10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

FORM 10-Q

_________________

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

or

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

EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-39949

_________________

Hyperfine, Inc.

(Exact name of registrant as specified in its charter)

_________________

Delaware

 

98-1569027

(State or other jurisdiction of incorporation or organization)

 

(IRS Employer

Identification No.)

 

351 New Whitfield Street

Guilford, Connecticut

 

06437

(Address of principal executive offices)

 

(Zip Code)

 

(866) 796-6767

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

 

Trading Symbol(s)

 

Name of each exchange
on which registered

Class A common stock, $0.0001 Par Value Per Share

 

HYPR

 

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer      ☒

Smaller reporting company

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of May 5, 2023, the registrant had 56,021,261 shares of Class A common stock outstanding and 15,055,288 shares of Class B common stock outstanding.

 

 


 

TABLE OF CONTENTS

 

 

Page

 

Cautionary Statement Regarding Forward-Looking Statements

3

PART I

FINANCIAL INFORMATION

5

Item 1.

Financial Statements

5

 

Condensed Consolidated Balance Sheets (unaudited)

5

 

Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)

6

 

Condensed Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (unaudited)

7

 

Condensed Consolidated Statements of Cash Flows (unaudited)

8

 

Notes to Condensed Consolidated Financial Statements (unaudited)

9

Item 2.

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

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

Item 4.

Controls and Procedures

29

PART II

OTHER INFORMATION

31

Item 1.

Legal Proceedings

31

Item 1A.

Risk Factors

31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31

Item 3.

Defaults Upon Senior Securities

31

Item 4.

Mine Safety Disclosures

31

Item 5.

Other Information

31

Item 6.

Exhibits

32

 

Signatures

33

 

All brand names or trademarks appearing in this report are the property of their respective holders. Use or display by us of other parties’ trademarks, trade dress, or products in this report is not intended to, and does not, imply a relationship with, or endorsements or sponsorship of, us by the trademark or trade dress owners. Unless the context requires otherwise, references in this report to the “Company,” “we,” “us,” and “our” refer to Hyperfine, Inc. and its wholly-owned subsidiaries, including Hyperfine Operations, Inc., or Legacy Hyperfine, and Liminal Sciences, Inc., or Liminal, as the case may be.

 

2


 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that relate to future events or our future financial performance regarding, among other things, the plans, strategies and prospects, both business and financial, of the Company. These statements are based on the beliefs and assumptions of our management team. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events or results of operations, are forward-looking statements. These statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates” or “intends” or similar expressions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

the success, cost and timing of our product development activities;
the commercialization and adoption of our existing products and the success of our future product offerings;
the potential attributes and benefits of our products and services;
our ability to obtain and maintain regulatory approval for our products, and any related restrictions and limitations of any approved product;
our ability to identify, in-license or acquire additional technology;
our ability to maintain our existing licensing, manufacturing and supply agreements;
our ability to compete with other companies currently marketing or engaged in the development of magnetic resonance imaging technologies, many of which have greater financial and marketing resources than us;
the size and growth potential of the markets for our products and services, and the ability of our products and services to serve those markets, either alone or in partnership with others;
the pricing of our products and services and reimbursement for medical procedures conducted using our products and services;
changes in applicable laws or regulations;
our estimates regarding expenses, revenue, capital requirements and needs for additional financing;
our ability to raise financing in the future;
our financial performance;
our success in retaining or recruiting, or changes required in, our officers, key employees or directors;
intense competition and competitive pressures from other companies in the industry in which we operate;
anticipated benefits of the Business Combination;
market conditions and global and economic factors, such as inflation;
our intellectual property rights;

3


 

the effect of legal, tax and regulatory changes; and
the impact of the COVID-19 pandemic on our business and operations.

