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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(MARK
ONE)
|
☒ |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
FOR
THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 2022
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
001-36159
STEREOTAXIS,
INC.
(Exact
name of the Registrant as Specified in its Charter)
|
delaware |
|
94-3120386 |
|
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
|
(I.R.S.
Employer
Identification
Number)
|
710 North Tucker Boulevard,
Suite 110
St. Louis,
MO
63101
(Address
of Principal Executive Offices including Zip Code)
(314)
678-6100
(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 |
|
Common Stock, par value $0.001 per share |
|
STXS |
|
NYSE American LLC |
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.
Yes ☒ No ☐
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).
Yes ☒ No ☐
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 ☐
No ☒
The
number of outstanding shares of the registrant’s common stock on
October 31, 2022 was 74,844,714.
STEREOTAXIS,
INC.
INDEX
TO FORM 10-Q
ITEM 1. FINANCIAL STATEMENTS
STEREOTAXIS, INC.
BALANCE
SHEETS
See
accompanying notes.
STEREOTAXIS,
INC.
STATEMENTS OF OPERATIONS
(Unaudited)
See
accompanying notes.
STEREOTAXIS,
INC
STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’
EQUITY
(Unaudited)
Three
Months Ended September 30, 2021
Three
Months Ended September 30, 2022
|
(in
thousands, except share amounts) |
|
Convertible
Preferred Stock Series A (Mezzanine) |
|
|
Convertible
Preferred Stock Series B |
|
|
Common
Stock |
|
|
Additional
Paid-In Capital |
|
|
Treasury
Stock |
|
|
Accumulated
Deficit |
|
|
Total
Stockholders’
Equity
(Deficit) |
|
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Amount |
|
|
Amount |
|
|
Amount |
|
|
Amount |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2022 |
|
|
22,386 |
|
|
$ |
5,584 |
|
|
|
5,610,121 |
|
|
$ |
6 |
|
|
|
74,686,056 |
|
|
$ |
75 |
|
|
$ |
537,963 |
|
|
$ |
(206 |
) |
|
$ |
(507,897 |
) |
|
$ |
29,941 |
|
|
Issuance
of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,437 |
|
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
22 |
|
|
Share-based
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,027 |
|
|
|
|
|
|
|
2,695 |
|
|
|
|
|
|
|
|
|
|
|
2,695 |
|
|
Components
of net loss |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
(4,917 |
) |
|
|
(4,917 |
) |
|
Employee
stock purchase plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,758 |
|
|
|
|
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
26 |
|
|
Balance
at September 30, 2022 |
|
|
22,386 |
|
|
$ |
5,584 |
|
|
|
5,610,121 |
|
|
$ |
6 |
|
|
|
74,832,278 |
|
|
$ |
75 |
|
|
$ |
540,706 |
|
|
$ |
(206 |
) |
|
$ |
(512,814 |
) |
|
$ |
27,767 |
|
See
accompanying notes.
STEREOTAXIS,
INC
STATEMENTS
OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
(Unaudited)
Nine
Months Ended September 30, 2021
|
(in
thousands, except share amounts) |
|
Convertible
Preferred Stock Series A (Mezzanine) |
|
|
Convertible
Preferred Stock Series B |
|
|
Common
Stock |
|
|
Additional
Paid-In Capital |
|
|
Treasury
Stock |
|
|
Accumulated
Deficit |
|
|
Total
Stockholders’
Equity
(Deficit)
|
|
| |
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Amount |
|
|
Amount |
|
|
Amount |
|
|
Amount |
|
|
Balance
at December 31, 2020 |
|
|
22,513 |
|
|
$ |
5,605 |
|
|
|
5,610,121 |
|
|
$ |
6 |
|
|
|
73,694,203 |
|
|
$ |
74 |
|
|
$ |
522,710 |
|
|
$ |
(206 |
) |
|
$ |
(487,960 |
) |
|
$ |
34,624 |
|
|
Issuance
of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
298,730 |
|
|
|
1 |
|
|
|
446 |
|
|
|
|
|
|
|
|
|
|
|
447 |
|
|
Share-based
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
325,954 |
|
|
|
|
|
|
|
6,753 |
|
|
|
|
|
|
|
|
|
|
|
6,753 |
|
|
Components
of net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
(7,361 |
) |
|
|
(7,361 |
) |
|
Employee
stock purchase plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,159 |
|
|
|
|
|
|
|
89 |
|
|
|
|
|
|
|
|
|
|
|
89 |
|
|
Preferred
stock conversion |
|
|
(126 |
) |
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
246,152 |
|
|
|
|
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
Balance
at September 30, 2021 |
|
|
22,387 |
|
|
$ |
5,584 |
|
|
|
5,610,121 |
|
|
$ |
6 |
|
|
|
74,579,198 |
|
|
$ |
75 |
|
|
$ |
530,019 |
|
|
$ |
(206 |
) |
|
$ |
(495,321 |
) |
|
$ |
34,573 |
|
Nine
Months Ended September 30, 2022
|
(in
thousands, except share amounts) |
|
Convertible
Preferred Stock Series A (Mezzanine) |
|
|
Convertible
Preferred Stock Series B |
|
|
Common
Stock |
|
|
Additional
Paid-In Capital |
|
|
Treasury
Stock |
|
|
Accumulated
Deficit |
|
|
Total
Stockholders’
Equity
(Deficit)
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Amount |
|
|
Amount |
|
|
Amount |
|
|
Amount |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2021 |
|
|
22,387 |
|
|
$ |
5,584 |
|
|
|
5,610,121 |
|
|
$ |
6 |
|
|
|
74,618,240 |
|
|
$ |
75 |
|
|
$ |
532,641 |
|
|
$ |
(206 |
) |
|
$ |
(498,676 |
) |
|
$ |
33,840 |
|
|
Issuance
of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,960 |
|
|
|
|
|
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
67 |
|
|
Share-based
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110,726 |
|
|
|
|
|
|
|
7,906 |
|
|
|
|
|
|
|
|
|
|
|
7,906 |
|
|
Components
of net loss |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
(14,138 |
) |
|
|
(14,138 |
) |
|
Employee
stock purchase plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,327 |
|
|
|
|
|
|
|
92 |
|
|
|
|
|
|
|
|
|
|
|
92 |
|
|
Preferred
stock conversion |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
Balance
at September 30, 2022 |
|
|
22,386 |
|
|
$ |
5,584 |
|
|
|
5,610,121 |
|
|
$ |
6 |
|
|
|
74,832,278 |
|
|
$ |
75 |
|
|
$ |
540,706 |
|
|
$ |
(206 |
) |
|
$ |
(512,814 |
) |
|
$ |
27,767 |
|
See
accompanying notes.
