Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements. Actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those discussed in "Risk Factors" and elsewhere in this Annual Report. See also "Cautionary Note Regarding Forward-Looking Statements."
Overview
The following discussion highlights the results of our operations and the principal factors that have affected our financial condition as well as our liquidity and capital resources for the periods described, and provides information that management believes is relevant for an assessment and understanding of our financial condition and results of operations presented herein. The following discussion and analysis is based on our audited consolidated financial statements contained in this Annual Report on Form 10-K, which have been prepared in accordance with generally accepted accounting principles in the United States. You should read the discussion and analysis together with such financial statements and the related notes thereto.
Operational Highlights
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•
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In January 2019, we entered into the JV Agreement to develop and serve the exoskeleton market in China and other Asian markets through the China JV and to create a global exoskeleton manufacturing center.
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•
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In July 2019, we announced the expansion of our medical exoskeleton portfolio with an upper extremity rehabilitation device called EksoUE. Our EksoUE’s wearable upper body exoskeleton assists patients with a broad range of upper extremity impairments and aims to provide them with a wider active range of motion and increased endurance for rehabilitation sessions of higher intensity.
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•
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In August 2019, we introduced our next generation lower extremity rehabilitation exoskeleton, EksoNR, which succeeds our EksoGT. Our EksoNR, is used as a rehabilitation tool to allow physicians and therapists to rehabilitate patients who have suffered a stroke or spinal cord injury. With its unique features designed specifically for hospitals and its proprietary SmartAssist software, EksoNR allows for the early mobilization of patients, enabling increased endurance during rehabilitation sessions through higher step counts and for longer periods. The intent is to allow the patient’s central nervous system to take advantage of a patient’s neuroplasticity to maximize the patient’s recovery.
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•
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In October 2019, we entered into a Technology License Agreement, with the China JV pursuant to the terms of the JV Agreement. Pursuant to the Technology License Agreement, we granted a nontransferable, non-sublicensable, irrevocable, and exclusive right and license to patented and non-patented manufacturing technologies involved in the manufacture of certain products for the China JV. In the fourth quarter of 2019, we completed technology transfer for EksoVest (but not transfer of patented technologies).
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•
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In 2019, we booked a total of 98 EksoGT and EksoNR units, 17 of which were rental units and 25 of which were previously rented units that were converted to sales.
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•
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In February 2020, we announced the worldwide launch of our upgraded EksoPulse platform, an innovative cloud-based information technology platform that measures and analyzes progress using the EksoNR robotic exoskeleton. The improved analytics system provides an easy-to-use dashboard to chart activity in rehabilitation sessions, enhancing the clinician, institutional, and patient experience of the most clinically used exoskeleton.
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2019 Financing Activities
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•
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In January 2019, and in connection with the China JV, one of the Joint Venture Partner affiliates purchased an aggregate of 3,067,485 shares of our common stock at a price per share equal to $1.63, for aggregate proceeds to us of $5.0 million.
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•
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In May 2019, we sold 6,666,667 shares of our common stock and warrants to purchase up to 6,666,667 shares of our common stock, or May 2019 Warrants, at a combined public offering price of $1.50 per share for proceeds, net of expenses and underwriting discount and commission, of $9.0 million.
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•
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In December 2019, we sold 11,111,116 shares of our common stock and warrants to purchase up to 8,333,337 shares of our common stock, or December 2019 Warrants, at a combined price of $0.45 per share for proceeds, net of placement agent fees and expenses, of $4.2 million. Additional details discussed in Note 13 in the notes to our consolidated financial statements, which appear under Item 8 in this Annual Report on Form 10-K, under the caption Capitalization and Equity Structure – Warrants.
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•
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Since inception to December 31, 2019, we have sold 4.2 million shares of our common stock under our “at the market offering” program at an average price of $1.86 per share, for aggregate proceeds of $7.2 million, net of commission and issuance costs, to us.
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Business
We design, develop and sell exoskeleton technology to augment human strength, endurance and mobility. Our exoskeleton technology serves multiple markets and can be used both by able-bodied persons as well as by persons with physical disabilities. We have sold or leased devices that (i) enable individuals with neurological conditions affecting gait (stroke and spinal cord injury) to rehabilitate, and in some cases, to walk again, (ii) assist individuals with a broad range of upper extremity impairments, and (iii) allow industrial workers to perform difficult repetitive work for extended periods.
We believe that the commercial opportunity for exoskeleton technology adoption is accelerating as a result of recent advancements in material technologies, electronic and electrical engineering, control technologies, and sensor and software development. Taken individually, many of these advancements have become ubiquitous in peoples’ everyday lives. We believe that we have learned how to integrate these existing technologies and wrap the result around a human being efficiently, elegantly and safely, supported by an industry leading intellectual property portfolio. We further believe that we can do so across a broad spectrum of applications, from persons with lower limb paralysis to able-bodied users.
EksoHealth
Today, the focus of our healthcare business is on rehabilitation robotics. We are leveraging our patented exoskeleton technology to develop and market products intended to enable patients with some form of lower limb impairment to rehabilitate earlier and with better outcomes than the current standard of care.
Our latest product, the EksoNR, is a wearable bionic suit that allows our hospital and rehabilitation customers to provide in-patients and out-patients with SCI and hemiplegia due to stroke the ability to stand and walk over ground with a full weight-bearing, reciprocal gait using a cane, crutches or a walker under the supervision of a physical therapist. Walking is achieved by a user shifting their weight, balancing to walk as an unimpaired person would and initiating steps when safe to progress forward. If needed, some patients utilize sensors in the device which in turn initiate steps. Battery-powered motors drive the legs, detecting the deficient neuromuscular function and providing the level of assistance necessary for a user to complete their step. Users can expect to walk with aid from the device the first time they put on the EksoNR exoskeleton (after passing an assessment). Physical therapists can transfer patients to or from their wheelchair and don or remove the EksoNR in less than ten minutes.
The EksoNR is used by customers in both in-patient and out-patient settings. Our customers believe that for patients with some motor ability preserved (for example, after a stroke or an incomplete SCI), the EksoNR exoskeleton offers unique benefits to help therapists teach proper step patterns and weight shifts, allowing patients to potentially mobilize earlier and ultimately to walk again. By allowing individuals to stand and walk in a full weight-bearing setting, early clinical evidence is also beginning to show that EksoNR may offer potential healthcare benefits (including for patients with complete SCI) including reducing post-injury medical costs through reduction in secondary complications such as pressure sores, urinary tract infections, bowel problems, pneumonia and other respiratory issues, bone loss/osteoporosis, cardiovascular disease and psychological disorders.
In 2019, we entered the market for upper extremity rehabilitation devices with the EksoUE. EksoUE is a wearable assistive device that helps reduce the effect of gravity on a patient’s shoulders and arms. While worn, EksoUE allows longer, more intense rehabilitation sessions by reducing fatigue, while also allowing the patient to achieve a larger active range of motion. Similar to EksoNR, EksoUE is a tool used by trained clinicians, primarily physical and occupational therapists, during rehabilitation sessions. Based on the same technology that is used in our industrial products, EksoUE uses a passive (non-motorized) design, which avoids the need to charge or replace batteries and other electrical systems.
EksoUE shipments in 2019 have been to key rehabilitation centers for clinical feedback. In 2020, we plan to launch EksoUE in the broader rehabilitation market in the U.S., EMEA and APAC.
EksoWorks
Our EksoVest is an upper body exoskeleton that elevates and supports a worker's arms to assist them with tasks ranging from chest height to overhead. In 2019, we are focusing on increasing sales of the EksoVest and the support arm, EksoZeroG, by pursuing alternative channels, such as rental agreements with construction equipment and heavy tool providers and working with automotive and related manufacturers to roll out our product(s) globally within their assembly operations. In addition, we believe that there
is additional mid-to-long-term potential in the industrial markets, and accordingly, we will continue our development efforts to expand our EksoWorks product offerings.
Critical Accounting Policies, Estimates, and Judgments
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We continually evaluate our estimates and judgments. We base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known. Besides the estimates identified below that are considered critical, we make many other accounting estimates in preparing our financial statements and related disclosures. All estimates, whether or not deemed critical, affect reported amounts of assets, liabilities, revenues and expenses, as well as disclosures of contingent liabilities. These estimates and judgments are also based on historical experience and other factors that are believed to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known, even for estimates and judgments that are not deemed critical.
Revenue Recognition
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, which when capable of being distinct, are accounted for as separate performance obligations.
Our EksoHealth segment revenue is primarily generated through the sale and rental of our EksoNR and associated software (SmartAssist and VariableAssist), sale of accessories, and support and maintenance contracts (Ekso Care). Revenue from EksoHealth sales is recognized at the point in time when control of the product transfers to the customer. Transfer of control generally occurs upon shipment from our facility for sales of our EksoNR, software, and accessories. Ekso Care support and maintenance contracts extend coverage beyond our standard warranty agreements. The separately priced Ekso Care contracts range from 12 to 48 months. We receive payment at the inception of the contract and recognize revenue over the term of the agreement. Revenue from medical device rentals is recognized over the lease term, typically over 12 months.
Our EksoWorks segment revenue is generated by the sales of our EksoVest and our EksoZeroG. Revenue from EksoWorks device sales is recognized at the point in time when control of the product transfers to the customer. Transfer of control generally occurs upon shipment from our facility.
Inventory valuation
Inventories are recorded at the lower of cost or net realizable value. Cost is computed using standard cost, which approximates actual cost on a first-in, first-out basis. Materials from vendors are received and recorded as raw material. Once the raw materials are incorporated in the fabrication of the product, the related value of the component is recorded as work in progress, or WIP. Direct and indirect labor and applicable overhead costs are also allocated and recorded to WIP inventory. Finished goods are comprised of completed products that are ready for customer shipment. We periodically evaluate the carrying value of inventory on hand for potential excess amounts over sales and forecasted demand. Excess and obsolete inventories identified, if any, are recorded as an inventory impairment charge to the consolidated statements of operations and comprehensive loss. Our estimate of write-downs for excess and obsolete inventory is based on a detailed analysis of on-hand inventory and purchase commitments in excess of forecasted demand. Subsequent disposals of inventories are recorded as a reduction of an inventory reserve.
Stock-based Compensation
We measure stock-based compensation expense for certain stock-based awards made to employees and directors based on the estimated fair value of the award on the date of grant using the Black-Scholes option-pricing model, or the Black-Scholes Model, and recognize the fair value on a straight-line basis over the requisite service periods of the awards.
Our determination of the fair value of stock options on the date of grant using the Black-Scholes Model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. We adopted the simplified method of estimating the expected term pursuant to SEC Staff Accounting Bulletin Topic 14. On this basis, we estimate the expected term of options granted by taking the average of the vesting term and the contractual term of the option.
We have, from time to time, modified the terms of stock options granted to our employees. We account for the incremental increase in the fair value over the original award on the date of the modification as an expense for vested awards or over the remaining service (vesting) period for unvested awards. The incremental compensation cost is the excess of the fair value based measure of the modified award on the date of modification over the fair value of the original award immediately before the modification.
Warrant Valuation
We generally account for warrants issued in connection with debt and equity financings as a component of equity, unless the warrants include a conditional obligation to issue a variable number of shares or there is a deemed possibility that we may need to settle the warrants in cash.
Where there is a possibility that we may have to settle warrants in cash, we estimate the fair value of the issued warrants as a liability at each reporting date and record changes in the estimated fair value as a non-cash gain or loss in the consolidated statements of operations and comprehensive loss. The fair values of these warrants have been determined using the Black-Scholes option-pricing model (the “Black-Scholes Model”) and the Binomial Lattice model (the “Lattice Model”). The Black-Scholes Model requires inputs, such as the expected volatility, expected term, exercise price, risk-free interest rate, and the value of the underlying security. The Lattice Model provides for assumptions regarding expected volatility, expected term, exercise price, risk-free interest rates, the value of the underlying security, and the probability of and likely timing of a specific event within the period to maturity. These values are subject to a significant degree of judgment on our part. Our common stock price represents a significant input that affects the valuation of our warrants.
Business Combinations
We account for business combinations under the acquisition method of accounting in accordance with Accounting Standards Codification, or ASC, 805, Business Combinations, where the total purchase price is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values. The purchase price is allocated using the information currently available, and may be adjusted, up to one-year from the acquisition date, after obtaining more information regarding, among other things, asset valuations, liabilities assumed and revisions to preliminary estimates.
Contingent consideration, if any, is recorded at the acquisition date based upon the estimated fair value of the contingent payments. The fair value of the contingent consideration is re-measured each reporting period with any adjustments in fair value being recognized in our consolidated statement of operations and comprehensive loss.
The purchase price in excess of the fair value of the tangible and identified intangible assets acquired less liabilities assumed is recognized as goodwill.
Going Concern
We assess our ability to continue as a going concern at every interim and annual period in accordance with ASC 205-40, Presentation of Financial Statements – Going Concern. The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern.
Comparison of the year ended December 31, 2019 to the year ended December 31, 2018 (dollars in thousands):
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Years ended December 31,
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2019
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2018
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Change
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% Change
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Revenue
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$
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13,917
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$
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11,332
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$
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2,585
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23
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%
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Cost of revenue
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7,153
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|
|
7,023
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|
130
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|
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2
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%
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Gross profit
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6,764
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|
4,309
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|
2,455
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57
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%
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Gross profit %
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49
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%
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38
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%
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Operating expenses:
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Sales and marketing
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11,398
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13,827
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(2,429
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)
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(18
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)%
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Research and development
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4,596
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5,847
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(1,251
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)
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(21
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)%
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General and administrative
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7,409
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11,665
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(4,256
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)
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(36
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)%
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Total operating expenses
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23,403
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31,339
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(7,936
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)
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(25
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)%
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Loss from operations
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(16,639
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)
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|
(27,030
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)
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10,391
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(38
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)%
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Other income, net:
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Interest expense
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(384
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)
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|
(600
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)
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216
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|
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(36
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)%
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Finance cost associated with warrant issuance
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(1,096
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)
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—
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(1,096
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)
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nm(1)
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Gain on warrant liabilities
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6,376
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|
1,063
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|
|
5,313
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|
500
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%
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Loss on modification of warrants
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(257
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)
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—
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(257
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)
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nm(1)
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Other expense, net
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(132
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)
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(425
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)
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293
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(69
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)%
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Total other income, net
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4,507
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38
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4,469
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11,761
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%
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Net loss
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$
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(12,132
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)
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$
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(26,992
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)
|
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$
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14,860
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|
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(55
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)%
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(1) Not meaningful
Revenue
Revenue increased $2.6 million, or 23%, for the year ended December 31, 2019, compared to the same period of 2018. This increase was comprised of a $3.1 million increase in EksoHealth revenue due to an increased volume of device sales, including a significant increase in conversion of device rentals into sales, partially offset by a $0.5 million decrease in EksoWorks revenue primarily due to a decrease in volume of device sales.