These and other risks and uncertainties are described in greater detail under the caption “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, in Item 1A of Part II of this Quarterly Report on Form 10-Q, and in other filings that we make with the Securities and Exchange Commission (the “SEC”). The risks described under the heading “Risk Factors” are not exhaustive. New risk factors emerge from time to time, and it is not possible to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements, which speak only as of the date hereof. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

4


 

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

HYPERFINE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in thousands, except share and per share amounts)

 

 

March 31,
2023

 

 

December 31,
2022

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

Cash and cash equivalents

 

$

104,027

 

 

$

117,472

 

Restricted cash

 

 

713

 

 

 

771

 

Accounts receivable, less allowance of $191 and $180 as of March 31, 2023 and December 31, 2022, respectively

 

 

3,018

 

 

 

2,103

 

Unbilled receivables

 

 

713

 

 

 

454

 

Inventory

 

 

5,744

 

 

 

4,622

 

Prepaid expenses and other current assets

 

 

2,923

 

 

 

3,194

 

Due from related parties

 

 

 

 

 

48

 

Total current assets

 

 

117,138

 

 

 

128,664

 

Property and equipment, net

 

 

3,091

 

 

 

3,248

 

Other long term assets

 

 

1,873

 

 

 

2,139

 

Total assets

 

$

122,102

 

 

$

134,051

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

Accounts payable

 

$

1,668

 

 

$

678

 

Deferred grant funding

 

 

713

 

 

 

771

 

Deferred revenue

 

 

1,415

 

 

 

1,378

 

Due to related parties

 

 

64

 

 

 

 

Accrued expenses and other current liabilities

 

 

4,141

 

 

 

5,976

 

Total current liabilities

 

 

8,001

 

 

 

8,803

 

Long term deferred revenue

 

 

1,364

 

 

 

1,526

 

Total liabilities

 

 

9,365

 

 

 

10,329

 

COMMITMENTS AND CONTINGENCIES (NOTE 12)

 

 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Class A Common stock, $.0001 par value; 600,000,000 shares authorized; 56,000,995  and 55,622,488 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

 

 

5

 

 

 

5

 

Class B Common stock, $.0001 par value; 27,000,000 shares authorized; 15,055,288 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

 

 

2

 

 

 

2

 

Additional paid-in capital

 

 

334,374

 

 

 

333,199

 

Accumulated deficit

 

 

(221,644

)

 

 

(209,484

)

Total stockholders' equity

 

 

112,737

 

 

 

123,722

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

122,102

 

 

$

134,051

 

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

 

 

5


 

HYPERFINE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)

(in thousands, except share and per share amounts)

 

 

Three Months Ended
March 31,

 

 

 

2023

 

 

2022

 

Sales

 

 

 

 

 

 

Device

 

$

2,132

 

 

$

1,192

 

Service

 

 

503

 

 

 

317

 

Total sales

 

 

2,635

 

 

 

1,509

 

Cost of sales

 

 

 

 

 

 

Device

 

 

1,071

 

 

 

1,037

 

Service

 

 

409

 

 

 

388

 

Total cost of sales

 

 

1,480

 

 

 

1,425

 

Gross margin

 

 

1,155

 

 

 

84

 

Operating Expenses:

 

 

 

 

 

 

Research and development

 

 

5,461

 

 

 

8,334

 

General and administrative

 

 

6,182

 

 

 

11,360

 

Sales and marketing

 

 

2,547

 

 

 

4,161

 

Total operating expenses

 

 

14,190

 

 

 

23,855

 

Loss from operations

 

 

(13,035

)

 

 

(23,771

)

Interest income

 

 

869

 

 

 

1

 

Other income (expense), net

 

 

6

 

 

 

(5

)

Loss before provision for income taxes

 

 

(12,160

)

 

 

(23,775

)

Provision for income taxes

 

 

 

 

 

 

Net loss and comprehensive loss

 

$

(12,160

)

 

$

(23,775

)

Net loss per common share attributable to common stockholders, basic and diluted

 

$

(0.17

)

 

$

(0.34

)

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

 

 

70,864,226

 

 

 

70,332,349

 

