Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2021

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of presentation

The accompanying financial statements have been prepared using accounting principles generally accepted in the United States of America (GAAP).

Reverse Stock Split

On October 14, 2021, the Company effected a 1-for-6.046 reverse stock split of its outstanding common stock and redeemable convertible preferred stock. Upon the effectiveness of the reverse stock split, all issued and outstanding shares of common stock options to purchase common stock, warrants, instruments convertible to shares, redeemable convertible preferred stock and related share data and per share amounts contained in the accompanying financial statements were retroactively revised to reflect this reverse stock split for all periods presented. The par value of the authorized stock was not adjusted as a result of the reverse stock split.

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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.

Significant estimates and assumptions include accounts receivable allowances, inventory allowances, recoverability of long-term assets, valuation of equity instruments and equity-linked instruments, valuation of common stock, stock-based compensation, valuation of the redeemable convertible preferred stock warrant liability and derivative liabilities, valuation and estimated useful lives of intangible assets, deferred tax assets and related valuation allowances, and impact of contingencies.

Segments

The Company operates and manages its business as one reportable and operating segment, which is the business of research, development, and sale of therapeutic devices for abnormal uterine bleeding treatment. The Company’s Chief Executive Officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance.

Fair value of financial instruments

The carrying amounts of the Company’s financial instruments, including cash and cash equivalents and restricted cash, accounts receivable, accounts payable, and accrued liabilities, approximate their fair value due to the short-term nature of these assets and liabilities. Based on the borrowing rates currently available to the Company for debt with similar terms and consideration of default and credit risk, the carrying value of the term loans approximate their fair values and is classified as a Level 2 liability.

Concentration of credit risk

Financial instruments that potentially subject the Company to concentrations of risk consist principally of cash, cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents balances with established financial institutions and, at times, such balances with any one financial institution may be in excess of the Federal Deposit Insurance Corporation (FDIC) insured limits.

The Company earns revenue from sale of disposable devices and controllers to customers such as hospitals, ACS and physician offices. The Company’s accounts receivable are derived from revenue earned from customers. The Company performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral from its customers. As of December 31, 2021 and 2020, and for the years then ended, no customer accounted for more than 10% of accounts receivable or revenue.

Concentration of suppliers

The Company purchases certain components of its products from a single or small number of suppliers. A change in or loss of these suppliers could cause a delay in filling customer orders and a possible loss of sales, which could adversely affect results of operations; however, management believes that suitable replacement suppliers could be obtained in such an event.

Cash and cash equivalents

The Company considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents, which include money market funds.

Restricted cash

As of December 31, 2021 and 2020, cash of $7.8 million was restricted from withdrawal. Restricted cash consists of collateral for letters of credit issued in connection with litigation, real estate leases, and corporate credit cards (See Note 9).

Accounts receivable and allowances

Accounts receivable are generally from hospitals and ASCs and are stated at amounts billed less allowances for doubtful accounts. The Company continually monitors customer payments and maintains an allowance for estimated losses resulting from a customer’s inability to make required payments. The Company considers factors such as historical experience, credit quality, age of the accounts receivable balances, geographic-related risks and economic conditions that may affect a customer’s ability to pay. Accounts receivable are written off when the Company deems individual balances are no longer collectible. As of December 31, 2021 and 2020, accounts receivable is presented net of an allowance for doubtful accounts of $0.5 million and $0.4 million, respectively. For the years ended December 31, 2021 and 2020, the Company recorded a provision for bad debts of less than $0.2 million and $0.3 million, respectively.

Inventory

Inventory consist primarily of disposable devices, controllers, and components as raw materials and finished goods and are stated at the lower of cost or net realizable value. Cost is determined using standard cost based on the first-in, first-out method (FIFO) for all inventories. The Company periodically assesses the recoverability of all inventories to determine whether adjustments for impairment are required. The Company evaluates the related commercial mix of finished goods and other general obsolescence and impairment criteria in assessing the recoverability of the Company’s inventory and records a provision for excess, expired, and obsolete inventory based primarily on estimates of forecasted revenues. A significant change in the timing or level of demand for products as compared to forecasted amounts may result in recording additional provision for excess, expired, and obsolete inventory in the future. For the years ended December 31, 2021 and 2020, the Company did not record a provision for excess or obsolete inventory.

