UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(MARK ONE)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR
THE QUARTERLY PERIOD ENDED
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
COMMISSION
FILE NUMBER
(Exact name of the Registrant as Specified in its Charter)
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification Number) |
(Address of Principal Executive Offices including Zip Code)
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T “See 232.405 of this Chapter” during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated Filer ☒ | Non-accelerated filer ☐ | Smaller
reporting company | |||
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐
The number of outstanding shares of the registrant’s common stock on October 31, 2020 was .
Table of Contents
STEREOTAXIS, INC.
INDEX TO FORM 10-Q
| Page | |||
| Part I Financial Information | |||
| Item 1. | Financial Statements (unaudited) | 3 | |
| Balance Sheets | 3 | ||
| Statements of Operations | 4 | ||
| Statements of Equity | 5-6 | ||
| Statements of Cash Flows | 7 | ||
| Notes to Financial Statements | 8-16 | ||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17-23 | |
| Item 3. | [Reserved] | 23 | |
| Item 4. | Controls and Procedures | 23 | |
| Part II Other Information | |||
| Item 1. | Legal Proceedings | 24 | |
| Item 1A. | Risk Factors | 24 | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 25 | |
| Item 3. | Defaults upon Senior Securities | 25 | |
| Item 4. | [Reserved] | 25 | |
| Item 5. | Other Information | 25 | |
| Item 6. | Exhibits | 25 | |
| Signatures | 26 | ||
| 2 |
ITEM 1. FINANCIAL STATEMENTS
STEREOTAXIS, INC.
BALANCE SHEETS
| September 30, 2020 | December 31, 2019 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Compensating cash arrangement | - | |||||||
| Accounts receivable, net of allowance of $ | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Short-term debt | $ | $ | ||||||
| Accounts payable | ||||||||
| Accrued liabilities | ||||||||
| Deferred revenue | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term debt | - | |||||||
| Long-term deferred revenue | ||||||||
| Operating lease liabilities | ||||||||
| Other liabilities | ||||||||
| Total liabilities | ||||||||
| Series A - Convertible preferred stock: | ||||||||
| Convertible preferred stock, Series A, par value $; and shares outstanding at 2020 and 2019, respectively | ||||||||
| Stockholders’ equity: | ||||||||
| Convertible preferred stock, Series B, par value $; shares authorized, shares outstanding at 2020 and 2019 | ||||||||
| Common stock, par value $; shares authorized, and shares issued at 2020 and 2019, respectively | ||||||||
| Additional paid in capital | ||||||||
| Treasury stock, shares at 2020 and 2019 | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes.
| 3 |
STEREOTAXIS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Revenue: | ||||||||||||||||
| Systems | $ | $ | $ | $ | ||||||||||||
| Disposables, service and accessories | ||||||||||||||||
| Sublease | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Cost of revenue: | ||||||||||||||||
| Systems | ||||||||||||||||
| Disposables, service and accessories | ||||||||||||||||
| Sublease | ||||||||||||||||
| Total cost of revenue | ||||||||||||||||
| Gross margin | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income (expense) | ( | ) | ||||||||||||||
| Net income (loss) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Cumulative dividend on convertible preferred stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share attributable to common stockholders: | ||||||||||||||||
| Basic | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Diluted | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average number of common shares and equivalents: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
See accompanying notes.
| 4 |
STEREOTAXIS, INC
STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
(Unaudited)
Three Months Ended September 30, 2019
| Convertible Preferred Stock Series A (Mezzanine) | Convertible Preferred Stock Series B | Common Stock | Additional Paid-In | Treasury | Accumulated | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Stock | Deficit | (Deficit) | |||||||||||||||||||||||||||||||
| Balance at June 30, 2019 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Issuance of common stock | ||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||||||||||||||
| Components of net income (loss) | - | |||||||||||||||||||||||||||||||||||||||
| Employee stock purchase plan | ||||||||||||||||||||||||||||||||||||||||
| Preferred stock issuance | ||||||||||||||||||||||||||||||||||||||||
| Preferred stock conversion | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2019 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
Three Months Ended September 30, 2020
| Convertible Preferred Stock Series A (Mezzanine) | Convertible Preferred Stock Series B | Common Stock | Additional Paid-In | Treasury | Accumulated | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Stock | Deficit | (Deficit) | |||||||||||||||||||||||||||||||
| Balance at June 30, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Issuance of common stock | ||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||||||||||||||
| Components of net income (loss) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Employee stock purchase plan | ||||||||||||||||||||||||||||||||||||||||
| Preferred stock conversion | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
See accompanying notes.
| 5 |
STEREOTAXIS, INC
STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
(Unaudited)
Nine Months Ended September 30, 2019
| Convertible Preferred Stock Series A (Mezzanine) | Convertible Preferred Stock Series B | Common Stock | Additional Paid-In | Treasury | Accumulated | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Stock | Deficit | (Deficit) | |||||||||||||||||||||||||||||||
| Balance at December 31, 2018 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Issuance of common stock | ||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||||||||||||||
| Components of net income (loss) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Employee stock purchase plan | ||||||||||||||||||||||||||||||||||||||||
| Preferred stock issuance | - | |||||||||||||||||||||||||||||||||||||||
| Preferred stock conversion | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2019 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
Nine Months Ended September 30, 2020
| Convertible Preferred Stock Series A (Mezzanine) | Convertible Preferred Stock Series B | Common Stock | Additional Paid-In | Treasury | Accumulated | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Stock | Deficit | (Deficit) | |||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Issuance of common stock | - | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||||||||||||||
| Components of net income (loss) | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Employee stock purchase plan | ||||||||||||||||||||||||||||||||||||||||
| Preferred stock conversion | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
See accompanying notes.
| 6 |
STEREOTAXIS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Non-cash lease expense | ||||||||
| Share-based compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Compensating cash arrangement | ( | ) | - | |||||
| Other assets | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued liabilities | ||||||||
| Deferred revenue | ( | ) | ||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Other liabilities | - | ( | ) | |||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from Paycheck Protection Program loan | - | |||||||
| Proceeds from issuance of stock, net of issuance costs | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
See accompanying notes.
| 7 |
STEREOTAXIS, INC.
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.
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 nine month period ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 or for future operating periods.
| 8 |
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 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 disruption to the capital markets could negatively impact our ability to raise capital. If the capital markets are 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 installation, service contracts and disposable products.
We continue to evaluate and take 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.
Compensating Cash Arrangement
In
July 2020, the Company entered into a letter of credit to support a commitment of less than $
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 September 30, 2020 and December 31, 2019, the Company did not have any financial assets or liabilities valued at fair value on a recurring basis.
| 9 |
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 typically 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 less than $
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
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
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 a specified period, typically 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
| 10 |
Sublease Revenue:
The
adoption of new lease accounting guidance as of January 1, 2019 requires the Company to record sublease income as revenue beginning
in 2019. Sublease revenue represented
| Three Months Ended September 30 | Nine Months Ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Systems | $ | $ | $ | $ | ||||||||||||
| Disposables, service and accessories | ||||||||||||||||
| Sublease | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
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 $
The following information summarizes the Company’s contract assets and liabilities:
| September 30, 2020 | December 31, 2019 | |||||||
| Contract Assets - unbilled receivables | $ | $ | ||||||
| Customer deposits | ||||||||
| Product shipped, revenue deferred | ||||||||
| Deferred service and license fees | ||||||||
| Total deferred revenue | ||||||||
| Less: Long-term deferred revenue | ( | ) | ( | ) | ||||
| Total current deferred revenue | $ | $ | ||||||
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 nine months ended September 30, 2020 and 2019, that was included in the deferred revenue balance at the beginning
of each reporting period was $
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 $
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 recognized at the time of sale. Costs of disposable revenue include direct product costs and estimated warranty costs and are recognized at the time of sale. Cost of revenue from services and license fees are recognized when incurred.