STEREOTAXIS, INC.
STATEMENTS
OF CASH FLOWS
(Unaudited)
See
accompanying notes.
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®, Niobe®,
Navigant®, Odyssey®, Odyssey
Cinema™, Vdrive®, Vdrive Duo™,
V-CAS™, V-Loop™, V-Sono™,
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
is a pioneer and global leader in surgical robotics for minimally
invasive endovascular intervention. We design, manufacture and
market robotic systems, instruments and information systems for the
interventional laboratory. Our proprietary robotic technology,
Robotic Magnetic Navigation, fundamentally transforms endovascular
interventions using precise computer-controlled magnetic fields to
directly control the tip of flexible interventional catheters or
devices. Direct control of the tip of an interventional device, in
contrast to all manual hand-held devices that are controlled from
their handle, can improve the precision, stability, reach and
safety of these devices during procedures.
Our
primary clinical focus has been electrophysiology, specifically
cardiac ablation procedures for the treatment of arrhythmias.
Cardiac ablation has become a well-accepted therapy for arrhythmias
and a multi-billion-dollar medical device market with expectations
for substantial long-term growth. We have shared our aspiration and
a product strategy to expand the clinical focus of our technology
to several additional endovascular indications including coronary,
neuro, and peripheral interventions.
There
is substantial real-world evidence and clinical literature for
Robotic Magnetic Navigation in electrophysiology. Hundreds of
electrophysiologists at over one hundred hospitals globally have
treated over 100,000 arrhythmia patients with our robotic
technology. Clinical use of our technology has been documented in
over 400 clinical publications. Robotic Magnetic Navigation is
designed to enable physicians to complete more complex
interventional procedures with greater success and safety 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 computer-controlled magnetic
fields that govern the motion of the working tip of the catheter,
resulting in improved navigation. The more flexible atraumatic
design of catheters driven using magnetic fields may reduce the
risk of patient harm and other adverse events. Performing the
procedure from a control cockpit enables physicians to complete
procedures in a safe location protected from x-ray exposure, with
greater ergonomics, and improved efficiency. We believe these
benefits can be applicable in other endovascular indications where
navigation through complex vasculature is often challenging or
unsuccessful and generates significant x-ray exposure.
Our
primary products include the Genesis RMN System, the
Odyssey Solution, and other related devices. We also offer
to our customers the Stereotaxis Imaging Model S x-ray System and
other accessory devices.
The
Genesis RMN System is 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.
The
Odyssey Solution consolidates lab information onto one large
integrated display, enabling physicians to view and control all the
key information in the operating room. This is designed to improve
lab layout and 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 clearances and registration 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. Stereotaxis Imaging Model S x-ray System 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 systems and
devices 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, 2022, are not necessarily indicative of the
results that may be expected for the year ending December 31, 2022,
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, 2021, as filed with the Securities and Exchange
Commission (SEC) on March 10, 2022.
Certain
prior year amounts have been reclassified to conform to the 2022
presentation.
Risks and Uncertainties
The
novel coronavirus COVID-19 (“COVID-19”) pandemic has resulted, and
is likely to continue to result, in significant, periodic
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
magnetic navigation systems. 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
manageably impacted, but we cannot guarantee that they will not be
impacted 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. Changes in economic conditions and
supply chain constraints could lead to higher inflation than
previously experienced or expected, which could, in turn, lead to
an increase in costs. We may be unable to raise the prices of our
products sufficiently to keep up with the rate of inflation. A
material reduction or interruption to any of our manufacturing
processes or a substantial increase in costs would have a material
adverse effect on our business, operating results, and financial
condition.
If
governmental authorities around the world reinstitute 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, where appropriate, 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 that 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
stockholders.
Cash and Cash Equivalents
The
Company considers all short-term investments purchased with
original maturities of three months or less to be cash equivalents.
The Company places its cash with high-credit-quality financial
institutions and invests primarily in money market
accounts.
Restricted Cash
Restricted
cash primarily consists of cash that the Company is obligated to
maintain in accordance with contractual obligations. The Company’s
restricted cash was $1.5 million and $1.4 million as of September 30, 2022
and December 31, 2021, respectively.
Financial Instruments
Financial
instruments consist of cash and cash equivalents, restricted cash,
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”).
The
Company’s financial assets consist of restricted cash and cash
equivalents invested in money market funds which totaled $1.5 million and $1.4 million as of September 30,
2022 and December 31, 2021, respectively. The financial assets
consisting of cash equivalents invested in money market funds are
classified as Level 2 and total interest income recorded for these
investments was less than $0.2 million during the nine months
ended September 30, 2022 and insignificant during the year ended
December 31, 2021. As of September 30, 2022 and December 31, 2021,
the Company did not have any financial 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 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 if
necessary.
Our
revenue recognition policy affects the following revenue streams in
our business as follows:
Systems:
Contracts
related to the sale of systems typically contain separate
obligations for the delivery of system(s), installation and an
implied obligation to provide software enhancements if and when
available for one year following installation. Revenue is
recognized when the Company transfers control to the customer,
which is generally at the point when acceptance occurs that
indicates customer acknowledgment of delivery or installation,
depending on the terms of the arrangement. Revenue from the implied
obligation to deliver software enhancements if and when available
is recognized ratably over the first year following installation of
the system as the customer receives the right to software
enhancements throughout the period and is included in Other
Recurring Revenue. The Company’s system contracts do not provide a
right of return. Systems are generally covered by a one-year
assurance type warranty; warranty costs were $0.1 million and $0.2 million for the nine
months ended September 30, 2022 and 2021, respectively. Revenue
from system delivery and installation represented 22% and 33% of revenue for the
nine months ended September 30, 2022 and 2021,
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 nine months
ended September 30, 2022 and 2021. Disposable revenue represented
29% and 23% of revenue for the
nine months ended September 30, 2022 and 2021,
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 7% of revenue for the
nine months ended September 30, 2022 and 2021,
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 of our systems.
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 41% and 34% of revenue for the
nine months ended September 30, 2022 and 2021,
respectively.
Sublease Revenue:
A
portion of our former principal executive office was subleased to a
third party through 2021. The sublease ended December 31, 2021. In
accordance with Accounting Standards Update (ASU) 2016-02, “Leases”
(Topic 842), the Company recorded sublease income as revenue.
Sublease revenue represented 3% of revenue for the
nine months ended September 30, 2021.
