See Accompanying Notes to Unaudited Condensed
Consolidated Financial Statements.
See Accompanying Notes to the Unaudited
Condensed Consolidated Financial Statements
See Accompanying Notes to the Unaudited
Condensed Consolidated Financial Statements
See Accompanying Notes to Unaudited Condensed
Consolidated Financial Statements
Notes to Unaudited Condensed Consolidated
Financial Statements
Throughout this Quarterly
Report on Form 10-Q (this “Report”), the words “we,” “us,” “our,” or “the
Company” refer to Ekso Bionics Holdings, Inc. and its wholly-owned subsidiaries, Ekso Bionics, Inc. and Ekso Bionics Ltd.
unless stated otherwise.
1. Organization
Description of Business and Liquidity
On January 15, 2014, a wholly-owned subsidiary
of Ekso Bionics Holdings, Inc. (formerly known as PN Med Group Inc.), Ekso Acquisition Corp, merged with and into Ekso Bionics,
Inc. (the Merger). Ekso Bionics, Inc. was the surviving corporation and became a wholly-owned subsidiary of Ekso Bionics Holdings,
Inc. As a result of this transaction, Ekso Bionics Holdings, Inc. discontinued its pre-merger operations, acquired the business
of Ekso Bionics, Inc. and will continue the operations of Ekso Bionics, Inc. as a publicly traded company. See
Note 3, The Merger,
Offering and Other Related Matters.
Ekso Bionics, Inc. was incorporated in January 2005 in the State of Delaware.
We are currently headquartered in Richmond,
California. We are a leading developer and manufacturer of human bionic exoskeletons and were founded after the University of California
at Berkeley’s Robotics and Human Engineering Laboratory had a breakthrough in demonstrating human exoskeletons that are more
energy efficient than previously thought possible.
We pioneered the field of human exoskeletons
to augment human strength, endurance and mobility. We design, develop and sell wearable robots, or “human exoskeletons,”
that have applications in medical, military, industrial, and consumer markets. Our exoskeleton systems are strapped over the user’s
clothing, enabling individuals with neurological conditions affecting gait (e.g., spinal cord injury or stroke) to walk again;
permitting soldiers to carry heavy loads for long distances while mitigating lower back, knee, and ankle injuries; and allowing
industrial workers to perform heavy duty work for extended periods.
We also have a collaborative partnership
with Lockheed Martin Corporation to develop products for military applications.
Ekso Labs is the engineering services division
of the Company and is primarily focused on technology development and future applications. In essence it is an exoskeleton laboratory
that continually integrates emerging technologies into new product applications and expands on it for our partners. Ekso Labs develops
intellectual property through research grants from government organizations, including the Department of Defense.
Liquidity
Largely as a result of significant research
and development activities related to the creation of our advanced technology, we have incurred significant operating losses and
negative cash flows from operations. As of June 30, 2014, we had an accumulated deficit of $63.7 million and a stockholders’
deficit of $18.1 million.
We believe that our cash resources as of
June 30, 2014 are sufficient to implement our business plan, support operations, fund research and development and meet our obligations
through at least the middle of 2015. We plan to raise additional capital to finance our operations beyond the middle of 2015. There
can be no assurance that financing will be available when required in sufficient amounts, on acceptable terms or at all. In the
event that the necessary additional financing is not obtained, we may have to reduce our discretionary overhead costs substantially,
including general and administrative, sales and marketing, and research and development or otherwise curtail operations.
Ekso Bionics Holdings, Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
2. Basis of Presentation and Summary
of Significant Accounting Policies and Estimates
There have been no material changes to
our significant accounting policies as compared to those described in our Current Report on Form 8-K/A filed with the SEC on March
31, 2014 other than as noted below in
Common Stock Warrants.
Basis of Presentation
These unaudited condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.
GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”)
for the presentation of interim financial information. Accordingly, certain information and footnote disclosures normally included
in financial statements prepared in accordance with U.S. GAAP have been condensed, or omitted, pursuant to such rules and regulations.
The condensed consolidated balance sheet at December 31, 2013 and the condensed consolidated statement of stockholders’ deficit
for the year ended December 31, 2013 have been derived from the audited consolidated financial statements at that date but do not
include all disclosures required for the annual financial statements and should be read in conjunction with our audited consolidated
financial statements and notes thereto included as part of our Current Report on Form 8-K/A filed with the SEC on March 31, 2014.
In management’s opinion, the condensed
consolidated financial statements reflect all adjustments (including reclassifications and normal recurring adjustments) necessary
to present fairly the financial position at June 30, 2014, and results of operations and cash flows for all periods presented.
The interim results presented are not necessarily indicative of results that can be expected for a full year. The condensed consolidated
financial statements included the accounts of the Company and our wholly-owned subsidiaries. All intercompany accounts and transactions
have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial
statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts
in the financial statements and accompanying footnotes. These estimates include, but are not limited to: revenue recognition, useful
lives assigned to long-lived assets, realizability of deferred tax assets, valuation of common and preferred stock options, and
the valuation of common stock for purposes of determining stock-based compensation and contingencies. Actual results could differ
from those estimates.
Concentration of Credit Risk and Other
Risks and Uncertainties
Financial instruments that potentially
subject us to concentrations of credit risk consist principally of cash and accounts receivable. We maintain our cash accounts
in excess of federally insured limits. However, we believe we are not exposed to significant credit risk due to the financial position
of the depository institutions in which these deposits are held.