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.
| 11 |
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.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Net income (loss) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Cumulative dividend on convertible preferred stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares and equivalents: | ||||||||||||||||
| Basic EPS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted EPS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
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 September 30, 2020, the Company had shares of common stock issuable upon the exercise of outstanding options and stock appreciation rights at a weighted average exercise price of $ per share, shares of common stock issuable upon the exercise of outstanding warrants at a weighted average exercise price of $ per share, shares of common stock issuable upon the conversion of Series A Convertible Preferred Stock and accumulated dividends, shares of common stock issuable upon the conversion of Series B Convertible Preferred Stock, and 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.
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3. Inventories
Inventories consist of the following:
| September 30, 2020 | December 31, 2019 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Reserve for obsolescence | ( | ) | ( | ) | ||||
| Total inventory | $ | $ | ||||||
4. Prepaid Expenses and Other Assets
Prepaid expenses and other assets consist of the following:
| September 30, 2020 | December 31, 2019 | |||||||
| Prepaid expenses | $ | $ | ||||||
| Prepaid commissions | ||||||||
| Deposits | ||||||||
| Other assets | - | |||||||
| Total prepaid expenses and other assets | ||||||||
| Less: Noncurrent prepaid expenses and other assets | ( | ) | ( | ) | ||||
| Total current prepaid expenses and other assets | $ | $ | ||||||
5. Property and Equipment
| September 30, 2020 | December 31, 2019 | |||||||
| Equipment | $ | $ | ||||||
| Leasehold improvements | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Net property and equipment | $ | $ | ||||||
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 September 30, 2020, the weighted average discount rate for operating leases was
| 13 |
The following table represents lease costs and other lease information.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Operating lease cost | $ | $ | $ | $ | ||||||||||||
| Short-term lease cost | ||||||||||||||||
| Sublease income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total net lease cost | $ | $ | $ | $ | ||||||||||||
| Cash paid within operating cash flows | $ | $ | $ | $ | ||||||||||||
The
initial recognition of the right of use assets in 2019 was $
Future minimum payments for operating leases with initial or remaining terms of one year or more as of September 30, 2020, excluding sublease income, were as follows:
| September 30, 2020 | ||||
| 2020 | $ | |||
| 2021 | ||||
| Total lease payments | ||||
| Less: Interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
The
undiscounted future cash flows to be received under the sublease are $
7. Accrued Liabilities
Accrued liabilities consist of the following:
| September 30, 2020 | December 31, 2019 | |||||||
| Accrued salaries, bonus, and benefits | $ | $ | ||||||
| Accrued licenses and maintenance fees | ||||||||
| Accrued warranties | ||||||||
| Accrued taxes | ||||||||
| Accrued professional services | ||||||||
| Other | ||||||||
| Total accrued liabilities | ||||||||
| Less: Long term accrued liabilities | ( | ) | ( | ) | ||||
| Total current accrued liabilities | $ | $ | ||||||
8. Debt and Credit Facilities
The
Company had a working capital line of credit with its primary lender, Silicon Valley Bank that matured on
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 as rent and utilities paid during the twenty four week period from the date
of the loan and as long as certain headcount levels are maintained. 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 $
In accordance with general accounting principles for fair value measurement, the Company’s debt was measured at fair value (Level 2) as of September 30, 2020. As of September 30, 2020 the fair value of the debt approximated the carrying value of the debt.
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The
holders of common stock are entitled to
2020 Equity Financing
On
May 25, 2020, the Company entered into a Securities Purchase Agreement with certain accredited investors, whereby it, in a direct
registered offering, agreed to issue and sell to the investors an aggregate of shares of the Company’s common
stock, $ par value per share, at a price of $ per share. The Company received net proceeds of approximately $
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 shares of the Company’s
common stock, $ par value per share, at a price of $ per share and shares of the Company’s Series B Convertible
Preferred Stock, $ par value per share which are convertible into shares of the Company’s Common Stock, at a price
of $ 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 stockholders’ equity section of the Company’s balance
sheet. The Company received net proceeds of approximately $
Series A Convertible Preferred Stock and Warrants
In
September 2016, the Company issued
The
warrants issued in conjunction with the convertible preferred stock (the “SPA Warrants”) have an exercise price equal
to $ per share subject to adjustments as provided under the terms of the warrants. The warrants are exercisable through
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 September 30, 2020, the Company had remaining shares of the Company’s common stock to provide for current and future grants under its various equity plans.
At September 30, 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 $ million. This cost will be amortized over a period of up to over the underlying estimated service periods and will be adjusted for subsequent changes in actual forfeitures and anticipated vesting periods.
| Number of Options/SARs | Range of Exercise Price | Weighted Average Exercise Price per Share | ||||||||||||
| Outstanding, December 31, 2019 | $ | - | $ |
$ | ||||||||||
| Granted | $ | - | $ |
$ | ||||||||||
| Exercised | ( | ) | $ | - | $ |
$ | ||||||||
| Forfeited | ( | ) | $ | - | $ |
$ | ||||||||
| Outstanding, September 30, 2020 | $ | - | $ |
$ | ||||||||||
| 15 |
| Number of Restricted Stock Units | Weighted Average Grant Date Fair Value per Unit | |||||||
| Outstanding, December 31, 2019 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( | ) | $ | |||||
| Forfeited | ( | ) | $ | |||||
| Outstanding, September 30, 2020 | $ | |||||||
10. Product Warranty Provisions
The
Company’s standard policy is to warrant all capital systems against defects in material or workmanship for
Accrued warranty, which is included in other accrued liabilities, consists of the following:
| September 30, 2020 | December 31, 2019 | |||||||
| Warranty accrual, beginning of the fiscal period | $ | $ | ||||||
| Accrual adjustment for product warranty | ||||||||
| Payments made | ( | ) | ( | ) | ||||
| Warranty accrual, end of the fiscal period | $ | $ | ||||||
11. Commitments and Contingencies
The Company at times becomes a party to claims in the ordinary course of business. Management believes that the ultimate resolution of pending or threatened proceedings will not have a material effect on the financial position, results of operations or liquidity of the Company.
12. Subsequent Events
None.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our financial statements and notes thereto included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2019. Operating results are not necessarily indicative of results that may occur in future periods.
This report includes various forward-looking statements that are subject to risks and uncertainties, many of which are beyond our control. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in “Part II - Item 1A. Risk Factors.” Forward-looking statements discuss matters that are not historical facts. Forward-looking statements include, but are not limited to, discussions regarding our operating strategy, sales and marketing strategy, regulatory strategy, industry, economic conditions, financial condition, liquidity, capital resources, results of operation, and the impact of the recent coronavirus (“COVID-19”) pandemic and our response to it. Such statements include, but are not limited to, statements preceded by, followed by, or that otherwise include the words “believe”, “expects”, “anticipates”, “intends”, “estimates”, “projects”, “can”, “could”, “may”, “would”, or similar expressions. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You should not unduly rely on these forward-looking statements, which speak only as of the date on which they are made. They give our expectations regarding the future, but are not guarantees. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.
Overview
Stereotaxis designs, manufactures and markets robotic magnetic navigation systems for use in a hospital’s interventional surgical suite to enhance the treatment of arrhythmias and coronary artery disease. Our primary products include the Genesis RMN System, the Niobe System, the Odyssey Solution, and related devices. We also offer our customers the Stereotaxis Imaging Model S x-ray System. We believe that robotic magnetic navigation systems represent a revolutionary technology in the interventional surgical suite, or “interventional lab,” and have the potential to become the standard of care for a broad range of complex cardiology procedures. We also believe that our technology represents an important advance in the ongoing trend toward digital instrumentation in the interventional lab and provides substantial, clinically important improvements, and cost efficiencies over manual interventional methods, which require years of physician training and often result in long and unpredictable procedure times and sub-optimal therapeutic outcomes.
| 17 |
The Genesis RMN System is the latest generation of the robotic magnetic navigation system. This system is designed to enable physicians to complete more complex interventional procedures by providing image-guided delivery of catheters and guidewires through the blood vessels and chambers of the heart to treatment sites. This is achieved using externally applied magnetic fields that govern the motion of the working tip of the catheter or guidewire, resulting in improved navigation, efficient procedures and reduced x-ray exposure. We have received regulatory clearance, licensing and CE Mark approvals necessary for us to market the Genesis RMN System in the U.S. and Europe. The core components of the previous generation robotic magnetic navigation system, the Niobe System, have received regulatory clearance in the U.S., Canada, Europe, China, Japan, and various other countries.
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 delivering synchronized content for optimized workflow, advanced care, and improved productivity. This tool includes an archiving capability that allows clinicians to store and replay entire procedures or segments of procedures. This information can be accessed from locations throughout the hospital local area network and over the global Odyssey Network providing physicians with a tool for clinical collaboration, remote consultation, and training. The Odyssey Solution may be acquired in conjunction with a robotic magnetic navigation system or on a stand-alone basis for installation in interventional labs and other locations where clinicians often desire the benefits of the Odyssey Solution that we believe can improve clinical workflows and related efficiencies.
We have strategic relationships with technology leaders 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.
COVID-19 Pandemic
First Quarter of 2020
Prior to the spread of COVID-19, we experienced procedure trends consistent with the fourth quarter of 2019. We also saw strength in new capital orders. Beginning in January 2020, we saw a substantial reduction in robotic procedures in Asia Pacific, especially in China. By the height of the pandemic in that region, weekly procedures decreased to approximately 40% of the average rate experienced in the fourth quarter. As the COVID-19 pandemic subsided in China in March 2020, procedure volume began to recover and, by the end of the first quarter of 2020, we were seeing weekly procedures in the Asia Pacific region approach 70% of the fourth quarter average rates. Procedure disruption in other geographies was not significant until the middle of March 2020, when the worldwide impact of COVID-19 intensified. By the end of March, procedures in the U.S and Europe, which represent the majority of our procedures, declined to approximately 70% of the weekly procedure rate experienced in the fourth quarter of 2019.
As the pandemic spread throughout the first quarter of 2020, various local restrictions on travel, mandatory closures, social distancing protocols and shelter-in-place orders negatively impacted our ability to complete installation and service activities, which resulted in declines in system and service revenue in the first quarter.
Our supply-chain also experienced some impact as some suppliers struggled to source sub-components in February when most factories in China were seemingly closed. These issues were mostly alleviated by the end of the first quarter with the opening of the Chinese economy. During the first quarter, we also took proactive actions to reduce the risk that a prolonged future reduction in Chinese manufacturing might have on us.
Second Quarter of 2020
During the early portion of the second quarter, weekly procedures in the United States and Europe continued to decline, reaching approximately 40% of fourth quarter 2019 levels by the middle of April. In May, with the reopening of various regions, procedures in both geographies began to recover and by the end of June, procedures were approximating the level seen before the pandemic. During the second quarter of 2020, weekly procedure rates in Asia Pacific continued to improve, eventually reaching the pre-pandemic weekly procedure rate.
Third Quarter of 2020
During the third quarter of 2020, weekly procedures continue to recover and currently approach the levels seen before the pandemic. The recent resurgence of COVID-19 in some areas may again cause hospitals and patients in some areas to again postpone procedures. Given these factors, we cannot reliably estimate the impact to procedure volume in the fourth quarter of 2020 and beyond.
| 18 |
Ongoing
We do not expect all markets to recover at the same pace, and some markets may continue to experience resurgence in infection rates for many months. The magnitude of the impact that the pandemic will have on our business will likely continue to vary by individual geography based on the extent of the outbreak in each area, specific governmental restrictions and the availability of testing capabilities, personal protective equipment, and hospital facilities, as well as decisions by our vendors, suppliers, customers and, ultimately, patients in response to the pandemic, none of which we are able to currently and accurately predict. While we cannot reliably estimate the depth or length of the impact, we continue to anticipate significant, periodic disruptions to our procedures volumes, service activities and system placements throughout the remainder of 2020 and beyond as COVID-19 infections spread, causing additional strain on hospital resources, combined with recommended deferrals of elective procedures by governments and other authorities. In addition, we would expect that additional capital system orders will also experience some delay.
Capital markets and worldwide economies have also been significantly impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Such economic recession could have a material adverse effect on our long-term business as hospitals curtail and reduce capital and overall spending or redirect such spending to treatments related directly to the pandemic. To-date, our manufacturing operations and supply chains have been minimally interrupted, but we cannot guarantee that such will not be interrupted further in the future. If our manufacturing operations or supply chains are 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 could have a material adverse effect on our business, operating results, and financial condition. Further, the COVID-19 pandemic and local actions, such as “shelter-in-place” orders and restrictions on our ability to travel and access our customers or temporary closures of our facilities or the facilities of our suppliers and their contract manufacturers, could also significantly impact our sales and our ability to ship our products and supply our customers. Any of these events could negatively impact the number of procedures performed and the number of system placements and have a material adverse effect on our business, financial condition, results of operations, or cash flows.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures. We review our estimates and judgments on an on-going basis. We base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. We believe the following accounting policies are critical to the judgments and estimates we use in preparing our financial statements. For a complete listing of our critical accounting policies, please refer to our Annual Report on Form 10-K for the year ended December 31, 2019.
Revenue Recognition
We generate revenue from the 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.
In accordance with Accounting Standards Codification Topic 606 (“ASC 606”), Revenue from Contracts with Customers, 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 if 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 typically 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 warranty; warranty costs were less than $0.1 million for the periods presented.
| 19 |
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 a warranty that provides for the return of defective products. Warranty costs were not material for the periods presented.
Royalty:
The Company is entitled to royalty payments from Biosense Webster, payable quarterly based on net revenues from sales of the co-developed catheters.
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 a specified period, typically 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.
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.
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 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. See Note 2 for additional detail on deferred revenue. The Company did not have any impairment losses on its contract assets for the periods presented.
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 sheets were $0.3 million as of September 30, 2020 and December 31, 2019. The Company did not incur any impairment losses during any of the periods presented.
Leases
On January 1, 2019, the Company adopted ASU No. 2016-02 “Leases” (Topic 842) and all subsequent ASUs that modified Topic 842. 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. The Company determines if a contract contains a lease at inception. For contracts where the Company is the lessee, operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liability on the Company’s balance sheet. The Company currently does not have any finance leases.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. ROU assets also include any initial direct costs incurred and any lease payments made at or before the lease commencement date, less lease incentives received. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the lease liabilities as the Company’s leases generally do not provide an implicit rate. Lease terms may include options to extend or terminate when the Company is reasonably certain that the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term.
The Company also has lease arrangements with lease and non-lease components. The Company elected the practical expedient not to separate non-lease components from lease components for the Company’s operating leases. Additionally, the Company applies the short-term lease measurement and recognition exemption in which right of use assets and lease liabilities are not recognized for leases less than twelve months.
| 20 |
Cost of Contracts
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 recognized at the time of sale. Costs of disposable revenue include direct product costs and estimated warranty costs and are recognized at the time of sale. Cost of revenue from services and license fees are recognized when incurred. Cost of sublease revenue is recognized on a straight-line basis.
Results of Operations
Comparison of the Three Months Ended September 30, 2020 and 2019
Revenue. Revenue increased from $8.2 million for the three months ended September 30, 2019 to $8.7 million for the three months ended September 30, 2020, an increase of 6%. Revenue from the sales of systems increased to $3.0 million for the three months ended September 30, 2020 from $1.7 million for the three months ended September 30, 2019, an increase of 74%, driven by increased system sales volumes in the current year period. Revenue from sales of disposable interventional devices, service, and accessories decreased to $5.5 million for the three months ended September 30, 2020 from $6.3 million for the three months ended September 30, 2019, a decrease of approximately 12%, driven by lower disposable sales volumes as a result of the COVID pandemic and lower service revenue. The Company recognized $0.2 million of sublease revenue for both the three month periods ended September 30, 2020 and 2019.
Cost of Revenue. Cost of revenue increased from $1.8 million for the three months ended September 30, 2019 to $4.0 million for the three months ended September 30, 2020, an increase of approximately 120%. As a percentage of our total revenue, overall gross margin decreased to 54% for the three months ended September 30, 2020 from 78% for the three months ended September 30, 2019 primarily due to changes in product mix. Cost of revenue for systems sold increased to $3.0 million for the three months ended September 30, 2020 from $0.7 million for the three months ended September 30, 2019 driven by increased system sales volumes. Gross margin for systems was $1.0 million for the three months ended September 30, 2019 compared to less than negative $0.1 million for the three months ended September 30, 2020. Gross margin for systems for the three month period ended September 30, 2020, reflect the allocation of overhead expenses and initial installation costs. Gross margin for systems for the three month period ended September 30, 2019, benefited from the reduction of inventory-related charges recorded in prior periods. Cost of revenue for disposables, service, and accessories decreased to $0.7 million for the three months ended September 30, 2020 from $0.9 million for the three months ended September 30, 2019 primarily due to lower expenses incurred under service contracts in the current year period. Gross margin for disposables, service, and accessories was 86%, generally consistent with the prior year quarter. Cost of sublease revenue was $0.2 million for both the three month periods ended September 30, 2020 and 2019.
Research and Development Expenses. Research and development expenses increased from $1.8 million for the three months ended September 30, 2019 to $2.0 million for the three months ended September 30, 2020, an increase of approximately 12%. This increase was primarily due to higher project spending in the three month period ending September 30, 2020.
Sales and Marketing Expenses. Sales and marketing expenses decreased from $3.1 million for the three months ended September 30, 2019 to $2.8 million for the three months ended September 30, 2020, a decrease of approximately 10%. This decrease was primarily due to reductions in travel.
General and Administrative Expenses. General and administrative expenses include finance, information systems, legal, and general management. General and administrative expenses remained relatively consistent at approximately $1.5 million for both the three months ended September 30, 2020 and 2019.
Interest Income (Expense). Interest expense was less than $0.1 million for the three months ended September 30, 2020 compared to interest income of less than $0.1 million for the three months ended September 30, 2019.
Comparison of the Nine Months Ended September 30, 2020 and 2019
Revenue. Revenue decreased from $22.0 million for the nine months ended September 30, 2019 to $19.8 million for the nine months ended September 30, 2020, a decrease of approximately 10%. Revenue from the sale of systems increased from $1.8 million to $3.0 million, an increase of approximately 69%, driven by increased system sales volumes in the current year period. Revenue from sales of disposable interventional devices, service and accessories decreased to $16.1 million for the nine months ended September 30, 2020 from $19.5 million for the nine months ended September 30, 2019, a decrease of approximately 18%, driven by lower procedure volumes as a result of the COVID pandemic and to a lesser extent, lower service revenue. Sublease revenue was $0.7 million for the nine month periods ended September 30, 2020 and 2019.
Cost of Revenue. Cost of revenue increased from $4.4 million for the nine months ended September 30, 2019 to $6.1 million for the nine months ended September 30, 2020, an increase of approximately 38%. As a percentage of our total revenue, overall gross margin decreased to 69% for the nine months ended September 30, 2020 from 80% for the nine months ended September 30, 2019. Cost of revenue for systems sold increased from $0.7 million for the nine months ended September 30, 2019 to $3.3 million for the nine months ended September 30, 2020, primarily due to increased system sales volumes in the current year period. Gross margin for systems decreased from $1.0 million for the nine months ended September 30, 2019 to negative $0.3 million for the nine months ended September 30, 2020 due to initial installation costs and changes in production and obsolescence reserves. Cost of revenue for disposables, service, and accessories decreased to $2.1 million for the nine months ended September 30, 2020 from $2.9 million for the nine months ended September 30, 2019 driven by decreased disposable sales volumes and lower expenses incurred under service contracts in the current year period, both as a result of the COVID pandemic. Gross margin for disposables, service and accessories was 87% for the current year period compared to 85% for the nine months ended September 30, 2019, driven by product mix and lower expenses incurred under service contracts in the current year period. Cost of sublease revenue was $0.7 million for both the nine month periods ended September 30, 2020 and 2019.
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Research and Development Expenses. Research and development expenses decreased from $7.4 million for the nine months ended September 30, 2019 to $6.0 million for the nine months ended September 30, 2020, a decrease of approximately 18%. This decrease was due to lower Genesis RMN project spending in the nine month period ended September 30, 2020.
Sales and Marketing Expenses. Sales and marketing expenses decreased from $9.7 million for the nine months ended September 30, 2019 to $8.3 million for the nine months ended September 30, 2020, a decrease of approximately 14%. This decrease was primarily due to reductions in travel, commissions, and trade-show related expenses.
General and Administrative Expenses. General and administrative expenses include finance, information systems, legal, and general management. General and administrative expenses increased to $5.0 million for the nine months ended September 30, 2020 from $4.2 million for the nine months ended September 30, 2019, an increase of 19%. This increase was primarily due to increased non-cash director compensation driven by stock appreciation as compared to the prior year.
Interest Income. Interest income for the nine months ended September 30, 2020 and September 30, 2019 was approximately $0.1 million.
Liquidity and Capital Resources
Liquidity refers to the liquid financial assets available to fund our business operations and pay for near-term obligations. These liquid financial assets consist of cash and cash equivalents. We are continuously and critically reviewing our liquidity and anticipated capital requirements in light of the significant uncertainty created by the COVID-19 pandemic.
At September 30, 2020 we had $43.6 million of cash and equivalents. We had working capital of $40.4 million as of September 30, 2020 compared to $26.7 million as of December 31, 2019. The increase in working capital was primarily driven by net proceeds received from the May 2020 Securities Purchase Agreement partially offset by net losses incurred during the first nine months of 2020.
The following table summarizes our cash flow by operating, investing and financing activities for the nine months ended September 30, 2020 and 2019 (in thousands):
| Nine Months Ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| Cash flow used in operating activities | $ | (3,820 | ) | $ | (2,702 | ) | ||
| Cash flow used in investing activities | (71 | ) | (16 | ) | ||||
| Cash flow provided by financing activities | 17,304 | 23,572 | ||||||
Net cash used in operating activities. We used approximately $3.8 million and $2.7 million of cash for operating activities during the nine months ended September 30, 2020 and 2019, respectively. The increase in cash used in operating activities was driven by the operating loss and increased use of working capital primarily for the building of inventory.
Net cash used in investing activities. We used less than $0.1 million of cash during the nine months ended September 30, 2020 and 2019 for purchases of equipment.
Net cash provided by financing activities. We generated $17.3 million of cash for the nine month period ended September 30, 2020 compared to $23.6 million generated for the nine month period ended September 30, 2019. The cash generated in the nine month period ended September 30, 2020 was primarily driven by the net proceeds of $15.0 million received from the May 2020 Securities Purchase Agreement and $2.2 million of proceeds received from the Paycheck Protection Program loan. The cash generated in the nine month period ended September 30, 2019 was driven by the net proceeds from the August 2019 Securities Purchase Agreement.
Capital Resources
As of September 30, 2020, our borrowing facilities were comprised of the Paycheck Protection Program debt as discussed in the following section.
Revolving Line of Credit
The Company had a working capital line of credit with its primary lender, Silicon Valley Bank that matured on June 30, 2020.
Paycheck Protection Program
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 as rent and utilities paid during the twenty four week period from the date of the loan and as long as certain headcount levels are maintained. 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 used the full proceeds from the PPP Loan primarily for payroll costs, rent and utilities. The Company anticipates that the loan will be substantially forgiven. To the extent it is not forgiven, the Company would be required to repay that portion beginning in August 2021 with a final installment in April 2022. Interest would be assessed on the amount of the loan not forgiven at a rate of 1% per annum beginning on the date of the loan, April 20, 2020.
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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. No dividends have been declared or paid as of September 30, 2020.
2020 Equity Financing
On May 25, 2020, the Company entered into a Securities Purchase Agreement with certain accredited investors, whereby it, in a direct registered offering, agreed to issue and sell to the investors an aggregate of 3,658,537 shares of the Company’s common stock, $0.001 par value per share, at a price of $4.10 per share. The Company received net proceeds of approximately $15.0 million, after offering expenses.
2019 Equity Financing and Series B Convertible Preferred Stock
As disclosed in Note 9, 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 stockholders’ equity section of the 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.
Off-Balance Sheet Arrangements
We do not currently have, nor have we ever had, any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. As a result, we are not materially exposed to any financing, liquidity, market, or credit risk that could have arisen if we had engaged in these relationships.
ITEM 3. [RESERVED]
None.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures: The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective.
Changes In Internal Control Over Financial Reporting: The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of the Company’s internal control over financial reporting to determine whether any changes occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Based on that evaluation, there has been no such change during the period covered by this report.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved from time to time in various lawsuits and claims arising in the normal course of business. Although the outcomes of these lawsuits and claims are uncertain, we do not believe any of them will have a material adverse effect on our business, financial condition or results of operations.
ITEM 1A. RISK FACTORS
The following risk factor is provided to update the risk factors previously disclosed under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
The COVID-19 pandemic has significantly impacted worldwide economic conditions and could have a material adverse effect on our business, operating results, and financial condition.
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 or future disruption to the capital markets could negatively impact our ability to raise capital. If the capital markets are 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. 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 service contracts and our disposable products.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. [RESERVED]
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
| 25 |
STEREOTAXIS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| STEREOTAXIS, INC. (Registrant) | ||
| Date: November 9, 2020 | By: | /s/ David L. Fischel |
David L. Fischel Chief Executive Officer | ||
| Date: November 9, 2020 | By: | /s/ Kimberly R. Peery |
Kimberly R. Peery Chief Financial Officer | ||
| 26 |
Exhibit 31.1
Certification of Principal Executive Officer
I, David L. Fischel, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Stereotaxis, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: November 9, 2020 | /s/ David L. Fischel |
| David L. Fischel | |
| Chief Executive Officer | |
| Stereotaxis, Inc. | |
| (Principal Executive Officer) |
Exhibit 31.2
Certification of Principal Financial Officer
I, Kimberly R. Peery, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Stereotaxis, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: November 9, 2020 | /s/ Kimberly R. Peery |
| Kimberly R. Peery | |
| Chief Financial Officer | |
| Stereotaxis, Inc. | |
| (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Stereotaxis, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David L. Fischel, Chief Executive Officer of the Company, certify, pursuant to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: November 9, 2020 | /s/ David L. Fischel |
| David L. Fischel | |
| Chief Executive Officer | |
| Stereotaxis, Inc. |
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Stereotaxis, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kimberly R. Peery, Chief Financial Officer of the Company, certify, pursuant to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: November 9, 2020 | /s/ Kimberly R. Peery |
| Kimberly R. Peery | |
| Chief Financial Officer | |
| Stereotaxis, Inc. |
Balance Sheets (Parenthetical) - USD ($) |
Sep. 30, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Accounts receivable, allowance | $ 265,233 | $ 380,212 |
| Series A Convertible Preferred Stock, par value | $ 0.001 | $ 0.001 |
| Series A Convertible Preferred Stock, shares outstanding | 22,513 | 23,110 |
| Series B Convertible Preferred Stock, par value | $ 0.001 | $ 0.001 |
| Series B Convertible Preferred Stock, shares authorized | 10,000,000 | 10,000,000 |
| Series B Convertible Preferred Stock, shares outstanding | 5,610,121 | 5,610,121 |
| Common stock, par value | $ 0.001 | $ 0.001 |
| Common stock, shares authorized | 300,000,000 | 300,000,000 |
| Common stock, shares issued | 73,678,206 | 68,529,623 |
| Treasury stock, shares | 4,015 | 4,015 |
Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
Sep. 30, 2020 |
Sep. 30, 2019 |
|
| Revenue: | ||||
| Total revenue | $ 8,703,583 | $ 8,201,748 | $ 19,805,279 | $ 22,009,733 |
| Sublease | 246,530 | 246,532 | 739,590 | 739,593 |
| Cost of revenue: | ||||
| Total cost of revenue | 4,025,255 | 1,831,593 | 6,061,651 | 4,391,138 |
| Sublease | 246,530 | 246,531 | 739,590 | 739,592 |
| Gross margin | 4,678,328 | 6,370,155 | 13,743,628 | 17,618,595 |
| Operating expenses: | ||||
| Research and development | 1,952,641 | 1,751,081 | 6,038,753 | 7,405,462 |
| Sales and marketing | 2,822,680 | 3,120,632 | 8,279,853 | 9,666,975 |
| General and administrative | 1,466,046 | 1,539,648 | 4,962,227 | 4,186,277 |
| Total operating expenses | 6,241,367 | 6,411,361 | 19,280,833 | 21,258,714 |
| Operating loss | (1,563,039) | (41,206) | (5,537,205) | (3,640,119) |
| Interest income (expense) | (9,933) | 84,954 | 71,596 | 133,329 |
| Net income (loss) | (1,572,972) | 43,748 | (5,465,609) | (3,506,790) |
| Cumulative dividend on convertible preferred stock | (343,101) | (360,647) | (1,028,950) | (1,071,351) |
| Loss attributable to common stockholders | $ (1,916,073) | $ (316,899) | $ (6,494,559) | $ (4,578,141) |
| Net loss per share attributable to common stockholders: | ||||
| Basic | $ (0.03) | $ 0.00 | $ (0.09) | $ (0.07) |
| Diluted | $ (0.03) | $ 0.00 | $ (0.09) | $ (0.07) |
| Weighted average number of common shares and equivalents: | ||||
| Basic | 74,488,771 | 64,294,153 | 72,004,956 | 61,405,083 |
| Diluted | 74,488,771 | 64,294,153 | 72,004,956 | 61,405,083 |
| Systems [Member] | ||||
| Revenue: | ||||
| Total revenue | $ 2,953,005 | $ 1,696,964 | $ 2,965,774 | $ 1,755,015 |
| Cost of revenue: | ||||
| Total cost of revenue | 3,031,440 | 665,463 | 3,253,976 | 722,828 |
| Disposables, Service and Accessories [Member] | ||||
| Revenue: | ||||
| Total revenue | 5,504,048 | 6,258,252 | 16,099,915 | 19,515,125 |
| Cost of revenue: | ||||
| Total cost of revenue | $ 747,285 | $ 919,599 | $ 2,068,085 | $ 2,928,718 |
Statements of Convertible Preferred Stock and Stockholders' Equity (Unaudited) - USD ($) |
Convertible Preferred Stock Series A [Member] |
Convertible Preferred Stocks Series B [Member] |
Common Stock [Member] |
Additional Paid-in Capital [Member] |
Treasury Stock [Member] |
Retained Earnings [Member] |
Total |
|---|---|---|---|---|---|---|---|
| Beginning balance, value at Dec. 31, 2018 | $ 5,960,475 | $ 59,058 | $ 478,179,574 | $ (205,999) | $ (476,721,490) | $ 1,311,143 | |
| Beginning Balance, Shares at Dec. 31, 2018 | 23,900 | 59,058,297 | |||||
| Issuance of common stock | $ 7,164 | 12,878,144 | 12,885,308 | ||||
| Issuance of common stock, Shares | 7,163,760 | ||||||
| Share-based compensation | $ 207 | 1,380,488 | 1,380,695 | ||||
| Share-based compensation, Shares | 206,962 | ||||||
| Components of net income (loss) | (3,506,790) | (3,506,790) | |||||
| Employee stock purchase plan | $ 32 | 54,770 | 54,802 | ||||
| Employee stock purchase plan, Shares | 32,064 | ||||||
| Preferred stock issuance | $ 5,610 | 10,626,328 | 10,631,938 | ||||
| Preferred stock issuance, shares | 5,610,121 | ||||||
| Preferred stock conversion | $ (30,726) | $ 216 | 30,510 | 30,726 | |||
| Preferred stock conversion, Shares | (120) | 216,028 | |||||
| Ending balance, value at Sep. 30, 2019 | $ 5,929,749 | $ 5,610 | $ 66,677 | 503,149,814 | (205,999) | (480,228,280) | 22,787,822 |
| Ending Balance, Shares at Sep. 30, 2019 | 23,780 | 5,610,121 | 66,677,111 | ||||
| Beginning balance, value at Jun. 30, 2019 | $ 5,948,953 | $ 59,383 | 479,127,279 | (205,999) | (480,272,028) | (1,291,365) | |
| Beginning Balance, Shares at Jun. 30, 2019 | 23,855 | 59,383,038 | |||||
| Issuance of common stock | $ 7,117 | 12,928,623 | 12,935,740 | ||||
| Issuance of common stock, Shares | 7,117,276 | ||||||
| Share-based compensation | $ 33 | 425,680 | 425,713 | ||||
| Share-based compensation, Shares | 32,500 | ||||||
| Components of net income (loss) | 43,748 | 43,748 | |||||
| Employee stock purchase plan | $ 8 | 22,836 | 22,844 | ||||
| Employee stock purchase plan, Shares | 8,307 | ||||||
| Preferred stock issuance | $ 5,610 | 10,626,328 | 10,631,938 | ||||
| Preferred stock issuance, shares | 5,610,121 | ||||||
| Preferred stock conversion | $ (19,204) | $ 136 | 19,068 | 19,204 | |||
| Preferred stock conversion, Shares | (75) | 135,990 | |||||
| Ending balance, value at Sep. 30, 2019 | $ 5,929,749 | $ 5,610 | $ 66,677 | 503,149,814 | (205,999) | (480,228,280) | 22,787,822 |
| Ending Balance, Shares at Sep. 30, 2019 | 23,780 | 5,610,121 | 66,677,111 | ||||
| Beginning balance, value at Dec. 31, 2019 | $ 5,758,190 | $ 5,610 | $ 68,530 | 504,211,040 | (205,999) | (481,312,774) | 22,766,407 |
| Beginning Balance, Shares at Dec. 31, 2019 | 23,110 | 5,610,121 | 68,529,623 | ||||
| Issuance of common stock | $ 3,856 | 15,051,062 | 15,054,918 | ||||
| Issuance of common stock, Shares | 3,856,045 | ||||||
| Share-based compensation | $ 148 | 2,413,286 | 2,413,434 | ||||
| Share-based compensation, Shares | 147,739 | ||||||
| Components of net income (loss) | (5,465,609) | (5,465,609) | |||||
| Employee stock purchase plan | $ 24 | 91,093 | 91,117 | ||||
| Employee stock purchase plan, Shares | 23,989 | ||||||
| Preferred stock conversion | $ (152,867) | $ 1,120 | 151,747 | 152,867 | |||
| Preferred stock conversion, Shares | (597) | 1,120,810 | |||||
| Ending balance, value at Sep. 30, 2020 | $ 5,605,323 | $ 5,610 | $ 73,678 | 521,918,228 | (205,999) | (486,778,383) | 35,013,134 |
| Ending Balance, Shares at Sep. 30, 2020 | 22,513 | 5,610,121 | 73,678,206 | ||||
| Beginning balance, value at Jun. 30, 2020 | $ 5,682,141 | $ 5,610 | $ 73,031 | 521,013,702 | (205,999) | (485,205,411) | 35,680,933 |
| Beginning Balance, Shares at Jun. 30, 2020 | 22,813 | 5,610,121 | 73,030,824 | ||||
| Issuance of common stock | $ 41 | 46,508 | 46,549 | ||||
| Issuance of common stock, Shares | 40,953 | ||||||
| Share-based compensation | $ 31 | 755,682 | 755,713 | ||||
| Share-based compensation, Shares | 30,750 | ||||||
| Components of net income (loss) | (1,572,972) | (1,572,972) | |||||
| Employee stock purchase plan | $ 6 | 26,087 | 26,093 | ||||
| Employee stock purchase plan, Shares | 6,154 | ||||||
| Preferred stock conversion | $ (76,818) | $ 569 | 76,249 | 76,818 | |||
| Preferred stock conversion, Shares | (300) | 569,525 | |||||
| Ending balance, value at Sep. 30, 2020 | $ 5,605,323 | $ 5,610 | $ 73,678 | $ 521,918,228 | $ (205,999) | $ (486,778,383) | $ 35,013,134 |
| Ending Balance, Shares at Sep. 30, 2020 | 22,513 | 5,610,121 | 73,678,206 |
Description of Business |
9 Months Ended |
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Sep. 30, 2020 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Description of Business | 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.
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.
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Summary of Significant Accounting Policies |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies | 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 nine month period ended September 30, 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 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 disruption to the capital markets could negatively impact our ability to raise capital. If the capital markets are 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 installation, service contracts and disposable products.
We continue to evaluate and take 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.
Compensating Cash Arrangement
In July 2020, the Company entered into a letter of credit to support a commitment of less than $0.3 million. As a condition of the letter of credit, the Company is required to maintain a $0.3 million compensating balance until the expiration of the letter of credit.
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 September 30, 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 typically 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 less than $0.1 million for the periods presented. Revenue from systems delivery and installation represented 15% and 8% for the nine months ended September 30, 2020 and 2019, respectively.
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 27% and 33% of revenue for the nine months ended September 30, 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 8% and 10% of revenue for the nine months ended September 30, 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 a specified period, typically 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 46% of revenue for the nine months ended September 30, 2020 and 2019.
Sublease Revenue:
The adoption of new lease accounting guidance as of January 1, 2019 requires the Company to record sublease income as revenue beginning in 2019. Sublease revenue represented 4% and 3% of revenue for the nine months ended September 30, 2020 and 2019, respectively.
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 $1.2 million as of September 30, 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:
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 nine months ended September 30, 2020 and 2019, that was included in the deferred revenue balance at the beginning of each reporting period was $4.7 million and $5.4 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 September 30, 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 recognized at the time of sale. Costs of disposable revenue include direct product costs and estimated warranty costs and are recognized at the time of sale. Cost of revenue from services and license fees are recognized when incurred.
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.
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 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 September 30, 2020, the Company had shares of common stock issuable upon the exercise of outstanding options and stock appreciation rights at a weighted average exercise price of $ per share, shares of common stock issuable upon the exercise of outstanding warrants at a weighted average exercise price of $ per share, shares of common stock issuable upon the conversion of Series A Convertible Preferred Stock and accumulated dividends, shares of common stock issuable upon the conversion of Series B Convertible Preferred Stock, and 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.
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| Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventories | 3. Inventories
Inventories consist of the following:
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Prepaid Expenses and Other Assets |
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| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Prepaid Expenses and Other Assets | 4. Prepaid Expenses and Other Assets
Prepaid expenses and other assets consist of the following:
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| Property and Equipment | 5. Property and Equipment
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Leases |
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| Leases | 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 September 30, 2020, the weighted average discount rate for operating leases was 9.0% and the weighted average remaining lease term for operating lease term is 1.25 years.
The following table represents lease costs and other lease information.
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 September 30, 2020, excluding sublease income, were as follows:
The undiscounted future cash flows to be received under the sublease are $0.2 million in 2020 and $1.0 million in 2021.
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Accrued Liabilities |
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| Accrued Liabilities | 7. Accrued Liabilities
Accrued liabilities consist of the following:
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Debt and Credit Facilities |
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Sep. 30, 2020 | |
| Debt Disclosure [Abstract] | |
| Debt and Credit Facilities | 8. Debt and Credit Facilities
The Company had a working capital line of credit with its primary lender, Silicon Valley Bank that matured on June 30, 2020.
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 as rent and utilities paid during the twenty four week period from the date of the loan and as long as certain headcount levels are maintained. 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 used the full proceeds from the PPP Loan primarily for payroll costs, rent and utilities. The Company anticipates that the loan will be substantially forgiven. To the extent it is not forgiven, the Company would be required to repay that portion beginning in August 2021 with a final installment in April 2022. Interest would be assessed on the amount of the loan not forgiven at a rate of 1% per annum beginning on the date of the loan, April 20, 2020.
In accordance with general accounting principles for fair value measurement, the Company’s debt was measured at fair value (Level 2) as of September 30, 2020. As of September 30, 2020 the fair value of the debt approximated the carrying value of the debt.
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Convertible Preferred Stock and Stockholders’ Equity |
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| 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. No dividends have been declared or paid as of September 30, 2020.
2020 Equity Financing
On May 25, 2020, the Company entered into a Securities Purchase Agreement with certain accredited investors, whereby it, in a direct registered offering, agreed to issue and sell to the investors an aggregate of shares of the Company’s common stock, $ par value per share, at a price of $ per share. The Company received net proceeds of approximately $15.0 million, after offering expenses.
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 shares of the Company’s common stock, $ par value per share, at a price of $ per share and shares of the Company’s Series B Convertible Preferred Stock, $ par value per share which are convertible into shares of the Company’s Common Stock, at a price of $ 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 stockholders’ 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 $ with a stated value of $ per share which are convertible into shares of the Company’s common stock at an initial conversion rate of $ 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 $ 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 September 30, 2020, the Company had remaining shares of the Company’s common stock to provide for current and future grants under its various equity plans.
At September 30, 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 $ million. This cost will be amortized over a period of up to over the underlying estimated service periods and will be adjusted for subsequent changes in actual forfeitures and anticipated vesting periods.
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Product Warranty Provisions |
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| Product Warranty Provisions | 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:
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Commitments and Contingencies |
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Sep. 30, 2020 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments and Contingencies | 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.
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Subsequent Events |
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Sep. 30, 2020 | |
| Subsequent Events [Abstract] | |
| Subsequent Events | 12. Subsequent Events
None. |
Summary of Significant Accounting Policies (Policies) |
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| Basis of Presentation | 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 nine month period ended September 30, 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.
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| Risks and Uncertainties | 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 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 disruption to the capital markets could negatively impact our ability to raise capital. If the capital markets are 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 installation, service contracts and disposable products.
We continue to evaluate and take 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.
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| Compensating Cash Arrangement | Compensating Cash Arrangement
In July 2020, the Company entered into a letter of credit to support a commitment of less than $0.3 million. As a condition of the letter of credit, the Company is required to maintain a $0.3 million compensating balance until the expiration of the letter of credit.
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| Financial Instruments | 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 September 30, 2020 and December 31, 2019, the Company did not have any financial assets or liabilities valued at fair value on a recurring basis.
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| Revenue and Costs of Revenue | 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 typically 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 less than $0.1 million for the periods presented. Revenue from systems delivery and installation represented 15% and 8% for the nine months ended September 30, 2020 and 2019, respectively.
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 27% and 33% of revenue for the nine months ended September 30, 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 8% and 10% of revenue for the nine months ended September 30, 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 a specified period, typically 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 46% of revenue for the nine months ended September 30, 2020 and 2019.
Sublease Revenue:
The adoption of new lease accounting guidance as of January 1, 2019 requires the Company to record sublease income as revenue beginning in 2019. Sublease revenue represented 4% and 3% of revenue for the nine months ended September 30, 2020 and 2019, respectively.
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 $1.2 million as of September 30, 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:
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 nine months ended September 30, 2020 and 2019, that was included in the deferred revenue balance at the beginning of each reporting period was $4.7 million and $5.4 million, respectively.
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| Assets Recognized from the Costs to Obtain a Contract with a Customer | 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 September 30, 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 recognized at the time of sale. Costs of disposable revenue include direct product costs and estimated warranty costs and are recognized at the time of sale. Cost of revenue from services and license fees are recognized when incurred.
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| 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.
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| 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 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 September 30, 2020, the Company had shares of common stock issuable upon the exercise of outstanding options and stock appreciation rights at a weighted average exercise price of $ per share, shares of common stock issuable upon the exercise of outstanding warrants at a weighted average exercise price of $ per share, shares of common stock issuable upon the conversion of Series A Convertible Preferred Stock and accumulated dividends, shares of common stock issuable upon the conversion of Series B Convertible Preferred Stock, and shares of unvested restricted share units.
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| Recently Issued Accounting Pronouncements | 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. |
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Summary of Significant Accounting Policies (Tables) |
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Sep. 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Revenue Disaggregated by Type |
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| Summary of Contract Assets and Liabilities | The following information summarizes the Company’s contract assets and liabilities:
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| Schedule of Computation of Basic and Diluted Earnings Per Share |
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Inventories (Tables) |
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Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Inventories | Inventories consist of the following:
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Prepaid Expenses and Other Assets (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Prepaid Expenses and Other Assets | Prepaid expenses and other assets consist of the following:
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Property and Equipment (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Property and Equipment |
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Leases (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Lease Costs and Other Lease Information | The following table represents lease costs and other lease information.