The
following table summarizes the Company’s revenue for systems,
disposables, service and accessories and sublease for the nine
months ended September 30, 2022 and 2021 (in thousands):
Schedule of Revenue Disaggregated by
Type
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
|
|
Three
Months Ended September 30, |
|
|
Nine
Months Ended September 30, |
|
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
Systems |
|
$ |
2,413 |
|
|
$ |
3,541 |
|
|
$ |
4,649 |
|
|
$ |
8,829 |
|
|
Disposables, service
and accessories |
|
|
5,244 |
|
|
|
5,319 |
|
|
|
16,197 |
|
|
|
17,211 |
|
|
Sublease |
|
|
- |
|
|
|
246 |
|
|
|
- |
|
|
|
740 |
|
|
Total
revenue |
|
$ |
7,657 |
|
|
$ |
9,106 |
|
|
$ |
20,846 |
|
|
$ |
26,780 |
|
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 $13.9 million as of
September 30, 2022. 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 table summarizes the Company’s contract assets and
liabilities (in thousands):
Summary of Contract Assets and
Liabilities
|
|
|
September
30, 2022 |
|
|
December
31, 2021 |
|
|
Contract
Assets - unbilled receivables |
|
$ |
351 |
|
|
$ |
178 |
|
|
|
|
|
|
|
|
|
|
|
|
Customer
deposits |
|
$ |
1,813 |
|
|
$ |
925 |
|
|
Product
shipped, revenue deferred |
|
|
1,644 |
|
|
|
1,794 |
|
|
Deferred
service and license fees |
|
|
6,002 |
|
|
|
5,796 |
|
|
Total
deferred revenue |
|
$ |
9,459 |
|
|
$ |
8,515 |
|
|
Less:
Long-term deferred revenue |
|
|
(1,416 |
) |
|
|
(2,238 |
) |
|
Total
current deferred revenue |
|
$ |
8,043 |
|
|
$ |
6,277 |
|
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
satisfied performance obligations and the contractual billing terms
in the arrangements. Customer deposits primarily relate to future
system sales but can also include deposits on disposable sales.
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, 2022 and 2021,
that was included in the deferred revenue balance at the beginning
of each reporting period was $5.6
million and $4.8
million, respectively.
Assets Recognized from the Costs to Obtain a Contract with a
Customer
The
Company has determined that sales incentive programs for the
Company’s sales team meet the requirements to be capitalized as the
Company expects to generate future economic benefits from the
related revenue generating contracts after the initial capital
sales transaction. The costs capitalized as contract acquisition
costs included in prepaid expenses and other assets, in the
Company’s balance sheet was $0.2 million as of
September 30, 2022 and December 31, 2021. 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.
Stock-Based Compensation
The
Company accounts for its grants of stock options, stock
appreciation rights, restricted shares, 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.
For
time-based awards, 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.
For
market-based awards, stock-based compensation expense is recognized
over the minimum service period regardless of whether or not the
market target is probable of being achieved. The fair value of such
awards is estimated on the grant date using Monte Carlo
simulations.
Shares
purchased by employees under the 2009 and 2022 Employee Stock
Purchase Plans are considered to be non-compensatory.
Net Earnings (Loss) per Common Share
Basic
earnings (loss) per common share is computed by dividing the net
earnings (loss) for the period by the weighted average number of
common shares outstanding during the period. In periods where there
is net income, we apply the two-class method to calculate basic and
diluted net income (loss) per share of common stock, as our
convertible preferred stock is a participating security. The
two-class method is an earnings allocation formula that treats a
participating security as having rights to earnings that otherwise
would have been available to common stockholders. In periods where
there is a net loss, the two-class method of computing earnings per
share does not apply as our convertible preferred stock does not
contractually participate in our losses. We compute diluted net
income (loss) per common share using net income (loss) as the
“control number” in determining whether potential common shares are
dilutive, after giving consideration to all potentially dilutive
common shares, including stock options, warrants, unvested
restricted stock units outstanding during the period and potential
issuance of stock upon the conversion of our convertible preferred
stock issued and outstanding during the period, except where the
effect of such securities would be antidilutive.
The
following table sets forth the computation of basic and diluted EPS
(in thousands except for share and per share amounts):
Schedule of Computation of Basic and Diluted
Earnings Per Share
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
|
|
Three
Months Ended September 30, |
|
|
Nine
Months Ended September 30, |
|
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
Net
loss |
|
$ |
(4,917 |
) |
|
$ |
(4,619 |
) |
|
$ |
(14,138 |
) |
|
$ |
(7,361 |
) |
|
Cumulative
dividend on convertible preferred stock |
|
|
(339 |
) |
|
|
(338 |
) |
|
|
(1,005 |
) |
|
|
(1,007 |
) |
|
Net loss
attributable to common stockholders |
|
$ |
(5,256 |
) |
|
$ |
(4,957 |
) |
|
$ |
(15,143 |
) |
|
$ |
(8,368 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares and equivalents: |
|
|
76,100,007 |
|
|
|
75,700,389 |
|
|
|
75,977,920 |
|
|
|
75,476,381 |
|
|
Basic
EPS |
|
$ |
(0.07 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.20 |
) |
|
$ |
(0.11 |
) |
|
Diluted
EPS |
|
$ |
(0.07 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.20 |
) |
|
$ |
(0.11 |
) |
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, 2022, the Company had 3,239,133
shares of common stock issuable upon the exercise of outstanding
options and stock appreciation rights at a weighted average
exercise price of $4.29 per share,
46,849,717
shares of our common stock issuable upon conversion of our Series A
Convertible Preferred Stock, 5,610,121
shares of our common stock issuable upon conversion of our Series B
Convertible Preferred Stock and 1,208,739
shares of unvested restricted share units. The Company had no
unearned restricted shares outstanding as of September 30,
2022.
Recently Issued Accounting Pronouncements
In
June 2016, the FASB issued ASU 2016-13, “Financial
Instruments-Credit Losses (Topic 326), Measurement of Credit Losses
on Financial Instruments” and also issued subsequent amendments to
the initial guidance under ASU 2018-19, ASU 2019-04 and ASU
2019-05. The standard modifies the measurement approach for credit
losses on financial instruments, including trade receivables, from
an incurred loss method to a current expected credit loss method,
otherwise known as “CECL.” The standard requires the measurement of
expected credit losses to be based on relevant information,
including historical experience, current conditions and a forecast
that is supportable. The standard is effective for fiscal years
beginning after December 15, 2022, including interim periods within
those fiscal years; early adoption is permitted. The standard must
be adopted by applying a cumulative adjustment to retained
earnings. The Company anticipates adopting the standard in the
first quarter of 2023, although it does not expect a significant
impact to the Company’s financial results.
3. Inventories
Inventories
consist of the following (in thousands):
Schedule of Inventories
|
|
|
September
30, 2022 |
|
|
December
31, 2021 |
|
|
Raw
materials |
|
$ |
6,831 |
|
|
$ |
3,642 |
|
|
Work in
process |
|
|
384 |
|
|
|
133 |
|
|
Finished
goods |
|
|
2,825 |
|
|
|
2,823 |
|
|
Reserve
for excess and obsolescence |
|
|
(1,879 |
) |
|
|
(2,165 |
) |
|
Total
inventory |
|
$ |
8,161 |
|
|
$ |
4,433 |
|
The
reserve for excess and obsolescence primarily includes Niobe
Systems and related raw materials and spare parts.