We extend credit to customers in the normal
course of business and perform ongoing credit evaluations of our customers. Concentrations of credit risk with respect to accounts
receivable exist to the full extent of amounts presented in the consolidated financial statements. We do not require collateral
from our customers to secure accounts receivable.
Accounts receivable are derived from the
sale of products shipped and services performed for customers located in the U.S. and throughout the world. Invoices are aged based
on contractual terms with the customer. We review accounts receivable for collectability and provide an allowance for credit losses,
as needed. We have not experienced any material losses related to accounts receivable as of June 30, 2014 and December 31, 2013.
Ekso Bionics Holdings, Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
Many of the sales contracts with customers
outside of the U.S. are settled in a foreign currency other than the U.S. dollar. We do not enter into any foreign currency hedging
agreements and are susceptible to gains and losses from foreign currency fluctuations. To date, we have not experienced significant
gains or losses upon settling foreign contracts.
As of June 30, 2014, we had two customers
with accounts receivable balances totaling 10% or more of our total accounts receivable (32% and 10%), compared with two customers
as of December 31, 2013 (28% and 19%).
In the three months ended June 30, 2014,
we had two customers with sales balances of 10% or more of our total customer sales (15% and 12%), compared with four customers
in the three months ended June 30, 2013 (25%, 19%, 18% and 10%). In the six months ended June 30, 2014 and 2013, we had one customer
in each period with a sales balance of 17% of our total customer sales.
Common Stock
Warrants
We account for the common stock warrants issued in connection
with our merger, (see
Note 3, The Merger, Offering and Other Related Matters,)
in accordance with the guidance in Accounting
Standards Codification (“ASC”) 815-40. Under ASC 815-40 the warrants do not meet the criteria for equity treatment
and are recorded as a liability. The warrants have an anti-dilution clause that allows for a decrease in the exercise price of
the warrants if the Company issues additional shares of common stock without consideration or for consideration per share less
than the common stock warrant’s exercise price. Accordingly, we classified the warrant instruments as liabilities at their
fair market value at the date of the merger and will re-measure the warrants at each balance sheet date until they are exercised
or they expire. Any change in the fair value is recognized in our consolidated statement of operations.
The fair value of the warrant liability was determined using
the binomial lattice pricing model. This model is dependent upon several variables such as the instrument’s term, expected
strike price, current stock price, risk-free interest rate estimated over the expected term, and the estimated volatility of our
stock over the term of the warrant. The expected strike price is estimated based on a weighted average probability analysis of
the strike price changes expected during the term as a result of the anti-dilution clause in the agreement. The risk-free rate
is based on U.S. Treasury securities with similar maturities as the expected terms of the warrants. The volatility is estimated
based on blending the volatility rates for a number of similar publicly-traded companies.
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update (“ASU”)
2014-09 Revenue from Contracts with Customers that creates modifications to various other revenue accounting standards for specialized
transactions and industries. The section is intended to conform revenue accounting principles with a concurrently issued International
Financial Reporting Standards with previously differing treatment between United States practice and those of much of the rest
of the world, as well as to enhance disclosures related to disaggregated revenue information. The updated guidance is effective
for annual reporting periods beginning on or after December 15, 2016, and interim periods within those annual periods. Early adoption
is not permitted. Management is still in the process of assessing the impact of ASU 2014-09 on the Company’s consolidated
financial statements.
We have reviewed other recent accounting pronouncements and
concluded that they are either not applicable to the business, or that no material effect is expected on the consolidated financial
statements as a result of future adoption.
Ekso Bionics Holdings, Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
3. The Merger, Offering and Other Related Transactions
As used in these notes to the financial
statements, the term “the Company” refers to the combination of Ekso Bionics, Inc. and Ekso Bionics Holdings, Inc.
formally known as PN Med Group, Inc., after giving effect to the Merger; the term “Holdings” refers to the business
of Ekso Bionics Holdings, Inc. prior to the Merger, and the term “Ekso Bionics” refers to Ekso Bionics, Inc. prior
to the Merger.
Holdings was incorporated in the State
of Nevada on January 30, 2012, as a distributor of medical supplies and equipment to municipalities, hospitals, pharmacies, care
centers, and clinics in Chile. At the time of the Merger, Holdings was a “shell company” as defined in Rule 12b-2 of
the Exchange Act. Holdings’ fiscal year end was previously March 31 but has been changed to December 31 in connection with
the Merger.
On January 15, 2014, Holdings and a newly
formed wholly-owned subsidiary of Holdings, Ekso Acquisition Corp. (“Acquisition Sub”) entered into an Agreement and
Plan of Merger and Reorganization (the “Merger Agreement”) with Ekso Bionics. Under the Merger Agreement, Acquisition
Sub merged with and into Ekso Bionics, with Ekso Bionics remaining as the surviving corporation and with the stockholders of Ekso
Bionics exchanging all of their common stock, preferred stock and warrants to purchase preferred stock issued and outstanding immediately
prior to the closing of the Merger into an aggregate of 42,615,556 shares of Holdings’ common stock and warrants to purchase
621,363 shares of common stock. In addition, options to purchase 4,978,645 shares of common stock of Ekso Bionics were converted
into options to purchase 7,586,459 shares of common stock of Holdings. These shares are in addition to 5,280,368 outstanding shares
of Holdings common stock held by certain pre-Merger stockholders of Holdings, consisting of 4,500,600 shares held by such stockholders
prior to the Merger and an additional 779,768 shares issued to such stockholders pursuant to a provision in the Merger Agreement
requiring us to issue a number of shares such that the aggregate ownership of the pre-Merger stockholders (not including any shares
of common stock purchased by them in the PPO, as defined below) remained approximately 6.8% of the outstanding common stock of
the Company following the Merger.
