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
designs, manufactures and markets 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 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.
The
Stereotaxis Imaging Model S provides an integrated complete solution for a robotic interventional operating room. It is a single-plane,
full-power x-ray system and includes the c-arm, powered table, motorized boom, and large high-definition monitors. Stereotaxis Imaging
Model S incorporates modern fluoroscopy technology to support high quality imaging while minimizing radiation exposure for patients and
physicians. The combination of RMN Systems with Stereotaxis Imaging Model S is designed to reduce the cost of acquisition, the ongoing
cost of ownership, and the complexity of installation of a robotic electrophysiology practice.
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 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, 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. The Stereotaxis Imaging Model S x-ray System
is CE marked and cleared by the FDA.
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 three-month period ended March 31, 2023, are not necessarily indicative of the results that may be expected for the year ending
December 31, 2023, 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, 2022, as filed with the Securities and Exchange Commission
(SEC) on March 9, 2023.
Risks
and Uncertainties
The
global healthcare system is continuing to respond to the unprecedented challenges posed by the COVID-19 pandemic. While we cannot reliably
estimate the duration of the impact, or the severity of ongoing resurgences, we continue to anticipate periodic disruptions to our manufacturing
operations, supply chains, procedures volumes, service activities, and capital system orders and placements, any of which could have
a material adverse effect on our business, financial condition, results of operations, or cash flows. In 2022, procedure volumes were
challenged by periodic resurgences of COVID-19, ongoing hospital staffing issues and other factors. Procedure volumes continue to be
challenged in 2023 by supply chain delays, ongoing hospital staffing issues and other factors.
To-date,
we have experienced challenges and disruptions due to the pandemic and other macroeconomic factors,
such as periodic 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. 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. 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 in 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.
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,
or other macroeconomic or geopolitical factors, may continue to negatively affect demand for both our systems and our disposable products.
Hospitals
are experiencing challenges with staffing and cost pressures as supply chain constraints and inflation drive up operating costs. 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. Our hospital customers are also experiencing challenges in sourcing
supplies, such as catheters, needed to perform procedures. Such shortages have, and may continue to, put pressure on procedures and our
disposable revenue. We may also experience significant reductions in demand for our disposable products if our healthcare customers (physicians
and hospitals) re-prioritize the treatment of patients and divert resources away from non-coronavirus areas, which we anticipate could
lead to the performance of fewer procedures in which our disposable products are used. Significant decreases to our capital or recurring
revenues could have a material adverse effect on our business, operating results, and financial condition.
If
governmental authorities around the world reinstitute preventative and precautionary measures such as 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.
While
we cannot reliably estimate the ultimate duration of the impact or the severity of ongoing periodic resurgences thereof, we continue
to anticipate periodic disruptions to our manufacturing operations, supply chains, procedures volumes, service activities, and capital
system orders and placements, any of which could have a material adverse effect on our business, financial condition, results of operations,
or cash flows.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentration of credit risk consist of cash, cash equivalents and marketable
securities. Our investments may include, at any
time, a diversified portfolio of cash equivalents and short-term and long-term investments in a variety of high-quality securities,
including money market funds, U.S. treasury and U.S. government agency securities, corporate notes and bonds, commercial paper,
non-U.S. government agency securities, and municipal notes. The Company’s exposure to
any individual corporate entity is limited by policy. Deposits may exceed federally insured limits, and the Company is exposed to
credit risk on deposits in the event of default by the financial institutions to the extent account balances exceed the amount
insured by the Federal Deposit Insurance Corporation (FDIC). The Company is closely monitoring ongoing events involving limited
liquidity, defaults, non-performance or other adverse developments that affect financial institutions or other companies in the
financial services industry or the financial services industry generally, including Silicon Valley Bank. On March 10, 2023, Silicon
Valley Bank (“SVB”), where the Company maintained accounts with a cash balance of less than 6%
of the Company’s total cash, cash equivalents and marketable securities, was closed by the California Department of Financial
Protection and Innovation and the FDIC was appointed as receiver. On March 12, 2023, the U.S. Department of the Treasury, Federal
Reserve Board, and FDIC released a joint statement announcing that the FDIC would complete its resolution of SVB in a manner that
fully protected all depositors at SVB and that depositors would have access to all of their money starting March 13, 2023. On March
26, 2023, it was announced that First-Citizens Bank & Trust Company would assume all of SVB’s deposits and loans as of
March 27, 2023. The Company does not believe that it has exposure to loss as a result of SVB’s receivership. During the
periods presented, the Company has not experienced any losses on its deposits of cash, cash equivalents or marketable
securities.
