NOTES
TO FINANCIAL STATEMENTS
(Unaudited)
Notes
to Financial Statements
In
this report, “Stereotaxis”, the “Company”, “Registrant”, “we”, “us”,
and “our” refer to Stereotaxis, Inc. and its wholly owned subsidiaries. Genesis™, Epoch
®
, Niobe
®
,
Odyssey
®
, Odyssey Cinema™, Vdrive
®
, Vdrive Duo™, V-CAS™, V-Loop™, V-Sono™,
V-CAS Deflect™, QuikCAS™, and Cardiodrive® are trademarks of Stereotaxis, Inc. All other trademarks that appear
in this report are the property of their respective owners.
1.
Description of Business
Stereotaxis
designs, manufactures and markets an advanced remote robotic navigation system for use in a hospital’s interventional surgical
suite, or “interventional lab”, that we believe revolutionizes the treatment of arrhythmias and coronary artery disease
by enabling enhanced safety, efficiency, and efficacy for catheter-based, or interventional, procedures. Our products include
the
Genesis
Robotic Magnetic Navigation System (“
Genesis
system”), the
Niobe
ES Robotic Magnetic
Navigation System (“
Niobe
ES system”),
Odyssey
Information Management Solution (“
Odyssey
Solution”),
the
Vdrive
Robotic Navigation System (“
Vdrive
system”), Stereotaxis Imaging Model S x-ray system, and
related devices.
The
Genesis
and
Niobe
systems are designed to enable physicians to complete more complex interventional procedures by
providing image-guided delivery of catheters and guidewires through the blood vessels and chambers of the heart to treatment sites.
This is achieved using externally applied magnetic fields that govern the motion of the working tip of the catheter or guidewire,
resulting in improved navigation, efficient procedures, and reduced x-ray exposure. As of March 31, 2019, the Company had an installed
base of 126
Niobe
ES systems.
In
addition to the robotic magnetic navigation systems and their components, Stereotaxis also has developed the
Odyssey
Solution,
which consolidates all lab information enabling doctors to focus on the patient for optimal procedure efficiency. The system also
features a remote viewing and recording capability called
Odyssey Cinema
, which is an innovative solution delivering synchronized
content for optimized workflow, advanced care, and improved productivity. This tool includes an archiving capability that allows
clinicians to store and replay entire procedures or segments of procedures. This information can be accessed from locations throughout
the hospital local area network and over the global
Odyssey
Network providing physicians with a tool for clinical collaboration,
remote consultation, and training.
Our
Vdrive
system provides navigation and stability for diagnostic and therapeutic devices designed to improve interventional
procedures. The
Vdrive
system complements the robotic magnetic navigation systems’ control of therapeutic catheters
for fully remote procedures and enables single-operator workflow and is sold as two options, the
Vdrive
system and the
Vdrive Duo
system. In addition to the
Vdrive
system and the
Vdrive Duo
system, we also manufacture and market
various disposable components which can be manipulated by these systems.
We
promote our full suite of products in a typical hospital implementation, subject to regulatory approvals or clearances. This implementation
requires a hospital to agree to an upfront capital payment and recurring payments. The upfront capital payment typically includes
equipment and installation charges. The recurring payments typically include disposable costs for each procedure, equipment service
costs beyond warranty period, and ongoing software updates. In hospitals where our full suite of products has not been implemented,
equipment upgrade or expansion can be implemented upon purchasing of the necessary upgrade or expansion.
The
Niobe System, Odyssey Workstation, Cardiodrive,
and various disposable interventional devices have received regulatory
clearance in the U.S., Europe, Canada, China, Japan and various other countries. We have received the regulatory clearance, licensing
and/or CE Mark approvals that allow us to market the
Vdrive
and
Vdrive Duo
systems with the
V-CAS
,
V-Loop
and
V-Sono
devices in the U.S., Canada and Europe. The
Genesis
system and the
V-CAS Deflect
catheter
advancement system have been CE Marked for sale in the Europe. Stereotaxis Imaging Model S is CE marked and FDA cleared.