4. Prepaid Expenses
and Other Assets
Prepaid
expenses and other assets consist of the following (in
thousands):
Schedule of Prepaid Expenses and Other
Assets
|
|
|
September
30, 2022 |
|
|
December
31, 2021 |
|
|
Prepaid
expenses |
|
$ |
599 |
|
|
$ |
1,012 |
|
|
Prepaid
commissions |
|
|
213 |
|
|
|
229 |
|
|
Deposits |
|
|
640 |
|
|
|
1,276 |
|
|
Other
assets |
|
|
66 |
|
|
|
117 |
|
|
Total
prepaid expenses and other assets |
|
|
1,518 |
|
|
|
2,634 |
|
|
Less:
Noncurrent prepaid expenses and other assets |
|
|
(233 |
) |
|
|
(278 |
) |
|
Total
current prepaid expenses and other assets |
|
$ |
1,285 |
|
|
$ |
2,356 |
|
5. Property and
Equipment
Property
and Equipment consist of the following (in thousands):
Schedule of Property and
Equipment
|
|
|
September
30, 2022 |
|
|
December
31, 2021 |
|
|
Equipment |
|
$ |
3,770 |
|
|
$ |
3,670 |
|
|
Leasehold
improvements |
|
|
2,507 |
|
|
|
17 |
|
|
Construction in
process |
|
|
478 |
|
|
|
2,156 |
|
|
Gross property and equipment |
|
|
6,755 |
|
|
|
5,843 |
|
|
Less:
Accumulated depreciation |
|
|
(3,346 |
) |
|
|
(3,211 |
) |
|
Net
property and equipment |
|
$ |
3,409 |
|
|
$ |
2,632 |
|
The
Company had approximately $1.0 million of
property and equipment additions during the nine months ended
September 30, 2022 associated with the buildout of the new leased
space in St. Louis, Missouri.
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. The
Company accounts for leases in accordance with Accounting Standards
Update No. 2016-02 “Leases” (Topic 842) and all subsequent ASUs
that modified Topic 842 (“ASC 842”). The Company determines if an
arrangement contains a lease at inception.
The
Company leases its facilities under operating leases. In accordance
with ASC 842, operating lease agreements are recognized on the
balance sheet as a right-of-use (“ROU”) asset and a corresponding
lease liability. These leases generally 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 and non-lease components 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
former principal executive office was subleased to a third party
through 2021. The sublease did not have significant rent escalation
holidays, concessions, leasehold improvement incentives, or other
build-out clauses. In addition, the sublease did not contain
contingent rent provisions nor were there options to extend or
terminate the sublease. The sublease ended December 31,
2021.
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.
On
March 1, 2021, the Company entered into an office lease agreement
(the “Lease”) with Globe Building Company (the “Landlord”), under
which the Company leases executive office space and manufacturing
facilities of approximately 43,100 square feet of rentable space
located at 710 N. Tucker Boulevard, St. Louis, Missouri (the
“Premises”) that serves as the Company’s new principal executive
and administrative offices and manufacturing facility. Lease
payments commenced on January 1, 2022, and the lease has a term of
ten years, with two renewal
options of five years each. The
minimum annual rent under the terms of the Lease ranges from
approximately $0.8 million in 2022 to $1.0 million in 2031. The Company
gained access to the Premises in the third quarter 2021 to begin
constructing leasehold improvements. In accordance with ASC 842,
the Company recorded a ROU asset and lease liability. The initial
recognition of the ROU asset and lease liability was $5.9
million. In the fourth quarter of 2021, the Company received an
occupancy permit and relocated its operations to the new leased
space.
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. As of September 30, 2022, the weighted average
discount rate for operating leases was 9%
and the weighted average remaining lease term for operating lease
term is 9.24
years.
The
following table represents lease costs and other lease information
(in thousands):
Schedule of Lease Costs and Other Lease
Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 30, |
|
|
Nine
Months Ended September 30, |
|
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
Operating
lease cost |
|
$ |
227 |
|
|
$ |
733 |
|
|
$ |
678 |
|
|
$ |
1,898 |
|
|
Short-term
lease cost |
|
|
4 |
|
|
|
14 |
|
|
|
24 |
|
|
|
45 |
|
|
Sublease
income |
|
|
- |
|
|
|
(246 |
) |
|
|
- |
|
|
|
(740 |
) |
|
Total net
lease cost |
|
$ |
231 |
|
|
$ |
501 |
|
|
$ |
702 |
|
|
$ |
1,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid
within operating cash flows |
|
$ |
232 |
|
|
$ |
624 |
|
|
$ |
886 |
|
|
$ |
1,794 |
|
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, 2022 were as follows
(in thousands):
Schedule of Future Minimum Operating Lease
Payments
|
|
|
September
30, 2022 |
|
|
2022 |
|
$ |
214 |
|
|
2023 |
|
|
877 |
|
|
2024 |
|
|
898 |
|
|
2025 |
|
|
919 |
|
|
2026 |
|
|
935 |
|
|
2027 and
thereafter |
|
|
4,986 |
|
|
Total
lease payments |
|
$ |
8,829 |
|
|
Less:
Interest |
|
|
(2,884 |
) |
|
Present
value of lease liabilities |
|
$ |
5,945 |
|
7. Accrued
Liabilities
Accrued
liabilities consist of the following (in thousands):
Schedule of Accrued
Liabilities
|
|
|
September
30, 2022 |
|
|
December
31, 2021 |
|
|
Accrued
salaries, bonus, and benefits |
|
$ |
1,492 |
|
|
$ |
1,516 |
|
|
Accrued
licenses and maintenance fees |
|
|
484 |
|
|
|
484 |
|
|
Accrued
warranties |
|
|
166 |
|
|
|
242 |
|
|
Accrued
taxes |
|
|
269 |
|
|
|
177 |
|
|
Accrued
investigational sites |
|
|
92 |
|
|
|
123 |
|
|
Accrued
lease deposit payable |
|
|
5 |
|
|
|
124 |
|
|
Deferred
contract obligation |
|
|
738 |
|
|
|
- |
|
|
Other |
|
|
133 |
|
|
|
81 |
|
|
Total
accrued liabilities |
|
|
3,379 |
|
|
|
2,747 |
|
|
Less: Long
term accrued liabilities |
|
|
(168 |
) |
|
|
(219 |
) |
|
Total
current accrued liabilities |
|
$ |
3,211 |
|
|
$ |
2,528 |
|
Certain
prior year amounts have been reclassified to conform to the 2022
presentation.