Cash
and Cash Equivalents
Cash
and cash equivalents include cash on hand, money market instruments, and other highly liquid investments with original maturities of
three months or less.
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 $1.1 million and $1.3 million as of March 31, 2023, and December 31, 2022, respectively.
Investments
Our
investments may include, at any time, a diversified portfolio of cash equivalents and short- and long-term investments in a variety of
high-quality securities, including money market funds, U.S. treasury and U.S. government agency securities, corporate notes and bonds,
commercial paper, non-U.S. government agency securities, and municipal notes. As of March 31, 2023, the Company’s short-term investments
consisted of U.S. treasury securities and fixed maturity, marketable debt securities with original maturities of one year or less, but
greater than 90 days. These investments are classified as held to maturity. Securities classified as held to maturity are securities
that the Company has the ability and intent to hold to maturity or redemption and are carried at amortized cost.
Amortized
cost of U.S. treasury securities and marketable debt securities are based on the Company’s purchase price adjusted for accrual
of discount, or amortization of premium, and recognition of impairment charges, if any. The amortized cost of securities the Company
purchases at a discount or premium will equal the face or par value at maturity or the call date, if applicable. Stated interest on
investments is reported as income when earned and is adjusted for amortization or accretion of any premium or discount. Accrued interest receivable on investments, included in other current assets,
was less than $0.1 million as of March 31, 2023 and December 31, 2022.
Effective
January 1, 2023, the Company reports held to maturity investments net of an allowance for expected credit losses in accordance with Accounting
Standards Codification Topic 326, Financial Instruments – Credit Losses (“ASC 326”). The adoption of ASC 326 had no
material impact on the Company’s financial results for any prior periods, therefore no cumulative adjustment to beginning retained
earnings was recorded. The Company segments its portfolio based on the underlying risk profiles of the securities and has a zero-loss
expectation for U.S. treasury and U.S. government agency securities. The Company regularly reviews the securities using the probability
of default method and analyzes the unrealized loss positions and evaluates the current expected credit loss by considering factors such
as credit ratings, issuer-specific factors, current economic conditions, and reasonable and supportable forecasts. The Company did not
have any material expected credit losses on investments or material expected credit losses on accrued interest related to investments
during the three months ended March 31, 2023 and year ended December 31, 2022.
Fair
Value Measurements
Financial
instruments consist of cash and cash equivalents, restricted cash, investments, accounts receivable, and accounts payable.
The
Company measures certain financial assets and liabilities at fair value on a recurring basis. General accounting principles for fair
value measurement establishes 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. |
As
of March 31, 2023 and December 31, 2022, financial assets that are classified as Level 2 include money market funds, U.S. treasury securities
and corporate debt securities. The Company reviews trading activity and pricing for these investments as of the measurement date. When
sufficient quoted pricing for identical securities is not available, the Company uses market pricing and other observable market inputs
for similar securities. These inputs either represent quoted prices for similar assets in active markets or have been derived from observable
market data. This approach results in the Level 2 classification of these securities within the fair value hierarchy.
Accounts
Receivable, Contract Assets, and Allowance for Credit Losses
Accounts
receivable primarily include amounts due from hospitals and distributors for acquisition of magnetic systems, associated disposable device
sales and service contracts, net of allowances for expected credit losses. Credit is granted on a limited basis, with balances due generally
within 30 days of billing. Contract assets primarily represent the difference between the revenue that was earned but not billed on service
contracts and revenue from system contracts that was recognized based on the relative selling price of the related performance obligations
and the contractual billing terms in the arrangements. Effective January 1, 2023, the Company reports accounts receivable and contract
assets net of an allowance for expected credit losses in accordance with Accounting Standards Codification Topic 326, Financial Instruments
– Credit Losses (“ASC 326”). The adoption of ASC 326 had no material impact on the Company’s financial results
for any prior periods, therefore no cumulative adjustment to beginning retained earnings was recorded. The provision for credit loss
is based upon management’s assessment of historical and expected net collections considering business and economic conditions and
other collection indicators. We assess collectability by reviewing the accounts receivable aging schedule on an aggregated basis where
similar characteristics exist and on an individual basis when we identify specific customers with known disputes or collectability issues.
Amounts deemed uncollectible are recorded as an allowance for expected credit losses.
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 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 of various devices as provided by co-development and co-placement arrangements, and from
other recurring revenue including ongoing software updates and service contracts.
We
account for a contract with a customer when there is a legally enforceable contract between the Company and the customer, the rights
of the parties are identified, the contract has commercial substance, and collectability of the contract consideration is probable. We
record our revenue based on consideration specified in the contract with each customer, net of any taxes collected from customers that
are remitted to government authorities.
For
contracts containing multiple products and services, the Company accounts for individual products and services as separate performance
obligations if they are distinct, which is if a product or service is separately identifiable from other items in the bundled package,
and if a customer can benefit from it on its own or with other resources that are readily available to the customer. The Company recognizes
revenues as the performance obligations are satisfied by transferring control of the product or service to a customer.
For
arrangements with multiple performance obligations, revenue is allocated to each performance obligation based on its relative standalone
selling price. Standalone selling prices are based on observable prices at which the Company separately sells the products or services.
If a standalone selling price is not directly observable, then the Company estimates the standalone selling price considering market
conditions and entity-specific factors including, but not limited to, features and functionality of the products and services and market
conditions. The Company regularly reviews standalone selling prices and updates these estimates 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 less than $0.1 million for
the three months ended March 31, 2023 and 2022. Revenue from system delivery and installation represented 28% and 23% of revenue for
the three months ended March 31, 2023 and 2022, 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 three months ended March 31, 2023
and 2022. Disposable revenue represented 24% and 29% of revenue for the three months ended March 31, 2023 and 2022, respectively.
Royalty:
The
Company receives royalties on the sale of various devices as provided by co-development and
co-placement arrangements with various manufacturers. The Company was entitled to royalty payments from Biosense Webster,
payable quarterly based on net revenues from sales of the co-developed catheters, during the term of the agreement. Royalty revenue
from co-development and co-placement arrangements represented less than 1% and approximately 8%
of revenue for the three months ended March 31, 2023 and 2022, 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 48% and
40% of revenue for the three months ended March 31, 2023 and 2022, respectively.
The
following table summarizes the Company’s revenue for systems, disposables, and service and accessories for the three months ended
March 31, 2023 and 2022 (in thousands):
Schedule
of Revenue Disaggregated by Type
| | |
2023 | | |
2022 | |
| | |
Three Months Ended March 31, | |
| | |
2023 | | |
2022 | |
| Systems | |
$ | 1,821 | | |
$ | 1,634 | |
| Disposables, service and accessories | |
| 4,727 | | |
| 5,403 | |
| Total revenue | |
$ | 6,548 | | |
$ | 7,037 | |
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 $15.1
million as of March 31, 2023. Performance obligations arising from contracts for disposables 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
| | |
March 31, 2023 | | |
December 31, 2022 | |
| Contract Assets - unbilled receivables | |
$ | 659 | | |
$ | 539 | |
| | |
| | | |
| | |
| Customer deposits | |
$ | 2,144 | | |
$ | 2,339 | |
| Product shipped, revenue deferred | |
| 1,389 | | |
| 1,389 | |
| Deferred service and license fees | |
| 5,723 | | |
| 5,268 | |
| Total deferred revenue | |
$ | 9,256 | | |
$ | 8,996 | |
| Less: Long-term deferred revenue | |
| (1,711 | ) | |
| (1,654 | ) |
| Total current deferred revenue | |
$ | 7,545 | | |
$ | 7,342 | |
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 credit losses on its contract assets for the periods
presented therefore no allowance for credit losses was recorded as of March 31, 2023, or December 31, 2022.
Revenue
recognized for the three months ended March 31, 2023 and 2022, that was included in the deferred revenue balance at the beginning of
each reporting period was $3.0 million and $3.2 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 March 31, 2023 and December 31, 2022. 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.
Leasing
Arrangements
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 (i.e., fixed payments including rent, taxes, and insurance costs) and
non-lease components (i.e., common-area or other maintenance costs) which are accounted for as a single lease component as we have elected
the practical expedient to group lease and non-lease components for all leases.
The
Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception,
the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the
calculation of the ROU asset and lease liability. The Company elected not to include short-term leases (i.e., leases with initial terms
of twelve months or less) on the balance sheet.
The
calculated amounts of the ROU assets and lease liabilities are impacted by the length of the lease term and the discount rate used to
calculate the present value of the minimum lease payments. ASC 842 requires the use of the discount rate implicit in the lease whenever
this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease
inception.