Gross Profit
Gross profit increased $2.5 million, or 57%, for the year ended December 31, 2019, compared to the same period of 2018, primarily attributable to our EksoHealth business. We achieved higher average selling prices and lower production costs for our EksoGT and EksoNR devices.
Operating Expenses
Sales and marketing expenses decreased $2.4 million, or 18%, for the year ended December 31, 2019, compared to the same period of 2018, primarily due to the absence of severance and related expenses in the comparable period of 2018 associated with the departure of the former president of our EksoWorks business unit, our chief marketing officer and other marketing employees, a decrease in advertising and trade show activities, a decrease in clinical trial activities, and the absence of amortization expense related to intangible assets as intangible assets were fully amortized by December 31, 2018. The decrease in sales and marketing expenses were partially offset by an increase in commissions associated with the higher level of sales in 2019.
Research and development expenses decreased $1.3 million, or 21%, for the year ended December 31, 2019, compared to the same period of 2018, primarily due to lower employee compensation expense from decreased headcount in the EksoWorks business unit.
General and administrative expenses decreased $4.3 million, or 36%, for the year ended December 31, 2019, compared to the same period of 2018, primarily due to the absence of severance and related expenses in the comparable period of 2018 associated with former executive officers, lower external consulting costs associated with our business development activities in China, lower compensation expense from decreased headcount, and lower legal expenses.
Other Income, Net
Gain on revaluation of warrant liabilities of $6.4 million for the year ended December 31, 2019, related to warrants issued in 2019 and 2015. Gain on revaluation of warrant liabilities of $1.1 million for the year ended December 31, 2018, related to warrants issued in 2015. Gains and losses on revaluation of warrants are primarily driven by changes in our stock price.
Loss on modification of warrants of $0.3 million for the year ended December 31, 2019, was due to the reduction of the exercise price of the 2015 Warrants (refer to Note 13. Capitalization and Equity Structure in the notes to our consolidated financial statements). There was no comparable amount during the same period in 2018.
Warrant issuance expense of $1.1 million for the year ended December 31, 2019 was recorded in connection with our underwritten common stock and warrant financing in May 2019 and December 2019. We incurred $1.7 million in direct financing costs, which were allocated on a relative fair value basis between the common stock and warrant issuances, of which $1.1 million was allocated to warrants and expensed immediately. There was no comparable amount of warrant issuance expense for the same period in 2018.
Other expense, net decreased $0.3 million, or 69%, for the year ended December 31, 2019, compared to the same period of 2018, due to unrealized gains and losses on foreign currency revaluations of our inter-company monetary assets and liabilities.
Financial Condition, Liquidity and Capital Resources
Since our inception, we have devoted substantially all of our efforts toward the development of exoskeletons for the medical and industrial markets, toward the commercialization of medical exoskeletons to rehabilitation centers and toward raising capital. We have financed our operations primarily through the issuance and sale of equity securities for cash consideration and through bank debt.
Liquidity and Capital Resources
At December 31, 2019, we had working capital of $11.0 million, compared to working capital of $4.9 million at December 31, 2018. The increase in working capital is primarily due to higher cash balance from equity financings and an increase in accounts receivable due to an increase in sales. Our cash and cash equivalents as of December 31, 2019 consisted of bank deposits with third party financial institutions. As of December 31, 2019, of our $10.9 million of cash, $10.2 million was held domestically while $0.7 million was held by foreign subsidiaries.
As of December 31, 2019, we had an accumulated deficit of $183.3 million and cash on hand of $10.9 million. Largely as a result of significant research and development activities related to our advanced technology and commercialization of this technology into our medical device business, we have incurred significant operating losses and negative cash flows from operations since inception. We have incurred net losses of $12.1 million and $27.0 million for the years ended December 31, 2019 and 2018, respectively (with gains from a decrease on common stock purchase warrant liabilities due to a drop in our stock price accounting for a $6.4 million decrease in net losses as of December 31, 2019). In the year ended December 31, 2019, we used $15.8 million of cash in our operations.
As noted in Note 9 in the notes to our consolidated financial statements under the caption Long-Term Debt, borrowings under our long-term debt agreement have a requirement of minimum cash on hand equivalent to three months of cash burn. As of December 31, 2019, the most recent determination of this restriction, $3.6 million of cash must remain as unrestricted, with such amounts to be re-computed at each month end. After considering cash restrictions, effective unrestricted cash as of December 31, 2019 is estimated to be $7.3 million. Based on current forecasted amounts, our cash on hand will not be sufficient to satisfy our operations for the next twelve months from the date of issuance of these consolidated financial statements, which raises substantial doubt about our ability to continue as a going concern.
Based upon our current cash resources, the recent rate of using cash for operations and investment, and assuming modest increases in current revenue offset by incremental increases in expenses related to increased sales and marketing, we believe that we have sufficient resources to operate in compliance with our debt covenants until the end of the third quarter of 2020.While we will require significant additional financing, our actual capital requirements may vary significantly and will depend on many factors.
We plan to continue our investments in our (i) sales initiatives to accelerate adoption of the Ekso robotic exoskeleton in the rehabilitation market, (ii) research, development and commercialization activities with respect to exoskeletons for rehabilitation, and (iii) development and commercialization of able-bodied exoskeletons for industrial use.
We are actively pursuing opportunities to obtain additional financing through public or private equity and/or debt financings, corporate collaborations and government grants or other funding. Sales of additional equity securities by us could result in the dilution of the interests of our existing stockholders. Our use of any government grants or funds may require us to give preferential licensing terms to such source of funding, or to commit to conduct operations in certain jurisdictions. 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 further reduce our discretionary overhead costs substantially, including research and development, general and administrative, and sales and marketing expenses or otherwise curtail operations.
Cash and Cash Equivalents
The following table summarizes the sources and uses of cash for the periods stated (in thousands):
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|
|
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Years ended December 31,
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2019
|
|
2018
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Cash, beginning of period
|
|
$
|
7,655
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|
|
$
|
27,813
|
|
Net cash used in operating activities
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|
(15,772
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)
|
|
(22,165
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)
|
Net cash used in investing activities
|
|
(60
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)
|
|
(131
|
)
|
Net cash provided by financing activities
|
|
19,039
|
|
|
2,273
|
|
Effect of exchange rate changes on cash
|
|
10
|
|
|
(135
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)
|
Cash, end of period
|
|
$
|
10,872
|
|
|
$
|
7,655
|
|
Net Cash Used in Operating Activities
Net cash used in operations decreased $6.4 million, or 29%, for the year ended December 31, 2019, compared to the same period of 2018, primarily due to a decrease in employee-related costs as a result of lower average headcount, lower legal costs, a reduction in inventory, and a decrease in advertising, trade show, and clinical trial activities.
Net Cash Used in Investing Activities
Net cash used in investing activities decreased $0.1 million, or 54%, during the year ended December 31, 2019, compared to the same period of 2018, primarily due to lower hardware and software purchases due to lower headcount.
Net Cash Provided by Financing Activities
Net cash provided by financing activities of $19.0 million for the year ended December 31, 2019 was from the sale of common stock and warrants for net proceeds of $9.0 million in connection with the equity financing in May 2019, net proceeds of $4.2 million with the equity financing in December 2019, net proceeds of $2.8 million from our “at the market offering” program, net proceeds of $5.0 million from equity investors associated with the JV Agreement, and proceeds of $0.2 million from the exercise of stock options, partially offset by aggregate principal payments of $2.4 million against our term loan
Net cash provided by financing activities of $2.3 million for the year ended December 31, 2018 was from the sale of common stock under our "at the market offering" program resulting in cash proceeds of $4.4 million, partially offset by aggregate principal payments of $2.2 million related to our term loan.
Off-Balance Sheet Arrangements
Our liquidity is not dependent on the use of off-balance sheet financing arrangements (as that term is defined in Item 303(a) (4) (ii) of Regulation S-K) and as of December 31, 2019, we had no such arrangements. There has been no material change in our contractual obligations other than in the ordinary course of business since our fiscal year ended December 31, 2019.
Contractual Obligations and Commitments
The following table summarizes our outstanding contractual obligations, including interest payments, as of December 31, 2019 and the effect those obligations are expected to have on our liquidity and cash flows in future periods (in thousands):
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|
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|
|
|
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|
|
|
|
|
|
|
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|
|
Payments Due By Period
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|
|
Total
|
|
Less than one year
|
|
1-3 Years
|
|
3-5 Years
|
|
After 5 Years
|
Term loan
|
|
$
|
2,878
|
|
|
$
|
2,437
|
|
|
$
|
441
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Facility operating leases
|
|
1,278
|
|
|
515
|
|
|
763
|
|
|
—
|
|
|
—
|
|
Purchase obligations
|
|
709
|
|
|
709
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Capital lease
|
|
22
|
|
|
22
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
4,887
|
|
|
$
|
3,683
|
|
|
$
|
1,204
|
|
|
$
|
—
|
|
|
$
|
—
|
|
In addition to the table above, which reflects only fixed payment obligations, we have two license agreements to maintain exclusive rights to certain patents. Under these license agreements, we are required to pay 1% of net sales of products sold to entities other than the U.S. government. In the event of a sublicense, we 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 license agreements also stipulate minimum annual royalties of $50,000 per year.
In connection with our acquisition of Equipois in December 2015, we assumed the rights and obligations of Equipois under a license agreement with the developer of certain intellectual property related to mechanical balance and support arm technologies, which grants us an exclusive license with respect to the technology and patent rights for certain fields of use. Pursuant to the terms of the license agreement, we will be required to pay a single-digit royalty on net receipts, subject to a $50,000 annual minimum royalty requirement.
We purchase components from a variety of suppliers and use contract manufacturers to provide manufacturing services for our products. Purchase obligations are defined as agreements that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. We had purchase obligations primarily for purchases of inventory and manufacturing related service contracts totaling $0.7 million as of December 31, 2019, which is expected to be paid within a year. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations.
Recent Accounting Pronouncements
See Note 2 in the notes to our consolidated financial statements under the caption Recent Accounting Pronouncements for a discussion of new accounting pronouncements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Table of Contents
The following financial statements are filed as part of this Annual Report on Form 10-K
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and Board of Directors
Ekso Bionics Holdings, Inc.
Richmond, California
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Ekso Bionics Holdings, Inc. as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 27, 2020 expressed an unqualified opinion thereon.
Substantial Doubt About the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred significant recurring losses and negative cash flows from operations since inception and an accumulated deficit. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
San Francisco, California
February 27, 2020
We have served as the Company's auditor since 2010.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and Board of Directors
Ekso Bionics Holdings, Inc.
Richmond, California
Opinion on Internal Control over Financial Reporting
We have audited Ekso Bionics Holdings, Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2019, and the related notes and our report dated February 27, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
San Francisco, California
February 27, 2020
Ekso Bionics Holdings, Inc.
Consolidated Balance Sheets
(In thousands, except par value amounts)
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Assets
|
|
|
|
Current assets:
|
|
|
|
Cash
|
$
|
10,872
|
|
|
$
|
7,655
|
|
Accounts receivable, net of allowances of $121 and $128, respectively
|
5,208
|
|
|
3,660
|
|
Inventories, net
|
2,489
|
|
|
3,371
|
|
Prepaid expenses and other current assets
|
238
|
|
|
281
|
|
Total current assets
|
18,807
|
|
|
14,967
|
|
Property and equipment, net
|
1,657
|
|
|
2,365
|
|
Right-of-use assets
|
1,084
|
|
|
—
|
|
Goodwill
|
189
|
|
|
189
|
|
Other assets
|
178
|
|
|
134
|
|
Total assets
|
$
|
21,915
|
|
|
$
|
17,655
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable
|
$
|
1,903
|
|
|
$
|
3,156
|
|
Accrued liabilities
|
1,683
|
|
|
3,489
|
|
Deferred revenues, current
|
1,492
|
|
|
1,102
|
|
Note payable, current
|
2,333
|
|
|
2,333
|
|
Lease liabilities, current
|
421
|
|
|
—
|
|
Total current liabilities
|
7,832
|
|
|
10,080
|
|
Deferred revenues
|
1,789
|
|
|
1,495
|
|
Note payable
|
407
|
|
|
2,648
|
|
Lease liabilities
|
711
|
|
|
—
|
|
Warrant liabilities
|
4,307
|
|
|
585
|
|
Other non-current liabilities
|
72
|
|
|
119
|
|
Total liabilities
|
15,118
|
|
|
14,927
|
|
Commitments and contingencies (Note 16)
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
Convertible preferred stock, $0.001 par value; 10,000 shares authorized; no shares issued and outstanding at December 31, 2019 and 2018
|
—
|
|
|
—
|
|
Common stock, $0.001 par value; 141,429 shares authorized; 86,920 and 62,963 shares issued and outstanding at December 31, 2019 and 2018, respectively
|
87
|
|
|
63
|
|
Additional paid-in capital
|
189,938
|
|
|
173,903
|
|
Accumulated other comprehensive income (loss)
|
50
|
|
|
(92
|
)
|
Accumulated deficit
|
(183,278
|
)
|
|
(171,146
|
)
|
Total stockholders' equity
|
6,797
|
|
|
2,728
|
|
Total liabilities and stockholders' equity
|
$
|
21,915
|
|
|
$
|
17,655
|
|
See accompanying notes to consolidated financial statements
Ekso Bionics Holdings, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2019
|
|
2018
|
Revenue
|
$
|
13,917
|
|
|
$
|
11,332
|
|
Cost of revenue
|
7,153
|
|
|
7,023
|
|
Gross profit
|
6,764
|
|
|
4,309
|
|
|
|
|
|
Operating expenses:
|
|
|
|
Sales and marketing
|
11,398
|
|
|
13,827
|
|
Research and development
|
4,596
|
|
|
5,847
|
|
General and administrative
|
7,409
|
|
|
11,665
|
|
Total operating expenses
|
23,403
|
|
|
31,339
|
|
|
|
|
|
Loss from operations
|
(16,639
|
)
|
|
(27,030
|
)
|
|
|
|
|
Other income, net:
|
|
|
|
Interest expense
|
(384
|
)
|
|
(600
|
)
|
Finance cost associated with warrant issuance
|
(1,096
|
)
|
|
—
|
|
Gain on warrant liabilities
|
6,376
|
|
|
1,063
|
|
Loss on modification of warrants
|
(257
|
)
|
|
—
|
|
Other expense, net
|
(132
|
)
|
|
(425
|
)
|
Total other income, net
|
4,507
|
|
|
38
|
|
|
|
|
|
Net loss
|
(12,132
|
)
|
|
(26,992
|
)
|
Foreign currency translation adjustments
|
142
|
|
|
248
|
|
Comprehensive loss
|
$
|
(11,990
|
)
|
|
$
|
(26,744
|
)
|
|
|
|
|
Basic and diluted net loss per share applicable to common shareholders
|
$
|
(0.17
|
)
|
|
$
|
(0.44
|
)
|
Weighted average number of shares outstanding, basic and diluted
|
71,911
|
|
|
61,229
|
|
See accompanying notes to consolidated financial statements
Ekso Bionics Holdings, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
Preferred Stock
|
|
Common Stock
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Accumulated
Deficit
|
|
Total
Stockholders’
Equity
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
Balance at December 31, 2017
|
—
|
|
|
$
|
—
|
|
|
59,943
|
|
|
$
|
60
|
|
|
$
|
165,825
|
|
|
$
|
(340
|
)
|
|
$
|
(144,154
|
)
|
|
$
|
21,391
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(26,992
|
)
|
|
(26,992
|
)
|
Issuance of common stock under:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM program, net of commission & issuance costs of $274
|
—
|
|
|
—
|
|
|
2,032
|
|
|
2
|
|
|
4,444
|
|
|
—
|
|
|
—
|
|
|
4,446
|
|
Equipois sales earn-out
|
—
|
|
|
—
|
|
|
18
|
|
|
—
|
|
|
28
|
|
|
—
|
|
|
—
|
|
|
28
|
|
Equity incentive plan
|
—
|
|
|
—
|
|
|
571
|
|
|
1
|
|
|
(61
|
)
|
|
—
|
|
|
—
|
|
|
(60
|
)
|
Matching contribution to 401(k) plan
|
—
|
|
|
—
|
|
|
221
|
|
|
—
|
|
|
508
|
|
|
—
|
|
|
—
|
|
|
508
|
|
In lieu of cash compensation
|
—
|
|
|
—
|
|
|
178
|
|
|
—
|
|
|
291
|
|
|
—
|
|
|
—
|
|
|
291
|
|
Stock-based compensation expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,868
|
|
|
—
|
|
|
—
|
|
|
2,868
|
|
Foreign currency translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
248
|
|
|
—
|
|
|
248
|
|
Balance at December 31, 2018
|
—
|
|
|
—
|
|
|
62,963
|
|
|
63
|
|
|
173,903
|
|
|
(92
|
)
|
|
(171,146
|
)
|
|
2,728
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,132
|
)
|
|
(12,132
|
)
|
Issuance of common stock under:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity financing, net
|
—
|
|
|
—
|
|
|
22,995
|
|
|
23
|
|
|
12,421
|
|
|
—
|
|
|
—
|
|
|
12,444
|
|
Equipois sales earn-out
|
—
|
|
|
—
|
|
|
18
|
|
|
—
|
|
|
22
|
|
|
—
|
|
|
—
|
|
|
22
|
|
Equity incentive plan
|
—
|
|
|
—
|
|
|
186
|
|
|
—
|
|
|
228
|
|
|
—
|
|
|
—
|
|
|
228
|
|
Matching contribution to 401(k) plan
|
—
|
|
|
—
|
|
|
141
|
|
|
—
|
|
|
191
|
|
|
—
|
|
|
—
|
|
|
191
|
|
In lieu of employee cash bonus
|
—
|
|
|
—
|
|
|
617
|
|
|
1
|
|
|
918
|
|
|
—
|
|
|
—
|
|
|
919
|
|
Stock-based compensation expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,255
|
|
|
—
|
|
|
—
|
|
|
2,255
|
|
Foreign currency translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
142
|
|
|
—
|
|
|
142
|
|
Balance at December 31, 2019
|
—
|
|
|
$
|
—
|
|
|
86,920
|
|
|
$
|
87
|
|
|
$
|
189,938
|
|
|
$
|
50
|
|
|
$
|
(183,278
|
)
|
|
$
|
6,797
|
|
See accompanying notes to consolidated financial statements
Ekso Bionics Holdings, Inc.
