What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-03-11 compared with 2020-03-17 · 130 added, 172 removed, 311 unchanged (49% of the section changed)

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Our OCS products have been used for over 1,800 human organ transplants.

During our clinical trials, we established relationships with over 55 leading transplant programs worldwide.

We have commercialized the OCS Lung and OCS Heart outside of the United States and received our first PMA approval from the FDA in March 2018 for the use in the United States of the OCS Lung for donor lungs currently utilized for transplantation and since May 2019, for donor lungs currently unutilized for transplantation.

We expect FDA action over the next six months on additional applications for PMAs we have submitted in connection with our other OCS products.

We have commercialized the OCS Lung and OCS Heart outside of the United States and received our first PMA from the FDA in March 2018 for the use in the United States of the OCS Lung for donor lungs currently utilized for transplantation and since May 2019, for donor lungs currently unutilized for transplantation.

Since our inception, we have focused substantially all of our resources on designing, developing and building our proprietary OCS technology platform and organ-specific OCS products;

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raising capital;

and providing general and administrative support for these operations.

To date, we have funded our operations primarily with proceeds from sales of preferred stock and borrowings under loan agreements, proceeds from the sale of common stock in our IPO and revenue from clinical trials and commercial sales of our OCS products.

commercializing our products;

developing our market and distribution chain and providing general and administrative support for these operations.

To date, we have funded our operations primarily with proceeds from sales of preferred stock and borrowings under loan agreements, proceeds from the sale of common stock in our IPO, the sale of our common stock in equity offerings, and revenue from clinical trials and commercial sales of our OCS products.

Since our inception, we have incurred significant operating losses.

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As of December 31, 2020, we had an accumulated deficit of $398.2 million.

We expect to continue to incur net losses for the foreseeable future as we focus on growing commercial sales of our products in both the U.S.

and select non-U.S.

We expect to continue to incur net losses for the foreseeable future as we focus on growing commercial sales of our products in both the United States and select non-U.S.

markets, including growing our sales and clinical adoption team, which will pursue increasing commercial sales and clinical adoption of our OCS products;

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continuing research, development and clinical trial efforts;

and seeking regulatory clearance for new products and product enhancements, including new indications, in both the U.S.

and select non-U.S.

and seeking regulatory clearance for new products and product enhancements, including new indications, in both the United States and select non-U.S.

Further, following the closing of our IPO we have incurred and expect to continue to incur additional costs associated with operating as a public company.

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4 million, after deducting underwriting discounts and commissions as well as other offering costs of $6.0 million.

On May 6, 2019, immediately prior to the completion of our IPO, we completed a corporate reorganization whereby TransMedics, Inc., the direct parent of TransMedics Group, Inc.

prior to the corporate reorganization, became a direct, wholly-owned subsidiary of TransMedics Group, Inc.

pursuant to the merger of TMDX, Inc., a direct, wholly-owned subsidiary of TransMedics Group, Inc.

prior to the corporate reorganization, merged with and into TransMedics, Inc., with TransMedics, Inc.

as the surviving corporation.

As part of the transactions, each outstanding share of capital stock of TransMedics, Inc.

was converted into shares of common stock of TransMedics Group, Inc.

each outstanding option to purchase shares of common stock of TransMedics, Inc.

was converted into an outstanding option to purchase shares of common stock of TransMedics Group, Inc.

and each outstanding warrant to purchase shares of preferred stock of TransMedics, Inc.

was converted into a warrant to purchase shares of common stock of TransMedics Group, Inc..

On May 26, 2020, we completed an underwritten public offering of our common stock, which resulted in the sale of 5,750,000 shares of common stock, inclusive of 750,000 shares we sold pursuant to the full exercise of the underwriters’ option to purchase additional shares.

The aggregate net proceeds received by us from the offering were $75.1 million, after deducting underwriting discounts and commissions as well as other offering costs of $0.6 million.

Because of the numerous risks and uncertainties associated with product development and commercialization, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability.

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If we are unable to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the further development and commercialization efforts of one or more of our products, or may be forced to reduce or terminate our operations.

We believe that the net proceeds from our IPO, together with our cash and cash equivalents, and marketable securities, will enable us to fund our operating expenses, capital expenditure requirements and debt service payments for at least the next 12 months.

We believe that our cash and cash equivalents, and marketable securities, will be sufficient for us to fund our operating expenses, capital expenditure requirements and debt service payments for at least the next 12 months.

We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.

See “—Liquidity and Capital Resources”.

The impact of the COVID-19 pandemic has been and will likely continue to be extensive in many aspects of society, which has resulted in and will likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world.

Impacts to our business as a result of COVID-19 include the temporary disruption of transplant procedures at many of the organ transplant centers who purchase OCS products;

disruptions to our manufacturing operations and supply chain caused by facility closures, reductions in operating hours, staggered shifts and other social distancing efforts;

labor shortages;

decreased productivity and unavailability of materials or components;

restrictions on or delays of our clinical trials and studies;

delays of reviews and approvals by the FDA and other health authorities;

limitations on our employees’ and customers’ ability to travel, and delays in product installations, trainings or shipments to and from affected countries and within the United States.

In response to the pandemic , healthcare providers have, and may need to further, reallocate resources , such as physicians, staff, hospital beds and intensive care unit facilities, and these actions significantly delay the provision of other medical care such as organ transplantation and reduce the number of transplant procedures that are performed, which has a negative impact on our revenue and clinical trial activities.

Our sales and clinical adoption team has been and may continue to be restricted in visiting many transplant centers in person .

Customer delays or reductions in capital expenditures and operating budgets also have a negative impact on our product sales.

We plan to maintain these or similar restrictions until we believe employees can fully resume such activities in accordance with federal, state and local requirements.

The COVID-19 pandemic also has impacted operations at the FDA and other health authorities, resulting in delays of reviews and approvals, including with respect to our OCS Heart PMA application, and may affect other potential PMA applications.

For example, although the FDA had scheduled an advisory committee of experts from outside the FDA to review and evaluate our OCS Heart PMA application in the second quarter of 2020, due to the COVID-19 pandemic the advisory committee meeting was postponed to October 2020.

However, this meeting was further postponed to allow the FDA to review additional, already collected, short and longer-term data from the OCS Heart EXPAND Trial and OCS Heart EXPAND CAP trial.

The FDA advisory committee meeting is expected to be held on April 6, 2021.

In April 2020, we announced several steps to respond to the COVID-19 pandemic.

These steps are intended to protect the health and safety of our employees, to establish a process to support the continuous supply of our OCS products at transplant centers globally and to maintain financial flexibility.

These actions include transitioning most employees to a remote work environment, except for those who are deemed essential to product supply and reducing near-term expenses, such as reducing non-essential discretionary expenses.

We also deferred a portion of executive and employee compensation from April 2020 through August 31, 2020.