Upon the closing of the Merger, under the
terms of a split-off agreement and a general release agreement, Holdings transferred all of its pre-Merger operating assets and
liabilities to a newly formed wholly-owned special-purpose subsidiary (“Split-Off Subsidiary”), and transferred all
of the outstanding shares of capital stock of Split-Off Subsidiary to two individuals who were the pre-Merger majority stockholders
of Holdings and Holdings’ former officers and sole director (the “Split-Off”), in consideration of and in exchange
for (i) the surrender and cancellation of an aggregate of all shares of Holdings’ common stock held by such individual (which
were cancelled and resumed the status of authorized but unissued shares of our common stock) and (ii) certain representations,
covenants and indemnities.
Accounting for Reverse Merger
Ekso Bionics, as the accounting acquirer,
recorded the merger as the issuance of stock for the net monetary assets of Holdings accompanied by a recapitalization. This accounting
was identical to that resulting from a reverse merger, except that no goodwill or intangible assets was recorded. The historical
financial statements of Holdings before the Merger have been replaced with the historical financial statements of Ekso Bionics
before the Merger in this and all future filings with the SEC. The Merger is intended to be treated as a tax-free exchange under
Section 368(a) of the Internal Revenue Code of 1986, as amended.
Ekso Bionics Holdings, Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
Retroactive Conversion of all Share
and Per Share amounts
In accordance with reverse merger accounting
guidance, amounts for Ekso Bionics’ historical (pre-merger) common stock, preferred stock and warrants and options to purchase
common stock including share and per share amounts have been retroactively adjusted using their respective exchange ratios in these
financial statements, unless otherwise disclosed. The conversion ratios were 1.5238, 1.6290, 1.9548 and 1.9548 for shares of common
stock, Series A preferred stock, Series A-2 preferred stock and Series B preferred stock, respectively.
Private Placement Offering and Repayment
of 2013 Bridge Note
As more fully discussed in
Note 8, Capitalization
and Equity Structure
, during January and February, 2014, in connection with the Merger, the Company completed multiple closings
of a private placement offering (the “PPO”) of 30,300,000 Units (as described below) at a purchase price of $1.00 per
Unit, consisting of the sale of 25,300,000 Units for a total of $25,300,000 in net cash proceeds, and the conversion of senior
secured convertible notes issued by Ekso Bionics in November 2013 into 5,000,000 Units and additional warrants to purchase 2,500,000
shares of common stock. The Units consist of one share of common stock and a warrant to purchase one share of stock in the Company.
Other warrants, shares and stock options
were issued in connection with the Merger as more fully discussed in
Note 8, Capitalization and Equity Structure.
4. Fair Value
Measurements
We record our financial assets and liabilities
at fair value. The accounting standard for fair value provides a framework for measuring fair value, and defines 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 accounting standard establishes a three-tier hierarchy, which prioritizes the inputs
used in the valuation methodologies in measuring fair value:
|
•
|
Level 1
—Quoted prices in active markets for identical assets or liabilities. We consider a market to be active
when transactions for the asset occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
|
|
•
|
Level 2
—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for
similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the assets or liabilities.
|
|
•
|
Level 3
—Unobservable inputs that are supported by little or no market activity and that are significant to the
fair value of the assets or liabilities. The valuation of Level 3 assets or liabilities requires the use of significant management
judgments or estimation.
|
Ekso Bionics Holdings, Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
Our fair value hierarchies for our financial
assets and liabilities which require fair value measurement on a recurring basis are as follows:
|
|
Total
|
|
|
Quoted Prices in
Active Markets for
Identical Items
Level 1
|
|
|
Significant Other
Observable Inputs
Level 2
|
|
|
Significant
Unobservable
Inputs
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
27,592,550
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
27,592,550
|
|
Total liabilities measured at estimated fair value
|
|
$
|
27,592,550
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
27,592,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
377,747
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
377,747
|
|
Convertible debt
|
|
|
5,062,417
|
|
|
|
–
|
|
|
|
–
|
|
|
|
5,062,417
|
|
Total liabilities measured at estimated fair value
|
|
$
|
5,440,164
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
5,440,164
|
|
The following
table sets forth a summary of the changes in the fair value of our Level 3 financial liabilities, which were measured at fair
value on a recurring basis.
|
|
Warrant liability
|
|
|
Convertible debt
|
|
Beginning balance December 31, 2013
|
|
$
|
377,747
|
|
|
$
|
5,062,417
|
|
Transfer to equity upon settlement
|
|
|
(377,747
|
)
|
|
|
(5,062,417
|
)
|
Fair value of warrants on date of issuance
|
|
|
10,613,550
|
|
|
|
–
|
|
Change in fair value of warrants during the period
|
|
|
16,979,000
|
|
|
|
–
|
|
Ending balance June 30, 2014
|
|
$
|
27,592,550
|
|
|
$
|
–
|
|
The fair value of each warrant was determined
using a lattice model with the following assumptions:
|
|
Six months ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Dividend yield
|
|
|
–
|
|
|
|
N/A
|
|
Risk-free interest rate
|
|
|
0.69-1.45
|
%
|
|
|
N/A
|
|
Current share price
|
|
$
|
1.47
|
|
|
|
N/A
|
|
Expected term (in years)
|
|
|
2.55-4.55
|
|
|
|
N/A
|
|
Volatility
|
|
|
70-75
|
%
|
|
|
N/A
|
|
Periodic rate
|
|
|
0.18-66
|
%
|
|
|
N/A
|
|
Periods in the model
|
|
|
10
|
|
|
|
N/A
|
|
During the six months ended June 30, 2014
the warrant liability and convertible debt outstanding as of December 31, 2013 were settled in transactions related to the Merger.
See Note 3, The Merger, Offering and Other Related Transactions.
Ekso Bionics Holdings, Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
5. Customer Deposits, Advances and Deferred Revenues
In connection with our device sales and
research services, we often receive cash payments before our earnings process is complete. In these instances, we record the payments
as customer deposits or customer advances until the device is shipped to the customer or in the case of research services until
the earnings process or milestone is achieved.
As described in our revenue recognition
policy for Ekso
Ô
unit sales, revenues are deferred and recognized over the maintenance
period. Accordingly, at the time of shipment the amount billed is recorded as deferred revenue. Also, at the time of shipment to
the customer, the related inventory is reclassified to deferred cost of revenue where it is amortized to cost of revenue over the
same period as the related revenue.
Customer deposits, advances, deferred revenues, and deferred
unit costs consist of the following:
|
|
June 30,
2014
|
|
|
December, 31,
2013
|
|
|
|
|
|
|
|
|
Customer deposits and advances
|
|
$
|
681,873
|
|
|
$
|
443,436
|
|
Deferred Ekso unit revenues
|
|
|
4,414,996
|
|
|
|
3,462,980
|
|
Deferred service, leasing and software revenues
|
|
|
1,277,175
|
|
|
|
721,921
|
|
Customer advances and deferred revenues
|
|
|
6,374,044
|
|
|
|
4,628,337
|
|
Less current portion
|
|
|
(3,570,689
|
)
|
|
|
(2,419,226
|
)
|
Customer advances and deferred revenues, non-current
|
|
$
|
2,803,355
|
|
|
$
|
2,209,111
|
|
|
|
|
|
|
|
|
|
|
Deferred Ekso unit costs
|
|
$
|
2,566,198
|
|
|
$
|
1,571,897
|
|
Less current portion
|
|
|
(1,169,000
|
)
|
|
|
(768,599
|
)
|
|
|
|
|
|
|
|
|
|
Deferred cost of revenue, non-current
|
|
$
|
1,397,198
|
|
|
$
|
803,298
|
|
6. Accrued Liabilities
Accrued liabilities consist of the following:
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
|
|
|
|
|
|
Salaries, benefits and related expenses
|
|
$
|
863,594
|
|
|
$
|
657,628
|
|
Professional fees
|
|
|
180,374
|
|
|
|
421,966
|
|
Warranty expense
|
|
|
177,594
|
|
|
|
288,110
|
|
Taxes
|
|
|
43,192
|
|
|
|
62,283
|
|
Other
|
|
|
–
|
|
|
|
812
|
|
Total
|
|
$
|
1,264,754
|
|
|
$
|
1,430,799
|
|
Ekso Bionics Holdings,
Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
7. Debt Instruments
Senior Notes Payable and Warrants
On April 27, 2011, we entered into a senior note payable agreement
with Venture Lending & Leasing VI, Inc. (the “Lender”). The initial loan commitment of $1,500,000 was funded in
two tranches: $1,000,000 in April 2011 and $500,000 in October 2011. In May 2012, the Lender funded an additional $3,500,000 under
an amendment to the 2011 agreement. The aggregate of $5,000,000 in funded loans is referred to as the “Senior Note Payable”.
The Senior Note Payable was interest-only for the first six
months, after which it converted into a fully-amortizing 30-month term note. The Senior Note Payable was secured by substantially
all of our assets, including accounts receivable, inventories, property and equipment, and intangible assets, including intellectual
property.
Under the 2011 agreement, the Lender received
warrants to purchase 128,570 shares of our Series A convertible preferred stock.
In connection with the 2012 amendment,
the Lender received additional warrants to purchase shares of Series B convertible preferred stock.
On January 15, 2014, upon the closing of
the Merger and the private placement financing discussed in
Note 3, The
Merger, Offering and Related Transactions
,
the Senior Notes Payable were settled with proceeds from the private placement offering (“PPO”), and the warrants to
purchase preferred stock issued to the Lender were exchanged for warrants to purchase common stock, which warrants remain outstanding.
As of June 30, 2014 and December 31, 2013,
the outstanding principal of the loan amounted to $0 and $2,344,302 respectively. For the three months ended June 30, 2014 and
2013, the Company recorded interest expense of $3,777 and $673,732, respectively. For the six months ended June 30, 2014 and 2013
the Company recorded interest expense of $430,380, and $1,312,844, respectively.
2013 Convertible Bridge Notes
In November 2013, in anticipation of the
Merger and related PPO Ekso Bionics completed a private placement to accredited investors of $5,000,000 of its senior subordinated
secured convertible notes (the “2013 Bridge Notes”). The 2013 Bridge Notes bore interest at 10% per annum and were
payable on July 15, 2014, subject to earlier conversion as described below. Interest on the 2013 Bridge Notes was paid at maturity,
provided that upon conversion of the 2013 Bridge Notes accrued interest was forgiven.
We determined that the 2013 Bridge Notes
should be recorded at fair market value at inception and remeasured at each subsequent reporting period. The 2013 Bridge Notes
were secured by a second priority security interest on all of our assets, subject to certain limited exceptions. This security
interest terminated upon conversion of the 2013 Bridge Notes in connection with the Merger and PPO.
On January 15, 2014, upon the closing of the Merger and the
PPO, the outstanding principal amount and accrued interest of the 2013 Bridge Notes was converted into Units at a conversion price
of $1.00 per Unit. Also, the investors received an additional warrant to purchase a number of shares of Company common stock equal
to 50% of the number of shares of Company common stock contained in the Units into which the Bridge Notes were converted (i.e.,
2,500,000 shares in the aggregate), at an exercise price of $1.00 per share, for a term of three years (the “Bridge Warrants”).
Ekso Bionics Holdings, Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
As of June 30, 2014 and December 31, 2013,
the outstanding principal of the notes amounted to $0 and $5,062,417 including accrued interest of $0 and $62,417, respectively.
Other Notes Payable
We also financed certain leasehold improvements
to our Richmond, California facility. As of June 30, 2014 and December 31, 2013, the outstanding principal on the loan was $125,046
and $144,041, respectively. Interest expense for the three and six months ended June 30, 2014 was $2,300 and $4,766, respectively
compared to $1,981 and $5,065, respectively for the same periods in 2013.
8. Capitalization and Equity Structure
Merger Agreement, Recapitalization and
PPO
As discussed in
Note 3. The Merger,
Offering and Other Related Transactions
, on January 15, 2014 (the “Closing Date”), Ekso Bionics Acquisition Sub
and Holdings entered into the Merger Agreement and the Merger closed on the same date. Pursuant to the terms of the Merger Agreement,
Acquisition Sub merged with and into Ekso Bionics, which was the surviving corporation and thus became a wholly-owned subsidiary
of Holdings. The Merger, PPO and other related transactions are described more fully in our Form 8-K/A filed with the SEC on March
31, 2014.
Share Exchanges
At the closing of the Merger, all of the
outstanding capital stock of Ekso Bionics was exchanged for an aggregate of 42,615,556 shares of our common stock.
In addition, pursuant to the Merger Agreement
warrants to purchase 407,772 shares of Ekso Bionics’ common stock issued and outstanding immediately prior to the closing
of the Merger were converted into warrants to purchase 621,363 shares of the Company’s common stock. Options to purchase
4,978,645 shares of Ekso Bionics’ common stock issued and outstanding immediately prior to the closing of the Merger were
converted into options to purchase 7,586,459 shares of the Company’s common stock.
Upon the closing of the Merger and the
PPO, the $5,000,000 in outstanding principal of the 2013 Bridge Notes automatically converted into Units at a conversion price
of $1.00 per Unit, and investors in the 2013 Bridge Notes received a warrant to purchase 2,500,000 shares of common stock at an
exercise price of $1.00 per share for a term of three years (the “Bridge Warrants”). The Bridge Warrants have weighted
average anti-dilution protection, subject to customary exceptions.
Concurrently with the closing of the Merger
and in contemplation of the Merger, the Company held a closing of the PPO in which it sold 20,580,000 Units (including Units issued
upon conversion of the Bridge Notes as described above), at a purchase price of $1.00 per Unit, each Unit consisting of one share
of our common stock and a warrant to purchase one share of common stock with an exercise price per share of $2.00 and a term of
5 years (the “PPO Warrants”). Between January 29, 2014 and February 6, 2014, the Company issued an additional 9,720,000
Units in subsequent closings of the PPO.
Investors in the Units have weighted average
anti-dilution protection with respect to the shares of common stock included in the Units if within 24 months after the final closing
of the PPO the Company shall issue additional shares of common stock or common stock equivalents (subject to customary exceptions,
including but not limited to issuances of awards under the Company’s 2014 Equity Incentive Plan for consideration per share
less than $1.00. The PPO warrants have weighted average anti-dilution protection, subject to customer exceptions.
Ekso Bionics Holdings, Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
In connection with the conversion of the
2013 Bridge Notes and the PPO, the Placement Agent and its sub-agents were paid an aggregate commission of $3,030,000 and were
issued warrants to purchase an aggregate of 500,000 shares of our common stock, with an exercise price per share of $1.00 and a
term of five years (“Bridge Agent Warrants”) and warrants to purchase an aggregate of 2,500,000 shares of common stock
with a term of five years and an exercise price of $1.00 per share (the “PPO Agent Warrants”). The Bridge Agent Warrants
and PPO Agent Warrants have weighted average anti-dilution protection, subject to customary exceptions.
2014 Equity Incentive Plan
Before the Merger, the Board of Directors
adopted, and the stockholders approved, the 2014 Equity Incentive Plan, which provides for the issuance of incentive awards of
up to 14,410,000 shares of common stock to officers, key employees, consultants and directors. In connection with the Merger, options
to purchase Ekso Bionics common stock outstanding immediately prior to the Merger were converted into an aggregate of 7,586,459
shares of Holdings issued under the 2014 Equity Incentive Plan.
On the closing of the Merger, the Board
granted to officers and directors options to purchase an aggregate of 2,300,000 shares of common stock under the 2014 Plan.
Summary Capitalization Subsequent to
Reverse Merger and PPO
The Company’s authorized capital
stock at June 30, 2014 consisted of 500,000,000 shares of common stock and 10,000,000 shares of preferred stock. At June 30, 2014,
78,497,558 shares of common stock were issued and outstanding, and no shares of preferred stock were issued and outstanding.
Common Stock
The holders of outstanding shares of common
stock are entitled to receive dividends out of assets or funds legally available for the payment of dividends at such times and
in such amounts as the Board of Directors from time to time may determine. Holders of common stock are entitled to one vote for
each share held on all matters submitted to a vote of stockholders. There is no cumulative voting for the election of directors.