8. Debt and Credit
Facilities
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 was the creation of the
Paycheck Protection Program that provides for Small Business
Administration (“SBA”) Section 7(a) loans for qualified small
businesses. In general, the loan could be forgiven as long as the
funds were 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 and salary/wage levels
were 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
approximately $2.2 million 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.
In March 2021, the Company applied for loan forgiveness and in June
2021 full loan forgiveness was granted by the SBA. The Company
recognized a net gain from debt extinguishment of approximately
$2.2
million.
9. Convertible
Preferred Stock and Stockholders’ Equity
The holders of common stock are
entitled to one vote for each share held and to receive dividends
when and as declared by the Board of Directors out of funds legally
available for dividends, subject to the prior rights or preferences
applicable to any preferred stock as may then be
outstanding. The Company’s Series B Convertible Preferred
Stock (the “Series B Preferred Stock”) is entitled to dividends
equal to and in the same form as dividends actually paid on shares
of common stock when, as and if such dividends are paid on shares
of common stock. Until all shares of the Company’s Series A
Convertible Preferred Stock (the “Series A Preferred Stock”) have
been converted or redeemed, no dividends may be paid on the common
stock or the Series B Preferred Stock without the express written
consent of the holders of a majority of the outstanding shares of
Series A Preferred Stock. In the event that dividends or other
distributions of assets are made or paid by the Company to the
holders of the common stock or the holders of shares of the Series
B Preferred Stock, the holders of shares of the Series A Preferred
Stock are entitled to participate in such dividend or distribution
on an as-converted basis. No dividends have
been declared or paid as of September 30, 2022, and the Company
does not presently intend to pay any cash dividends in the
foreseeable future.
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, as part of a private placement, agreed to
issue and sell to the investors 5,610,121
shares of the Company’s Series B Convertible Preferred Stock (the
“Series B 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
Preferred Stock is reported in the stockholders’ equity section of
the Company’s balance sheet.
Series A Convertible Preferred Stock and
Warrants
In
September 2016, the Company issued (i) 24,000 shares
of Series A Convertible Preferred Stock (the “Series A Preferred
Stock”), par value $0.001 per share, 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, subject
to adjustment for events such as stock splits, combinations and the
like as provided in the certificate of designations covering such
Series A Preferred Stock, and (ii) (the SPA Warrants) to purchase
an aggregate of 36,923,078
shares of common stock. The shares of Series A Preferred Stock are
entitled to vote on an as-converted basis with the common stock,
subject to specified beneficial ownership issuance limitations. The
Series A Preferred Stock 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 Series A Preferred Stock. Each holder of
convertible preferred shares has the right to require us to redeem
such holder’s shares of Series A Preferred Stock 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 Series A
Preferred Stock in the event of a defined change of control. The
Series A Preferred Stock ranks senior to our common stock as to
distributions and payments upon the liquidation, dissolution, and
winding up of the Company. Since the Series A Preferred Stock are
subject to conditions for redemption that are outside the Company’s
control, the Series A Preferred Stock are presently reported in the
mezzanine section of the balance sheet.
The
SPA Warrants were modified on February 28, 2018 to allow for a
reduction in the exercise price from $0.70 per share to
$0.28 per share for a
period between March 1, 2018 and March 5, 2018 and to modify
certain beneficial ownership limitations and to eliminate certain
redemption rights, resulting in, among other things, the exercise
of a substantial number of the SPA Warrants for cash. The remaining
unexercised 15,385 Warrants expired on
September 29, 2021.
2021 CEO Performance Award Unit Grant
On
February 23, 2021, the Company`s Board of Directors, upon
recommendation of the Compensation Committee, approved the grant of
the CEO Performance Award to the Company’s Chief Executive Officer.
The CEO Performance award is a 10-year performance award of
up to 13,000,000 shares, tied to
the achievement of market capitalization milestones and subject to
minimum service requirements.
As
detailed in the table below, the CEO Performance Award consists of
ten vesting tranches. The first market capitalization milestone is
$1.0
billion, and each of the remaining nine market capitalization
milestones are in additional $500
million increments, up to $5.5
billion.
Summary of Performance Award And Market
Capitalization Milestones
|
Tranche
# |
|
No.
of Shares
Subject
to PSU
|
|
|
Market
Capitalization
Milestones(1) |
|
|
1 |
|
|
1,000,000 |
|
|
$ |
1,000,000,000 |
|
|
2 |
|
|
1,500,000 |
|
|
$ |
1,500,000,000 |
|
|
3 |
|
|
1,500,000 |
|
|
$ |
2,000,000,000 |
|
|
4 |
|
|
2,000,000 |
|
|
$ |
2,500,000,000 |
|
|
5 |
|
|
1,000,000 |
|
|
$ |
3,000,000,000 |
|
|
6 |
|
|
1,000,000 |
|
|
$ |
3,500,000,000 |
|
|
7 |
|
|
1,000,000 |
|
|
$ |
4,000,000,000 |
|
|
8 |
|
|
2,000,000 |
|
|
$ |
4,500,000,000 |
|
|
9 |
|
|
1,000,000 |
|
|
$ |
5,000,000,000 |
|
|
10 |
|
|
1,000,000 |
|
|
$ |
5,500,000,000 |
|
|
Total: |
|
|
13,000,000 |
|
|
|
|
|
Each tranche represents a
portion of the PSUs covering the number of shares outlined in the
table above. Each tranche vests upon (i) satisfaction of the market
capitalization milestones and (ii) continued employment as CEO of
the Company from the grant date through December 31, 2030. Absent
an earlier termination, the PSUs will expire on December 31, 2030.
If our CEO ceases employment as CEO of the Company for any reason
including death, disability, termination for cause or without cause
(as defined in the award agreement), or if he voluntary terminates
after service as CEO for at least five years, the remaining service
period will be waived and he will retain any PSUs that have vested
through the date of termination.
The
Company received Shareholder approval at its annual meeting on May
20, 2021 for shares to be issued under the award.
The
market capitalization requirement is considered a market condition
under FASB Accounting Standards Codification Topic 718
“Compensation – Stock Compensation” and is estimated on the grant
date using Monte Carlo simulations. Recognition of stock-based
compensation expense of all the tranches commenced on February 23,
2021, the date of grant, as the probability of meeting the ten
market capitalization milestones is not considered in determining
the timing of expense recognition. The expense will be recognized
on an accelerated basis through 2030. Key assumptions for
estimating the performance-based awards fair value at the date of
grant included share price on grant date, volatility of the
Company’s common stock price, risk free interest rate, and grant
term.