Consolidated Statement of Cash Flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2019
|
|
2018
|
Operating activities
|
|
|
|
Net loss
|
$
|
(12,132
|
)
|
|
$
|
(26,992
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities
|
|
|
|
Depreciation and amortization
|
690
|
|
|
1,515
|
|
Provision for excess and obsolete inventories
|
66
|
|
|
191
|
|
Changes in allowance for doubtful accounts
|
52
|
|
|
(50
|
)
|
Loss on disposal of property and equipment
|
—
|
|
|
126
|
|
Amortization of debt discount and accretion of final payment fee
|
92
|
|
|
152
|
|
Change in fair value of contingent liabilities
|
(28
|
)
|
|
(35
|
)
|
Common stock contribution to 401(k) plan
|
142
|
|
|
212
|
|
Stock-based compensation expense
|
2,255
|
|
|
2,868
|
|
Finance cost attributable to issuance of warrants
|
1,096
|
|
|
—
|
|
Gain on revaluation of warrant liabilities
|
(6,376
|
)
|
|
(1,063
|
)
|
Loss on modification of warrants
|
257
|
|
|
—
|
|
Unrealized loss on foreign currency transactions
|
133
|
|
|
381
|
|
Changes in operating assets and liabilities
|
|
|
|
Accounts receivable
|
(1,599
|
)
|
|
(850
|
)
|
Inventories
|
893
|
|
|
(1,655
|
)
|
Prepaid expense, operating lease right-of-use assets, and other assets, current and noncurrent
|
369
|
|
|
1,046
|
|
Accounts payable
|
(1,231
|
)
|
|
752
|
|
Accrued and lease liabilities
|
(1,135
|
)
|
|
559
|
|
Deferred revenues
|
684
|
|
|
678
|
|
Net cash used in operating activities
|
(15,772
|
)
|
|
(22,165
|
)
|
Investing activities
|
|
|
|
Acquisition of property and equipment
|
(60
|
)
|
|
(131
|
)
|
Net cash used in investing activities
|
(60
|
)
|
|
(131
|
)
|
Financing activities
|
|
|
|
Proceeds from issuance of common stock and warrants, net
|
21,188
|
|
|
4,446
|
|
Principal payments on notes payable
|
(2,377
|
)
|
|
(2,174
|
)
|
Proceeds from exercise of stock options
|
228
|
|
|
1
|
|
Net cash provided by financing activities
|
19,039
|
|
|
2,273
|
|
Effect of exchange rate changes on cash
|
10
|
|
|
(135
|
)
|
Net (decrease) increase in cash
|
3,217
|
|
|
(20,158
|
)
|
Cash at beginning of the period
|
7,655
|
|
|
27,813
|
|
Cash at end of the period
|
$
|
10,872
|
|
|
$
|
7,655
|
|
|
|
|
|
Supplemental disclosure of cash flow activities
|
|
|
|
Cash paid for interest
|
$
|
309
|
|
|
$
|
457
|
|
Cash paid for income taxes
|
$
|
23
|
|
|
$
|
18
|
|
|
|
|
|
Supplemental disclosure of non-cash activities
|
|
|
|
Initial recognition of operating right-of-use assets
|
$
|
1,454
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Initial recognition of operating lease liabilities
|
$
|
1,498
|
|
|
$
|
—
|
|
Change in deferred rent associated with ASC 842
|
$
|
44
|
|
|
$
|
—
|
|
Transfer of inventory to (from) property and equipment
|
$
|
(77
|
)
|
|
$
|
1,118
|
|
Share issuance for common stock contribution to 401(k) plan
|
$
|
191
|
|
|
$
|
508
|
|
Share issuance for employee bonuses
|
$
|
919
|
|
|
$
|
291
|
|
Share issuance for vesting of restricted stock
|
$
|
63
|
|
|
$
|
1
|
|
Equipois sales earn-out
|
$
|
22
|
|
|
$
|
28
|
|
See accompanying notes to consolidated financial statements
Ekso Bionics Holdings, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
1. Organization
Description of Business
Ekso Bionics Holdings, Inc., or the Company, designs, develops and sells exoskeleton technology to augment human strength, endurance and mobility.
The Company’s exoskeleton technology serves multiple markets and can be used both by able-bodied persons as well as by persons with physical disabilities. The Company has sold and leased devices that (i) enable individuals with neurological conditions affecting gait (stroke and spinal cord injury) to rehabilitate and to walk again, (ii) assist individuals with a broad range of upper extremity impairments, and (iii) allow industrial workers to perform difficult repetitive work for extended periods.
Unless otherwise indicated, all dollar and share amounts included in these notes to the consolidated financial statements are in thousands.
Liquidity and Going Concern
As of December 31, 2019, the Company had an accumulated deficit of $183,278. 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. In the year ended December 31, 2019, the Company used $15,772 of cash in its operations.
Cash on hand at December 31, 2019 was $10,872, compared to $7,655 at December 31, 2018. As noted in Note 9, Long-Term Debt, borrowings under the Company's long-term debt agreement have a requirement of minimum cash on hand equivalent to three months of cash burn. As of December 31, 2019, the most recent determination of this restriction, $3,564 of cash must remain as restricted, with such amounts to be re-computed at each month end. After considering cash restrictions, effective unrestricted cash as of December 31, 2019 is estimated to be $7,308. Based on the current forecast, the Company’s cash on hand will not be sufficient to satisfy the Company’s operations for the next twelve months from the date of issuance of these consolidated financial statements, which raises substantial doubt about the Company’s ability to continue as a going concern.
On September 16, 2019, the Company received a written notice (the “Deficiency Notice”) from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) informing the Company that because the closing bid price for the Company’s common stock listed on the Nasdaq Capital Market was below $1.00 per share for 30 consecutive business days, the Company does not meet the minimum closing bid price requirement for continued listing on the Nasdaq Capital Market. Under Nasdaq Listing Rules, the Company has 180 calendar days from the date of the notification, or until March 16, 2020, to regain compliance with Nasdaq Listing Rules. To regain compliance, the closing bid price of the Company’s common stock on the Nasdaq Capital Market must be at least $1.00 per share for a minimum of ten consecutive business days prior to the expiration of such 180-day compliance period. If the Company does not regain compliance by March 16, 2020, the Company may be eligible for a second 180-day compliance period, provided that, on such date, the Company meets the continued listing requirement for market value of publicly held shares and all other applicable initial listing requirements for the Nasdaq Capital Market (other than the minimum closing bid price requirement) and the Company provides written notice to Nasdaq of its intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary. The Company intends to take all reasonable measures available to regain compliance under the Nasdaq Listing Rules and to maintain the listing of its common stock on the Nasdaq Capital Market. The Company will monitor the closing bid price for its common stock between now and March 16, 2020.
Based upon the Company’s current cash resources, the recent rate of using cash for operations and investment, and assuming modest increases in current revenue, the Company believes it has sufficient resources to operate in compliance with its debt covenants until the end of the third quarter of 2020. While the Company will require significant additional financing, the Company’s actual capital requirements may vary significantly and will depend on many factors. The Company plans to continue its investments in its (i) clinical and sales initiatives to accelerate adoption of the Ekso robotic exoskeleton in the rehabilitation market, (ii) research, development and commercialization activities with respect to exoskeletons for rehabilitation, and (iii) development and commercialization of able-bodied exoskeletons for industrial use.
The Company is actively pursuing opportunities to obtain additional financing through public or private equity and/or debt financings and corporate collaborations. Sales of additional equity securities by the Company could result in the dilution of the
Ekso Bionics Holdings, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
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, the Company may be required to further reduce its discretionary overhead costs substantially, including research and development, general and administrative, and sales and marketing expenses or otherwise curtail operations.
2. Summary of Significant Accounting Policies and Estimates
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States or U.S. GAAP. In the opinion of management, all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented have been included and are normal and recurring in nature. All significant intercompany transactions and balances have been eliminated in consolidation. Certain reclassifications have been made to prior year amounts to conform to the current year’s presentation. Such reclassifications had no net effect on previously reported financial results. The Company’s investment in a variable interest entity (“VIE”) in which it exercises significant influence, but does not control and is not the primary beneficiary, is accounted for using the equity method. Refer to Note 4. Investment in Unconsolidated Affiliate for more information.
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, the valuation of warrants and employee stock options, future warranty costs, accounting for leases, useful lives assigned to long-lived assets, valuation of inventory, realizability of deferred tax assets, and contingencies. Actual results could differ from those estimates.
Foreign Currency
The assets and liabilities of foreign subsidiaries and equity investments, where the local currency is the functional currency, are translated from their respective functional currencies into U.S. dollars at the rates in effect at the balance sheet date and revenue and expense amounts are translated at average rates during the period, with resulting foreign currency translation adjustments recorded in accumulated other comprehensive income (loss) as a component of stockholders’ equity. Gains and losses from the re-measurement of balances denominated in currencies other than the entities' functional currencies, are recorded in other expense, net in the accompanying consolidated statements of operations and comprehensive loss.
Investment in Unconsolidated Affiliate
Equity investments in which the Company exercises significant influence, but does not control and is not the primary beneficiary, are accounted for using the equity method. Investments accounted for under the equity method of accounting are recorded at cost within other assets on the consolidated balance sheets and subsequently increased or decreased by the Company’s proportionate share of the net income or loss of the investee. The Company records its proportionate share of net income or loss of the investee in net investment income. The Company records its proportionate share of other comprehensive income or loss of the investee as a component of other comprehensive income. Dividends or other equity distributions in excess of the Company’s cumulative equity in earnings of the investee are recorded as a reduction of the investment. Differences in the basis of the investments and the separate net asset values of the investees, if any, are amortized into net income over the remaining useful lives of the underlying assets and liabilities, except for the excess related to goodwill, if any. Refer to Note 4. Investment in Unconsolidated Affiliate for more information.
The Company believes the equity method is an appropriate means for it to recognize increases or decreases measured by U.S. GAAP in the economic resources underlying the investments. Regular evaluation of these investments is appropriate to evaluate any potential need for impairment. The Company uses evidence of a loss in value to identify if an investment has an other-than-temporary decline in value.
Ekso Bionics Holdings, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
Variable Interest Entities
The Company determines whether it has relationships with entities defined as VIEs in accordance with Accounting Standards Codification ("ASC") 810, Consolidation. Under this guidance, a VIE is consolidated by the variable interest holder that is determined to be the primary beneficiary.
An entity in which the Company holds a variable interest is a VIE if any of the following conditions exist: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support, (b) as a group, the holders of equity investment at risk lack either the direct or indirect ability through voting rights or similar rights to make decisions about an entity’s activities that most significantly impact the entity’s economic performance or the obligation to absorb the expected losses or right to receive the expected residual returns, or (c) the voting rights of some investors are disproportionate to their obligation to absorb the expected losses of the entity, their rights to receive the expected residual returns of the entity, or both and substantially all of the entity’s activities either involve or are conducted on behalf of an investor with disproportionately few voting rights.
The primary beneficiary is defined as the variable interest holder that is determined to have the controlling financial interest as a result of having both (a) the power to direct the activities of a VIE that most significantly impact the economic performance of the VIE and (b) the obligation to absorb losses or right to receive benefits from the VIE that could potentially be significant to the VIE. The Company determines whether an entity is a VIE at the inception of its variable interest in the entity and upon the occurrence of certain reconsideration events. The Company routinely reassesses whether it is the primary beneficiary of VIEs in which it holds a variable interest.