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| Schedule of Future Minimum Operating Lease Payments | Future minimum payments for operating leases with initial or remaining terms of one year or more as of September 30, 2020, excluding sublease income, were as follows:
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Accrued Liabilities (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Accrued Liabilities | Accrued liabilities consist of the following:
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Convertible Preferred Stock and Stockholders’ Equity (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Option and Stock Appreciation Rights Activity |
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| Summary of Restricted Stock Unit Activity |
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Product Warranty Provisions (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
| Guarantees and Product Warranties [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Accrued Warranty | Accrued warranty, which is included in other accrued liabilities, consists of the following:
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Schedule of Revenue Disaggregated by Type (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
Sep. 30, 2020 |
Sep. 30, 2019 |
|
| Product Information [Line Items] | ||||
| Total revenue | $ 8,703,583 | $ 8,201,748 | $ 19,805,279 | $ 22,009,733 |
| Sublease | 246,530 | 246,532 | 739,590 | 739,593 |
| Systems [Member] | ||||
| Product Information [Line Items] | ||||
| Total revenue | 2,953,005 | 1,696,964 | 2,965,774 | 1,755,015 |
| Disposables, Service and Accessories [Member] | ||||
| Product Information [Line Items] | ||||
| Total revenue | $ 5,504,048 | $ 6,258,252 | $ 16,099,915 | $ 19,515,125 |
Summary of Contract Assets and Liabilities (Details) - USD ($) |
Sep. 30, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Product Information [Line Items] | ||
| Total deferred revenue | $ 6,759,271 | $ 5,646,713 |
| Less: Long-term deferred revenue | (569,475) | (554,258) |
| Total current deferred revenue | 6,189,796 | 5,092,455 |
| Contract Assets - Unbilled Receivables [Member] | ||
| Product Information [Line Items] | ||
| Total deferred revenue | 200,134 | 168,445 |
| Customer Deposits [Member] | ||
| Product Information [Line Items] | ||
| Total deferred revenue | 162,240 | |
| Product Shipped, Revenue Deferred [Member] | ||
| Product Information [Line Items] | ||
| Total deferred revenue | 929,458 | 674,324 |
| Deferred Service and License Fees [Member] | ||
| Product Information [Line Items] | ||
| Total deferred revenue | $ 5,667,573 | $ 4,972,389 |
Schedule of Computation of Basic and Diluted Earnings Per Share (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
Sep. 30, 2020 |
Sep. 30, 2019 |
|
| Accounting Policies [Abstract] | ||||
| Net income (loss) | $ (1,572,972) | $ 43,748 | $ (5,465,609) | $ (3,506,790) |
| Cumulative dividend on convertible preferred stock | (343,101) | (360,647) | (1,028,950) | (1,071,351) |
| Net loss attributable to common stockholders | $ (1,916,073) | $ (316,899) | $ (6,494,559) | $ (4,578,141) |
| Weighted average number of common shares and equivalents: | 74,488,771 | 64,294,153 | 72,004,956 | 61,405,083 |
| Basic EPS | $ (0.03) | $ 0.00 | $ (0.09) | $ (0.07) |
| Diluted EPS | $ (0.03) | $ 0.00 | $ (0.09) | $ (0.07) |
Schedule of Inventories (Details) - USD ($) |
Sep. 30, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Inventory Disclosure [Abstract] | ||
| Raw materials | $ 4,013,147 | $ 3,063,532 |
| Work in process | 521,018 | 515,262 |
| Finished goods | 2,220,520 | 2,164,187 |
| Reserve for obsolescence | (3,908,634) | (3,895,451) |
| Total inventory | $ 2,846,051 | $ 1,847,530 |
Schedule of Prepaid Expenses and Other Assets (Details) - USD ($) |
Sep. 30, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||
| Prepaid expenses | $ 1,060,036 | $ 640,252 |
| Prepaid commissions | 296,488 | 336,594 |
| Deposits | 588,345 | 712,179 |
| Other assets | 86,592 | |
| Total prepaid expenses and other assets | 2,031,461 | 1,689,025 |
| Less: Noncurrent prepaid expenses and other assets | (256,669) | (218,103) |
| Total current prepaid expenses and other assets | $ 1,774,792 | $ 1,470,922 |
Schedule of Property and Equipment (Details) - USD ($) |
Sep. 30, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Gross property and equipment | $ 8,895,210 | $ 8,824,314 |
| Less: Accumulated depreciation | (8,660,352) | (8,573,871) |
| Net property and equipment | 234,858 | 250,443 |
| Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Gross property and equipment | 6,556,769 | 6,485,873 |
| Leasehold Improvements [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Gross property and equipment | $ 2,338,441 | $ 2,338,441 |
Schedule of Lease Costs and Other Lease Information (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
Sep. 30, 2020 |
Sep. 30, 2019 |
|
| Leases [Abstract] | ||||
| Operating lease cost | $ 585,588 | $ 585,588 | $ 1,756,758 | $ 1,756,759 |
| Short-term lease cost | 19,084 | 19,671 | 53,858 | 58,311 |
| Sublease income | (246,530) | (246,532) | (739,590) | (739,593) |
| Total net lease cost | 358,142 | 358,727 | 1,071,026 | 1,075,477 |
| Cash paid within operating cash flows | $ 634,918 | $ 612,533 | $ 1,860,165 | $ 1,840,023 |
Schedule of Future Minimum Operating Lease Payments (Details) |
Sep. 30, 2020
USD ($)
|
|---|---|
| Leases [Abstract] | |
| 2020 | $ 583,516 |
| 2021 | 2,382,660 |
| Total lease payments | 2,966,176 |
| Less: Interest | (150,204) |
| Present value of lease liabilities | $ 2,815,972 |
Leases (Details Narrative) - USD ($) |
Sep. 30, 2020 |
Dec. 31, 2019 |
Jan. 02, 2019 |
|---|---|---|---|
| New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
| Weighted average discount rate for operating leases | 9.00% | ||
| Weighted average remaining lease term for operating lease term | 1 year 3 months | ||
| Right of use assets | $ 2,764,022 | $ 4,286,064 | |
| Undiscounted future cash flows to be received under the sublease 2020 | 200,000 | ||
| Undiscounted future cash flows to be received under the sublease 2021 | $ 1,000,000 | ||
| Accounting Standards Update 2016-02 [Member] | |||
| New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
| Right of use assets | $ 6,200,000 |
Schedule of Accrued Liabilities (Details) - USD ($) |
Sep. 30, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Accrued salaries, bonus, and benefits | $ 1,773,314 | $ 1,421,150 |
| Accrued licenses and maintenance fees | 483,879 | 483,879 |
| Accrued warranties | 180,047 | 141,697 |
| Accrued taxes | 195,553 | 206,232 |
| Accrued professional services | 244,203 | 383,342 |
| Other | 334,651 | 340,321 |
| Total accrued liabilities | 3,211,647 | 2,976,621 |
| Less: Long term accrued liabilities | (255,517) | (255,517) |
| Total current accrued liabilities | $ 2,956,130 | $ 2,721,104 |
Debt and Credit Facilities (Details Narrative) - USD ($) |
9 Months Ended | ||
|---|---|---|---|
Apr. 20, 2020 |
Sep. 30, 2020 |
Sep. 30, 2019 |
|
| Line of Credit Facility [Line Items] | |||
| Proceeds from Bank Debt | $ 2,158,310 | ||
| CARES Act [Member] | |||
| Line of Credit Facility [Line Items] | |||
| Debt Instrument, Description | In accordance with the loan forgiveness requirements of the CARES Act, the Company used the full proceeds from the PPP Loan primarily for payroll costs, rent and utilities. | ||
| Paycheck Protection Program [Member] | |||
| Line of Credit Facility [Line Items] | |||
| Proceeds from Bank Debt | $ 2,158,310 | ||
| Debt Instrument, Interest Rate, Stated Percentage | 1.00% | ||
| Revolving Credit Facility [Member] | Primary Lender [Member] | |||
| Line of Credit Facility [Line Items] | |||
| Line of Credit Facility, Expiration Date | Jun. 30, 2020 | ||
Summary of Restricted Stock Unit Activity (Details) - Restricted Stock Units (RSUs) [Member] |
9 Months Ended |
|---|---|
|
Sep. 30, 2020
$ / shares
shares
| |
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
| Number of Restricted Stock Units, Outstanding, Beginning | shares | 840,712 |
| Weighted Average Grant Date Fair Value Per Unit, Outstanding, Beginning | $ / shares | $ 1.28 |
| Number of Restricted Stock Units, Granted | shares | 420,000 |
| Weighted Average Grant Date Fair Value Per Unit, Granted | $ / shares | $ 4.82 |
| Number of Restricted Stock Units, Vested | shares | (147,739) |
| Weighted Average Grant Date Fair Value Per Unit, Vested | $ / shares | $ 2.45 |
| Number of Restricted Stock Units, Forfeited | shares | (250) |
| Weighted Average Grant Date Fair Value Per Unit, Forfeited | $ / shares | $ 0.78 |
| Number of Restricted Stock Units, Outstanding, Ending | shares | 1,112,723 |
| Weighted Average Grant Date Fair Value Per Unit, Outstanding, Ending | $ / shares | $ 2.46 |
Schedule of Accrued Warranty (Details) - USD ($) |
9 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 30, 2020 |
Dec. 31, 2019 |
|
| Guarantees and Product Warranties [Abstract] | ||
| Warranty accrual, beginning of the fiscal period | $ 141,697 | $ 149,464 |
| Accrual adjustment for product warranty | 66,022 | 56,118 |
| Payments made | (27,672) | (63,885) |
| Warranty accrual, end of the fiscal period | $ 180,047 | $ 141,697 |
Product Warranty Provisions (Details Narrative) |
9 Months Ended |
|---|---|
Sep. 30, 2020 | |
| Guarantees and Product Warranties [Abstract] | |
| Standard product warranty coverage term | one year |