We
have strategic relationships with technology leaders in the global interventional market. Through these strategic relationships
we provide compatibility between our robotic magnetic system and digital imaging and 3D catheter location sensing technology,
as well as disposable interventional devices, in order to continue to develop new solutions in the interventional lab. The maintenance
of these strategic relationships, or the establishment of equivalent alternatives, is critical to our commercialization efforts.
The commercial availability of currently compatible digital imaging fluoroscopy systems is unlikely to continue and efforts are
being made to ensure the availability of integrated next generation systems and/or equivalent alternatives; however, we cannot
provide assurance as to the timeline of the ongoing availability of such compatible systems or our ability to obtain equivalent
alternatives on competitive terms or at all.
2.
Summary of Significant Accounting Policies
Basis
of Presentation
The
accompanying unaudited financial statements of Stereotaxis, Inc. have been prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all the disclosures
required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, they
include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for
the interim periods presented. Operating results for the three month period ended March 31, 2019 are not necessarily indicative
of the results that may be expected for the year ended December 31, 2019 or for future operating periods.
These
interim financial statements and the related notes should be read in conjunction with the annual financial statements and notes
included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the Securities and
Exchange Commission (SEC) on March 15, 2019.
Going
Concern, Liquidity and Management’s Plan
The
Company believes the cash on hand at March 31, 2019 will be sufficient to meet its obligations as they become due in the ordinary
course of business for at least 12 months following the date these financial statements are issued. The Company has sustained
operating losses throughout its corporate history and expects that its 2019 expenses will exceed its 2019 gross margin. The Company
expects to continue to incur operating losses and negative cash flows until revenues reach a level sufficient to support ongoing
operations or expense reductions are in place. The Company’s liquidity needs will be largely determined by the success of
clinical adoption within the installed base of robotic magnetic navigation systems as well as by new placements of capital systems.
The Company also may consider raising cash through capital transactions, which could include either debt or equity financing.
Financial
Instruments
Financial
instruments consist of cash and cash equivalents, accounts receivable, accounts payable, and debt. The carrying value of such
amounts reported at the applicable balance sheet dates approximates fair value.
The
Company measures certain financial assets and liabilities at fair value on a recurring basis. General accounting principles for
fair value measurement established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities
(“Level 1”) and the lowest priority to unobservable inputs (“Level 3”).
Revenue
and Costs of Revenue
The
Company adopted Accounting Standards Codification Topic 606 (“ASC 606”),
Revenue from Contracts with Customers,
on January 1, 2018.
We
generate revenue from initial capital sales of systems as well as recurring revenue from the sale of our proprietary disposable
devices, from royalties paid to the Company on the sale by Biosense Webster of co-developed catheters, and from other recurring
revenue including ongoing software updates and service contracts.
We
account for a contract with a customer when there is a legally enforceable contract between the Company and the customer, the
rights of the parties are identified, the contract has commercial substance, and collectability of the contract consideration
is probable. We record our revenue based on consideration specified in the contract with each customer, net of any taxes collected
from customers that are remitted to government authorities.
For
contracts containing multiple products and services the Company accounts for individual products and services as separate performance
obligations if they are distinct, which is if a product or service is separately identifiable from other items in the bundled
package, and if a customer can benefit from it on its own or with other resources that are readily available to the customer.
The Company recognizes revenues as the performance obligations are satisfied by transferring control of the product or service
to a customer.
For
multiple-element arrangements, revenue is allocated to each performance obligation based on its relative standalone selling price.
Standalone selling prices are based on observable prices at which the Company separately sells the products or services. If a
standalone selling price is not directly observable, then the Company estimates the standalone selling price considering market
conditions and entity-specific factors including, but not limited to, features and functionality of the products and services
and market conditions. The Company regularly reviews standalone selling prices and updates these estimates as necessary.
Systems:
Contracts
related to the sale of systems typically contain separate obligations for the delivery of system(s), installation and an implied
obligation to provide software enhancements if and when available for one year following installation. Revenue is recognized when
the Company transfers control to the customer, which is generally at the point when acceptance occurs that indicates customer
acknowledgment of delivery or installation, depending on the terms of the arrangement. Revenue from the implied obligation to
deliver software enhancements if and when available is recognized ratably over the first year following installation of the system
as the customer receives the right to software updates throughout the period and is included in Other Recurring Revenue. The Company’s
system contracts generally do not provide a right of return. Systems are generally covered by a one-year assurance type warranty;
warranty costs were not material for the periods presented. Revenue from system delivery and installation represented less than
1% of revenue for the three months ended March 31, 2019 and 2018.
