CORINDUS VASCULAR ROBOTICS, INC., 10-Q filed on 5/8/2019
Quarterly Report
v3.19.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2019
May 01, 2019
Document And Entity Information    
Entity Registrant Name Corindus Vascular Robotics, Inc.  
Entity Central Index Key 0001528557  
Document Type 10-Q  
Trading Symbol CVRS  
Document Period End Date Mar. 31, 2019  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity's Reporting Status Current Yes  
Entity Small Business true  
Entity Filer Category Accelerated Filer  
Entity Emerging Growth Company false  
Entity Common Stock, Shares Outstanding   206,700,168
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2019  
v3.19.1
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 37,760 $ 23,849
Accounts receivable 3,861 4,599
Inventories 1,866 2,508
Prepaid expenses and other current assets 1,035 447
Total current assets 44,522 31,403
Property and equipment, net 1,793 1,779
Operating lease right-of-use asset 1,028  
Deposits and other assets 317 343
Total assets 47,660 33,525
Current liabilities:    
Accounts payable 2,627 3,591
Accrued expenses 3,443 3,292
Deferred revenue 734 662
Current portion of long-term debt 1,981 1,011
Current portion of operating lease liability 580  
Current portion of finance lease liability 58 56
Total current liabilities 9,423 8,612
Long-term liabilities    
Deferred revenue, net of current portion 362 285
Long-term debt, net of current portion 12,194 10,774
Long-term operating lease liability, net of current portion 542  
Long-term finance lease liability, net of current portion 31 46
Other liabilities   62
Total long-term liabilities 13,129 11,167
Total liabilities 22,552 19,779
Preferred stock:    
Total preferred stock 23,699 22,952
Stockholders' equity (deficit):    
Common stock, $0.0001 par value; 350,000,000 shares authorized; 206,629,648 and 191,731,152 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively 21 19
Additional paid-in capital 226,455 206,165
Accumulated deficit (225,067) (215,390)
Total stockholders' equity (deficit) 1,409 (9,206)
Total liabilities, preferred stock and stockholders' equity (deficit) 47,660 33,525
Series A Preferred Stock [Member]    
Preferred stock:    
Total preferred stock 20,564 20,564
Series A-1 Preferred Stock [Member]    
Preferred stock:    
Total preferred stock $ 3,135 $ 2,388
v3.19.1
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Mar. 31, 2019
Dec. 31, 2018
Preferred stock, par value (in dollars per share) $ 0.0001 $ 0.0001
Preferred stock, authorized shares 10,000,000 10,000,000
Preferred stock, designated shares 2,000,000 2,000,000
Common stock, par value (in dollars per share) $ 0.0001 $ 0.0001
Common stock, authorized shares 350,000,000 350,000,000
Common stock, issued shares 206,629,648 191,731,152
Common stock, outstanding shares 206,629,648 191,731,152
Series A Preferred Stock [Member]    
Series Preferred stock, par value (in dollars per share) $ 0.0001 $ 0.0001
Series Preferred stock, issued shares 1,000,000 1,000,000
Series Preferred stock, outstanding shares 1,000,000 1,000,000
Preferred stock, designated shares 1,000,000  
Series A-1 Preferred Stock [Member]    
Series Preferred stock, par value (in dollars per share) $ 0.0001 $ 0.0001
Series Preferred stock, issued shares 100,400 70,400
Series Preferred stock, outstanding shares 100,400 70,400
Preferred stock, designated shares 1,000,000  
v3.19.1
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Income Statement [Abstract]    
Revenue $ 3,036 $ 1,485
Cost of revenue 2,414 1,929
Gross profit (loss) 622 (444)
Operating expenses:    
Research and development 2,876 2,135
Selling, general and administrative 7,147 7,455
Total operating expense 10,023 9,590
Operating loss (9,401) (10,034)
Other income (expense)    
Warrant revaluation   30
Interest, net (270) (44)
Other, net (6) (2)
Total other income (expense), net (276) (16)
Net loss (9,677) (10,050)
Accretion of beneficial conversion feature of Series A preferred stock   (5,236)
Dividends on preferred stock (747) (125)
Net loss attributable to common stockholders $ (10,424) $ (15,411)
Net loss per share attributable to common stockholders--basic and diluted (in dollars per share) $ (0.05) $ (0.08)
Weighted-average common shares used in computing net loss per share attributable to common stockholders--basic and diluted (in shares) 196,691,907 188,771,216
Comprehensive loss $ (9,677) $ (10,050)
v3.19.1
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) - USD ($)
$ in Thousands
Preferred Stock [Member]
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Deficit [Member]
Total
Beginning balance at Dec. 31, 2017   $ 19 $ 198,337 $ (180,841) $ 17,515
Beginning balance, (in shares) at Dec. 31, 2017   188,764,851      
Cumulative effect of a change in accounting principles       440 440
Stock-based compensation expense     674   674
Issuance of stock in connection with private placement, net of issuance costs $ 20,564        
Issuance of stock in connection with private placement, net of issuance costs (in shares) 1,000,000        
Issuance of warrants in connection with private placement     4,108   4,108
Beneficial conversion feature of Series A and Series A-1 preferred stock $ (5,236)   5,236   5,236
Accretion of beneficial conversion feature of Series A and Series A-1 preferred stock 5,236   (5,236)   (5,236)
Accrued dividends on Series A preferred stock 125   (125)   (125)
Issuance of common stock upon vesting of restricted stock units (in shares)   17,190      
Net loss       (10,050) (10,050)
Ending balance at Mar. 31, 2018 $ 20,689 $ 19 202,994 (190,451) 12,562
Ending balance, (in shares) at Mar. 31, 2018 1,000,000 188,782,041      
Beginning balance at Dec. 31, 2018 $ 22,952 $ 19 206,165 (215,390) $ (9,206)
Beginning balance, (in shares) at Dec. 31, 2018 1,070,400 191,731,152     191,731,152
Stock-based compensation expense     963   $ 963
Issuance of stock in connection with private placement, net of issuance costs   $ 1 19,530   19,531
Issuance of stock in connection with private placement, net of issuance costs (in shares)   14,384,840      
Issuance of warrants in connection with private placement     440   440
Accrued dividends on Series A preferred stock $ 625   (625)   (625)
Issuance of Series A-1 preferred stock as dividends on Series A preferred stock $ 122   (122)   (122)
Issuance of Series A-1 preferred stock as dividends on Series A preferred stock (in shares) 30,000        
Issuance costs in connection with at-the-market offering     (71)   (71)
Issuance of common stock upon vesting of restricted stock units (in shares)   83,735      
Issuance of common stock upon exercise of stock options   $ 1 160   161
Issuance of common stock upon exercise of stock options (in shares)   413,292      
Issuance of common stock to non-employee directors     15   15
Issuance of common stock to non-employee directors (in shares)   16,629      
Net loss       (9,677) (9,677)
Ending balance at Mar. 31, 2019 $ 23,699 $ 21 $ 226,455 $ (225,067) $ 1,409
Ending balance, (in shares) at Mar. 31, 2019 1,100,400 206,629,648     206,629,648
v3.19.1
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Statement of Stockholders' Equity [Abstract]    
Issuance costs $ 314 $ 329
v3.19.1
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Operating activities    
Net loss $ (9,677) $ (10,050)
Adjustments to reconcile net loss to net cash flows used in operating activities:    
Depreciation and amortization 193 163
Stock-based compensation expense 978 674
Accretion of interest expense 98 16
Write down of inventories   192
Warrant liability revaluation   (30)
Changes in operating assets and liabilities:    
Accounts receivable 738 854
Prepaid expenses and other current assets (588) (117)
Inventories 531 (1,325)
Operating lease right-of use asset, deposits and other assets 6 11
Accounts payable, accrued expenses and other liabilities (1,004) (309)
Customer deposits   2
Deferred revenue 149 10
Net cash used in operating activities (8,576) (9,909)
Investing activities    
Purchase of property and equipment (85) (41)
Net cash used in investing activities (85) (41)
Financing activities    
Proceeds from issuance of common stock, net of issuance costs 19,692  
Proceeds from issuance of long term debt and warrants, net of deferred financing costs and discounts 2,732 11,645
Proceeds from issuance of Series A preferred stock and warrants, net of issuance costs   24,809
Proceeds from exercise of stock options 161  
Payments on finance lease liability (13) (11)
Net cash provided by financing activities 22,572 36,443
Net increase in cash and cash equivalents 13,911 26,493
Cash and cash equivalents at beginning of period 23,849 17,458
Cash and cash equivalents at end of period 37,760 43,951
Supplemental Disclosure of Cash Flow Information:    
Accrued dividends on Series A preferred stock 625 125
Fair value of warrants issued with long-term debt 440 210
Interest paid 303 27
Financing costs included in accounts payable and accrued expenses 232 19
Issuance of Series A-1 preferred stock as dividends on Series A preferred stock 122  
Transfer from inventories to property and equipment in the field $ 111 196
Fair value of warrants issued with Series A preferred stock   4,162
Deferred offering costs in accounts payable and accrued expenses   $ 138
v3.19.1
Nature of Operations
3 Months Ended
Mar. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Nature of Operations
Note 1 Nature of Operations
 

 The Company 

 

Corindus Vascular Robotics, Inc. (the “Company”), a Delaware corporation, has its corporate headquarters, manufacturing and research and development facility in Waltham, Massachusetts and the Company is engaged in the design, manufacture and sales of precision vascular robotic-assisted systems (“CorPath System”) for use in interventional vascular procedures. 

 

The Company’s future capital requirements will depend upon many factors, including progress with developing, manufacturing and marketing its technologies, the time and costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other proprietary rights, its ability to establish collaborative arrangements, marketing activities and competing technological and market developments, including regulatory changes affecting medical procedure reimbursement, and overall economic conditions in the Company’s target markets. 

 

Liquidity

 

On February 26, 2019, the Company consummated a private placement offering with a large institutional investor consisting of the sale of 10,872,716 shares of the Company’s common stock, at a price of $1.3796 per share (the “Private Placement”). On March 12, 2019, the Company consummated a second closing to the Private Placement with certain existing stockholders entitled to preemptive rights in connection with the initial closing of the Private Placement, consisting of the sale of 3,512,124 shares of the Company’s common stock, at the same price and on the same terms as the initial closing of the Private Placement, through the exercise of such preemptive rights and the purchase of certain additional shares. The aggregate gross proceeds from both closings of the Private Placement was $19,845 and the aggregate net proceeds was $19,531. 