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 stock-based compensation at the grant date and the recognition of the related expense
over the period in which the stock-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 weighted average assumptions and fair value for options granted
during the three months ended March 31, 2023, were 1) expected dividend rate of 0%; 2) expected volatility of 76% based on the Company’s
historical volatility; 3) risk-free interest rate based on the Treasury yield on the date of grant; and 4) expected term of 6.25 years.
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 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
| | |
2023 | | |
2022 | |
| | |
Three Months Ended March 31, | |
| | |
2023 | | |
2022 | |
| Net loss | |
$ | (5,347 | ) | |
$ | (4,086 | ) |
| Cumulative dividend on convertible preferred stock | |
| (331 | ) | |
| (331 | ) |
| Net loss attributable to common stockholders | |
$ | (5,678 | ) | |
$ | (4,417 | ) |
| | |
| | | |
| | |
| Weighted average number of common shares and equivalents: | |
| 76,500,965 | | |
| 75,877,391 | |
| Basic EPS | |
$ | (0.07 | ) | |
$ | (0.06 | ) |
| Diluted EPS | |
$ | (0.07 | ) | |
$ | (0.06 | ) |
The
Company did not include any portion of unearned restricted shares, outstanding options, stock appreciation rights, warrants or convertible
preferred stock in the calculation of diluted loss per common share because all such securities are anti-dilutive for all periods presented.
The application of the two-class method of computing earnings per share under general accounting principles for participating securities
is not applicable during these periods because those securities do not contractually participate in its losses.
As
of March 31, 2023, the Company had 3,813,206 shares of common stock issuable upon the exercise of outstanding options and stock appreciation
rights at a weighted average exercise price of $3.95 per share, 47,873,675 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 1,389,009 shares of unvested restricted share units. The Company had no unearned restricted shares outstanding as of March
31, 2023.
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
adopted the standard in the first quarter of 2023. The impact to the Company’s financial results was immaterial.
3.
Financial Instruments
The
following table summarizes the Company’s cash and held to maturity securities’ amortized cost, gross unrealized gains, gross
unrealized losses, and fair value by significant investment category reported as cash and cash equivalents, restricted cash and investments
as of March 31, 2023, and December 31, 2022:
Schedule
of Cash and Held to Maturity Securities
| | |
March 31, 2023 | |
| | |
Valuation | | |
Balance Sheet Classification | |
| (in thousands) | |
Amortized Cost | | |
Gross Unrealized Gains | | |
Gross Unrealized Losses | | |
Fair Value | | |
Cash and Cash Equivalents | | |
Restricted Cash- current | | |
Short-term Investments | | |
Restricted Cash | |
| Cash | |
$ | 1,256 | | |
$ | - | | |
$ | - | | |
$ | 1,256 | | |
$ | 1,256 | | |
$ | - | | |
$ | - | | |
$ | - | |
| Level 2 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Money market funds | |
| 5,504 | | |
| - | | |
| (1 | ) | |
| 5,503 | | |
| 4,367 | | |
| 525 | | |
| - | | |
| 612 | |
| US treasury securities | |
| 9,959 | | |
| 1 | | |
| - | | |
| 9,960 | | |
| - | | |
| - | | |
| 9,959 | | |
| - | |
| Corporate debt securities | |
| 10,082 | | |
| 2 | | |
| (4 | ) | |
| 10,080 | | |
| - | | |
| - | | |
| 10,082 | | |
| - | |
| Subtotal | |
| 25,545 | | |
| 3 | | |
| (5 | ) | |
| 25,543 | | |
| 4,367 | | |
| 525 | | |
| 20,041 | | |
| 612 | |
| Total assets measured at fair value | |
$ | 26,801 | | |
$ | 3 | | |
$ | (5 | ) | |
$ | 26,799 | | |
$ | 5,623 | | |
$ | 525 | | |
$ | 20,041 | | |
$ | 612 | |
| | |
December 31, 2022 | |
| | |
Valuation | | |
Balance Sheet Classification | |
| (in thousands) | |
Amortized Cost | | |
Gross Unrealized Gains | | |
Gross Unrealized Losses | | |
Fair Value | | |
Cash and Cash Equivalents | | |
Restricted Cash- current | | |
Short-term Investments | | |
Restricted Cash | |
| Cash | |
$ | 3,258 | | |
$ | - | | |
$ | - | | |
$ | 3,258 | | |
$ | 3,258 | | |
$ | - | | |
$ | - | | |
$ | - | |
| Level 2 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Money market funds | |
| 1,615 | | |
| - | | |
| - | | |
| 1,615 | | |
| 346 | | |
| 525 | | |
| - | | |
| 744 | |
| US treasury securities | |
| 14,833 | | |
| 2 | | |
| (2 | ) | |
| 14,833 | | |
| 4,982 | | |
| - | | |
| 9,851 | | |
| - | |
| Corporate debt securities | |
| 9,993 | | |
| - | | |
| (6 | ) | |
| 9,987 | | |
| - | | |
| - | | |
| 9,993 | | |
| - | |
| Subtotal | |
| 26,441 | | |
| 2 | | |
| (8 | ) | |
| 26,435 | | |
| 5,328 | | |
| 525 | | |
| 19,844 | | |
| 744 | |
| Total assets measured at fair value | |
$ | 29,699 | | |
$ | 2 | | |
$ | (8 | ) | |
$ | 29,693 | | |
$ | 8,586 | | |
$ | 525 | | |
$ | 19,844 | | |
$ | 744 | |
Interest
income recorded for these investments was approximately $0.3
million and $0.5
million during the three months ended March 31, 2023 and the year ended December 31, 2022, respectively.