Total
stock-based compensation recorded as operating expense for the CEO
Performance Award was $5.3 million and
$4.3 million for the
nine-month period ended September 30, 2022 and 2021, respectively.
As of September 30, 2022 and 2021, the Company had approximately
$45.9
million and $53.1
million, respectively, of total unrecognized stock-based
compensation expense remaining under the CEO Performance Award
assuming the grantee’s continued employment as CEO of the Company,
or in a similar capacity, through 2030. As of September 30, 2022,
none of the performance milestones established by the 2021 CEO
Incentive Program have been achieved, and no awards have been
earned.
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 February 2022, the Compensation Committee
of the Board of Directors adopted the 2022 Stock Incentive Plan
(the “Plan”) which was subsequently approved by the Company’s
shareholders. This plan replaced the 2012 Stock Incentive Plan
which expired on May 19, 2022.
At
September 30, 2022, the Company had 4,007,952
remaining shares of the Company’s common stock to provide for
current and future grants under its various equity
plans.
At
September 30, 2022, the total compensation cost related to options,
stock appreciation rights, and non-vested stock granted to
employees and non-employees under the Company’s stock award plans
but not yet recognized was approximately $5.6
million, excluding compensation not yet recognized related to the
CEO Performance Award discussed above. This cost will be amortized
over a period of up to four
years over the underlying estimated service periods and will
be adjusted for subsequent changes in actual forfeitures and
anticipated vesting periods.
A
summary of the option and stock appreciation rights activity for
the nine-month period ended September 30, 2022 is as
follows:
Summary of Option and Stock Appreciation
Rights Activity
|
|
|
Number of
Options/SARs |
|
|
Range of
Exercise Price |
|
|
Weighted
Average Exercise Price per Share |
|
|
Outstanding, December
31, 2021 |
|
|
2,818,012 |
|
|
|
$0.74
- $9.87 |
|
|
$ |
4.10 |
|
|
Granted |
|
|
766,500 |
|
|
|
$2.09 - $5.21 |
|
|
$ |
4.78 |
|
|
Exercised |
|
|
(111,791 |
) |
|
|
$0.74 - $4.52 |
|
|
$ |
1.44 |
|
|
Forfeited |
|
|
(233,588 |
) |
|
|
$0.74 - $7.70 |
|
|
$ |
5.03 |
|
|
Outstanding, September
30, 2022 |
|
|
3,239,133 |
|
|
|
$0.74 -
$9.87 |
|
|
$ |
4.29 |
|
A
summary of the restricted stock unit activity for the nine-month
period ended September 30, 2022 is as follows:
Summary of Restricted Stock Unit
Activity
|
|
|
Number of
Restricted Stock Units |
|
|
Weighted
Average Grant Date Fair Value per Unit |
|
|
Outstanding, December
31, 2021 |
|
|
1,164,723 |
|
|
$ |
3.57 |
|
|
Granted |
|
|
154,742 |
|
|
$ |
7.68 |
|
|
Vested |
|
|
(110,726 |
) |
|
$ |
2.27 |
|
|
Outstanding, September
30, 2022 |
|
|
1,208,739 |
|
|
$ |
4.21 |
|
10. Fair Value
Measurements
The
Company measures certain financial assets and liabilities at fair
value on a recurring basis, including certain cash equivalents.
Generally accepted 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”). The three
levels of the fair value hierarchy are described below:
|
Level
1: |
|
Values
are based on unadjusted quoted prices in active markets that are
accessible at the measurement date for identical, unrestricted
assets or liabilities. |
|
|
|
|
|
Level
2: |
|
Values
are based on quoted prices for similar instruments in active
markets, quoted prices for identical or similar instruments in
markets that are not active, or other model-based valuation
techniques for which all significant assumptions are observable in
the market. |
|
|
|
|
|
Level
3: |
|
Values
are generated from model-based techniques that use significant
assumptions not observable in the market. |
The
following table sets forth the Company’s assets measured at fair
value on a recurring basis by level within the fair value
hierarchy. As required by the Fair Value Measurements and
Disclosures topic of the Accounting Standards Codification, assets
and liabilities are classified in their entirety based on the
lowest level of input that is significant to the fair value
measurement.
Schedule of Assets Measured at Fair Value on a
Recurring Basis by Level Within Fair Value
Hierarchy
|
|
|
Fair Value
Measurement Using |
|
|
(in
thousands) |
|
Total |
|
|
Quoted
Prices in
Active Markets
for Identical
Instruments
(Level 1) |
|
|
Significant
Other
Observable
Inputs
(Level 2) |
|
|
Significant
Unobservable
Inputs
(Level 3) |
|
|
Assets at
September 30, 2022: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
invested in money market accounts |
|
$ |
1,493 |
|
|
$ |
— |
|
|
$ |
1,493 |
|
|
$ |
— |
|
|
Total
assets at fair value |
|
$ |
1,493 |
|
|
$ |
— |
|
|
$ |
1,493 |
|
|
$ |
— |
|
|
Assets at
December 31, 2021: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
invested in money market accounts |
|
$ |
1,406 |
|
|
$ |
— |
|
|
$ |
1,406 |
|
|
$ |
— |
|
|
Total
assets at fair value |
|
$ |
1,406 |
|
|
$ |
— |
|
|
$ |
1,406 |
|
|
$ |
— |
|
The
Company did not have any financial liabilities valued at fair value
on a recurring basis as of September 30, 2022 or December 31,
2021.
Level
1
The
Company does not have any financial assets or liabilities
classified as Level 1.
Level
2
The
Company’s financial assets consist of restricted cash and cash
equivalents invested in money market funds in the amount of
$1.5 million and $1.4 million at September 30,
2022 and December 31, 2021, respectively. These assets are
classified as Level 2, as described above, and total interest
income recorded for these investments was less than $0.2 million during the
nine months ended September 30, 2022 and insignificant during the
year ended December 31, 2021, respectively.
Level
3
The
Company does not have any financial assets or liabilities
classified as Level 3.
11. 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 (in thousands):
Schedule of Accrued
Warranty
|
|
|
September
30, 2022 |
|
|
December
31, 2021 |
|
|
Warranty
accrual, beginning of the fiscal period |
|
$ |
242 |
|
|
$ |
158 |
|
|
Accrual
adjustment for product warranty |
|
|
95 |
|
|
|
199 |
|
|
Payments
made |
|
|
(171 |
) |
|
|
(115 |
) |
|
Warranty
accrual, end of the fiscal period |
|
$ |
166 |
|
|
$ |
242 |
|
12. 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.
In
April 2021, the Company entered into a letter of credit pursuant to
the Lease agreement totaling approximately $1.8 million to be delivered
in four equal installments of which the first was delivered in
April 2021, the second was delivered in July 2021, the third was
delivered in October 2021, and the fourth was delivered in January
2022. The amount available under this letter of credit will
automatically reduce by one fortieth at the end of each month
during the lease term.