The common stock is not entitled to pre-emptive rights and is not subject to conversion or redemption. Upon liquidation, dissolution
or winding up of the Company, the assets legally available for distribution to stockholders are distributable ratably among the
holders of the common stock after payment of liquidation preferences, if any, on any outstanding payment of other claims of creditors.
Each outstanding share of common stock is duly and validly issued, fully paid and non-assessable.
Preferred Stock
We may issue shares of preferred stock
from time to time in one or more series, each of which will have such distinctive designation or title as shall be determined by
our Board of Directors and will have such voting powers, full or limited, or no voting powers, and such preferences and relative,
participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated
in such resolution or resolutions providing for the issue of such class or series of preferred stock as may be adopted from time
to time by the Board of Directors.
Ekso Bionics Holdings, Inc.
Notes to Unaudited Condensed
Consolidated Financial Statements
Options on Common Stock
Options to purchase an aggregate of 10,748,459
shares of our common stock have been issued under the 2014 Equity Incentive Plan, as follows:
|
·
|
Options to purchase 4,978,645 shares of Ekso Bionics’ common stock issued and outstanding
immediately prior to the closing of the Merger were converted into options to purchase 7,586,459 shares of our common stock, with
a weighted average exercise price of $0.46 per share. Most of these option grants vest over a term of 48 months, beginning on the
first anniversary of an employee’s employment, and have a term of ten years.
|
|
·
|
Options to purchase 450,000 shares of our common stock were granted to our directors. These option
grants have an exercise price of $1.00 per share, will become exercisable over a term of 48 months, with 1/4 of the shares becoming
exercisable on the first anniversary of the date of grant and with 1/48 of the shares becoming exercisable at the end of each month
thereafter, and have a term of ten years.
|
|
·
|
Options to purchase 1,850,000 shares of our common stock were granted to our officers in connection
with the Merger. These option grants have an exercise price of $1.00 per share, will become exercisable over a term of 48 months,
with 1/4 of the shares becoming exercisable on the first anniversary of the date of grant and with 1/48 of the shares becoming
exercisable at the end of each month thereafter, and have a term of ten years.
|
|
·
|
Options to purchase 1,024,250 shares of our common stock were granted to officers and employees
subsequent to the Merger through June 30, 2014. These options have a weighted average exercise price of $2.28, will become exercisable
over a term of 48 months, with 1/4 of the shares becoming exercisable on the first anniversary of the date of grant and with 1/48
of the shares becoming exercisable at the end of each month thereafter, and have a term of ten years.
|
Warrants
As of the date hereof:
|
·
|
The Bridge Warrants entitle their holders to purchase 2,725,000 shares of common stock, with a
term of three years and an exercise price of $1.00 per share.
|
|
·
|
The Bridge Agent Warrants entitle their holders to purchase 500,000 shares of common stock, with
a term of five years and an exercise price of $1.00 per share.
|
|
·
|
The PPO Warrants entitle their holders to purchase 30,300,000 shares of common stock, with a term
of five years and an exercise price of $2.00 per share.
|
|
·
|
The PPO Agent Warrants entitle their holders to purchase 2,500,000 shares of common stock, with
a term of five years and an exercise price of $1.00 per share.
|
|
·
|
Holders of warrants to purchase Ekso Bionics, Inc. common stock prior to the Merger hold warrants
to purchase 621,363 shares of common stock, which expire on various dates from June 1, 2022 to August 30, 2023 and have an exercise
price of $1.38 per share. These warrants may, at the option of the holders, be exercised on a “cashless exercise” basis,
which means that in lieu of paying the aggregate exercise price for the shares being purchased upon exercise of the warrants for
cash, the holder will forfeit a number of shares underlying the warrants with a “fair market value” equal to such aggregate
exercise price. We will not receive additional proceeds to the extent these warrants are exercised on a “cashless exercise”
basis.
|
Ekso Bionics Holdings, Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
|
·
|
Other warrants entitle their holders to purchase 225,000 shares of common stock, with a term of
three years and an exercise price of $1.00 per share.
|
The outstanding warrants, other than those
converted from warrants to purchase Ekso Bionics common stock, contain “weighted average” anti-dilution protection
in the event that we issue common stock or securities convertible into or exercisable for shares of common stock at a price lower
than the subject warrant’s exercise price, subject to certain customary exceptions, as well as customary provisions for adjustment
in the event of stock splits, subdivision or combination, mergers, etc.
The fair value of the warrant liability was determined using
the binomial lattice pricing model. This model is dependent upon several variables such as the instrument’s term, expected
strike price, risk-free interest rate estimated over the expected term, and the estimated volatility of our stock over the term
of warrant. The expected strike price is estimated based on a weighted average probability analysis of the strike price changes
expected during the term as a result of the anti-dilution clause in the agreement. The risk-free rate is based on U.S. Treasury
securities with similar maturities as the expected terms of the warrants. The volatility is estimated based on blending the volatility
rates for a number of similar publicly-traded companies.
9. Stock-based Compensation Plans and
Awards
In January 2014, the Board of Directors
adopted the 2014 Equity Incentive Plan. In connection with the Merger, options previously issued under the 2007 Equity Incentive
Plan were converted into options to purchase shares of the Company’s common stock under the 2014 Equity Incentive Plan. Under
the terms of the 2014 Equity Incentive Plan, the Board of Directors may award stock, options or similar rights having either a
fixed or variable price related to the fair market value of the shares and with an exercise or conversion privilege related to
the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions, or
any other security with the value derived from the value of the shares. Such awards include stock options, restricted stock, restricted
stock units, stock appreciation rights and dividend equivalent rights.