As
of March 31, 2023 and December 31, 2022, the Company did not have any financial assets classified as Level 1 or Level 3 nor did the Company
have financial liabilities valued at fair value on a recurring basis.
4.
Inventories
Inventories
consist of the following (in thousands):
Schedule
of Inventories
| | |
March 31, 2023 | | |
December 31, 2022 | |
| Raw materials | |
$ | 7,760 | | |
$ | 6,556 | |
| Work in process | |
| 425 | | |
| 530 | |
| Finished goods | |
| 2,270 | | |
| 2,697 | |
| Reserve for excess and obsolescence | |
| (1,945 | ) | |
| (1,907 | ) |
| Total inventory | |
$ | 8,510 | | |
$ | 7,876 | |
The
reserve for excess and obsolescence primarily includes Niobe Systems and related raw materials and spare parts.
5.
Prepaid Expenses and Other Assets
Prepaid
expenses and other assets consist of the following (in thousands):
Schedule
of Prepaid Expenses and Other Assets
| | |
March 31, 2023 | | |
December 31, 2022 | |
| Prepaid expenses | |
$ | 730 | | |
$ | 605 | |
| Prepaid commissions | |
| 167 | | |
| 187 | |
| Deposits | |
| 528 | | |
| 669 | |
| Other assets | |
| 91 | | |
| 72 | |
| Total prepaid expenses and other assets | |
| 1,516 | | |
| 1,533 | |
| Less: Noncurrent prepaid expenses and other assets | |
| (184 | ) | |
| (208 | ) |
| Total current prepaid expenses and other assets | |
$ | 1,332 | | |
$ | 1,325 | |
6.
Property and Equipment
Property
and Equipment consist of the following (in thousands):
Schedule
of Property and Equipment
| | |
March 31, 2023 | | |
December 31, 2022 | |
| Equipment | |
$ | 4,440 | | |
$ | 4,393 | |
| Leasehold improvements | |
| 2,900 | | |
| 2,692 | |
| Construction in process | |
| - | | |
| 204 | |
| Gross property and equipment | |
| 7,340 | | |
| 7,289 | |
| Less: Accumulated depreciation | |
| (3,618 | ) | |
| (3,458 | ) |
| Net property and equipment | |
$ | 3,722 | | |
$ | 3,831 | |
The
Company had less than $0.1
million and $1.2
million of property and equipment additions during the three months ended March 31, 2023, and the year ended December 31, 2022,
respectively, associated with the buildout of the new leased space in St. Louis, Missouri.
7.
Leases
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 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.
As
of March 31, 2023, the weighted average discount rate for operating leases was 9% and the weighted average remaining lease term for operating
lease term is 8.74 years.
The
following table represents lease costs and other lease information (in thousands):
Schedule
of Lease Costs and Other Lease Information
| | |
2023 | | |
2022 | |
| | |
Three Months Ended March 31, | |
| | |
2023 | | |
2022 | |
| Operating lease cost | |
$ | 227 | | |
$ | 226 | |
| Short-term lease cost | |
| 4 | | |
| 10 | |
| Total net lease cost | |
$ | 231 | | |
$ | 236 | |
| | |
| | | |
| | |
| Cash paid within operating cash flows | |
$ | 242 | | |
$ | 434 | |
Variable
lease costs consist primarily of taxes, insurance, and common area or other maintenance costs for our leased facilities and equipment
which are paid based on actual costs incurred.