Accumulated Other Comprehensive Income (Loss)
The Company's accumulated other comprehensive income (loss) consists of the accumulated net unrealized gains or losses on foreign currency translation adjustments. The change in accumulated other comprehensive income (loss) presented on the consolidated balance sheets for the year ended December 31, 2019, is reflected in the table below net of tax:
|
|
|
|
|
|
Foreign
Currency
Translation
|
Balance at December 31, 2018
|
$
|
(92
|
)
|
Current period other comprehensive income
|
142
|
|
Balance at December 31, 2019
|
$
|
50
|
|
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. The Company places its cash and cash equivalents in highly liquid instruments with, and in the custody of, financial institutions with high credit ratings. The Company did not have any cash equivalents or investments in money market funds as of December 31, 2019 and 2018.
Concentration of Credit Risk and Other Risks and Uncertainties
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. The Company maintains cash accounts in excess of federally insured limits. However, the Company believes it is not exposed to significant credit risk due to the financial position of the depository institutions in which these deposits are held. The Company extends credit to customers in the normal course of business and performs ongoing credit evaluations of its customers. Concentrations of credit risk with respect to accounts receivable exist to the full extent of amounts presented in the consolidated financial statements. The Company does not require collateral from its customers to secure accounts receivable.
Accounts receivable are derived from the sale of products shipped and services performed for customers primarily located in the U.S., Europe and Asia. Invoices are aged based on contractual terms with the customer. The Company reviews accounts receivable for collectibility and provides an allowance for potential credit losses. The Company has not experienced material losses related to accounts receivable during the years ended December 31, 2019 and 2018. Many of the sales contracts with customers outside of the U.S. are settled in a foreign currency other than the U.S. dollar. The Company does not enter into any foreign currency
Ekso Bionics Holdings, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
hedging agreements and is susceptible to gains and losses from foreign currency fluctuations. To date, the Company has not experienced significant gains or losses upon settling contracts denominated in a foreign currency.
At December 31, 2019, the Company had one customer with an accounts receivable balance totaling 10% or more of the Company’s total accounts receivable (11%), as compared with one customer at December 31, 2018 (19%).
The Company had one customer with sales of 10% or more of the Company’s total revenue for the year ended December 31, 2019 (15%) as compared with none at December 31, 2018. Refer to Note 17. Segment Disclosures for more information.
Inventories, net
Inventories are recorded at the lower of cost or net realizable value. Cost is computed using the standard cost method, which approximates actual cost on a first-in, first-out basis. Materials from vendors are received and recorded as raw material. Once the raw materials are incorporated in the fabrication of the product, the related value of the component is recorded as work in progress ("WIP"). Direct and indirect labor and applicable overhead costs are also allocated and recorded to WIP inventory. Finished goods are comprised of completed products that are ready for customer shipment. The Company periodically evaluates the carrying value of inventory on hand for potential excess amounts over sales and forecasted demand. Excess and obsolete inventories identified, if any, are recorded as an inventory impairment charge within the consolidated statements of operations and comprehensive loss. The Company's estimate of write-downs for excess and obsolete inventory is based on a detailed analysis which includes on-hand inventory and purchase commitments in excess of forecasted demand. Subsequent disposals of inventories are recorded as a reduction of an inventory reserve.
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Raw materials
|
$
|
2,208
|
|
|
$
|
1,689
|
|
Work in progress
|
29
|
|
|
331
|
|
Finished goods
|
252
|
|
|
1,351
|
|
Inventories, net
|
$
|
2,489
|
|
|
$
|
3,371
|
|
Leases
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update (“ASU”), No. 2016-02, Leases (Topic 842), to enhance the transparency and comparability of financial reporting related to leasing arrangements. The Company adopted the standard effective January 1, 2019.
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes its incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset may be required for items, such as initial direct costs paid or incentives received.
Lease expense is recognized over the expected lease term on a straight-line basis. Operating leases are recognized on the balance sheet as right-of-use assets, lease liabilities current and lease liabilities non-current. As a result, the Company no longer recognizes deferred rent on the balance sheet.
Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes the lease expense for such leases on a straight-line basis over the lease term.
Property and Equipment, net
Property and equipment are stated at cost less accumulated depreciation and are depreciated on a straight-line basis over the estimated useful lives of the assets, generally ranging from three to ten years. Leasehold improvements are amortized over the
Ekso Bionics Holdings, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
shorter of the estimated useful life or the related term of the lease. The costs of repairs and maintenance are expensed when incurred, while expenditures for refurbishments and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized.
Impairment of Long-Lived Assets
The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that their carrying value may not be recoverable from the estimated future cash flows expected to result from the Company’s use or eventual disposition. If estimates of future undiscounted net cash flows are insufficient to recover the carrying value of the assets, the Company will record an impairment loss in the amount by which the carrying value of the assets exceeds the fair value. If the assets are determined to be recoverable, but the useful lives are shorter than originally estimated, the Company will depreciate or amortize the net book value of the assets over the newly determined remaining useful lives. None of the Company’s property and equipment or intangible assets were impaired as of December 31, 2019 and 2018. No impairment loss has been recognized in the years ended December 31, 2019 and 2018.
Goodwill
The Company records goodwill when the purchase price of an acquisition exceeds the fair value of the net tangible and identified intangible assets acquired. The Company performs an annual impairment assessment in the fourth quarter of each year, or more frequently if indicators of potential impairment exist, which includes evaluating qualitative and quantitative factors to assess the likelihood of an impairment of goodwill. The Company performs impairment tests using a fair value approach when necessary. None of the Company’s goodwill was impaired as of December 31, 2019 and 2018. No impairment loss has been recognized in the years ended December 31, 2019 and 2018.
Warrant Valuation
The Company generally accounts for warrants issued in connection with debt and equity financings as a component of equity, unless the warrants include a conditional obligation to issue a variable number of shares or there is a deemed possibility that it may need to settle the warrants in cash.
Where there is a possibility that the Company may have to settle warrants in cash, it estimates the fair value of the issued warrants as a liability at each reporting date and record changes in the estimated fair value as a non-cash gain or loss in the consolidated statements of operations and comprehensive loss. The fair values of these warrants have been determined using the Black-Scholes option-pricing model (the “Black-Scholes Model”) and the Binomial Lattice model (the “Lattice Model”). The Black-Scholes Model requires inputs, such as the expected volatility, expected term, exercise price, risk-free interest rate, and the value of the underlying security. The Lattice Model provides for assumptions regarding expected volatility, expected term, exercise price, risk-free interest rates, the value of the underlying security, and the probability of and likely timing of a specific event within the period to maturity. These values are subject to a significant degree of the Company’s judgment. The Company’s common stock price represents a significant input that affects the valuation of the warrants.
Business Combinations
The Company accounts for business combinations under the acquisition method of accounting in accordance with Accounting Standards Codification or ASC, 805, Business Combinations, where the total purchase price is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values. The purchase price is allocated using the information currently available, and may be adjusted, up to one-year from the acquisition date, after obtaining more information regarding, among other things, asset valuations, liabilities assumed and revisions to preliminary estimates.
Contingent consideration, if any, is recorded at the acquisition date based upon the estimated fair value of the contingent payments. The fair value of the contingent consideration is re-measured each reporting period with any adjustments in fair value being recognized in loss from operations.
The purchase price in excess of the fair value of the tangible and identified intangible assets acquired less liabilities assumed is recognized as goodwill.
Ekso Bionics Holdings, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
Going Concern
The Company assesses its ability to continue as a going concern at every interim and annual period in accordance with ASC 205-40, Presentation of Financial Statements – Going Concern. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
Revenue Recognition
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company enters into contracts that can include various combinations of products and services, which when capable of being distinct, are accounted for as separate performance obligations.
The Company’s medical device segment (EksoHealth) revenue is primarily generated through the sale and rental of the EksoGT and the recently introduced EksoNR, associated software (SmartAssist and VariableAssist), the sale of the EksoUE, the sale of accessories, and the sale of support and maintenance contracts (Ekso Care). Revenue from medical device product sales is recognized at the point in time when control of the product transfers to the customer. Transfer of control generally occurs upon shipment from the Company’s facility for sales of the EksoNR or EksoGT, software and accessories. Ekso Care support and maintenance contracts extend coverage beyond the Company’s standard warranty agreements. The separately priced Ekso Care contracts range from 12 to 48 months. The Company receives payment at the inception of the contract and recognizes revenue over the term of the agreement. Revenue from medical device leases is recognized over the lease term, typically over 12 months.
The Company’s industrial device segment (EksoWorks) revenue is generated through the sale of the upper body exoskeleton (EksoVest) and the support arm (EksoZeroG). Revenue from industrial device sales is recognized at the point in time when control of the product transfers to the customer. Transfer of control generally occurs upon shipment from the Company’s facility.
Government Grants
The Company accounts for nonreciprocal government grants by applying the contributions received guidance in ASC Topic 958-605 by analogy. To determine if a grant is non-reciprocal or reciprocal and whether the application of ASC 606 is required, the Company considers whether the transfer of resources is one in which commensurate value is exchanged. If commensurate value is not exchanged for the goods or services provided, the Company assesses whether the grant is conditional or unconditional. Grants that contain both a barrier and right to return are considered conditional and revenue is deferred until such conditions are satisfied. In January 2019, the Company received a government grant from the Singapore Economic Development Board (“SEDB”) in the amount of approximately $1,500. The receipt of the funds is conditional upon certain operational milestones that must be met and maintained through December 31, 2021. Therefore, the Company has not recognized revenue related to the government grant from the SEBD nor received cash from the SEBD during the twelve months ended December 31, 2019. The Company does not expect to recognize revenue until December 31, 2021.
Research and Development
Research and development costs consist of costs incurred for internal research and development activities. These costs primarily include salaries and other personnel-related expenses, contractor fees, legal fees associated with developing and maintaining intellectual property, facility costs, supplies, and depreciation of equipment associated with the design and development of new products prior to the establishment of their technological feasibility. Such costs are expensed as incurred.
Advertising Costs
Advertising costs are recorded in sales and marketing expense as incurred. Advertising expense was $14 and $123 for the years ended December 31, 2019 and 2018, respectively.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under this method, income tax expense or benefit is recognized for the amount of taxes payable or refundable for the current year and for deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company's consolidated financial statements or tax returns.
Ekso Bionics Holdings, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
The Company accounts for any income tax contingencies in accordance with accounting guidance for income taxes. The measurement of current and deferred tax assets and liabilities is based on provisions of currently enacted tax laws. The effects of any future changes in tax laws or rates have not been considered.
For the preparation of the Company's consolidated financial statements included herein, the Company estimates its income taxes and tax contingencies in each of the tax jurisdictions in which it operates prior to the completion and filing of its tax returns. This process involves estimating actual current tax expense together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, for tax and accounting purposes. These differences result in net deferred tax assets and liabilities. The Company must then assess the likelihood that the deferred tax assets will be realizable, and to the extent they believe that realizability is not likely, the Company must establish a valuation allowance. In assessing the need for any additional valuation allowance, the Company considers all the evidence available to it, both positive and negative, including historical levels of income, legislative developments, expectations and risks associated with estimates of future taxable income, and ongoing prudent and feasible tax planning strategies.
Stock-based Compensation
The Company measures stock-based compensation expense for certain stock-based awards made to employees and directors based on the estimated fair value of the award on the date of grant using the Black-Scholes Model and recognizes the fair value on a straight-line basis over the requisite service periods of the awards.
The Company’s determination of the fair value of stock options on the date of grant using the Black-Scholes Model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The Company adopted the simplified method of estimating the expected term pursuant to SEC Staff Accounting Bulletin Topic 14. On this basis, the Company estimated the expected term of options granted by taking the average of the vesting term and the contractual term of the option.
The Company has, from time to time, modified the terms of its stock options to employees. The Company accounts for the incremental increase in the fair value over the original award on the date of the modification as an expense for vested awards or over the remaining service (vesting) period for unvested awards. The incremental compensation cost is the excess of the fair value of the modified award on the date of modification over the fair value of the original award immediately before the modification.
Recent Accounting Pronouncements
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminated the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities are required to record an impairment charge based on the excess of the carrying amount over its fair value. This update will be effective for the Company beginning January 1, 2020 and early adoption is permitted. The Company does not expect the impact of adopting ASU 2017-04 to be material on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The standard modifies the disclosure requirements on fair value measurements in Topic 820 by removing the requirement to disclose the reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of such transfers. The standard expands the disclosure requirements for Level 3 fair value measurement, primarily focused on changes in unrealized gains and losses included in other comprehensive income. The amendments in this update will be effective for the Company in the first quarter of 2020. Early adoption is permitted. The Company does not expect the impact of adopting ASU 2018-03 to be material on its consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04 and ASU 2019-05, which amends the current approach to estimate credit losses on certain financial assets, including trade and other receivables. Generally, this amendment requires entities to establish a valuation allowance for the expected lifetime losses of these certain financial assets. Upon the initial recognition of such assets, which will be based on, among other things, historical information, current conditions, and reasonable supportable forecasts. Subsequent changes in the valuation allowance are recorded in current earnings and reversal of previous losses are permitted. Currently, U.S. GAAP requires entities to write down credit losses only when losses are probable and loss reversals are not permitted. The update was initially effective for the Company in the first quarter
Ekso Bionics Holdings, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
of 2020. However, in August 2019, the FASB issued a proposed ASU, which defers the effective date for this guidance until the first quarter of 2023. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements and related disclosures.
Accounting Pronouncements Adopted in 2019
In February 2016, the FASB issued ASU 2016-02-Leases (ASC 842) and subsequent amendments to the initial guidance under ASU 2017-13, ASU 2018-10 and ASU 2018-11 (collectively, Topic 842) which superseded existing guidance on accounting for leases in ASC 840, Leases (ASC 840). Topic 842 requires the Company to recognize on its balance sheet a lease liability representing the present value of future lease payments and a right-of-use asset representing the lessee’s right to use, or control the use of a specified asset for the lease term for any operating lease with a term greater than one year. This standard became effective for the Company in the first quarter of 2019. The Company used the modified retrospective transition method, under which the Company applied the standard to each lease that had commenced as of the beginning of January 1, 2019. In addition, the Company elected to apply the package of practical expedients permitted under the transition guidance, which among other things, allowed the Company to carry forward the historical lease classification.
Upon adoption of this standard on January 1, 2019, the Company recorded right-of-use assets and corresponding lease liabilities of $1,454 and $1,498, respectively. As of December 31, 2019, the right-of-use assets and corresponding lease liabilities in the Company’s consolidated balance sheets were $1,084 and $1,132, respectively. The adoption of this standard did not have a material impact on the Company’s consolidated statements of operations or cash flows, nor did it have a material impact on the financial covenants set forth in the Company’s long-term debt agreement. The Company has provided detailed disclosures as required by the new standard (refer to Note 10. Lease Obligations).
3. Net Loss Per Share of Common Stock
Basic net loss per share of common stock is computed using the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed using the weighted average number of common stock, adjusted to include conversion of certain stock options and warrants for common stock and release of common stock in connection with restricted stock units during the period, as follows:
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2019
|
|
2018
|
Numerator:
|
|
|
|
|
|
|
|
Net loss
|
$
|
(12,132
|
)
|
|
$
|
(26,992
|
)
|
Adjustment for gain on fair value of warrant liability
|
$
|
—
|
|
|
$
|
—
|
|
Adjusted net loss used for dilution calculation
|
$
|
(12,132
|
)
|
|
$
|
(26,992
|
)
|
|
|
|
|
Denominator
|
|
|
|
Weighted-average number of shares outstanding
|
71,911
|
|
|
61,229
|
|
Effect of potential dilutive shares
|
—
|
|
|
—
|
|
Dilutive weighted-average number of shares outstanding
|
71,911
|
|
|
61,229
|
|
|
|
|
|
Net loss per share
|
|
|
|
Basic
|
$
|
(0.17
|
)
|
|
$
|
(0.44
|
)
|
Diluted
|
$
|
(0.17
|
)
|
|
$
|
(0.44
|
)
|
Ekso Bionics Holdings, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
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:
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2019
|
|
2018
|
Options to purchase common stock
|
7,411
|
|
|
6,466
|
|
Restricted stock units
|
1,328
|
|
|
278
|
|
Warrants for common stock
|
17,670
|
|
|
3,396
|
|
Total common stock equivalents
|
26,409
|
|
|
10,140
|
|
4. Investment in Unconsolidated Affiliate
On January 30, 2019, the Company and its wholly-owned subsidiary, Ekso Bionics, Inc. (“Ekso US”), entered into an agreement with Zhejiang Youchuang Venture Capital Investment Co., Ltd (“ZYVC”) and another partner (collectively, the “JV Partners”), as amended by the Amendment to the Joint Venture Agreement, dated April 30, 2019 (as amended, the “JV Agreement”) to establish Exoskeleton Intelligent Robotics Co. Limited (the “Investee” or the “China JV”), a Chinese limited liability company designed to develop and serve the exoskeleton market in China and other Asian markets and to create a global exoskeleton manufacturing center in the Zhejiang Province of China.
Ekso US entered into a Technology License Agreement, dated October 22, 2019 (the “Technology License Agreement”) with the China JV pursuant to the terms of the JV Agreement. Pursuant to the Technology License Agreement, Ekso US granted to the China JV a nontransferable, non-sublicensable, irrevocable, and exclusive right and license in China, Hong Kong, Singapore, Malaysia and other countries to be mutually agreed upon by the parties to the JV Agreement, but excluding Japan, India and Australia (the “JV Territory”) to patented technologies and non-patented manufacturing technologies (collectively, the “IP”) involved in the manufacture of certain products, including EksoGT, EksoVest and EksoZeroG Arm units (collectively, the “JV Products”) and their improvements, to (i) manufacture, assemble, make and have made, use the JV Products in China and to sell such products in the JV Territory, (ii) provide marketing promotion, technical training and maintenance associated with such products and (iii) make investment in research and development projects undertaken by Ekso US. Under the Technology License Agreement, Ekso US will also provide marketing promotion, maintenance, training and technical support to the China JV in connection with the licensed activities, and the China JV will reimburse the reasonable costs and expenses of Ekso US for the training and technical support services so provided. In consideration for the improvements made by Ekso US to the JV Products, pursuant to the Technology License Agreement, following a specified royalty-free period, Ekso US will receive mid-single digit percentages of the net sales revenue of the JV Products sold by the China JV. The Technology License Agreement will be in effect until terminated for cause by Ekso US or until the earlier expiration or termination of the JV Agreement. Pursuant to the JV Agreement and the Technology License Agreement, the Company will receive a 20% ownership interest in the China JV. Under the Technology License Agreement, the Company will also be entitled to receive royalties on the China JV’s sales of the JV Products in the JV Territory. As of December 31, 2019, the Company had not transferred the patented technologies pursuant to the Technology License Agreement.
Since the licensed IP was developed internally by the Company, all previous expenditures to develop the technology were recognized as expense in the period incurred and there was no carrying value on the Company’s consolidated balance sheet. The Company expects that it will recognize a gain on the Technology License Agreement based on the fair value of the Company’s equity interest in the China JV once control of the intellectual property is transferred.
The China JV is a VIE for which the Company is not the primary beneficiary as the Company does not have the power to direct the activities that most significantly influence the economic performance of the entity. In addition to the Company’s exchange of license rights for the manufacturing technology, the China JV will be capitalized through cash investments of up to approximately $92,000 (or RMB 624,000) by the JV Partners over the initial ten-year term of the JV Agreement. The investment in the Investee is accounted for under the equity method of accounting because the Company has significant influence over the Investee through its ownership interest, technology license and manufacturing service agreements and representation on the board of directors. As of December 31, 2019, there was no impact to the Company’s consolidated balance sheet except for the direct transaction costs which have been capitalized and will be included as part of the investment balance when the intellectual property is transferred Direct costs of $36 are included in other assets in the Company’s consolidated balance sheets as of December 31, 2019. In addition to contributing the licensed IP, the Company’s obligations to the Investee include assisting the Investee to become proficient in using the intellectual property to manufacture products that meet regulatory standards, and providing supervision of appointed
Ekso Bionics Holdings, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
directors. The primary risks that the Company is exposed to from its involvement with the VIE include operational risk, foreign currency exposure risk and foreign regulatory risk. As of December 31, 2019, the Company has no other implied or unfunded commitments related to the Investee and its maximum exposure to risk of loss will be limited to the carrying value of the investment.
Under the JV Agreement, the JV Partners are required, within 90 days of the formation of the China JV, to contribute RMB 62.4 million, with a further RMB 124.8 million capital contribution required from the JV Partners upon notice by the China JV based on the China JV’s then-current operating plan. The remaining RMB 436.8 million capital contribution of the JV Partners will be paid by them within the 10 years after the formation of the China JV as previously contemplated under the JV Agreement.
Equity Investments
Under the JV Agreement, ZYVC or its designees have agreed to invest an aggregate of $10,000 in equity investments in the Company, taking place in two tranches. On January 30, 2019, the Company executed a Share Purchase Agreement (the “JV SPA”) under which the Company sold 3,067 shares of its common stock for $5,000 at a purchase price of $1.63 per share. The Company recorded $8 in direct issuance costs as a reduction to the gross equity proceeds.
The remaining $5,000 investment by the China JV or ZYVC or its designees is contingent upon the China JV shipping the first batch of EksoGT, EksoVest and EksoZeroG Arm products to Ekso Bionics, its affiliates or a third party. The investment will be made through the purchase of shares of the Company's common stock at a per share price equal to the volume weighted average price of 20 trading days before the issue date, but not less than $1.30 nor more than $1.96.
5. Fair Value Measurement
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 on a recurring basis are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
December 31, 2019
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Warrant liabilities
|
$
|
4,307
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,307
|
|
Contingent success fee liability
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Warrant liability
|
$
|
585
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
585
|
|
Contingent success fee liability
|
$
|
34
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
34
|
|
During the years ended December 31, 2019 and 2018, there were no transfers between Level 1, Level 2, or Level 3 assets or liabilities reported at fair value on a recurring basis and the valuation techniques used did not change compared to the Company’s established practice.
Ekso Bionics Holdings, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
The following table sets forth a summary of the changes in the fair value of Company’s Level 3 financial liabilities during the year ended December 31, 2019, which were measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
Warrant
Liability
|
|
Contingent
Success Fee
Liability
|
Balance at December 31, 2018
|
$
|
585
|
|
|
$
|
34
|
|
Initial fair value of warrants issued in conjunction with May 2019 financing
|
7,334
|
|
|
0
|
|
Initial fair value of warrants issued in conjunction with December 2019 financing
|
2,507
|
|
|
0
|
|
Gain on revaluation of warrants issued in December 2019, May 2019 financing, and December 2015 financing
|
(6,376
|
)
|
|
0
|
|
Loss on modification of 2015 Warrants
|
257
|
|
|
—
|
|
Gain on revaluation of contingent liabilities
|
—
|
|
|
(28
|
)
|
Balance at December 31, 2019
|
$
|
4,307
|
|
|
$
|
6
|
|
See Note 13 in the notes to consolidated financial statements under the caption Capitalization and Equity Structure – Warrants for a description of the warrants accounted for as a liability, including the method and inputs used to estimate their fair value.
6. Revenue Recognition
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company enters into contracts that can include various combinations of products and services, which when capable of being distinct, are accounted for as separate performance obligations. Revenue recognition is evaluated based on the following five steps: (i) identification of the contract with the customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied.
For multiple-element arrangements, revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are determined based on observable prices at which the Company separately sells its products or services. If a standalone selling price is not directly observable, the Company estimates the selling price based on market conditions and entity-specific factors including features and functionality of the product and/or services, the geography of the Company’s customers, type of the Company’s markets. Any discounts or other reductions to the transaction price are allocated proportionately to all performance obligations within the multiple-element arrangement.
Contract Balances
Timing of revenue recognition may differ from the timing of invoicing to customers and receipt of payment. For the sale of its products, the Company generally recognizes revenue at a point in time through the ship-and-bill performance obligations. For the lease of its products, the Company generally recognizes revenue over the lease term commencing upon the completion of customer training. For service agreements, the Company generally invoices customers at the beginning of the coverage period and records revenue related to the billed amounts over time, equivalent to the coverage period of the maintenance and support contract.
Deferred revenue is comprised mainly of unearned revenue related to extended support and maintenance contracts (Ekso Care), but also includes other offerings that the Company was paid in advance and will earn revenue when it transfers control of the product or service.
Ekso Bionics Holdings, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
Deferred revenue consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31,
2018
|
Deferred extended maintenance and support
|
$
|
2,837
|
|
|
$
|
2,114
|
|
Deferred royalties
|
290
|
|
|
300
|
|
Deferred device revenues
|
125
|
|
|
70
|
|
Customer deposits and advances
|
23
|
|
|
62
|
|
Deferred rental income
|
6
|
|
|
51
|
|
Total deferred revenues
|
3,281
|
|
|
2,597
|
|
Less current portion
|
(1,492
|
)
|
|
(1,102
|
)
|
Deferred revenues, non-current
|
$
|
1,789
|
|
|
$
|
1,495
|
|
Deferred revenue activity consisted of the following for the year ended December 31, 2019:
|
|
|
|
|
Beginning balance
|
$
|
2,597
|
|
Deferral of revenue
|
2,621
|
|
Recognition of deferred revenue
|
(1,937
|
)
|
Ending balance
|
$
|
3,281
|
|
At December 31, 2019, the Company’s deferred revenue was $3,281. Excluding customer deposits, the Company expects to recognize approximately $1,303 of the deferred revenue during 2020, $906 in 2021, and $1,049 thereafter.
In addition to deferred revenue, the Company has a non-cancellable backlog of $524 related to its contracts for rental units with its customers. These rental contracts are classified as operating leases, with typically 12-month lease terms.
As of December 31, 2019 and 2018, accounts receivable, net of allowance for doubtful accounts, were $5,208 and $3,660, respectively, and are included in current assets on the Company’s consolidated balance sheets.
The allowance for doubtful accounts reflects the Company’s best estimate of probable losses inherent in the accounts receivable balance. The Company determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 90 days.
Disaggregation of revenue
The following table disaggregates the Company’s revenue by major source for the year ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EksoHealth
|
|
EksoWorks
|
|
Total
|
Device revenue
|
$
|
9,064
|
|
|
$
|
1,726
|
|
|
$
|
10,790
|
|
Service, support and rentals
|
2,560
|
|
|
—
|
|
|
2,560
|
|
Parts and other
|
259
|
|
|
234
|
|
|
493
|
|
Collaborative arrangements
|
74
|
|
|
—
|
|
|
74
|
|
|
$
|
11,957
|
|
|
$
|
1,960
|
|
|
$
|
13,917
|
|
Ekso Bionics Holdings, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
The following table disaggregates the Company’s revenue by major source for the year ended December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EksoHealth
|
|
EksoWorks
|
|
Total
|
Device revenue
|
$
|
6,403
|
|
|
$
|
2,360
|
|
|
$
|
8,763
|
|
Service, support and rentals
|
2,100
|
|
|
—
|
|
|
2,100
|
|
Parts and other
|
323
|
|
|
118
|
|
|
441
|
|
Collaborative arrangements
|
28
|
|
|
—
|
|
|
28
|
|
|
$
|
8,854
|
|
|
$
|
2,478
|
|
|
$
|
11,332
|
|
7. Property and Equipment, net
Property and equipment, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
December 31,
|
|
Life (Years)
|
|
2019
|
|
2018
|
Company owned fleet
|
3-4
|
|
$
|
3,385
|
|
|
$
|
3,794
|
|
Computer software
|
3-5
|
|
851
|
|
|
818
|
|
Leasehold improvement
|
5-10
|
|
631
|
|
|
631
|
|
Furniture, office and leased equipment
|
3-7
|
|
554
|
|
|
555
|
|
Machinery and equipment
|
3-7
|
|
289
|
|
|
289
|
|
Tools, molds, dies and jigs
|
5
|
|
96
|
|
|
69
|
|
Computers and peripherals
|
3-5
|
|
77
|
|
|
77
|
|
|
|
|
5,883
|
|
|
6,233
|
|
Accumulated depreciation and amortization
|
|
|
(4,226
|
)
|
|
(3,868
|
)
|
Property and equipment, net
|
|
|
$
|
1,657
|
|
|
$
|
2,365
|
|
Depreciation and amortization expense of property and equipment, net totaled $690 and $1,009 for the years ended December 31, 2019 and 2018, respectively.
8. Accrued Liabilities
Accrued liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Salaries, benefits and related expenses
|
$
|
1,098
|
|
|
$
|
2,446
|
|
Device warranty
|
285
|
|
|
255
|
|
Clinical trials
|
203
|
|
|
227
|
|
Financing lease liability
|
18
|
|
|
35
|
|
Severance
|
—
|
|
|
270
|
|
Other
|
79
|
|
|
256
|
|
Total
|
$
|
1,683
|
|
|
$
|
3,489
|
|
Warranty
Sales of devices generally include an initial warranty for parts and services for one year in the U.S., two years in Europe, the Middle East, Africa, and one or two years in Asia. 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. 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 consolidated statements of operations and comprehensive loss as a component of costs
Ekso Bionics Holdings, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
of revenue. The current portion of the warranty liability is classified as a component of accrued liabilities, while the long-term portion of the warranty liability is classified as a component of other non-current liabilities in the consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
Warranty
|
|
2019
|
|
2018
|
Balance at beginning of the period
|
$
|
319
|
|
|
$
|
232
|
|
Additions for estimated future expense
|
416
|
|
|
374
|
|
Incurred costs
|
(385
|
)
|
|
(287
|
)
|
Balance at end of the period
|
$
|
350
|
|
|
$
|
319
|
|
|
|
|
|
Current portion
|
285
|
|
|
255
|
|
Long-term portion
|
65
|
|
|
64
|
|
Total
|
$
|
350
|
|
|
$
|
319
|
|
9. Long-Term Debt
In December 2016, the Company entered into a loan agreement and received $7,000 that bears interest on the outstanding daily balance at a floating per annum rate equal to the 30-day U.S. LIBOR plus 5.41%. The loan agreement created a first priority security interest with respect to substantially all assets of the Company, including proceeds of intellectual property, but expressly excluding intellectual property itself.
The Company was required to pay accrued interest on the current loan on the first day of each month through and including January 1, 2018. Commencing on February 1, 2018, the Company was required to make equal monthly payments of principal, together with accrued and unpaid interest. The principal balance of the current loan amortizes ratably over 36 months, and matures on January 1, 2021, at which time all unpaid principal and accrued and unpaid interest shall be due and payable in full. In addition, a final payment of $245 will be due on the maturity date, of which $228 has accreted as of December 31, 2019, and is included as a component of note payable on the Company’s consolidated balance sheets.
In December 2016, and pursuant to the loan agreement, the Company entered into a success fee agreement with the lender under which the Company agreed to pay the lender a $250 success fee upon the first to occur of any of the following events: (a) a sale or other disposition by the Company of all or substantially all of its assets; (b) a merger or consolidation of the Company into or with another person or entity, where the holders of the Company’s outstanding voting equity securities immediately prior to such merger or consolidation hold less than a majority of the issued and outstanding voting equity securities of the successor or surviving person or entity immediately following the consummation of such merger or consolidation; or (c) the closing price per share for the Company’s common stock being $8.00 or more for five successive business days. The estimated fair value of the success fee was determined using the Lattice Model and was recorded as a discount to the debt obligation. The fair value of the contingent success fee is re-measured each reporting period with any adjustments in fair value being recognized in the consolidated statements of operations and comprehensive loss. The success fee is classified as a component of other non-current liabilities in the consolidated balance sheets. At December 31, 2019, the fair value of the contingent success fee liability was $6.
The loan agreement includes a liquidity covenant requiring that the Company maintain unrestricted cash and cash equivalents in accounts of the lender or subject to control agreements in favor of the lender in an amount equal to at least three months of “Monthly Cash Burn,” which is the Company’s average monthly net income (loss) for the trailing six-month period plus (a) certain expenses and (b) the average monthly principal due and payable on interest-bearing liabilities in the immediately succeeding three-month period. Such amount was determined to be $3,564 as of December 31, 2019, the most current determination date, with the amount subject to change on a month-to-month basis. At December 31, 2019, with cash on hand of $10,872, the Company was compliant with this liquidity covenant and all other covenants.
The final payment fee, debt issuance costs, and the initial fair value of the success fee combined with the stated interest resulted in an effective interest rate of 10.23% for the year ended December 31, 2019. The final payment fee, the initial fair value of the success fee and the debt issuance costs are being accreted/amortized to interest expense using the effective interest method over the life of the loan.
Ekso Bionics Holdings, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
The following table presents scheduled principal payments of the Company's long-term debt and final payment fee as of December 31, 2019:
|
|
|
|
|
Period
|
Amount
|
2020
|
$
|
2,333
|
|
2021
|
440
|
|
Total principal payments
|
2,773
|
|
Less final payment fee, discount and issuance cost
|
33
|
|
Long-term debt, net
|
$
|
2,740
|
|
|
|
Current portion
|
2,333
|
|
Long-term portion
|
407
|
|
Long-term debt, net
|
$
|
2,740
|
|
The following table sets forth interest expense information related to the long-term debt, including interest expense associated with the final payment and initial success fee, for the periods presented:
|
|
|
|
|
|
|
|
|
|
Twelve months ended
|
|
December 31, 2019
|
|
December 31, 2018
|
Contractual interest expense
|
$
|
278
|
|
|
$
|
441
|
|
Amortization of debt issuance costs
|
19
|
|
|
32
|
|
Accretion of final payment
|
49
|
|
|
82
|
|
Amortization of initial success fee
|
23
|
|
|
39
|
|
|
$
|
369
|
|
|
$
|
594
|
|
10. Lease Obligations
In May 2017, the Company renewed its operating lease agreement for its headquarters and manufacturing facility in Richmond, California. The operating lease agreement expires in May 2022, with no further options to extend or terminate. During the renewal period, the base rent is approximately $32 per month during the first year, with incremental 3% increases per annum thereafter. The lease includes non-lease components (i.e. common area maintenance costs) that are paid separately from rent based on actual costs incurred, and therefore, were not included in the right-of-use asset and lease liability but are reflected as an expense in the period incurred.
In July 2017, the Company entered into an operating lease agreement for its European operations office in Hamburg, Germany. The initial Hamburg lease term ends in July 2022. The Company has an option to extend the lease for another five-year term.
Through April 2019, the Company had an unoccupied leased sales office in Freiburg, Germany, which had a lease term expiring in December 2020. During the year ended December 31, 2018, the Company recorded a $175 charge in sales and marketing expense in the consolidated statement of operations and comprehensive loss relating to remaining obligation of the lease. In April 2019, the Company entered an agreement with the lessor of the Freiburg office releasing the Company from future lease payments after April 30, 2019. As a result, the Company recorded a credit of $125 for the year ended December 31, 2019 to sales and marketing expenses in the consolidated statements of operations and comprehensive loss relating to the remaining obligation of the lease.
The Company’s future lease payments as of December 31, 2019 are as follows, which are presented as lease liabilities, current and lease liabilities on the Company’s consolidated balance sheets:
Ekso Bionics Holdings, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
|
|
|
|
|
|
Period
|
|
Operating
Leases
|
2020
|
|
$
|
515
|
|
2021
|
|
531
|
|
2022
|
|
232
|
|
Thereafter
|
|
—
|
|
Total lease payments
|
|
1,278
|
|
Less: imputed interest
|
|
(146
|
)
|
Present value of lease liabilities
|
|
$
|
1,132
|
|
|
|
|
Lease liabilities, current
|
|
$
|
421
|
|
Lease liabilities, noncurrent
|
|
711
|
|
Total lease liabilities
|
|
$
|
1,132
|
|
|
|
|
Weighted-average remaining term (in years)
|
|
2.44
|
|
Weighted-average discount rate
|
|
10.5
|
%
|
Lease expense under the Company’s operating leases was $551 and $719, for the years ended December 31, 2019 and 2018, respectively.
Practical Expedients
Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes the lease expense for such leases on a straight-line basis over the lease term.
The Company has elected to account for lease (e.g., fixed payments including rent) and non-lease components (e.g., common-area maintenance costs) as a single combined lease component under ASC 842 as the lease components are the predominant elements of the combined components.
As part of the transition to ASC 842, the Company elected to use the modified retrospective transition method with the new standard being applied as of the January 1, 2019 adoption date. Additionally, the Company has elected, as of the adoption date, not to reassess whether expired or existing contracts contain leases under the new definition of a lease; the lease classification for expired or existing leases; or whether previously capitalized initial direct costs would qualify for capitalization under ASC 842.
11. Employee Benefit Plan
The Company administers a 401(k) retirement plan or the 401(k) Plan in which all employees are eligible to participate. Each eligible employee may elect to contribute to the 401(k) Plan. The Company has made matching contributions in the form of shares of the Company's common stock to the 401(k) Plan in an amount equal to 50% of employee contributions (up to the statutory limit), subsequent to year-end. The expense related to the contribution was $142 and $212 for the year ended December 31, 2019 and 2018, respectively.
12. Related Party Transactions
One of the Company’s directors, Dr. Ted Wang, is the founder, general partner and Chief Investment Officer of Puissance Capital Management LP, or Puissance Capital, which is an affiliate of Puissance Cross-Border Opportunities II LLC, one of the Company’s largest stockholders. Prior to Dr. Wang’s appointment to the Board in connection with the Rights Offering in September 2017, the Company entered into a one-year consulting agreement with Angel Pond Capital LLC, or Angel Pond, an entity solely owned and managed by Dr. Wang and affiliated with Puissance Capital. Angel Pond assists the Company with strategic positioning in the Asia Pacific region, including the introduction to potential strategic and capital partners and the development of strategic partnerships for the sale and manufacture of the Company’s products in that market. During the year ended December 31, 2017, the Company made aggregate payments of $2,195 to Angel Pond, representing consulting services for one year. These fees were
Ekso Bionics Holdings, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
recognized ratably to expense over the one-year period, resulting in $1,075 expense charged to general and administrative expense for the year ended December 31, 2018. During the year ended December 31, 2018, the Company made additional aggregate payments of $90 to Angel Pond and an additional $30 during the year ended December 31, 2019 in connection with consulting services provided by Angel Pond, which were expensed in the consolidated statement of operations and comprehensive loss.
In connection with the consulting agreement with Angel Pond, the Company is required to make a payment of $1,000 to Angel Pond when the China JV is consummated. This amount has not yet been recorded in the Company’s consolidated financial statements as the joint venture has not successfully completed registration in China and therefore has not achieved consummation.
During the year ended December 31, 2019, the Company sold EksoVest raw material inventory and tooling to the China JV for
$14.
13. Capitalization and Equity Structure
Summary
The Company’s authorized capital stock at December 31, 2019 consisted of 141,429 shares of common stock and 10,000 shares of preferred stock. At December 31, 2019, 86,920 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 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.
December 2019 Common Stock Offering
In December 2019, the Company entered into a securities purchase agreement, or the December 2019 Purchase Agreement, with certain purchasers. Pursuant to the December 2019 Purchase Agreement, the Company agreed to sell in a registered direct offering, or the December 2019 Offering, an aggregate of 11,111 shares of its common stock, and accompanying warrants, or the December 2019 Warrants, to purchase 8,333 shares of its common stock at a combined purchase price of $0.45 for each share and related warrant, for gross proceeds of $5,000. Each December 2019 Warrant has an exercise price of $0.5402 per share, subject to adjustment in certain circumstances, and will be exercisable commencing six months and one day from the date of issuance and will expire five years from the date the warrants become exercisable.
As compensation for services provided by the underwriters or placement agent for the December 2019 Offering, or Placement Agent, the Company paid a cash fee equal to 7.0% ($350) and a management fee equal to 1.0% of the aggregate gross proceeds raised in the registered direct offering ($50), and issued warrants to purchase shares of common stock, or the December 2019 Placement Agent Warrants, in an amount equal to 7.0% of the aggregate number of shares of common stock placed in the registered direct offering, or 778 shares in the aggregate, in substantially the same form as the December 2019 Warrants, except that the December 2019 Placement Agent Warrants will expire five years from the effective date of the December 2019 Offering and have an exercise price per share equal to $0.5625. In connection with the December 2019 Offering, the Company also incurred $95 in other expenses of the Placement Agent.
Of the $5,000 in proceeds, $2,507 was allocated to the December 2019 Warrants and December 2019 Placement Agent Warrants based on the fair value method, with the remaining proceeds of $2,493 allocated to the common stock shares. In connection with the December 2019 Offering, the Company incurred approximately $777 in direct financing costs, including fair value of $200 of December 2019 Placement Agent Warrants, which were allocated on the fair value basis between the common stock shares and the applicable warrants: $389 was allocated to the December 2019 Warrants and the December 2019 Placement Agent Warrants
Ekso Bionics Holdings, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
and expensed immediately in other income, net in the accompanying consolidated statements of operations and comprehensive loss and $388 was allocated to the common stock shares and recorded as a reduction to additional paid in capital.
May 2019 Common Stock Offering
In May 2019, the Company entered into an underwriting agreement, or the May 2019 Underwriting Agreement, with Cantor Fitzgerald & Co. and SunTrust Robinson Humphrey, Inc., or the Underwriters, for the underwritten public offering of its common stock and warrants to purchase common stock, or the May 2019 Offering. Pursuant to the May 2019 Underwriting Agreement, on May 24, 2019, the Company sold 6,667 shares of its common stock, and accompanying warrants, or the May 2019 Warrants, to purchase 6,667 shares of its common stock at a combined price to the public of $1.50 per share of common stock and accompanying warrant, for total gross proceeds of $10,000. Each warrant had an initial exercise price of $2.00 per share, subject to adjustment in certain circumstances, and will expire five years from the date of issuance. Of the $10,000 in proceeds, $7,334 was allocated to the warrants based on the fair value method, with the remaining proceeds of $2,666 allocated to the common stock shares.
In connection with the May 2019 financing, the Company incurred approximately $963 in direct financing costs which have been allocated on the fair value basis between the common stock shares and the warrants. Of the $963 in direct financing costs, $706 was allocated to the warrants and expensed immediately in other income (expense), net in the accompanying consolidated statements of operations and comprehensive loss and $257 was allocated to the common stock shares and recorded as a reduction to additional paid in capital.
The May 2019 Warrants contain a price protection feature, pursuant to which, in connection with the December 2019 Offering, the exercise price of the May 2019 Warrants was reduced to $0.38 per share.
Equity Investments
On January 30, 2019, the Company sold 3,067 shares of its common stock for $5,000 at a purchase price of $1.63 per share under the JV SPA, in connection with the JV Agreement. Refer to Note 4. Investment in Unconsolidated Affiliate - Equity Investments for additional information.
At-the-Market Offering
In August 2018, the Company entered into a Controlled Equity OfferingSM Sales Agreement, or ATM Agreement, with Cantor Fitzgerald & Co., or the Agent, under which the Company may issue and sell shares of its common stock, from time to time, to or through the Agent, by methods deemed to be an “at the market offering.” Shares having an aggregate offering price of up to $25,000 may be offered and sold under the prospectus and prospectus supplement filed with the SEC related to such offering, or the ATM Prospectus. For the year ended December 31, 2019, the Company sold 2,150 shares of common stock under the ATM Agreement at an average price of $1.35 per share, for aggregate proceeds of $2,776, net of commission and issuance costs, to the Company. From inception to December 31, 2019, the Company has sold 4,182 shares of its common stock under the ATM Agreement at an average price of $1.86 per share, for aggregate proceeds of $7,206, net of commission and issuance costs, to the Company. As of December 31, 2019, approximately $17,241 aggregate offering price of the Company's common stock remained available for issuance pursuant to the ATM Prospectus.
Preferred Stock
The Company 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 its 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.