13. Subsequent
Events
None.
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, 2021. 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”
included in this Quarterly Report on Form 10-Q and in Part I, Item
1A, “Risk Factors,” included in our Annual Report on Form 10-K for
the year ended December 31, 2021. 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 operations, 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
is a pioneer and global leader in surgical robotics for minimally
invasive endovascular intervention. We design, manufacture and
market robotic systems, instruments and information systems for the
interventional laboratory. Our proprietary robotic technology,
Robotic Magnetic Navigation, fundamentally transforms endovascular
interventions using precise computer-controlled magnetic fields to
directly control the tip of flexible interventional catheters or
devices. Direct control of the tip of an interventional device, in
contrast to all manual hand-held devices that are controlled from
their handle, can improve the precision, stability, reach and
safety of these devices during procedures.
Our
primary clinical focus has been electrophysiology, specifically
cardiac ablation procedures for the treatment of arrhythmias.
Cardiac ablation has become a well-accepted therapy for arrhythmias
and a multi-billion-dollar medical device market with expectations
for substantial long-term growth. We have shared our aspiration and
a product strategy to expand the clinical focus of our technology
to several additional endovascular indications including coronary,
neuro, and peripheral interventions.
There
is substantial real-world evidence and clinical literature for
Robotic Magnetic Navigation in electrophysiology. Hundreds of
electrophysiologists at over one hundred hospitals globally have
treated over 100,000 arrhythmia patients with our robotic
technology. Clinical use of our technology has been documented in
over 400 clinical publications. Robotic Magnetic Navigation is
designed to enable physicians to complete more complex
interventional procedures with greater success and safety 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 computer-controlled magnetic
fields that govern the motion of the working tip of the catheter,
resulting in improved navigation. The more flexible atraumatic
design of catheters driven using magnetic fields may reduce the
risk of patient harm and other adverse events. Performing the
procedure from a control cockpit enables physicians to complete
procedures in a safe location protected from x-ray exposure, with
greater ergonomics, and improved efficiency. We believe these
benefits can be applicable in other endovascular indications where
navigation through complex vasculature is often challenging or
unsuccessful and generates significant x-ray exposure.
Our
primary products include the Genesis RMN System, the
Odyssey Solution, and other related devices. We also offer
to our customers the Stereotaxis Imaging Model S x-ray System and
other accessory devices.
The
Genesis RMN System is 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.
The
Odyssey Solution consolidates lab information onto one large
integrated display, enabling physicians to view and control all the
key information in the operating room. This is designed to improve
lab layout and 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 the 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 clearances and registration 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. Our
prior generation robotic magnetic navigation system, the
Niobe System, and the 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. Stereotaxis Imaging Model S x-ray System
is CE marked and cleared by the FDA.
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 systems and devices 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
The
impact of the COVID-19 pandemic has varied widely over time by
individual geography. In 2021, resurgences of COVID-19 as well as
hospital staffing shortages depressed procedure volumes at various
times throughout the year. After such resurgences procedure volumes
would generally stabilize or recover. Similarly, in 2022, procedure
volumes continue to be challenged by periodic resurgences of
COVID-19, ongoing hospital staffing issues and other
factors.
We
have experienced challenges and disruptions due to the pandemic
such as worldwide supply chain disruptions, including shortages and
inflationary pressures, and logistics delays which makes it
difficult for us to source parts and ship our products. Our
customers have also experienced similar supply chain issues as well
as labor shortages, both of which have contributed to delayed
hospital construction project timelines. To-date, we have been
generally able to conduct normal business activities albeit in a
more deliberate manner than prior to the pandemic, including taking
action to increase inventory levels, but we cannot guarantee that
they will not be impacted more severely in the future.
The
ongoing 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, the timing of vaccine distribution,
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
in 2022. In addition, we would expect that capital system orders
will continue to experience some delay.
Capital
markets and worldwide economies continue to be significantly
impacted by the COVID-19 pandemic, and the outlook for 2022 depends
on future developments, including but not limited to: the length
and severity of ongoing outbreaks (including further new variants
beyond Delta and Omicron, which may be more contagious, more severe
or less responsive to treatment or vaccines), the effectiveness of
containment actions, and the timing of vaccinations and achievement
of herd immunity. The impact on local and/or global economies is
uncertain, including ongoing risk of recession. Such economic
disruptions, including a recession, could have a material adverse
effect on our long-term business as hospitals continue to monitor
and adjust 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 manageably
impacted, but we cannot guarantee that such will not be impacted
further 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 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, 2021.
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 ongoing software
enhancements 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 as
necessary.
Systems:
Contracts
related to the sale of systems typically contain separate
obligations for the delivery of system(s), installation and an
implied obligation to provide software enhancements if and when
available for one year following installation. Revenue is
recognized when the Company transfers control to the customer,
which is generally at the point when acceptance occurs that
indicates customer acknowledgment of delivery or installation,
depending on the terms of the arrangement. Revenue from the implied
obligation to deliver software enhancements if and when available
is recognized ratably over the first year following installation of
the system as the customer receives the right to software
enhancements throughout the period and is included in Other
Recurring Revenue. The Company’s system contracts do not provide a
right of return. Systems are generally covered by a one-year
assurance type warranty; warranty costs were $0.1 million and $0.2
million for the nine months ended September 30, 2022 and 2021,
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 nine months
ended September 30, 2022 and 2021.
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 of our systems.
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:
A
portion of our former principal executive office was subleased to a
third party through 2021. In accordance with Accounting Standards
Update (ASU) 2016-02, “Leases” (Topic 842), the Company recorded
sublease income as 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 recognized based on the
relative selling price of the related performance obligations and
the contractual billing terms in the arrangements. Customer
deposits primarily relate to future system sales but can also
include deposits on disposable sales. 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 $0.2 million as of September 30, 2022
and December 31, 2021. The Company did not incur any impairment
losses during any of the periods presented.
Leases
The
Company accounts for leases in accordance with 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.
As
disclosed in Note 6, on March 1, 2021, the Company entered into an
office lease agreement (the “Lease”) with Globe Building Company
(the “Landlord”), under which the Company is leasing executive
office space and manufacturing facilities of approximately 43,100
square feet of rentable space located at 710 N. Tucker Boulevard,
St. Louis, Missouri (the “Premises”) that serves as the Company’s
new principal executive and administrative offices and
manufacturing facility. Lease payments commenced on January 1, 2022
and the lease has a term of ten years, with two renewal options of
five years each. The minimum annual rent under the terms of the
Lease ranges from approximately $0.8 million in 2022 to $1.0
million in 2031.