While the COVID-19 pandemic did not significantly impact our business or results of operations during the first quarter of 2020, OCS product sales have been negatively impacted by the COVID-19 pandemic since the second quarter of 2020 and we anticipate a negative impact to OCS product sales in 2021.

The extent of the future impact on our operations and financial condition will depend on the length and severity of the pandemic, its consequences, and containment and vaccination efforts.

While the FDA approved emergency use authorization of vaccines in December 2020, it is expected to take several months for widespread vaccinations to occur and it is not yet known how vaccination efforts will impact the COVID-19 pandemic.

We have observed recovery in the frequency of transplant procedures, but not yet at the same activity level as prior to the disruption of business and economic activities resulting from COVID-19.

In addition, while the number of transplant procedures performed has declined during the COVID-19 pandemic, organ transplantations are non-elective, life-saving procedures and we believe that the need for these procedures will persist.

However, as interventions to contain the spread of the virus are lifted or reduced, new COVID-19 outbreaks may result in new or heightened restrictions, which could again cause disruptions to our customers’ operations and adversely impact organ transplant procedures.

We continue to monitor developments regarding the COVID-19 pandemic and its impact on our business, financial condition, results of operations and prospects.

However, we are unable to predict the extent of the impact with confidence due to the uncertainty of future developments, such as the duration of the pandemic, additional or modified government actions, new information which may emerge concerning the severity and incidence of COVID-19 and actions to contain the virus or treat its impact.

In particular, the speed of the continued spread of COVID-19 globally, and the magnitude, duration and frequency of interventions to contain the spread of the virus, such as government-imposed quarantines, including shelter-in-place mandates, sweeping restrictions on travel, mandatory shutdowns for non-essential businesses, requirements regarding social distancing, and other public health safety measures, will determine the impact of the pandemic on our business.

Components of Our Results of Operations

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All of our revenue has been generated by sales to transplant centers in the United States, Europe and Asia-Pacific, or, in some cases, to distributors selling to transplant centers in select countries.

Substantially all of our customer arrangements have multiple-performance obligations that contain deliverables consisting of OCS Perfusion Sets and OCS Solutions.

In some of those multiple-element arrangements, the deliverables also include an OCS Console, whether sold or loaned to the customer.

Substantially all of our customer contracts have multiple-performance obligations that contain promises consisting of OCS Perfusion Sets and OCS Solutions.

In some of those contracts, the promises also include an OCS Console, whether sold or loaned to the customer.

Some of our revenue has been generated from products sold in conjunction with the clinical trials conducted for our OCS products, under arrangements referred to as customer clinical trial agreements.

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Over time, we typically recover the cost of the loaned OCS Console through the customer’s continued purchasing and use of additional OCS disposable sets.

For these reasons, we have determined that part of the arrangement consideration for the disposable set is an implied rental payment for use of the OCS Console.

We intend to continue to loan OCS Consoles to some of our customers during commercialization of our OCS products.

Because all elements of a customer order are delivered and recognized as revenue at the same time and because revenue allocated to elements other than OCS disposable sets, such as implied rental income and service revenue, is insignificant, all elements of revenue from customer arrangements are classified as a single category of revenue in our consolidated statement s of operations.

For these reasons, we have determined that part of the selling price for the disposable set is an implied rental payment for use of the OCS Console.

We continue to loan OCS Consoles to some of our customers during commercialization of our OCS products.

Because all promises of a customer contract are delivered and recognized as revenue at the same time and because revenue allocated to promises other than OCS disposable sets, such as implied rental income and service revenue, is insignificant, all performance obligations from customer contracts are classified as a single category of revenue in our consolidated statements of operations.

Under some of our customer clinical trial agreements, we make payments to our customers for reimbursements of clinical trial materials and for specified clinical documentation related to their use of our OCS products.

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We recorded reimbursable clinical trial costs as a reduction of revenue of $2.7 million and $2.2 million for the fiscal years ended December 31, 2020 and December 28, 2019, respectively.

Prior to the fourth quarter of 2018, all of our net revenue in the United States had been generated from sales of OCS disposable sets sold in conjunction with clinical trials conducted for our OCS products.

In March 2018, we received our first PMA for the OCS Lung, and we began commercial sales of this product in the United States during the fourth quarter of 2018.

Therefore, commencing in the fourth quarter of 2018, our net revenue in the United States is derived from both clinical trial sales and commercial sales and consists primarily of sales of OCS disposable sets and, to a much lesser extent, sales of OCS Consoles.

In May 2019, we received our second FDA PMA approval for the OCS Lung for additional clinical indications.

We expect to continue to have U.S.

clinical trial sales for our OCS Heart and OCS Liver products until we receive similar FDA PMA approvals for those products.

Historically, our net revenue in the United States fluctuated from period to period as a result of the timing of patient enrollment in our clinical trials.

Our net revenue during periods of patient enrollment has been higher due to the sale of OCS disposable sets for use during these clinical trials, as compared to periods during which our clinical trials were not actively enrolled.

In March 2018, we received our first FDA PMA for the OCS Lung, and we began commercial sales of this product in the United States during the fourth quarter of 2018.

In May 2019, we received our second FDA PMA for the OCS Lung for additional clinical indications.

Therefore, our net revenue in the United States for the OCS Lung is now derived primarily from commercial sales and consists of sales of OCS disposable sets and, to a much lesser extent, sales of OCS Consoles .

In 2019, we also recorded revenue from clinical trial sales of the OCS Lung for our OCS Lung EXPAND II Trial, which stopped enrollment as of June 24, 2019 since we received FDA PMA for the OCS Lung EXPAND indication.

In the United States, we expect to continue to only have clinical trial sales for our OCS Heart and OCS Liver products until we receive similar FDA PMA for those products.

Our net revenue in the United States for OCS Heart and OCS Liver products fluctuates from period to period as a result of the timing of patient enrollment in our clinical trials.

Historically, our net revenue during periods of patient enrollment has been higher due to the sale of OCS disposable sets for use during these clinical trials, as compared to periods during which our clinical trials were not actively enrolling.

Our OCS Heart EXPAND Trial began patient enrollment in September 2015 and completed patient enrollment in March 2018.

Our Liver PROTECT Trial began enrollment in January 2016 and completed enrollment in October 2019.

Our OCS Lung EXPAND II Trial began patient enrollment in March 2018 and has stopped enrollment as of June 24, 2019 since we received FDA PMA approval for the OCS Lung EXPAND indication.

Our OCS Heart EXPAND CAP Trial and our OCS Heart DCD Trial began patient enrollment in May 2019 and December 2019, respectively, and are currently enrolling patients.

Our OCS Liver PROTECT CAP Trial began patient enrollment in February 2020 and is currently enrolling patients.

