CORINDUS VASCULAR ROBOTICS, INC., 10-K filed on 3/18/2019
Annual Report
v3.19.1
Document and Entity Information - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Mar. 12, 2019
Jun. 30, 2018
Document And Entity Information      
Entity Registrant Name Corindus Vascular Robotics, Inc.    
Entity Central Index Key 0001528557    
Document Type 10-K    
Trading Symbol CVRS    
Document Period End Date Dec. 31, 2018    
Amendment Flag false    
Current Fiscal Year End Date --12-31    
Entity Well-known seasoned issuer No    
Entity Voluntary Filer No    
Entity's Reporting Status Current Yes    
Entity Small Business true    
Entity Filer Category Accelerated Filer    
Entity Emerging Growth Company false    
Entity Shell Company false    
Entity Public Float     $ 75,526,354
Entity Common Stock, Shares Outstanding   206,212,607  
Document Fiscal Period Focus FY    
Document Fiscal Year Focus 2018    
v3.19.1
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Current Assets:    
Cash and cash equivalents $ 23,849 $ 17,458
Accounts receivable 4,599 2,863
Inventories, net 2,508 2,103
Prepaid expenses and other current assets 447 539
Total current assets 31,403 22,963
Property and equipment, net 1,779 1,452
Deposits and other assets 343 151
Total assets 33,525 24,566
Current Liabilities:    
Accounts payable 3,591 2,416
Accrued expenses 3,292 3,637
Customer deposits   93
Deferred revenue 662 339
Current portion of capital lease obligation 56 49
Current portion of long-term debt 1,011  
Total current liabilities 8,612 6,534
Long-term Liabilities    
Deferred revenue, net of current portion 285 342
Long-term capital lease obligation, net of current portion 46 102
Other liabilities 62 73
Long-term debt 10,774  
Total long-term liabilities 11,167 517
Total liabilities 19,779 7,051
Commitments and Contingencies (Note 12)  
Preferred stock:    
Total preferred stock, Series A convertible preferred stock, $0.0001 par value; 1,000,000 shares designated, issued and outstanding at December 31, 2018 and none designated, issued or outstanding at December 31, 2017; Series A-1 convertible preferred stock, $0.0001 par value; 1,000,000 shares designated and 70,400 shares issued and outstanding at December 31, 2018 and none designated, issued or outstanding at December 31, 2017 22,952  
Stockholders' (deficit) equity:    
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; 2,000,000 shares designated at December 31, 2018 and none designated, issued or outstanding at December 31, 2017  
Common stock, $0.0001 par value; 350,000,000 and 250,000,000 shares authorized; 191,731,152 and 188,764,851 shares issued and outstanding at December 31, 2018 and 2017, respectively 19 19
Additional paid-in capital 206,165 198,337
Accumulated deficit (215,390) (180,841)
Total stockholders' (deficit) equity (9,206) 17,515
Total liabilities, preferred stock and stockholders' (deficit) equity 33,525 $ 24,566
Series A Preferred Stock [Member]    
Preferred stock:    
Total preferred stock, Series A convertible preferred stock, $0.0001 par value; 1,000,000 shares designated, issued and outstanding at December 31, 2018 and none designated, issued or outstanding at December 31, 2017; Series A-1 convertible preferred stock, $0.0001 par value; 1,000,000 shares designated and 70,400 shares issued and outstanding at December 31, 2018 and none designated, issued or outstanding at December 31, 2017 20,564  
Series A-1 Preferred Stock [Member]    
Preferred stock:    
Total preferred stock, Series A convertible preferred stock, $0.0001 par value; 1,000,000 shares designated, issued and outstanding at December 31, 2018 and none designated, issued or outstanding at December 31, 2017; Series A-1 convertible preferred stock, $0.0001 par value; 1,000,000 shares designated and 70,400 shares issued and outstanding at December 31, 2018 and none designated, issued or outstanding at December 31, 2017 $ 2,388  
v3.19.1
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Dec. 31, 2018
Dec. 31, 2017
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  
Common stock, par value (in dollars per share) $ 0.0001 $ 0.0001
Common stock, authorized shares 350,000,000 250,000,000
Common stock, issued shares 191,731,152 188,764,851
Common stock, outstanding shares 191,731,152 188,764,851
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  
Series Preferred stock, outstanding shares 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 70,400  
Series Preferred stock, outstanding shares 70,400  
Preferred stock, designated shares 1,000,000  
v3.19.1
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Income Statement [Abstract]    
Revenue $ 10,781 $ 9,650
Cost of revenue 8,673 9,265
Gross profit 2,108 385
Operating expenses:    
Research and development 8,769 9,517
Selling, general and administrative 27,300 24,777
Restructuring charge 346  
Total operating expense 36,415 34,294
Operating loss (34,307) (33,909)
Other income (expense):    
Warrant revaluation 120  
Interest, net (884) (208)
Other, net 82 (6)
Total other income (expense), net (682) (214)
Net loss (34,989) (34,123)
Accretion of beneficial conversion feature of Series A preferred stock (5,266)  
Dividends on preferred stock (2,388)  
Net loss attributable to common stockholders $ (42,643) $ (34,123)
Net loss per share attributable to common stockholders--basic and diluted (in dollars per share) $ (0.22) $ (0.2)
Weighted-average common shares used in computing net loss per share attributable to common stockholders--basic and diluted (in shares) 189,619,507 173,925,450
Comprehensive loss $ (34,989) $ (34,123)
v3.19.1