Disposables:
Revenue
from sales of disposable products is recognized when control is transferred to the customers, which generally occurs at the time
of shipment, but can also occur at the time of delivery depending on the customer arrangement. Disposable products are covered
by an assurance type warranty that provides for the return of defective products. Warranty costs were not material for the periods
presented. Disposable revenue represented 36% and 37% of revenue for the three months ended March 31, 2019 and 2018, respectively.
Royalty:
The
Company is entitled to royalty payments from Biosense Webster, payable quarterly based on net revenues from sales of the co-developed
catheters. Royalty revenue from the co-developed catheters represented 11% and 10% of revenue for the three months ended March
31, 2019 and 2018.
Other
Recurring Revenue:
Other
recurring revenue includes revenue from product maintenance plans, other post warranty maintenance, and the implied obligation
to provide software enhancements if and when available for one year following installation. Revenue from services and software
enhancements is deferred and amortized over the service or update period, which is typically one year. Revenue related to services
performed on a time-and-materials basis is recognized when performed. Other recurring revenue represented 50% and 53% of revenue
for the three months ended March 31, 2019 and 2018, respectively.
Sublease
Revenue:
The
adoption of new lease accounting guidance as of January 1, 2019 requires the Company to record sublease income as revenue beginning
with three months ended March 31, 2019. Sublease revenue represented 3% and 0% of revenue for the three months ended March 31,
2019 and 2018, respectively.
|
|
Three
Months Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Systems
|
|
$
|
58,051
|
|
|
$
|
17,275
|
|
Disposables, service and accessories
|
|
|
6,710,759
|
|
|
|
6,954,357
|
|
Sublease
|
|
|
241,065
|
|
|
|
—
|
|
Total revenue
|
|
$
|
7,009,875
|
|
|
$
|
6,971,632
|
|
Transaction
price allocated to remaining performance obligations relates to amounts allocated to products and services for which the revenue
has not yet been recognized. A significant portion of this amount relates to the Company’s systems contracts and obligations
that will be recognized as revenue in future periods. These obligations are generally satisfied within two years after contract
inception but may occasionally extend longer. Transaction price representing revenue to be earned on remaining performance obligations
on system contracts was approximately $2.7 million as of March 31, 2019. Performance obligations arising from contracts for disposables,
royalty and service are generally expected to be satisfied within one year after entering into the contract.
The
following information summarizes the Company’s contract assets and liabilities:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
Contract Assets - Unbilled
Receivables
|
|
$
|
268,711
|
|
|
$
|
251,867
|
|
|
|
|
|
|
|
|
|
|
Customer deposits
|
|
|
428,595
|
|
|
|
487,086
|
|
Product shipped, revenue deferred
|
|
|
645,199
|
|
|
|
645,199
|
|
Deferred service
and license fees
|
|
|
4,976,628
|
|
|
|
5,100,402
|
|
Total deferred revenue
|
|
|
6,050,422
|
|
|
|
6,232,687
|
|
Less: Long-term
deferred revenue
|
|
|
(404,607
|
)
|
|
|
(407,151
|
)
|
Total current deferred revenue
|
|
$
|
5,645,815
|
|
|
$
|
5,825,536
|
|
The
Company invoices its customers based on the billing schedules in its sales arrangements. Contract assets primarily represent the
difference between the revenue that was earned but not billed on service contracts and revenue from system contracts that was
recognized based on the relative selling price of the related performance obligations and the contractual billing terms in the
arrangements. Deferred revenue is primarily related to service contracts, for which the service fees are billed up-front, generally
quarterly or annually, and for amounts billed in advance for system contracts for which some performance obligations remain outstanding.
For service contracts, the associated deferred revenue is generally recognized ratably over the service period. For system contracts,
the associated deferred revenue is recognized when the remaining performance obligations are satisfied. The Company did not have
any impairment losses on its contract assets for the periods presented.
Revenue
recognized for the three months ended March 31, 2019 and 2018, that was included in the deferred revenue balance at the beginning
of each reporting period was $2.9 million and $2.7 million respectively.
