See Accompanying Notes to Unaudited Condensed
Consolidated Financial Statements
See Accompanying Notes to Unaudited
Condensed Consolidated Financial Statements
See Accompanying Notes to Unaudited Condensed
Consolidated Financial Statements
Notes to Condensed Consolidated Financial
Statements
(In thousands, except per share amounts)
(Unaudited)
1. Organization
Description of Business
On January 15, 2014, a wholly-owned subsidiary
of Ekso Bionics Holdings, Inc. named 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 continues the operations of Ekso Bionics, Inc. as a publicly traded company. Ekso Bionics, Inc. was incorporated in January
2005 in the State of Delaware.
As used in these notes to the consolidated
financial statements, the term “the Company” refers to Ekso Bionics Holdings, Inc., formerly known as PN Med Group,
Inc., and its wholly-owned subsidiaries, including Ekso Bionics, 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. Unless otherwise indicated, all dollar and share amounts included in these notes to the financial
statements are in thousands. All common stock share and per share amounts have been adjusted to reflect the one-for-seven reverse
stock split completed on May 4, 2016. See
Note 10, Capitalization and Equity Structure – Reverse Stock Split
.
The Company designs, develops, and sells
exoskeletons that augment human strength, endurance and mobility. The Company’s exoskeletons have applications in health
care, industrial, military, and consumer markets.
Liquidity
Largely as a result of significant research
and development activities related to the development of the Company’s advanced technology and commercialization of this
technology into its medical device business, the Company has incurred significant operating losses and negative cash flows from
operations since inception. The Company has also recognized significant non-cash losses associated with the revaluation of certain
securities, which have also contributed significantly to its accumulated deficit. As of June 30, 2016, the Company had an accumulated
deficit of $100,806.
Cash on hand at June 30, 2016 was $4,661,
compared to $19,552 at December 31, 2015. For the six months ended June 30, 2016, the Company used $14,122 of cash in operations,
compared to $8,462 for the six months ended June 30, 2015. The increase in cash used was driven by general increases in operating
expenses such as selling, marketing and research and development, as the Company continues to build its team and capabilities and
commercialize its medical and industrial device businesses. The increase also includes a one-time increase in inventory, as well
as some investment in certain inventory which is expected to reverse over the next few quarters.
Management believes the Company has sufficient
resources to meet its financial obligations into September 2016. The Company will require significant additional financing. We
intend to pursue opportunities to obtain additional financing in the future through public or private equity and/or debt financings,
corporate collaborations or warrant solicitations.
Sales of additional equity securities by
us could result in the dilution of the interests of existing stockholders. 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 be required to reduce our discretionary overhead costs substantially, including research and development, general
and administrative and sales and marketing expenses or otherwise curtail operations.
2. Basis of Presentation and Summary
of Significant Accounting Policies and Estimates
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 Securities and Exchange Commission
(“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, 2015, has been derived from
the audited consolidated financial statements at that date but does 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 Annual Report on Form 10-K for the year ended December 31, 2015. Unless otherwise indicated, all
dollar and share amounts (excluding per share amounts) included in these notes to the financial statements are in
thousands.
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, 2016, 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 include 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
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet, and the reported
amounts of revenues and expenses during the reporting period. For the Company, these estimates include, but are not limited to:
revenue recognition, deferred revenue and the deferral of the associated costs, future warranty costs, maintenance and planned
improvement costs associated with medical device units sold prior to 2016, useful lives assigned to long-lived assets, realizability
of deferred tax assets, the valuation of options and warrants, 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, 2016 and December 31, 2015.
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 currency denominated accounts receivable.
As of June 30, 2016, we had three customers
with accounts receivable balances totaling 10% or more of our total accounts receivable (17%, 11% and 11%), compared with one customer
as of December 31, 2015 (10%).
In the three months ended June 30, 2016,
we had five customers with billed revenue of 10% or more of total billed revenue (18%, 14%, 13%, 13% and 12%), compared with one
customer in the three months ended June 30, 2015 (32%). In the six months ended June 30, 2016, we had one customer with sales comprising
10% or more of our total customer sales (13%), compared with two customers in the six months ended June 30, 2015 (27% and11%).
Medical Device Revenue and Cost of Revenue
Recognition
The Company builds medical device robotic
exoskeletons for sale and capitalizes into inventory materials, direct and indirect labor and overhead in connection with the manufacture
and assembly of these units.