CONSOLIDATED STATEMENT OF PREFERRED STOCK AND STOCKHOLDERS' (DEFICIT) EQUITY - USD ($)
$ in Thousands
Preferred Stock [Member]
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Deficit [Member]
Total
Beginning balance at Dec. 31, 2016   $ 12 $ 150,776 $ (146,718) $ 4,070
Beginning balance, (in shares) at Dec. 31, 2016   119,025,221      
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Stock-based compensation expense     2,892   2,892
Issuance of stock in connection with private placement, net of issuance costs   $ 7 44,604   44,611
Issuance of stock in connection with private placement, net of issuance costs (in shares)   68,055,700      
Issuance of common stock upon vesting of restricted stock units (in shares)   26,362      
Issuance of common stock upon exercise of stock options     65   65
Issuance of common stock upon exercise of stock options (in shares)   261,670      
Issuance of common stock upon exercise of warrants,(in shares)   1,393,605      
Issuance of common stock (in shares)   2,293      
Net loss       (34,123) (34,123)
Ending balance at Dec. 31, 2017   $ 19 198,337 (180,841) $ 17,515
Ending balance, (in shares) at Dec. 31, 2017   188,764,851     188,764,851
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Cumulative effect of a change in accounting principles       440 $ 440
Stock-based compensation expense     3,204   3,204
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 $ (5,266)   5,266   5,266
Accretion of beneficial conversion feature of Series A and Series A-1 preferred stock 5,266   (5,266)   (5,266)
Accrued dividends on Series A preferred stock 628   (628)   (628)
Issuance of Series A-1 preferred stock as dividends on Series A preferred stock $ 1,760   (1,760)   (1,760)
Issuance of Series A-1 preferred stock as dividends on Series A preferred stock (in shares) 70,400        
Issuance of common stock in connection with at-the-market offering, net of issuance costs     2,688   2,688
Issuance of common stock in connection with at-the-market offering, net of issuance costs (in shares)   2,569,159      
Issuance of common stock upon vesting of restricted stock units        
Issuance of common stock upon vesting of restricted stock units (in shares)   197,589      
Issuance of common stock upon exercise of stock options     108   108
Issuance of common stock upon exercise of stock options (in shares)   180,587      
Common stock withheld to pay statutory minimum withholding taxes on exercise of stock options     (13)   (13)
Common stock withheld to pay statutory minimum withholding taxes on exercise of stock options (in shares)   (12,048)      
Issuance of common stock to non-employee directors     31   31
Issuance of common stock to non-employee directors (in shares)   31,014      
Reclassification of warrant liability     90   90
Net loss       (34,989) (34,989)
Ending balance at Dec. 31, 2018 $ 22,952 $ 19 $ 206,165 $ (215,390) $ (9,206)
Ending balance, (in shares) at Dec. 31, 2018 1,070,400 191,731,152     191,731,152
v3.19.1
CONSOLIDATED STATEMENT OF PREFERRED STOCK AND STOCKHOLDERS' (DEFICIT) EQUITY (Parenthetical) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Issuance costs $ 375  
Private Placement [Member]    
Issuance costs $ 329 $ 415
v3.19.1
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Operating activities    
Net loss $ (34,989) $ (34,123)
Adjustments to reconcile net loss to net cash flows used in operating activities:    
Depreciation and amortization 853 723
Stock-based compensation expense 3,235 2,892
Accretion of interest expense 328 101
Write down of inventories 268 268
Warrant liability revaluation (120)  
Loss on disposal of property and equipment 62 28
Changes in operating assets and liabilities:    
Accounts receivable (1,736) (2,479)
Due from related party   250
Prepaid expenses and other current assets 130 (91)
Inventories (1,026) (1,638)
Deposits and other assets 18 (1)
Accounts payable, accrued expenses and other liabilities 689 1,817
Customer deposits (93) 93
Deferred revenue 347 (198)
Net cash used in operating activities (32,034) (32,358)
Investing activities    
Purchase of property and equipment (736) (245)
Collection of notes receivable   71
Net cash used in investing activities (736) (174)
Financing activities    
Proceeds from issuance of Series A preferred stock and warrants, net of issuance costs 24,671  
Proceeds from issuance of long term debt and warrants, net of deferred financing costs and discounts 11,626  
Proceeds from issuance of common stock, net of issuance costs 2,818 44,611
Proceeds from exercise of stock options 108 65
Payments for withholding taxes on stock option exercises (13)  
Payments on debt   (3,856)
Payments on capital lease obligation (49) (13)
Net cash provided by financing activities 39,161 40,807
Net increase in cash and cash equivalents 6,391 8,275
Cash and cash equivalents at beginning of period 17,458 9,183
Cash and cash equivalents at end of period 23,849 17,458
Supplemental Cash Flow Information    
Fair value of warrants issued with Series A preferred stock 4,162  
Fair value of warrants issued with long-term debt 210  
Accrued dividends on Series A preferred stock 628  
Issuance of Series A-1 preferred stock as dividends on Series A preferred stock 1,760  
Financing costs included in account payable and accrued expenses 130  
Transfer from inventories to property and equipment in the field 425 812
Interest paid $ 878 157
Assets acquired under capital lease   $ 164
v3.19.1
Nature of Operations
12 Months Ended
Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Nature of Operations
1. Nature of Operations