Our OCS Liver PROTECT trial began enrollment in January 2016 and completed enrollment in October 2019.

Our OCS Heart EXPAND CAP trial began patient enrollment in May 2019 and is currently enrolling patients.

Our OCS Heart DCD trial began patient enrollment in December 2019 and has completed enrolling patients.

Our OCS Heart DCD CAP trial has been approved by the FDA and we began enrolling patients in December 2020.

Our OCS Liver PROTECT CAP trial began patient enrollment in February 2020 and has completed initial enrollment;

however, we have applied to the FDA to enroll additional patients in this trial.

Our net revenue may continue to fluctuate from period to period as a result of the timing of ongoing clinical trials in which our OCS products are used.

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Commercial sales of OCS disposable sets generally have a higher average selling price than clinical trial sales of OCS disposable sets.

We expect that our net revenue will increase in the future as a result of receiving our first two FDA PMA approvals for the OCS Lung in the United States in March 2018 and May 2019 and any potential future FDA approvals in the United States for OCS Heart and OCS Liver.

We also expect that our net revenue will increase as a result of anticipated growth in non-U.S.

We expect that our net revenue will increase over the long term as a result of receiving our first two FDA PMAs for the OCS Lung in the United States in March 2018 and May 2019 and any potential future FDA approvals in the United States for OCS Heart and OCS Liver.

We also expect that our net revenue will increase over the long term as a result of anticipated growth in non-U.S.

sales if national healthcare systems begin to reimburse transplant centers for the use of the OCS, if transplant centers utilize the OCS in more transplant cases, and if more transplant centers adopt the OCS in their programs.

Our consolidated financial results for the fiscal year ended December 28, 2019 reflect our adoption of ASC 606, Revenue from Contracts with Customers , as of December 30, 2018, applied using the modified retrospective method.

Under this method, (i) the new guidance was applied to customer contracts that were not yet completed as of December 29, 2018, with the cumulative effect of initially applying the new guidance being recorded as an adjustment to accumulated deficit on the effective date of adoption, and (ii) our historical results for all periods prior to December 30, 2018, including for the fiscal year ended December 29, 2018 are not adjusted.

Our adoption of ASC 606 did not have a material impact on our consolidated financial statements, and the revenue recognition of our OCS products remained substantially unchanged.

The impact of the adoption of ASC 606 on our consolidated financial statements is described in Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

We expect that net revenue will continue to be negatively impacted in 2021 a result of the COVID-19 pandemic.

Cost of Revenue, Gross Profit and Gross Margin

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When we loan an OCS Console to a customer for its use free of charge, we capitalize as property and equipment the cost of our OCS Console and depreciate these assets over the five-year estimated useful life of the console.

Included in the cost of disposable sets is the cost of our OCS Lung, OCS Heart and OCS Liver Solutions.

In the fiscal year ended December 29, 2018, if we did not meet our annual obligation to purchase minimum quantities from our supplier of OCS Lung Solution, we were obligated to pay a premium equal to the order shortfall multiplied by a specified price.

We capitalized any estimated premium we expected to pay at the end of each year as an adjustment to the inventory cost of OCS Lung Solution ordered during that year.

The capitalized inventory adjustment is recognized as a component of cost of revenue when related OCS disposable sets are sold.

We expect that cost of revenue will increase in absolute dollars primarily as, and to the extent that, our net revenue increases.

Included in the cost of OCS disposable sets are the costs of our OCS Lung, OCS Heart and OCS Liver Solutions.

We expect that cost of revenue will increase or decrease in absolute dollars primarily as, and to the extent that, our net revenue increases or decreases.

Gross profit is the amount by which our net revenue exceeds our cost of revenue in each reporting period.

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Our gross margin has been and will continue to be affected by a variety of factors, primarily production volumes, the cost of components and direct materials, manufacturing costs, headcount, the selling price of our OCS products and fluctuations in amounts paid by us to customers related to reimbursements of their clinical trial expenses.

We expect that cost of revenue as a percentage of net revenue will decrease and gross margin and gross profit will increase over the long term as our sales and production volumes increase and our cost per unit of our disposable sets decreases due to efficiencies of scale.

We expect that cost of revenue as a percentage of net revenue will decrease and gross margin and gross profit will increase over the long term as our sales and production volumes increase and our cost per unit of our OCS disposable sets decreases due to economies of scale.

We intend to use our design, engineering and manufacturing capabilities to further advance and improve the efficiency of our manufacturing processes, which we believe will reduce costs and increase our gross margin.

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We expense research, development and clinical trials costs as incurred.

In the future, we expect that research, development and clinical trials expenses will increase due to ongoing product development and approval efforts.

In the future, we expect that research, development and clinical trials expenses will increase over the long term due to ongoing product development and approval efforts.

We expect to continue to perform activities related to obtaining additional regulatory approvals for expanded indications in the United States and to developing the next generation of our OCS technology platform.

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and select non-U.S.

We expect that our selling, general and administrative expenses will increase as we increase our headcount to support the expected continued sales growth of our OCS products.

We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company.

We expect that our selling, general and administrative expenses will increase over the long term as we increase our headcount to support the expected continued sales growth of our OCS products.

We also anticipate that we will continue to incur increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with our continued operation as a public company.

Other Income (Expense)

Interest Expense

Interest expense consists of interest expense associated with outstanding borrowings under a prior loan agreement and our existing loan agreement as well as the amortization of debt discount associated with such agreements.

We expect our interest expense will increase in connection with our Credit Agreement with OrbiMed, under which we borrowed $35.0 million in June 2018.

At that time, we repaid the remaining $6.7 million of principal that had been outstanding under our prior loan and security agreement with Hercules Technology Growth Capital, or Hercules, thereby increasing our total debt by $28.3 million.

Interest expense consists of interest expense associated with outstanding borrowings under our loan agreement as well as the amortization of debt discount associated with such agreement.

Change in Fair Value of Preferred Stock Warrant Liability

In connection with our prior loan and security agreement, as amended, with Hercules, we issued warrants to purchase preferred stock.

Prior to our IPO in May 2019, we had outstanding warrants to purchase preferred stock.

We classified these warrants as a liability on our consolidated balance sheet that we remeasured to fair value at each reporting date, and we recognized changes in the fair value of the warrant liability as a component of other income (expense) in our consolidated statements of operations.

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Other Income (Expense), Net

Other income (expense), net includes interest income, foreign currency transaction gains and losses and other non-operating income and expense items unrelated to our core operations, including the loss on extinguishment of debt that we recognized in June 2018 in connection with our repayment of borrowings under our loan and security agreement with Hercules.

Other income (expense), net includes interest income, realized and unrealized foreign currency transaction gains and losses and other non-operating income and expense items unrelated to our core operations.

Interest income consists of interest earned on our invested cash balances.

