TransMedics Group, Inc. 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk. We are exposed to changes in interest rates and foreign currency exchange rates because we finance certain operations through variable rate debt instruments and denominate our transactions in a variety of foreign currencies. Changes in these rates may have an impact on future cash flow and earnings. We manage these risks through normal operating and financing activities. Foreign Currency Exchange Risk Our foreign currency transaction exposure results primarily from intercompany transactions and transactions with customers or vendors denominated in currencies other than the functional currency of the legal entity in which the transaction is recorded by us. Assets and liabilities arising from such transactions are translated into the legal entity’s functional currency using the period-end exchange rates. Foreign currency transaction gains (losses) are included in the consolidated statements of operations as a component of other income (expense). We recognized foreign currency transaction losses of $1.0 million during the year ended December 31, 2021. Foreign currency translation exposure results from the translation of the financial statements of our subsidiaries whose functional currency is not the U.S. dollar into U.S. dollars for consolidated reporting purposes. Assets and liabilities of these subsidiaries are translated into U.S. dollars using the period-end exchange rates, and income and expense items are translated into U.S. dollars using average exchange rates in effect during each period. The effects of these foreign currency translation adjustments are included in accumulated other comprehensive loss, a separate component of stockholders’ equity on our consolidated balance sheets. We recorded a foreign currency translation loss of less than $0.1 million during the year ended December 31, 2021. For the year ended December 31, 2021, 25% of our net revenue and 6% of our operating costs and expenses were generated by subsidiaries whose functional currency is not the U.S. dollar and therefore are subject to foreign currency exposure. Currently, our largest foreign currency exposure is that with respect to the Euro. We believe that a 10% change in the exchange rate between the U.S. dollar and Euro would not materially impact our operating results or financial position. We have experienced and we will continue to experience fluctuations in our net loss as a result of revaluing our assets and liabilities that are not denominated in the functional currency of the entity that recorded the asset or liability. At this time, we do not hedge our foreign currency risk. Interest Rate Sensitivity As of December 31, 2021, we had cash, cash equivalents, and marketable securities of $92.5 million, which consisted of cash, money market funds and short-term investments. Interest income is sensitive to changes in the general level of interest rates; however, due to the nature of these investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of our investment portfolio. In June 2018, we entered into our Credit Agreement with OrbiMed. Borrowings under the Credit Agreement bear interest at a variable rate per annum equal to LIBOR plus 8.5%. As of December 31, 2021 borrowings outstanding under the Credit Agreement totaled $35.0 million and the interest rate applicable to such borrowings was 9.5%. An immediate 10% change in LIBOR would not have a material impact on our debt-related obligations, financial position or results of operations. 74 Item 8. Financial Statement s and Supplementary Data. TRANSMEDICS GROUP, INC. Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID 238 ) 76 Consolidated Balance Sheets 78 Consolidated Statements of Operations 79 Consolidated Statements of Comprehensive Loss 80 Consolidated Statements of Stockholders’ Equity 81 Consolidated Statements of Cash Flows 82 Notes to Consolidated Financial Statements 83 75 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of TransMedics Group, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of TransMedics Group, Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, of comprehensive loss, of convertible preferred stock and stockholders’ equity and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Change in Accounting Principle As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2021. Basis for Opinions The Company's management is responsible for these consolidated fi nancial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporti ng, included in Management's Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits i n accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Emphasis of Matter As disclosed in Note 8 to the consolidated financial statements, the Company has $35.0 million of debt maturing in June 2023. Management’s evaluation of the events and conditions related to future funding are described in Note 1. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as 76 necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenue Recognition As described in Note 2 to the consolidated financial statements, the Company recorded $30.3 million in total revenues for the year ended December 31, 2021. The Company generates revenue primarily from sales of its single-use, organ-specific disposable sets (i.e., its organ-specific OCS Perfusion Sets sold together with its organ-specific OCS Solutions) used on its organ-specific OCS Consoles, each being a component of the Company’s Organ Care System (OCS) products. Substantially all of the Company’s customer contracts have multiple-performance obligations that contain deliverables consisting of OCS Perfusion Sets and OCS Solutions. In some of those customer contracts, the deliverables also include an OCS Console, whether sold or loaned to the customer. Management evaluates each promise within a multiple-performance obligation arrangement to determine whether it represents a distinct performance obligation. Management has concluded that training, OCS Console equipment set-up, and the OCS Console itself are highly interdependent and represent a single, combined performance obligation. Revenue is recognized when control of the OCS product or products is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for the product or products. Control is transferred for the OCS products typically only after the product has arrived at the customer site and, in addition for OCS Consoles, the training and equipment set-up have been completed by the Company. The principal considerations for our determination that performing procedures relating to revenue recognition is a critical audit matter are the high degree of auditor effort in performing procedures and in evaluating audit evidence related to management’s determination of the point in time when control of the OCS product or products is transferred to the customer and revenue is recognize d . Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over the existence and point in time when control is transferred to the customer. These procedures also included, among others, evaluating, for a sample of transactions, the existence of transactions recognized as revenue, as well as evaluating the appropriate timing of revenue recognition by obtaining and inspecting customer purchase orders and, where applicable, invoices, customer agreements, shipping documents and cash receipts from customers. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts March 1, 2022 We have served as the Company's auditor since 2001. 77 TRANSMEDICS GROUP, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts) December 31, 2021 2020 Assets Current assets: Cash and cash equivalents $ 25,580 $ 24,581 Marketable securities 66,872 101,061 Accounts receivable 5,934 6,864 Inventory 14,859 11,934 Prepaid expenses and other current assets 5,460 2,326 Total current assets 118,705 146,766 Property and equipment, net 9,841 4,754 Restricted cash 500 500 Operating lease right-of-use assets 5,847 — Other long-term assets — 6 Total assets $ 134,893 $ 152,026 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 6,651 $ 1,206 Accrued expenses and other current liabilities 16,337 10,410 Deferred revenue 250 263 Total current liabilities 23,238 11,879 Long-term debt, net of discount and current portion 35,197 34,657 Operating lease liabilities, net of current portion 8,604 — Deferred rent, net of current portion — 1,599 Total liabilities 67,039 48,135 Commitments and contingencies (Note 13) Stockholders’ equity: Preferred stock, no par value; 25,000,000 shares authorized; no shares issued or outstanding — — Common stock, no par value; 150,000,000 shares authorized; 27,791,615 shares and 27,175,305 shares issued and outstanding at December 31, 2021 and 2020, respectively 510,488 502,217 Accumulated other comprehensive loss ( 188 ) ( 95 ) Accumulated deficit ( 442,446 ) ( 398,231 ) Total stockholders’ equity 67,854 103,891 Total liabilities and stockholders’ equity $ 134,893 $ 152,026 The accompanying notes are an integral part of these consolidated financial statements. 78 TRANSMEDICS GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share amounts) Year Ended December 31, 2021 2020 Net revenue $ 30,262 $ 25,639 Cost of revenue 9,103 9,004 Gross profit 21,159 16,635 Operating expenses: Research, development and clinical trials 22,304 18,831 Selling, general and administrative 38,283 24,188 Total operating expenses 60,587 43,019 Loss from operations ( 39,428 ) ( 26,384 ) Other income (expense): Interest expense ( 3,874 ) ( 3,985 ) Other income (expense), net ( 877 ) 1,653 Total other expense, net ( 4,751 ) ( 2,332 ) Loss before income taxes ( 44,179 ) ( 28,716 ) Provision for income taxes ( 36 ) ( 32 ) Net loss $ ( 44,215 ) $ ( 28,748 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 1.60 ) $ ( 1.16 ) Weighted average common shares outstanding, basic and diluted 27,616,839 24,702,764 The accompanying notes are an integral part of these consolidated financial statements. 79 TRANSMEDICS GROUP, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In thousands) Year Ended December 31, 2021 2020 Net loss $ ( 44,215 ) $ ( 28,748 ) Other comprehensive loss: Foreign currency translation adjustment ( 46 ) ( 49 ) Unrealized losses on marketable securities, net of tax of $ 0 ( 47 ) ( 44 ) Total other comprehensive loss ( 93 ) ( 93 ) Comprehensive loss $ ( 44,308 ) $ ( 28,841 ) The accompanying notes are an integral part of these consolidated financial statements. 