 

The Company

 

Corindus Vascular Robotics, Inc. (the “Company”), formerly named Your Internet Defender, Inc. (“YIDI”), acquired Corindus, Inc., a privately-held company, in a reverse acquisition on August 12, 2014 (the “Acquisition”). The Company was previously a Nevada corporation, but effective June 28, 2016, the Company changed its state of incorporation from the State of Nevada to the State of Delaware. The Company has its corporate headquarters, manufacturing and a research and development facility in Waltham, Massachusetts and the Company is engaged in the design, manufacture and sales of precision vascular robotic-assisted systems (the “CorPath System”) for use in interventional vascular procedures.

 

Since its inception on March 21, 2002, the Company has devoted its efforts principally to research and development and business development activities. In July 2012, the Company received 510(k) clearance from the United States Food and Drug Administration (“FDA”) for the CorPath 200 System and initiated a limited commercial launch in the United States. In 2013, the Company moved into the growth stage, investing in sales and marketing in order to build the customer base. While the Company’s device is initially cleared for and targeting percutaneous coronary intervention (“PCI”) and peripheral vascular procedures, the Company believes its technology platform has the capability to be developed in the future for other segments of the vascular intervention market, including neurointerventional and other more complex cardiac interventions such as structural heart procedures.

 

In October 2015, the Company received 510(k) clearance from the FDA for its robotic-assisted CorPath 200 System to be used during PCI procedures performed via radial access. The 510(k) clearance was based on results of a clinical trial conducted at Spectrum Health, Grand Rapids, Michigan, and St. Joseph’s Hospital Health Center, Syracuse, New York.

 

In March 2016, the Company received 510(k) clearance from the FDA for its robotic-assisted CorPath 200 System for use in peripheral vascular interventions. The 510(k) clearance for peripheral intervention was based on results of a clinical trial conducted at Medical University of Graz in Graz, Austria.

 

In October 2016, the Company received 510(k) clearance from the FDA for its CorPath GRX, the second generation of its CorPath System and in February 2018, the Company received 510(k) clearance from the FDA for CorPath GRX to be used during peripheral vascular interventions. In March 2018, the Company received 510(k) clearance from the FDA for the first automated robotic movement designed for the CorPath GRX platform. The CorPath GRX System is intended for use in the remote delivery and manipulation of guidewires and rapid exchange catheters, and remote manipulation of guide catheters during percutaneous coronary and vascular procedures. The Company began commercial shipment of the CorPath GRX in late January 2017.

 

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 March 16, 2018, the Company completed a financing arrangement with two 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. As of December 31, 2018, we had $12,000 in principal outstanding under the term loan facility and no principal outstanding under the revolving loan facility. The Company will begin making the monthly $400 principal payments on October 1, 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 potentially available under the term loan facility. 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 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 14, 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.

 

On August 31, 2018, the Company entered into a Common Stock Sales Agreement with Cowen and Company, LLC. See Note 8 for additional details. During the year ended December 31, 2018, the Company received net proceeds of $2,688 under the Sales Agreement through the sale of its common stock.

 

In the first quarter of 2019, the Company closed a private placement with a large institutional investor and existing stockholders consisting of the sale of 14,384,840 shares of the Company’s common stock, at a price of $1.3796 per share for gross proceeds of approximately $19,800 and net proceeds of approximately $19,500. The shares sold in the private placement are subject to a contractual six-month lock-up.  

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 December 31, 2018, the Company had an accumulated deficit of $215,390. As of December 31, 2018, the Company had cash and cash equivalents of $23,849 and working capital of $22,791. 

              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 March 18, 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 March 18, 2020. 

              Management has considered its plans to alleviate its projected cash deficit at March 18, 2020 and the probability and effectiveness of such plans eliminating its cash deficit at March 18, 2020. In the event the Company does not achieve the Company’s year to date plan revenue by the third quarter of 2019 or obtain anticipated financing, the Company will undertake 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, marketing and medical affairs;
Defer or limit some or all spending on capital equipment planned for 2019; and
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 March 18, 2020 such that the Company has the ability to continue as a going concern one year from March 18, 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
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Significant Accounting Policies
2. Significant Accounting Policies

 

Principles of Consolidation

 

The 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 December 31, 2018, the Company’s Chief Executive Officer and one of its senior executives represented two of the three 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 $24 and $36 for the years ended December 31, 2018 and 2017, respectively and other income of $40 and $0 for the years ended December 31, 2018 and 2017, respectively. The entity had assets and liabilities of $33 and $1, respectively, on its balance sheet at December 31, 2018 and had assets and liabilities of $15 and $7, respectively, on its balance sheet at December 31, 2017.

 

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 the United States Generally Accepted Accounting Principles (the “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.

 

Cash and Cash Equivalents

 

The Company considers money market funds and other highly liquid short-term investments with original maturity dates of three months or less at the purchase date, to be cash equivalents. From time to time, the Company’s cash balances may exceed federal deposit insurance limits.

 

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.

 

During 2018, the Company had two items, cash equivalents and warrant liability, measured at fair value on a recurring basis. The warrant liability was reclassed to equity as of December 31, 2018 as described in Note 6. The Company had cash equivalents (measured at fair value on a recurring basis) totaling $23,849 and $0 at December 31, 2018 and 2017, respectively, which were valued based on Level l inputs. The warrant liability relates to warrants to purchase shares of the Company’s common stock that were issued to the Company’s lenders in connection with a debt financing arrangement executed on March 16, 2018. See Note 8 for additional details. 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.

 

In order to determine the fair value of these warrants, the Company utilized a Monte-Carlo simulation in combination with a Black-Scholes-Merton option pricing model (“Black-Scholes Model”). Estimates and assumptions impacting the fair value measurement include the fair value of the underlying shares of common stock, the remaining contractual term of the warrant, risk-free interest rate, expected dividend yield, expected volatility of the price of the underlying preferred stock and management’s assessment of the probability of additional borrowing on the credit facility. Due to the available public market information for the Company’s common stock for only a limited period of time, the Company estimates its expected stock volatility based on a blended approach utilizing the Company’s historical volatility of its common stock and the historical volatility of publicly traded guideline companies for a term equal to the estimated remaining contractual term of the warrants. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of the warrants. The Company estimated no expected dividend yield based on the fact that the Company has never paid or declared dividends on its common stock and does not intend to do so in the foreseeable future. The Company also estimated the number of shares issuable under the warrant based upon its assessment of the timing and amounts of future advances drawn under the financing arrangement.

 

The assumptions that the Company used to determine the fair value of these warrants are as follows:

 

    March 16, 2018
(Date of Issuance)
    December 31,
2018
 
Volatility     75.0% to 83.0%       81.0 %
Risk-free interest rate     2.8 %     2.7 %
Estimated term (in years)     8.5 to 10.0       9.2  

 

 

The following table sets forth a summary of changes in fair value of the Company’s common stock warrant based on Level 3 inputs:

 

Balance at December 31, 2017   $  
Issuance of warrants in connection with debt financing arrangements     210  
Revaluation of warrants     (120 )
Reclass to equity     (90 )
Balance at December 31, 2018   $  

 

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 capital lease obligation approximates their carrying values due to their recent negotiation and variable market rate for the long-term debt.

 

Concentrations of Credit Risk and Significant Customers

 

The Company had the following customers that accounted for greater than 10.0% of its revenues for the years ended December 31, 2018 and 2017, respectively:

 

      For the Year ended December 31,  
Customer     2018     2017  
A       20 %     20 %
B       14 %     8 %

 

Customer A accounted for 15% of the Company’s account receivable balance at December 31, 2018. Additionally, the Company had four other customers that together accounted for 60% of its accounts receivable balance at December 31, 2018, but none of these customers exceeded 10% of its revenues in 2018. Given the current revenue levels, in a period in which the Company sells a system, the customer is likely to represent a significant customer.

 

The Company had five other customers that together accounted for 84% of the Company’s accounts receivable balance at December 31, 2017, but none of these customers exceeded 10% of its revenues in 2017.

 

Revenues from domestic customers were $7,050 and $6,694 for the years ending December 31, 2018 and 2017, respectively. Revenues from international customers were $3,731 and $2,956 for the years ending December 31, 2018 and 2017, 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.

 

Allowance for Doubtful Accounts

 

The Company evaluates the collectability of accounts receivable on a regular basis. The allowance for doubtful accounts, if any, is based upon various factors including the financial condition and payment history of customers, an overall review of collections experience on other accounts and economic factors or events expected to affect future collections experience. The Company’s accounts receivable consist primarily of amounts due from large, well-capitalized customers and while the Company reviews their creditworthiness, collectability is generally not an issue. The Company records an allowance for doubtful accounts, when necessary, based on the potential for collectability issues within the customer base. The Company’s allowance for doubtful accounts was $0 at December 31, 2018 and 2017.

 

Product Warranty

 

Customers are permitted to return defective products under the Company’s standard product warranty program. For CorPath Systems, the Company’s standard one-year warranty provides for the repair of any product that malfunctions. Return and replacement can only occur if a material breach of the warranty remains uncured for 30 days. The warranty liability is included within accrued expenses on the consolidated balance sheets. A roll-forward of the Company’s warranty liability is as follows:

 

Balance at December 31, 2016   $ 57  
Provision for warranty obligations     352  
Settlements     (113 )
Balance at December 31, 2017     296  
Provision for warranty obligations     122  
Settlements     (181 )
Balance at December 31, 2018   $ 237  

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 records the lower of cost or net realizable value reserves based on current selling prices and reserves for excess and obsolete inventory 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.

 

Customer Deposits

 

Customer deposits represent cash received from customers for whom related products have not been delivered or services have not yet been performed.

 

Property and Equipment

 

Property and equipment is carried at cost. Major items and betterments are capitalized; maintenance and repairs are charged to expense as incurred. The Company capitalizes certain costs incurred in connection with developing or obtaining internal-use software. Software costs that do not meet capitalization criteria are expensed as incurred. Demonstration equipment represents internally manufactured capital equipment that is used on-site at trade shows and at customer locations to demonstrate the CorPath System. Field equipment represents internally manufactured capital equipment placed at customer locations under programs that involve the customer’s agreement to provide their facility as a training/show site for other potential customers while purchasing cassettes for their cases performed. As of December 31, 2018, the Company had placed two CorPath GRX field equipment units and one CorPath GRX for customer’s evaluation purposes.

 

Depreciation on the demonstration equipment is charged to selling, general and administrative and the depreciation on the field equipment is charged to cost of revenue.

 

Depreciation is computed under the straight-line method over the estimated useful lives of the respective assets.

 

Depreciation is provided over the following estimated asset lives:

 

Machinery and equipment 5 years
Computer equipment 3 years
Office furniture and equipment 5 years
Leasehold improvements Shorter of life of lease or useful life
Vendor tooling 1.5 - 3.0 years, based on planned usage
Software 4 years
Demonstration equipment 3 years
Field equipment 3 years

 

Impairment of Long-Lived Assets

 

An impairment loss is recognized when expected cash flows are less than an asset’s carrying value. The Company’s policy is to record an impairment loss when it is determined that the carrying amount of the asset may not be recoverable. The Company’s long-lived assets principally consist of property and equipment. The Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. Accordingly, when indicators of impairment are present, the Company evaluates the carrying value of such assets in relation to the operating performance and estimated future undiscounted cash flows of the underlying assets. There were no impairment charges or indicators of impairment for the years ended December 31, 2018 and 2017.

 

Revenue from Contracts with Customers

 

Adoption of ASC 606, Revenue from Contracts with Customers

 

The Company adopted ASC 606 on January 1, 2018, using the modified retrospective method for all contracts not completed as of the date of adoption. The reported results for 2018 reflect the application of ASC 606 guidance while the reported results for 2017 were prepared under the guidance of ASC 605, Revenue Recognition (ASC 605), which is also referred to herein as “legacy GAAP” or the “previous guidance.” The adoption of ASC 606 resulted in a cumulative impact of $353 related to revenue and $87 related to capitalized contract costs as of the adoption date. The adoption of ASC 606 represents a change in accounting principle that will more closely align revenue recognition with the delivery of the Company’s products to its customers and will provide financial statement readers with enhanced disclosures.

 

Financial Statement Impact of Adopting ASC 606

 

The cumulative effect of applying the new guidance to all contracts with customers that were not completed as of December 31, 2017, was recorded as an adjustment to accumulated deficit as of the adoption date. As a result of applying the modified retrospective method to adopt the new revenue guidance, the following adjustments were made to accounts on the consolidated balance sheet as of January 1, 2018:

   

    As Reported at
December 31,
2017
    Adjustments
Due to ASC
606
    Balance at
January 1,
2018
 
Assets:                  
Prepaid expenses and other current assets   $ 539     $ 38     $ 577  
Deposits and other assets   $ 151     $ 321     $ 472  
                         
Liabilities:                        
Deferred revenue   $ 339     $ (68 )   $ 271  
Deferred revenue, net of current portion   $ 342     $ (13 )   $ 329  
                         
Stockholders’ (deficit) equity:                        
Accumulated deficit   $ (180,841 )   $ 440     $ (180,401 )

 

The following tables compare the reported consolidated balance sheets and statements of operations, as of and for the year ended December 31, 2018, to the pro-forma amounts as if the previous guidance had been in effect:

 

    As of December 31, 2018  
Balance Sheet   As Reported     Pro-forma as if
the previous
guidance was in
effect
 
Assets:            
Prepaid expenses and other current assets   $ 447     $ 319  
Deposits and other assets   $ 343     $ 191  
                 
Liabilities:                
Deferred revenue   $ 662     $ 756  
Deferred revenue, net of current portion   $ 285     $ 284  
                 
Stockholders’ (deficit) equity:                
Accumulated deficit   $ (215,390 )   $ (215,764 )

 

    Year Ended December 31, 2018  
Statement of Operations   As Reported     Pro-forma as if
the previous
guidance was in
effect
 
             
Revenue   $ 10,781     $ 10,824  
Selling, general and administrative     27,300       27,277  
Net loss   $ (34,989 )   $ (34,923 )
                 
Net loss attributable to common stockholders   $ (42,643 )   $ (42,577 )
                 
Net loss per share attributable to common stockholders-basic and diluted   $ (0.22 )   $ (0.22 )

 

The most significant impact was the recognition pattern for promised goods and services related to the Company’s service plans. The new standard requires revenues to be estimated and recognized upon transfer of the promised goods and services, which resulted in a cumulative adjustment of approximately $353. Under the new standard, the Company is able to recognize revenues upon delivery of certain promised goods, prior to the customers being invoiced based on the contractual arrangement with the Company. Specifically, the Company sells certain extended service plans which may include a specified upgrade or an unspecified upgrade right. Under legacy GAAP, the Company recognized revenue for service plans ratably over the term of the services to be provided. Under the new standard, the Company concluded that the service plans and upgrade rights were distinct performance obligations, and therefore would be recognized as the individual components of the service were delivered. The Company determined that the service component of the plans would continue to be recognized ratably over the term of the agreement, whereas the unspecified upgrade component would be recognized ratably over the term of the unspecified upgrade right, and the specified upgrade component would be recognized at a point in time upon delivery. The change in the timing of revenue recognition is primarily related to the impact associated with the accelerated recognition of specified upgrades. Another impact relates to the requirement to capitalize incremental costs to acquire new contracts, which consist of sales commissions. During previous periods, these costs were expensed as incurred. Adoption of the new standard resulted in the capitalization of $87 of such incremental costs as of January 1, 2018.