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Results of Operations

Our fiscal year ends on the last Saturday in December, and we report fiscal years using a 52/53-week convention.

Under this convention, certain fiscal years contain 53 weeks.

Each fiscal year is typically composed of four 13-week fiscal quarters, but in years with 53 weeks, the fourth quarter is a 14-week period.

Our fiscal year ended December 28, 2019 and December 29, 2018 included 52 weeks.

Prior to 2020, our fiscal year ended on the last Saturday in December, and we reported fiscal years using a 52/53-week convention.

Under this convention, certain fiscal years contained 53 weeks.

Each fiscal year was typically composed of four 13-week fiscal quarters, but in years with 53 weeks, the fourth quarter was a 14-week period.

Our fiscal year ended December 28, 2019 included 52 weeks.

In February 2020, we changed the end of our fiscal year from the last Saturday in December to December 31.

Comparison of the Fiscal Years Ended December 31, 2020 and December 28, 2019

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Change in fair value of preferred stock warrant

Other income (expense), net

Other income, net

Total other expense, net

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Provision for income taxes

Net Revenue, Cost of Revenue and Gross Profit

Fiscal Year Ended

(in thousands)

Cost of revenue

Net revenue by geography:

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Total net revenue

Net revenue increased by $10.6 million in the fiscal year ended December 28, 2019 compared to the fiscal year ended December 29, 2018 primarily as a result of an increase in the number of OCS disposable sets sold to customers globally.

Net revenue from customers in the United States was $19.2 million in the fiscal year ended December 31, 2020 and increased by $3.0 million in the fiscal year ended December 31, 2020 compared to the fiscal year ended December 28, 2019.

The increase in net revenue from customers in the United States was primarily due to commercial sales of OCS Lung products, sales of OCS disposable sets for use in our OCS Heart EXPAND CAP Trial and OCS Heart DCD Trial and sales of OCS disposable sets to customers for use in our OCS Liver PROTECT Trial.

Net revenue from sales of OCS Lung products in the United States increased from $ 4.4 million in the fiscal year ended December 29, 2018 to $ 8.0 million in the fiscal year ended December 28, 2019, and the increase was due to sales of OCS Lung disposable sets.

The increase in net revenue from customers in the United States was primarily due to sales of OCS disposable sets for use in our OCS Heart EXPAND CAP Trial and OCS Heart DCD Trial and sales of OCS disposable sets to customers for use in our OCS Liver PROTECT CAP Trial, partially offset by a decrease in sales of our OCS Lung disposable sets.

Net revenue from sales of OCS Lung products in the United States decreased from $8.0 million in the fiscal year ended December 28, 2019 to $5.4 million in the fiscal year ended December 31, 2020.

The decrease was due to fewer sales of OCS Lung disposable sets as a result of the COVID-19 pandemic, which impacted lung transplants more than other organ transplants due to the nature of the disease, new protocols required for safe lung transplants and the necessary use of ventilators post-transplant.

Net revenue from OCS Heart disposable sets sold to customers for use in our OCS Heart EXPAND CAP Trial and OCS Heart DCD Trial increased from $4.7 million in the fiscal year ended December 28, 2019 to $8.6 million in the fiscal year ended December 31, 2020.

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In addition, the U.S.

selling price of OCS disposable sets sold in the fiscal year 2019 was approximately 17% higher than the U.S.

selling prices of OCS disposable sets sold in the fiscal year 2018, which accounted for $3.8 million of the overall $9.7 million increase in net revenue in the United States in the fiscal year 2018 to the fiscal year 2019.

Net revenue from customers outside the U.S.

was $7.4 million in the fiscal year ended December 28, 2019 and increased by $0.9 million compared to the fiscal year ended December 29, 2018.

The increase in net revenue from customers outside the United States was primarily due to sales of OCS Heart disposable sets to existing customers along with the addition of several new customers in the year.

The increases in net revenue by OCS product (i.e., OCS Lung, OCS Heart and OCS Liver) in the fiscal year ended December 28, 2019 compared to the fiscal year ended December 29, 2018 were each primarily due to an increase in the number of OCS disposable sets sold for each organ-specific OCS product.

selling price of OCS disposable sets sold in the fiscal year ended December 31, 2020 was approximately 12% higher than the U.S.

selling prices of OCS disposable sets sold in the fiscal year ended December 28, 2019, which accounted for $2.0 million of the overall $3.0 million increase in net revenue in the United States from the fiscal year ended December 28, 2019 to the fiscal year ended December 31, 2020.

Net revenue from customers outside the U nited States was $6.4 million in the fiscal year ended December 31, 2020 and decreased by $1.0 million compared to the fiscal year ended December 28, 2019.

The decrease in net revenue from customers outside the United States was primarily due to the adverse impact of the COVID-19 pandemic on the global economy.

Cost of Revenue, Gross Profit and Gross Margin

Cost of revenue increased by $2.5 million in the fiscal year ended December 28, 2019 compared to the fiscal year ended December 29, 2018.

Cost of revenue decreased by $0.7 million in the fiscal year ended December 31, 2020 compared to the fiscal year ended December 28, 2019.

Gross profit increased by $2.8 million in the fiscal year ended December 31, 2020 compared to the fiscal year ended December 28, 2019.

Gross margin was 65% and 59% for the fiscal year ended December 31, 2020 and December 28, 2019, respectively.

Gross profit and gross margin increased primarily as a result of a higher average selling price of OCS disposable sets sold in the United States in the fiscal year ended December 28, 2019 relative to the average selling price of OCS disposable sets in the fiscal year ended December 29, 2018 and overall higher sales, which resulted in a reduction of the impact of fixed costs in our manufacturing operation.

Gross profit and gross margin increased primarily as a result of a higher average selling price of OCS disposable sets sold in the United States in the fiscal year ended December 31, 2020 relative to the average selling price of OCS disposable sets sold in the fiscal year ended December 28, 2019 and cost reduction and cost containment measures adopted by management to address the challenges of the operating environment caused by the COVID-19 pandemic.

Operating Expenses

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Total research, development and clinical trials

Total research, development and clinical trials expenses increased by $6.2 million from $13.7 million in the fiscal year ended December 29, 2018 to $19.9 million in the fiscal year ended December 28, 2019.

Clinical trials costs increased by $2.1 million, primarily due to clinical trial activity in our active clinical trials;

the OCS Liver PROTECT Trial, the OCS Heart EXPAND CAP Trial and the OCS Heart DCD Trial.

Consulting and third-party testing costs increased by $2.0 million primarily due to clinical trial activity and new product development.

Personnel related costs increased $0.6 million primarily due to additional resources supporting clinical trials and new product development.

Total research, development and clinical trials expenses decreased by $1.0 million from $19.9 million in the fiscal year ended December 28, 2019 to $18.8 million in the fiscal year ended December 31, 2020.