The Board of Directors may grant stock
options under the 2014 Equity Incentive Plan at a price of not less than 100% of the fair market value of our common stock on the
date the option is granted. Incentive stock options granted to employees who, on the date of grant, own stock representing more
than 10% of the voting power of all of our classes of stock are granted at an exercise price of not less than 110% of the fair
market value of our common stock. The maximum term of these incentive stock options, granted to employees who own stock possessing
more than 10% of the voting power of all classes of the our stock, may not exceed five years. The maximum term of an incentive
stock option granted to any other participant may not exceed ten years. Subject to the limitations discussed above, the Board of
Directors determines the term and exercise or purchase price of other awards granted under the 2014 Equity Incentive Plan. The
Board of Directors also determines the terms and conditions of awards, including the vesting schedule and any forfeiture provisions.
Awards under the 2014 Equity Incentive Plan may vest upon the passage of time or upon the attainment of certain performance criteria
established by the Board of Directors.
We may from time to time grant options
to purchase common stock to non-employees for advisory and consulting services. Pursuant to ASC 505-50,
Equity-Based Payments
to Non-Employees
, we periodically remeasure the fair value of these stock options using the Black-Scholes option pricing model
and recognize expense ratably over the vesting period of each stock option award. Non-employee stock compensation is included in
the Condensed Consolidated Statements of Operation in general and administrative, research and development or sales and marketing
expenses, depending upon the nature of the non-employee services provided.
Ekso Bionics Holdings, Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
The per-share fair value of each stock
option was determined on the date of grant using the Black-Scholes option pricing model using the following assumptions:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Expected life (in years)
|
|
|
6.08-10.0
|
|
|
|
6.08
|
|
|
|
6.08-10.0
|
|
|
|
5.0-6.08
|
|
Risk-free interest rate
|
|
|
1.90-2.61
|
%
|
|
|
0.95
|
%
|
|
|
1.74-2.61
|
%
|
|
|
0.90-1.13
|
%
|
Expected volatility
|
|
|
66.46
|
%
|
|
|
66
|
%
|
|
|
65.66-66.46
|
%
|
|
|
66
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Total stock-based compensation expense
related to options granted to employees and non-employees was included in the unaudited Condensed Consolidated Statements of Operations
as follows:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Stock-based compensation expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
$
|
43,481
|
|
|
$
|
40,249
|
|
|
$
|
321,652
|
|
|
$
|
2,063
|
|
Research and development
|
|
|
32,533
|
|
|
|
18,238
|
|
|
|
120,480
|
|
|
|
37,893
|
|
General and administrative
|
|
|
150,414
|
|
|
|
25,879
|
|
|
|
250,936
|
|
|
|
50,565
|
|
|
|
$
|
326,428
|
|
|
$
|
84,366
|
|
|
$
|
693,068
|
|
|
$
|
170,521
|
|
10.
Income Taxes
The effective tax rate for the three and six months ended June
30, 2014 was less than one percent based on the estimated tax loss for the fiscal year. There were no material changes to the unrecognized
tax benefits in the six months ended June 30, 2014 and the Company does not expect significant changes to unrecognized tax
benefits through the end of the fiscal year. Because of the Company’s history of tax losses, all years remain open to tax
audit.
Ekso Bionics Holdings, Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
11. Commitments and Contingencies
Contingencies
In the normal course of business, we may
be subject to various legal matters. As of June 30, 2014 we were not a party to any legal matters that could have a material affect
on our consolidated financial position, results of operations or cash flows.
Material Contracts
We enter into various license, research
collaboration and development agreements which provide for payments to us for government grants, fees, cost reimbursements typically
with a markup, technology transfer and license fees, and royalty payments on sales. As of June 30, 2014 we were not a party to
any agreements that were not in the normal course of our business.
In connection with the PPO, we entered
into a Registration Rights Agreement, pursuant to which we agreed that promptly, but no later than 90 calendar days from the final
closing of the PPO, the Company would file a registration statement with the SEC (the “Registration Statement”) covering
(a) the shares of common stock issued in the PPO (including those issued upon conversion of the Bridge Notes), (b) the shares of
common stock issuable upon exercise of the Bridge Warrants, (c) the shares of common stock issuable upon exercise of the PPO Warrants,
and (d) the shares of common stock underlying Bridge Agent Warrants and PPO Agent Warrants (the “Registrable Shares”).
On June 9, 2014, we filed the Registration Statement on Form S-1/A (No. 333-195783) and on June 20, 2014 the registration statement
was declared effective.
The Company must use commercially reasonable
efforts to keep the Registration Statement effective for one year from the date it is declared effective by the SEC or until Rule
144 is available to the holders of Registrable Shares to sell all of their registrable shares without volume limitations within
a 90 day period, whichever is earlier. During such time, the Company will be required to pay “Liquidated Damages”,
defined below, if the Registration Statement, after being filed and declared effective, ceases to be continuously effective for
more than 30 calendar days.
The Liquidated Damages consist of payment
to each holder of Registrable Securities an amount equal to 1.0% of the PPO offering price per share for each full month that the
Registration Statement is not effective, up to a maximum of 8% of the PPO offering price per share (the “Liquidated Damages”).
As of June 30, 2014, no liability has been recorded.