80 TRANSMEDICS GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands, except share amounts) Common Stock Accumulated Other Total Shares Amount Comprehen- sive Loss Accumulated Deficit Stockholders’ Equity Balances at December 28, 2019 21,184,524 $ 424,134 $ ( 2 ) $ ( 369,483 ) $ 54,649 Issuance of common stock upon the exercise of common stock options 218,084 227 — — 227 Issuance of common stock in connection with employee stock purchase plan 22,697 357 — — 357 Issuance of common stock in public offering, net of discounts and issuance costs of $ 585 5,750,000 75,085 — — 75,085 Stock-based compensation expense — 2,414 — — 2,414 Foreign currency translation adjustment — — ( 49 ) — ( 49 ) Unrealized losses on marketable securities — — ( 44 ) — ( 44 ) Net loss — — — ( 28,748 ) ( 28,748 ) Balances at December 31, 2020 27,175,305 502,217 ( 95 ) ( 398,231 ) 103,891 Issuance of common stock upon the exercise of common stock options 588,461 974 — — 974 Issuance of common stock in connection with employee stock purchase plan 27,849 419 — — 419 Stock-based compensation expense — 6,878 — — 6,878 Foreign currency translation adjustment — — ( 46 ) — ( 46 ) Unrealized losses on marketable securities — — ( 47 ) — ( 47 ) Net loss — — — ( 44,215 ) ( 44,215 ) Balances at December 31, 2021 27,791,615 $ 510,488 $ ( 188 ) $ ( 442,446 ) $ 67,854 The accompanying notes are an integral part of these consolidated financial statements. 81 TRANSMEDICS GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2021 2020 Cash flows from operating activities: Net loss $ ( 44,215 ) $ ( 28,748 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization expense 1,817 1,577 Stock-based compensation expense 6,878 2,414 Non-cash interest and end of term accretion expense 540 511 Non-cash lease expense 829 — Net amortization of premiums on marketable securities 1,356 634 Unrealized foreign currency transaction (gains) losses 928 ( 1,065 ) Changes in operating assets and liabilities: Accounts receivable 840 ( 218 ) Inventory ( 4,894 ) ( 1,740 ) Prepaid expenses and other current assets ( 3,151 ) ( 769 ) Accounts payable 5,090 ( 5,802 ) Accrued expenses and other current liabilities 4,875 1,948 Deferred revenue 7 60 Operating lease liabilities 236 — Deferred rent — 933 Net cash used in operating activities ( 28,864 ) ( 30,265 ) Cash flows from investing activities: Purchases of property and equipment ( 3,519 ) ( 455 ) Purchases of marketable securities ( 72,024 ) ( 121,793 ) Proceeds from sales and maturities of marketable securities 104,810 80,650 Net cash provided by (used) in investing activities 29,267 ( 41,598 ) Cash flows from financing activities: Proceeds from issuance of common stock in public offering, net of underwriting discounts and commissions — 75,670 Payments of public offering and other financing costs — ( 705 ) Proceeds from issuance of common stock upon exercise of stock options 974 227 Proceeds from issuance of common stock in connection with employee stock purchase plan 419 357 Proceeds from Paycheck Protection Program loan — 2,249 Repayment of Paycheck Protection Program loan — ( 2,249 ) Net cash provided by financing activities 1,393 75,549 Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 797 ) 803 Net increase in cash, cash equivalents and restricted cash 999 4,489 Cash, cash equivalents and restricted cash, beginning of period 25,081 20,592 Cash, cash equivalents and restricted cash, end of period $ 26,080 $ 25,081 Supplemental disclosure of cash flow information: Cash paid for interest $ 3,334 $ 3,475 Supplemental disclosure of non-cash investing and financing activities: Transfers of inventory to property and equipment $ 1,823 $ 1,191 Purchases of property and equipment included in accounts payable and accrued expenses $ 1,200 $ — Reconciliation of cash, cash equivalents and restricted cash: Cash and cash equivalents $ 25,580 $ 24,581 Restricted cash 500 500 Total cash, cash equivalents and restricted cash shown in the statement of cash flows $ 26,080 $ 25,081 The accompanying notes are an integral part of these consolidated financial statements. 82 TRANSMEDICS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of the Business and Basis of Presentation TransMedics Group, Inc. (“TransMedics Group” and together with its consolidated subsidiaries, the “Company”) was incorporated in the Commonwealth of Massachusetts in October 2018. TransMedics, Inc. (“TransMedics”), an operating company and wholly owned subsidiary of TransMedics Group was incorporated in the State of Delaware in August 1998. The Company is a commercial-stage medical technology company transforming organ transplant therapy for end-stage organ failure patients across multiple disease states. The Company developed the Organ Care System (“OCS”) to replace a decades-old standard of care. 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. The Company’s OCS technology replicates many aspects of the organ’s natural living and functioning environment outside of the human body. The accompanying consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. The Company has incurred recurring losses since inception, including net losses of $ 44.2 million and $ 28.7 million for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, the Company had an accumulated deficit of $ 442.4 million. The Company expects to continue to generate operating losses in the foreseeable future. The Company believes that its existing cash, cash equivalents, and marketable securities of $ 92.5 million as of December 31, 2021 will be sufficient to fund its operations, capital expenditures, and debt service payments for at least the next 12 months following the filing of this Annual Report on Form 10-K. The Company may need to seek additional funding through equity financings, debt financings or strategic alliances. The Company may not be able to obtain financing on acceptable terms, or at all, and the terms of any financing may adversely affect the holdings or the rights of the Company’s shareholders. If the Company is unable to obtain funding, the Company will be required to delay, reduce or eliminate some or all of its research and development programs, product expansion or commercialization efforts, or the Company may be unable to continue operations. The Company is subject to risks and uncertainties common to companies in the medical device industry and of similar size, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, uncertainty of market acceptance of products, and the need to obtain additional financing to fund operations. Potential risks and uncertainties also include, without limitation, uncertainties regarding the duration and magnitude of the impact of the COVID-19 pandemic on the Company’s business and the economy generally. Products currently under development will require additional research and development efforts, including additional clinical testing and regulatory approval, prior to commercialization. These efforts require additional capital, adequate personnel, infrastructure and extensive compliance-reporting capabilities. The Company’s research and development may not be successfully completed, adequate protection for the Company’s technology may not be obtained, the Company may not obtain necessary government regulatory approval on its expected timeline or at all, and approved products may not prove commercially viable. The Company operates in an environment of rapid change in technology and competition. The impact of the COVID-19 pandemic has been and may continue to be extensive in many aspects of society, which has resulted in and may continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world. Impacts to the Company’s business as a result of COVID-19 have included the temporary disruption of transplant procedures at many of the organ transplant centers that purchase OCS products; customer delays or reductions in customer capital expenditures and operating budgets and the related impact on our product sales; disruptions to the Company’s 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; delays of reviews and approvals by the Food and Drug Administration (“FDA”) and other health authorities; delays in the Company’s clinical trial enrollment; limitations on its 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. 83 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 negatively impacts the Company’s revenue and cash flows. While the Company maintains an inventory of finished products and raw materials used in its OCS products, a prolonged pandemic could lead to shortages in the raw materials necessary to manufacture its products. The COVID-19 pandemic also has impacted operations at the FDA and other health authorities, resulting in delays of reviews and approvals, and may affect other potential Pre-Market Approval (“PMA”) applications. The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. 2. Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, revenue recognition, the valuation of inventory and the valuation of stock-based awards. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates as there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including sales, expenses, reserves and allowances, manufacturing, clinical trials, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international customers and markets. The Company has made estimates of the impact of COVID-19 within its financial statements and there may be changes to those estimates in future periods. As of the date of issuance of these consolidated financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update estimates, judgments or revise the carrying value of any assets or liabilities. Actual results may differ from those estimates or assumptions. Risk of Concentrations of Credit, Significant Customers and Significant Suppliers Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents, marketable securities and accounts receivable. The Company has not experienced any other-than-temporary losses with respect to its cash, cash equivalents and marketable securities and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. Significant customers are those that accounted for 10 % or more of the Company’s net revenue or accounts receivable. For the year ended December 31, 2021, one customer accounted for 11 % of net revenue. For the year ended December 31, 2020, two customers accounted for 14 % and 10 % of net revenue, respectively. As of December 31, 2021, two customers accounted for 21 % and 15 % of accounts receivable, respectively. As of December 31, 2020, one customer accounted for 30 % of accounts receivable. Certain of the components and subassemblies included in the Company’s products are obtained from a sole source, a single source or a limited group of suppliers. Although the Company seeks to reduce dependence on those limited sources of suppliers and manufacturers, the partial or complete loss of certain of these sources could have a material adverse effect on the Company’s operating results, financial condition and cash flows and damage its customer relationships. Deferred Financing Costs Deferred financing costs related to a recognized debt liability are recorded as a reduction of the carrying amount of the debt liability and amortized to interest expense using the effective interest method over the repayment term of the debt. 84 Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. Restricted Cash As of December 31, 2021 and 2020, the Company maintained two letters of credit totaling $ 0.5 million for the benefit of the landlord of its leased property. The Company was required to maintain a separate cash balance of $ 0.5 million to secure the letters of credit. Related to this separate cash balance, the Company classified $ 0.5 million as restricted cash (non-current) on its consolidated balance sheets as of December 31, 2021 and 2020. The Company’s cash, cash equivalents and restricted cash was $ 26.1 million and $ 25.1 million for the years ended December 31, 2021 and 2020, respectively. Accounts Receivable Accounts receivable are presented net of an allowance for credit losses, which is an estimate of amounts that may not be collectible. The Company performs ongoing credit evaluations of its customers and monitors economic conditions to identify facts and circumstances that may indicate its receivables are at risk of collection. The Company provides reserves against accounts receivable for estimated credit losses, if any, that may result from a customer’s inability to pay based on the composition of its accounts receivable, current economic conditions and historical credit loss activity. Amounts deemed uncollectible are charged or written-off against the reserve. As of December 31, 2021 and 2020, the Company had no allowance for credit losses. During the years ended December 31, 2021 and 2020, the Company did no t record any provisions for credit losses and did no t write off any accounts receivable balances. Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expense is recognized using the straight-line method over the estimated useful life of each asset as follows: Estimated Useful Life Manufacturing equipment 5 years OCS Consoles loaned to customers 5 years Computer equipment and software 3 years Laboratory equipment 3 years Office and trade show equipment 5 years Leasehold improvements Shorter of term of lease or 15 years Costs incurred for OCS Consoles are recorded as inventory unless and until the Company determines that an OCS Console will be loaned to a customer for its use. When an OCS Console is loaned to a customer, the Company reclassifies the cost of the OCS Console from inventory to property and equipment and begins to depreciate the loaned OCS Console over its estimated life. Related depreciation expense for the loaned OCS Console is classified as a cost of revenue. If an OCS Console is returned to the Company, it will continue to be classified as property and equipment and depreciated over its remaining useful life. The Company retains title to all OCS Consoles loaned to customers. Other than for OCS Consoles loaned to customers, costs for capital assets not yet placed into service are capitalized as construction-in-progress and depreciated once placed into service. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is included in loss from operations. Expenditures for repairs and maintenance are charged to expense as incurred. Impairment of Long-Lived Assets Long-lived assets consist of property and equipment and right-of-use assets. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset group for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset group to its carrying value. An impairment loss would be recognized in loss from operations when estimated undiscounted future cash flows expected to result from the use of an asset group are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value. The Company did no t record any impairment losses on long-lived assets during the years ended December 31, 2021 and 2020. 85 Software Development Costs The Company incurs costs to develop computer software that is embedded in the hardware components of the Company’s OCS Console and OCS Perfusion Sets. Research and development costs related to this software are expensed as incurred, except for costs of internally developed or externally purchased software that qualify for capitalization. Software development costs incurred subsequent to the establishment of technological feasibility, but prior to the general release of the product, are capitalized and, upon general release, are amortized based upon the pattern in which economic benefits related to such assets are realized. Due to the short time period between achieving technological feasibility and product release and the insignificant amount of costs incurred during such periods, the Company did no t capitalize any software development costs during the years ended December 31, 2021 and 2020. Inventory Inventory is valued at the lower of cost or net realizable value. Cost is computed using the first-in, first-out method. The Company regularly reviews inventory quantities on-hand for excess and obsolete inventory and, when circumstances indicate, records charges to write down inventories to their estimated net realizable value, after evaluating historical sales, future demand, market conditions and expected product life cycles. Such charges are classified as cost of revenue in the consolidated statements of operations. Any write-down of inventory to net realizable value creates a new cost basis. At the end of each reporting period, the Company assesses whether losses should be accrued on long-term manufacturing purchase commitments in accordance with Accounting Standards Codification (“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. As of the end of each reporting period presented in the accompanying consolidated financial statements, the Company did not identify any potential losses arising from remaining future purchase commitments as compared to estimated future customer sales through the remainder of the term of the manufacturing purchase commitment and, as a result, did no t recognize any loss provision for future-period remaining purchase commitments for the year ended December 31, 2021. Leases Prior to January 1, 2021, the Company accounted for leases under ASC 840, Leases (“ASC 840”). Effective January 1, 2021, the Company accounts for leases under ASC 842, Leases (“ASC 842”). Therefore, as of and for the year ended December 31, 2020, the Company’s consolidated financial statements continue to be presented in accordance with ASC 840, the accounting standard originally in effect for such period. As of and for the year ended December 31, 2021, the Company’s consolidated financial statements are presented in accordance with ASC 842. In accordance with ASC 842, the Company accounts for a contract as a lease when it has the right to control the asset for a period of time while obtaining substantially all of the asset’s economic benefits. The Company determines if an arrangement is a lease or contains an embedded lease at inception. For arrangements that meet the definition of a lease, the Company determines the initial classification and measurement of its right-of-use asset and lease liability at the lease commencement date and thereafter if modified. The lease term includes any renewal options that the Company is reasonably assured to exercise. The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, the Company uses its estimated secured incremental borrowing rate for that lease term. The Company’s policy is to not record leases with an original term of twelve months or less on its consolidated balance sheets and recognizes those lease payments in the income statement on a straight-line basis over the lease term. The Company’s existing leases are for office, laboratory and manufacturing space. In addition to rent, the leases may require the Company to pay additional costs, such as utilities, maintenance and other operating costs, which are generally referred to as non-lease components. The Company has elected to not separate lease and non-lease components. Only the fixed costs for lease components and their associated non-lease components are accounted for as a single lease component and recognized as part of a right-of-use asset and lease liability. Rent expense for operating leases is recognized on a straight-line basis over the reasonably assured lease term based on the total lease payments and is included in operating expense in the consolidated statements of operations. Revenue from leasing arrangements is not subject to the revenue standard for contracts with customers and remains separately accounted for under ASC 842. In accordance with ASC 842, lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if the lease would have been classified as a sales-type lease or a direct financing lease and the lessor would have otherwise recognized a day-one loss. The Company’s OCS Console implied rental agreements qualify as sales-type leases with 86 certain variable payments that meet specified criteria such that a day-one l oss would be recognized under ASC 842. Therefore, in accordance with ASC 842, such leases are accounted for as