Personnel related costs and clinical trial costs increased by $1.5 million and $0.4 million, respectively, due primarily to additional resources supporting clinical trials and new product development.

Consulting and third-party testing, laboratory supplies and research materials costs and other costs decreased by $2.7 million, $0.2 million and $0.1 million, respectively, due primarily to our cost management and cost containment strategies implemented by our management in 2020 to address the challenges of the operating environment caused by the COVID-19 pandemic.

Selling, General and Administrative Expenses

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Total selling, general and administrative expenses

Total selling, general and administrative expenses increased by $11.3 million from $12.3 million in the fiscal year ended December 29, 2018 to $23.6 million in the fiscal year ended December 28, 2019 primarily due to increases in personnel-related costs and professional and consultant fees as we hired additional resources and engaged consultants to support commercial sales of our OCS Lung product in the United States and to support our operation as a public company.

All other costs also increased by $3.0 million primarily as a result of increased costs to operate as a public company.

Total selling, general and administrative expenses increased by $0.6 million from $23.6 million in the fiscal year ended December 28, 2019 to $24.2 million in the fiscal year ended December 31, 2020 due primarily to increases in personnel related costs, as we hired additional resources and engaged consultants to support commercial sales of our OCS Lung product in the United States and to support our operation as a public company.

Stock-based compensation expense also increased by $1.3 million due primarily to additional grants to existing employees.

These increases were partially offset by professional and consultant fees and tradeshows and conferences decreases of $0.8 million and $1.1 million, respectively, primarily as a result of tradeshows and conferences being canceled or delayed due to the COVID-19 pandemic and cost management and cost containment strategies implemented by our management.

Other Income (Expense)

Interest Expense

Interest expense for the fiscal year December 29, 2018 consisted of interest on the outstanding borrowings under our loan and security agreement with Hercules and our Credit Agreement with OrbiMed.

Our loan and security agreement with Hercules was outstanding through June 22, 2018, when we terminated and repaid in full the borrowings under that agreement and entered into a new Credit Agreement with OrbiMed.

Interest expense increased by $1.6 million in the fiscal year ended December 28, 2019 compared to the fiscal year ended December 29, 2018 primarily as a result of a $28.3 million increase in our total outstanding borrowings in June 2018.

Interest expense decreased to $4.0 million for the fiscal year ending December 31, 2020 from $4.4 million for the fiscal year ending December 28, 2019, as a result of lower interest rates.

Change in Fair Value of Preferred Stock Warrant Liability

The change in the fair value of our preferred stock warrant liability in the fiscal year ended December 29, 2018 was due primarily to the changes in the fair value of our preferred stock during those periods.

The change in the fair value of our preferred stock warrant liability in the fiscal year ended December 28, 2019 was due primarily to the changes in the fair value of our preferred stock during that period.

On May 6, 2019, immediately prior to the closing of our IPO, the warrants to purchase preferred stock were converted into warrants to purchase common stock, and the fair value of the warrant liability at that time was reclassified to common stock.

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Other Income (Expense), Net

Other income (expense), net for the fiscal years ended December 28, 2019 and December 29, 2018 included interest income of $1.0 million and $0.3 million, respectively, resulting from interest earned on invested cash balances, and included $0.2 million of foreign currency transaction losses in both periods.

Additionally, other income (expense), net for the fiscal year ended December 29, 2018 included a loss on extinguishment of debt of $0.3 million that we recognized in connection with the prepayment of our borrowings under our loan and security agreement with Hercules upon entering into our new Credit Agreement with OrbiMed.

Other income (expense), net for the fiscal years ended December 31, 2020 and December 28, 2019 included interest income of $0.7 million and $1.0 million, respectively, resulting from interest earned on invested cash balances, and included $1.0 million of realized and unrealized foreign currency transaction gains and $0.2 million of realized and unrealized foreign currency transaction losses for the fiscal years ended December 31, 2020 and December 28, 2019, respectively.

Interest income decreased from fiscal 2019 to fiscal 2020 as a result of lower interest rates on invested balances.

Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses.

To date, we have funded our operations primarily with proceeds from sales of preferred stock and borrowings under loan agreements, proceeds from the sale of common stock in our public offerings and revenue from clinical trials and commercial sales of our OCS products.

On May 6, 2019, we completed our IPO, pursuant to which we issued and sold 6,543,500 shares of common stock, inclusive of 853,500 shares we sold pursuant to the full exercise of the underwriters’ option to purchase additional shares.

The aggregate net proceeds received by us from the IPO were $91.4 million, after deducting underwriting discounts and commissions as well as other offering costs of $6.0 million.

The aggregate net proceeds received by us from the offering were $75.1 million, after deducting underwriting discounts and commissions as well as other offering costs of $0.6 million.

As of December 31, 2020, we had cash, cash equivalents, and marketable securities of $125.6 million.

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Cash used in operating activities

Cash (used in) provided by investing activities

Cash used in investing activities

Cash provided by financing activities

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equivalents and restricted cash

Net (decrease) increase in cash, cash equivalents

Net increase (decrease) in cash, cash equivalents

and restricted cash

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During the fiscal year ended December 31, 2020, operating activities used $30.3 million of cash, primarily resulting from our net loss of $28.7 million and net cash used by changes in our operating assets and liabilities of $5.6 million, partially offset by net non-cash charges of $4.1 million.

Net cash used by changes in our operating assets and liabilities for the fiscal year ended December 28, 2019 consisted primarily of a $4.1 million increase in inventory, a $3.2 million increase in accounts receivable all partially offset by a $5.9 million increase in accounts payable and accrued expenses and other current liabilities.

Net cash used by changes in our operating assets and liabilities for the fiscal year ended December 31, 2020 consisted primarily of a $3.9 million decrease in accounts payable and accrued expenses and other current liabilities, a $1.7 million increase in inventory and a $0.8 million increase in prepaid expenses and other current assets, partially offset by a $0.9 million increase in deferred rent.

During the fiscal year ended December 28, 2019, operating activities used $32.3 million of cash, primarily resulting from our net loss of $33.5 million and net cash used by changes in our operating assets and liabilities of $1.6 million, partially offset by net non-cash charges of $2.9 million.

Net cash used by changes in our operating assets and liabilities for the fiscal year ended December 29, 2018 consisted primarily of a $2.7 million increase in inventory, a $2.5 million increase in accounts receivable and a $1.4 million increase in prepaid expenses and other current assets, all partially offset by a $2.5 million increase in accounts payable and accrued expenses and other current liabilities.

Net cash used by changes in our operating assets and liabilities for the fiscal year ended December 28, 2019 consisted primarily of a $4.1 million increase in inventory and a $3.2 million increase in accounts receivable, partially offset by a $5.9 million increase in accounts payable and accrued expenses and other current liabilities.