 

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 an entity determines are within the scope of the new 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 December 31, 2018. 

 

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.

 

For all performance obligations, the Company determines the revenue for each deliverable based on its relative selling price in the contract and recognizes revenue upon delivery of the product or service, assuming all other revenue recognition criteria have been met. Revenue for equipment is recognized when the equipment has been delivered, and installation and training have been completed. Revenue for cassettes and optional equipment is recognized when the goods have been delivered. Revenue for maintenance and support services is recognized ratably over the term of the service contract.

 

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 sheet as of December 31, 2018. Long-term contract assets are included in deposits and other assets on the Company’s consolidated balance sheets as of December 31, 2018.

 

Deferred Contract Costs

 

The Company’s incremental direct costs of obtaining a contract, which generally consist of sales commissions, are deferred and amortized over the period of contract performance. 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. At December 31, 2018 and January 1, 2018, the Company had $64 and $87 of deferred sales commissions, respectively, which are included in deposits and other assets on the Company’s consolidated balance sheet. At times, the Company has other incremental costs associated with obtaining a contract which are deferred until the revenues from the related contract are recognized. Other deferred contract costs would be included in prepaid expenses and other current assets and/or deposits and other assets on the Company’s consolidated balance sheets. The Company had $34 and $119, respectively, of amortization of deferred commissions and other deferred contract costs during the year ended December 31, 2018. These costs are included in selling, general and administrative expenses on the Company’s consolidated statement of operations.

 

Contract Liabilities

 

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.

 

Disaggregation of Revenue

 

The following table summarizes revenue by revenue source for the year ended December 31, 2018:

 

Major Products/Service Lines        
Product revenue   $ 10,250  
Service revenue     531  
Total   $ 10,781  
         
Timing of Revenue Recognition        
Products transferred at a point in time   $ 10,250  
Services transferred over time     500  
Services transferred at a point in time     31  
Total   $ 10,781  

 

Product Revenue

 

The Company generates revenue through the commercial, non-commercial and pre-commercial production and sale of precision vascular robotic-assisted systems, and the single use accessories used in conjunction with such systems.

 

Revenue from the sale of products is recognized at a point in time when the customer obtains control of the product. The Company recognizes system revenue when the CorPath Systems are delivered and installed and accepted by the end user customer. The Company recognizes cassette revenue when the related cassettes have been shipped or delivered to the end customer based on the terms of the arrangement or contract. All costs related to product sales are recognized at time of delivery. The Company does not provide for rights of return to customers on product sales and, therefore, does not record a provision for returns.

 

Service Revenue

 

Revenue generated from maintenance and support service contracts is typically recognized ratably over the term of the service contract.

 

Deferred Revenues

 

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 revenues in the accompanying balance sheets.

 

Transaction Price Allocated to Future Performance Obligations

 

ASC 606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of December 31, 2018.

 

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 December 31, 2018.

 

   

Less than

1 year

   

Greater than

1 year

   

Total

             
Product revenue   $ 376     $ 551    $ $927
Service revenue     604       459     1,063
Total   $ 980     $ 1,010    $ $1,990

 

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 revenues. The following table presents changes in contract assets and contract liabilities during the year ended December 31, 2018:

 

    Balance at Beginning of Period     Additions     Subtractions     Balance at
End of Period
 
                         
Contract assets   $ 272     $ 106     $ (173 )   $ 205  
Contract acquisitions and fulfillment costs:                                
Deferred contract costs   $ 87     $ 130     $ (153 )   $ 64  
Contract liabilities:                                
Deferred revenue   $ 693     $ 864     $ (610 )   $ 947  

 

During the year ended December 31, 2018, the Company recognized the following revenues as a result of changes in the contract asset and the contract liability balances in the respective periods:

 

Revenue recognized in the period from:      
Amounts included in the contract liability at the beginning of the period   $ 321  
Performance obligations satisfied in previous periods   $ 45  

 

The timing of revenue recognition, billings and cash collections results in billed receivables, contract assets and contract liabilities on the consolidated balance sheet.

 

When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded. Contract liabilities are recognized as revenue after control of the goods or services is transferred to the customer and all revenue recognition criteria have been met.

