STEREOTAXIS INC 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
This report includes various forward-looking statements that are subject to risks and uncertainties, many of which are beyond our control. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in "Part II - Item 1A. Risk Factors." Forward-looking statements discuss matters that are not historical facts. Forward-looking statements include, but are not limited to, discussions regarding our operating strategy, sales and marketing strategy, regulatory strategy, industry, economic conditions, financial condition, liquidity, capital resources, results of operation, and the impact of the recent coronavirus ("COVID-19") pandemic and our response to it. Such statements include, but are not limited to, statements preceded by, followed by, or that otherwise include the words "believe", "expects", "anticipates", "intends", "estimates", "projects", "can", "could", "may", "would", or similar expressions. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You should not unduly rely on these forward-looking statements, which speak only as of the date on which they are made. They give our expectations regarding the future, but are not guarantees. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.
Overview
17
The Genesis RMN System is the latest generation of the robotic magnetic
navigation system. This system is designed to enable physicians to complete more
complex interventional procedures by providing image-guided delivery of
catheters and guidewires through the blood vessels and chambers of the heart to
treatment sites. This is achieved using externally applied magnetic fields that
govern the motion of the working tip of the catheter or guidewire, resulting in
improved navigation, efficient procedures and reduced x-ray exposure. We have
received regulatory clearance, licensing and CE Mark approvals necessary for us
to market the Genesis RMN System in the
We have strategic relationships with technology leaders in the global interventional market. Through these strategic relationships we provide compatibility between our robotic magnetic navigation system and digital imaging and 3D catheter location sensing technology, as well as disposable interventional devices. The maintenance of these strategic relationships, or the establishment of equivalent alternatives, is critical to our commercialization efforts. There are no guarantees that any existing strategic relationships will continue and efforts are ongoing to ensure the availability of integrated next generation systems and/or equivalent alternatives. We cannot provide assurance as to the timeline of the ongoing availability of such compatible systems or our ability to obtain equivalent alternatives on competitive terms or at all.
COVID-19 Pandemic First Quarter of 2020
Prior to the spread of COVID-19, we experienced procedure trends consistent with
the fourth quarter of 2019. We also saw strength in new capital orders.
Beginning in
As the pandemic spread throughout the first quarter of 2020, various local restrictions on travel, mandatory closures, social distancing protocols and shelter-in-place orders negatively impacted our ability to complete installation and service activities, which resulted in declines in system and service revenue in the first quarter.
Our supply-chain also experienced some impact as some suppliers struggled to
source sub-components in February when most factories in
Second Quarter of 2020
During the early portion of the second quarter, weekly procedures in
The recent resurgence of COVID-19 in some areas may cause hospitals and patients
in some areas to again postpone procedures. Further, we expect to experience the
normal seasonality related to summer holidays, especially in
18 Ongoing
We do not expect all markets to recover at the same pace, and some markets may continue to experience resurgence in infection rates for many months. The magnitude of the impact that the pandemic will have on our business will likely continue to vary by individual geography based on the extent of the outbreak in each area, specific governmental restrictions and the availability of testing capabilities, personal protective equipment, and hospital facilities, as well as decisions by our vendors, suppliers, customers and, ultimately, patients in response to the pandemic, none of which we are able to currently and accurately predict. While we cannot reliably estimate the depth or length of the impact, we continue to anticipate significant, periodic disruptions to our procedures volumes, service activities and system placements throughout the remainder of 2020 and beyond as COVID-19 infections spread, causing additional strain on hospital resources, combined with recommended deferrals of elective procedures by governments and other authorities. In addition, we would expect that additional capital system orders will also experience some delay.
Capital markets and worldwide economies have also been significantly impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Such economic recession could have a material adverse effect on our long-term business as hospitals curtail and reduce capital and overall spending or redirect such spending to treatments related directly to the pandemic. To-date, our manufacturing operations and supply chains have been minimally interrupted, but we cannot guarantee that such will not be interrupted further in the future. If our manufacturing operations or supply chains are interrupted, it may not be possible for us to timely manufacture relevant products at required levels, or at all. A material reduction or interruption to any of our manufacturing processes could have a material adverse effect on our business, operating results, and financial condition. Further, the COVID-19 pandemic and local actions, such as "shelter-in-place" orders and restrictions on our ability to travel and access our customers or temporary closures of our facilities or the facilities of our suppliers and their contract manufacturers, could also significantly impact our sales and our ability to ship our products and supply our customers. Any of these events could negatively impact the number of procedures performed and the number of system placements and have a material adverse effect on our business, financial condition, results of operations, or cash flows.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations
are based on our financial statements, which have been prepared in accordance
with
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
In accordance with Accounting Standards Codification Topic 606 ("ASC 606"), Revenue from Contracts with Customers, we account for a contract with a customer when there is a legally enforceable contract between the Company and the customer, the rights of the parties are identified, the contract has commercial substance, and collectability of the contract consideration is probable. We record our revenue based on consideration specified in the contract with each customer, net of any taxes collected from customers that are remitted to government authorities.
For contracts containing multiple products and services the Company accounts for individual products and services as separate performance obligations if they are distinct, which is if a product or service is separately identifiable from other items in the bundled package, and if a customer can benefit from it on its own or with other resources that are readily available to the customer. The Company recognizes revenues as the performance obligations are satisfied by transferring control of the product or service to a customer.
For arrangements with multiple performance obligations, revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are based on observable prices at which the Company separately sells the products or services. If a standalone selling price is not directly observable, then the Company estimates the standalone selling price considering market conditions and entity-specific factors including, but not limited to, features and functionality of the products and services and market conditions. The Company regularly reviews standalone selling prices and updates these estimates if necessary.
Systems:
Contracts related to the sale of systems typically contain separate obligations for the delivery of system(s), installation and an implied obligation to provide software enhancements if and when available for one year following installation. Revenue is recognized when the Company transfers control to the customer, which is generally at the point when acceptance occurs that indicates customer acknowledgment of delivery or installation, depending on the terms of the arrangement. Revenue from the implied obligation to deliver software enhancements if and when available is recognized ratably over the first year following installation of the system as the customer receives the right to software updates throughout the period and is included in Other Recurring Revenue. The Company's system contracts generally do not provide a right of return. Systems are generally covered by a one-year warranty; warranty costs were not material for the periods presented.
19 Disposables:
Revenue from sales of disposable products is recognized when control is transferred to the customers, which generally occurs at the time of shipment, but can also occur at the time of delivery depending on the customer arrangement. Disposable products are covered by a warranty that provides for the return of defective products. Warranty costs were not material for the periods presented.
Royalty:
The Company is entitled to royalty payments from
Other Recurring Revenue:
Other recurring revenue includes revenue from product maintenance plans, other post warranty maintenance, and the implied obligation to provide software enhancements if and when available for one year following installation. Revenue from services and software enhancements is deferred and amortized over the service or update period, which is typically one year. Revenue related to services performed on a time-and-materials basis is recognized when performed.
Sublease Revenue:
The adoption of new lease accounting guidance as of
The Company invoices its customers based on the billing schedules in its sales arrangements. Contract assets primarily represent the difference between the revenue that was recognized based on the relative selling price of the related performance obligations and the contractual billing terms in the arrangements. Deferred revenue is primarily related to service contracts, for which the service fees are billed up-front, generally quarterly or annually, and for amounts billed in advance for system contracts for which some performance obligations remain outstanding. For service contracts, the associated deferred revenue is generally recognized ratably over the service period. For system contracts, the associated deferred revenue is recognized when the remaining performance obligations are satisfied. See Note 2 for additional detail on deferred revenue. The Company did not have any impairment losses on its contract assets for the periods presented.
Assets Recognized from the Costs to Obtain a Contract with a Customer
The Company has determined that sales incentive programs for the Company's sales
team meet the requirements to be capitalized as the Company expects to generate
future economic benefits from the related revenue generating contracts after the
initial capital sales transaction. The costs capitalized as contract acquisition
costs included in prepaid expenses and other assets in the Company's balance
sheets were
Leases
On
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.
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 recorded at the time of sale. Costs of disposable revenue include direct product costs and estimated warranty costs and are recorded at the time of sale. Cost of revenue from services and license fees are recorded when incurred. Cost of sublease revenue is recorded on a straight-line basis.
20 Results of Operations
Comparison of the Three Months Ended
Revenue. Revenue decreased from
Cost of Revenue. Cost of revenue was relatively consistent at
Research and Development Expenses. Research and development expenses decreased
from
Sales and Marketing Expenses. Sales and marketing expenses decreased from
General and Administrative Expenses. General and administrative expenses include
finance, information systems, legal, and general management. General and
administrative expenses increased from
Interest Income. Interest income was less than
Comparison of the Six Months Ended
Revenue. Revenue decreased from
Cost of Revenue. Cost of revenue decreased from
Research and Development Expenses. Research and development expenses decreased
from
Sales and Marketing Expenses. Sales and marketing expenses decreased from
21
General and Administrative Expenses. General and administrative expenses include
finance, information systems, legal, and general management. General and
administrative expenses increased to
Interest Income. Interest income for the six months ended
Liquidity and Capital Resources
Liquidity refers to the liquid financial assets available to fund our business operations and pay for near-term obligations. These liquid financial assets consist of cash and cash equivalents. We are continuously and critically reviewing our liquidity and anticipated capital requirements in light of the significant uncertainty created by the COVID-19 pandemic.
At
The following table summarizes our cash flow by operating, investing and financing activities for the six months endedJune 30, 2020 and 2019 (in thousands): Six Months Ended June 30, 2020 2019 Cash flow used in operating activities$ (3,337 ) $ (2,296 ) Cash flow used in investing activities (71 ) (10 ) Cash flow provided by (used in) financing activities 17,232 (18 )
Net cash used in operating activities. We used approximately
Net cash used in investing activities. We used less than
Net cash provided by (used) financing activities. We generated
Capital Resources
As of
Revolving Line of Credit
The Company had a working capital line of credit with its primary lender,
Paycheck Protection Program
The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted
on
The holders of common stock are entitled to one vote for each share held and to
receive dividends whenever funds are legally available and when declared by the
Board of Directors subject to the rights of holders of all classes of stock
having priority rights as dividends and the conditions of the revolving line of
credit agreement. No dividends have been declared or paid as of
22 2020 Equity Financing
The On
2019 Equity Financing and Series B Convertible Preferred Stock
As disclosed in Note 9, on
Series A Convertible Preferred Stock and Warrants
In
The warrants issued in conjunction with the convertible preferred stock (the
"SPA Warrants") have an exercise price equal to
Off-Balance Sheet Arrangements
We do not currently have, nor have we ever had, any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. As a result, we are not materially exposed to any financing, liquidity, market, or credit risk that could have arisen if we had engaged in these relationships.
ITEM 3. [RESERVED] None.
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