Changes in accounts receivable, inventory, accounts payable, and accrued expenses and other current liabilities in each reporting period are generally due to growth in our business, including the growth in sales, expenses and employee headcount.

Our deferred rent balance will continue to decrease in each reporting period during the remaining term of the leases for our leased property.

Investing Activities

During the fiscal year ended December 31, 2020, net cash used in investing activities of $41.6 million consisted of $121.8 million in purchases of marketable securities and $0.5 million in purchases of property and equipment, partially offset by proceeds from sales and maturities of marketable securities of $80.7 million.

During the fiscal year ended December 28, 2019, net cash used by investing activities was $60.5 million, primarily due to the purchases of marketable securities of $82.4 million and purchases of property and equipment of $0.2 million, partially offset by the proceeds from sales and maturities of marketable securities of $22.0 million.

During the fiscal year ended December 29, 2018, net cash provided by investing activities was $12.3 million, due to the maturities of marketable securities of $12.7 million, partially offset by purchases of property and equipment of $0.4 million.

Financing Activities

During the fiscal year ended December 31, 2020, net cash provided by financing activities of $75.5 million consisted primarily of proceeds from the issuance of common stock in our May 2020 public offering of $75.7 million and our employee share ownership plans of $0.6 million, both partially offset by payments of offering costs of $0.7 million.

During the fiscal year ended December 28, 2019, net cash provided by financing activities was $92.7 million, consisting primarily of net proceeds from issuance of common stock in our IPO that closed in May 2019, partially offset by payment of offering costs related to our IPO.

During the fiscal year ended December 29, 2018, net cash provided by financing activities was $22.1 million, consisting primarily of net proceeds from borrowings under our C redit A greement with OrbiMed of $33.4 million, partially offset by the repayment of our previously outstanding borrowings under our loan and security agreement with Hercules of $9.1 million, representing principal of $8.5 million and the end-of-term payment of $0.6 million, and the payment of $2.3 million of offering costs related to our IPO .

Long-Term Debt

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Borrowings under the Credit Agreement are repayable in quarterly interest-only payments until the maturity date, at which time all principal and accrued interest is due and payable.

At our option, we may prepay outstanding borrowings under the Credit Agreement, subject to a prepayment premium of 9.0% of the principal amount of any prepayment within the first three years, which percentage decreases annually until it reaches zero at the end of three years.

At our option, we may prepay outstanding borrowings under the Credit Agreement, subject to a prepayment premium that decreases annually.

Our current prepayment premium is 4.5% and will decrease to zero in June 2021.

We are also required to make a final payment in an amount equal to 3.0% of the principal amount of any prepayment or repayment, which we are accreting to interest expense over the term of the Credit Agreement using the effective interest method.

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In addition, we may be required to prepay outstanding borrowings, subject to certain exceptions, with portions of net cash proceeds of certain asset sales and certain casualty and condemnation events.

In June 2018, we repaid all amounts due under our 2015 loan and security agreement with Hercules and the loan and security agreement was terminated.

While we do not expect that the transition from LIBOR, including any legal or regulatory changes made in response to its future phase out, or the risks related to its discontinuance will have a material effect on our financing costs, the impact is uncertain at this time.

Funding Requirements

As we continue to pursue and increase commercial sales of our OCS products, we expect our costs and expenses to increase in the future, particularly as we expand our sales and clinical adoption team, scale our manufacturing operation, continue research, development and clinical trial efforts, and seek regulatory clearance for new products and product enhancements, including new indications, both in the United States and in select non-U.S.

As we continue to pursue and increase commercial sales of our OCS products, we expect our costs and expenses to increase in the future, particularly as we expand our sales and clinical adoption team, scale our manufacturing operation, continue research, development and clinical trial efforts, and seek regulatory approval for new products and product enhancements, including new indications, both in the United States and in select non-U.S.

In addition, following the closing of our IPO, we have incurred and expect to continue to incur additional costs associated with operating as a public company.

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the level of our selling, general and administrative expenses.

We believe that our existing cash, cash equivalents, and marketable securities will enable us to fund our operating expenses, capital expenditure requirements, and debt service payments for at least twelve months following the filing of our annual report on Form 10-K.

We believe that our existing cash, cash equivalents, and marketable securities will enable us to fund our operating expenses, capital expenditure requirements, and debt service payments for at least 12 months following the filing of our annual report on Form 10-K.

We may need to raise additional funding, which might not be available on favorable terms or at all.

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Amounts in table reflect payments due for our leases of office and laboratory space in Andover, Massachusetts under two operating lease agreements.

On January 9, 2020, the Company amended these lease agreements to, among other things, extended the expiration date of each lease to December 2026, increase the rentable square feet subject to each lease, and increase annual base rent for each lease.

For more information, see “Note 12.

Subsequent Events” to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Commitments and Contingencies” to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Amounts in table reflect the contractually required principal and interest payments payable under the Credit Agreement, under which borrowings bear interest at a variable rate.

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Because such interest rate is below the PIK interest threshold of 11.5%, we did not include PIK in our calculated payments.

As of December 29, 2018, we were obligated to pay financing fees of $1.5 million to our former financial advisors related to issuances of Series B preferred stock and Series D preferred stock in periods prior to 2016.

These financing fees were contingently payable in cash only upon an initial public offering or certain alternative transactions, including a sale of our company.

As a result of the IPO in May 2019, we became obligated to pay these previously accrued financing fees.

We settled the obligations in full during the third and fourth quarter of the fiscal year ended December 28, 2019.

In January 2021, we entered into an unconditional $9.5 million purchase commitment in the ordinary course of business, for goods with specified annual minimum quantities to be purchased through December 2029.

The contract is not cancellable without penalty and therefore, our commitments in the table above will increase by $1.5 million in the next year, $2.0 million in 1-3 years, $2.0 million in years 3-5, and $4.0 million in more than 5 years.

We also enter into other contracts in the normal course of business with consulting firms, material suppliers and other third parties for clinical trials and testing and manufacturing services.

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For each new transplant procedure, customers purchase an additional OCS disposable set for use on the customer’s existing organ-specific OCS Console.

On December 30, 2018, we adopted ASC 606, which amended revenue recognition principles and provides a single, comprehensive set of criteria for revenue recognition within and across all industries.

The new revenue standard provides a five-step framework whereby revenue is recognized when control of promised goods or services is transferred to a customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

We recognize revenue from sales to customers applying the following five steps:

We recognize revenue from sales to customers by applying the following five steps:

(1) identification of the contract, or contracts, with a customer, (2) identification of the performance obligations in the contract, (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations in the contract, and (5) recognition of revenue when, or as, performance obligations are satisfied.

Because all performance obligations of a customer order are delivered and recognized as revenue at the same time and because revenue allocated to performance obligations other than OCS disposable sets, such as implied rental income and service revenue, is insignificant, all components of revenue from customer arrangements are classified as a single category of revenue in our consolidated statements of operations.

Substantially all of our customer arrangements have multiple-performance obligations that contain deliverables consisting of OCS Perfusion Sets and OCS Solutions.

In some of those multiple-performance obligation arrangements, the deliverables also include an OCS Console, whether sold or loaned to the customer.

We evaluate each promise within a multiple-performance obligation arrangement to determine whether it represents a distinct performance obligation.

Because all performance obligations of a customer order are delivered and recognized as revenue at the same time and because revenue allocated to performance obligations other than OCS disposable sets, such as implied rental income and service revenue, is insignificant, all components of revenue from customer contracts are classified as a single category of revenue in our consolidated statements of operations.

Substantially all of our customer contracts have multiple-performance obligations that contain deliverables consisting of OCS Perfusion Sets and OCS Solutions.

In some of those contracts, the promises also include an OCS Console, whether sold or loaned to the customer.

We evaluate each promise within a contract to determine whether it represents a distinct performance obligation.

A performance obligation is distinct if (1) the product or service is separately identifiable from other promises in the contract and (2) the customer can benefit from the product or service on its own or with other resources that are readily available to the customer.

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We have concluded that “transfer of control” of an OCS Console occurs only after the console has arrived at the customer site and the training and equipment set-up have been completed by us.

Some of our revenue has been generated from products sold in conjunction with the clinical trials conducted for our OCS products, under arrangements referred to as customer clinical trial agreements.

Some of our revenue has been generated from products sold in conjunction with the clinical trials conducted for our OCS products, under contracts referred to as customer clinical trial agreements.

Under most of these customer clinical trial agreements, we place an organ-specific OCS Console at the customer site for its use free of charge for the duration of the clinical trial, and the customer separately purchases from us the OCS disposable sets used in each transplant procedure during the clinical trial.

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Over time, we typically recover the cost of the loaned OCS Console through the customer’s continued purchasing and use of additional OCS disposable sets.

For these reasons, we have determined that part of the arrangement consideration for the disposable set is an implied rental payment for use of the OCS Console.

When a customer arrangement contains multiple-performance obligations that include a loan of an OCS Console for the customer’s use at the customer site as well as OCS disposable sets that are delivered simultaneously, we allocate the arrangement consideration between the lease deliverables (i.e., the OCS Console) and non-lease deliverables (i.e., the OCS disposable sets) based on the relative estimated standalone selling price, or SSP, of each distinct performance obligation.

For these reasons, we have determined that part of the selling price for the disposable set is an implied rental payment for use of the OCS Console.

When a customer contract contains multiple-performance obligation s that include a loan of an OCS Console for the customer’s use at the customer site as well as OCS disposable sets that are delivered simultaneously, we allocate the selling price between the lease deliverables (i.e., the OCS Console) and non-lease deliverables (i.e., the OCS disposable sets) based on the relative estimated standalone selling price, or SSP, of each distinct performance obligation.

To date, the amounts allocated to lease deliverables have been insignificant.

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(1) the pricing of standalone sales (in instances where available), (2) the pricing established by management when setting prices for deliverables that are intended to be sold on a standalone basis, (3) contractually stated prices for deliverables that are intended to be sold on a standalone basis, and (4) other pricing factors, such as the geographical region in which the products are sold and expected discounts based on the customer size and type.

Revenue is recognized when control of the OCS product or products is transferred to the customer in an amount that reflects the consideration we expect to be entitled to in exchange for the product or products.

Revenue is recognized when control of the OCS product or products is transferred to the customer in an amount that reflects the amount we expect to be entitled to in exchange for the product or products.

Performance Obligations

The primary performance obligations in our customer arrangements from which we derive revenue are as follows:

The primary performance obligations in our customer contracts from which we derive revenue are as follows:

OCS Console —The OCS Console is a medical device that houses and controls the function of the OCS.

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Revenue for each OCS Perfusion Set is recognized at the point in time at which control is transferred to the customer, which is when title transfers to the customer in connection with delivery.

In most of our customer arrangements, title to the OCS Perfusion Set transfers when the OCS Perfusion Set arrives at the customer site.

In most of our customer contracts, title to the OCS Perfusion Set transfers when the OCS Perfusion Set arrives at the customer site.

In limited instances, title transfers upon shipment by us to the customer.

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Revenue for each OCS Solution is recognized at the point in time at which control is transferred to the customer, which is when title transfers to the customer in connection with delivery.

In most of our customer arrangements, title to the OCS Solutions transfers when the OCS Solutions arrive at the customer site.

In most of our customer contracts, title to the OCS Solutions transfers when the OCS Solutions arrive at the customer site.

In limited instances, title transfers upon shipment by us to the customer.

Payments Made to Customers

Under our customer arrangements that include a customer clinical trial agreement, we receive payments from sales to the customer of its OCS products and also make payments to that customer for reimbursements of clinical trial costs, materials, and for specified clinical documentation related to the customer’s use of our OCS products.

Under our customer contracts that include a customer clinical trial agreement, we receive payments from sales to the customer of its OCS products and also make payments to that customer for reimbursements of clinical trial costs, materials, and for specified clinical documentation related to the customer’s use of our OCS products.

We also make payments to customers involved in post-approval studies for information related to the transplant procedures performed.

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For the fiscal years ended December 31, 2020 and December 28, 2019, we recorded as a reduction of revenue $2.7 million and $2.2 million, respectively, of reimbursable clinical trial costs.

In these same cases, we have also determined that payments made to the customer to obtain information related to post-approval studies or existing standard-of-care protocols (i.e., unrelated to our OCS products) do meet the criteria to be classified as a cost because we receive a distinct good or service transferred by the customer separate from the customer’s purchase of our OCS products and the consideration paid represents the fair value of the distinct good or service received by us.

As a result, these payments made by us to customers for information related to post-approval studies or standard-of-care protocols are recorded as research, development, and clinical trials expenses.

For the fiscal years ended December 28, 2019 and December 29, 2018, we recorded as research, development and clinical trials expenses $1.2 million and $0.6 million, respectively, related to payments made to customers at clinical trial sites for information related to post-approval studies or existing standard-of-care protocols.

In these same cases, we have also determined that payments made to the customer to obtain information related to post-approval studies or existing standard-of-care protocols (i.e., unrelated to our OCS products) do meet the criteria to be classified as a cost because we receive a distinct good or service transferred by the customer separate from the customer’s purchase of our OCS products and the price paid represents the fair value of the distinct good or service received by us.

As a result, these payments made by us to customers for information related to post-approval studies or standard-of-care protocols are recorded as operating expenses.

For the fiscal years ended December 31, 2020 and December 28, 2019, we recorded as operating expenses $1.6 million and $1.2 million, respectively, related to payments made to customers for information related to post-approval studies or existing standard-of-care protocols.