 

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

 

 

6


 

HYPERFINE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (Unaudited)

(in thousands, except share amounts)

 

 

 

Class A Common Stock

 

 

Class B Common Stock

 

 

Additional

 

 

Accumulated

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Paid-in Capital

 

 

Deficit

 

 

Equity

 

Balance, December 31, 2022

 

 

55,622,488

 

 

$

5

 

 

 

15,055,288

 

 

$

2

 

 

$

333,199

 

 

$

(209,484

)

 

$

123,722

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,160

)

 

 

(12,160

)

Issuance of restricted stock

 

 

324,296

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

 

54,211

 

 

 

 

 

 

 

 

 

 

 

 

49

 

 

 

 

 

 

49

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,126

 

 

 

 

 

 

1,126

 

Balance, March 31, 2023

 

 

56,000,995

 

 

$

5

 

 

 

15,055,288

 

 

$

2

 

 

$

334,374

 

 

$

(221,644

)

 

$

112,737

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A Common Stock

 

 

Class B Common Stock

 

 

Additional

 

 

Accumulated

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Paid-in Capital

 

 

Deficit

 

 

Equity

 

Balance, December 31, 2021

 

 

55,277,061

 

 

$

5

 

 

 

15,055,288

 

 

$

2

 

 

$

322,540

 

 

$

(136,320

)

 

$

186,227

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,775

)

 

 

(23,775

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,111

 

 

 

 

 

 

4,111

 

Balance, March 31, 2022

 

 

55,277,061

 

 

$

5

 

 

 

15,055,288

 

 

$

2

 

 

$

326,651

 

 

$

(160,095

)

 

$

166,563

 

 

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

7


 

HYPERFINE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)

 

 

Three Months Ended
March 31,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(12,160

)

 

$

(23,775

)

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

 

 

 

 

 

 

Depreciation

 

 

254

 

 

 

253

 

Stock-based compensation expense

 

 

1,126

 

 

 

4,111

 

Payments received on net investment in lease

 

 

2

 

 

 

2

 

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(915

)

 

 

(1,391

)

Unbilled receivables

 

 

(259

)

 

 

(387

)

Inventory

 

 

(1,122

)

 

 

(228

)

Prepaid expenses and other current assets

 

 

272

 

 

 

(1,848

)

Due from related parties

 

 

48

 

 

 

13

 

Prepaid inventory

 

 

281

 

 

 

 

Other long term assets

 

 

(18

)

 

 

11

 

Accounts payable

 

 

954

 

 

 

(565

)

Deferred grant funding

 

 

(58

)

 

 

(679

)

Deferred revenue

 

 

(125

)

 

 

584

 

Due to related parties

 

 

64

 

 

 

(1,884

)

Accrued expenses and other current liabilities

 

 

(1,835

)

 

 

(1,506

)

Net cash used in operating activities

 

 

(13,491

)

 

 

(27,289

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(61

)

 

 

(308

)

Net cash used in investing activities

 

 

(61

)

 

 

(308

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

49

 

 

 

 

Net cash provided by financing activities

 

 

49

 

 

 

 

Net decrease in cash and cash equivalents and restricted cash

 

 

(13,503

)

 

 

(27,597

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

118,243

 

 

 

191,160

 

Cash, cash equivalents and restricted cash, end of period

 

 

104,740

 

 

 

163,563

 

Reconciliation of cash, cash equivalents, and restricted cash reported in the balance sheets

 

 

 

 

 

 

Cash and cash equivalents

 

 

104,027

 

 

 

161,580

 

Restricted cash

 

 

713

 

 

 

1,983

 

Total cash, cash equivalents and restricted cash

 

$

104,740

 

 

$

163,563

 

Supplemental disclosure of noncash information:

 

 

 

 

 

 

Noncash acquisition of fixed assets

 

$

36

 

 

$

62

 

Write-off of notes receivable

 

$

 

 

$

90

 

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

 

