What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-01 compared with 2021-03-11 · 141 added, 221 removed, 220 unchanged (62% of the section changed)

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As such, the OCS represents a paradigm shift that transforms organ preservation for transplantation from a static state to a dynamic environment that enables new capabilities, including organ optimization and assessment.

We believe our substantial body of clinical evidence has demonstrated the potential for the OCS to significantly increase the number of organ transplants and improve post-transplant outcomes.

We developed the OCS to comprehensively address the major limitations of cold storage.

The OCS is a portable organ perfusion, optimization and monitoring system that utilizes our proprietary and customized technology to replicate near-physiologic conditions for donor organs outside of the human body.

We designed the OCS technology platform to perfuse donor organs with warm, oxygenated, nutrient-enriched blood, while maintaining the organs in a living, functioning state;

the lung is breathing, the heart is beating and the liver is producing bile.

Because the OCS significantly reduces injurious ischemic time on donor organs as compared to cold storage and enables the optimization and assessment of donor organs, it has demonstrated improved clinical outcomes relative to cold storage and offers the potential to significantly improve donor organ utilization.

We believe the use of the OCS has the potential to significantly increase the number of organ transplants and improve post-transplant outcomes.

We have developed our National OCS Program, a turnkey solution to provide outsourced organ retrieval and OCS organ management, to provide transplant programs with a more efficient process to procure donor organs with the OCS.

We designed the OCS to be a platform that allows us to leverage core technologies across products for multiple organs.

To date, we have developed three OCS products, one for each of lung, heart and liver transplantations, making the OCS the only multi-organ technology platform.

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

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.

We have commercialized the OCS Lung and OCS Heart outside of the United States.

By the end of the third quarter of 2021, all three of our products, OCS Lung, OCS Heart, and OCS Liver have received Pre-Market Approval, or PMA, from the Food and Drug Administration, or FDA, as follows:

OCS Lung for the preservation of standard criteria donor lungs for double-lung transplantation;

OCS Lung for the preservation of donor lungs initially deemed unsuitable due to limitations of cold storage for double-lung transplantation;

OCS Heart for the preservation of DBD donor hearts deemed unsuitable due to limitations of cold storage (e.g.

>4 hours of cross-clamp time);

OCS Liver for the preservation of DBD and DCD donor livers < 55 years old, macrosteatosis <15% and with < 30 mins of warm ischemia time.

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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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.

To date, we have funded our operations primarily with proceeds from sales of preferred stock, 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.

Since our inception, we have incurred significant operating losses.

Our ability to generate net revenue sufficient to achieve profitability will depend on the successful further development and commercialization of our products.

We generated net revenue of $25.6 million and $23.6 million for the fiscal years ended December 31, 2020 and December 28, 2019, respectively.

We generated net revenue of $30.3 million and $25.6 million for the years ended December 31, 2021 and 2020, respectively.

We incurred net losses of $44.2 million and $28.7 million, respectively, for those same years.

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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;

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

scaling our manufacturing operations;

continuing research, development and clinical trial efforts;

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.

building our commercial operations, continuing research, development and clinical trial efforts;

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

and operating as a public company.

As a result, we will need substantial additional funding for expenses related to our operating activities, including selling, general and administrative expenses and research, development and clinical trials expenses.

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 $9 1.

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

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 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 believe that our cash, 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 12 months following the filing of our Annual Report on Form 10-K.

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;

The COVID-19 pandemic, including efforts to contain the spread of the coronavirus, has impacted, and may continue to impact, our business, financial condition, operating results and cash flows, including as a result of the impact of new variants.

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

customer delays or reductions in customer capital expenditures and operating budgets and the related impact on our product sales;

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

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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.

delays in our clinical trial enrollment;

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

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 negatively impacts our revenue and cash flows.

These measures and challenges may continue for the duration of the COVID-19 pandemic.

The COVID-19 pandemic has also impacted, and may continue to impact, our third party suppliers, including through the effects of facility closures, reductions in operating hours, staggered shifts and other social distancing efforts, labor shortages, decreased productivity and unavailability of materials or components.

While we maintain an inventory of finished products and raw materials used in our OCS products, a further prolonged pandemic could lead to shortages in the raw materials necessary to manufacture our products.

The extent to which COVID-19 impacts operations of our third-party partners will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

If we experience a prolonged disruption in our manufacturing, supply chains, or commercial operations, we would expect to experience a material adverse impact on our business, financial condition, results of operations and prospects.

Components of Our Results of Operations

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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.

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.

All of our revenue has been generated by sales to transplant centers and Organ Procurement Organizations 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 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.

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.

We have customer agreements under which we loan our OCS Consoles to the customer for the duration of the agreement.

In such cases, we place an organ-specific OCS Console at the customer site for its use free of charge, and the customer separately purchases from us the OCS disposable sets used in each transplant procedure.

When we loan the OCS Console to the customer, we retain title to the console at all times and do not require minimum purchase commitments from the customer related to any OCS products.

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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.

Because some of these payments do not provide us with a separately identifiable benefit, we record such payments as a reduction of revenue from the customer, resulting in our net revenue presentation.

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.

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 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.

Through December 31, 2020, all of our sales outside of the United States have been commercial sales (unrelated to any clinical trials) and our net revenue has been generated primarily from sales of OCS disposable sets and, to a much lesser extent, sales of OCS Consoles.

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 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.

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

Because some of these payments did not provide us with a separately identifiable benefit, we recorded such payments as a reduction of revenue from the customer, resulting in our net revenue presentation.

We recorded reimbursable clinical trial costs as a reduction of revenue of $1.1 million and $2.7 million for the years ended December 31, 2021 and 2020, respectively.

Through December 31, 2021, all of our sales outside of the United States have been commercial sales (unrelated to any clinical trials).

We expect that our net revenue will increase over the long term as a result of receiving PMAs for the OCS Lung, OCS Heart and OCS Liver in the United States.

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

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.

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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We calculate gross margin as gross profit divided by net revenue.

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 OCS disposable sets decreases due to economies of scale.

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 overhead costs, direct labor, the selling price of our OCS products and fluctuations in amounts paid by us to customers related to reimbursements of their clinical trial expenses during clinical trials.

We expect that cost of revenue as a percentage of net revenue will moderately decrease and gross margin and gross profit will moderately 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.

As utilization by customers of our OCS products increases, we expect that a greater number of OCS disposable sets will be used per year on the same OCS Console, thereby driving overall gross margin improvement.

Because we expect that the number of OCS disposable sets sold over time will be significantly greater than the number of OCS Consoles sold or loaned to customers over that same period, we expect that our gross margin improvement will not be significantly affected by the number of OCS Consoles that we sell or loan to customers.

While we expect gross margin to increase over the long term, it will likely fluctuate from quarter to quarter.

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Research, Development and Clinical Trials Expenses

Research, development and clinical trials expenses consist primarily of costs incurred for our research activities, product development, hardware and software engineering, clinical trials to develop clinical evidence of our products’ safety and effectiveness, regulatory expenses, testing, consultant services and other costs associated with our OCS technology platform and OCS products, which include:

Research, development and clinical trials expenses consist primarily of costs incurred for our research activities, product development, hardware and software engineering, clinical trials to continue to develop clinical evidence of our products’ safety and effectiveness, regulatory expenses, testing, consultant services and other costs associated with our OCS technology platform and OCS products, which include:

employee-related expenses, including salaries, related benefits and stock-based compensation expense for employees engaged in research, hardware and software development, regulatory and clinical trial functions;

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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.

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

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in our sales and clinical adoption team and personnel in executive, marketing, finance and administrative functions.

Selling, general and administrative expenses also include direct and allocated facility-related costs, promotional activities, marketing, conferences and trade shows as well as professional fees for legal, patent, consulting, investor and public relations, accounting and audit services.

We expect to continue to increase headcount in our sales and clinical adoption team and increase marketing efforts as we continue to grow commercial sales of our OCS products in both U.S.

Selling, general and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in our commercial team and personnel in executive, marketing, finance and administrative functions.

Selling, general and administrative expenses also include direct and allocated facility-related costs, promotional activities, marketing, conferences and trade show costs as well as professional fees for legal, patent, consulting, investor and public relations, accounting and audit services.

We expect to continue to increase headcount in our commercial team and increase marketing efforts as we continue to grow commercial sales of our OCS products in both U.S.

and select non-U.S.

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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

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.

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.

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.

Other Income (Expense), Net

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federal or state income tax benefits for the net operating losses we have incurred in each year or for the research and development tax credits we generated in the United States, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards and tax credits will not be realized.

In reporting periods subsequent to 2016, we have recorded provisions for foreign income taxes of an insignificant amount related to the operations of one of our foreign subsidiaries.

We record provisions for foreign income taxes of an insignificant amount related to the operations of one of our foreign subsidiaries.

As of December 31, 2021, we had U.S.

federal and state net operating loss carryforwards of $368.1 million and $304.0 million, respectively, which may be available to offset future taxable income and begin to expire in 2022 and 2030, respectively.

Our federal net operating losses include $108.0 million, which can be carried forward indefinitely.

Our federal net operating loss carryforwards include $156.4 million that can be carried forward indefinitely.

As of December 31, 2021, we also had U.S.

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We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date.

Results of Operations

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

The following table summarizes our results of operations for the fiscal years ended December 31, 2020 and December 28, 2019:

Fiscal Year Ended

Comparison of the Years Ended December 31, 2021 and 2020

The following table summarizes our results of operations for the years ended December 31, 2021 and 2020:

Year Ended December 31,

(in thousands)

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Interest expense

Change in fair value of preferred stock warrant

Other income, net

Other income (expense), net

Total other expense, net

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Provision for income taxes

Fiscal Year Ended

Year Ended December 31,

(in thousands)

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Total net revenue

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 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.

Net revenue from OCS Liver disposable sets sold to customers for use in our OCS Liver PROTECT Trial increased from $3.5 million in the fiscal year ended December 28, 2019 to $5.2 million in the fiscal year ended December 31, 2020.

In addition, the U.S.

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.

Net revenue from customers in the United States was $21.9 million in the year ended December 31, 2021 and increased by $2.6 million in the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to higher sales volumes of our OCS Lung and OCS Heart disposable sets, partially offset by lower sales volumes of our OCS Liver disposable sets .

Net revenue from sales of OCS Lung disposable sets in the United States increased from $5.4 million in the year ended December 31, 2020 to $9.8 million in the year ended December 31, 2021.

The increase was due primarily to higher sales volume of OCS Lung disposable sets as the year ended December 31, 2020 was negatively impacted by the COVID-19 pandemic.

Net revenue from OCS Heart disposable sets sold to customers commercially and for use in our ongoing clinical trials in the United States increased by $1.5 million during the year ended December 31, 2021.

The increase was due to higher sales volume of OCS Heart disposable sets following approval from the FDA for commercial use in September 2021.

Net revenue from OCS Liver disposable sets sold in the United States decreased by $3.3 million during the year ended December 31, 2021.

The lower sales volume of OCS Liver disposable sets was primarily a result of the completion of enrollment in our OCS Liver PROTECT CAP Trial early in the first quarter of 2021.

This decrease was partially offset by commercial sales of OCS Liver disposable sets sold following FDA approval in September 2021.

Net revenue from customers outside the United States was $8.4 million in the year ended December 31, 2021 compared to $6.4 million in the year ended December 31, 2020.

The increase in net revenue from customers outside the United States was primarily due to higher sales volume of OCS Heart disposable sets.

Net revenue from OCS Heart disposable sets increased by $2.0 million from the year ended December 31, 2020 to the year ended December 31, 2021.

Cost of Revenue, Gross Profit and Gross Margin

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 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.

Cost of revenue increased by $0.1 million in the year ended December 31, 2021 compared to the year ended December 31, 2020.

Gross profit increased by $4.5 million in the year ended December 31, 2021 compared to the year ended December 31, 2020.

Gross margin was 70% and 65% for the years ended December 31, 2021 and 2020, respectively.

Gross profit and gross margin increased primarily as a result of increased sales volume and increased sales of higher margin OCS disposable sets.

Operating Expenses

Research, Development and Clinical Trials Expenses

Fiscal Year Ended

Year Ended December 31,

(in thousands)

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Total research, development and clinical trials

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.

Total research, development and clinical trials expenses increased by $3.5 million from $18.8 million in the year ended December 31, 2020 to $22.3 million in the year ended December 31, 2021.

Personnel related costs increased by $0.4 million as a result of increased stock-based compensation expense due to additional grants to new and existing employees and an increase in the respective grant date fair values from the increased price of our stock.

Clinical trials costs decreased by $1.5 million due to the completion of enrollment in the OCS Heart DCD CAP Trial and completion of our OCS Liver PROTECT CAP Trial in 2021.

Consulting and third-party testing costs increased by $2.8 million due primarily to increased activity in our next generation program and increased regulatory activity, including costs related to preparation for both FDA advisory committee panels in April and July 2021 for the OCS Heart and OCS Liver, respectively.

The increase in laboratory supplies and research materials costs of $0.7 million was driven by increased research activity related to our next generation program and other product enhancement initiatives.

The increase in other costs of $1.0 million was due primarily to increased product development activities and increased spending on facilities, travel, and risk management as restrictions related to COVID-19 were relaxed in 2021 as compared to the previous year.

Selling, General and Administrative Expenses

Fiscal Year Ended

Year Ended December 31,

(in thousands)

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Total selling, general and administrative expenses

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.

Total selling, general and administrative expenses increased by $14.1 million from $24.2 million in the year ended December 31, 2020 to $38.3 million in the year ended December 31, 2021 .

Personnel related costs increased by $8.9 million as a result of the continued expansion of our commercial team including National OCS Program resources to support commercial sales of our OCS Lung, OCS Heart and OCS Liver products in the United States.

Stock-based compensation expense also increased by $3.7 million due primarily to additional grants to new and existing employees and an increase in the respective grant date fair values from the increased price of our stock.

Professional and consultant fees increased by $1.6 million as a result of additional public company compliance costs.

Tradeshows and conferences costs increased by $0.5 million due to a partial return of tradeshow and conference activity as restrictions implemented in response to the COVID-19 pandemic were eased.

Other costs increased by $3.1 million as a result of increased spending on travel and insurance as restrictions related to COVID-19 were relaxed in 2021 as compared to the previous year and we expanded our organization.

Other Income (Expense)

Interest Expense

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 28, 2019 was due primarily to the changes in the fair value of our preferred stock during that period.

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.

Interest expense was $3.9 million and $4.0 million for the years ending December 31, 2021 and 2020, respectively.

Other Income (Expense), Net

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.

Other income (expense), net for the years ended December 31, 2021 and 2020 included interest income of $0.1 million and $0.7 million, respectively, resulting from interest earned on invested cash balances.

Other income (expense), net also included $1.0 million of realized and unrealized foreign currency transaction losses and $1.0 million of realized and unrealized foreign currency transaction gains, respectively.

Interest income decreased from 2020 to 2021 as a result of lower invested balances.

Liquidity and Capital Resources

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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.

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, 2021, we had cash, cash equivalents, and marketable securities of $92.5 million.

The following table summarizes our sources and uses of cash for each of the fiscal periods presented:

Fiscal Year Ended

The following table summarizes our sources and uses of cash for each of the periods presented:

Year Ended December 31,

(in thousands)

Cash used in operating activities

Cash used in investing activities

Cash provided by (used in) investing activities

Cash provided by financing activities

Effect of exchange rate changes on cash, cash

equivalents and restricted cash

Net increase (decrease) in cash, cash equivalents

and restricted cash

Effect of exchange rate changes on cash, cash equivalents and

restricted cash

Net increase in cash, cash equivalents and restricted cash

Operating Activities

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 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 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.

During the year ended December 31, 2021, operating activities used $28.9 million of cash, primarily resulting from our net loss of $44.2 million, partially offset by net non-cash charges of $12.3 million and net cash provided by changes in our operating assets and liabilities of $3.0 million.

Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2021 consisted primarily of an increase in accounts payable and accrued expenses and other current liabilities of $10.0 million and a decrease in accounts receivable of $0.8 million, partially offset by an increase in inventory of $4.9 million and an increase in prepaid expenses and other current assets of $3.2 million.

During the 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 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.

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 year ended December 31, 2021, net cash provided by investing activities of $29.3 million consisted of proceeds from sales and maturities of marketable securities of $104.8 million, partially offset by $72.0 million in purchases of marketable securities and $3.5 million in purchases of property and equipment.

During the 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.

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 year ended December 31, 2021, net cash provided by financing activities of $1.4 million consisted of proceeds from the issuance of common stock upon exercise of stock options of $1.0 million and proceeds from the issuance of common stock in connection with the employee stock purchase plan of $0.4 million.

During the 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.

Long-Term Debt

In June 2018, TransMedics entered into the Credit Agreement with OrbiMed, pursuant to which it borrowed $35.0 million.

We have a Credit Agreement with OrbiMed, pursuant to which we borrowed $35.0 million.

Borrowings under the Credit Agreement bear interest at an annual rate equal to the LIBOR subject to a minimum of 1.0% and a maximum of 4.0%, plus 8.5%, or the Applicable Margin, subject in the aggregate to a maximum interest rate of 11.5%.