Variable Consideration

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We only include estimated variable amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.

Revenue from reimbursements of out-of-pocket expenses, including travel, lodging, and meals, is accounted for as variable consideration.

We do not consider shipping to be a contract performance obligation.

Revenue from reimbursements of out-of-pocket expenses, including travel, lodging, and meals, is accounted for as variable consideration and is insignificant.

We do not consider shipping to be a performance obligation.

We record shipping costs billed to customers as revenue and records the associated costs incurred by us for those items as cost of revenue.

Our adoption of ASC 606 as of December 30, 2018 (the beginning of our fiscal year 2019) did not substantially change the revenue recognition of our OCS products as applied under the applicable prior revenue recognition guidance, ASC 605.

Stock-Based Compensation

We measure stock-based option awards granted to employees and directors and, commencing December 30, 2018, to non-employees based on their fair value on the date of the grant using the Black-Scholes option-pricing model.

We measure stock-based option awards granted to employees, directors and non-employees based on their fair value on the date of the grant using the Black-Scholes option-pricing model.

Compensation expense for those awards is recognized over the requisite service which is generally the vesting period of the respective award.

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If an award is forfeited, the Company reverses compensation expense previously recognized in the period the award is forfeited.

Prior to our adoption of Accounting Standards Update No.

2018-07, Compensation—Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting , as of December 30, 2018, we measured the fair value of stock-based option awards granted to non-employees on the date that the related service was complete, which was generally the vesting date of the award.

Prior to the service completion date, compensation expense was recognized over the period during which services were rendered by such non-employees.

At the end of each financial reporting period prior to the completion of the service, the fair value of these awards was remeasured using the then-current fair value of our common stock and updated assumption inputs in the Black-Scholes option-pricing model.

The Black-Scholes option-pricing model uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of our common stock options, the risk-free interest rate for a period that approximates the expected term of our common stock options, and our expected dividend yield.

Determination of Fair Value of Common Stock

Prior to our IPO, the estimated fair value of our common stock had been determined by our board of directors as of the date of each option grant, with input from management, considering our most recently available third-party valuations of common stock, and our board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant.

These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.

Our common stock valuations were prepared using a Monte Carlo simulation method, which used either a market or income approach to estimate our enterprise value.

A Monte Carlo simulation method is used to calculate the value of an enterprise (or other asset) with multiple sources of uncertainty or with complicated features and to allocate the total equity value among the various holders of a company’s securities upon the simulated exit using a waterfall.

Under this method, the common stock has value only if the funds available for distribution to stockholders exceeded the value of the preferred stock liquidation preferences at the time of the liquidity event, such as a strategic sale or a merger.

A discount for lack of marketability of the common stock is then applied to arrive at an indication of value for the common stock.

These third-party valuations were performed at various dates, which resulted in valuations of our common stock of $2.21 per share as of May 12, 2016, $3.22 per share as of April 5, 2018 and $8.65 per share as of October 9, 2018 (each amount adjusted for the conversion ratio in the Corporate Reorganization).

In addition to considering the results of these third-party valuations, our board of directors considered various objective and subjective factors to determine the fair value of our common stock as of each grant date, including:

the prices at which we sold shares of preferred stock and the superior rights and preferences of the preferred stock relative to our common stock at the time of each grant;

the progress of our research and development, including the status and results of clinical trials to develop clinical evidence of our products’ safety and effectiveness and progress of our development of our OCS products;

our stage of development and commercialization and our business strategy;

external market conditions affecting the medical device industry and trends within the medical device industry;

our financial position, including cash on hand, and our historical and forecasted performance and operating results;

the lack of an active public market for our common stock and our preferred stock;

the likelihood of achieving a liquidity event, such as an initial public offering or sale of our company in light of prevailing market conditions;

the analysis of initial public offerings and the market performance of similar companies in the medical device industry.

The assumptions underlying these valuations represented management’s best estimate, which involved inherent uncertainties and the application of management’s judgment.

As a result, if we had used significantly different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different.

Following our IPO, in connection with our accounting for granted stock options and other awards we may grant, the fair value of our common stock is determined based on the quoted market price of our common stock.

Valuation of Warrants to Purchase Preferred Stock

We classified warrants to purchase shares of our Series D and Series F preferred stock as liabilities on our consolidated balance sheets as these warrants were free-standing financial instruments that could have required us to transfer assets upon exercise.

The warrant liability associated with each of these warrants was initially recorded at fair value on the issuance date of each warrant and was subsequently remeasured to fair value at each reporting date.

Changes in fair value of the warrant liability were recognized as a component of other income (expense) in our consolidated statements of operations.

We recognized changes in fair value of each warrant comprising the warrant liability until each respective warrant was exercised, expires or qualifies for equity classification.

We utilize d the Black-Scholes option-pricing model, which incorporate d assumptions and estimates to value the preferred stock warrants.

We assess ed these assumptions and estimates on a quarterly basis as additional information impacting the assumptions was obtained.

Estimates and assumptions impacting the fair value measurement include d the fair value per share of the underlying Series D and Series F preferred stock, the remaining were contractual term of the warrants, risk-free interest rate, expected dividend yield and expected volatility of the price of the underlying preferred stock.

The most significant assumption in the Black-Scholes option-pricing model impacting the fair value of the preferred stock warrants was the fair value of our preferred stock as of each remeasurement date.

We determine d the fair value per share of the underlying preferred stock by taking into consideration our most recent sales of our preferred stock, results obtained from third-party valuations and additional factors that we deem ed relevant.

As of December 29, 2018, the fair value of our Series D and Series F preferred stock was $6.21 per share and $5.73 per share, respectively.

Prior to our IPO, w e were a private company and lack ed company-specific historical and implied volatility information of our stock.

Therefore, we estimate d expected stock volatility based on the historical volatility of publicly traded peer companies for a term equal to the remaining contractual term of the warrants.

The risk-free interest rate was determined by reference to the U.S.

Treasury yield curve for time periods approximately equal to the remaining contractual term of the warrants.

We estimated a 0% dividend yield based on the expected dividend yield and the fact that we ha d never paid or declared dividends.

As a result, subsequent to the closing of our IPO, we no longer remeasure the fair value of the warrant liability at each reporting date.

Valuation of Inventory

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Amounts that have been invoiced but not yet recognized as revenue are reported as deferred revenue on our consolidated balance sheets and are not included in our calculation of backlog.

As of December 28, 2019 and December 29, 2018, we had backlog of $0.5 million and $1.2 million, respectively.

As of December 31, 2020 and December 28, 2019, we had backlog of $0.5 million.

Of the amount of backlog as of December 31, 2020, we expect that substantially all of it will be invoiced to customers within the following 12 months.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis