and stockholders' equity

Current liabilities:

Accounts payable

$

5,272 

$

2,523 

Accrued liabilities

15,598 

21,965 

Total current liabilities

20,870 

24,488 

Long-term debt

74,848 

74,596 

Other liabilities

6,256 

6,726 

Total liabilities

101,974 

105,810 

Commitments and contingencies (Note 7)

 

 

Stockholders' equity:

Preferred stock, $0.001 par value

Shares authorized: 5,000,000 at March 31, 2023 and December 31, 2022

Shares issued and outstanding: none at March 31, 2023 and December 31, 2022

Common stock, $0.001 par value

Shares authorized: 100,000,000 at March 31, 2023 and December 31, 2022

Shares issued and outstanding: 38,708,441 and 38,355,972 at March 31, 2023 and December 31, 2022, respectively

39 

38 

Additional paid-in capital

517,663 

507,715 

Accumulated other comprehensive income (loss)

83 

(166)

Accumulated deficit

(360,172)

(343,712)

Total stockholders' equity

157,613 

163,875 

Total liabilities and stockholders' equity

$

259,587 

$

269,685 

 

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,

2023

2022

Revenue

$

40,131 

$

28,021 

Cost of goods sold

12,526 

8,577 

Gross profit

27,605 

19,444 

Operating expenses:

Research and development

10,433 

8,123 

Selling, general and administrative

34,082 

27,275 

Total operating expenses

44,515 

35,398 

Loss from operations

(16,910)

(15,954)

Interest income

2,287 

12 

Interest expense

(1,693)

(621)

Other income (expense), net

(144)

(116)

Net loss

(16,460)

(16,679)

Other comprehensive loss:

Change in unrealized gain (loss) on investments, net

249 

Net change in other comprehensive loss

249 

Net loss and comprehensive loss

$

(16,211)

$

(16,679)

Net loss per share, basic and diluted

$

(0.43)

$

(0.48)

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

38,532,202 

35,023,297 

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 (Loss)

Total

Balances at December 31, 2022

38,355,972 

$

38 

$

507,715 

$

(343,712)

$

(166)

$

163,875 

Exercise of stock options

144,474 

— 

1,110 

— 

— 

1,110 

Issuance of common stock upon vesting of restricted stock units

207,995 

1

— 

— 

1 

Stock-based compensation

— 

— 

8,838 

— 

— 

8,838 

Net loss

— 

— 

— 

(16,460)

— 

(16,460)

Unrealized gain on investments, net

— 

— 

— 

249

249 

Balances at March 31, 2023

38,708,441 

$

39 

$

517,663 

$

(360,172)

$

83 

$

157,613 

(in thousands, except share data)

Common Stock

Additional
Paid-in

Accumulated

Accumulated
Other Comprehensive

Shares

Amount

Capital

Deficit

Income (Loss)

Total

Balances at December 31, 2021

34,980,896 

$

35 

$

367,907 

$

(288,702)

$

— 

$

79,240 

Exercise of stock options

35,453 

— 

168 

— 

— 

168 

Issuance of common stock upon vesting of restricted stock units

57,253 

— 

— 

— 

Stock-based compensation

— 

— 

4,978 

— 

— 

4,978 

Net loss

— 

— 

— 

(16,679)

— 

(16,679)

Balances at March 31, 2022

35,073,602 

$

35 

$

373,053 

$

(305,381)

$

— 

$

67,707 

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,

2023

2022

Cash flows from operating activities

Net loss

$

(16,460)

$

(16,679)

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

Depreciation and amortization expense

699 

420 

Stock-based compensation expense

8,838 

4,978 

Amortization of premiums (accretion of discounts) on investments, net

(1,753)

Amortization of debt discount and debt issuance costs

57 

39 

Amortization of right-of-use asset

281 

242 

Non-cash interest expense

218 

Loss on disposal of property and equipment

144 

120 

Change in accounts receivable allowances

19 

(6)

Provision for excess and obsolete inventories

1 

(8)

Changes in assets and liabilities:

Accounts receivable

(1,968)

(2,038)

Inventories

2,109 

134 

Prepaid expenses and other current assets

(124)

847 

Other assets

(17)

(5)

Accounts payable

2,668 

19 

Accrued liabilities

(6,388)

(3,168)

Other liabilities

(471)

380 

Net cash used in operating activities

(12,147)

(14,725)

Cash flows from investing activities

Purchases of property and equipment

(287)

(2,072)

Purchases of investments

(26,407)

Proceeds from maturity of investments

32,800 

Net cash provided by (used in) investing activities

6,106 

(2,072)

Cash flows from financing activities

Proceeds from issuance of common stock

1,110 

168 

Net cash provided by financing activities

1,110 

168 

Net change in cash, cash equivalents and restricted cash

(4,931)

(16,629)

Cash, cash equivalents and restricted cash, beginning of period

55,513 

110,463 

Cash, cash equivalents and restricted cash, end of period

$

50,582 

$

93,834 

Supplemental disclosure of cash flow information

Cash paid for interest

$

1,418 

$

582 

Noncash investing and financing activities:

Accounts payable and accrued liabilities for purchases of property and equipment

$

58 

$

638 

 

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.    Organization

The Company

Silk Road Medical, Inc., or 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 products enable a 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.

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 condensed balance sheet as of December 31, 2022, 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, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 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, 2022 included in the Company's annual report on Form 10-K filed with the SEC on February 28, 2023.

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 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 March 31, 2023 and December 31, 2022. The carrying amounts of certain of the Company’s financial instruments, which include 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 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 recorded at fair value, based on quoted market prices. As of

 

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Table of Contents

 

Silk Road Medical, Inc.

Notes to Condensed Financial Statements

(unaudited)

March 31, 2023 and December 31, 2022, the Company’s cash equivalents are entirely comprised of investments in money market funds.

Restricted cash as of both March 31, 2023 and December 31, 2022 consists of a letter of credit of $155,000, representing collateral for the Company's facility lease in California.

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. Unrealized gains and losses, deemed temporary in nature, are reported as a separate component of accumulated other comprehensive income (loss). Realized gains and losses are included in earnings and are derived based on the specific-identification method for determining the costs of investments sold and were insignificant for the three months ended March 31, 2023. 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. The Company did not recognize any credit losses on its available-for-sale securities during the three months ended March 31, 2023.

The Company had no investments during the three months ended March 31, 2022.

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, 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. The Company invests in a variety of financial instruments, such as, but not limited to, commercial paper, corporate bonds/notes, U.S. government securities, U.S. treasury bills, agency bonds/notes 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, 2023 and 2022.

As of March 31, 2023 and December 31, 2022, a portion of the Company’s cash and cash equivalents was maintained with Silicon Valley Bank, or SVB, and exceeded federally insured limits. Substantially all of the Company’s cash equivalents and investments reside in a custodial account held by a third party, in which SVB Asset Management is the advisor. On March 10, 2023, SVB was shut down and placed under receivership with the Federal Deposit Insurance Corporation, or FDIC, by the California Department of Financial Protection and Innovation. On March 26, 2023, the FDIC announced it had entered into a purchase and assumption agreement with First-Citizens Bank & Trust Company under which all of SVB’s deposits were assumed. As of the issuance date of these financial statements, the Company has not experienced any losses on its deposits and all of the Company’s cash deposited with SVB has been accessible to the Company.

The Company’s accounts receivable are due from a variety of hospitals and medical centers in the United States. As of March 31, 2023 and December 31, 2022, no customer represented 10% or more of the Company’s accounts receivable. For the three months ended March 31, 2023 and 2022, 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.

 

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Table of Contents

 

Silk Road Medical, Inc.

Notes to Condensed Financial Statements

(unaudited)

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 Corporation, or Cordis. 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 U.S. Food and Drug Administration, or 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.

Leases

The Company accounts for its leasing arrangements in accordance with Accounting Standards Codification, or 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 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. The Company elected to account for contracts that contain lease and non-lease components as a single component, 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.

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. 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. 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

 

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Table of Contents

 

Silk Road Medical, Inc.

Notes to Condensed Financial Statements

(unaudited)

terms are short.

As of March 31, 2023 and December 31, 2022, the Company recorded $190,000 and $148,000, 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 excludes taxes assessed by governmental authorities on revenue-producing transactions from the measurement of the transaction price. Costs associated with product sales, which include commissions and royalties, are expensed 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 California and Minnesota facilities and purchases other products from third party manufacturers. Cost of goods sold consists primarily of costs related to materials, components and sub-assemblies, manufacturing overhead costs, direct labor, scrap, product rework, 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 control, 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. The Company entered into the lease for its additional facility in Minnesota in May 2021 and did not begin commercial production of the ENROUTE Neuroprotection System until the third quarter of 2022. During this time, the Company experienced additional overhead expenses related to its investment in the start-up phase of its manufacturing capacity expansion, which were recorded as a period expense.

Stock–Based Compensation

The Company accounts for stock-based compensation in accordance with Financial Accounting Standards Board, or 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, performance 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. The Company accounts for option forfeitures as they occur.

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 performance stock units with market-based conditions at their fair value on the date of the award using the Monte Carlo simulation model. These costs are recognized over the requisite service period, which is usually the vesting period, regardless of the likelihood of achievement of the market-based performance criteria.

 

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Table of Contents

 

Silk Road Medical, Inc.

Notes to Condensed Financial Statements

(unaudited)

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, 2023, 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 (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, common stock options, restricted stock units and performance 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,

2023

2022

Net loss

$

(16,460)

$

(16,679)

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

38,532,202 

35,023,297 

Net loss per share, basic and diluted

$

(0.43)

$

(0.48)

 

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Table of Contents

 

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,

2023

2022

Common stock options

3,689,853

4,197,518

Restricted stock units and performance stock units

1,692,645

1,123,515

5,382,498

5,321,033

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. All of the Company’s revenue was in the United States for the three months ended March 31, 2023 and 2022, based on the shipping location of the external customer.

 

3.    Recent Accounting Pronouncements

The Company has considered all recent accounting pronouncements that have not yet been adopted and believe there are none that could potentially 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 and investments. 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 are identical assets and liabilities;

Level 2 – observable inputs other than quoted prices in active markets for identical assets and liabilities;

Level 3 – unobservable inputs.

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 investments are classified within Level 1 of the fair value hierarchy include money market funds valued using quoted market prices and U.S. treasury bills valued using broker or dealer quotations with reasonable levels of price transparency. Investments classified within Level 2 include commercial paper, which are valued using model-based valuation techniques, and corporate bonds/notes, U.S. government securities and agency bonds/notes, which are valued based upon quoted market prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active 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.

 

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Table of Contents

 

Silk Road Medical, Inc.

Notes to Condensed Financial Statements

(unaudited)

The following tables set forth by level within the fair value hierarchy the Company’s assets that are reported at fair value as of March 31, 2023 and December 31, 2022, using the inputs defined above (in thousands):

March 31, 2023

Level 1

Level 2

Level 3

Total

Assets: