NOTES
TO FINANCIAL STATEMENTS
(Unaudited)
Notes
to Financial Statements
In
this report, “Stereotaxis”, the “Company”, “Registrant”, “we”, “us”,
and “our” refer to Stereotaxis, Inc. and its wholly owned subsidiaries. Genesis RMN®, Epoch®,
Niobe®, Odyssey®, Odyssey Cinema™, Vdrive®, Vdrive Duo™,
V-CAS™, V-Loop™, V-Sono™, V-CAS Deflect™, QuikCAS™
and Cardiodrive® are trademarks of Stereotaxis, Inc. All other trademarks that appear in this report are
the property of their respective owners.
1.
Description of Business
Stereotaxis
designs, manufactures and markets an advanced robotic magnetic navigation system for use in a hospital’s interventional
surgical suite, or “interventional lab”, that we believe revolutionizes the treatment of arrhythmias by enabling enhanced
safety, efficiency, and efficacy for catheter-based, or interventional, procedures. Our primary products include the Genesis
RMN System, the Niobe System, the Odyssey Solution, and related devices. We also offer to our customers the
Stereotaxis Imaging Model S x-ray System.
The
Genesis RMN and Niobe Systems are designed to enable physicians to complete more complex interventional procedures
by providing image-guided delivery of catheters through the blood vessels and chambers of the heart to treatment sites. This is
achieved using externally applied magnetic fields that govern the motion of the working tip of the catheter, resulting in improved
navigation, efficient procedures, and reduced x-ray exposure. As of March 31, 2020, the Company had an installed base of 123 Niobe
ES Systems.
In
addition to the robotic magnetic navigation systems and their components, Stereotaxis also has developed the Odyssey Solution,
which consolidates lab information enabling physicians to focus on the patient for optimal procedure efficiency. The system also
features a remote viewing and recording capability called Odyssey Cinema, which is an innovative solution that delivers
synchronized content for optimized workflow, advanced care, and improved productivity. This tool includes an archiving capability
that allows clinicians to store and replay entire procedures or segments of procedures. This information can be accessed from
locations throughout the hospital local area network and over the global Odyssey Network providing physicians with a tool
for clinical collaboration, remote consultation, and training.
We
promote our full suite of products in a typical hospital implementation, subject to regulatory approvals or clearances. This implementation
requires a hospital to agree to an upfront capital payment and recurring payments. The upfront capital payment typically includes
equipment and installation charges. The recurring payments typically include disposable costs for each procedure, equipment service
costs beyond warranty period, and ongoing software updates. In hospitals where our full suite of products has not been implemented,
equipment upgrade or expansion can be implemented upon purchasing of the necessary upgrade or expansion.
We
have received regulatory clearance, licensing and/or CE Mark approvals necessary for us to market the Genesis RMN System
in the U.S. and Europe, and we are in the process of obtaining necessary registrations for extending our markets in other countries.
The Niobe System, Odyssey Solution, Cardiodrive, and various disposable interventional devices have received
regulatory clearance in the U.S., Europe, Canada, China, Japan and various other countries. We have received the regulatory clearance,
licensing and/or CE Mark approvals that allow us to market the Vdrive and Vdrive Duo Systems with the V-CAS,
V-Loop and V-Sono devices in the U.S., Canada and Europe. The V-CAS Deflect catheter advancement system has
been CE Marked for sale in the Europe. Stereotaxis Imaging Model S is CE marked and FDA cleared.
We
have strategic relationships with technology leaders and innovators in the global interventional market. Through these strategic
relationships we provide compatibility between our robotic magnetic navigation system and digital imaging and 3D catheter location
sensing technology, as well as disposable interventional devices. The maintenance of these strategic relationships, or the establishment
of equivalent alternatives, is critical to our commercialization efforts. There are no guarantees that any existing strategic
relationships will continue and efforts are ongoing to ensure the availability of integrated next generation systems and/or equivalent
alternatives. We cannot provide assurance as to the timeline of the ongoing availability of such compatible systems or our ability
to obtain equivalent alternatives on competitive terms or at all.
2.
Summary of Significant Accounting Policies
Basis
of Presentation
The
accompanying unaudited financial statements of Stereotaxis, Inc. have been prepared in accordance with U.S. generally accepted
accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q. Accordingly, they
do not include all the disclosures required by GAAP for complete financial statements. In the opinion of management, they include
all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim
periods presented. Operating results for the three month period ended March 31, 2020 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2020 or for future operating periods.
These
interim financial statements and the related notes should be read in conjunction with the annual financial statements and notes
included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 as filed with the Securities and
Exchange Commission (SEC) on March 16, 2020.
Risks
and Uncertainties
The
novel coronavirus COVID-19 (“COVID-19”) pandemic has resulted, and is likely to continue to result, in significant
disruptions to the economy, as well as business and capital markets around the world. The full extent of the impact of the COVID-19
pandemic on our business, results of operations and financial condition will depend on numerous evolving factors that we may not
be able to accurately predict.
As
a result of the COVID-19 outbreak, we have experienced business disruptions, including travel restrictions on us and our third-party
distributors, which have negatively affected our complex sales, marketing, installation, distribution and service network
relating to our products and services. The COVID-19 pandemic may continue to negatively affect demand for our both our systems
and our disposable products by limiting the ability of our sales personnel to maintain their customary contacts with customers
as governmental authorities institute prolonged quarantines, travel restrictions, and shelter-in-place orders, or as our customers
impose limitations on contacts and in-person meetings that go beyond those imposed by governmental authorities.
In
addition, many of our hospital customers, for whom the purchase of our system involves a significant capital purchase which may
be part of a larger construction project at the customer site (typically the construction of a new building), may themselves be
under economic pressures. This may cause delays or cancellations of current purchase orders and other commitments, and may exacerbate
the long and variable sales and installation cycles for our robotic systems products. We may also experience significant reductions
in demand for our disposable products as our healthcare customers (physicians and hospitals) continue to re-prioritize the treatment
of patients and divert resources away from non-coronavirus areas, which we anticipate will lead to the performance of fewer procedures
in which our disposable products are used. In addition, patients may consider foregoing or deferring procedures utilizing
our products, even if physicians and hospitals are willing to perform them, which could also reduce demand for, and sales of,
our disposable products.
As
of the date of the filing of this Quarterly Report on Form 10-Q, we believe our manufacturing operations and supply chains have
been minimally interrupted, but we cannot guarantee that they will not be interrupted more severely in the future. If our manufacturing
operations or supply chains are materially interrupted, it may not be possible for us to timely manufacture relevant products
at required levels, or at all. A material reduction or interruption to any of our manufacturing processes would have a material
adverse effect on our business, operating results, and financial condition.
As
governmental authorities around the world continue to institute prolonged mandatory closures, social distancing protocols and
shelter-in-place orders, or as private parties on whom we rely to operate our business put in place their own protocols that go
beyond those instituted by relevant governmental authorities, our ability to adequately staff and maintain our operations or further
our product development could be negatively impacted.
Any
continued disruption to the capital markets could negatively impact our ability to raise capital. If the capital markets continue
to be disrupted for an extended period of time and we need to raise additional capital, such capital may not be available on acceptable
terms, or at all. Continued disruptions to the capital markets and other financing sources could also negatively impact our hospital
customers’ ability to raise capital or otherwise obtain financing to fund their operations and capital projects. Such could
result in delayed spending on current projects, a longer sales cycle for new projects where a large capital commitment is required,
and decreased demand for our disposable products as well as an increased risk of customer defaults or delays in payments for our
systems installations, and for our service contracts and disposable products.
We
are evaluating and taking actions to reduce costs and spending across our organization. We will continue to actively monitor the
situation and may take further actions that alter our business operations as may be required by federal, state or local governmental
authorities that may be implemented by our vendors, supplier or customers, or that we determine are in the best interests of our
employees, customers, suppliers and shareholders.
Financial
Instruments
Financial
instruments consist of cash and cash equivalents, accounts receivable, accounts payable, and debt. The carrying value of such
amounts reported at the applicable balance sheet dates approximates fair value.
The
Company measures certain financial assets and liabilities at fair value on a recurring basis. General accounting principles for
fair value measurement established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities
(“Level 1”) and the lowest priority to unobservable inputs (“Level 3”). As of March 31, 2020 and December
31, 2019 the Company did not have any financial assets or liabilities valued at fair value on a recurring basis.
Revenue
and Costs of Revenue
The
Company accounts for revenue in accordance with Accounting Standards Codification Topic 606 (“ASC 606”), Revenue
from Contracts with Customers.
We
generate revenue from initial capital sales of systems as well as recurring revenue from the sale of our proprietary disposable
devices, from royalties paid to the Company on the sale by Biosense Webster of co-developed catheters, and from other recurring
revenue including ongoing software updates and service contracts.
We
account for a contract with a customer when there is a legally enforceable contract between the Company and the customer, the
rights of the parties are identified, the contract has commercial substance, and collectability of the contract consideration
is probable. We record our revenue based on consideration specified in the contract with each customer, net of any taxes collected
from customers that are remitted to government authorities.
For
contracts containing multiple products and services, the Company accounts for individual products and services as separate performance
obligations if they are distinct, which is if a product or service is separately identifiable from other items in the bundled
package, and if a customer can benefit from it on its own or with other resources that are readily available to the customer.
The Company recognizes revenues as the performance obligations are satisfied by transferring control of the product or service
to a customer.
For
arrangements with multiple performance obligations, revenue is allocated to each performance obligation based on its relative
standalone selling price. Standalone selling prices are based on observable prices at which the Company separately sells the products
or services. If a standalone selling price is not directly observable, then the Company estimates the standalone selling price
considering market conditions and entity-specific factors including, but not limited to, features and functionality of the products
and services and market conditions. The Company regularly reviews standalone selling prices and updates these estimates as necessary.
Systems:
Contracts
related to the sale of systems typically contain separate obligations for the delivery of system(s), installation and an implied
obligation to provide software enhancements if and when available for one year following installation. Revenue is recognized when
the Company transfers control to the customer, which is generally at the point when acceptance occurs that indicates customer
acknowledgment of delivery or installation, depending on the terms of the arrangement. Revenue from the implied obligation to
deliver software enhancements if and when available is recognized ratably over the first year following installation of the system
as the customer receives the right to software updates throughout the period and is included in Other Recurring Revenue. The Company’s
system contracts generally do not provide a right of return. Systems are generally covered by a one-year assurance type warranty;
warranty costs were not material for the periods presented. There was no revenue from system delivery and installation for the
three months ended March 31, 2020. Revenue from system delivery and installation represented 1% of revenue for the three months
ended March 31, 2019.
Disposables:
Revenue
from sales of disposable products is recognized when control is transferred to the customers, which generally occurs at the time
of shipment, but can also occur at the time of delivery depending on the customer arrangement. Disposable products are covered
by an assurance type warranty that provides for the return of defective products. Warranty costs were not material for the periods
presented. Disposable revenue represented 34% and 36% of revenue for the three months ended March 31, 2020 and 2019, respectively.
Royalty:
The
Company is entitled to royalty payments from Biosense Webster, payable quarterly based on net revenues from sales of the co-developed
catheters. Royalty revenue from the co-developed catheters represented 10% and 11% of revenue for the three months ended March
31, 2020 and 2019, respectively.
Other
Recurring Revenue:
Other
recurring revenue includes revenue from product maintenance plans, other post warranty maintenance, and the implied obligation
to provide software enhancements if and when available for one year following installation. Revenue from services and software
enhancements is deferred and amortized over the service or update period, which is typically one year. Revenue related to services
performed on a time-and-materials basis is recognized when performed. Other recurring revenue represented 52% and 50% of revenue
for the three months ended March 31, 2020 and 2019, respectively.
Sublease
Revenue:
The
adoption of new lease accounting guidance as of January 1, 2019 required the Company to record sublease income as revenue beginning
in 2019. Sublease revenue represented 4% and 3% of revenue for the three months ended March 31, 2020 and 2019, respectively.
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Systems
|
|
$
|
-
|
|
|
$
|
58,051
|
|
Disposables, service and accessories
|
|
|
5,509,711
|
|
|
|
6,710,759
|
|
Sublease
|
|
|
246,530
|
|
|
|
241,065
|
|
Total revenue
|
|
$
|
5,756,241
|
|
|
$
|
7,009,875
|
|
Transaction
price allocated to remaining performance obligations relates to amounts allocated to products and services for which the revenue
has not yet been recognized. A significant portion of this amount relates to the Company’s systems contracts and obligations
that will be recognized as revenue in future periods. These obligations are generally satisfied within two years after contract
inception but may occasionally extend longer. Transaction price representing revenue to be earned on remaining performance obligations
on system contracts was approximately $4.6 million as of March 31, 2020. Performance obligations arising from contracts for disposables,
royalty and service are generally expected to be satisfied within one year after entering into the contract.
The
following information summarizes the Company’s contract assets and liabilities:
|
|
March 31, 2019
|
|
|
December 31, 2019
|
|
Contract Assets - Unbilled Receivables
|
|
$
|
99,793
|
|
|
$
|
168,445
|
|
|
|
|
|
|
|
|
|
|
Customer deposits
|
|
|
597,000
|
|
|
|
-
|
|
Product shipped, revenue deferred
|
|
|
674,666
|
|
|
|
674,324
|
|
Deferred service and license fees
|
|
|
4,505,738
|
|
|
|
4,972,389
|
|
Total deferred revenue
|
|
|
5,777,404
|
|
|
|
5,646,713
|
|
Less: Long-term deferred revenue
|
|
|
(510,689
|
)
|
|
|
(554,258
|
)
|
Total current deferred revenue
|
|
$
|
5,266,715
|
|
|
$
|
5,092,455
|
|
The
Company invoices its customers based on the billing schedules in its sales arrangements. Contract assets primarily represent the
difference between the revenue that was earned but not billed on service contracts and revenue from system contracts that was
recognized based on the relative selling price of the related performance obligations and the contractual billing terms in the
arrangements. Deferred revenue is primarily related to service contracts, for which the service fees are billed up-front, generally
quarterly or annually, and for amounts billed in advance for system contracts for which some performance obligations remain outstanding.
For service contracts, the associated deferred revenue is generally recognized ratably over the service period. For system contracts,
the associated deferred revenue is recognized when the remaining performance obligations are satisfied. The Company did not have
any impairment losses on its contract assets for the periods presented.
Revenue
recognized for the three months ended March 31, 2020 and 2019, that was included in the deferred revenue balance at the beginning
of each reporting period was $2.6 million and $2.9 million respectively.
Assets
Recognized from the Costs to Obtain a Contract with a Customer
The
Company has determined that sales incentive programs for the Company’s sales team meet the requirements to be capitalized
as the Company expects to generate future economic benefits from the related revenue generating contracts after the initial capital
sales transaction. The costs capitalized as contract acquisition costs included in prepaid expenses and other assets in the Company’s
balance sheet were $0.3 million as of and March 31, 2020 and December 31, 2019. The Company did not incur any impairment losses
during any of the periods presented.
Costs
of systems revenue include direct product costs, installation labor and other costs, estimated warranty costs, and initial training
and product maintenance costs. These costs are recorded at the time of sale. Costs of disposable revenue include direct product
costs and estimated warranty costs and are recorded at the time of sale. Cost of revenue from services and license fees are recorded
when incurred.
Share-Based
Compensation
The
Company accounts for its grants of stock options, stock appreciation rights, restricted shares, and restricted stock units and
for its employee stock purchase plan in accordance with the provisions of general accounting principles for share-based payments.
These accounting principles require the determination of the fair value of the share-based compensation at the grant date and
the recognition of the related expense over the period in which the share-based compensation vests.
The
Company utilizes the Black-Scholes valuation model to determine the fair value of stock options and stock appreciation rights
at the date of grant. The resulting compensation expense is recognized over the requisite service period, which is generally four
years. Restricted shares and units granted to employees are valued at the fair market value at the date of grant. The Company
amortizes the fair market value to expense over the service period. If the shares are subject to performance objectives, the resulting
compensation expense is amortized over the anticipated vesting period and is subject to adjustment based on the actual achievement
of objectives.
Net
Earnings (Loss) per Common Share
Basic
earnings (loss) per common share is computed by dividing the net earnings (loss) for the period by the weighted average number
of common shares outstanding during the period. In periods where there is net income, we apply the two-class method to calculate
basic and diluted net income (loss) per share of common stock, as our Convertible Preferred Stock is a participating security.
The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that
otherwise would have been available to common stockholders. In periods where there is a net loss, the two-class method of computing
earnings per share does not apply as our Convertible Preferred Stock does not contractually participate in our losses. We compute
diluted net income (loss) per common share using net income (loss) as the “control number” in determining whether
potential common shares are dilutive, after giving consideration to all potentially dilutive common shares, including stock options,
warrants, unvested restricted stock units outstanding during the period and potential issuance of stock upon the conversion of
our Convertible Preferred Stock issued and outstanding during the period, except where the effect of such securities would be
antidilutive.
The
following table sets forth the computation of basic and diluted EPS:
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net loss
|
|
$
|
(1,971,531
|
)
|
|
$
|
(2,122,820
|
)
|
Cumulative dividend on convertible preferred stock
|
|
|
(343,723
|
)
|
|
|
(353,510
|
)
|
Net loss attributable to common stockholders
|
|
$
|
(2,315,254
|
)
|
|
$
|
(2,476,330
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares and equivalents:
|
|
|
69,870,040
|
|
|
|
59,196,652
|
|
Basic EPS
|
|
$
|
(0.03
|
)
|
|
$
|
(0.04
|
)
|
Diluted EPS
|
|
$
|
(0.03
|
)
|
|
$
|
(0.04
|
)
|
The
Company did not include any portion of unearned restricted shares, outstanding options, stock appreciation rights, warrants or
convertible preferred stock in the calculation of diluted loss per common share because all such securities are anti-dilutive
for all periods presented. The application of the two-class method of computing earnings per share under general accounting principles
for participating securities is not applicable during these periods because those securities do not contractually participate
in its losses.
As
of March 31, 2020, the Company had 2,661,002 shares of common stock issuable upon the exercise of outstanding options and stock
appreciation rights at a weighted average exercise price of $2.97 per share, 15,385 shares of common stock issuable upon the exercise
of outstanding warrants at a weighted average exercise price of $0.70 per share, 42,671,430 shares of common stock issuable upon
the conversion of Series A Convertible Preferred Stock and accumulated dividends, 5,610,121 shares of common stock issuable upon
the conversion of Series B Convertible Preferred Stock, and 940,973 shares of unvested restricted share units.
Recently
Issued Accounting Pronouncements
In
December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”
as part of its effort to reduce the complexity of accounting standards. The ASU is effective for fiscal years beginning after
December 15, 2020. The Company does not expect that the adoption of this new guidance will have a material impact on the Company’s
financial results.
In
June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on
Financial Instruments” and also issued subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04 and
ASU 2019-05. The standard modifies the measurement approach for credit losses on financial instruments, including trade receivables,
from an incurred loss method to a current expected credit loss method, otherwise known as “CECL.” The standard requires
the measurement of expected credit losses to be based on relevant information, including historical experience, current conditions
and a forecast that is supportable. The standard is effective for fiscal years beginning after December 15, 2022, including interim
periods within those fiscal years; early adoption is permitted. The standard must be adopted by applying a cumulative adjustment
to retained earnings. The Company anticipates adopting the standard in the first quarter of 2023, although it does not expect
a significant impact to the Company’s financial results.
3.
Inventories
Inventories
consist of the following:
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
Raw materials
|
|
$
|
3,820,618
|
|
|
$
|
3,063,532
|
|
Work in process
|
|
|
454,135
|
|
|
|
515,262
|
|
Finished goods
|
|
|
2,784,171
|
|
|
|
2,164,187
|
|
Reserve for obsolescence
|
|
|
(3,888,784
|
)
|
|
|
(3,895,451
|
)
|
Total inventory
|
|
$
|
3,170,140
|
|
|
$
|
1,847,530
|
|
4.
Prepaid Expenses and Other Assets
Prepaid
expenses and other assets consist of the following:
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
Prepaid expenses
|
|
$
|
422,061
|
|
|
$
|
640,252
|
|
Prepaid commissions
|
|
|
307,339
|
|
|
|
336,594
|
|
Deposits
|
|
|
857,777
|
|
|
|
712,179
|
|
Total prepaid expenses and other assets
|
|
|
1,587,177
|
|
|
|
1,689,025
|
|
Less: Noncurrent prepaid expenses and other assets
|
|
|
(196,674
|
)
|
|
|
(218,103
|
)
|
Total current prepaid expenses and other assets
|
|
$
|
1,390,503
|
|
|
$
|
1,470,922
|
|
5.
Property and Equipment
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
Equipment
|
|
$
|
6,485,873
|
|
|
$
|
6,485,873
|
|
Leasehold improvements
|
|
|
2,338,441
|
|
|
|
2,338,441
|
|
|
|
|
8,824,314
|
|
|
|
8,824,314
|
|
Less: Accumulated depreciation
|
|
|
(8,603,990
|
)
|
|
|
(8,573,871
|
)
|
Net property and equipment
|
|
$
|
220,324
|
|
|
$
|
250,443
|
|
6.
Leases
A
lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant
or equipment for a period of time in exchange for consideration. On January 1, 2019, the Company adopted ASU No. 2016-02 “Leases”
(Topic 842) and all subsequent ASUs that modified Topic 842. The Company determines if an arrangement contains a lease at
inception. For the Company, Accounting Standards Codification (“ASC 842”) primarily affected the accounting treatment
for operating lease agreements in which the Company is the lessee.
The
Company leases its facilities under operating leases, which were previously not recognized on the Company’s balance sheets.
With the adoption of ASC 842, operating lease agreements are required to be recognized on the balance sheet as a right-of-use
(“ROU”) asset and a corresponding lease liability. These leases do not have significant rent escalation holidays,
concessions, leasehold improvement incentives, or other build-out clauses. Further, the leases do not contain contingent rent
provisions. Many of our leases include both lease (i.e., fixed payments including rent, taxes, and insurance costs) and non-lease
components (i.e., common-area or other maintenance costs) which are accounted for as a single lease component as we have elected
the practical expedient to group lease and non-lease components for all leases. A portion of our principal executive office is
subleased to a third party through 2021. The sublease does not have significant rent escalation holidays, concessions, leasehold
improvement incentives, or other build-out clauses. In addition, the sublease does not contain contingent rent provisions nor
are there options to extend or terminate the sublease.
The
Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception,
the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term
in the calculation of the ROU asset and lease liability. The Company elected not to include short-term leases (i.e. leases with
initial terms of twelve months or less) on the balance sheet.
The
calculated amounts of the ROU assets and lease liabilities are impacted by the length of the lease term and the discount rate
used to calculate the present value of the minimum lease payments. ASC 842 requires the use of the discount rate implicit in the
lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing
rate at lease inception. At March 31, 2020, the weighted average discount rate for operating leases was 9.0% and the weighted
average remaining lease term for operating lease term is 1.75 years.
The
following table represents lease costs and other lease information.
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
March 31, 2020
|
|
|
March 31, 2019
|
|
Operating lease cost
|
|
$
|
585,586
|
|
|
$
|
585,586
|
|
Short-term lease cost
|
|
|
15,470
|
|
|
|
19,809
|
|
Sublease income
|
|
|
(246,530
|
)
|
|
|
(241,065
|
)
|
Total lease cost
|
|
$
|
354,526
|
|
|
$
|
364,330
|
|
|
|
|
|
|
|
|
|
|
Cash paid within operating cash flows
|
|
$
|
636,350
|
|
|
$
|
615,266
|
|
The
initial recognition of the right of use assets in 2019 was $6.2 million. Variable lease costs consist primarily of taxes, insurance,
and common area or other maintenance costs for our leased facilities and equipment which are paid based on actual costs incurred.
Future
minimum payments for operating leases with initial or remaining terms of one year or more as of March 31, 2020, excluding sublease
income, were as follows:
|
|
March 31, 2020
|
|
2020
|
|
$
|
1,754,379
|
|
2021
|
|
|
2,382,661
|
|
2022 and thereafter
|
|
|
-
|
|
Total lease payments
|
|
$
|
4,137,040
|
|
Less: Interest
|
|
|
(295,237
|
)
|
Present value of lease liabilities
|
|
$
|
3,841,803
|
|
The
undiscounted future cash flows to be received under the sublease are $0.7 million in 2020 and $1.0 million in 2021.
7.
Accrued Liabilities
Accrued
liabilities consist of the following:
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
Accrued salaries, bonus, and benefits
|
|
$
|
1,055,345
|
|
|
$
|
1,421,150
|
|
Accrued licenses and maintenance fees
|
|
|
483,879
|
|
|
|
483,879
|
|
Accrued warranties
|
|
|
133,433
|
|
|
|
141,697
|
|
Accrued taxes
|
|
|
169,654
|
|
|
|
206,232
|
|
Accrued professional services
|
|
|
415,342
|
|
|
|
383,342
|
|
Other
|
|
|
340,061
|
|
|
|
340,321
|
|
Total accrued liabilities
|
|
|
2,597,714
|
|
|
|
2,976,621
|
|
Less: Long term accrued liabilities
|
|
|
(255,517
|
)
|
|
|
(255,517
|
)
|
Total current accrued liabilities
|
|
$
|
2,342,197
|
|
|
$
|
2,721,104
|
|
8.
Long-Term Debt and Credit Facilities
The
Company has had a working capital line of credit with its primary lender, Silicon Valley Bank, since 2004. The working capital
line of credit matures on June 30, 2020. The revolving line of credit is secured by substantially all of the Company’s assets.
The maximum available under the line is $5.0 million subject to the value of collateralized assets and the interest rate is equal
to the prime rate subject to a floor of 4.5%. The Company is required under the revolving line of credit to maintain its primary
operating account and the majority of its cash and investment balances in accounts with its primary lender.
On
June 27, 2019, the Company entered into a Second Amendment to and Reinstatement of Third Amended and Restated Loan and Security
Agreement with Silicon Valley Bank to extend the maturity of the revolving line of credit to June 30, 2020 under substantially
identical terms to the prior agreement.
As
of March 31, 2020, the Company had no outstanding balance under the revolving line of credit. Draws on the line of credit were
made based on the borrowing capacity one week in arrears. As of March 31, 2020, the Company had a borrowing capacity of $3.4 million
based on the Company’s collateralized assets. The Company’s total liquidity as of March 31, 2020, was $31.4 million
which included cash and cash equivalents of $28.0 million.
9.
Convertible Preferred Stock and Stockholders’ Equity
The
holders of common stock are entitled to one vote for each share held and to receive dividends whenever funds are legally available
and when declared by the Board of Directors subject to the rights of holders of all classes of stock having priority rights as
dividends and the conditions of the revolving line of credit agreement. No dividends have been declared or paid as of March 31,
2020.
2019
Equity Financing and Series B Convertible Preferred Stock
On
August 7, 2019, the Company entered into a Securities Purchase Agreement with certain institutional and other accredited investors,
whereby it, in a private placement, agreed to issue and sell to the investors an aggregate of 6,585,000 shares of the Company’s
common stock, $0.001 par value per share, at a price of $2.05 per share and 5,610,121 shares of the Company’s Series B Convertible
Preferred Stock, $0.001 par value per share which are convertible into shares of the Company’s Common Stock, at a price
of $2.05 per share. The Series B Preferred Stock, which is a Common Stock equivalent but non-voting and with a blocker on conversion
if the holder would exceed a specified threshold of voting security ownership, is convertible into Common Stock on a one-for-one
basis, subject to adjustment for events such as stock splits, combinations and the like as provided in the Purchase Agreement.
The Series B Convertible Preferred Stock is reported in the stockholder’s equity section of the Company’s balance
sheet.
The
Company received net proceeds of approximately $23.1 million, after offering expenses.
Series
A Convertible Preferred Stock and Warrants
In
September 2016, the Company issued 24,000 shares of Series A Convertible Preferred Stock, par value $0.001 with a stated value
of $1,000 per share which are convertible into shares of the Company’s common stock at an initial conversion rate of $0.65
per share and (ii) warrants to purchase an aggregate of 36,923,078 shares of common stock. The convertible preferred shares are
entitled to vote on an as-converted basis with the common stock, subject to specified beneficial ownership issuance limitations.
The convertible preferred shares bear dividends at a rate of six percent (6%) per annum, which are cumulative and accrue daily
from the date of issuance on the $1,000 stated value. Such dividends will not be paid in cash except in connection with any liquidation,
dissolution or winding up of the Company or any redemption of the convertible preferred shares. Each holder of convertible preferred
shares has the right to require us to redeem such holder’s convertible preferred shares upon the occurrence of specified
events, which include certain business combinations, the sale of all or substantially all of the Company’s assets, or the
sale of more than 50% of the outstanding shares of the Company’s common stock. In addition, the Company has the right to
redeem the convertible preferred shares in the event of a defined change of control. The convertible preferred shares rank senior
to our common stock as to distributions and payments upon the liquidation, dissolution, and winding up of the Company. Since the
convertible preferred shares are subject to conditions for redemption that are outside the Company’s control, the convertible
preferred shares are presently reported in the mezzanine section of the balance sheet.
The
warrants issued in conjunction with the convertible preferred stock (the “SPA Warrants”) have an exercise price equal
to $0.70 per share subject to adjustments as provided under the terms of the warrants. The warrants are exercisable through September
29, 2021, subject to specified beneficial ownership issuance limitations.
Stock
Award Plans
The
Company has various stock plans that permit the Company to provide incentives to employees and directors of the Company in the
form of equity compensation. In July 2012, the Compensation Committee of the Board of Directors adopted the 2012 Stock Incentive
Plan (the “Plan”) which was subsequently approved by the Company’s shareholders. This plan replaced the 2002
Stock Incentive Plan which expired on March 25, 2012.
At
March 31, 2020, the Company had 2,192,829 remaining shares of the Company’s common stock to provide for current and future
grants under its various equity plans.
At
March 31, 2020, the total compensation cost related to options, stock appreciation rights, and non-vested stock granted to employees
under the Company’s stock award plans but not yet recognized was approximately $4.3 million. This cost will be amortized
over a period of up to four years over the underlying estimated service periods and will be adjusted for subsequent changes in
actual forfeitures and anticipated vesting periods.
A
summary of the option and stock appreciation rights activity for the three month period ended March 31, 2020 is as follows:
|
|
Number of Options/SARs
|
|
|
Range of Exercise Price
|
|
|
Weighted Average Exercise Price per Share
|
|
Outstanding, December 31, 2019
|
|
|
1,857,599
|
|
|
|
$0.74 - $36.20
|
|
|
$
|
2.22
|
|
Granted
|
|
|
887,250
|
|
|
|
$3.98 - $4.52
|
|
|
$
|
4.51
|
|
Exercised
|
|
|
(10,046
|
)
|
|
|
$0.74 - $2.03
|
|
|
$
|
1.19
|
|
Forfeited
|
|
|
(73,801
|
)
|
|
|
$0.74 - $4.04
|
|
|
$
|
2.75
|
|
Outstanding, March 31, 2020
|
|
|
2,661,002
|
|
|
|
$0.74 - $36.20
|
|
|
$
|
2.97
|
|
A
summary of the restricted stock unit activity for the three month period ended March 31, 2020 is as follows:
|
|
Number of Restricted Stock Units
|
|
|
Weighted Average Grant Date Fair Value per Unit
|
|
Outstanding, December 31, 2019
|
|
|
840,712
|
|
|
$
|
1.28
|
|
Granted
|
|
|
210,000
|
|
|
$
|
5.24
|
|
Vested
|
|
|
(109,489
|
)
|
|
$
|
2.00
|
|
Forfeited
|
|
|
(250
|
)
|
|
$
|
0.78
|
|
Outstanding, March 31, 2020
|
|
|
940,973
|
|
|
$
|
2.08
|
|
10.
Product Warranty Provisions
The
Company’s standard policy is to warrant all capital systems against defects in material or workmanship for one year following
installation. The Company’s estimate of costs to service the warranty obligations is based on historical experience and
current product performance trends. A regular review of warranty obligations is performed to determine the adequacy of the reserve
and adjustments are made to the estimated warranty liability as appropriate.
Accrued
warranty, which is included in other accrued liabilities, consists of the following:
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
Warranty accrual, beginning of the fiscal period
|
|
$
|
141,697
|
|
|
$
|
149,464
|
|
Accrual adjustment for product warranty
|
|
|
7,637
|
|
|
|
56,118
|
|
Payments made
|
|
|
(15,901
|
)
|
|
|
(63,885
|
)
|
Warranty accrual, end of the fiscal period
|
|
$
|
133,433
|
|
|
$
|
141,697
|
|
11.
Commitments and Contingencies
The
Company at times becomes a party to claims in the ordinary course of business. Management believes that the ultimate resolution
of pending or threatened proceedings will not have a material effect on the financial position, results of operations or liquidity
of the Company.
12.
Subsequent Events
The
Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the United States.
Among the provisions contained in the CARES Act is the creation of the Paycheck Protection Program that provides for Small Business
Administration (“SBA”) Section 7(a) loans for qualified small businesses. The loan can be forgiven as long as the
funds are used for payroll related expenses as well rent and utilities paid during the eight week period from the date of the
loan. On April 10, 2020, the Company was informed by its lender, Midwest BankCentre (the “Bank”), that the Bank received
approval from the SBA to fund the Company’s request for a loan under the SBA’s Paycheck Protection Program (“PPP
Loan”). Per the terms of the PPP Loan, the Company received total proceeds of $2,158,310 from the Bank on April 20, 2020.
In accordance with the loan forgiveness requirements of the CARES Act, the Company intends to use the proceeds from the PPP Loan
primarily for payroll costs, rent and utilities, thus 100% of the loan should be forgiven. The PPP Loan is scheduled to mature
on April 20, 2022, has a 1.00% interest rate, and is subject to the terms and conditions applicable to all loans made pursuant
to the Paycheck Protection Program as administered by the SBA under the CARES Act.