operating leases and the Company does not derecognize the leased asset (the OCS Console) at the time of the sale but depreciates the leased asset over the useful life of the asset . Fair Value Measurements Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable: • Level 1—Quoted prices in active markets for identical assets or liabilities. • Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. • Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. The Company’s cash equivalents and marketable securities are carried at fair value, determined according to the fair value hierarchy described above (see Note 4). The carrying values of the Company’s accounts receivable, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities. The carrying value of the Company’s long-term debt approximates its fair value (a level 2 measurement) at each balance sheet date due to its variable interest rate, which approximates a market interest rate. Marketable Securities The Company’s marketable securities (non-equity instruments) are classified as available-for-sale and are carried at fair value, with the unrealized gains and losses reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Realized gains and losses are based on the specific identification method and are included as a component of other income (expense), net in the consolidated statements of operations. When the fair value is below the amortized cost of a marketable security, an estimate of expected credit losses is made. The credit-related impairment amount is recognized in the consolidated statements of operations. Credit losses are recognized through the use of an allowance for credit losses account in the consolidated balance sheet and subsequent improvements in expected credit losses are recognized as a reversal of an amount in the allowance account. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security prior to recovery of its amortized cost basis, then the allowance for the credit loss is written-off and the excess of the amortized cost basis of the asset over its fair value is recorded in the consolidated statements of operations. There were no credit losses recorded during the years ended December 31, 2021 and 2020. Segment Information The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. The Company is developing and commercializing a proprietary system to preserve human organs for transplant in a near-physiologic condition to address the limitations of cold storage organ preservation. Operating segments are defined as components of an enterprise for which separate financial information is regularly evaluated by the Company’s chief operating decision maker, or decision-making group, in deciding how to allocate resources and assess performance. The Company has determined that its chief operating decision maker is its Chief Executive Officer. The Company’s chief operating decision maker reviews the Company’s financial information on a consolidated basis for purposes of allocating resources and assessing financial performance. Product Warranties The Company provides a one-year warranty on its OCS Consoles and disposable sets and replaces or repairs any OCS Console or disposable set that does not function in accordance with the product specifications . OCS Consoles returned to the 87 Company may be refurbished and redeployed. Estimated warranty costs are recorded at the time of shipment of the OCS Console or disposable set. Warranty costs are estimated based on the current expected product replacement or repair cost and expected replacement or repair rates based on historical experience. The Company evaluates its warranty accrual at the end of each reporting period and makes adjustments as necessary. As of December 31, 202 1 and 2020 , the warranty accrual was less than $ 0.1 million. Revenue Recognition The Company generates revenue primarily from sales of its single-use, organ-specific disposable sets (i.e., its organ-specific OCS Perfusion Sets sold together with its organ-specific OCS Solutions) used on its organ-specific OCS Consoles, each being a component of the Company’s OCS products. To a lesser extent, the Company also generates revenue from the sale of OCS Consoles to customers and from the implied rental of OCS Consoles loaned to customers at no charge. For each new transplant procedure, customers purchase an additional OCS disposable set for use on the customer’s existing organ-specific OCS Console. The Company recognizes 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. Substantially all of the Company’s customer contracts have multiple-performance obligations that contain deliverables consisting of OCS Perfusion Sets and OCS Solutions. In some of those customer contracts, the deliverables also include an OCS Console, whether sold or loaned to the customer. The Company evaluates each promise within a multiple-performance obligation arrangement to determine whether it represents a distinct performance obligation. The primary performance obligations in the Company’s customer arrangements from which it derives 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, the Company has determined that customer training and the equipment set-up of the OCS Console, each performed by the Company, are not distinct because they are not sold on a standalone basis and can only be performed by the Company in conjunction with a sale or loan of its OCS Console. In addition, the Company has 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, the Company has concluded that training, OCS Console equipment set-up, and the OCS Console itself are highly interdependent and represent a single, combined performance obligation. The Company recognizes 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 the Company. Customer orders may include the loan of an OCS Console as well as OCS disposable sets. When the Company loans the OCS Console to the customer, it retains title to the console at all times and does not require minimum purchase commitments from the customer related to any OCS products. In such cases, the Company invoices the customer for OCS disposable sets based on customer orders received and the prices set forth in the customer agreement. Over time, the Company typically recovers the cost of the loaned OCS Console through the customer’s continued purchasing of OCS disposable sets. For these reasons, the Company has determined that part of the arrangement consideration for the disposable set is an implied rental payment for use of the OCS Console. Therefore, the Company allocates 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. 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 the Company’s 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 the Company expects to be entitled to in exchange for the product or products. 88 Payments Made to Customers Under the Company’s customer arrangements that include a customer clinical trial agreement, the Company makes payments to that customer for reimbursements of clinical trial costs, materials, and for specified clinical documentation related to the customer’s use of its OCS products. The Company also makes payments to customers involved in post-approval studies for information related to the transplant procedures performed. The Company determines the appropriate accounting treatments for these payments depending on the nature of the payment and whether they are for distinct goods or services. Contract Assets and Liabilities The Company recognizes a receivable at the point in time at which it has an unconditional right to payment. Such receivables are not contract assets. Contract assets arise from unbilled amounts in customer arrangements when revenue recognized exceeds the amount billed to the customer and the Company’s right to payment is not just subject to the passage of time. The Company had no contract assets as of December 31, 2021 and 2020 . Contract liabilities represent the Company’s obligation to transfer goods or services to a customer for which it has received consideration (or the amount is due) from the customer. The Company has determined that its only contract liabilities are deferred revenue, which consists of amounts that have been invoiced but that have not been recognized as revenue. The Company generally satisfies performance obligations within one year of the contract inception date. As of December 31, 2021 , the Company’s wholly- or partially unsatisfied performance obligations totaled $ 1.4 million and are expected to be completed within the next year. Other Revenue Considerations Revenue is reported net of taxes. The Company does 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. The Company only includes 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. The Company does 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, the Company does 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. Distributors The Company markets and sells its products primarily through its direct sales force, which sells its products to end customers globally. A small portion of the Company’s revenue is generated by sales to a limited number of distributors in Europe and Asia-Pacific. When the Company transacts with a distributor, its contractual arrangement is with the distributor and not with the end customer. Whether the Company transacts business with and receives the order from a distributor or directly from an end customer, its revenue recognition policy and resulting pattern of revenue recognition for the order are the same. Research, Development and Clinical Trials Costs Research, development and clinical trials expenses consist of costs incurred for research activities, product development, hardware and software engineering and clinical trial activities, including salaries and bonuses, stock-based compensation, employee benefits, facilities costs, laboratory supplies, depreciation, testing, regulatory, data management and consulting costs. Research, development and clinical trials costs are expensed as incurred. Advance payments for goods or services to be received in the future for use in research, development and clinical trials activities are recorded as prepaid expenses. Such prepaid expenses are recognized as an expense when the related goods have been delivered or the related services have been performed, or when it is no longer expected that the goods will be delivered or the services rendered. 89 Patent Costs All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses. Foreign Currency Translation The functional currency of each of the Company’s foreign subsidiaries is the currency of the local country. Assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars using the period-end exchange rates, and income and expense items are translated into U.S. dollars using average exchange rates in effect during each period. The effects of these foreign currency translation adjustments are included in accumulated other comprehensive loss, a separate component of stockholders’ equity. The Company also incurs transaction gains and losses resulting from intercompany transactions as well as transactions with customers or vendors denominated in currencies other than the functional currency of the legal entity in which the transaction is recorded. Realized and unrealized foreign currency transaction gains (losses) are included in the consolidated statements of operations as a component of other income (expense) and totaled ($ 1.0 ) million and $ 1.0 million for the years ended December 31, 2021 and 2020, respectively. Stock-Based Compensation The Company measures stock-based option awards granted to employees, non-employees and directors based on their fair value on the date of grant using the Black-Scholes option-pricing model. Generally, the Company issues awards with only service-based vesting conditions. Compensation expense for those awards is recognized over the vesting period of the respective award using the straight-line method. The Company accounts for forfeitures as they occur and records compensation cost assuming all option holders will complete the requisite service period. When the unvested portion of an award is forfeited, the Company reverses compensation expense previously recognized in the period of the forfeiture. The Company classifies stock-based compensation expense in its consolidated statements of operations in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified. Comprehensive Loss and Accumulated Other Comprehensive Loss Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. The Company’s only elements of other comprehensive loss are foreign currency translation adjustments and unrealized gains (losses) on marketable securities. Accumulated other comprehensive gains (losses) on the consolidated balance sheets consists primarily of foreign currency translation adjustments. Accumulated other comprehensive loss attributable to unrealized losses on marketable securities has not been significant. Net Income (Loss) per Share Basic net income (loss) per common share is computed by dividing the net income (loss) by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period, including potential dilutive common shares assuming the dilutive effect of outstanding stock awards. For periods in which the Company reports a net loss, diluted net loss per common share is the same as basic net loss per common share, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The Company reported a net loss attributable to common stockholders for each of the years ended December 31, 2021 and 2020. 90 The Company’s potential dilutive securities have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated above because including them would have had an anti-dilutive effect: As of December 31, 2021 2020 Warrants to purchase common stock 64,440 64,440 Options to purchase common stock 2,797,550 2,261,234 Employee stock purchase plan 12,465 14,951 2,874,455 2,340,625 Income Taxes The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or in the Company's tax returns. Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be realized and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by analyzing carryback capacity in periods with taxable income, reversal of existing taxable temporary differences and estimating the future taxable profits expected and considering prudent and feasible tax planning strategies. The Company accounts for uncertainty in income taxes recognized in the financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties. Recently Adopted Accounting Pronouncements The Company adopted ASU No. 2016-02, Leases (Topic 842), inclusive of ASU 2021-05 Leases (Topic 842): Lessors – Certain Leases with Variable Lease Payments, effective January 1, 2021 , using the modified retrospective method under ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. Since the Company ceased to be an emerging growth company as of December 31, 2021, the Company adopted the standard during the fourth quarter of 2021 effective as of January 1, 2021. The modified retrospective transition method allows entities to apply the transition requirements at the effective date rather than at the beginning of the earliest comparative period presented. The Company’s reporting for comparative periods was not recast and is presented in accordance with ASC 840. Adoption of the new standard resulted in the recording of right-of-use assets and lease liabilities of $ 6.7 million and $ 8.4 million, respectively. The adoption of the standard did not have a material impact on the Company’s results of operations or cash flows. The Company elected to use the transition package of three practical expedients, which among other things, allowed the Company to carry forward the historical lease classification. The Company has also elected to use its incremental borrowing rate on the date of adoption using the remaining lease term as of the date of adoption. The underlying assets of the Company’s leases as of the adoption date consisted of office, laboratory and manufacturing space. The Company assessed the implied rentals of OCS consoles loaned to customers at no charge. In accordance with ASC 842, lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if the lease would have been classified as a sales-type lease or a direct financing lease and the lessor would have otherwise recognized a day-one loss. The Company’s implied rentals of OCS consoles meet such criteria to continue to account for the lease as an operating lease as the lease would have been classified as a sales-type lease and a day-one loss would have otherwise been recognized. Therefore, the adoption of the standard had no impact on the consolidated financial statements and related disclosures in accordance with ASU 2021-05 Leases (Topic 842): Lessors – Certain Leases with Variable Lease Payments. 91 The Company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments for the year ended December 31, 2021. The new standard adjusts the accounting for assets held at amortized costs basis, including marketable securities accounted for as available for sale, and trade receivables. The standard eliminates the probable initial recognition threshold and requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. The adoption of this standard did not have a material impact on the consolidated financial statements and related disclosures. The Company adopted ASU No. 2019-12 , Income Taxes – Simplifying the Accounting for Income Taxes (Topic 740) for the year ended December 31, 2021. The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles as well as clarifying and amending existing guidance to improve consistent application. The adoption of this standard did not have a material impact on the consolidated financial statements and related disclosures. 3. Marketable Securities Marketable securities by security type consisted of the following (in thousands): December 31, 2021 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. Treasury securities (due within one year) $ 63,907 $ — $ ( 33 ) $ 63,874 U.S. government agency bonds (due within one year) 3,001 — ( 3 ) 2,998 $ 66,908 $ — $ ( 36 ) $ 66,872 December 31, 2020 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. Treasury securities (due within one year) $ 74,066 $ 10 $ ( 3 ) $ 74,073 U.S. government agency bonds (due within one year) 26,984 4 — 26,988 $ 101,050 $ 14 $ ( 3 ) $ 101,061 4 . Fair Value of Financial Assets The following tables present the Company’s fair value hierarchy for its assets that are measured at fair value on a recurring basis (in thousands): Fair Value Measurements at December 31, 2021 Using: Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 11,169 $ — $ — $ 11,169 Marketable securities: U.S. Treasury securities — 63,874 — 63,874 U.S. government agency bonds — 2,998 — 2,998 $ 11,169 $ 66,872 $ — $ 78,041 92 Fair Value Measurements at December 31, 2020 Using: Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 13,829 $ — $ — $ 13,829 Marketable securities: U.S. Treasury securities — 74,073 — 74,073 U.S. government agency bonds — 26,988 — 26,988 $ 13,829 $ 101,061 $ — $ 114,890 Money market funds were valued by the Company based on quoted market prices, which represent a Level 1 measurement within the fair value hierarchy. U.S. Treasury securities and U.S. government agency bonds were valued by the Company using quoted prices in active markets for similar securities, which represent a Level 2 measurement within the fair value hierarchy. 5 . Inventory Inventory consisted of the following (in thousands): December 31, 2021 2020 Raw materials $ 7,274 $ 6,770 Work-in-process 1,932 1,102 Finished goods 5,653 4,062 $ 14,859 $ 11,934 During the years ended December 31, 2021 and 2020, the Company made non-cash transfers of OCS Consoles from inventory to property and equipment (OCS Consoles loaned to customers) of $ 1.8 million and $ 1.2 million, respectively. 6 . Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): December 31, 2021 2020 Manufacturing equipment $ 1,769 $ 1,725 OCS Consoles loaned to customers 8,865 7,196 Computer equipment and software 1,511 1,338 Laboratory equipment 668 617 Office and trade show equipment 177 177 Leasehold improvements 1,319 1,319 Construction-in-progress 5,267 409 19,576 12,781 Less: Accumulated depreciation and amortization ( 9,735 ) ( 8,027 ) $ 9,841 $ 4,754 During the years ended December 31, 2021 and 2020, total depreciation and amortization expense was $ 1.8 million and $ 1.6 million, respectively. Of those amounts, $ 1.4 million and $ 1.3 million, respectively, was recorded as expense in cost of revenue related to the depreciation of OCS Consoles loaned to customers. The Company retains title to OCS Consoles loaned to customers. Construction-in-progress recorded as of December 31, 2021 and 2020 was primarily related to leasehold improvements and in-process construction of manufacturing equipment, respectively. 