When the Company brought its first version
medical device to market in 2012, the Company could not be certain as to the costs it would incur to support, maintain, service
and upgrade these early stage devices. Primarily for this reason, prior to January 1, 2016, the sale of a device, associated software,
initial training, and extended support and maintenance were deemed as a single unit of accounting due to the uncertainty of the
Company’s follow-up maintenance and upgrade expenses, which were forecast to extend over three years. Accordingly, the revenue
from the sales of the device and associated cost of revenue were deferred at the time of shipment. Upon completion of training,
such amounts were recognized as revenue and cost of revenue over a three year period on a straight line basis, while all service
expenses, whether or not covered by the Company’s original warranty, extended warranty contracts, or neither, were recognized
as incurred.
Effective January 1, 2016, the Company
determined it had established (i) separate individual pricing for training, extended warranty coverage, and out-of-contract service
or repairs, (ii) sufficient historical evidence of customer buying patterns for extended warranty and maintenance coverage, and
(iii) a basis for estimating and recording warranty and service costs, to allow the Company to bifurcate its sales transactions
into two separate units of accounting: (1) the device, associated software, original manufacturer warranty and training if required,
and (2) extended support and maintenance. The Company has therefore begun to recognize revenue related to its sales transactions
on a multiple element approach in which revenue is recognized upon the delivery of the separate elements to the customer. Revenue
relating to the undelivered elements is deferred using the relative selling price method, which allocates revenue to each element
using the estimated selling prices for the deliverables when vendor-specific objective evidence or third-party evidence is not
available. For sales beginning January 1, 2016, revenue and associated cost of revenue of medical devices is being recognized when
delivered, or training has been completed, if required. Revenue for extended maintenance and support agreements is being recognized
on a straight line basis over the contractual term of the agreement, which typically ranges from one to four years. Consistent
with this change, the Company recognized medical device revenue previously deferred at December 31, 2015 of $6,517 (which represents
the fair value of the already delivered devices) and associated cost of revenue of $4,159, resulting in additional gross profit,
reduction in net loss from operations, and reduction of net loss applicable to common stockholders of $2,358 in its results of
operations for the six months ended June 30, 2016. In addition, the Company recorded $212 for warranty expenses and a one-time
charge of $911 for a planned preventative maintenance and upgrade program associated with the devices it had sold prior to 2016
in the same time period.
Recent Accounting Pronouncements
In March 2016, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09
Compensation – Stock
Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting
. ASU 2016-09 simplifies several aspects of
the accounting for share-based payment award transactions for public companies, including: (1) income tax consequences, (2) classification
of awards as either equity or liabilities, and (3) classification on the statement of cash flows. The amendments in this update
are effective for annual periods beginning after December 15, 2016. Management is in the process of evaluating the impact of ASU
2016-09 on the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU No.
2014-09,
Revenue from Contracts with Customers
. The updated standard will replace most existing revenue recognition
guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect
transition method. In August 2015, the FASB issued an update, ASU No. 2015-14,
Revenue from Contracts with Customers
(Topic 606): Deferral of the Effective Date
, to defer the effective date of this update by one year. In April 2016, the
FASB issued a further update, ASU 2016-10
Revenue from Contracts with Customers (Topic 606) Identifying Performance
Obligations and Licensing
. ASU 2016-10 clarifies the contractual provisions that explicitly or implicitly require an
entity to transfer control of additional goods or services to a customer should be distinguished from contractual provisions
that explicitly or implicitly define the attributes of a single promised license. In May 2016, the FASB issued a further
update, ASU 2016-12
Revenue from Contracts with Customers (Topic 606) Narrow-Scope Improvements and Practical
Expedients
. ASU 2016-12 clarifies key areas concerning: (1) assessment of collectability, (2) presentation of sales taxes
and other similar taxes collected from customers, (3) non-cash consideration, (4) contract modifications at transition, (5)
completed contracts at transition, and (6) disclosing the accounting change in the period of adoption. The updated standard
becomes effective for the Company in the first quarter of fiscal year 2018, but allows the Company to adopt the standard one
year earlier if it so chooses. The Company has not yet selected a transition method and is currently evaluating the effect
that the updated standard will have on its consolidated financial statements and related disclosures.
3. Accumulated Other Comprehensive Income (Loss)
The change in accumulated other comprehensive
income (loss) presented on the condensed consolidated balance sheets and the impact of significant amounts reclassified from accumulated
other comprehensive income on information presented in the condensed consolidated statements of operations and comprehensive loss
for the six month period ending June 30, 2016, are reflected in the table below net of tax:
|
|
Foreign
|
|
|
|
Currency
|
|
|
|
Translation
|
|
Balance at December 31, 2015
|
|
$
|
(1
|
)
|
Other comprehensive income before reclassification
|
|
|
11
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
-
|
|
Net current period other comprehensive income
|
|
|
11
|
|
Balance at June 30, 2016
|
|
$
|
10
|
|
4. Fair Value Measurements
Fair value is defined as the exchange price
that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market
for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques
used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Three levels
of inputs, of which the first two are considered observable and the last unobservable, may be used to measure fair value which
are the following:
|
•
|
Level 1
—Quoted prices in active markets for identical assets or liabilities. The Company
considers 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 investments requires the use of significant
management judgments or estimation.
|
The Company’s fair value hierarchies for its financial
assets and liabilities which require fair value measurement are as follows:
|
|
|
|
|
Quoted Prices in
Active Markets
For Identical
Items
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
(4,545
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(4,545
|
)
|
Contingent consideration liability
|
|
$
|
(768
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(768
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
(9,195
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(9,195
|
)
|
Contingent consideration liability
|
|
$
|
(768
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(768
|
)
|
The following table sets forth a summary
of the changes in the fair value of the Company’s Level 3 financial liabilities for the six month period ended June 30, 2016,
which were measured at fair value on a recurring basis:
|
|
Warrant
Liability
|
|
|
Contingent
Consideration
Liability
|
|
Balance at December 31, 2015
|
|
$
|
(9,195
|
)
|
|
$
|
(768
|
)
|
Gain on decrease in fair value of warrants issued with 2015 financing
|
|
|
4,650
|
|
|
|
-
|
|
Balance at June 30, 2016
|
|
$
|
(4,545
|
)
|
|
|
(768
|
)
|
Refer to
Note 10. Capitalization and
Equity Structure – Warrants
for additional information regarding the valuation of warrants.
5. Deferred Revenues
In connection with our medical device sales
and engineering services, the Company often receives cash payments before the earnings process is complete. In these instances,
the Company records the payments as customer deposits until a device is shipped to the customer, or as customer advances in the
case of engineering services until the earnings process is achieved. In both cases, the cash received is recorded as a component
of deferred revenue.
As described in
Note 2. Basis of Presentation
and Summary of Significant Accounting Policies and Estimates – Medical Device Revenue and Cost of Revenue Recognition,
prior to January 1, 2016, the sale of a device, associated software, initial training, and extended support and maintenance were
deemed as a single unit of accounting due to the uncertainty of the Company’s follow-up maintenance and upgrade expenses,
which were forecast to extend over three years. Accordingly, the revenue from the sales of the device and associated cost of revenue
were deferred at the time of shipment. Upon completion of training, such amounts were recognized as revenue and cost of revenue
over a three year period on a straight line basis, while all service expenses, whether or not covered by the Company’s original
warranty, extended warranty contracts, or neither, were recognized as incurred. For sales beginning January 1, 2016, revenue
and associated cost of revenue of medical devices are being recognized when delivered, or training has been completed, if required. Revenue
for extended maintenance and support agreements will be recognized on a straight line basis over the contractual term of the agreement,
which typically ranges from one to four years. Consistent with this change, the Company recognized medical device revenue previously
deferred at December 31, 2015 of $6,517 (which represents the fair value of the already delivered devices) and associated cost
of revenue of $4,159 in its condensed consolidated statements of operations and comprehensive loss for the six months ended June
30, 2016.
Deferred revenues and deferred cost of revenues consist of the
following:
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
Customer deposits and advances
|
|
$
|
70
|
|
|
$
|
48
|
|
Deferred medical device revenues
|
|
|
-
|
|
|
|
7,388
|
|
Deferred rental income
|
|
|
56
|
|
|
|
71
|
|
Deferred extended maintenance and support
|
|
|
1,331
|
|
|
|
1,066
|
|
Total deferred revenues
|
|
|
1,457
|
|
|
|
8,573
|
|
Less current portion
|
|
|
(710
|
)
|
|
|
(3,960
|
)
|
Deferred revenues, non-current
|
|
$
|
747
|
|
|
$
|
4,613
|
|
|
|
|
|
|
|
|
|
|
Deferred medical device unit costs
|
|
$
|
-
|
|
|
$
|
4,590
|
|
Less current portion
|
|
|
-
|
|
|
|
(2,088
|
)
|
Deferred cost of revenue, non-current
|
|
$
|
-
|
|
|
$
|
2,502
|
|
6. Intangible Assets
On December 1, 2015, the Company acquired
substantially all of the assets of Equipois, LLC, a New Hampshire limited liability company, for an initial payment of $1,071,
payable in shares of the Company’s common stock, and recorded $768 of estimated contingent consideration. The transaction
resulted in the Company recording $1,610 of intangible assets with an estimated life of three years. The following table reflects
the amortization of the purchased intangible assets as of June 30, 2016:
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Developed technology
|
|
$
|
1,160
|
|
|
$
|
(226
|
)
|
|
$
|
934
|
|
Customer relationships
|
|
|
70
|
|
|
|
(13
|
)
|
|
|
57
|
|
Customer trade name
|
|
|
380
|
|
|
|
(74
|
)
|
|
|
306
|
|
|
|
$
|
1,610
|
|
|
$
|
(313
|
)
|
|
$
|
1,297
|
|
Estimated future amortization for the remainder of 2016 is $270,
and $537 and $490 for the years 2017 and 2018, respectively.
7. Accrued Liabilities
Accrued liabilities consist of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Salaries, benefits and related expenses
|
|
$
|
1,847
|
|
|
$
|
1,464
|
|
Maintenance
|
|
|
736
|
|
|
|
-
|
|
Warranty expense
|
|
|
217
|
|
|
|
-
|
|
Professional fees
|
|
|
70
|
|
|
|
257
|
|
Other
|
|
|
60
|
|
|
|
164
|
|
Total
|
|
$
|
2,930
|
|
|
$
|
1,885
|
|
8. Maintenance and Warranty
Sales of devices generally include an initial
warranty for parts and services for one year in the U.S. and two years in Europe, the Middle East and Africa. During the six months
ended June 30, 2016, the Company determined it had sufficient historical experience of warranty costs to estimate future costs
for devices sold. As a result, and beginning during the six months ended June 30, 2016, a liability for the estimated cost of product
warranty is established at the time revenue is recognized based on the historical experience of known product failure rates and
expected material and labor costs to provide warranty services. From time to time, specific additional warranty accruals may be
made if unforeseen technical problems arise. Alternatively, if estimates are determined to be greater than the actual amounts necessary,
a portion of the liability may be reversed in future periods. Warranty costs are reflected in the condensed consolidated statements
of operations and comprehensive loss as a component of costs of revenue.
In addition, in the six months ended June
30, 2016, the Company recorded in its condensed consolidated statements of operations and comprehensive loss a one-time charge
of $911 for a preventative maintenance and improvement program for devices sold prior to 2016 to bring the devices to second generation
GT-level functionality.
A reconciliation of the changes in the
maintenance and warranty liabilities for the period ended June 30, 2016 is as follows:
|
|
2016
|
|
|
|
Maintenance
|
|
|
Warranty
|
|
|
Total
|
|
Balance at December 31, 2015
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Additions for estimated future expense
|
|
|
911
|
|
|
|
255
|
|
|
|
1,166
|
|
Incurred costs
|
|
|
(175
|
)
|
|
|
(17
|
)
|
|
|
(192
|
)
|
Balance at June 30, 2016
|
|
$
|
736
|
|
|
$
|
238
|
|
|
$
|
974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
|
736
|
|
|
|
217
|
|
|
|
953
|
|
Long-term portion
|
|
|
-
|
|
|
|
21
|
|
|
|
21
|
|
Total
|
|
$
|
736
|
|
|
$
|
238
|
|
|
$
|
974
|
|
The long-term portion of warranty accrual
is included as a component of other long-term liabilities in the condensed consolidated balance sheets.
9. Lease and Note Obligations
On November 29, 2011, the Company entered
into an operating lease agreement for its headquarters and manufacturing facility in Richmond, California. The lease term commenced
in March 2012 and expires in May 2017. The lease provides the Company with one option to renew for five additional years. The Company
also leases nominal office space in Germany.
In 2012, the Company entered into a note
agreement in connection with the lease for its Richmond, California facility. The note, for an aggregate principal of $200, with
an interest rate of 7%, minimum monthly payments of $4, and a May 31, 2017 maturity, was used to fund leasehold improvements. This
note is classified as a component of capital lease obligation-current and other non-current liabilities in the condensed consolidated
balance sheets. Commencing in August 2015, the Company entered into a long-term capital lease obligation for equipment. The aggregate
principal of the lease is $166, with an interest rate of 4.7%, minimum monthly payments of $3 and a July 1, 2020 maturity. This
capital lease is classified as a component of capital lease obligation-current and other non-current liabilities in the condensed
consolidated balance sheets.
The Company estimates future minimum payments
as of June 30, 2016 to be the following:
Period
|
|
Operating
Lease
|
|
|
Note
Payable
|
|
|
Capital
Lease
|
|
|
Total
Minimum
Payments
|
|
2016 - remainder
|
|
$
|
232
|
|
|
$
|
24
|
|
|
$
|
22
|
|
|
$
|
46
|
|
2017
|
|
|
246
|
|
|
|
20
|
|
|
|
40
|
|
|
|
60
|
|
2018
|
|
|
89
|
|
|
|
-
|
|
|
|
37
|
|
|
|
37
|
|
2019
|
|
|
89
|
|
|
|
-
|
|
|
|
37
|
|
|
|
37
|
|
2020
|
|
|
87
|
|
|
|
-
|
|
|
|
22
|
|
|
|
22
|
|
Total minimum payments
|
|
$
|
743
|
|
|
|
44
|
|
|
|
158
|
|
|
|
202
|
|
Less interest
|
|
|
|
|
|
|
(2
|
)
|
|
|
(14
|
)
|
|
|
(16
|
)
|
Present value minimum payments
|
|
|
|
|
|
|
42
|
|
|
|
144
|
|
|
|
186
|
|
Less current portion
|
|
|
|
|
|
|
(42
|
)
|
|
|
(36
|
)
|
|
|
(78
|
)
|
Long-term portion
|
|
|
|
|
|
$
|
-
|
|
|
$
|
108
|
|
|
$
|
108
|
|
Rent expense under the Company’s
operating leases was $102 and $86 for the three month periods ended June 30, 2016 and 2015, respectively, and was $198 and $172
for the six month periods ended June 30, 2016 and 2015, respectively.
10. Capitalization and Equity Structure
Reverse Stock Split:
After the close of the stock market on
May 4, 2016, the Company effected a 1-for-7 reverse split of its common stock. As a result, all common stock share amounts included
in this filing have been retroactively reduced by a factor of seven, and all common stock per share amounts have been increased
by a factor of seven, with the exception of our common stock par value. Amounts affected include common stock outstanding, including
those that have resulted from the conversion of preferred stock, stock options, and warrants that convert to common stock.
Summary:
The Company’s authorized capital
stock at June 30, 2016 consisted of 71,429 shares of common stock and 10,000 shares of convertible preferred stock. At June 30,
2016, 16,383 shares of common stock were issued and outstanding and 4 shares of convertible preferred stock were issued and outstanding.
Convertible Preferred Stock:
In December 2015, the Company issued
15
shares of Series A Convertible Preferred Stock (the “Preferred Shares”) and warrants to purchase 2,122
shares of the Company’s common stock for which the Company received gross proceeds of $15,000.
Each Preferred Share
is convertible into .141 shares of common stock at any time at the election of the investor, which at the time of conversion, triggers
the amortization of a discount related to a beneficial conversion feature and to the warrants that were issued in the December
2015 transaction.
At December 31, 2015, 13 Preferred Shares
were outstanding. During the three month period ended June 30, 2016, 5 Preferred Shares were converted into 763 shares of common
stock and during the six month period ended June 30, 2016, 9 Preferred Shares were converted into 1,329 shares of common stock,
all at a conversion price of $7.07 per share. The conversions triggered the amortization of the warrant discount of $4,205 and
$7,329 during the three and six month periods ended June 30, 2016, respectively, which were recorded in the condensed consolidated
statements of operations and comprehensive loss as non-cash preferred deemed dividends. As of June 30, 2016, 4 Preferred Shares
remain outstanding, as well as $3,016 of non-cash warrant discounts that will be recognized as preferred deemed dividends at such
time that the Preferred Shares are converted to common stock.