Warrants
Warrant share activity for the year ended December 31, 2019 was as follows:
Ekso Bionics Holdings, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source
|
Exercise
Price
|
|
Term
(Years)
|
|
December 31, 2018
|
|
Issued
|
|
Expired
|
|
Exercised
|
|
December 31, 2019
|
December 2019 Warrants
|
$
|
0.5402
|
|
|
5
|
|
—
|
|
|
8,333
|
|
|
—
|
|
|
—
|
|
|
8,333
|
|
December 2019 Placement Agent Warrants
|
$
|
0.5625
|
|
|
5
|
|
—
|
|
|
778
|
|
|
—
|
|
|
—
|
|
|
778
|
|
May 2019 Warrants
|
$
|
0.38
|
|
|
5
|
|
—
|
|
|
6,667
|
|
|
—
|
|
|
—
|
|
|
6,667
|
|
2017 Information Agent Warrants
|
$
|
1.50
|
|
|
3
|
|
200
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
200
|
|
2015 Warrants
|
$
|
2.75
|
|
|
5
|
|
1,604
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,604
|
|
2014 PPO and Merger warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Placement agent warrants
|
$
|
7.00
|
|
|
5
|
|
426
|
|
|
—
|
|
|
(426
|
)
|
|
—
|
|
|
—
|
|
PPO warrants
|
$
|
14.00
|
|
|
5
|
|
1,078
|
|
|
—
|
|
|
(1,078
|
)
|
|
—
|
|
|
—
|
|
Pre-2014 warrants
|
$
|
9.66
|
|
|
9-10
|
|
88
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
88
|
|
|
|
|
|
|
3,396
|
|
|
15,778
|
|
|
(1,504
|
)
|
|
—
|
|
|
17,670
|
|
December 2019 Warrants
In December 2019, pursuant to the December 2019 Purchase Agreement the Company issued warrants to purchase 8,333 shares of common stock, or the December 2019 Offering, with an exercise price of $0.5402 per share, or the December 2019 Warrants. The December 2019 Warrants will be exercisable six months and one day from their issuance date, or from and after June 21, 2020, and will expire five years from the date they initially become exercisable, or on June 21, 2025.
In addition, the December 2019 Warrants contain a cashless exercise provision and could require cash payments in the event of a failure to timely deliver securities or in the event of insufficient authorized shares. The December 2019 Warrants also contain a put option, under which, if the Company enters into a Fundamental Transaction, as defined in the December 2019 Warrants, the Company or any successor entity will, at the option of a holder of a December 2019 Warrant, exercisable concurrently with or at any time within 30 days after the consummation of such Fundamental Transaction, purchase such holder’s December 2019 Warrant by paying to such holder an amount of cash equal to the Black-Scholes value of the remaining unexercised portion of such holder’s December 2019 Warrant within five trading days after the notice of exercise by the holder of the put option. Because of this put-option provision, the December 2019 Warrants are classified as a liability and are marked to market at each reporting date.
The warrant liability related to the December 2019 Warrants is measured at fair value at each reporting date using certain estimated inputs, which are classified within Level 3 of the fair value hierarchy. The following assumptions were used in the Black-Scholes Model to measure the fair value of the December 2019 Warrants:
|
|
|
|
|
|
|
|
|
December 31, 2019
|
December 20, 2019
|
Current share price
|
$
|
0.39
|
|
$
|
0.39
|
|
Conversion price
|
$
|
0.5402
|
|
$
|
0.5402
|
|
Risk-free interest rate
|
1.73
|
%
|
1.73
|
%
|
Expected term (years)
|
5.47
|
|
5.50
|
|
Volatility of stock
|
95.7
|
%
|
96.3
|
%
|
December 2019 Placement Agent Warrants
In December 2019, in connection with the December 2019 Offering, the Company issued warrants to purchase 778 shares of the Company’s common stock to the placement agent for such offering, or the December 2019 Placement Agent Warrants. The December 2019 Placement Agent Warrants have substantially the same form as the December 2019 Warrants, except that they have an exercise price per share equal to $0.5625, subject to adjustment in certain circumstances, and will expire on December 18, 2025.
Ekso Bionics Holdings, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
December 31, 2019
|
December 20, 2019
|
Current share price
|
$
|
0.39
|
|
$
|
0.39
|
|
Conversion price
|
$
|
0.5625
|
|
$
|
0.5625
|
|
Risk-free interest rate
|
1.69
|
%
|
1.69
|
%
|
Expected term (years)
|
4.97
|
|
5.00
|
|
Volatility of stock
|
93.1
|
%
|
92.7
|
%
|
Management has assessed that the likelihood of a Change of Control occurring during the term of the December 2019 Placement Agent Warrants is low, and that if such an event were to occur, the difference between the cashless exercise value and the warrants fair value is nominal.
May 2019 Warrants
In May 2019, pursuant to the May 2019 Underwriting Agreement and as part of the May 2019 Offering, the Company issued the May 2019 Warrants with an initial exercise price of $2.00 per share. The May 2019 Warrants will expire five years from the date of their issuance, or on May 24, 2024. The May 2019 Warrants contain a price protection feature, pursuant to which, subject to certain exceptions, if shares of common stock are sold or issued in the future, or securities convertible or exercisable for shares of the Company’s common stock are sold or issued in the future, for consideration, or with an exercise price or conversion price, as applicable, per share less than the exercise price per share then in effect for the May 2019 Warrants, the exercise price of the May 2019 Warrants is reduced to the consideration paid for, or the exercise price or conversion price of, as the case may be, the securities issued in such offering. Pursuant to this provision, in connection with the December 2019 Offering, the exercise price of the May 2019 Warrants was reduced to $0.38 per share, being the amount that is equal to the lower of (x) the consideration paid for the securities issued in the December 2019 Offering, or $0.45 per share, (y) the lowest exercise price of the December 2019 Warrants, or $0.5402, and (z) the lowest one-day volume-weighted average price of the Company’s Common Stock on the Nasdaq Capital Market as measured each day during the five trading day period starting on December 19, 2019, rounded to the nearest share, or $0.38.
In addition, if the Company effects or enters into any issuance of common stock or options or convertible securities exercisable for or convertible into common stock at a price which varies or may vary with the market price of the shares of the Company's common stock, subject to certain exceptions, a May 2019 Warrant holder may, at the time of exercise of the holder’s warrant, elect to exercise the warrant at such variable price.
Further, the May 2019 Warrants contain a cashless exercise provision and could require cash payments in the event of a failure to timely deliver securities or in the event of insufficient authorized shares. As well, the May 2019 Warrants include a put option, whereby while the May 2019 Warrants are outstanding, if the Company enters into a Change of Control, as defined in the May 2019 Warrants, the Company or any successor entity will, at the option of a 2019 Warrant holder exercise within 90 days after the public disclosure of the Change of Control transaction, purchase such holder’s May 2019 Warrants by paying to such holder an amount of cash equal to the Black-Scholes value of the remaining unexercised portion of such warrants on the later date of consummation of the Change of Control transaction or two trading days after the notice of such request. Because of this put option provision, the May 2019 Warrants are classified as a liability and are marked to market at each reporting date.
The warrant liability related to the May 2019 Warrants is measured at fair value at each reporting date using certain estimated inputs, which are classified within Level 3 of the fair value hierarchy. The following assumptions were used in a combination of the Black-Scholes Model and the Lattice Model to measure the fair value of the 2019 Warrants:
Ekso Bionics Holdings, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
December 31, 2019
|
May 24, 2019
|
|
Current share price
|
$
|
0.39
|
|
$
|
1.49
|
|
Conversion price
|
$
|
0.38
|
|
$
|
2.00
|
|
Risk-free interest rate
|
1.67
|
%
|
2.12
|
%
|
Expected term (years)
|
4.40
|
|
5.00
|
|
Volatility of stock
|
93.9
|
%
|
98
|
%
|
Management has assessed that the likelihood of a Change of Control occurring during the term of the warrants is low, and that if such an event were to occur, the difference between the cashless exercise value and the May 2019 Warrants fair value is nominal.
2017 Information Agent Warrants
In September 2017, in connection with a rights offering in August 2017, the Company issued warrants to purchase 200 shares of the Company’s common stock with an exercise price of $1.50 per share to an information agent, or the 2017 Information Agent Warrants. The 2017 Information Agent Warrants became exercisable immediately upon issuance and will remain exercisable until September 13, 2020. These warrants were recorded in stockholders’ equity on the Company’s consolidated balance sheet.
2015 Warrants
In December 2015, the Company issued warrants to purchase 2,122 shares with an exercise price of $3.74 per share, or the 2015 Warrants. The 2015 Warrants contain a put-option provision. Under this provision, while the 2015 Warrants are outstanding, if the Company enters into a Fundamental Transaction, as defined in the 2015 Warrants, the Company or any successor entity shall, at the option of each warrant holder, exercisable at any time concurrently with or within 30 days after the consummation of the Fundamental Transaction, purchase the warrant from the holder exercising such option by paying to the holder an amount of cash equal to the Black-Scholes Model value of the remaining unexercised portion of such holder’s warrant on the date of the consummation of the Fundamental Transaction. Because of this put-option provision, the 2015 Warrants are classified as a liability and are marked to market at each reporting date. Through December 31, 2018, 518 shares of the 2015 Warrants were exercised. During the year ended December 31, 2019, none of the 2015 Warrants were exercised.
On March 8, 2019, in connection with the Company entering into the JV Agreement, the Company entered into an amendment to the December 2019 Purchase Agreement under which the 2015 Warrants were issued with the holders of the 2015 Warrants, or the 2015 SPA Amendment, which retroactively removed a provision from such securities purchase agreement that prohibited the Company from effecting or entering into an agreement to effect any issuance by the Company of its common stock at a price determined based on the trading price of the Company’s common stock or otherwise at a future determined price. Pursuant to the 2015 SPA Amendment, the Company also entered into an amendment to the 2015 Warrants to reduce the exercise price of each such warrant from $3.74 per share to $2.75 per share, subject to further adjustments under certain circumstances pursuant to the existing terms of such warrant. In the year ended December 31, 2019, the Company recorded a $257 loss on the modification of these warrants.
The warrant liability related to the 2015 Warrants is measured at fair value at each reporting date using certain estimated inputs, which are classified within Level 3 of the fair value hierarchy. The following assumptions were used in the Black-Scholes Model to measure the fair value of the 2015 Warrants as of the years ended:
|
|
|
|
|
|
|
|
|
December 31, 2019
|
December 31, 2018
|
Current share price
|
$
|
0.39
|
|
$
|
1.24
|
|
Conversion price
|
$
|
2.75
|
|
$
|
3.74
|
|
Risk-free interest rate
|
1.59
|
%
|
2.48
|
%
|
Expected term (years)
|
0.99
|
|
1.99
|
|
Volatility of stock
|
98
|
%
|
104
|
%
|
Ekso Bionics Holdings, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
2014 PPO and Merger Warrants and Pre-Merger Warrants
On January 15, 2014, a wholly-owned subsidiary of Ekso Bionics Holdings, Inc. named Ekso Acquisition Corp. merged with and into Ekso Bionics, Inc., or the Merger. Concurrently with the closing of the Merger and in contemplation of the Merger, the Company closed a private placement offering, or PPO, in which it issued warrants to purchase a total of 5,151 shares of common stock of which 4,329 were at an exercise price of $14.00 per share, and the balance of which were at an exercise price of $7.00 per share. The aforementioned warrants expired January 14, 2019.
Warrants to purchase preferred stock of Ekso Bionics Inc. outstanding prior to the Merger were converted into warrants to purchase 89 shares of common stock of the Company in connection with the Merger, or the Merger Warrants. As of December 31, 2019, there remained Merger Warrants to purchase 88 shares of the Company’s common stock outstanding, with the following terms: (1) the Merger Warrants expire on various dates from June 1, 2022 to August 30, 2023; (2) the Merger Warrants have an exercise price of $9.66 per share; and (3) at the option of the holder, the Merger Warrants may be exercised on a “cashless exercise” basis in which shares are retained to cover the exercise price based on the market value of the Company’s common stock on the date of exercise.
14. Stock-based Compensation
2014 Equity Incentive Plan
In 2014, prior to the Merger, the Board of Directors and a majority of the stockholders adopted the 2014 Equity Incentive Plan, or the 2014 Plan, allowing for the issuance of 2,058 shares of common stock. The 2014 Plan has since been amended and restated with approval by the stockholders to increase the maximum number of shares issuable, as shown in the table below:
|
|
|
|
Original share pool
|
2,058
|
|
2015 increase
|
1,656
|
|
June 2017 increase
|
1,000
|
|
December 2017 increase (ratified in June 2018)
|
4,400
|
|
2019 increase
|
3,500
|
|
Total share authorized for grant as of December 31, 2019
|
12,614
|
|
As of December 31, 2019, the total shares authorized for grant under the 2014 Plan was 12,614, of which 1,798 were available for future grants.
Under the terms of the 2014 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.
Shares available for future grant under the 2014 Plan was as follows:
|
|
|
|
|
Shares Available For Grant
|
Available as of December 31, 2018
|
1,267
|
|
Granted
|
(4,344
|
)
|
Forfeited
|
938
|
|
Expired
|
437
|
|
Share pool increase
|
3,500
|
|
Available as of December 31, 2019
|
1,798
|
|
Ekso Bionics Holdings, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
Stock Options
The Board of Directors may grant stock options under the 2014 Plan at a price of not less than 100% of the fair market value of the Company’s common stock on the date the option is granted. The maximum term of an incentive stock option granted to participants 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 Plan. To date, no incentive stock options have been granted. The Board of Directors also determines the terms and conditions of awards, including the vesting schedule and any forfeiture provisions. Options granted under the 2014 Plan vest upon the passage of time, generally four years, or upon the attainment of certain performance criteria established by the Board of Directors. The Company may grant options to purchase common stock to non-employees for advisory and consulting services. Upon exercise of a stock option, the Company issues new shares of common stock.
A summary of the stock option activity during the year ended December 31, 2019 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Outstanding
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
Aggregate
Intrinsic
Value
|
Outstanding at beginning of year
|
6,466
|
|
|
$
|
3.05
|
|
|
|
|
|
Granted
|
2,414
|
|
|
$
|
0.85
|
|
|
|
|
|
Exercised
|
(186
|
)
|
|
$
|
1.23
|
|
|
|
|
|
Forfeited
|
(846
|
)
|
|
$
|
2.02
|
|
|
|
|
|
Expired
|
(437
|
)
|
|
$
|
3.94
|
|
|
|
|
|
Outstanding at end of year
|
7,411
|
|
|
$
|
2.44
|
|
|
8.08
|
|
$
|
—
|
|
Vested and expected to vest
|
7,411
|
|
|
$
|
2.44
|
|
|
8.08
|
|
$
|
—
|
|
Exercisable at year end
|
3,258
|
|
|
$
|
3.86
|
|
|
6.31
|
|
$
|
—
|
|
In 2019, the Company received $228 in cash from exercised stock options. The intrinsic value of the options exercised totaled $233 and $1, for the years ended December 31, 2019 and 2018, respectively.
The weighted-average grant date fair value of stock options granted for the years ended December 31, 2019 and 2018 was $0.68 and $1.57, respectively. The total grant date fair value of stock option vested during the years ended December 31, 2019 and 2018 was $2,602 and $1,725, respectively.
As of December 31, 2019, total unrecognized compensation cost related to unvested stock options was $4,172. This amount is expected to be recognized as stock-based compensation expense in the Company’s consolidated statements of operations and comprehensive loss over the remaining weighted average vesting period of 2.7 years.
The following table summarizes information about stock options outstanding as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Range of
Exercise
Prices
|
|
Number of
Shares
|
|
Weighted-Average
Remaining
Contractual Life
(Years)
|
|
Weighted
Average
Price
|
|
Number of
Shares
|
|
Weighted
Average
Price
|
$0.49 - $0.61
|
|
1,768
|
|
|
9.7
|
|
$
|
0.61
|
|
|
64
|
|
|
$
|
0.56
|
|
$1.13 - $1.79
|
|
1,970
|
|
|
8.67
|
|
$
|
1.54
|
|
|
742
|
|
|
$
|
1.59
|
|
$1.82 - $2.33
|
|
1,773
|
|
|
8.6
|
|
$
|
1.97
|
|
|
829
|
|
|
$
|
1.99
|
|
$2.68 - $15.33
|
|
1,900
|
|
|
5.46
|
|
$
|
5.52
|
|
|
1,623
|
|
|
$
|
5.99
|
|
|
|
7,411
|
|
|
8.08
|
|
$
|
2.44
|
|
|
3,258
|
|
|
$
|
3.86
|
|
The Company recognizes compensation expense using the straight-line method over the requisite service period. The share fair value of each stock option was determined on the date of grant using the Black-Scholes Model under the following assumptions:
Ekso Bionics Holdings, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
|
|
|
|
|
|
Years Ended December 31,
|
|
2019
|
|
2018
|
Dividend yield
|
—
|
|
—
|
Risk-free interest rate
|
1.67% - 2.45%
|
|
2.68% - 3.0%
|
Expected term (in years)
|
6.08
|
|
5.27-10
|
Volatility
|
100%-103%
|
|
88%-106%
|
Restricted Stock Units
The Company issues restricted stock units, or RSUs, to employees and non-employee service providers. Each RSU represents the right to receive one share of the Company’s common stock upon vesting and subsequent settlement. The fair value of RSUs is determined based on the closing price of the Company’s common stock on the date of grant.
RSU activity for the year ended December 31, 2019 is summarized below:
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted
Average Grant-
Date Fair Value
|
Unvested as of January 1, 2019
|
278
|
|
|
$
|
1.83
|
|
Granted
|
1,763
|
|
|
$
|
0.94
|
|
Vested
|
(621
|
)
|
|
$
|
1.66
|
|
Forfeited
|
(92
|
)
|
|
$
|
1.93
|
|
Unvested as of December 31, 2019
|
1,328
|
|
|
$
|
0.72
|
|
The total grant-date fair value of RSUs that vested in 2019 was $1,001. As of December 31, 2019, $895 of total unrecognized compensation expense related to unvested RSUs was expected to be recognized over a weighted average period of 3.60 years.
Additionally, during the year ended December 31, 2019, the Compensation Committee of the Board of Directors issued an aggregate 1,145 RSUs to the Company's executives and other officers, which are contingent on the later of the Company receiving the stockholder approval of an increase to the number of shares authorized to be issued under the 2014 Plan at the next stockholder meeting and the filing of a registration statement on Form S-8 with the SEC. If stockholder approval is not obtained at the next stockholder meeting, or if a registration statement on Form S-8 is not filed with the SEC and made effective by the date on which the 2014 Plan expires or on which the applicable executive or officer ceases to provide services to the Company, the executive RSUs applicable to such executive or officer shall be automatically cancelled and not granted.
Compensation Expense
Stock-based compensation is included in the consolidated statements of operations and comprehensive loss in general and administrative, research and development, or sales and marketing expenses, depending upon the nature of services provided. Stock-based compensation expense related to stock options and RSUs granted to employees and non-employees was as follows:
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2019
|
|
2018
|
Sales and marketing
|
$
|
653
|
|
|
$
|
611
|
|
Research and development
|
241
|
|
|
426
|
|
General and administrative
|
1,361
|
|
|
1,831
|
|
|
$
|
2,255
|
|
|
$
|
2,868
|
|
Ekso Bionics Holdings, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan, or ESPP. Under the ESPP, the Company has 500 shares of common stock reserved for issuance, subject to adjustment in the event of a stock split, stock dividend, combination or reclassification or similar event. The ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 25% of their eligible compensation, subject to any plan limitations. The ESPP provides for six-month offering periods. At the end of each offering period, employees can purchase shares at 85% of the lower of the fair market value of the Company’s common stock on the first trading day of the offering period or on the last trading day of the offering period. As of December 31, 2019, the Company had not initiated employee enrollment to the plan.
15. Income Taxes
The domestic and foreign components of pre-tax loss for the years ended December 31, 2019 and 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2019
|
|
2018
|
Domestic
|
$
|
(10,321
|
)
|
|
$
|
(24,787
|
)
|
Foreign
|
(1,811
|
)
|
|
(2,205
|
)
|
Loss before income taxes
|
$
|
(12,132
|
)
|
|
$
|
(26,992
|
)
|
The Company had no current or deferred federal and state income tax expense or benefit for the years ended December 31, 2019 and 2018 because the Company generated net operating losses, and currently management does not believe it is more likely than not that the net operating losses will be realized. The Company’s non-U.S. tax obligation is primarily for business activities conducted through Germany and Singapore for which taxes were included in other expense, net for the years ended December 31, 2019 and 2018 and determined to be immaterial and accordingly, such amounts were excluded from the following tables.
Income tax expense (benefit) for the years ended December 31, 2019 and 2018 differed from the amounts computed by applying the statutory federal income tax rate of 21% to pretax loss as a result of the following:
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2019
|
|
2018
|
Federal tax at statutory rate
|
21.0
|
%
|
|
21.0
|
%
|
State tax, net of federal tax effect
|
—
|
|
|
—
|
|
R&D credit
|
1.0
|
|
|
1.3
|
|
Change in valuation allowance
|
(27.2
|
)
|
|
(21.1
|
)
|
Unrealized gain on warrant
|
8.7
|
|
|
0.8
|
|
Foreign exchange
|
0.9
|
|
|
1.0
|
|
Other
|
(4.4
|
)
|
|
(3.0
|
)
|
Total tax expense (benefit)
|
—
|
%
|
|
—
|
%
|
Ekso Bionics Holdings, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
The tax effects of temporary differences and related deferred tax assets and liabilities as of December 31, 2019 and 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Deferred tax assets:
|
|
|
|
Depreciation and other
|
$
|
263
|
|
|
$
|
248
|
|
Net operating loss carryforwards
|
40,683
|
|
|
36,970
|
|
Research and development tax credits
|
1,817
|
|
|
1,769
|
|
Accruals and reserves
|
289
|
|
|
480
|
|
Deferred revenue
|
220
|
|
|
221
|
|
Stock compensation expense
|
2,197
|
|
|
1,888
|
|
Lease assets
|
224
|
|
|
—
|
|
Other
|
45
|
|
|
55
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
Lease liabilities
|
(214
|
)
|
|
—
|
|
Prepaid expenses
|
(43
|
)
|
|
(49
|
)
|
Less: Valuation allowance
|
(45,481
|
)
|
|
(41,582
|
)
|
Net deferred tax asset (liability)
|
$
|
—
|
|
|
$
|
—
|
|
The Company’s accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of the Company’s net deferred tax assets. The Company primarily considered such factors as the Company’s history of operating losses, the nature of the Company’s deferred tax assets, and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible. The Company does not believe that it is more likely than not that the deferred tax assets will be realized; accordingly, a full valuation allowance was established and no deferred tax assets were shown in the accompanying consolidated balance sheets. The valuation allowance increased by $3,899 and $5,608 in the years ended December 31, 2019 and December 31, 2018, respectively.
For tax years beginning after December 31, 2018, the Global Intangible Low-taxed Income ("GILTI") took effect. Due to the aggregated losses of the foreign subsidiaries, there was no GILTI inclusion for the years ended December 31, 2019 and December 31, 2018.
As of December 31, 2019 the Company had federal net operating loss carryforwards of $155,352. The federal net operating loss carryforwards of $120,792 generated before January 1, 2018 will begin to expire in 2027, and $34,560 will carryforward indefinitely but are subject to the 80% taxable income limitation. The Company also had federal research and development tax credit carryforwards of $1,943 that will expire beginning in 2031, if not utilized.
As of December 31, 2019, the Company had state net operating loss carryforwards of $99,966, which will begin to expire in 2028. The Company also had state research and development tax credit carryforwards of $608, which have no expiration.
As of December 31, 2019, the Company had foreign net operating loss carryforwards of $8,785. The foreign net operating loss carryforwards do not expire.
As of December 31, 2018, $1,749 of federal and $689 of state net operating loss was attributed to stock-based compensation deductions in excess of book expense. Upon adoption of ASU 2016-09-Compensation-Stock Compensation, the benefit of the tax deduction related to these options did not affect retained earnings due to the Company applying a full valuation allowance against the deferred tax assets, as is the Company’s current policy
Utilization of the Company’s net operating losses and credit carryforwards may be subject to annual limitations in the event of a Section 382 ownership change. Such future limitations could result in the expiration of net operating losses and credit carryforwards before utilization as a result of such an ownership change.
Ekso Bionics Holdings, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
A reconciliation of the beginning and ending amount of unrecognized tax benefits were as follows:
|
|
|
|
|
Balance as of December 31, 2018
|
628
|
|
Increase of unrecognized tax benefits taken in prior years
|
(46
|
)
|
Increase of unrecognized tax benefits related to current year
|
55
|
|
Balance as of December 31, 2019
|
$
|
637
|
|
If the Company is able to recognize these uncertain tax positions, the unrecognized tax benefits would not impact the effective tax rate if the Company applies a full valuation allowance against the deferred tax assets, as provided in the Company’s current policy.
The Company had not incurred any material tax interest or penalties as of December 31, 2019. The Company does not anticipate any significant change within 12 months of this reporting date of its uncertain tax positions. The Company is subject to taxation in the United States and various state jurisdictions, Germany, and Singapore. There are no ongoing examinations by taxing authorities at this time. The Company’s tax years 2007 through 2019 will remain open for examination by the federal and state authorities for three and four years, respectively, from the date of utilization of any net operating loss credits. The Company’s 2015 to 2019 tax years will remain open for examination by the German tax authority for four years from the end of the year in which the applicable return was filed. The Company’s 2018 to 2019 tax years will remain open for examination by the Singapore tax authority for four years from the date of the applicable assessment.
16. Commitments and Contingencies
Commitments
Material Contracts
The Company has two license agreements with the Regents of the University of California to maintain exclusive rights to patents. The Company is required to pay 1% of net sales of licensed medical devices sold to entities other than the U.S. government. In addition, the Company is required to pay 21% of consideration collected from any sub-licensee for the grant of the sub-license.
In connection with acquisition of Equipois, LLC ("Equipois"), the Company assumed the rights and obligations of Equipois under a license agreement with 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 is required to pay the developer a single-digit royalty on net receipts, subject to a $50 annual minimum royalty requirement.
Purchase Obligations
The Company purchases components from a variety of suppliers and uses contract manufacturers to provide manufacturing services for its products. Purchase obligations are defined as agreements that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. The Company had purchase obligations primarily for purchases of inventory and manufacturing related service contracts totaling $709 as of December 31, 2019, which is expected to be paid within a year. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations.
Other Contractual Obligations
The following table summarizes the Company's outstanding contractual obligations, including interest payments, as of December 31, 2019 and the effect those obligations are expected to have on its liquidity and cash flows in future periods:
Ekso Bionics Holdings, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Period
|
|
Total
|
|
Less than
one year
|
|
1-3 Years
|
|
3-5 Years
|
Term loan
|
$
|
2,878
|
|
|
$
|
2,437
|
|
|
$
|
441
|
|
|
$
|
—
|
|
Facility operating lease
|
1,278
|
|
|
515
|
|
|
763
|
|
|
—
|
|
Capital lease
|
22
|
|
|
22
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
4,178
|
|
|
$
|
2,974
|
|
|
$
|
1,204
|
|
|
$
|
—
|
|
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 consolidated financial statements.
17. Segment Disclosures
The Company has two reportable segments: EksoHealth and EksoWorks. The EksoHealth segment designs, engineers, manufactures, and sells exoskeletons for applications in the medical markets. The EksoWorks segment designs, engineers, manufactures, and sells exoskeleton devices to allow able-bodied users to perform difficult repetitive work for extended periods.
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. The Company does not consider net assets as a segment measure and, accordingly, assets are not allocated.
Segment reporting information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EksoHealth
|
|
EksoWorks
|
|
Total
|
Year ended December 31, 2019
|
|
|
|
|
|
Revenue
|
$
|
11,957
|
|
|
$
|
1,960
|
|
|
$
|
13,917
|
|
Cost of revenue
|
5,404
|
|
|
1,749
|
|
|
7,153
|
|
Gross profit
|
$
|
6,553
|
|
|
$
|
211
|
|
|
$
|
6,764
|
|
|
|
|
|
|
|
Year ended December 31, 2018
|
|
|
|
|
|
Revenue
|
$
|
8,854
|
|
|
$
|
2,478
|
|
|
$
|
11,332
|
|
Cost of revenue
|
4,968
|
|
|
2,055
|
|
|
7,023
|
|
Gross profit
|
$
|
3,886
|
|
|
$
|
423
|
|
|
$
|
4,309
|
|
Revenues from one customer of the Company’s EksoHealth segment represents approximately $2,138 of the Company’s consolidated revenues.
Geographic revenue information based on location of customer is as follows:
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
2019
|
|
2018
|
United States
|
$
|
9,071
|
|
|
$
|
7,028
|
|
All Other
|
4,846
|
|
|
4,304
|
|
|
$
|
13,917
|
|
|
$
|
11,332
|
|
18. Subsequent Events
After receiving questions from the Committee on Foreign Investment in the United States (“CFIUS”), in December 2019, the Company and the China JV submitted a joint voluntary notice to CFIUS to review the China joint venture transaction. In February 2020, CFIUS imposed interim measures that temporarily suspend the Company’s contributions to the China JV and other integration activities pending completion of its investigation. The Company continues to engage with CFIUS to address its concerns, and
Ekso Bionics Holdings, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
expects the CFIUS review and investigation, as well as its assessment of whether its concerns can be mitigated, to end by April 13, 2020.