93 7 . Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following (in thousands): December 31, 2021 2020 Accrued research, development and clinical trial expenses $ 4,567 $ 4,426 Accrued payroll and related expenses 5,173 4,030 Accrued professional fees 1,973 344 Accrued other 4,624 1,610 $ 16,337 $ 10,410 8 . Long-Term Debt TransMedics has a credit agreement (the “Credit Agreement”) with OrbiMed Royalty Opportunities II, LP (“OrbiMed”), entered into in June 2018, pursuant to which TransMedics borrowed $ 35.0 million. Long-term debt consisted of the following (in thousands): December 31, 2021 2020 Principal amount of long-term debt $ 35,000 $ 35,000 Less: Current portion of long-term debt — — Long-term debt, net of current portion 35,000 35,000 Debt discount, net of accretion ( 511 ) ( 834 ) Accrued end-of-term payments 708 491 Long-term debt, net of discount and current portion $ 35,197 $ 34,657 Borrowings under the Credit Agreement bear interest at an annual rate equal to the London Interbank Offered Rate (“LIBOR”), subject to a minimum of 1.0 % and a maximum of 4.0 % , plus 8.5 % (the “Applicable Margin”), subject in the aggregate to a maximum interest rate of 11.5 %. In addition, borrowings under the Credit Agreement bear paid-in-kind (“PIK”) interest at an annual rate equal to the amount by which LIBOR plus the Applicable Margin exceeds 11.5 %, but not to exceed 12.5 %. 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 its option, the Company may prepay outstanding borrowings under the Credit Agreement. The Company is also required to make a final payment in an amount equal to 3.0 % of the principal amount of any prepayment or repayment. The final payment and debt discount amounts are being accreted to interest expense over the term of the Credit Agreement using the effective interest method. All obligations under the Credit Agreement are guaranteed by the Company and each of its material subsidiaries. All obligations of the Company and each guarantor are secured by substantially all of the Company’s and each guarantor’s assets, including their intellectual property, subject to certain exceptions, including a perfected security interest in substantially all tangible and intangible assets of the Company and each guarantor. Under the Credit Agreement, the Company has agreed to certain affirmative and negative covenants to which it will remain subject until maturity. 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 the Company’s independent registered public accounting firm; and restrictions on the Company’s activities, including limitations on dispositions, mergers or acquisitions; encumbering its intellectual property; incurring indebtedness or liens; paying dividends; making certain investments; and engaging in certain other business transactions. As of December 31, 2021, the Company was in compliance with the financial covenants under the Credit Agreement. 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 the Company’s business), failure to comply with certain covenants, including the minimum liquidity and unqualified audit opinion covenants, and a material adverse change in the Company’s business, operations or other financial condition. 94 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. If an event of default (other than certain events of bankruptcy or insolvency) occurs and is continuing, OrbiMed may declare all or any portion of the outstanding principal amount of the borrowings plus accrued and unpaid interest to be due and payable. Upon the occurrence of certain events of bankruptcy or insolvency, all of the outstanding principal amount of the borrowings plus accrued and unpaid interest will automatically become due and payable. In addition, the Company 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. As of December 31, 2021 and 2020, the interest rate applicable to borrowings under the Credit Agreement was 9.5 %. During each of the years ended December 31, 2021 and 2020, the weighted average effective interest rate on outstanding borrowings under the Credit Agreement was approximately 11.2 %. Paycheck Protection Program Loan On April 20, 2020, TransMedics issued a Promissory Note to Bank of America, NA, pursuant to which it received loan proceeds of $ 2.2 million (the “Loan”) provided under the Paycheck Protection Program established under the Coronavirus Aid, Relief, and Economic Security Act and guaranteed by the U.S. Small Business Administration (the “Paycheck Protection Program”). However, based on updated guidance related to this program, the Company decided to repay the full amount of the Loan, and repaid the Loan on May 1, 2020 . The Loan was unsecured, was scheduled to mature on April 20, 2022 , had a fixed interest rate of 1.0 % per annum and was subject to the standard terms and conditions applicable to loans administered under the Paycheck Protection Program. 9. Equity Preferred Stock As of December 31, 2021, the Company’s articles of organization authorized the Company to issue up to 25,000,000 shares of preferred stock, no par value per share, all of which is undesignated. The preferred stock will have such rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be determined by the Company’s boards of directors upon issuance. Common Stock As of December 31, 2021, the Company’s articles of organization authorized the Company to issue up to 150,000,000 shares of common stock, no par value per share. Each share of common stock is entitled to one vote on all matters submitted to a vote of the Company’s stockholders. The holders of common stock are entitled to receive dividends, if any, as may be declared by the board of directors, as described above. Through December 31, 2021, no dividends had been declared or paid. Warrants As of December 31, 2021, the Company had outstanding warrants to purchase 50,000 shares of common stock at an exercise price of $ 8.75 per share with an expiration date of November 7, 2022 and warrants to purchase 14,440 shares of common stock at an exercise price of $ 17.47 per share with an expiration date of May 6, 2024 . 1 0 . Stock-Based Compensation 2019 Stock Incentive Plan and Option Grants The 2019 Stock Incentive Plan (the “2019 Plan”) provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, unrestricted stock units, and other stock-based awards to employees, directors, and consultants of the Company and its subsidiaries. The number of shares of common stock of TransMedics Group initially available for issuance under the 2019 Plan was 3,428,571 shares, plus the number of shares underlying awards under the previously outstanding 2014 Stock Incentive Plan (the “2014 Plan”), not to exceed 1,595,189 shares, that expire or are terminated, surrendered, or cancelled without the delivery of shares, are forfeited to or repurchased by TransMedics Group or otherwise become available again for grant. Since the effectiveness of the Company’s 2019 Plan in April 2019, no future awards will be made under the 2014 Plan. 95 Shares withheld in payment of the exercise or purchase price of an award or in satisfaction of tax withholding requirements, and the shares covered by a stock appreciation right for which any portion is settled in stock, will reduce the number of shares available for issuance under the 2019 Plan. In addition, the number of shares available for issuance under the 2019 Plan ( i ) will not be increased by any shares delivered under the 2019 Plan that are subsequently repurchased using proceeds directly attributable to stock option exercises and (ii) will not be reduced by any awards that are settled in cash or that expire, become unexercisable , terminate or are forfeited to or repurchased by TransMedics Group without the issuance of stock under the 2019 Plan. As of December 31, 202 1 , 1,583,925 shares of common stock were available for issuance under the 2019 Plan. 2019 Employee Stock Purchase Plan Pursuant to the Company’s 2019 Employee Stock Purchase Plan (the “2019 ESPP”), certain employees of the Company are eligible to purchase common stock of the Company at a reduced price during offering periods. The 2019 ESPP permits participants to purchase common stock using funds contributed through payroll deductions, subject to the limitations set forth in the Internal Revenue Code, at a purchase price of 85 % of the lower of the closing price of the Company’s common stock on the first trading day of the offering period or the closing price on the applicable purchase date, which is the final trading day of the applicable offering period. A total of 371,142 shares of common stock of TransMedics Group are reserved for issuance under the 2019 ESPP as of December 31, 2021. During the year ended December 31, 2021, 27,849 shares were issued under the 2019 ESPP and as of December 31, 2021, 320,596 shares remained available for issuance. 