Assets
Recognized from the Costs to Obtain a Contract with a Customer
The
Company has determined that sales incentive programs for the Company’s sales team meet the requirements to be capitalized
as the Company expects to generate future economic benefits from the related revenue generating contracts after the initial capital
sales transaction. The costs capitalized as contract acquisition costs included in prepaid expenses and other assets, in the Company’s
balance sheet was $0.3 million as of March 31, 2019. The Company did not incur any impairment losses during any of the periods
presented.
Costs
of systems revenue include direct product costs, installation labor and other costs, estimated warranty costs, and initial training
and product maintenance costs. These costs are recorded at the time of sale. Costs of disposable revenue include direct product
costs and estimated warranty costs and are recorded at the time of sale. Cost of revenue from services and license fees are recorded
when incurred.
Share-Based
Compensation
The
Company accounts for its grants of stock options, stock appreciation rights, restricted shares, and restricted stock units and
for its employee stock purchase plan in accordance with the provisions of general accounting principles for share-based payments.
These accounting principles require the determination of the fair value of the share-based compensation at the grant date and
the recognition of the related expense over the period in which the share-based compensation vests.
The
Company utilizes the Black-Scholes valuation model to determine the fair value of stock options and stock appreciation rights
at the date of grant. The resulting compensation expense is recognized over the requisite service period, which is generally four
years. Restricted shares and units granted to employees are valued at the fair market value at the date of grant. The Company
amortizes the fair market value to expense over the service period. If the shares are subject to performance objectives, the resulting
compensation expense is amortized over the anticipated vesting period and is subject to adjustment based on the actual achievement
of objectives.
Net
Income (Loss) per Common Share (“EPS”)
Basic
net income (loss) per share is computed by dividing net income (loss) attributable to common shareholders by the number of common
shares outstanding during the period. In periods where there is net income, we apply the two-class method to calculate basic and
diluted net income (loss) per share of common stock, as our Convertible Preferred Stock is a participating security. The two-class
method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would
have been available to common stockholders. In periods where there is a net loss, the two-class method of computing earnings per
share does not apply as our Convertible Preferred Stock does not contractually participate in our losses. We compute diluted net
income (loss) per common share using net income (loss) as the “control number” in determining whether potential common
shares are dilutive, after giving consideration to all potentially dilutive common shares, including stock options, warrants,
unvested restricted stock units outstanding during the period and potential issuance of stock upon the conversion of our Convertible
Preferred Stock issued and outstanding during the period, except where the effect of such securities would be antidilutive.
The
following table sets forth the computation of basic and diluted EPS:
|
|
Three
months ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Net income (loss)
|
|
$
|
(2,122,820
|
)
|
|
$
|
1,435,229
|
|
Cumulative dividend on convertible preferred
stock
|
|
|
(353,510
|
)
|
|
|
(353,589
|
)
|
Net loss attributable
to convertible preferred stock
|
|
|
—
|
|
|
|
(610,280
|
)
|
Net income (loss) attributable to common
stockholders
|
|
$
|
(2,476,330
|
)
|
|
$
|
471,360
|
|
|
|
|
|
|
|
|
|
|
Share used for basic EPS-weighted average shares
|
|
|
59,196,652
|
|
|
|
30,957,648
|
|
Restricted Stock Units
|
|
|
—
|
|
|
|
292,891
|
|
Warrants
|
|
|
—
|
|
|
|
1,872,059
|
|
Weighted average number of common shares and equivalents:
|
|
|
59,196,652
|
|
|
|
33,122,598
|
|
Basic EPS
|
|
$
|
(0.04
|
)
|
|
$
|
0.02
|
|
Diluted EPS
|
|
$
|
(0.04
|
)
|
|
$
|
0.01
|
|
The
Company did not include any portion of unearned restricted stock units, outstanding options, stock appreciation rights, or warrants
in the calculation of diluted loss per common share for the three months ended March 31, 2019 because all such securities are
anti-dilutive.
The following potential common shares were excluded from diluted EPS for
the three months ended March 31, 2018 as they were antidilutive: 1,236,445 stock options and stock appreciation rights, 280,560
restricted stock units, and 1,077,255 warrants. The Company had no unearned restricted shares during either period.