8


HYPERFINE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(all amounts are in thousands, except share and per share amounts)

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

Hyperfine, Inc. (together with its subsidiaries, as applicable, “Hyperfine” or the “Company”), formerly known as HealthCor Catalio Acquisition Corp. (“HealthCor”), was incorporated as a Cayman Islands exempted company on November 18, 2020. The Company’s legal name became Hyperfine, Inc. in connection with the closing (the “Closing”) of the business combination with HealthCor (the “Business Combination”) on December 22, 2021 (the “Closing Date”). In connection with the Closing, Hyperfine, Inc., a Delaware corporation (“Legacy Hyperfine”), and Liminal Sciences, Inc., a Delaware corporation (“Liminal”), merged with and into separate wholly owned subsidiaries of HealthCor and became wholly-owned subsidiaries of the Company (the “Mergers”), and changed their names to Hyperfine Operations, Inc. and Liminal Operations, Inc., respectively. Liminal subsequently changed its name to Liminal Sciences, Inc.

 

The Company is an innovative health technology business with a mission to revolutionize patient care globally through transformational, accessible, clinically relevant diagnostic imaging and data solutions. The Company's Swoop® Portable Magnetic Resonance (“MR”) Imaging® System (“Swoop® system”) produces high-quality images at a lower magnetic field strength than conventional magnetic resonance imaging (“MRI”) scanners. Healthcare professionals can use the Swoop® system to make effective clinical diagnoses and decisions on a patient in various settings where MRI devices have previously been inaccessible. The easy-to-use interface and portable design of the Company's Swoop® system make it accessible anywhere in a hospital, clinic, or patient care site. The Company is working to realize its vision of providing affordable and accessible imaging of health conditions to clinicians worldwide. The Company received 510(k) clearance for brain imaging from the U.S. Food and Drug Administration (“FDA”) in 2020. In February 2023, the Company received 510(k) clearance from the FDA of the latest update of its Swoop® system software. This updated software significantly improves diffusion-weighted imaging (DWI) and image quality. The Swoop® system has since been authorized for brain imaging in several countries, including the European Union (CE marking), the United Kingdom (UK Conformity Assessment (“UKCA”)), Canada, Australia and New Zealand. All of the Company’s revenue to date has been generated from sales of the Swoop® system and related services. In December 2022, the Company suspended its Liminal program to develop a device to non-invasively measure key vital signs in the brain. In addition to Legacy Hyperfine and Liminal, the Company has an indirect wholly-owned subsidiary in the United Kingdom that did not have any significant operations during 2022.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The unaudited accompanying condensed consolidated financial statements include the accounts of the Company and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the accounting disclosure rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. All intercompany transactions and balances have been eliminated.

 

These condensed consolidated financial statements should be read in conjunction with the financial statements and notes included in the Company’s audited consolidated financial statements as of and for the years ended December 31, 2022 and 2021. The condensed consolidated balance sheet as of December 31, 2022 included herein was derived from the audited consolidated financial statements as of that date.

 

In the opinion of management, the accompanying condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods. The results for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for any subsequent quarter, the year ending December 31, 2023, or any other period.

 

Except as described elsewhere in this Note 2 under the heading “Recent Accounting Pronouncements”, there have been no material changes to the Company’s significant accounting policies as described in the audited consolidated financial statements as of December 31, 2022 and 2021.

9


HYPERFINE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(all amounts are in thousands, except share and per share amounts)

Risks and Uncertainties

 

The outbreak of the novel coronavirus (“COVID-19”), which was declared a pandemic by the World Health Organization on March 11, 2020 and declared a National Emergency (“PHE”) by the President of the United States on March 13, 2020, has led to adverse impacts on the United States and global economies and created uncertainty regarding potential impacts on the Company’s operating results, financial condition and cash flows. The Biden administration renewed the PHE on January 11, 2023 and has indicated that they intend for the PHE to expire on May 11, 2023. The Company continues to evaluate the impact of the COVID-19 pandemic on its industry and the Company and has concluded that while it is reasonably possible that the virus could have a future negative effect on the Company's financial position and results of its operations in its condensed consolidated financial statements, the specific future impact is not readily determinable as of the date of the filing of this Quarterly Report on Form 10-Q. The Company's financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

The Company relies on single source manufacturers and suppliers for the supply of its products. Disruption from these manufacturers or suppliers has and would have a negative impact on the Company’s business, financial position and results of operations in its condensed consolidated financial statements.