Warrants:
Warrant share activity for the six month
period ended June 30, 2016 is as follows:
Source
|
|
Exercise
Price
|
|
|
Term
(Years)
|
|
At December 31,
2015
|
|
|
At June 30,
2016
|
|
December 2015 warrants
|
|
$
|
8.75
|
|
|
5
|
|
|
2,122
|
|
|
|
2,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 PPO and Merger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Placement agent warrants
|
|
$
|
7.00
|
|
|
5
|
|
|
426
|
|
|
|
426
|
|
Bridge warrants
|
|
$
|
7.00
|
|
|
3
|
|
|
371
|
|
|
|
371
|
|
PPO warrants
|
|
$
|
14.00
|
|
|
5
|
|
|
1,078
|
|
|
|
1,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre 2014 warrants
|
|
$
|
9.66
|
|
|
various
|
|
|
88
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
4,085
|
|
|
|
4,085
|
|
In connection with the December 2015 issuance
of convertible preferred stock discussed above, the Company issued warrants to purchase up to an aggregate of 2,122 shares of
common stock. The warrants have a 5 year term and an exercise price of $8.75 per share. The Company estimates the fair value of
the warrant liability by using a Binomial Lattice Option Pricing Model. The warrant liability is measured at fair value using
certain estimated inputs, which are classified within Level 3 of the valuation hierarchy. The following assumptions were used
in the Binomial Lattice Option Pricing Model to measure the fair value of the embedded anti-dilution feature in the warrants as
of June 30, 2016:
Current share price
|
|
$
|
4.15
|
|
Conversion price
|
|
$
|
8.75
|
|
Risk-free interest rate
|
|
|
0.93
|
%
|
Periodic rate
|
|
|
0.42
|
%
|
Term (years)
|
|
|
4.48
|
|
Volatility of stock
|
|
|
75
|
%
|
The warrants were valued at $9,195 at December
31, 2015. Due to a decrease in the Company’s common stock price from December 31, 2015 to June 30, 2016, the fair value of
the warrants decreased by $4,650, which resulted in a non-cash gain recorded in the Company’s consolidated statements of
operations and comprehensive loss for the six months ended June 30, 2016. For the three months ended June 30, 2016, the fair value
of the warrants decreased by $1,665, also due to a decrease in the Company’s common stock price from March 31, 2016 to June
30, 2016 that was recorded as a gain in the Company’s consolidated statements of operations and comprehensive loss for the
period.
11. Stock-based Compensation
See
Note 10, Capitalization and Equity
Structure – Reverse Stock Split
.
The Company’s Amended and Restated
2014 Equity Incentive Plan (the “2014 Plan”) allows for the issuance of an aggregate of 3,714 shares of common stock,
of which 1,149 are available for future grant as of June 30, 2016.
The following table summarizes information
about the Company’s stock options outstanding at June 30, 2016, and activity during the six month period then ended:
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Stock
|
|
|
Exercise
|
|
|
Life
|
|
|
Intrinsic
|
|
|
|
Awards
|
|
|
Price
|
|
|
(Years)
|
|
|
Value
|
|
Balance as of December 31, 2015
|
|
|
1,963
|
|
|
$
|
7.09
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
492
|
|
|
$
|
6.30
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(18
|
)
|
|
$
|
3.16
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
(120
|
)
|
|
$
|
8.41
|
|
|
|
|
|
|
|
|
|
Options cancelled
|
|
|
(14
|
)
|
|
$
|
8.66
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2016
|
|
|
2,303
|
|
|
|
6.87
|
|
|
|
7.66
|
|
|
$
|
815
|
|
Vested and expected to vest at June 30, 2016
|
|
|
2,143
|
|
|
|
|
|
|
|
7.54
|
|
|
$
|
815
|
|
Exercisable as of June 30, 2016
|
|
|
1,135
|
|
|
|
|
|
|
|
6.14
|
|
|
$
|
804
|
|
As of June 30, 2016, total unrecognized
compensation cost related to unvested stock options was $5,560. This amount is expected to be recognized as stock-based compensation
expense in the Company’s condensed consolidated statements of operations and comprehensive income over the remaining weighted
average vesting period of 2.8 years.