As
of March 31, 2019, the Company had 2,131,513 shares of common stock issuable upon the exercise of outstanding options and stock
appreciation rights at a weighted average exercise price of $2.32 per share, 1,107,689 shares of common stock issuable upon the
exercise of outstanding warrants at a weighted average exercise price of $0.70 per share, 42,252,248 shares of common stock issuable
upon the conversion of Series A Convertible Preferred Stock and accumulated dividends, and 688,687 shares of unvested restricted
share units.
Recently
Issued Accounting Pronouncements
Effective
January 1, 2019, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update
(“ASU”) 2016-02,
Leases (Topic 842)
, and all subsequent ASUs that modified Topic 842, which sets out the principles
for the recognition, measurement, presentation, and disclosure of leases for both parties to a contract (i.e. lessees and lessors).
The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on
the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification determines whether
lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively.
A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months
regardless of their classification. Leases with a term of 12 months or less are accounted for similar to previous guidance for
operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to
previous guidance for sales-type leases, direct financing leases and operating leases. Accounting Standards Codification (“ASC
842”) supersedes the previous lease standard, ASC 840 Leases. The Company adopted ASU 2016-02 using the alternative modified
transition method. Under this method, the cumulative-effect adjustment to the opening balance of retained earnings is recognized
on the date of adoption with prior periods not restated. There was no cumulative-effect adjustment recorded on January 1, 2019.
The new standard provides a number of optional practical expedients in transition. The Company elected the ‘package of practical
expedients’, which permits it not to reassess under the new standard its prior conclusions about lease identification, lease
classification, and initial direct costs. In addition, the new standard provides practical expedients for an entity’s ongoing
accounting. The Company elected the practical expedients for ongoing accounting of (1) the election for certain classes of underlying
asset to not separate non-lease components from lease components and (2) the election for short-term lease recognition exemption
for all leases that qualify. For the Company, as a lessee, the primary impact of adopting ASC 842 was the balance sheet recognition
of the right-of-use asset and lease liability for the operating leases. Under the new standard, as a lessor, the Company will
record the sublease proceeds as Sublease Revenue and the related cost as Sublease Cost of Goods Sold. See Note 6 for additional
details.
3.
Inventories
Inventories
consist of the following:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
2,657,958
|
|
|
$
|
2,686,870
|
|
Work in process
|
|
|
133,218
|
|
|
|
2,594
|
|
Finished goods
|
|
|
2,944,522
|
|
|
|
2,963,013
|
|
Reserve for obsolescence
|
|
|
(4,426,564
|
)
|
|
|
(4,460,811
|
)
|
Total inventory
|
|
$
|
1,309,134
|
|
|
$
|
1,191,666
|
|
4.
Prepaid Expenses and Other Assets
Prepaid
expenses and other assets consist of the following:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
$
|
434,560
|
|
|
$
|
401,972
|
|
Prepaid commissions
|
|
|
271,664
|
|
|
|
304,585
|
|
Deposits
|
|
|
237,878
|
|
|
|
455,508
|
|
Total prepaid expenses and other assets
|
|
|
944,102
|
|
|
|
1,162,065
|
|
Less: Noncurrent
prepaid expenses and other assets
|
|
|
(170,088
|
)
|
|
|
(198,365
|
)
|
Total current
prepaid expenses and other assets
|
|
$
|
774,014
|
|
|
$
|
963,700
|
|
5.
Property and Equipment
Property
and equipment consist of the following:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
|
|
|
|
|
|
|
Equipment
|
|
$
|
6,841,498
|
|
|
$
|
6,831,665
|
|
Leasehold improvements
|
|
|
2,592,339
|
|
|
|
2,592,339
|
|
|
|
|
9,433,837
|
|
|
|
9,424,004
|
|
Less: Accumulated
depreciation
|
|
|
(9,105,223
|
)
|
|
|
(9,080,311
|
)
|
Net property
and equipment
|
|
$
|
328,614
|
|
|
$
|
343,693
|
|
6.
Leases
A
lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant
or equipment for a period of time in exchange for consideration. On January 1, 2019, the Company adopted ASU No. 2016-02
“Leases”
(Topic 842)
and all subsequent ASUs that modified Topic 842. The Company determines if an arrangement contains a lease at
inception. For the Company, Accounting Standards Codification (“ASC 842”) primarily affected the accounting treatment
for operating lease agreements in which the Company is the lessee.
The
Company leases its facilities under operating leases, which were previously not recognized on the Company’s balance sheets.
With the adoption of ASC 842, operating lease agreements are required to be recognized on the balance sheet as a right-of-use
(“ROU”) asset and a corresponding lease liability. These leases do not have significant rent escalation holidays,
concessions, leasehold improvement incentives, or other build-out clauses. Further, the leases do not contain contingent rent
provisions. Many of our leases include both lease (i.e., fixed payments including rent, taxes, and insurance costs) and
non-lease components (i.e., common-area or other maintenance costs) which are accounted for as a single lease component
as we have elected the practical expedient to group lease and non-lease components for all leases. A portion of our principal
executive office is subleased to a third party through 2021. The sublease does not have significant rent escalation holidays,
concessions, leasehold improvement incentives, or other build-out clauses. In addition, the sublease does not contain contingent
rent provisions nor are there options to extend or terminate the sublease.
The
Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception,
the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term
in the calculation of the ROU asset and lease liability. The Company elected not to include short-term leases (i.e., leases with
initial terms of twelve months or less) on the balance sheet.
The
calculated amounts of the ROU assets and lease liabilities are impacted by the length of the lease term and the discount rate
used to calculate the present value of the minimum lease payments. ASC 842 requires the use of the discount rate implicit in the
lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing
rate at lease inception. At March 31, 2019, the weighted average discount rate for operating leases was 9.0% and the weighted
average remaining lease term for operating lease term is 2.75 years.
The
following table represents lease costs and other lease information.
|
|
Three
Months Ended
|
|
|
|
March
31, 2019
|
|
|
|
|
|
Operating lease cost
|
|
$
|
585,586
|
|
Short-term lease cost
|
|
|
19,809
|
|
Sublease income
|
|
|
(241,065
|
)
|
Total lease cost
|
|
$
|
364,330
|
|
|
|
|
|
|
Cash paid within operating cash flows
|
|
$
|
615,266
|
|
The
initial recognition of the right of use assets was $6.2 million. Variable lease costs consist primarily of taxes, insurance, and
common area or other maintenance costs for our leased facilities and equipment which are paid based on actual costs incurred.
Future
minimum payments for operating leases with initial or remaining terms of one year or more as of March 31, 2019, excluding sublease
income, were as follows:
|
|
March
31, 2019
|
|
|
|
|
|
2019
|
|
$
|
1,717,837
|
|
2020
|
|
|
2,339,810
|
|
2021
|
|
|
2,382,661
|
|
2022 and thereafter
|
|
|
-
|
|
Total lease payments
|
|
$
|
6,440,308
|
|
Less: Interest
|
|
|
(846,934
|
)
|
Present value
of lease liabilities
|
|
$
|
5,593,374
|
|
The
undiscounted future cash flows to be received under the sublease are $0.7 million in 2019, $1.0 million in 2020 and $1.0 million
in 2021.
7.
Accrued Liabilities
Accrued
liabilities consist of the following:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
|
|
|
|
|
|
|
Accrued
salaries, bonus, and benefits
|
|
$
|
1,182,958
|
|
|
$
|
1,491,844
|
|
Accrued
licenses and maintenance fees
|
|
|
483,879
|
|
|
|
576,598
|
|
Accrued
warranties
|
|
|
136,946
|
|
|
|
149,464
|
|
Accrued
taxes
|
|
|
188,074
|
|
|
|
251,988
|
|
Accrued
professional services
|
|
|
765,948
|
|
|
|
430,088
|
|
Other
|
|
|
329,523
|
|
|
|
383
,960
|
|
Total
accrued liabilities
|
|
|
3,087,328
|
|
|
|
3,283,942
|
|
Less:
Long term accrued liabilities
|
|
|
(813,641
|
)
|
|
|
(641,461
|
)
|
Total
current accrued liabilities
|
|
$
|
2,273,687
|
|
|
$
|
2,642,481
|
|
8.