 

Concentrations of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and trade receivables. The Company maintains cash deposits with financial institutions that, from time to time, exceed applicable insurance limits. The Company reduces this risk by maintaining such deposits with high quality financial institutions that management believes are creditworthy. Cash and cash equivalents are maintained with several financial institutions domestically and internationally. The combined account balances held on deposit at each institution typically exceed Federal Deposit Insurance Corporation (“FDIC”) insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. The Company monitors this credit risk and makes adjustments to the concentrations as necessary. As of March 31, 2023 and December 31, 2022, the Company had total cash deposits and cash equivalents of $93,648 and $92,732, respectively. Total cash deposits exceeded the FDIC insurance coverage amounts.

 

With respect to accounts receivable, credit risk is mitigated by the Company’s ongoing credit evaluation of its customers’ financial condition. Three customers accounted for more than 10 percent of trade receivables for the three months ended March 31, 2023 and the years ended December 31, 2022. With respect to revenues, one customer accounted for more than 10% of revenues for the three months ended March 31, 2023 and five customers each accounted for more than 10% of revenue for the three months ended March 31, 2022.

 

Segment Information

The Company’s Chief Operating Decision Maker (“CODM”) is its Chief Executive Officer (“CEO”). Legacy Hyperfine represents one operating segment. Also, as noted above, in December 2022, the Company suspended its program to develop a device to non-invasively measure key vital signs in the brain, which was the focus of Liminal. All of the Company’s long-lived assets are located in the United States. Other than $1,034 of revenue recognized in non-U.S. countries for the three months ended March 31, 2023, all of the revenues during these periods were earned in the United States. Since the Company is aggregated into a single reportable segment, all required financial segment information is provided in the condensed consolidated financial statements.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions about future events that affect the amounts reported in its condensed consolidated financial statements and accompanying notes. Future events and their effects cannot be determined with certainty. On an ongoing basis, management evaluates these estimates and assumptions. Significant estimates and assumptions included:

10


HYPERFINE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(all amounts are in thousands, except share and per share amounts)

Revenue recognition, including determination of the timing and pattern of satisfaction of performance obligations, determination of the standalone selling price (“SSP”) of performance obligations and estimation of variable consideration, if any;
Allowance for credit losses;
Net realizable value (the selling price as well as estimated costs of disposal and transportation) of inventory, and demand and future use of inventory;
Valuation allowances with respect to deferred tax assets; and
Assumptions underlying the fair value used in the calculation of stock-based compensation expense.

The Company bases these estimates on historical and anticipated results and trends and on various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to future events. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates, and any such differences may be material to the Company’s condensed consolidated financial statements.

 

Recently Issued Accounting Pronouncements

 

On September 29, 2022 the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2022-04 “Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations.” The amendments in this update require entities that use supplier finance programs in connection with the purchase of goods and services to disclose the key terms of the programs and information about their obligations outstanding at the end of the reporting period, including a rollforward of those obligations. The guidance does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. The amendments in this update are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, except for the rollforward requirement, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The guidance should be applied retrospectively to all periods in which a balance sheet is presented, except for the rollforward requirement, which should be applied prospectively. The Company is assessing the effects that the adoption of this accounting pronouncement may have on its financial statements.