2021 Inducement Plan In August 2021, the Company’s board of directors approved the TransMedics Group, Inc. Inducement Plan (the “Inducement Plan”). Pursuant to the terms of the Inducement Plan, the Company may grant nonstatutory stock options, stock appreciation rights, restricted stock, unrestricted stock, restricted stock unit awards and performance awards to individuals who were not previously employees or directors of the Company or individuals returning to employment after a bona fide period of non-employment with the Company. A total of 1,000,000 shares of the Company’s common stock were initially available for issuance under the Inducement Plan. As of December 31, 2021, 738,700 shares of common stock were available for issuance under the Inducement Plan. Stock Option Valuation The fair value of stock option grants is estimated using the Black-Scholes option-pricing model. Prior to the IPO, the Company was a private company and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. For options with service-based vesting conditions, the expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. The following table presents, on a weighted average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted to employees and directors: Year Ended December 31, 2021 2020 Risk-free interest rate 0.90 % 0.91 % Expected term (in years) 6.03 5.97 Expected volatility 58 % 54 % Expected dividend yield 0 % 0 % 96 The following table summarizes the Company’s option activity since December 31, 2020: Number of Shares Weighted Average Exercise Price Weighted Average Contractual Term Aggregate Intrinsic Value (in years) (in thousands) Outstanding as of December 31, 2020 2,261,234 $ 8.17 6.22 $ 26,671 Granted 1,326,675 34.60 Exercised ( 588,461 ) 1.65 Forfeited ( 200,060 ) 28.10 Expired ( 1,838 ) 31.76 Outstanding as of December 31, 2021 2,797,550 $ 20.64 7.54 $ 14,625 Vested and expected to vest as of December 31, 2021 2,797,550 $ 20.64 7.54 $ 14,625 Options exercisable as of December 31, 2021 1,371,048 $ 11.80 6.11 $ 13,143 The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock. The aggregate intrinsic value of stock options exercised during the years ended December 31, 2021 and 2020, was $ 16.3 million and $ 2.9 million, respectively. The weighted average grant-date fair value of stock options granted during the years ended December 31, 2021 and 2020 was $ 18.63 per share and $ 7.91 per share, respectively. The Company has no t granted to employees any stock-based awards with performance-based vesting conditions. Stock-Based Compensation The Company recorded stock-based compensation expense in the following expense categories of its consolidated statements of operations (in thousands): Year Ended December 31, 2021 2020 Cost of revenue $ 72 $ 27 Research, development and clinical trials expenses 1,114 396 Selling, general and administrative expenses 5,692 1,991 $ 6,878 $ 2,414 As of December 31, 2021, total unrecognized compensation cost related to unvested share-based awards was $ 20.9 million, which is expected to be recognized over a weighted average period of 2.7 years. 1 1 . Income Taxes Tax Provision Components During the years ended December 31, 2021 and 2020, the Company recorded no income tax benefits for the net operating losses incurred or for the research and development tax credits generated in each year in the United States, due to the uncertainty regarding the realizability of these respective deferred tax assets. The Company generated income in the Netherlands for the years ended December 31, 2021 and 2020 and, accordingly, recorded a foreign income tax provision of less than $ 0.1 million for each of the years ended December 31, 2021 and 2020, respectively. Income Before Taxes The domestic and foreign components of loss before income taxes were as follows (in thousands): Year Ended December 31, 2021 2020 United States $ ( 44,321 ) $ ( 28,803 ) Foreign 142 87 $ ( 44,179 ) $ ( 28,716 ) 97 A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows: Year Ended December 31, 2021 2020 Federal statutory income tax rate ( 21.0 )% ( 21.0 )% State taxes, net of federal benefit ( 6.9 )% ( 5.7 )% Federal and state research and development tax credits ( 2.4 )% ( 3.6 )% Nondeductible items ( 3.2 )% ( 0.2 )% Deferred tax effect of change in state blended rate ( 1.7 )% 7.8 % Return to provision 1.1 % 1.7 % Other ( 0.2 )% 0.0 % Change in deferred tax asset valuation allowance 34.3 % 20.9 % Effective income tax rate 0.0 % ( 0.1 )% Net deferred tax assets consisted of the following (in thousands): December 31, 2021 2020 Deferred tax assets: Net operating loss carryforwards $ 94,672 $ 81,390 Capitalized research and development expense 4,291 6,136 Research and development tax credit carryforwards 12,186 11,541 Accrued expenses 2,528 1,390 Stock-based compensation expense 2,254 791 Deferred rent — 79 Lease liability 2,299 — Other 170 132 Total deferred tax assets 118,400 101,459 Deferred tax liabilities: Other ( 674 ) ( 218 ) Right-of-use assets ( 1,562 ) — Unrealized gain (loss) — ( 212 ) Total deferred tax liabilities ( 2,236 ) ( 430 ) Valuation allowance ( 116,164 ) ( 101,029 ) Net deferred tax assets $ — $ — As of December 31, 2021, the Company 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. The Company’s federal net operating loss carryforwards include $ 156.4 million that can be carried forward indefinitely. As of December 31, 2021, the Company also had U.S. federal and state research and development tax credit carryforwards of $ 8.0 million and $ 5.3 million, respectively, which may be available to offset future tax liabilities and begin to expire in 2022 and 2024 , respectively. As of December 31, 2021, the Company had no foreign net operating loss carryforwards. Utilization of the U.S. federal and state net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, and corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income or tax liabilities. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three-year period. The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study. If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Section 382, which is determined by first multiplying the value of the Company’s stock at the time of the 98 ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization. Further, until a study is completed by the Company and any limitation is known, no amounts are being presented as an uncertain tax position. As required by Accounting Standard Codification 740, management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which are comprised principally of net operating loss carryforwards. Management has determined that it is more likely than not that the Company will not recognize the benefits of federal and state deferred tax assets and, as a result, a valuation allowance of approximately $ 116.2 million has been recorded. During 2021, the Company recorded a net increase to its valuation allowance in the amount of $ 15.1 million primarily attributable to the current year operating loss and research credit generation for which the Company cannot provide a tax benefit. The Company had no unrecognized tax benefits or related interest and penalties accrued for the years ended December 31, 2021 and 2020. The Company's policy is to record any interest or penalties related to income taxes as part of the income tax provision. The Company generated research credits for the tax years ending after December 31, 2001 but has not conducted a study to document qualified activities. This study may result in an adjustment to the Company's research and development carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an unrecognized tax benefit for the year ended December 31, 2021. A full valuation allowance has been provided against the Company's research and development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the deferred tax asset established for the research credit carryforward and the valuation allowance. The Company files income tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending federal or state tax examinations. The Company has open tax years subject to examination from fiscal year 2018 to present. To the extent that the Company has carryforward attributes, the tax years in which the attribute was generated may still be adjusted upon examination by federal, state or local tax authorities if they either have been or will be used in the future. Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2021 and 2020 related primarily to the increase in net operating loss carryforwards and research and development tax credit carryforwards in 2021 and 2020, and were as follows (in thousands): Year Ended December 31, 2021 2020 Valuation allowance as of beginning of year $ ( 101,029 ) $ ( 95,024 ) Decreases recorded as benefit to income tax provision — — Increases recorded to income tax provision ( 15,135 ) ( 6,005 ) Valuation allowance as of end of year $ ( 116,164 ) $ ( 101,029 ) As of December 31, 2021 and 2020, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts had been recognized in the Company’s consolidated statements of operations. 12. Leases The Company leases its office, laboratory and manufacturing space under two noncancelable leases (the “Leases”) that expire in December 2027 and include a lease incentive, fixed payment escalations, and rent holidays. The Leases include an option to renew for an additional five years . The option to extend the lease term was not included in the right-of-use asset and the lease liability as it was not reasonably certain of being exercised. The Company classified the Leases as operating leases under ASC 842. Annual base rent increases at an average rate of 2.5 % each year until the end of the term. The Company is also obligated to pay the landlord certain costs, taxes, and operating expenses, subject to certain exclusions. As these costs are generally variable in nature, they are not included in the measurement of the right-of-use asset and related lease liability. Under the Leases, the landlord will contribute up to $ 3.4 million towards the Company’s leasehold improvements. The Company determined that it owns the leasehold improvements related to the Leases and, as such, reflected the $ 3.4 million 99 lease incentive as a reduction of rental payments used to measure the operating lease liability, and, in turn, the operating lease right-of-use asset upon adoption of ASC 842. The components of the Company’s lease expense under ASC 842 are as follows: Year Ended December 31, 2021 Operating lease cost $ 1,353 Short-term lease cost 159 Variable lease cost 640 $ 2,152 Supplemental disclosure of cash flow information related to the leases were as follows (in thousands): Year Ended December 31, 2021 Cash paid for amounts included in the measurement of operating lease liabilities $ 1,901 Operating lease liabilities arising from obtaining right-of-use assets and leasehold improvements $ — The weighted-average remaining lease term as of December 31, 2021 was 6.0 years. The weighted-average discount rate as of December 31, 2021 was 6.7 %. Because the interest rate implicit in the lease was not readily determinable, the Company’s estimated incremental borrowing rate was used to calculate the present value of the