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The PIK interest is added to the principal amount of the borrowings outstanding at the end of each quarter until the maturity date of the Credit Agreement in June 2023.

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 that decreases annually.

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

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 .

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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Under the Credit Agreement, we have agreed to certain affirmative and negative covenants to which we will remain subject until maturity.

The covenants include maintaining a minimum liquidity amount of $3.0 million;

The financial covenants include maintaining a minimum liquidity amount of $3.0 million;

the requirement, on an annual basis, to deliver to OrbiMed annual audited financial statements with an unqualified audit opinion from our independent registered public accounting firm;

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and engaging in certain other business transactions.

The obligations under the Credit Agreement are subject to acceleration upon the occurrence of specified events of default, including payment default, change in control, bankruptcy, insolvency, certain defaults under other material debt, certain events with respect to governmental approvals (if such events could cause a material adverse change in our business), failure to comply with certain covenants.

including the minimum liquidity and unqualified audit opinion covenants, and a material adverse change in our business, operations or other financial condition.

As of December 31, 2020, we were in compliance with all of the other covenants under the Credit Agreement.

As of December 31, 2021, we were in compliance with all of the covenants under the Credit Agreement.

Upon the occurrence of an event of default and until such event of default is no longer continuing, the Applicable Margin will increase by 4.0% per annum.

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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 approval 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 commercial team, grow our National OCS Program, scale our manufacturing operations, 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 degree of success we experience in commercializing our OCS products for additional indications;

the costs, timing and outcomes of any future clinical studies and regulatory reviews, including to seek and obtain approvals for new indications for our OCS products;

the costs, timing and outcomes of post-approval studies or any future clinical studies and regulatory reviews, including to seek and obtain approvals for new indications for our OCS products;

the emergence of competing or complementary technologies;

the number and types of future products we develop and commercialize;

the costs associated with building our commercial operations;

the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims;

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Risk Factors—Risks Related to Our Financial Position and Need for Additional Capital” in this Annual Report on Form 10-K.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations as of December 31, 2020 and the effects that such obligations are expected to have on our liquidity and cash flows in future periods:

Payments Due by Period

(in thousands)

Operating lease commitments (1)

Debt obligations (2)

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

For more information, see “Note 12.

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.

For purposes of this table, the interest due under the Credit Agreement was calculated using an assumed interest rate of 9.5% per annum, which was the interest rate in effect as of December 31, 2020.

Material Contractual Obligations

Our contractual obligations include amounts payable as principal and interest payments under the Credit Agreement.

As of December 31, 2021, our outstanding principal balance was $35.0 million and is due in 2023.

We estimate we will pay $3.3 million in interest payments during 2022.

Our estimate of payments is based on an assumed rate of 9.5%, which was the interest rate in effect at December 31, 2021.

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

We lease our facilities under non-cancelable operating leases that have remaining lease terms of six years as of December 31, 2021.

As of December 31, 2021, we had fixed lease payment obligations of $12.4 million, of which $1.9 million is payable during 2022.

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.

The contract is not cancellable without penalty.

As of December 31, 2021, our remaining purchase commitment is $8.0 million.

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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Payments due upon cancellation consist only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation.

These payments are not included in the table above as the amount and timing of such payments are not known.

Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition or results of operations.

If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases.

Our inability or failure to do so could harm our business, financial condition or results of operations.

These payments are not included in the discussion above as the amount and timing of such payments are not known.

Critical Accounting Policies and Significant Judgments and Estimates

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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.

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

We recognize revenue from sales to customers 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 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.

When a customer order includes an OCS Console, whether sold or loaned, we have determined that customer training and the equipment set-up of the OCS Console, each performed by us, are not distinct because they are not sold on a standalone basis and can only be performed by us in conjunction with a sale or loan of our OCS Console.

In some of those customer contracts, the deliverables also include an OCS Console.

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

The primary performance obligations in our customer arrangements from which we derive revenue are the OCS Perfusion Sets, the OCS Solutions and the OCS Console.

Revenue for each OCS Perfusion Set and OCS Solutions is recognized at the point in time at which control is transferred to the customer, which is when title transfers to the customer, typically upon arrival at the customer site.

When a customer order includes an OCS Console, we have determined that customer training and the equipment set-up of the OCS Console, each performed by us, are not distinct because they are not sold on a standalone basis and can only be performed by us in conjunction with a sale or loan of our OCS Console.

In addition, we have determined that the OCS Console itself is not distinct because the customer cannot benefit from the OCS Console without the training and equipment set-up having been completed.

As a result, when the order includes an OCS Console, we have concluded that training, OCS Console equipment set-up, and the OCS Console itself are highly interdependent and represent a single, combined performance obligation.

Consequently, we do not recognize any revenue from any component of a customer order that includes an OCS Console, whether sold or loaned, until the OCS Console has arrived at the customer site and the training and equipment set-up have been completed by us.

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 contracts referred to as customer clinical trial agreements.

We recognize revenue from the single, combined performance obligation only once the OCS Console has arrived at the customer site and the training and equipment set-up have been completed by us.

Customer orders may include the loan of an OCS Console as well as OCS disposable sets.

When we loan the OCS Console to the customer, we retain title to the console at all times and do not require minimum purchase commitments from the customer related to any OCS products.

In such cases, we invoice the customer for OCS disposable sets based on customer orders received for each new transplant procedure and the prices set forth in the customer agreement.

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 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.

In such cases, we invoice the customer for OCS disposable sets based on customer orders received and the prices set forth in the customer agreement.

Over time, we typically recover the cost of the loaned OCS Console through the customer’s continued purchasing of 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.

Therefore, 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 of each distinct performance obligation.

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

In determining SSP, we maximize observable inputs and consider a number of data points, including:

(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 amount we expect to be entitled to in exchange for the product or products.

Performance Obligations

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.

The performance obligation of the OCS Console includes customer training and equipment set-up.

Revenue for each OCS Console is recognized at the point in time at which control is transferred to the customer, which is typically only after the console has arrived at the customer site and the training and equipment set-up have been completed by us because the customer cannot benefit from the OCS Console without the training and equipment set-up having been completed.

At that time, we believe control has been transferred to the customer.

OCS Perfusion Set —The OCS Perfusion Set is a single-use disposable set that stores the organ and circulates blood.

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 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.

OCS Solutions —The OCS Solutions are a set of nutrient-enriched solutions to optimize the organ’s condition outside the human body.

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 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.

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.

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.

Payments Made to Customers

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.

Under our customer arrangements that include a customer clinical trial agreement, we 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.

We determine the appropriate accounting treatments for these payments depending on the nature of the payment and whether they are for distinct goods or services.

In these cases, we have determined that the payments made to the customer for reimbursement of clinical trial materials and its costs incurred to execute specific clinical trial protocols related to our OCS products do not provide us with a distinct good or service transferred by the customer, and, therefore, we record such payments as a reduction of revenue from the customer in our consolidated statements of operations.

Reductions of revenue related to such payments made to customers for reimbursements are recognized when we recognize the revenue for the sale of our OCS disposable sets.

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 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

Revenue is reported net of any taxes assessed by a governmental authority that are directly imposed on a revenue-producing transaction (e.g., sales, use, and value added taxes).

Other Revenue Considerations

Revenue is reported net of taxes.

We do not consider shipping to be a contract performance obligation, therefore shipping costs incurred and billed to customers are recorded as revenue and cost of revenue.

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 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.

We do not assess whether promised goods or services are performance obligations if they are deemed immaterial in the context of the contract with the customer.

Additionally, we do not assess whether a contract has a significant financing component if the expectation at contract inception is that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less.

Stock-Based Compensation

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We account for forfeitures as they occur and record compensation cost assuming all option holders will complete the requisite service period.

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

If an award is forfeited, we reverse compensation expense previously recognized in the period the award is forfeited.

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.

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Any write-down of inventory to net realizable value creates a new cost basis.

The reserve for excess and obsolete inventory was $0.3 million as of December 31, 2021 and 2020.

At the end of each reporting period, we assess whether losses should be accrued on long-term manufacturing purchase commitments in accordance with ASC 330, Inventory , which requires that losses that are expected to arise from firm, noncancelable and unhedged commitments for the future purchase of inventory, measured in the same way as inventory losses, should be recognized in the current period in the statements of operations unless they are deemed recoverable through firm sales contacts or when there are other circumstances that reasonably assure continuing sales without price decline.

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

As of December 31, 2021 and 2020, we had backlog of $1.1 million and $0.5 million, respectively.

Of the amount of backlog as of December 31, 2021, 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