 

Recently Adopted Accounting Standards

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The standard also requires that financial assets measured at amortized cost be presented at the net amount anticipated to be collected via an allowance for credit losses that is deducted from the amortized cost basis. Pursuant to ASU 2016-13, the Company is required to measure all expected credit losses based upon historical experience, current conditions, and reasonable (and supportable) forecasts that affect the collectability of the financial asset. The Company adopted this update effective January 1, 2023 and the implementation of this update did not have a material impact on the Company’s condensed consolidated financial statements and disclosures.

11


HYPERFINE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(all amounts are in thousands, except share and per share amounts)

 

3. REVENUE RECOGNITION

Disaggregation of Revenue

The Company disaggregates revenue from contracts with customers by product type. The Company believes that these categories aggregate the payor types by nature, amount, timing and uncertainty of its revenue streams. The following table summarizes the Company’s disaggregated revenues:

 

 

 

 

Three Months Ended
March 31,

 

 

 

Pattern of Recognition

 

2023

 

 

2022

 

Device

 

Point in time

 

$

2,132

 

 

$

1,192

 

Service

 

Over time

 

 

503

 

 

 

317

 

Total revenue

 

 

 

$

2,635

 

 

$

1,509

 

 

Contract Balances

Contract balances represent amounts presented in the condensed consolidated balance sheets when either the Company has transferred goods or services to the customer, or the customer has paid consideration to the Company under the contract. These contract balances include trade accounts receivable and deferred revenue. Deferred revenue represents consideration received from customers at the beginning of the subscription period for services that are transferred to the customer over the respective subscription period. The accounts receivable balances represent amounts billed to customers for goods and services where the Company has an unconditional right to payment of the amount billed.

The following table provides information about receivables and deferred revenue from contracts with customers:

 

 

 

 

 

 

 

 

 

March 31,
2023

 

 

December 31,
2022

 

Accounts receivable, net

 

$

3,018

 

 

$

2,103

 

Unbilled receivables - current

 

$

713

 

 

$

454

 

Unbilled receivables - non-current(1)

 

$

781

 

 

$

744

 

Deferred revenue

 

$

1,415

 

 

$

1,378

 

Long term deferred revenue

 

$

1,364

 

 

$

1,526

 

______________________

(1) Recorded in other long term assets in the Company’s consolidated balance sheets.

 

The Company recognizes a receivable when it has an unconditional right to payment. Typical payment terms require the Company's customers to pay the Company within 30 days of invoice and up to less than one year based on the terms agreed upon with the respective customer.

 

Accounts Receivable, Unbilled Services, and Deferred Revenue

 

Accounts receivable are recorded at net realizable value. Unbilled receivables arise when performance obligations are satisfied for which revenue has been recognized but the customers have not been billed. Contractual provisions and payment schedules may or may not correspond to the timing of the performance of services under the contract.

 

Deferred revenue is a contract liability that consists of customer payments received in advance of performance and billings in excess of revenue recognized, net of revenue recognized from the balance at the beginning of the period.

 

The amount of revenue recognized during the three months ended March 31, 2023 and 2022 that was included in the deferred revenue balance at the beginning of the period was $430 and $203, respectively.

12


HYPERFINE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(all amounts are in thousands, except share and per share amounts)

Timing of Billing and Performance

 

Difference in the timing of revenue recognition and associated billings and cash collections result in recording of billed accounts receivable, unbilled accounts receivable (including contract assets), and deferred revenue on the consolidated balance sheet. Amounts are billed in accordance with the agreed-upon contractual terms, resulting in recording unbilled accounts receivable in instances where the right to bill is contingent solely on the passage of time, and contract assets in instances where the right to consideration is conditional on something other than the passage of time.

 

Revenue from Leasing Arrangements

 

Revenue from leasing arrangements is not subject to the revenue standard for contracts with customers and remains separately accounted for under ASC 842, including leases for the three months ended March 31, 2023 and the year ended December 31, 2022. The Company records operating lease rental revenue as service revenue on a straight-line basis over the lease term. The Company recorded service revenue from lease arrangements of $114 and $112 for the three months ended March 31, 2023 and 2022, respectively. The Company records revenue from the sale of hardware devices under sales-type leases as device revenue in an amount equal to the present value of minimum lease payments at the inception of the lease. Sales-type leases also produce financing income, which is included in device revenue in the consolidated statements of operations and comprehensive loss and is recognized at effective rates of return over the lease term.