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 June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Risk-free interest rate
|
|
|
1.28% - 1.43%
|
|
|
|
1.44% - 2.34%
|
|
|
|
1.24% - 1.78%
|
|
|
|
1.41% - 2.34%
|
|
Expected term (in years)
|
|
|
5-6
|
|
|
|
6-10
|
|
|
|
5-10
|
|
|
|
6-10
|
|
Volatility
|
|
|
78%
|
|
|
|
73% - 74%
|
|
|
|
78%
|
|
|
|
73% - 74%
|
|
Total stock-based compensation expense
related to options granted to employees and non-employees was included in the condensed consolidated statements of operations and
comprehensive loss as follows:
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Sales and marketing
|
|
$
|
206
|
|
|
$
|
161
|
|
|
$
|
438
|
|
|
$
|
292
|
|
Research and development
|
|
|
141
|
|
|
|
108
|
|
|
|
372
|
|
|
|
162
|
|
General and administrative
|
|
|
180
|
|
|
|
174
|
|
|
|
1,291
|
|
|
|
337
|
|
|
|
$
|
527
|
|
|
$
|
443
|
|
|
$
|
2,101
|
|
|
$
|
791
|
|
In connection with the resignation of the
Company’s then Chief Executive Officer in February 2016, the Company accelerated the vesting of options that would have vested
in the subsequent twelve months and extended the exercise period of the resulting options from three months to six years. In addition,
the Company extended the exercise period for an employee that was terminated in March 2016 from three months to one year. These
modifications resulted in incremental stock-based compensation expense of $59 and $774 included in research and development and
general administration, respectively, for the six months ended June 30, 2016 in the condensed consolidated statements of operations
and comprehensive loss.
12. Income Taxes
There were no material changes to the unrecognized
tax benefits in the six months ended June 30, 2016, 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 examination.
13. Commitments and Contingencies
Contingencies
In the normal course of business, the Company
is subject to various legal matters. In the opinion of management, the resolution of such matters will not have a material adverse
effect on the Company’s condensed consolidated financial statements.
Material Contracts
The Company enters into various license,
research collaboration and development agreements which provide for payments to the Company for government grants, fees, cost reimbursements
typically with a markup, technology transfer and license fees, and royalty payments on sales.
The Company has two license agreements
to maintain exclusive rights to patents. The Company is also required to pay 1% of net sales of products sold to entities other
than the U.S. government. In the event of a sublicense, the Company will owe 21% of license fees and must pass through 1% of the
sub-licensee’s net sales of products sold to entities other than the U.S. government. The agreements also stipulate minimum
annual royalties of $50.
In connection with acquisition of Equipois,
the Company assumed the rights and obligations of Equipois under a license agreement with Garrett Brown, the developer of certain
intellectual property related to mechanical balance and support arm technologies, which grants the Company an exclusive license
with respect to the technology and patent rights for certain fields of use. Pursuant to the terms of the license agreement, the
Company will be required to pay Mr. Brown a single-digit royalty on net receipts, subject to a $50 annual minimum royalty requirement.
The Company entered into a supply agreement
with Equipois to purchase mechanical arm products on a quarterly basis commencing on December 1, 2015 through December 31, 2016,
with a minimum annual price of $157.
U.S. Food and Drug Administration Clearance
On April 4, 2016, the Company received clearance from the U.S.
Food and Drug Administration (“FDA”) to market its Ekso GT robotic exoskeleton for use in the treatment of individuals
with hemiplegia due to stroke, individuals with spinal cord injuries at levels T4 to L5, and individuals with spinal cord injuries
at levels of T3 to C7 (ASIA D), in accordance with the device’s labeling. On July 19, 2016, the Company received clearance from the FDA to expand/clarify the indications and labeling
to expressly include individuals with hemiplegia due to stroke who have upper extremity function of at least 4/5 in only one arm.
The Company’s prior cleared indications for use statement required that individuals with hemiplegia due to stroke have upper
extremity function of at least 4/5 in both arms.
The Company believes that prior to April
4, 2016, the Company’s Ekso GT robotic exoskeleton had been appropriately marketed in the United States as a Class I 510(k)
exempt Powered Exercise Equipment device since February 2012. On June 26, 2014, the FDA announced the creation of a new product
classification for Powered Exoskeleton devices. On October 21, 2014, the FDA published the summary for the new Powered Exoskeleton
classification and designated it as being Class II, which requires the clearance of a 510(k) notice. On October 21, 2014, concurrent
with the FDA’s publication of the reclassification of Powered Exoskeleton devices, the FDA issued the Company an “Untitled
Letter” which informed the Company in writing of the agency’s belief that this new product classification applied to
the Ekso GT device. On December 24, 2014, the Company filed a 510(k) notice for the Ekso robotic exoskeleton which was accepted
by the FDA for substantive review on July 29, 2015. As discussed above, the Company received FDA clearance to market the Ekso GT
in accordance with the device’s labeling on April 4, 2016.