Leases. In determining its incremental borrowing rate, the Company considered its credit quality and assessed interest rates available in the market for similar borrowings, adjusted for the impact of collateral over the term of the lease. Future annual lease payments under the Company’s Leases as of December 31, 2021 are as follows (in thousands): Year Ending December 31, 2022 $ 1,948 2023 1,997 2024 2,047 2025 2,098 2026 2,150 Thereafter 2,204 Total future minimum lease payments 12,444 Less: imputed interest ( 2,273 ) Less: estimated lease incentives ( 1,567 ) Total operating lease liabilities $ 8,604 The following table represents lease liabilities on the consolidated balance sheet (in thousands): December 31, 2021 Current operating lease liabilities $ — Operating lease liabilities, net of current portion 8,604 Total operating lease liabilities $ 8,604 100 Under prior lease guidance, minimum lease payments under operating leases were as follows as December 31, 2020 (in thousands): Year Ending December 31, 2021 $ 1,900 2022 1,948 2023 1,997 2024 2,047 2025 2,098 Thereafter 4,354 $ 14,344 1 3 . Commitments and Contingencies License Agreement with the Department of Veterans Affairs In 2002, the Company entered into a license agreement with the Department of Veterans Affairs (the “VA”), under which the Company was granted an exclusive, worldwide license under specified patents to make, use, sell and import certain technology used in the Company’s products and a non-exclusive, worldwide license to make, use, sell and import solutions for use in or with those products. The rights under the license agreement continue until the expiration of the last to expire of the licensed patents. The majority of the licensed U.S. patents expired in 2017, and the foreign patents expired in September 2018. However, the Company has requested a patent term extension for one U.S. patent covered by the VA license agreement, U.S. Patent No. 6100082. The Company was granted an interim patent term extension for this patent until November 6, 2021. The Company has not received final approval of the patent extension beyond the interim patent term extension already requested. The maximum extension granted would be through May 2022; however, the length of the patent term extension will be determined by the United States Patent and Trademark Office (“USPTO”) based on input from the FDA. On February 8, 2021, the FDA provided to the USPTO a determined regulatory review period for the OCS Lung. Under the FDA’s analysis, the patent term extension of the ’082 patent would be until November 6, 2021 . The Company has not yet received communication from the USPTO, but expects that the USPTO’s determination of patent term extension for the ’082 patent will maintain the November 6, 2021 expiration date. The final determination of the length of the patent extension is not expected to have a material impact on the Company’s financial results. The license includes the right to grant sublicenses, subject to approval by the VA and other restrictions, and is subject to the U.S. government’s right to practice the licensed patents on its own behalf without payment of a royalty and obligation to grant certain sublicenses as necessary to fulfill public health, welfare and safety needs. The license agreement also requires the Company to make its products covered by the licensed patents available to the public on reasonable terms and to provide the U.S. government such products at the lowest price. As consideration for the licenses granted by the VA, the Company is obligated to pay tiered royalties ranging from a low single-digit to a mid single-digit percentage on net sales of each product covered by a licensed patent (subject to a minimum aggregate royalty payment of less than $ 0.1 million per year during each of the first five years after the first commercial sale, after which no minimum is required). Royalties will be paid by the Company on a licensed product-by-licensed product and country-by-country basis, beginning on the first commercial sale of such licensed product in such country until expiration of the last valid patent claim covering such licensed product in such country. The Company is also responsible for all costs related to the amendment, prosecution and maintenance of the licensed patent rights. The Company paid the VA royalties of $ 0.4 million and $ 0.3 million during of the years ended December 31, 2021 and 2020, respectively. The Company also accrued VA royalties of $ 0.2 million and $ 0.1 million as of December 31, 2021 and 2020, respectively. The VA license agreement can be terminated by the Company or the VA only if the other party fails to cure its material breach within a specified period after receiving notice of such breach. 401(k) Savings Plan The Company has a defined-contribution savings plan under Section 401(k) of the Internal Revenue Code. This plan covers substantially all employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. Company contributions to the plan may be made at the discretion of the board of directors. For the years ended December 31, 2021 and 2020, the Company had no t made any contributions to the plan. 101 Indemnification Agreements In the ordinary course of business, the Company has agreed to defend and indemnify its customers against third-party claims asserting infringement of certain intellectual property rights, which may include patents, copyrights, trademarks or trade secrets. The Company’s exposure under these indemnification provisions is generally limited to the total amount paid by the end-customer under the agreement. However, certain agreements include indemnification provisions that could potentially expose the Company to losses in excess of the amount received under the agreement. In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or services as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company is not currently aware of any indemnification claims and had not accrued any liabilities related to such obligations in its consolidated financial statements as of December 31, 2021 and 2020. Unconditional Purchase Commitment In January 2021, the Company 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. The remaining purchase commitment as of December 31, 2021 was $ 8.0 million. Legal Proceedings The Company is not currently party to any material legal proceedings. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costs related to such legal proceedings. 1 4 . Segment Reporting and Geographic Data The Company has determined that it operates in one segment (see Note 2). Financial data by geographical area is summarized as follows (in thousands): Year Ended December 31, 2021 2020 Net revenue by country: United States $ 21,861 $ 19,239 All other countries 8,401 6,400 Total net revenue $ 30,262 $ 25,639 December 31, 2021 2020 Long-lived assets by country(1): United States $ 9,085 $ 4,114 All other countries 756 640 Total long-lived assets $ 9,841 $ 4,754 (1) The Company’s only long-lived assets consist of property and equipment, net of depreciation, which are categorized based on their location of domicile. 102 15. Revenue The Company has determined that the payments made to the customer for reimbursement of clinical trial materials and customer’s costs incurred to execute specific clinical trial protocols related to the Company’s OCS products do not provide the Company with a distinct good or service transferred by the customer, and therefore such payments are recorded as a reduction of revenue from the customer in the Company’s consolidated statements of operations. Reductions of revenue related to such payments made to customers for reimbursements are recognized when the Company recognizes the revenue for the sale of its OCS disposable sets. The reconciliation of gross revenue to net revenue for these certain payments is shown below (in thousands): Year Ended December 31, 2021 2020 Gross revenue from sales to customers $ 31,385 $ 28,356 Less: Clinical trial payments reducing revenue 1,123 2,717 Total net revenue $ 30,262 $ 25,639 The Company determined that payments made to customers to obtain information related to post-approval studies or existing standard-of-care protocols (i.e., unrelated to the Company’s OCS products) meet the criteria to be classified as a cost because the Company receives a distinct good or service transferred by the customer separate from the customer’s purchase of the Company’s OCS products and the consideration paid to the customer represents the fair value of the distinct good or service received. As a result, such payments made to the customers are recorded as operating expenses. The Company recorded payments made to customers related to post-approval studies and for documentation related to existing standard-of-care protocols of $ 2.1 million and $ 1.6 million for the years ended December 31, 2021 and 2020, respectively, as operating expenses. Disaggregated Revenue The Company disaggregates revenue from contracts with customers by product type and geographical area as it believes this presentation best depicts how the nature, amount, timing and uncertainty of the Company’s revenue and cash flows are affected by economic factors, as shown below (in thousands): Year Ended December 31, 2021 2020 Net revenue by OCS product: OCS Lung net revenue $ 10,665 $ 6,194 OCS Heart net revenue 17,683 14,196 OCS Liver net revenue 1,914 5,249 Total net revenue $ 30,262 $ 25,639 Year Ended December 31, 2021 2020 Net revenue by country (1): United States $ 21,861 $ 19,239 All other countries 8,401 6,400 Total net revenue $ 30,262 $ 25,639 (1) Net revenue by country is categorized based on the location of the end customer . 103 1 6 . Related Party Transactions Employment of Dr. Amira Hassanein Dr. Amira Hassanein, who serves as Product Director for the Company’s OCS Lung program, is the sister of Dr. Waleed Hassanein, the Company’s President, Chief Executive Officer and a member of the Company’s board of directors. The Company paid Dr. Amira Hassanein $ 0.4 million and $ 0.3 million in total compensation in the years ended December 31, 2021 and 2020, respectively, for her services as an employee. 104 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None