 

Costs of Obtaining or Fulfilling Contracts

The Company incurs incremental costs of obtaining contracts with customers. Incremental costs of obtaining contracts, which include commissions paid as a result of obtaining contracts with customers, are capitalized to the extent that the Company expects to recover such costs. Capitalized costs are amortized in a pattern that is consistent with the Company’s transfer to the customer of the related goods and services. Such costs are recorded in Other long term assets and were $180 and $247 as of March 31, 2023 and December 31, 2022, respectively. During the three months ended March 31, 2023 and 2022, the Company recognized $16 and $84, respectively, in expense related to the amortization of the capitalized contract costs.

Transaction price allocated to remaining performance obligations

As of March 31, 2023 and December 31, 2022, the Company had remaining performance obligations amounting to $8,675 and $8,663, respectively. The Company expects to recognize approximately 51% of its remaining performance obligations as revenue in fiscal year 2023, and an additional 49% in fiscal year 2024 and thereafter.

 

4. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair value.

The Company measures fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The Company utilizes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1 — Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.

Level 2 — Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

13


HYPERFINE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(all amounts are in thousands, except share and per share amounts)

Level 3 — Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Company has no assets or liabilities valued with Level 3 inputs.

The carrying value of cash and cash equivalents, accounts payable and accrued expenses and other current liabilities approximates their fair values due to the short-term or on demand nature of these instruments.

The Company had no assets or liabilities classified as Level 2 or Level 3 and there were no transfers between fair value measurement levels during the three months ended March 31, 2023 and 2022.

The Company had $93,648 and $93,502 of money market funds and demand deposit accounts included in cash and cash equivalents and restricted cash as of March 31, 2023 and December 31, 2022, respectively. These assets were valued using quoted prices in active markets and accordingly were classified as Level 1.

 

5. INVENTORIES

A summary of inventories is as follows:

 

 

 

March 31,
2023

 

 

December 31,
2022

 

Raw materials

 

$

2,552

 

 

$

2,241

 

Finished goods

 

 

3,192

 

 

 

2,381

 

Total inventories

 

$

5,744

 

 

$

4,622

 

Manufacturing overhead costs primarily include management’s best estimate and allocation of the labor costs incurred related to acquiring finished goods from the Company’s contract manufacturer. Labor costs include wages, taxes and benefits for employees involved in warehousing, logistics coordination, material sourcing, and production planning activities.

 

6. PROPERTY AND EQUIPMENT, NET

Property and equipment, net, are recorded at historical cost and consist of the following:

 

 

March 31,
2023

 

 

December 31,
2022

 

Laboratory equipment

 

$

923

 

 

$

923

 

Research devices

 

 

1,709

 

 

 

1,709

 

Sales and marketing devices

 

 

524

 

 

 

524

 

Computer equipment

 

 

623

 

 

 

623

 

Construction in progress

 

 

377

 

 

 

359

 

Tooling

 

 

372

 

 

 

372

 

Trade show assets

 

 

254

 

 

 

254

 

Leased devices

 

 

453

 

 

 

453

 

Other

 

 

432

 

 

 

353

 

 

 

5,667

 

 

 

5,570

 

Less: Accumulated depreciation and amortization

 

 

(2,576

)

 

 

(2,322

)

Property and equipment, net

 

$

3,091

 

 

$

3,248

 

 

Depreciation expense amounted to $254 and $253 for the three months ended March 31, 2023 and 2022, respectively.

 

7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:

 

14


HYPERFINE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(all amounts are in thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

March 31,
2023

 

 

December 31,
2022

 

Bonus

 

$

1,061

 

 

$