From
September 2, 2015 to September 11, 2015, the Division of Bioresearch Monitoring Center for Devices and Radiological Health of the
FDA conducted an inspection of the Company’s facility in Richmond, California. At the conclusion of the inspection, the FDA
issued a Form FDA 483 with four observations. These observations were inspectional and did not represent a final FDA determination
of non-compliance. The observations pertained to informed consent requirements, reporting of adverse results and records maintenance.
On October 2, 2015, the Company responded to the FDA describing the corrective and preventive actions that the Company had implemented
and continued to implement to address the FDA’s concerns.
On March 30, 2016, the FDA accepted the Company’s
corrective actions for the Form 483 observations that were generated during the FDA’s inspection.
14. Net Loss Per Share
The following table sets forth the computation of basic and
diluted net loss per share:
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stockholders, basic and diluted
|
|
$
|
(9,970
|
)
|
|
$
|
(5,645
|
)
|
|
$
|
(16,745
|
)
|
|
$
|
(9,760
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares, basic and diluted
|
|
|
16,247
|
|
|
|
14,585
|
|
|
|
15,817
|
|
|
|
14,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
$
|
(0.61
|
)
|
|
$
|
(0.39
|
)
|
|
$
|
(1.06
|
)
|
|
$
|
(0.67
|
)
|
Recognition of previously deferred revenue
and cost of goods in the six months ended June 30, 2016 as described in
Note 2. Basis of Presentation and Summary of
Significant Accounting Policies and Estimates – Medical Device Revenue and Cost of Revenue Recognition
reduced net loss
applicable to common stockholders by $2,358, or $0.15 per share.
The following table sets forth potential
shares of common stock that are not included in the calculation of diluted net loss per share because to do so would be anti-dilutive
as of the end of each period presented:
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Options to purchase common stock
|
|
|
2,303
|
|
|
|
1,890
|
|
Warrants for common stock
|
|
|
4,085
|
|
|
|
1,964
|
|
Common stock issuable upon conversion of preferred shares
|
|
|
547
|
|
|
|
-
|
|
Total common stock equivalents
|
|
|
6,935
|
|
|
|
3,854
|
|
15.
Segment Disclosures
The Company has two reportable segments,
Medical Devices and Engineering Services. The Medical Devices segment designs, engineers, and manufactures exoskeletons for applications
in the medical and military markets. Engineering Services generates revenue principally from collaborative research and development
service arrangements, technology license agreements, and government grants where the Company uses its robotics domain knowledge
in bionic exoskeletons to bid on and procure contracts and grants from entities such as the National Science Foundation and the
Defense Advanced Research Projects Agency.
The Company evaluates performance and allocates
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. The Company does not consider
net assets as a segment measure and, accordingly, assets are not allocated.
Segment reporting information is as follows:
|
|
Medical
|
|
|
Engineering
|
|
|
|
|
|
|
Devices
|
|
|
Services
|
|
|
Total
|
|
Three months ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,451
|
|
|
$
|
101
|
|
|
$
|
1,552
|
|
Cost of revenue
|
|
|
1,286
|
|
|
|
63
|
|
|
|
1,349
|
|
Gross profit
|
|
$
|
165
|
|
|
$
|
38
|
|
|
$
|
203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,048
|
|
|
$
|
1,066
|
|
|
$
|
2,114
|
|
Cost of revenue
|
|
|
970
|
|
|
|
642
|
|
|
|
1,612
|
|
Gross profit
|
|
$
|
78
|
|
|
$
|
424
|
|
|
$
|
502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
9,508
|
|
|
$
|
530
|
|
|
$
|
10,038
|
|
Cost of revenue
|
|
|
7,955
|
|
|
|
382
|
|
|
|
8,337
|
|
Gross profit
|
|
$
|
1,553
|
|
|
$
|
148
|
|
|
$
|
1,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
2,033
|
|
|
$
|
1,770
|
|
|
$
|
3,803
|
|
Cost of revenue
|
|
|
1,768
|
|
|
|
1,130
|
|
|
|
2,898
|
|
Gross profit
|
|
$
|
265
|
|
|
$
|
640
|
|
|
$
|
905
|
|
Geographic information for revenue based
on location of customer is as follows:
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
North America
|
|
$
|
1,176
|
|
|
$
|
1,622
|
|
|
$
|
5,697
|
|
|
$
|
2,894
|
|
All Other
|
|
|
376
|
|
|
|
492
|
|
|
|
4,341
|
|
|
|
909
|
|
|
|
$
|
1,552
|
|
|
$
|
2,114
|
|
|
$
|
10,038
|
|
|
$
|
3,803
|
|