The
Company gained access to the Premises in the third quarter 2021 to
begin constructing leasehold improvements. In accordance with ASC
842, the Company recorded a ROU asset and lease liability. The
initial recognition of the ROU asset and lease liability was $5.9
million. In the fourth quarter of 2021, the Company received an
occupancy permit and relocated its operations to the new leased
space.
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 was recognized on a
straight-line basis.
Share-Based Compensation
The Company accounts for its grants of stock options, stock
appreciation rights, restricted shares, 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.
For time-based awards, 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.
For
market-based awards, stock-based compensation expense is recognized
over the minimum service period regardless of whether or not the
market target is probable of being achieved. The fair value of such
awards is estimated on the grant date using Monte Carlo
simulations.
Shares
purchased by employees under the 2009 and 2022 Employee Stock
Purchase Plans are considered to be non-compensatory.
Results
of Operations
Comparison
of the Three Months Ended September 30, 2022 and
2021
Revenue.
Revenue decreased from $9.1 million for the three months ended
September 30, 2021, to $7.7 million for the three months ended
September 30, 2022, a decrease of 16%. Revenue from the sales of
systems decreased to $2.4 million for the three months ended
September 30, 2022, from $3.5 million for the three months ended
September 30, 2021, due to changes in product mix in the current
year period. Revenue from sales of disposable interventional
devices, service, and accessories was approximately $5.3 million
for the three months ended September 30, 2022 and 2021. The Company
recognized $0.2 million of sublease revenue for the three-month
period ended September 30, 2021. The sublease ended December 31,
2021.
Cost
of Revenue. Cost of revenue decreased from $4.4 million for the
three months ended September 30, 2021, to $3.1 million for the
three months ended September 30, 2022, a decrease of approximately
29%. As a percentage of our total revenue, overall gross margin
increased to 60% for the
three months ended September 30, 2022, from 52% for the three months ended September 30,
2021. Cost of revenue for systems sold decreased to $2.0
million for the three months ended September 30, 2022, from $3.4
million for the three months ended September 30, 2021, driven by
changes in product mix in the current year period. Gross margin for
systems was $0.4 million for the three months ended September 30,
2022, compared to $0.2 million for the three months ended September
30, 2021. Cost of revenue for disposables, service, and accessories
increased to $1.1 million for the three months ended September 30,
2022, from $0.8 million for the three months ended September 30,
2021, driven by increased costs incurred under service contracts
and changes in excess and obsolescence reserves. Gross margin for
disposables, service, and accessories was 80% for the three months
ended September 30,2022 compared to 86% for the three months ended
September 30, 2021. Cost of sublease revenue was $0.2 million for
the three months ended September 30, 2021. The sublease ended
December 31, 2021.
Research
and Development Expenses. Research and development expenses
increased from $2.5 million for the three months ended September
30, 2021, to $2.8 million for the three months ended September 30,
2022, an increase of approximately 13%. This increase was primarily
driven by project timing and measured hiring in the current year
period.
Sales
and Marketing Expenses. Sales and marketing expenses increased
from $2.9 million for the three months ended September 30, 2021, to
$3.1 million for the three months ended September 30, 2022, an
increase of approximately 7% primarily due to higher headcount
costs.
General
and Administrative Expenses. General and administrative
expenses include finance, information systems, legal, and general
management. General and administrative expenses decreased from $3.9
million for the three months ended September 30, 2021, to $3.7
million for the three months ended September 30, 2022, a decrease
of approximately 6%. This decrease was primarily driven by reduced
professional service fees in the current year period.
Interest
Income (Expense). Net interest income was approximately $0.1
million for the three months ended September 30, 2022, compared to
less than $0.1 million for the three months ended September 30,
2021.
Comparison
of the Nine Months Ended September 30, 2022 and 2021
Revenue.
Revenue decreased from $26.8 million for the nine months ended
September 30, 2021, to $20.8 million for the nine months ended
September 30, 2022, a decrease of approximately 22%. Revenue from
the sales of systems decreased to $4.6 million for the nine months
ended September 30, 2022, from $8.8 million for the nine months
ended September 30, 2021, due to decreased system sales volumes and
changes in product mix in the current year period. Revenue from
sales of disposable interventional devices, service, and
accessories decreased to $16.2 million for the nine months ended
September 30, 2022, from $17.2 million for the nine months ended
September 30, 2021, a decrease of approximately 6%, primarily driven by timing of service
contract revenue, lower procedure volumes, and the strengthening of the US dollar
during the current year period. Sublease revenue was $0.7
million for the nine-month period ended September 30, 2021. The
sublease ended December 31, 2021.
Cost
of Revenue. Cost of revenue decreased from $9.5 million for the
nine months ended September 30, 2021, to $6.7 million for the nine
months ended September 30, 2022, a decrease of approximately 30%.
As a percentage of our total revenue, overall gross margin
increased to 68% for the nine months ended September 30, 2022, from
65% for the nine months ended September 30, 2021, primarily due to
changes in product mix. Cost of revenue for systems sold decreased
from $6.2 million for the nine months ended September 30, 2021, to
$3.8 million for the nine months ended September 30, 2022, driven
by decreased system sales volumes and changes in product mix in the
current year period. Gross margin for systems decreased from $2.6
million for the nine months ended September 30, 2021, to $0.8
million for the nine months ended September 30, 2022. Cost of
revenue for disposables, service, and accessories increased to $2.9
million for the nine months ended September 30, 2022, from $2.6
million for the nine months ended September 30, 2021, driven by
higher expenses incurred under service contracts. Gross margin for
disposables, service and accessories was 82% for the nine months
ended September 30, 2022, compared to 85% for the nine months ended
September 30, 2021. Cost of sublease revenue was $0.7 million for
the nine months ended September 30, 2021. The sublease ended
December 31, 2021.
Research
and Development Expenses. Research and development expenses
increased from $7.6 million for the nine months ended September 30,
2021, to $8.2 million for the nine months ended September 30, 2022,
an increase of approximately 8%. This increase was primarily due to
higher project spending and measured hiring in the current year
period.
Sales
and Marketing Expenses. Sales and marketing expenses increased
from $8.9 million for the nine months ended September 30, 2021, to
$9.3 million for the nine months ended September 30, 2022, an
increase of approximately 5%. This increase was primarily due to
higher travel and compensation expenses in the current year
period.
General
and Administrative Expenses. General and administrative
expenses include finance, information systems, legal, and general
management. General and administrative expenses increased to $11.0
million for the nine months ended September 30, 2022, from $10.3
million for the nine months ended September 30, 2021, an increase
of approximately 6%. This increase was primarily driven by higher
stock-based compensation expense for the previously announced CEO
Performance Award partially offset by lower professional service
fees in the current year period.