Long-Term Debt and Credit Facilities
The
Company had a working capital line of credit with its primary lender, Silicon Valley Bank, since 2004. The working capital line
of credit matured on April 25, 2019. The revolving line of credit was secured by substantially all of the Company’s assets.
The maximum available under the line was $5.0 million subject to the value of collateralized assets and the interest rate was
equal to the prime rate subject to a floor of 4.5%. The Company was required under the revolving line of credit to maintain its
primary operating account and the majority of its cash and investment balances in accounts with its primary lender.
As
of March 31, 2019, the Company had no outstanding balance under the revolving line of credit. Draws on the line of credit were
made based on the borrowing capacity one week in arrears. As of March 31, 2019, the Company had a borrowing capacity of $3.3 million
based on the Company’s collateralized assets. The Company’s total liquidity as of March 31, 2019, was $12.3 million
which included cash and cash equivalents of $9.0 million.
9.
Convertible Preferred Stock and Stockholders’ Equity
The
holders of common stock are entitled to one vote for each share held and to receive dividends whenever funds are legally available
and when declared by the Board of Directors subject to the rights of holders of all classes of stock having priority rights as
dividends and the conditions of the revolving line of credit agreement. No dividends have been declared or paid as of March 31,
2019.
Convertible
Preferred Stock and Warrants
In
September 2016, the Company issued 24,000 shares of Series A Convertible Preferred Stock, par value $0.001 with a stated value
of $1,000 per share which are convertible into shares of the Company’s common stock at an initial conversion rate of $0.65
per share and (ii) warrants to purchase an aggregate of 36,923,078 shares of common stock. The convertible preferred shares are
entitled to vote on an as-converted basis with the common stock, subject to specified beneficial ownership issuance limitations.
The convertible preferred shares bear dividends at a rate of six percent (6%) per annum, which are cumulative and accrue daily
from the date of issuance on the $1,000 stated value. Such dividends will not be paid in cash except in connection with any liquidation,
dissolution or winding up of the Company or any redemption of the convertible preferred shares. Each holder of convertible preferred
shares has the right to require us to redeem such holder’s convertible preferred shares upon the occurrence of specified
events, which include certain business combinations, the sale of all or substantially all of the Company’s assets, or the
sale of more than 50% of the outstanding shares of the Company’s common stock. In addition, the Company has the right to
redeem the convertible preferred shares in the event of a defined change of control. The convertible preferred shares rank senior
to our common stock as to distributions and payments upon the liquidation, dissolution, and winding up of the Company. Since the
convertible preferred shares are subject to conditions for redemption that are outside the Company’s control, the convertible
preferred shares are presently reported in the mezzanine section of the balance sheet.
The
warrants issued in conjunction with the convertible preferred stock (the “SPA Warrants”) have an exercise price equal
to $0.70 per share subject to adjustments as provided under the terms of the warrants. The warrants are exercisable through September
29, 2021, subject to specified beneficial ownership issuance limitations. The warrants were originally puttable upon the occurrence
of certain events outside of the Company’s control, and were classified as liabilities under Accounting Standards Codification
(“ASC”) Topic 480-10. The calculated fair value of the warrants was periodically re-measured with any changes in value
recognized in “Other income (expense)” in the Statements of Operations.
The
warrants were modified on February 28, 2018 to allow for a reduction in the exercise price from $0.70 per share to $0.28 per share
for a period between March 1, 2018 and March 5, 2018. Any holder who exercised warrants at the reduced strike price was required
to enter into a lock-up agreement with the Company agreeing not to sell the warrants or the common shares received upon exercise
of the warrants for a period of 18 months following March 12, 2018. Additionally, the beneficial ownership limitation related
to the warrants was modified and the right of holders to require the Company to redeem their SPA Warrants in exchange for cash
in certain circumstances was eliminated. Following these modifications, the warrants were no longer subject to liability accounting
and were reclassified to equity. During the restricted exercise period, Stereotaxis received exercise notices for 35,791,927 warrants
and received an aggregate of $10.0 million in cash from the warrant exercise. As a result of these transactions, total stockholders’
equity increased by $27 million and common shares outstanding increased by 35,791,927 shares. The Consent and Amendment and the
Amended and Restated Form of Warrants are available in a Form 8-K filed with the Securities and Exchange Commission on March 6,
2018.