Property and equipment, net

Property and equipment is recorded at cost less accumulated depreciation and amortization. Depreciation and amortization of property and equipment are computed using the straight-line method over the estimated useful lives of the assets (two to seven years) or the lease term of the leasehold improvements, whichever is lower. Maintenance and repairs are charged to expense as incurred, and improvements and betterments are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation and amortization are removed from the balance sheet and any resulting gain or loss is reflected in the statements of operations in the period such gain or loss is realized.

Intangible assets

Intangible assets arising from business combinations, such as trade names, customer relationships and developed technology, are initially recorded at estimated fair value. Amortization is computed over the estimated useful life of each asset on a straight-line basis. The Company determines the useful lives of identifiable intangible assets after considering the facts and circumstances related to each intangible asset. Factors the Company considers when determining useful lives include the contractual term of any agreement related to the asset, the historical performance of the asset, the Company’s long-term strategy for using the asset, any laws or other local regulations which could impact the useful life of the asset and other economic factors, including competition and specific market conditions.

The useful lives of the major intangible asset classes are as follows:

Trademarks	6.5
Developed technology	10
Customer relationships	3

Business combination

Business combinations are accounted for under the acquisition method. The Company recognizes the assets acquired and liabilities assumed in business combinations on the basis of their fair values at the date of acquisition. Contingent consideration is recorded at fair value as measured on the date of acquisition. The value recorded is based on estimates of future financial projections under various potential scenarios using a Monte Carlo simulation. These cash flow projections are discounted with an appropriate risk-adjusted rate. The fair value of the contingent consideration liability is remeasured at each reporting period with the change in the fair value recorded as a component of operating expenses in the statements of operations until the underlying contingency is resolved. The estimates used to determine the fair value of the contingent consideration liability are subject to significant judgment and actual results are likely to differ from the amounts originally recorded.

The Company assesses the fair value of assets acquired, including intangible assets, and liabilities assumed using a variety of methods. Each asset acquired and liability assumed is measured at fair value from the perspective of a market participant. The method used to estimate the fair values of intangible assets incorporates significant estimates and assumptions regarding the estimates a market participant would make in order to evaluate an asset, including a market participant’s use of the asset, future cash inflows and outflows, probabilities of success, asset lives, and the appropriate discount rates.

The Company uses the income approach to determine the fair value of developed technology acquired in a business combination. This approach determines fair value by estimating the after-tax cash flows attributable to the respective asset over its useful life and then discounting these after-tax cash flows back to a present value. The Company bases its revenue assumptions on estimates of relevant market sizes, expected market growth rates, expected trends in technology and expected product introductions by competitors. Developed technology represents patented and unpatented technology and know-how.

The Company also uses the income approach, as described above, to determine the estimated fair value of certain other identifiable intangible assets including customer relationships and trade names. Customer relationships represent established relationships with customers, which provide a ready channel for the sale of additional products and services. Trade names represent acquired company and product names.

Any excess fair value of the net tangible and intangible assets acquired over the purchase price is recorded as bargain purchase gain in the statements of operations at the acquisition closing date. During the measurement period, which extends no later than one year from the acquisition date, the Company may record certain adjustments to the carrying value of the assets acquired and liabilities assumed. After the measurement period, all adjustments are recorded in the statements of operations as operating expenses or income.

Transaction costs and restructuring costs associated with a business combination are expensed as incurred.

Impairment of long-lived assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability is measured by comparison of the carrying amount of the asset or asset group to the future net cash flows which the asset or asset group is expected to generate. If such asset or asset group is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset or asset group exceeds the fair value of the asset or asset group. There has been no impairment of long-lived assets during the years ended December 31, 2021 and 2020.

Leases

The Company leases its facilities and meets the requirements to account for these leases as operating leases. The Company recognizes rent expense on a straight-line basis over the non-cancellable lease term. Where leases contain escalation clauses, rent abatements or concessions, such as rent holidays and landlord or tenant incentives or allowances, the Company applies them in the determination of straight-line rent expense over the lease term.

The Company records the difference between the rent paid and the straight-line rent as a deferred rent liability.

Redeemable convertible preferred stock

The Company records all shares of redeemable convertible preferred stock at their respective fair values on the dates of issuance, net of issuance costs. The redeemable convertible preferred stock is recorded outside of permanent equity because while it is not mandatorily redeemable, in certain events considered not solely within the Company’s control, such as a merger, acquisition or sale of

all or substantially all of the Company’s assets (each, a deemed liquidation event), the redeemable convertible preferred stock will become redeemable at the option of the holders of at least a majority of the then-outstanding preferred shares. All outstanding shares of the convertible preferred stock converted into common stock upon effectiveness of the IPO.

Redeemable convertible preferred stock warrants and common stock warrants

Freestanding preferred stock warrants are accounted for in accordance with Financial Accounting Standard Board (FASB) ASU Topic 480, Distiguishing Liabilities from Equity (ASC 480) and classified as liabilities on the balance sheet because the underlying preferred stock shares are redeemable upon occurrence of a deemed liquidation event.

Preferred stock warrants are subject to re-measurement at each balance sheet date with the change in fair value, if any, recognized in other income (expense), net in the statements of operations.

All outstanding preferred stock warrants converted into common stock warrants upon effectiveness of the IPO. Upon closing of the IPO, the warrant liability was reclassified to additional paid-in capital as the common stock warrants meet all criteria for equity classification.

Derivative liabilities

Embedded derivatives that are required to be bifurcated from their host contract are evaluated and valued separately from the debt instrument. Under the Company’s Credit Agreement (the Ares Agreement) with Ares Capital Corporation and Ares Direct Finance I LP (collectively Ares) (Note 8), upon the occurrence of specified prepayment trigger events, including a default or a change in control, the Company may be required to make mandatory prepayments of the borrowings. The prepayment premium is considered an embedded derivative, as the holder of the loan may exercise the option to require prepayment by the Company. The mandatory prepayment derivative liability is recorded at fair value upon entering into the Ares Agreement and is subject to remeasurement to fair value at each balance sheet date, with any changes in fair value recognized in the statements of operations.

The Company’s convertible notes contain embedded features (Note 8)—a qualified financing put, non-qualified financing put, and change of control put features—that are bifurcated and accounted for as derivative liabilities and recorded as a debt discount on the note issuance date. Debt discount is reported as a direct deduction to the carrying amount of the convertible notes and amortized using the effective interest rate over the life of the convertible notes as interest expense. The embedded derivative features are recorded at fair value upon entering into the note purchase agreements and are subject to remeasurement to fair value at each balance sheet date, with any changes in fair values recognized in the statements of operations.

In connection with execution of the CIBC Agreement, the Company entered into a separate Success Fee Agreement with CIBC (see Note 8). In the event of a sale or other disposition by the Company of all or substantially all of its assets, a merger or consolidation, or an initial public offering (a Liquidity Event), before the termination of the agreement, the Company agreed to pay a fee to CIBC equal to $0.4 million (Success Fee). This agreement has been identified as a freestanding derivative and is subject to remeasurement to its fair value at each reporting date or repayment or expiration, with any changes in fair values recognized in the statements of operations. In connection with the IPO, the derivative liability was settled upon the Company paying the Success Fee of $0.4 million to CIBC pursuant to the Success Fee Agreement.

Debt discount

The Company records the value of original issuance discounts, issuance costs, and discounts attributable to warrants or bifurcated derivatives associated with debt on issuance, as a debt discount, which is presented net of the outstanding balance of debt on the balance sheet and amortized as an adjustment to interest expense over the borrowing term using the effective interest method.

Revenue recognition

The Company generates revenue primarily from the sale of disposable devices and controllers that treat the root causes of abnormal uterine bleeding (AUB). The Company invoices hospitals, ASCs, and physician offices for the sold products and pays commissions to the sales representatives.

The Company also provides controllers to customers under evaluation and long-term placement agreements. Under these agreements, the Company delivers the controller to the customer’s facility without a fee and the customer agrees to purchase disposable products at a stated price over the term of the agreement. The Company retains title to the controllers. The Company, in general, does not enforce a minimum purchase requirement under these agreements. Terms of the long-term placement agreements range from several months to multiple years and may be extended or terminated upon mutual agreement. These types of agreements include an embedded lease, which is generally a cancellable operating lease, for the right to use a controller. The Company also offers extended warranty agreements to customers for controller defects, malfunctions, or system failures.

In line with ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), revenue is recognized when the customer obtains control of promised goods or services, in an amount that reflects consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the Company performs the following five steps:

(i)identify the contract(s) with a customer;

(ii)identify the performance obligations in the contract;

(iii)determine the transaction price;

(iv)allocate the transaction price to the performance obligations in the contract; and

(v)recognize revenue when (or as) the entity satisfies performance obligations.

A contract with a customer exists when (i) the Company enters into a legally enforceable contract with a customer that defines each party’s rights regarding the products to be transferred and identifies the payment terms related to these products, (ii) the contract has commercial substance and (iii) the Company determines that collection of substantially all consideration for products that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company identifies performance obligations in contracts with customers, which may include its products and implied promise to provide the free leased controller. The transaction price is determined based on the amount the Company is expected to be entitled to in exchange for transferring the promised products to the customer. The Company is entitled to the total consideration for the products ordered by customers, net of transaction price adjustments. The Company’s payment terms to customers are generally net 30 days. Payment terms fall within the guidance for the practical expedient which allows the Company to forgo adjustment of the promised amount of consideration for the effects of a significant financing component. The Company excludes taxes assessed by governmental authorities on revenue-producing transactions from the measurement of the transaction price.

Assuming all other revenue recognition criteria are met, revenue is recognized when control of the Company’s products transfers to the customer. For sales where the Company’s sales representative hand delivers products directly to the hospital or ASC, control transfers to the customer upon such delivery. For sales where products are shipped, control is transferred either upon shipment or delivery of the products to the customer, depending on the shipping terms and conditions. The Company recognizes revenue that has been allocated to free leased controllers concurrent with the sale of disposable devices as the lease is cancellable by either party with 30 days’ notice. The amounts allocated to leased controllers are insignificant. As permitted under the practical expedient, the Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

The Company accepts product returns at its discretion or if the product is defective as manufactured. Historically, the actual product returns have been insignificant. However, if returns should be become material, the Company will use the expected-value method for estimating returns based on historical data. The Company elected to treat shipping and handling costs as a fulfillment cost and includes them in the cost of goods sold as incurred. In those cases where the Company bills shipping and handling costs to customers, it will classify the amounts billed as revenue.

Extended warranty arrangements are recognized ratably over the extended warranty period. For the years ended December 31, 2021 and 2020 warranty revenue was $0.1 million and less than $0.1 million, and considered insignificant.

The Company’s contract liabilities consist of deferred revenue for remaining performance obligations by the Company to the customer after delivery, which is $0.1 million as of December 31, 2021. Deferred revenue as of December 31, 2020 was $0.2 million, which was recognized as revenue in 2021.

Contract costs

The Company applies the practical expedient to recognize the incremental costs of obtaining a contract as expense when incurred because the expense is incurred at a point in time and the amortization period is less than one year, as the Company does not enter into long-term sales contracts. These incremental costs include sales commissions paid to the Company’s independent sales agents or internal sales representatives. Commissions are recorded as selling expenses.