Future
minimum payments for operating leases with initial or remaining terms of one year or more as of March 31, 2023, were as follows (in thousands):
Schedule
of Future Minimum Operating Lease Payments
| | |
March 31, 2023 | |
| 2023 | |
$ | 659 | |
| 2024 | |
| 898 | |
| 2025 | |
| 919 | |
| 2026 | |
| 935 | |
| 2027 | |
| 956 | |
| 2028 and thereafter | |
| 4,030 | |
| Total lease payments | |
$ | 8,397 | |
| Less: Interest | |
| (2,625 | ) |
| Present value of lease liabilities | |
$ | 5,772 | |
8.
Accrued Liabilities
Accrued
liabilities consist of the following (in thousands):
Schedule
of Accrued Liabilities
| | |
March 31, 2023 | | |
December 31, 2022 | |
| Accrued salaries, bonus, and benefits | |
$ | 899 | | |
$ | 1,381 | |
| Accrued licenses and maintenance fees | |
| 484 | | |
| 484 | |
| Accrued warranties | |
| 155 | | |
| 163 | |
| Accrued taxes | |
| 75 | | |
| 47 | |
| Accrued investigational sites | |
| 85 | | |
| 101 | |
| Deferred contract obligations | |
| 1,045 | | |
| 1,045 | |
| Other | |
| 112 | | |
| 136 | |
| Total accrued liabilities | |
| 2,855 | | |
| 3,357 | |
| Less: Long term accrued liabilities | |
| (51 | ) | |
| (51 | ) |
| Total current accrued liabilities | |
$ | 2,804 | | |
$ | 3,306 | |
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 March 31, 2023, 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. In April 2023, all of the outstanding shares of Series B Convertible Preferred Stock were converted into shares of
common stock on a one-for-one basis by the holder.
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.
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 $1.8 million for the three-month periods ended
March 31, 2023 and 2022. As of March 31, 2023 and 2022, the Company had approximately $42.4 million and $49.5 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 March 31, 2023, 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
March 31, 2023, the Company had 2,937,628 remaining shares of the Company’s common stock to provide for current and future grants
under its various equity plans.
At
March 31, 2023, 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 $5.5 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 three-month period ended March 31, 2023 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, 2022 | |
| 3,208,065 | | |
$ | 0.74 - $9.87 | | |
$ | 4.21 | |
| Granted | |
| 697,000 | | |
$ | 2.57 | | |
$ | 2.57 | |
| Exercised | |
| (29,188 | ) | |
$ | 0.74 - $2.03 | | |
$ | 1.15 | |
| Forfeited | |
| (62,671 | ) | |
$ | 1.62 - $9.20 | | |
$ | 3.62 | |
| Outstanding, March 31, 2023 | |
| 3,813,206 | | |
$ | 0.74 - $9.87 | | |
$ | 3.95 | |
A
summary of the restricted stock unit activity for the three-month period ended March 31, 2023 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, 2022 | |
| 1,208,739 | | |
$ | 4.21 | |
| Granted | |
| 324,324 | | |
$ | 1.85 | |
| Vested | |
| (144,054 | ) | |
$ | 1.22 | |
| Outstanding, March 31, 2023 | |
| 1,389,009 | | |
$ | 3.97 | |
10.
Product Warranty Provisions
The
Company’s standard policy is to warrant all capital systems against defects in material or workmanship for one year following installation.
The Company’s estimate of costs to service the warranty obligations is based on historical experience and current product performance
trends. A regular review of warranty obligations is performed to determine the adequacy of the reserve and adjustments are made to the
estimated warranty liability as appropriate.
Accrued
warranty, which is included in other accrued liabilities, consists of the following (in thousands):
Schedule
of Accrued Warranty
| | |
March 31, 2023 | | |
December 31, 2022 | |
| Warranty accrual, beginning of the fiscal period | |
$ | 163 | | |
$ | 242 | |
| Accrual adjustment for product warranty | |
| 7 | | |
| 113 | |
| Payments made | |
| (15 | ) | |
| (192 | ) |
| Warranty accrual, end of the fiscal period | |
$ | 155 | | |
$ | 163 | |
11.
Commitments and Contingencies
The
Company at times becomes a party to claims in the ordinary course of business. Management believes that the ultimate resolution of pending
or threatened proceedings will not have a material effect on the financial position, results of operations or liquidity of the Company.
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 automatically reduces
by one fortieth at the end of each month during the lease term.
12.
Subsequent Events
None.