 

On March 14, 2019, the Company amended its financing arrangement with its two lenders to add an additional term loan of $2,750, all of which was outstanding principal as of March 31, 2019. The $2,750 term loan is interest only through April 1, 2020 after which the principal will be due in twenty-four consecutive monthly payments. Refer to Note 5 for additional disclosure. 

 

In August 2018, the Company entered into a Sales Agreement (the “Sales Agreement”) with Cowen and Company, LLC (“Cowen”) with respect to an at-the-market offering program (the “Offering”) under which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock having an aggregate offering price of up to $30,000 (the “Placement Shares”) through Cowen as its sales agent. The issuance and sale of the Placement Shares by the Company under the Sales Agreement will be made pursuant to its effective “shelf” registration statement on Form S-3 and an accompanying base prospectus contained therein (Registration Statement No. 333-2217344) filed with the Securities and Exchange Commission (the “Commission”) on April 17, 2017, and declared effective on May 1, 2017. The Company filed a prospectus supplement (the “Prospectus Supplement”), dated August 31, 2018, with the Commission in connection with the offer and sale of the shares pursuant to the Sales Agreement.  

 

Cowen may sell the Placement Shares by any method permitted by law deemed to be an “at the market” offering as defined in Rule 415 of the Securities Act of 1933, as amended. The Company will pay Cowen a commission equal to 3% of the gross sales proceeds of any Placement Shares sold through Cowen under the Sales Agreement. During the three months ended March 31, 2019, the Company did not sell any shares of common stock pursuant to the Sales Agreement. The Company is not obligated to make any sales of common stock under the Sales Agreement and cannot provide any assurances that it will issue any additional shares pursuant to the Sales Agreement. The offering of Placement Shares pursuant to the Sales Agreement will terminate upon the earlier of (i) the sale of all Placement Shares subject to the Sales Agreement or (ii) termination of the Sales Agreement in accordance with its terms. 

 

The Company has incurred losses since inception and has funded its cash flow deficits primarily through the issuance of capital stock and debt. As of March 31, 2019, the Company had an accumulated deficit of $225,067. As of March 31, 2019, the Company had cash and cash equivalents of $37,760 and working capital of $35,099. The Company has evaluated whether or not its cash and cash equivalents on hand and the cash proceeds from the financing activities described above would be sufficient to sustain projected operating activities through May 8, 2020 as required by Accounting Standards Codification (ASC) 205-40 Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern. Based on the Company’s current forecast of annual cash flow deficits the Company will not have sufficient resources to meet its cash requirements through May 8, 2020. 

 

Management has considered its plans to alleviate its projected cash deficit at May 8, 2020 and the probability and effectiveness of such plans eliminating its projected cash deficit at May 8, 2020. In the event the Company does not achieve the year to date plan revenue by the third quarter of 2019 or obtain additional financing, the Company will undertake any or all of the following activities to reduce its cash flow deficits: 

 

  Eliminate or defer the 2019 discretionary bonus payouts for all bonus eligible employees, including executive management;

  Reduce spending on prototypes and clinical trials;

  Eliminate planned headcount additions in research and development;

  Defer or limit some or all spending on capital equipment planned; or

  Reduce employee travel and entertainment expenses, external consulting resources and its presence at tradeshows.

        

It is probable that the above activities can be effectively implemented by management and it is probable that the plans will eliminate the cash deficit at May 8, 2020 such that the Company has the ability to continue as a going concern one year from May 8, 2019. As a result, management believes its plans can be effectively implemented, if required.  

 

As the Company continues to incur losses and cash flow deficits, its transition to profitability is dependent upon achieving a level of revenues adequate to support its cost structure, but the Company will otherwise rely on additional capital funding until such time as that is achieved. The Company may never achieve profitability, and unless and until doing so, the Company intends to fund future operations through additional non-dilutive or dilutive financings. There can be no assurances, however, that additional funding will be available on terms acceptable to the Company, if at all.

v3.19.1
Significant Accounting Policies
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Significant Accounting Policies
Note 2 Significant Accounting Policies
 

 Basis of Presentation 

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the Company’s financial statements for interim periods in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The information included in this quarterly report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and the accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Form 10-K”). The Company’s accounting policies are described in the “Notes to Consolidated Financial Statements” in the 2018 Form 10-K and are updated, as necessary, in this Form 10-Q. The year-end condensed consolidated balance sheet data presented for comparative purposes was derived from the audited financial statements but does not include all disclosures required by U.S. GAAP. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the operating results for the full year or for any other subsequent interim period. 

 

Principles of Consolidation 

 

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Corindus, Inc. and Corindus Security Corporation. All intercompany transactions and balances have been eliminated in consolidation. The functional currency of both wholly-owned subsidiaries is the U.S. dollar and, therefore, the Company has not recorded any currency translation adjustments. 

 

In the fourth quarter of 2014, the Company participated in the formation of a not-for-profit, which was established to generate awareness of the health risks linked to the use of fluoroscopy in hospital catheterization. As of March 31, 2019, the Company’s Chief Executive Officer and one of its senior executives represented two of the three Company’s voting members of the board of directors of the entity. As a result, under the voting model used for the consolidation of related parties, which are controlled by a company, the Company has consolidated the financial statements of the entity, and recognized expenses of $6 and $5 for the three months ended March 31, 2019 and 2018, respectively. The entity had assets and liabilities of $40 and $11, respectively, on the Company’s consolidated balance sheet at March 31, 2019 and assets and liabilities of $33 and $1, respectively, on the Company’s consolidated balance sheet at December 31, 2018. 

 

Segment Information  

 

The Company operates in one business segment, which is the design, manufacture and sale of precision vascular robotic-assisted systems for use in interventional vascular procedures. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. To date, the chief operating decision-maker has made such decisions and assessed performance at the Company level, as one segment. The Company’s chief operating decision-maker is the Chief Executive Officer.

 

Use of Estimates 

 

The process of preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date of the financial statements. Such management estimates include those relating to revenue recognition, inventory valuation, assumptions used in the valuation of the Company’s preferred stock and warrants, valuation of stock-based awards, and valuation allowances against deferred income tax assets. Actual results could differ from those estimates. 

 

Significant Customers 

 

The table below sets forth the Company’s customers that accounted for greater than 10% of its revenues for the three-month periods ended March 31, 2019 and 2018, respectively: 

 

     

Three months ended  

March 31,  

 
Customer     2019     2018  
A       25 %     %
B       17 %     %
C       17 %     %
D       11 %     %
E       10 %     %
F       %     47 %
G       %     34 %

  

Customers A, B, and E accounted for 22%, 13%, and 11% respectively, of the Company’s accounts receivable balance at March 31, 2019. Given the current revenue levels, in a period in which the Company sells a system, that customer is likely to represent a significant customer. 

 

Revenues from domestic customers were $2,611 and $1,431 for the three months ended March 31, 2019 and 2018, respectively. Revenues from international customers were $425 and $54 for the three months ended March 31, 2019 and 2018, respectively. 

 

Off-Balance Sheet Arrangements 

 

The Company has no significant off-balance sheet risk such as foreign exchange contracts, option contracts, or other hedging arrangements. 

 

Fair Value Measurements 

 

In accordance with ASC 820, Fair Value Measurements and Disclosures, the Company generally defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company uses a three-tier fair value hierarchy, which classifies the inputs used in measuring fair values. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: 

 

  Level 1 - inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
 

  Level 2 - inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability.
 

  Level 3 - inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date.
 

 

The Company had one item, cash equivalents, measured at fair value on a recurring basis totaling $37,001 and $23,849 at March 31, 2019 and December 31, 2018, respectively, which were valued based on Level 1 inputs.

  

The Company’s financial instruments of deposits and other assets are carried at cost and approximate their fair values given the liquid nature of such items. The fair value of the Company’s long-term debt and finance lease obligation approximates their carrying values due to their recent negotiation and variable market rate for the long-term debt. 

 

Cash Equivalents  

 

The Company considers highly liquid short-term investments, which consists of money market funds, to be cash equivalents. From time to time, the Company’s cash balances may exceed federal deposit insurance limits. 

 

Inventories  

 

Inventories are valued at the lower of cost or net realizable value using the first-in, first-out (FIFO) method. The Company routinely monitors the recoverability of its inventory and reduces the carrying value based on current selling prices and evaluates potential excess and obsolete inventories based on historical and forecasted usage, as required. Scrap and excess manufacturing costs are charged to cost of revenue as incurred and not capitalized as part of inventories. The Company only capitalizes pre-launch inventories when purchased for commercial use and it deems regulatory approval to be probable. 

 

Leases

 

The Company determines if an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company has elected not to separate non-lease components from all classes of its existing leases. Non-lease components have been accounted for as part of the single lease component to which they are related. The Company utilizes its incremental borrowing rate as the basis to calculate the present value of future lease payments at lease commencement. The Company’s incremental borrowing rate represents the rate the Company would have to pay to borrow funds on a collateralized basis over a similar term and in a similar economic environment. 

 

Revenue Recognition 

 

The Company generates revenues primarily from the sale of the CorPath System, CorPath Cassettes, accessories and service contracts. Revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that are within the scope of the revenue recognition accounting standard, the Company performs the following five steps: (i) identifies the contract with a customer; (ii) identifies the performance obligations in the contract; (iii) determines the transaction price; (iv) allocates the transaction price to the performance obligations in the contract; and (v) recognizes revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that it will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, the Company assesses the goods or services promised within each contract, and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. 

 

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or services to a customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the expected value method to which it expects to be entitled. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information (historical, current and forecasted) that is reasonably available. Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue.

 

When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. The Company does not assess whether a significant financing component exists if the period between when it performs its obligations under the contract and when the customer pays is one year or less. For contracts where the period between performance and payment is greater than one year, the Company assesses whether a significant financing component exists, by applying a discount rate to the expected cash collections. If this difference is significant, the Company will conclude that a significant financing component exists. The Company identified a small number of contracts where the period between performance and payment was greater than one year; however, none of the Company’s contracts contained a significant financing component as of March 31, 2019. 

 

Contracts that are modified to account for changes in contract specifications and requirements are assessed to determine if the modification either creates new or changes the existing enforceable rights and obligations. Generally, contract modifications are for products or services that are not distinct from the existing contract due to the inability to use, consume or sell the products or services on their own to generate economic benefits and are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price and measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis. 

 

Revenue is generally recognized when the customer obtains control of the Company’s product, which occurs at a point in time, and may be upon shipment or upon delivery based on the contractual shipping terms of a contract, or upon installation when the combined performance obligation is not distinct within the context of the contract. Service revenue is generally recognized over time as the services are delivered to the customer based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. Services are expected to be delivered to the customer throughout the term of the contract and the Company believes recognizing revenue ratably over the term of the contract best depicts the transfer of value to the customer. 

 

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. The Company enters into certain contracts that have multiple performance obligations, one or more of which may be delivered subsequent to the delivery of other performance obligations. These performance obligations may include installation, training, maintenance and support services, cassettes, and accessories. The Company allocates the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price considering available information such as market conditions and internally approved pricing guidelines related to the performance obligations. Revenue is then allocated to the performance obligations using the relative selling prices of each of the performance obligations in the contract. 

 

Deferred Revenue 

 

The Company records deferred revenues when cash payments are received or due in advance of performance. Amounts received prior to satisfying the related performance obligations are recorded as deferred revenue in the accompanying balance sheets. 

 

The Company’s contract liabilities consist of advance payments and billings in excess of revenue recognized (deferred revenues and customer deposits). The Company’s contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. The Company classifies deferred revenue as current or noncurrent based on the timing of when it expects to recognize revenue. In order to determine revenue recognized in the period from contract liabilities, the Company first allocates revenue to the individual contract liability balance outstanding at the beginning of the period until the revenue exceeds that balance. If additional advances are received on those contracts in subsequent periods, the Company assumes all revenue recognized in the reporting period first applies to the beginning contract liability as opposed to a portion applying to the new advances for the period. 

 

Contract Assets 

 

Contract assets include unbilled amounts primarily for maintenance and support service and future cassette purchases where revenue recognized exceeds the amount billed to the customer, and the Company’s right to bill is not until the maintenance and support service period commence or the cassettes are delivered. Amounts may not exceed their net realizable value. Short-term contract assets are included in prepaid expenses and other current assets on the Company’s consolidated balance sheets. Long-term contract assets are included in deposits and other assets on the Company’s consolidated balance sheets.

 

Deferred Contract Costs 

 

The Company’s incremental direct costs of obtaining a contract, which consist of sales commissions, are deferred and amortized over the period of contract performance. Capitalized commissions are amortized based on the transfer of the products or services to which the assets relate. Applying the practical expedient, the Company recognizes sales commission expense when incurred if the amortization period of the assets that it otherwise would have recognized is one year or less. These costs are included in selling, general, and administrative expenses. Short-term deferred contract costs are included in prepaid expenses and other current assets on the Company’s consolidated balance sheets. Long-term deferred contract costs are included in deposits and other assets on the Company’s consolidated balance sheets. The Company accounts for shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the associated products. 

 

Warrants to Purchase Common Stock 

 

The Company classifies warrants within stockholders’ equity (deficit) on the condensed consolidated balance sheets if the warrants are considered to be indexed to the Company’s own capital stock, and otherwise would be recorded in stockholders’ equity (deficit). Warrants to purchase common stock issued in connection with the Company’s amended financing arrangement met these criteria and therefore were equity classified. 

 

The table below is a summary of the Company’s warrant activity during the three months ended March 31, 2019: 

 

      Number of
Warrants 
    Weighted Average Exercise Price  
Outstanding at December 31, 2018       9,246,315     $ 1.40  
Granted       300,000     $ 1.38  
Exercised           $  
Expired           $  
Outstanding at March 31, 2019       9,546,315     $ 1.40  

  

Stock-Based Compensation 

 

The Company adopted Accounting Standards Update (“ASU”) 2018-07, Stock-based Compensation: Improvements to Nonemployee Share-based Payment Accounting, effective July 1, 2018. Subsequent to the adoption of ASU 2018-07, the Company recognizes compensation costs resulting from the issuance of “service-based” awards to employees, non-employees and directors as an expense in the consolidated statements of operations over the requisite service period based on a measurement of fair value for each stock award. The awards issued to date have primarily been stock options with service-based vesting periods over two or four years, restricted stock units with service-based vesting periods of one year, and shares of common stock. Prior to the adoption of ASU 2018-07, the Company recognized compensation costs resulting from the issuance of stock-based awards to non-employees as an expense in the consolidated statements of operations over the service period based on a measurement of fair value for each stock award at each performance date and period end. 

 

Upon vesting of the restricted stock units, the Company issues shares of its common stock which have a required holding period of 36 months from the date of grant of the restricted stock unit. As a result, the Company values the restricted stock units based on the closing price of the Company’s common stock on the date of grant less a discount for lack of marketability during the holding period.   

 

During 2018, the Company issued certain stock-based awards that contain both market and service-based vesting conditions. Each of these stock-based awards is contingent on the recipient still providing services to the Company or its affiliates on the date of such achievement. Portions of the awards vest upon the Company’s stock price achieving certain targets for a period of at least twenty consecutive trading days at any time before May 31, 2021.  The Company estimated the fair value of these market condition stock-based awards using a Monte Carlo simulation model, which involves a series of random scenarios that may take different future price paths over the award’s contractual life. The grant date fair value was determined by taking the average of the grant date fair values under each of many Monte Carlo simulations. The determination of the fair value is affected by the Company’s stock price, as well as assumptions regarding a number of complex and subjective variables including its expected stock price volatility over the expected term of the awards, and risk-free interest rate. The total number of shares of common stock that are subject to issuance under these market condition stock-based awards is 5,183,322 shares. The Company records expense on these stock-based awards ratably over the expected term of the award.

 

Research and Development 

 

Costs for research and development are expensed as incurred. Research and development expense consists primarily of salaries, salary-related expenses and costs of contractors and materials. Cash receipts from collaboration agreements accounted for under ASC 808, Collaborative Arrangements, are netted against the related research and development expenses in the period received and totaled $0 and $145 for the three months ended March 31, 2019 and 2018, respectively. 

 

Income Taxes 

 

The Company accounts for income taxes using the liability method, whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance to reduce deferred tax assets to amounts that are realizable. Consistent with all prior periods, the Company did not record any income tax benefit for its operating losses for the three months ended March 31, 2019 and 2018 due to the uncertainty regarding future taxable income. 

 

Net Loss per Share 

 

Basic net loss per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed using the sum of the weighted-average number of common shares outstanding during the period and, if dilutive, the weighted-average number of potential common shares, including the assumed exercise of share options. 

 

The Company applies the two-class method to calculate its basic and diluted net loss per share attributable to common stockholders, as its Series A and Series A-1 preferred shares are participating securities. 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. However, for the periods presented, the two-class method does not impact the net loss per common share as the Company was in a net loss position for each of the periods presented and holders of Series A and Series A-1 preferred shares do not participate in losses. 

 

The Company’s Series A and Series A-1 preferred shares contractually entitle the holders of such shares to participate in dividends but do not contractually require the holders of such shares to participate in losses of the Company. Accordingly, for periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. 

 

Recently Adopted Accounting Pronouncements 

 

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-02, Leases (ASC 842), which was amended by ASU 2018-11, Leases (ASC 842): Targeted Improvements. The new guidance requires lessee recognition on the balance sheet of a right-of-use (ROU) asset and a lease liability, initially measured at the present value of the lease payments. It further requires recognition in the income statement of a single lease cost, calculated so that the cost of the lease is allocated over the lease term generally on a straight-line basis. Finally, it requires classification of all cash payments within operating activities in the statement of cash flows. The standard is effective for public companies for fiscal years beginning after December 15, 2018 and early adoption is permitted. The Company adopted this standard on January 1, 2019 using the prospective adoption approach as described under ASC 842. Results for reporting periods beginning January 1, 2019 are presented under ASC 842 while prior periods were not adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 840, Leases. 

 

As allowed by ASC 842, the Company has elected the hindsight practical expedient to determine the lease term for existing leases. This practical expedient enables an entity to use hindsight in determining the lease term when considering options to extend and terminate leases as well as purchase the underlying assets. The Company also elected the package of practical expedients that provide no need to reassess whether any expired or existing contracts contain a lease, the related lease classification for such expired or expiring leases, and the initial direct costs for existing leases.

 

Adoption of this standard resulted in the recording of right-of-use asset and lease liabilities of approximately $1,177 and $1,280, respectively, as of January 1, 2019. The difference between the right-of-use asset and the operating lease liability represents the amount of deferred rent previously recorded in accrued expenses and other liabilities for $41 and $62, respectively, at December 31, 2018 which was removed from the condensed consolidated financial statements upon adoption of this standard. The adoption of the standard did not materially impact the Company’s consolidated results of operations and had no impact on cash flows.

v3.19.1
Inventories
3 Months Ended
Mar. 31, 2019
Inventory Disclosure [Abstract]  
Inventories
Note 3 Inventories
 

Inventories are valued at the lower of cost or net realizable value using the FIFO method and consist of the following:

 

    March 31, 2019     December 31, 2018  
Raw material   $ 834     $ 1,036  
Work in progress     615       348  
Finished goods     417       1,124  
Total   $ 1,866     $ 2,508  

  

The Company had no inventory write downs during the three months ended March 31, 2019, and for the three months ended March 31, 2018, the Company wrote down $192 to properly state amounts at the lower of cost or net realizable value.

v3.19.1
Leases
3 Months Ended
Mar. 31, 2019
Leases [Abstract]  
Leases
Note 4 Leases

  

The Company has an operating lease for approximately 26,402 square feet at its corporate headquarters and manufacturing plant in Waltham, Massachusetts, which expires in January 2021. The lease terms include escalating rent payments over the life of the lease and rent expense is recognized over the life of the lease on a straight-line basis. The lease contains certain variable lease payments. Variable payments based on the change in an index or rate, or payments based on a change in the Company’s portion of the operating expenses, including real estate taxes, are recorded as a period expense when incurred. 

 

In connection with the lease, the Company is required to maintain a security deposit with its landlord. The security deposit is approximately $134 at both March 31, 2019 and December 31, 2018 and is included in deposits and other assets in the accompanying condensed consolidated balance sheets. The lease contains an option to extend the term for an additional five years. The exercise of the lease renewal options is at the sole discretion of the Company. The amounts disclosed in the condensed consolidated balance sheet pertaining to right-of-use assets and lease liabilities are measured based on management’s current expectations regarding the renewal option. Amounts included on the Company’s condensed consolidated balance sheet as operating lease right-of-use assets and operating lease liabilities relate to this lease. 

 

The Company also has a finance lease covering office furniture and carpeting, which expires in November 2020. Finance lease assets are included in property and equipment while the related finance lease liabilities are separately presented on the condensed consolidated balance sheets. 

 

The components of lease cost for operating and finance leases for the three months ended March 31, 2019 are as follows: 

 

Operating lease:      
Lease cost   $ 156  
Variable lease cost     1  
Operating lease expense     157  
         
Finance lease:        
Amortization of right-of-use assets     13  
Interest on lease liability     3  
      16  
Total lease cost   $ 173  

   

Other lease data is as follows: 

 

    March 31, 2019  
Weighted-average remaining lease term (years)        
Operating lease     1.8  
Finance lease     1.7  
Weighted-average discount rate        
Operating lease     10.6 %
Finance lease     13.6 %

  

Supplemental cash flow information related to the Company’s leases are as follows: 

 

    Three months ended  
March 31, 2019
 
Operating lease payments classified as cash used in operating activities, excluding variable lease costs   $ 165  
Financing lease payments classified as cash used in financing activities     13  
Financing lease payments classifieds as cash used in operating activities     3  

  

Future minimum lease payments under non-cancellable leases as of March 31, 2019 are as follows: 

 

      Operating Leases     Finance Leases     Total   
2019     $ 498     $ 50     $ 548  
2020       680       49       729  
2021       57             57  
Total lease payments     $ 1,235     $ 99     $ 1,334  
Less: Interest       (113 )     (10 )     (123 )
Present value of lease liabilities     $ 1,122     $ 89     $ 1,211  
v3.19.1
Long-Term Debt
3 Months Ended
Mar. 31, 2019
Debt Disclosure [Abstract]  
Long-Term Debt
Note 5 Long-Term Debt

  

On March 16, 2018 (the “Initial Effective Date”), the Company completed a financing arrangement (the “Loan Agreement”) with Silicon Valley Bank and Solar Capital Ltd. (the “Lenders”) which provided for borrowings of up to $26,000 in the form of up to $23,000 in term loans and up to a $3,000 revolving line-of-credit through March 2022. The Company received $12,000 in proceeds under the term loan facility during 2018 and no proceeds under the revolving loan facility during 2018 or 2019. As of December 31, 2018, the Company had not achieved the gross profit or equity financing milestones required to draw on the additional $11,000 that had been available under the term loan. Therefore, these term loans are no longer available. The revolving line-of-credit also has various covenants which restrict its availability and for which the Company currently does not meet such restrictions. 

 

On March 14, 2019, the Company entered into the first amendment (the “Amendment”) to the Loan Agreement by and among the Lenders, dated March 16, 2018 (the “Amendment Effective Date”). The Amendment provides the Company with an additional term loan of $2,750, all of which was outstanding principal as of March 31, 2019. 

 

In connection with the Amendment, the Company issued the lenders warrants (the “Warrants”) to purchase an aggregate of 300,000 shares of the Company’s common stock, at an exercise price of $1.3796, subject to adjustment for stock splits, stock dividends, combinations or similar events. The Warrants may be exercised for cash or on a cashless basis. The Company estimated the fair value of the warrants at issuance using the Black-Scholes Model based on the estimated market value of the underlying common stock at the valuation measurement date, the remaining contractual term of the warrants, risk-free interest rates, expected dividends and expected volatility of the price of the underlying common stock. The fair value of these warrants was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. 

 

The Company used the following assumptions for the valuation of these warrants at the issuance date. 

 

Risk-free interest rate     2.6 %
Dividend yield     0.0 %
Expected volatility     79.4 %
Expected term (years)     10.0  

  

Term Loans

 

As of March 31, 2019, the Company had $14,750 in principal outstanding under the term loan facilities and $0 in principal outstanding under the revolving loan facility. The initial term loan was made on March 16, 2018 in the amount of $12,000 (“Initial Term Loan”) and the Amendment provides the Company with an additional term loan of $2,750 (the “2019 Term Loan”). The Initial Term Loan is repayable in equal monthly installments of principal and interest over 30 months beginning on October 1, 2019, and prior to October 1, 2019, the Company is required to make interest only payments. The 2019 Term Loan is repayable in equal monthly installments of principal and interest over 24 months beginning on April 1, 2020, and prior to April 1, 2020, the Company is required to make interest only payments. All unpaid principal and accrued and unpaid interest with respect to both term loans are due and payable in full during March of 2022. 

 

Both the Initial Term Loan and the 2019 Term Loan (collectively, the “Term Loans”) bear interest at a rate equal to the greater of (a) the ICE Benchmark LIBOR Rate plus 7.25% or (b) 8.83%. The interest rate in effect on the Term Loans was 9.74% at March 31, 2019. 

 

All of the facilities are secured by substantially all of the Company’s personal property other than the Company’s intellectual property. Both loan facilities include customary affirmative and negative covenants. At the Company’s option, the Company may prepay the outstanding principal balance of Term Loans in whole but not in part, subject to a prepayment fee of 2.5% of any amount prepaid if the prepayment occurs through and including the first anniversary of the Term Loan’s respective issuance date, 1.5% of the amount prepaid if the prepayment occurs after the first anniversary of the Term Loan’s respective issuance date being issued through and including the second anniversary of the term loan being issued, or 1.0% of the amount prepaid if the prepayment occurs after the second anniversary of the Term Loans effective date through and including the third anniversary of the Term Loan’s respective issuance date. 

 

For the Initial Term Loan and the 2019 Term Loan, the Company is also required to make final payments of $720 and $165, respectively, to the lenders equal to 6.0% of the original principal amount of Term Loans funded. The Company recognizes the final payment using the effective interest method over the term of each term loan. The final payments are included within long term debt on the consolidated balance sheet. As of March 31, 2019, $236 of the discount on the final payment has been accreted. 

 

Revolving Loan Facility. 

 

The Company also has a revolving line of credit with the lenders, pursuant to which the lenders agreed to make a revolving line of credit available to the Company in an aggregate amount of up to the lesser of (i) $3,000 or (ii) a borrowing base equal to 80% of the Company’s eligible accounts receivable. The revolving line-of-credit also has various clauses which restrict its availability and, as such, the Company is not currently eligible to draw down on the revolving line-of-credit. Proceeds from the revolving line of credit may be used for working capital and general business purposes. 

 

The principal amount outstanding under the revolving line bears interest at a floating rate per annum equal to the greater of (i) 5.0% and (ii) the sum of (a) the “prime rate,” as reported in The Wall Street Journal, plus (b) 0.5%, which interest is payable monthly. Principal amounts borrowed under the revolving line of credit may be repaid and, prior to the maturity date, re-borrowed, subject to the terms and conditions set forth in the Revolving Loan Facility. The revolving line terminates, and all unpaid principal and accrued and unpaid interest with respect thereto is due and payable in full, on March 1, 2022. The Company is also required to pay an annual facility fee on the revolving line of $15 on each anniversary of the Initial Effective Date, a termination fee of $22 if the revolving line is terminated prior to the maturity date for any reason, and an unused revolving line facility fee in an amount equal to 0.5% per annum of the average unused portion of the revolving line payable monthly.

 

All of the loan facilities also include other events of default, the occurrence and continuation of which could cause interest to be charged at the rate that is otherwise applicable plus 5.0% and would provide the collateral agent under the term loan facility or the lender under the revolving loan facility, as applicable, with the right to exercise remedies against the Company and the collateral securing the loan facilities. These events of default include, among other things, any failure by the Company to pay principal or interest due under the loan facilities, a breach of certain covenants under the loan facilities, the Company’s insolvency, a material adverse change, the occurrence of any default under certain other indebtedness in an amount greater than $250, one or more judgments against the Company in an amount greater than $250 individually or in the aggregate, and any default under the other loan facility. The Company was not in default on any conditions of the loan facilities at March 31, 2019. 

 

In connection with Term A Loan, the Company issued the lenders warrants to purchase 141,287 shares of the Company’s common stock at an exercise price of $1.27 per share. The fair value of the warrants issued was determined to be $210 at the date of issuance and the balance was remeasured at December 31, 2018, and were reclassified to equity in the accompanying consolidated balance sheets. 

 

Future principal payments under the term loan facilities as of March 31, 2019 are as follows: 

 

Year Ending
December 31,
    Amount  
2019     $ 1,200  
2020       5,831  
2021       6,175  
2022       1,544  
      $ 14,750  
v3.19.1
Stockholders' Equity (Deficit)
3 Months Ended
Mar. 31, 2019
Equity [Abstract]  
Stockholders' Equity (Deficit)
Note 6 Stockholders’ Equity (Deficit)

 

Common Stock

 

On February 26, 2019, the Company consummated a private placement offering with a large institutional investor consisting of the sale of 10,872,716 shares of the Company’s common stock, at a price of $1.3796 per share (the “Private Placement”). On March 12, 2019, the Company consummated a second closing to the Private Placement with certain existing stockholders entitled to preemptive rights in connection with the initial closing of the Private Placement, consisting of the sale of 3,512,124 shares of the Company’s common stock, at the same price and on the same terms as the initial closing of the Private Placement, through the exercise of such preemptive rights and the purchase of certain additional shares. The aggregate gross proceeds from both closings of the Private Placement was $19,845 and the aggregate net proceeds was $19,531. The investors included HEC Master Fund LP, an affiliate of Douglas L. Braunstein and BioStar Ventures III-XF, L.P., an affiliate of Louis A. Cannon M.D., both of whom are directors of the Company. The shares sold in the private placement are subject to a contractual six-month lock-up.

 

In connection with the Private Placement, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with the investors participating in the financing, requiring the Company to register the resale of the shares sold in the private placement. Under the Registration Rights Agreement, the Company was required to file a registration statement with the Securities and Exchange Commission (“SEC”) within 90 days of the closing of the Private Placement. These shares were registered in a registration statement filed on March 27, 2019.

 

On August 31, 2018, the Company entered into a Sales Agreement (the “Sales Agreement”) with Cowen and Company, LLC (“Cowen”) with respect to an at-the-market offering program (the “Offering”) under which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock having an aggregate offering price of up to $30,000 (the “Placement Shares”) through Cowen as its sales agent.

 

Cowen may sell the Placement Shares by any method permitted by law deemed to be an “at the market” offering as defined in Rule 415 of the Securities Act of 1933, as amended. The Company will pay Cowen a commission equal to 3% of the gross sales proceeds of any Placement Shares sold through Cowen under the Sales Agreement. There has been no activity under the at-the-market offering program during the three months ended March 31, 2019. During 2018, the Company sold 2,569,159 shares of common stock at a weighted average per share price of $1.19 at the market pursuant to the Sales Agreement for $2,688 in net proceeds. The Company is not obligated to make any sales of common stock under the Sales Agreement and cannot provide any assurances that it will issue any additional shares pursuant to the Sales Agreement. The offering of Placement Shares pursuant to the Sales Agreement will terminate upon the earlier of (i) the sale of all Placement Shares subject to the Sales Agreement or (ii) termination of the Sales Agreement in accordance with its terms.

 

Preferred Stock

 

The Company is authorized to issue 10,000,000 shares, $0.0001 par value per share, preferred stock. Of these shares, 1,000,000 shares of preferred stock have been designated as Series A Preferred Stock and 1,000,000 shares have been designated as Series A-1 Preferred Stock (Series A Preferred Stock and the Series A-1 Preferred Stock are collectively referred to as “Preferred Stock”).

 

On March 16, 2018, the Company issued 1,000,000 shares of Series A Preferred Stock along with warrants to purchase up to 8,750,000 shares of the Company’s common stock at an exercise price per share of $1.40 for proceeds of $24,671, net of issuance costs of $329. The Preferred Stock is classified outside of stockholders’ equity (deficit) because the shares contain certain redemption features which require redemption upon a change in control of the Company. The warrants were determined to be equity classified and are recorded in additional paid-in capital. The Company recorded the Series A Preferred Stock and the warrants at their relative fair values which were $20,838 and $4,162, respectively. The conversion option was determined to have a beneficial conversion feature which was valued at $5,236 and was recorded to additional paid-in capital and as a discount to the Series A Preferred Stock. This resulting discount was immediately amortized as the Series A Preferred Stock has no set redemption date but is currently convertible.

 

The Company estimated the fair value of the warrants at issuance using the Black-Scholes Model based on the estimated market value of the underlying common stock at the valuation measurement date, the remaining contractual term of the warrants, risk-free interest rates, expected dividends and expected volatility of the price of the underlying common stock. The fair value of these warrants was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. 

 

The Company used the following assumptions for the valuation of these warrants at the issuance date.

 

Risk-free interest rate     2.9 %
Dividend yield     0.0 %
Expected volatility     61.6 %
Expected term (years)     10.0  

 

The Company estimated the fair value of the Series A Preferred Stock using a Monte Carlo simulation to determine the applicable dividend rate for each respective period based on the financial performance milestone and market condition milestone, as well as to determine the ultimate settlement method of the Series A Preferred Stock. The fair value of the Series A Preferred Stock was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy.

 

The Company used the following assumptions utilized in the valuation of the Series A Preferred Stock at the issuance date:

 

Expected volatility of future equity     45.9 %
Estimated timing of Series A Preferred Stock liquidity event (years)     3.8 %

 

Dividends. Shares of the Series A Preferred Stock will be entitled to receive non-compounding dividends in additional shares of preferred stock, at the rate of 12% per annum, subject to reduction in the event certain milestones are achieved, whether or not declared by the Board of Directors of the Company. Dividends on the Series A Preferred Stock are payable in shares of the Company’s Series A-1 Convertible Preferred Stock, par value $0.0001 per share, equal to the quotient of (x) the dividend amount divided by (y) the applicable conversion price. The dividend rate may be reduced to (i) 8.00% in the event the Company achieves at least $50.0 million of revenue, other than any one-time license or similar fees, for any period of twelve consecutive months, or (ii) 6.00% if the Common Stock trading price exceeds $3.00 per share (as equitably adjusted for stock splits, stock dividends, combinations, recapitalizations and the like after the date hereof) for a period of 90 consecutive trading days (a “Trading Price Dividend Rate Adjustment”); provided that in the event the dividend rate is reduced to 8.00% pursuant to clause (i) before the occurrence of a Trading Price Dividend Rate Adjustment, the dividend rate shall be permanently fixed at 8.00% and clause (ii) shall cease to be applicable notwithstanding any future achievement of a Common Stock trading price in excess of $3.00 per share (as equitably adjusted for stock splits, stock dividends, combinations, recapitalizations and the like after the date hereof) for a period of 90 consecutive trading days.

 

Voting Rights. For so long as HEC Master Fund LP beneficially owns at least a majority of the outstanding Preferred Stock, the preferred stockholders will be entitled to vote with the shares of Common Stock and not as a separate class, at any annual or special meeting of shareholders of the Company upon the following basis: each holder shall be entitled to a number of votes in respect of the shares of Preferred Stock owned of record by it equal to the number of shares of Common Stock determined by dividing (x) the number of shares of Preferred Stock held by such holder by (y) $1.29, the closing price per share of the Common Stock on the NYSE American on March 15, 2018, as of the record date for the determination of stockholders entitled to vote on such matters or, if no such record date is established, as of the date such vote is taken or any written consent of stockholders is solicited. For so long as at least 10% of the shares of Preferred Stock purchased under the purchase agreement remains outstanding the Company may not directly or indirectly (i) amend, alter, repeal or otherwise modify any provision of the Certificate of Incorporation, the Certificate of Designation or the Bylaws in a manner that would alter or change the terms or the powers, preferences, rights or privileges of the Preferred Stock as to affect them adversely, (ii) create (by reclassification or otherwise) or authorize any senior securities or any parity securities, or (iii) issue, or authorize for issuance, any new shares of Preferred Stock without the prior affirmative vote or written consent of the holders of at least a majority of the then-issued and outstanding shares of Preferred Stock. For so long as HEC Master Fund LP holds at least a majority of the outstanding shares of Preferred Stock, the Company may not directly or indirectly (a) incur or guarantee, assume or suffer to exist any indebtedness (other than permitted indebtedness), (b) sell, lease, license, assign, transfer, spin-off, split-off, close, convey, encumber, pledge or otherwise dispose of any intellectual property owned whether in a single transaction or a series of related transactions to any person(s), other than pursuant to permitted indebtedness; (c) engage in any material line of business substantially different from those lines of business conducted by or publicly contemplated to be conducted by the Company on the initial issuance date unless such engagement in the line of business has received the prior approval of the Board; (d) modify its corporate structure, unless such modification has received the prior approval of the Board; or (e) enter into any agreement with respect to the foregoing without the affirmative vote or written consent of the holders representing at least a majority of the then-issued and outstanding shares of Preferred Stock. In the election of directors to the Company, for so long as the holders of Preferred Stock hold at least 25% of the shares of Preferred Stock purchased under the purchase agreement, the holders of the Preferred Stock, voting as a separate class, shall be entitled to elect by majority vote one individual to the Company’s Board.

 

Rank. Each share of preferred stock shall rank equally in all respects. With respect to distributions upon Liquidation (as defined below), the preferred stock rank senior to the Common Stock and to each other class of the Company’s capital stock existing now or hereafter created that are not specifically designated as ranking senior to the preferred stock.

 

Liquidation Preference. In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company or such subsidiaries the assets of which constitute all or substantially all of the assets of the business of the Company and its subsidiaries, taken as a whole (“Liquidation”), each holder of preferred stock shall be entitled to receive liquidating distributions out of the assets of the Company legally available for distribution to its stockholders, before any payment or distribution of any assets of the Company shall be made or set apart for holders of any junior securities, including the Common Stock, for such holder’s shares of preferred stock in an amount equal to the greater of (i) the sum of (A) the aggregate Liquidation Preference ($25.00 per share of Series A Preferred Stock) and (B) the aggregate Accrued Dividends of such shares as of the date of the Liquidation (as such terms are defined in the Certificate of Designation) and (ii) the amount such holder would have received had such shares of preferred stock, immediately prior to such Liquidation, been converted into shares of Common Stock.

 

Conversion. Each Holder of shares of preferred stock shall have the right (the “Conversion Right”), at any time and from time to time, at such holder’s option, to convert all or any portion of such holder’s shares of preferred stock into fully paid and non-assessable shares of Common Stock. Upon a holder’s election to exercise its Conversion Right, each share of preferred stock for which the Conversion Right is exercised shall be converted into such number of shares of Common Stock equal to the quotient of (A) the sum of (1) the Liquidation Preference and (2) the Accrued Dividends on such share as of the conversion date, divided by (B) the Conversion Price of such share in effect at the time of conversion.

 

Forced Conversion. If (a) at any time after the original issuance date, the Common Stock trading price exceeds $4.00 per share (as equitably adjusted for stock splits, stock dividends, combinations, recapitalizations and the like after the date hereof) for a 30 consecutive trading day period and (b) the Company, at its option, delivers a written notice to the holders of the preferred stock within 10 business days of the conclusion of such period, then each share of preferred stock outstanding shall be converted into such number of fully paid and nonassessable shares of Common Stock equal to the quotient of (A) the sum of (1) the Liquidation Preference and (2) the Accrued Dividends on such share, divided by (B) the conversion price of such share in effect as of the business day immediately prior to the date of the Company’s notice to the holder.

 

As of March 31, 2019, the redemption value and Liquidation Preference of the Preferred Stock was $27,510 and it was convertible into 22,008,000 shares of the Company’s Common Stock.

 

The Company issued the following shares of Series A-1 Preferred Stock to the holders of Series A Preferred Stock to fulfill the dividend payment obligation:

 

Series A dividend payment dates   Number of shares  
4/16/2018   10,400  
7/16/2018   30,000  
10/15/2018   30,000  
1/15/2019   30,000  
4/15/2019   30,000  

 

v3.19.1
Revenue
3 Months Ended
Mar. 31, 2019
Revenue from Contract with Customer [Abstract]  
Revenue
Note 7 Revenue

 

Disaggregation of Revenue

 

The following table summarizes revenue by revenue source for the three-month periods ended March 31, 2019 and 2018.

 

   

Three Months Ended  

March 31 

 
Major Products/ Services Lines   2019     2018  
Revenue:            
Systems   $ 2,494     $ 970  
Capital upgrades           176  
Cassettes and accessories     291       235  
Service revenue     251       104  
Total   $ 3,036     $ 1,485  
                 
Timing of Revenue Recognition     2019       2018  
Product transferred at a point in time   $ 2,785     $ 1,381  
Service transferred over time     189       104  
Service transferred at a point in time     62        
Total   $ 3,036     $ 1,485  

 

Transaction Price Allocated to Future Performance Obligations

 

The following table includes estimated revenues expected to be recognized in the future related to performance obligations that are unsatisfied (or partially satisfied) as of March 31, 2019:

 

   

Less than 

1 year 

   

Greater than 

1 year 

    Total  
Product revenue   $ 336     $ 547     $ 883  
Service and other revenue     733       679       1,412  
Total   $ 1,069     $ 1,226     $ 2,295  

 

Contract Balances from Contracts with Customers

 

Contract assets consist of unbilled amounts at the reporting date and are transferred to accounts receivable when the rights become unconditional. Contract liabilities consist of deferred revenue. The following table presents changes in contract assets and contract liabilities during the three months ended March 31, 2019:

 

   

Balance at December 31, 2018 

   

Additions 

   

Subtractions 

   

Balance at  

March 31, 2019 

 
                         
Contract assets   $ 205     $ 21     $ (37 )   $ 189  
Contract acquisitions and fulfillment costs:                                
Deferred contract costs   $ 64     $ 2     $ (11 )   $ 55  
Contract liabilities:                                
Deferred revenue   $ 947     $ 351     $ (202 )   $ 1,096  

 

During the three months ended March 31, 2019, the Company recognized the following revenues as a result of changes in the contract asset and the contract liability balances in the respective periods:

 

   

Three Months Ended 

March 31, 2019 

 
Revenue recognized in the period from:        
Amounts included in the contract liability at the beginning of the period   $ 202  
Performance obligations satisfied in previous periods   $  

 

v3.19.1
Stock-based Compensation
3 Months Ended
Mar. 31, 2019
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-based Compensation
Note 8 Stock-based Compensation

  

Stock-based compensation expense was allocated based on the employees’ or non-employees’ function as follows: 

 

   

Three months ended  

March 31,  

 
    2019     2018  
Cost of revenue   $ 49     $ 28  
Research and development     113       61  
Selling, general and administrative     816       585  
Total   $ 978     $ 674  

  

The Company granted options to purchase 2,397,000 shares of common stock at an exercise price of $1.20 per share during the three months ended March 31, 2019. The weighted-average fair value of the stock options granted was $1.20 per share for the three months ended March 31, 2019. The Company granted options to purchase 1,921,000 shares of common stock at an exercise price of $1.05 per share during the three months ended March 31, 2018. The weighed-average fair value of the stock options granted was 1.05 per share for the three months ended March 31, 2018.

  

The following assumptions were used to estimate the fair value of stock options granted using the Black-Scholes option-pricing model: 

 

   

Three months ended  

March 31,  

 
    2019     2018  
Risk-free interest rate     2.56 %     2.69-2.84 %
Expected term in years     6.25       6.25-10.00  
Expected volatility     81 %     67-71 %
Expected dividend yield     %     %

 

The following table summarizes the activities for the Company’s unvested restricted stock units for the three months ended March 31, 2019: 

 

        Unvested Restricted Stock Units  
        Number of
Shares 
      Weighted-average Grant Date Fair Value  
Unvested as of December 31, 2018       163,736     $ 0.63  
Granted              
Vested       (83,735 )     0.65  
Forfeited/Cancelled              
Unvested as of March 31, 2019       80,001     $ 0.62  
v3.19.1
Net Loss per Share
3 Months Ended
Mar. 31, 2019
Earnings Per Share [Abstract]  
Net Loss per Share
Note 9 Net Loss per Share

 

 

The following common stock equivalents were excluded from the calculation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect:

 

 

 

   

Three months ended 

 

March 31, 

 

 
    2019     2018  
Options to purchase common stock     26,859,984       19,534,224  
Warrants to purchase common stock     9,546,315       9,246,315  
Restricted stock units     80,001       24,179  
Series A preferred stock     20,000,000       20,000,000  
Series A-1 preferred stock     2,008,000        
v3.19.1
Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Basis of Presentation

Basis of Presentation 

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the Company’s financial statements for interim periods in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The information included in this quarterly report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and the accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Form 10-K”). The Company’s accounting policies are described in the “Notes to Consolidated Financial Statements” in the 2018 Form 10-K and are updated, as necessary, in this Form 10-Q. The year-end condensed consolidated balance sheet data presented for comparative purposes was derived from the audited financial statements but does not include all disclosures required by U.S. GAAP. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.

Principles of Consolidation

Principles of Consolidation 

 

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Corindus, Inc. and Corindus Security Corporation. All intercompany transactions and balances have been eliminated in consolidation. The functional currency of both wholly-owned subsidiaries is the U.S. dollar and, therefore, the Company has not recorded any currency translation adjustments. 

 

In the fourth quarter of 2014, the Company participated in the formation of a not-for-profit, which was established to generate awareness of the health risks linked to the use of fluoroscopy in hospital catheterization. As of March 31, 2019, the Company’s Chief Executive Officer and one of its senior executives represented two of the three Company’s voting members of the board of directors of the entity. As a result, under the voting model used for the consolidation of related parties, which are controlled by a company, the Company has consolidated the financial statements of the entity, and recognized expenses of $6 and $5 for the three months ended March 31, 2019 and 2018, respectively. The entity had assets and liabilities of $40 and $11, respectively, on the Company’s consolidated balance sheet at March 31, 2019 and assets and liabilities of $33 and $1, respectively, on the Company’s consolidated balance sheet at December 31, 2018.

Segment Information

Segment Information  

 

The Company operates in one business segment, which is the design, manufacture and sale of precision vascular robotic-assisted systems for use in interventional vascular procedures. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. To date, the chief operating decision-maker has made such decisions and assessed performance at the Company level, as one segment. The Company’s chief operating decision-maker is the Chief Executive Officer.

Use of Estimates

Use of Estimates 

 

The process of preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date of the financial statements. Such management estimates include those relating to revenue recognition, inventory valuation, assumptions used in the valuation of the Company’s preferred stock and warrants, valuation of stock-based awards, and valuation allowances against deferred income tax assets. Actual results could differ from those estimates.

Significant Customers

Significant Customers 

 

The table below sets forth the Company’s customers that accounted for greater than 10% of its revenues for the three-month periods ended March 31, 2019 and 2018, respectively: 

 

     

Three months ended  

March 31,  

 
Customer     2019     2018  
A       25 %     %
B       17 %     %
C       17 %     %
D       11 %     %
E       10 %     %
F       %     47 %
G       %     34 %

  

Customers A, B, and E accounted for 22%, 13%, and 11% respectively, of the Company’s accounts receivable balance at March 31, 2019. Given the current revenue levels, in a period in which the Company sells a system, that customer is likely to represent a significant customer. 

 

Revenues from domestic customers were $2,611 and $1,431 for the three months ended March 31, 2019 and 2018, respectively. Revenues from international customers were $425 and $54 for the three months ended March 31, 2019 and 2018, respectively.

Off-Balance Sheet Arrangements

Off-Balance Sheet Arrangements 

 

The Company has no significant off-balance sheet risk such as foreign exchange contracts, option contracts, or other hedging arrangements.

Fair Value Measurements

Fair Value Measurements 

 

In accordance with ASC 820, Fair Value Measurements and Disclosures, the Company generally defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company uses a three-tier fair value hierarchy, which classifies the inputs used in measuring fair values. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: 

 

  Level 1 - inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
 

  Level 2 - inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability.
 

  Level 3 - inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date.
 

The Company had one item, cash equivalents, measured at fair value on a recurring basis totaling $37,001 and $23,849 at March 31, 2019 and December 31, 2018, respectively, which were valued based on Level 1 inputs. 

 

The Company’s financial instruments of deposits and other assets are carried at cost and approximate their fair values given the liquid nature of such items. The fair value of the Company’s long-term debt and finance lease obligation approximates their carrying values due to their recent negotiation and variable market rate for the long-term debt.

Cash Equivalents

Cash Equivalents  

 

The Company considers highly liquid short-term investments, which consists of money market funds, to be cash equivalents. From time to time, the Company’s cash balances may exceed federal deposit insurance limits.

Inventories

Inventories  

 

Inventories are valued at the lower of cost or net realizable value using the first-in, first-out (FIFO) method. The Company routinely monitors the recoverability of its inventory and reduces the carrying value based on current selling prices and evaluates potential excess and obsolete inventories based on historical and forecasted usage, as required. Scrap and excess manufacturing costs are charged to cost of revenue as incurred and not capitalized as part of inventories. The Company only capitalizes pre-launch inventories when purchased for commercial use and it deems regulatory approval to be probable.

Leases

Leases 

 

The Company determines if an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company has elected not to separate non-lease components from all classes of its existing leases. Non-lease components have been accounted for as part of the single lease component to which they are related. The Company utilizes its incremental borrowing rate as the basis to calculate the present value of future lease payments at lease commencement. The Company’s incremental borrowing rate represents the rate the Company would have to pay to borrow funds on a collateralized basis over a similar term and in a similar economic environment.

Revenue Recognition

Revenue Recognition 

 

The Company generates revenues primarily from the sale of the CorPath System, CorPath Cassettes, accessories and service contracts. Revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that are within the scope of the revenue recognition accounting standard, the Company performs the following five steps: (i) identifies the contract with a customer; (ii) identifies the performance obligations in the contract; (iii) determines the transaction price; (iv) allocates the transaction price to the performance obligations in the contract; and (v) recognizes revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that it will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, the Company assesses the goods or services promised within each contract, and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. 

 

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or services to a customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the expected value method to which it expects to be entitled. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information (historical, current and forecasted) that is reasonably available. Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue.

 

When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. The Company does not assess whether a significant financing component exists if the period between when it performs its obligations under the contract and when the customer pays is one year or less. For contracts where the period between performance and payment is greater than one year, the Company assesses whether a significant financing component exists, by applying a discount rate to the expected cash collections. If this difference is significant, the Company will conclude that a significant financing component exists. The Company identified a small number of contracts where the period between performance and payment was greater than one year; however, none of the Company’s contracts contained a significant financing component as of March 31, 2019. 

 

Contracts that are modified to account for changes in contract specifications and requirements are assessed to determine if the modification either creates new or changes the existing enforceable rights and obligations. Generally, contract modifications are for products or services that are not distinct from the existing contract due to the inability to use, consume or sell the products or services on their own to generate economic benefits and are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price and measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis. 

 

Revenue is generally recognized when the customer obtains control of the Company’s product, which occurs at a point in time, and may be upon shipment or upon delivery based on the contractual shipping terms of a contract, or upon installation when the combined performance obligation is not distinct within the context of the contract. Service revenue is generally recognized over time as the services are delivered to the customer based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. Services are expected to be delivered to the customer throughout the term of the contract and the Company believes recognizing revenue ratably over the term of the contract best depicts the transfer of value to the customer. 

 

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. The Company enters into certain contracts that have multiple performance obligations, one or more of which may be delivered subsequent to the delivery of other performance obligations. These performance obligations may include installation, training, maintenance and support services, cassettes, and accessories. The Company allocates the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price considering available information such as market conditions and internally approved pricing guidelines related to the performance obligations. Revenue is then allocated to the performance obligations using the relative selling prices of each of the performance obligations in the contract.

Deferred Revenue

Deferred Revenue 

 

The Company records deferred revenues when cash payments are received or due in advance of performance. Amounts received prior to satisfying the related performance obligations are recorded as deferred revenue in the accompanying balance sheets. 

 

The Company’s contract liabilities consist of advance payments and billings in excess of revenue recognized (deferred revenues and customer deposits). The Company’s contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. The Company classifies deferred revenue as current or noncurrent based on the timing of when it expects to recognize revenue. In order to determine revenue recognized in the period from contract liabilities, the Company first allocates revenue to the individual contract liability balance outstanding at the beginning of the period until the revenue exceeds that balance. If additional advances are received on those contracts in subsequent periods, the Company assumes all revenue recognized in the reporting period first applies to the beginning contract liability as opposed to a portion applying to the new advances for the period.

Contract Assets

Contract Assets 

 

Contract assets include unbilled amounts primarily for maintenance and support service and future cassette purchases where revenue recognized exceeds the amount billed to the customer, and the Company’s right to bill is not until the maintenance and support service period commence or the cassettes are delivered. Amounts may not exceed their net realizable value. Short-term contract assets are included in prepaid expenses and other current assets on the Company’s consolidated balance sheets. Long-term contract assets are included in deposits and other assets on the Company’s consolidated balance sheets.

Deferred Contract Costs

Deferred Contract Costs 

 

The Company’s incremental direct costs of obtaining a contract, which consist of sales commissions, are deferred and amortized over the period of contract performance. Capitalized commissions are amortized based on the transfer of the products or services to which the assets relate. Applying the practical expedient, the Company recognizes sales commission expense when incurred if the amortization period of the assets that it otherwise would have recognized is one year or less. These costs are included in selling, general, and administrative expenses. Short-term deferred contract costs are included in prepaid expenses and other current assets on the Company’s consolidated balance sheets. Long-term deferred contract costs are included in deposits and other assets on the Company’s consolidated balance sheets. The Company accounts for shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the associated products.

Warrants to Purchase Common Stock

Warrants to Purchase Common Stock 

 

The Company classifies warrants within stockholders’ equity (deficit) on the condensed consolidated balance sheets if the warrants are considered to be indexed to the Company’s own capital stock, and otherwise would be recorded in stockholders’ equity (deficit). Warrants to purchase common stock issued in connection with the Company’s amended financing arrangement met these criteria and therefore were equity classified. 

 

The table below is a summary of the Company’s warrant activity during the three months ended March 31, 2019: 

 

      Number of
Warrants 
    Weighted Average Exercise Price  
Outstanding at December 31, 2018       9,246,315     $ 1.40  
Granted       300,000     $ 1.38  
Exercised           $  
Expired           $  
Outstanding at March 31, 2019       9,546,315     $ 1.40  
Stock-Based Compensation

Stock-Based Compensation 

 

The Company adopted Accounting Standards Update (“ASU”) 2018-07, Stock-based Compensation: Improvements to Nonemployee Share-based Payment Accounting, effective July 1, 2018. Subsequent to the adoption of ASU 2018-07, the Company recognizes compensation costs resulting from the issuance of “service-based” awards to employees, non-employees and directors as an expense in the consolidated statements of operations over the requisite service period based on a measurement of fair value for each stock award. The awards issued to date have primarily been stock options with service-based vesting periods over two or four years, restricted stock units with service-based vesting periods of one year, and shares of common stock. Prior to the adoption of ASU 2018-07, the Company recognized compensation costs resulting from the issuance of stock-based awards to non-employees as an expense in the consolidated statements of operations over the service period based on a measurement of fair value for each stock award at each performance date and period end. 

 

Upon vesting of the restricted stock units, the Company issues shares of its common stock which have a required holding period of 36 months from the date of grant of the restricted stock unit. As a result, the Company values the restricted stock units based on the closing price of the Company’s common stock on the date of grant less a discount for lack of marketability during the holding period.   

 

During 2018, the Company issued certain stock-based awards that contain both market and service-based vesting conditions. Each of these stock-based awards is contingent on the recipient still providing services to the Company or its affiliates on the date of such achievement. Portions of the awards vest upon the Company’s stock price achieving certain targets for a period of at least twenty consecutive trading days at any time before May 31, 2021.  The Company estimated the fair value of these market condition stock-based awards using a Monte Carlo simulation model, which involves a series of random scenarios that may take different future price paths over the award’s contractual life. The grant date fair value was determined by taking the average of the grant date fair values under each of many Monte Carlo simulations. The determination of the fair value is affected by the Company’s stock price, as well as assumptions regarding a number of complex and subjective variables including its expected stock price volatility over the expected term of the awards, and risk-free interest rate. The total number of shares of common stock that are subject to issuance under these market condition stock-based awards is 5,183,322 shares. The Company records expense on these stock-based awards ratably over the expected term of the award.

Research and Development

Research and Development 

 

Costs for research and development are expensed as incurred. Research and development expense consists primarily of salaries, salary-related expenses and costs of contractors and materials. Cash receipts from collaboration agreements accounted for under ASC 808, Collaborative Arrangements, are netted against the related research and development expenses in the period received and totaled $0 and $145 for the three months ended March 31, 2019 and 2018, respectively.

Income Taxes

Income Taxes 

 

The Company accounts for income taxes using the liability method, whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance to reduce deferred tax assets to amounts that are realizable. Consistent with all prior periods, the Company did not record any income tax benefit for its operating losses for the three months ended March 31, 2019 and 2018 due to the uncertainty regarding future taxable income.

Net Loss per Share

Net Loss per Share 

 

Basic net loss per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed using the sum of the weighted-average number of common shares outstanding during the period and, if dilutive, the weighted-average number of potential common shares, including the assumed exercise of share options. 

 

The Company applies the two-class method to calculate its basic and diluted net loss per share attributable to common stockholders, as its Series A and Series A-1 preferred shares are participating securities. 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. However, for the periods presented, the two-class method does not impact the net loss per common share as the Company was in a net loss position for each of the periods presented and holders of Series A and Series A-1 preferred shares do not participate in losses. 

 

The Company’s Series A and Series A-1 preferred shares contractually entitle the holders of such shares to participate in dividends but do not contractually require the holders of such shares to participate in losses of the Company. Accordingly, for periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements 

 

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-02, Leases (ASC 842), which was amended by ASU 2018-11, Leases (ASC 842): Targeted Improvements. The new guidance requires lessee recognition on the balance sheet of a right-of-use (ROU) asset and a lease liability, initially measured at the present value of the lease payments. It further requires recognition in the income statement of a single lease cost, calculated so that the cost of the lease is allocated over the lease term generally on a straight-line basis. Finally, it requires classification of all cash payments within operating activities in the statement of cash flows. The standard is effective for public companies for fiscal years beginning after December 15, 2018 and early adoption is permitted. The Company adopted this standard on January 1, 2019 using the prospective adoption approach as described under ASC 842. Results for reporting periods beginning January 1, 2019 are presented under ASC 842 while prior periods were not adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 840, Leases. 

 

As allowed by ASC 842, the Company has elected the hindsight practical expedient to determine the lease term for existing leases. This practical expedient enables an entity to use hindsight in determining the lease term when considering options to extend and terminate leases as well as purchase the underlying assets. The Company also elected the package of practical expedients that provide no need to reassess whether any expired or existing contracts contain a lease, the related lease classification for such expired or expiring leases, and the initial direct costs for existing leases.

 

Adoption of this standard resulted in the recording of right-of-use asset and lease liabilities of approximately $1,177 and $1,280, respectively, as of January 1, 2019. The difference between the right-of-use asset and the operating lease liability represents the amount of deferred rent previously recorded in accrued expenses and other liabilities for $41 and $62, respectively, at December 31, 2018 which was removed from the condensed consolidated financial statements upon adoption of this standard. The adoption of the standard did not materially impact the Company’s consolidated results of operations and had no impact on cash flows.

v3.19.1
Significant Accounting Policies (Tables)
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Schedule of customers that accounted for greater than 10% of revenues

The table below sets forth the Company’s customers that accounted for greater than 10% of its revenues for the three-month periods ended March 31, 2019 and 2018, respectively: 

 

     

Three months ended  

March 31,  

 
Customer     2019     2018  
A       25 %     %
B       17 %     %
C       17 %     %
D       11 %     %
E       10 %     %
F       %     47 %
G       %     34 %
Schedule of rollforward of warrant activity

The table below is a summary of the Company’s warrant activity during the three months ended March 31, 2019: 

 

      Number of
Warrants 
    Weighted Average Exercise Price  
Outstanding at December 31, 2018       9,246,315     $ 1.40  
Granted       300,000     $ 1.38  
Exercised           $  
Expired           $  
Outstanding at March 31, 2019       9,546,315     $ 1.40  
v3.19.1
Inventories (Tables)
3 Months Ended
Mar. 31, 2019
Inventory Disclosure [Abstract]  
Schedule of inventories

Inventories are valued at the lower of cost or net realizable value using the FIFO method and consist of the following: 

 

    March 31, 2019     December 31, 2018  
Raw material   $ 834     $ 1,036  
Work in progress     615       348  
Finished goods     417       1,124  
Total   $ 1,866     $ 2,508  
v3.19.1
Leases (Tables)
3 Months Ended
Mar. 31, 2019
Leases [Abstract]  
Schedule of lease cost for operating and financing leases

The components of lease cost for operating and finance leases for the three months ended March 31, 2019 are as follows: 

 

Operating lease:      
Lease cost   $ 156  
Variable lease cost     1  
Operating lease expense     157  
         
Finance lease:        
Amortization of right-of-use assets     13  
Interest on lease liability     3  
      16  
Total lease cost   $ 173  

   

Schedule of lease information

Other lease data is as follows: 

 

    March 31, 2019  
Weighted-average remaining lease term (years)        
Operating lease     1.8  
Finance lease     1.7  
Weighted-average discount rate        
Operating lease     10.6 %
Finance lease     13.6 %
Schedule of supplemental cash flow information

Supplemental cash flow information related to the Company’s leases are as follows: 

 

    Three months ended  
March 31, 2019
 
Operating lease payments classified as cash used in operating activities, excluding variable lease costs   $ 165  
Financing lease payments classified as cash used in financing activities     13  
Financing lease payments classifieds as cash used in operating activities     3  
Schedule of future minimum lease payments

Future minimum lease payments under non-cancellable leases as of March 31, 2019 are as follows: 

 

      Operating Leases     Finance Leases     Total   
2019     $ 498     $ 50     $ 548  
2020       680       49       729  
2021       57             57  
Total lease payments     $ 1,235     $ 99     $ 1,334  
Less: Interests       (113 )     (10 )     (123 )
Present value of lease liabilities     $ 1,122     $ 89     $ 1,211  
v3.19.1
Long-Term Debt (Tables)
3 Months Ended
Mar. 31, 2019
Debt Disclosure [Abstract]  
Schedule of assumptions for the valuation of warrants

The Company used the following assumptions for the valuation of these warrants at the issuance date. 

 

Risk-free interest rate     2.6 %
Dividend yield     0.0 %
Expected volatility     79.4 %
Expected term (years)     10.0  
Schedule of future principal payments for loans

Future principal payments under the term loan facilities as of March 31, 2019 are as follows: 

 

Year Ending
December 31,
    Amount  
2019     $ 1,200  
2020       5,831  
2021       6,175  
2022       1,544  
      $ 14,750  
v3.19.1
Stockholders' Equity (Deficit) (Tables)
3 Months Ended
Mar. 31, 2019
Equity [Abstract]  
Schedule of assumptions for fair value

The Company used the following assumptions for the valuation of these warrants at the issuance date. 

 

Risk-free interest rate     2.9 %
Dividend yield     0.0 %
Expected volatility     61.6 %
Expected term (years)     10.0  

  

The Company used the following assumptions utilized in the valuation of the Series A Preferred Stock at the issuance date: 

 

Expected volatility of future equity     45.9 %
Estimated timing of Series A Preferred Stock liquidity event (years)     3.8 %

Schedule of shares of Series A-1 preferred stock issued to fulfill the dividend payment obligation

The Company issued the following shares of Series A-1 Preferred Stock to the holders of Series A Preferred Stock to fulfill the dividend payment obligation: 

 

Series A dividend payment dates   Number of shares  
4/16/2018   10,400  
7/16/2018   30,000  
10/15/2018   30,000  
1/15/2019   30,000  
4/15/2019   30,000  
v3.19.1
Revenue (Tables)
3 Months Ended
Mar. 31, 2019
Revenue from Contract with Customer [Abstract]  
Schedule of revenue by revenue source

The following table summarizes revenue by revenue source for the three-month periods ended March 31, 2019 and 2018. 

 

   

Three Months Ended   

March 31  

 
Major Products/ Services Lines   2019     2018  
Revenue:            
Systems   $ 2,494     $ 970  
Capital upgrades           176  
Cassettes and accessories     291       235  
Service revenue     251       104  
Total   $ 3,036     $ 1,485  
                 
Timing of Revenue Recognition     2019       2018  
Product transferred at a point in time   $ 2,785     $ 1,381  
Service transferred over time     189       104  
Service transferred at a point in time     62        
Total   $ 3,036     $ 1,485  
Schedule of estimated revenues expected to be recognized in the future related to performance obligations that are unsatisfied (or partially satisfied)

 The following table includes estimated revenues expected to be recognized in the future related to performance obligations that are unsatisfied (or partially satisfied) as of March 31, 2019: 

 

   

Less than  

1 year  

   

Greater than  

1 year  

    Total  
Product revenue   $ 336     $ 547     $ 883  
Service and other revenue     733       679       1,412  
Total   $ 1,069     $ 1,226     $ 2,295  

 

 

Schedule of change in contract asstes and contract liabilities

The following table presents changes in contract assets and contract liabilities during the three months ended March 31, 2019:

 

   

Balance at December 31, 2018 

   

Additions 

   

Subtractions 

   

Balance at  

March 31, 2019 

 
                         
Contract assets   $ 205     $ 21     $ (37 )   $ 189  
Contract acquisitions and fulfillment costs:                                
Deferred contract costs   $ 64     $ 2     $ (11 )   $ 55  
Contract liabilities:                                
Deferred revenue   $ 947     $ 351     $ (202 )   $ 1,096  

 

Schedule of revenues as a result of changes in the contract asset and the contract liability balances

During the three months ended March 31, 2019, the Company recognized the following revenues as a result of changes in the contract asset and the contract liability balances in the respective periods: 

 

   

Three Months Ended  

March 31, 2019  

 
Revenue recognized in the period from:        
Amounts included in the contract liability at the beginning of the period   $ 202  
Performance obligations satisfied in previous periods   $  
v3.19.1
Stock-based Compensation (Tables)
3 Months Ended
Mar. 31, 2019
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Schedule of activity under stock option plans

Stock-based compensation expense was allocated based on the employees’ or non-employees’ function as follows: 

 

   

Three months ended  

March 31,  

 
    2019     2018  
Cost of revenue   $ 49     $ 28  
Research and development     113       61  
Selling, general and administrative     816       585  
Total   $ 978     $ 674  
Schedule of activity unvested restricted stock units

The following assumptions were used to estimate the fair value of stock options granted using the Black-Scholes option-pricing model: 

 

   

Three months ended  

March 31,  

 
    2019     2018  
Risk-free interest rate     2.56 %     2.69-2.84 %
Expected term in years     6.25       6.25-10.00  
Expected volatility     81 %     67-71 %
Expected dividend yield     %     %
Schedule of stock-based compensation expense

The following table summarizes the activities for the Company’s unvested restricted stock units for the three months ended March 31, 2019: 

 

        Unvested Restricted Stock Units  
        Number of
Shares 
      Weighted-average Grant Date Fair Value  
Unvested as of December 31, 2018       163,736     $ 0.63  
Granted              
Vested       (83,735 )     0.65  
Forfeited/Cancelled              
Unvested as of March 31, 2019       80,001     $ 0.62  
v3.19.1
Net Loss per Share (Tables)
3 Months Ended
Mar. 31, 2019
Earnings Per Share [Abstract]  
Schedule of securities excluded from the calculation of diluted net loss per share

The following common stock equivalents were excluded from the calculation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect: 

 

   

Three months ended  

March 31,  

 
    2019     2018  
Options to purchase common stock     26,859,984       19,534,224  
Warrants to purchase common stock     9,546,315       9,246,315  
Restricted stock units     80,001       24,179  
Series A preferred stock     20,000,000       20,000,000  
Series A-1 preferred stock     2,008,000        
v3.19.1
Nature of Operations (Details Narrative)
$ / shares in Units, $ in Thousands
3 Months Ended
Mar. 12, 2019
USD ($)
shares
Feb. 26, 2019
$ / shares
shares
Mar. 31, 2019
USD ($)
$ / shares
Mar. 14, 2019
USD ($)
Dec. 31, 2018
USD ($)
$ / shares
Aug. 31, 2018
USD ($)
Mar. 31, 2018
USD ($)
Mar. 16, 2018
USD ($)
Number
Dec. 31, 2017
USD ($)
Cash and cash equivalents     $ 37,760   $ 23,849   $ 43,951   $ 17,458
Accumulated deficit     (225,067)   $ (215,390)        
Working capital     $ 35,099            
Warrants exercise price (in dollars per share) | $ / shares     $ 1.40   $ 1.40        
Net proceeds from sale of common stock     $ 19,692            
Private Placement [Member]                  
Gross proceeds from sale of common stock $ 19,845                
Net proceeds from sale of common stock $ 19,531                
Securities Purchase Agreement [Member] | Private Placement [Member]                  
Number of stock issued (in shares) | shares 3,512,124 10,872,716              
Number of stock issued (in dollars per share) | $ / shares   $ 1.3796              
Financing Arrangement [Member]                  
Number of lenders | Number               2  
Debt facility maximum capacity               $ 26,000  
Principle amount outstanding       $ 2,750          
Financing Arrangement [Member] | Term Loans [Member]                  
Debt facility maximum capacity               $ 23,000  
Additional debt facility capacity available         $ 11,000        
Principle amount outstanding     2,750   $ 12,000        
Principal payment     $ 2,750            
Sales Agreement [Member]                  
Offering price           $ 30,000      
v3.19.1
Significant Accounting Policies (Details Narrative)
$ in Thousands
3 Months Ended
Mar. 31, 2019
USD ($)
Number
shares
Mar. 31, 2018
USD ($)
Jan. 02, 2019
USD ($)
Dec. 31, 2018
USD ($)
Number of segments | Number 1      
Assets $ 47,660     $ 33,525
Liabilities 22,552     19,779
Revenue $ 3,036 $ 1,485    
Warranty period of systems sold 1 year      
Stock-based awards | shares 5,183,322      
Right-of-use asset $ 1,028   $ 1,177  
Lease liabilities 1,122   $ 1,280  
Accrued expenses       41
Other liabilities       62
Fair Value, Level 1 [Member]        
Cash equivalents 37,001     23,849
Collaborative Arrangement [Member] | Research and Development Expense [Member]        
Collaborative arrangements 0 145    
Domestic Customers [Member]        
Revenue 2,611 1,431    
International Customers [Member]        
Revenue $ 425 54    
Accounts Receivable [Member] | Customer A [Member]        
Concentration percentage 22.00%      
Accounts Receivable [Member] | Customer B [Member]        
Concentration percentage 13.00%      
Accounts Receivable [Member] | Customer E [Member]        
Concentration percentage 11.00%      
Not-For-Profit Subsidiary [Member]        
Recognized expenses $ 6 $ 5    
Assets 40     33
Liabilities $ 11     $ 1
v3.19.1
Significant Accounting Policies (Details) - Sales Revenue, Net [Member]
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Customer A [Member]    
Concentration percentage 25.00%  
Customer B [Member]    
Concentration percentage 17.00%  
Customer C [Member]    
Concentration percentage 17.00%  
Customer D [Member]    
Concentration percentage 11.00%  
Customer E [Member]    
Concentration percentage 10.00%  
Customer F [Member]    
Concentration percentage   47.00%
Customer G [Member]    
Concentration percentage   34.00%