Cost of goods sold

The Company manufactures certain products at its facility and purchases other products from third-party manufacturers. Cost of goods sold consists primarily of the third-party manufacturing costs, materials and assembly, direct labor, and charges for excess, obsolete, and non-sellable inventory. Cost of goods sold also includes allocated overhead for indirect labor, depreciation, rent, and information technology.

Product warranties

The Company generally offers a one-year warranty for its products. The Company provides for the estimated cost of product warranties at the time product revenue is recognized. Factors that affect the Company’s warranty reserves include the number of units sold, historical and anticipated rates of warranty repairs and the cost per repair. The Company periodically assesses the adequacy of the warranty reserve and adjusts the amount as necessary. Costs to perform warranty obligations were less than $0.1 million for the years ended December 31, 2021 and 2020.

Research and development

Research and development (R&D) expenses are charged to operations when incurred. Research and development costs include, but are not limited to, payroll and personnel expenses, laboratory supplies, consulting costs, and allocated overhead, including rent, equipment, depreciation, and utilities.

Income taxes

The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between the carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used for income tax reporting purposes and for operating loss and tax credit carryforwards. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes.

The Company’s deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which these temporary differences are expected to be recovered or settled. A valuation allowance is recorded to reduce deferred tax assets if it is determined that it is more likely than not that all or a portion of the deferred tax asset will not be realized. The Company considers many factors when assessing the likelihood of future realization of deferred tax assets, including recent earnings results, expectations of future taxable income, carryforward periods available and other relevant factors. The Company records changes in the required valuation allowance in the period that the determination is made.

The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available as of the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, the Company records the largest amount of tax benefit with a greater than 50.0% likelihood of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, the Company does not recognize a tax benefit in the financial statements. The Company records interest and penalties related to uncertain tax positions, if applicable, as a component of income tax expense (benefit).

Stock-based compensation

We have granted stock-based awards, consisting of stock options restricted stock units to employees and certain non-employee consultants and certain members of our board of directors.

The Company accounts for stock-based compensation arrangements with employees and non-employees using a fair value method which requires the recognition of compensation expense for costs related to all stock-based payments including stock options and restricted stock units. The fair value method requires the Company to estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model. We use the fair value of our common stock to determine the fair value of restricted stock awards.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of options granted that are expensed on a straight-line basis over the requisite service period, which is generally the vesting period. The Company accounts for forfeitures as they occur. Option valuation models, including the Black-Scholes option-pricing model, require the input of several assumptions. Changes in the assumptions used can materially affect the grant-date fair value of an award. These assumptions include the risk-free rate of interest, expected dividend yield, expected volatility and the expected life of the award.

Net loss per share attributable to common stockholders

Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders, by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, redeemable convertible preferred stock, redeemable convertible preferred stock warrants, convertible notes, common stock subject to repurchase, restricted stock units and common stock options are considered to be potentially dilutive securities. Basic and diluted net loss attributable to common stockholders per share is presented in conformity with the two-class method required for participating securities as the redeemable convertible preferred stock is considered a participating security because it participates in dividends with

common stock. The Company also considers the shares issued upon the early exercise of stock options subject to repurchase to be participating securities, because holders of such shares have non-forfeitable dividend rights in the event a dividend is paid on common stock. The holders of all series of redeemable convertible preferred stock do not have a contractual obligation to share in the Company’s losses. As such, the net loss was attributed entirely to common stockholders. Because the Company has reported a net loss for the years ended December 31, 2021 and 2020, diluted net loss per common share is the same as basic net loss per common share for the periods presented.

JOBS Act accounting election

The Jumpstart Our Business Startups Act of 2012, (the JOBS Act) permits an “emerging growth company” to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. The Company has elected to use this extended transition period under the JOBS Act. As a result, its financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make comparison of our financials to those of other public companies more difficult.