Stock
Award Plans
The
Company has various stock plans that permit the Company to provide incentives to employees and directors of the Company in the
form of equity compensation. In July 2012, the Compensation Committee of the Board of Directors adopted the 2012 Stock Incentive
Plan (the “Plan”) which was subsequently approved by the Company’s shareholders. This plan replaced the 2002
Stock Incentive Plan which expired on March 25, 2012.
On
June 5, 2013, June 10, 2014, May 24, 2016, and May 23, 2017, the shareholders approved amendments to the Plan, which were previously
approved and adopted by the Compensation Committee of the Board of Directors of the Company. Under each of the amendments on June
5, 2013 and June 10, 2014, the number of shares authorized for issuance under the Plan was increased by one million shares. The
amendment on May 24, 2016 increased the number of shares authorized for issuance under the Plan by 1.5 million shares, and the
amendment on May 23, 2017 increased the number of shares authorized for issuance under the Plan by 4.0 million shares. At March
31, 2019, the Company had 3,246,524 remaining shares of the Company’s common stock to provide for current and future grants
under its various equity plans.
At
March 31, 2019, the total compensation cost related to options, stock appreciation rights, and non-vested stock granted to employees
under the Company’s stock award plans but not yet recognized was approximately $2.2 million. This cost will be amortized
over a period of up to four years over the underlying estimated service periods and will be adjusted for subsequent changes in
actual forfeitures and anticipated vesting periods.
A
summary of the option and stock appreciation rights activity for the three month period ended March 31, 2019 is as follows:
|
|
Number
of Options/SARs
|
|
|
Range
of Exercise Price
|
|
|
Weighted
Average Exercise Price per Share
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2018
|
|
|
1,165,086
|
|
|
|
$0.74
- $43.90
|
|
|
$
|
2.54
|
|
Granted
|
|
|
982,000
|
|
|
|
$
2.03
|
|
|
$
|
2.03
|
|
Exercised
|
|
|
(9,625
|
)
|
|
|
$0.74
- $0.83
|
|
|
$
|
0.74
|
|
Forfeited
|
|
|
(5,948
|
)
|
|
|
$0.74
- $4.04
|
|
|
$
|
1.59
|
|
Outstanding, March 31, 2019
|
|
|
2,131,513
|
|
|
|
$0.74
- $43.90
|
|
|
$
|
2.32
|
|
A
summary of the restricted stock unit activity for the three month period ended March 31, 2019 is as follows:
|
|
Number
of Restricted
Stock Units
|
|
|
Weighted
Average Grant Date Fair Value per Unit
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2018
|
|
|
647,649
|
|
|
$
|
0.83
|
|
Granted
|
|
|
210,000
|
|
|
$
|
1.19
|
|
Vested
|
|
|
(166,962
|
)
|
|
$
|
1.12
|
|
Forfeited
|
|
|
(2,000
|
)
|
|
$
|
0.72
|
|
Outstanding, March 31, 2019
|
|
|
688,687
|
|
|
$
|
0.87
|
|
10.
Product Warranty Provisions
The
Company’s standard policy is to warrant all capital systems against defects in material or workmanship for one year
following installation. The Company’s estimate of costs to service the warranty obligations is based on historical experience
and current product performance trends. A regular review of warranty obligations is performed to determine the adequacy of the
reserve and adjustments are made to the estimated warranty liability as appropriate.
Accrued
warranty, which is included in other accrued liabilities, consists of the following:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
Warranty accrual, beginning
of the fiscal period
|
|
$
|
149,464
|
|
|
$
|
164,365
|
|
Accrual adjustment for product warranty
|
|
|
17,135
|
|
|
|
34,253
|
|
Payments made
|
|
|
(29,653
|
)
|
|
|
(49,154
|
)
|
Warranty accrual,
end of the fiscal period
|
|
$
|
136,946
|
|
|
$
|
149,464
|
|
11.
Commitments and Contingencies
The
Company at times becomes a party to claims in the ordinary course of business. Management believes that the ultimate resolution
of pending or threatened proceedings will not have a material effect on the financial position, results of operations or liquidity
of the Company.
12.
Subsequent Events
None.