12. Net Income (Loss) Per Share
Basic net income (loss) per share is calculated by dividing
net income (loss) by the weighted average number of shares outstanding for the period. Diluted net loss per share is calculated
by adjusting the numerator and denominator of the basic net income (loss) per share calculation for the effects of all potentially
dilutive common shares. Potential dilutive shares of the Company’s common stock include stock options and warrants. The calculation
of diluted loss per share requires that, to the extent the average market price of the underlying shares for the reporting period
exceeds the exercise price of the warrants and the presumed exercise of such securities are dilutive to net income (loss) per share
for the period, adjustments to net income (loss) used in the calculation are required to remove the change in fair value of the
warrants for the period. Likewise, adjustments to the denominator are required to reflect the related dilutive shares.
Ekso Bionics Holdings, Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
The following table is a reconciliation of the numerators and
denominators used in the calculation of basic and diluted net loss per share computations for the three and six months ended June
30, 2014 and 2013;
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss) used to compute net loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
56,126,982
|
|
|
$
|
(3,399,956
|
)
|
|
$
|
(25,638,377
|
)
|
|
$
|
(7,196,710
|
)
|
Adjustments for change in fair value of warrant liability
|
|
|
(60,457,700
|
)
|
|
|
|
|
|
|
-
|
|
|
|
|
|
Diluted
|
|
$
|
(4,330,718
|
)
|
|
$
|
(3,399,956
|
)
|
|
$
|
(25,638,377
|
)
|
|
$
|
(7,196,710
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding used in computing basic net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
78,497,558
|
|
|
|
21,080,414
|
|
|
|
72,688,073
|
|
|
|
20,861,127
|
|
Dilutive effect of warrants
|
|
|
9,593,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options
|
|
|
6,681,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
94,772,411
|
|
|
|
21,080,414
|
|
|
|
72,688,073
|
|
|
|
20,861,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share, basic
|
|
$
|
0.72
|
|
|
$
|
(0.16
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
(0.34
|
)
|
Net income (loss) per share, diluted
|
|
$
|
(0.05
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
(0.34
|
)
|
The following potential common shares and warrants outstanding
were excluded from the computation of diluted net loss per share because including them would have been anti-dilutive:
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase common stock
|
|
|
|
|
|
|
3,823,978
|
|
|
|
7,073,652
|
|
|
|
3,823,978
|
|
Warrants
|
|
|
|
|
|
|
—
|
|
|
|
14,546,085
|
|
|
|
—
|
|
Total common stock equivalents
|
|
|
|
|
|
|
3,823,978
|
|
|
|
21,619,737
|
|
|
|
3,823,978
|
|
A total of 5,280,368 shares of common stock held by pre-merger
stockholders of Holdings as described in Note 3,
The Merger, Offering and Related Transactions
have been retroactively reflected
as outstanding for the three and six months ended June 30, 2014 and 2013 for purposes of determining the basic and diluted net
loss per share in the accompanying Condensed Consolidated Statements of Operations.
Ekso Bionics Holdings, Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
13.
Segment Disclosures
We have two reportable segments, Engineering
Services and Medical Devices. Engineering Services generates revenue principally from collaborative research and development service
arrangements, technology license agreements, and government grants where we use our robotics domain knowledge in bionic exoskeletons
to bid on and procure contracts and grants from entities such as the United States Special Operations Command, the Defense Advanced
Research Projects Agency and the National Science Foundation. The Medical Devices segment designs, engineers, and manufactures
exoskeletons for applications in the medical markets.
We evaluate performance and allocate resources
based on segment gross profit margin. The reportable segments are each managed separately because they serve distinct markets,
and one segment provides a service and the other manufactures and distributes a unique product. We do not consider net assets as
a segment measure and, accordingly, assets are not allocated.
Segment reporting information is as follows:
|
|
Engineering
|
|
|
Medical
|
|
|
|
|
|
|
Services
|
|
|
Devices
|
|
|
Total
|
|
Three months ended June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
506,513
|
|
|
$
|
690,540
|
|
|
$
|
1,197,053
|
|
Cost of revenue
|
|
|
650,043
|
|
|
|
501,425
|
|
|
|
1,151,468
|
|
Gross profit (loss)
|
|
$
|
(143,530
|
)
|
|
$
|
189,115
|
|
|
$
|
45,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
594,598
|
|
|
$
|
389,394
|
|
|
$
|
983,992
|
|
Cost of revenue
|
|
|
384,119
|
|
|
|
296,869
|
|
|
|
680,988
|
|
Gross profit
|
|
$
|
210,479
|
|
|
$
|
92,525
|
|
|
$
|
303,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,041,471
|
|
|
$
|
1,217,293
|
|
|
$
|
2,258,764
|
|
Cost of revenue
|
|
|
902,146
|
|
|
|
831,550
|
|
|
|
1,733,696
|
|
Gross profit
|
|
$
|
139,325
|
|
|
$
|
385,743
|
|
|
$
|
525,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
957,928
|
|
|
$
|
722,313
|
|
|
$
|
1,680,241
|
|
Cost of revenue
|
|
|
731,333
|
|
|
|
529,432
|
|
|
|
1,260,765
|
|
Gross profit
|
|
$
|
226,595
|
|
|
$
|
192,881
|
|
|
$
|
419,476
|
|
Ekso Bionics Holdings, Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
Geographic information for revenue based
on location of customer is as follows:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
941,358
|
|
|
$
|
871,203
|
|
|
$
|
1,831,143
|
|
|
$
|
1,494,688
|
|
Europe, Middle East Asia
|
|
|
255,695
|
|
|
|
112,789
|
|
|
|
427,621
|
|
|
|
185,553
|
|
|
|
$
|
1,197,053
|
|
|
$
|
983,992
|
|
|
$
|
2,258,764
|
|
|
$
|
1,680,241
|
|