 

Costs to Obtain or Fulfill a Customer Contract

 

Prior to the adoption of ASC 606, the Company expensed incremental commissions paid to sales representatives for obtaining product sales as well as service contracts. Under ASC 606, the Company currently capitalizes these incremental costs of obtaining customer contracts unless the capitalization and amortization of such costs are not expected to have a material impact on the financial statements. Capitalized commissions are amortized based on the transfer of the products or services to which the assets relate. Applying the practical expedient in paragraph ASC 340-40-25-4, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in selling, general, and administrative expenses. 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 reviews the terms of warrants issued in connection with the applicable accounting guidance and classifies warrants as a long-term liability on the consolidated balance sheets if the warrants do not meet the equity criteria when the number of shares issuable are variable. Warrants to purchase shares of common stock issued in connection with the Company’s long-term debt agreement initially met these criteria because the number of shares would vary with additional draws on the debt and therefore required liability classification. Liability-classified warrants are subject to re-measurement at each balance sheet date, and any change in fair value is recognized as a component of other income (expense), net in the consolidated statements of operations. The Company estimated the fair value of these warrants at issuance and each balance sheet date thereafter using a Monte-Carlo simulation in combination with 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 warrant, risk-free interest rates, expected dividends and expected volatility of the price of the underlying common stock. The warrant liability was reclassed to equity as of December 31, 2018 for reasons described in Note 6.

 

The Company classifies warrants within stockholders’ (deficit) equity on the 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’ (deficit) equity. Warrants to purchase common stock issued in connection with the Company’s private placement of convertible preferred stock met these criteria and, therefore, were equity classified.

 

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 incurred and totaled $946 and $0, respectively, for the years ended December 31, 2018 and 2017.

 

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, if necessary, to reduce deferred tax assets to amounts that are realizable. Consistent with all prior periods, the Company did not record any income tax benefits for its operating losses for the twelve months ended December 31, 2018 and 2017 due to the uncertainty regarding future taxable income.

 

The Company accounts for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. The evaluation of uncertain tax positions is based on factors including, but not limited to, changes in tax laws, the measurements of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position. The Company evaluates these tax positions on an annual basis. The Company also accrues for potential interests and penalties related to unrecognized tax benefits in income tax expense.

 

The Company recognizes the tax benefits of tax positions to the extent that the benefits will more likely than not be realized. The determination as to whether the tax benefits will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances.

 

On December 22, 2017, the Securities and Exchange Commission (the “SEC”) staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which allows the recording of provisional amounts during a measurement period not to extend beyond one year of the enactment date. The Company has completed its analysis consist with the guidance provided in SAB 118 and the final impact did not result in any material change from the original estimate.

 

Stock-based Compensation

 

Subsequent to the adoption of ASU 2018-07 (as described below), the Company recognizes compensation costs resulting from the issuance of service stock-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.

 

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.

 

The Company’s Common Stock is listed on the NYSE American, where it trades under the symbol “CVRS”. The Company utilizes quoted market prices to calculate fair value of stock-based awards.

 

The following assumptions were used to estimate the fair value of stock options granted using the Black-Scholes Model.

 

    For the Year ended December 31,  
    2018     2017  
Risk-free interest rate     2.69-3.10%       1.87-2.38%  
Expected term in years     6.25-10.00       6.00-10.00  
Expected volatility     64-81%       55-67%  
Expected dividend yield     0%       0%  

 

The risk-free interest rate assumption is based upon observed U.S. government treasury interest rates with a term that is consistent with the expected term of the Company’s employee stock options. The expected term is based on the average of the vesting period and contractual term of the Company’s options given the lack of historical data available. The Company does not pay a dividend, and is not expected to pay a dividend in the foreseeable future.

 

Due to a lack of a public market for the Company’s Common Stock for an extended period of time, the Company utilized a combination of the Company’s and comparable public companies’ volatility rates as a proxy of its expected volatility for purposes of the Black-Scholes Model. Stock-based compensation expense is recorded net of estimated forfeitures and is adjusted periodically for actual forfeitures. The Company uses historical data to estimate forfeiture rates. For the years ended December 31, 2018 and 2017, forfeitures were estimated to be 10% and 5%, respectively.

 

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 June 2018, the FASB issued ASU 2018-07, Stock-based Compensation: Improvements to Nonemployee Share-based Payment Accounting, which amends the existing accounting standards for share-based payments to nonemployees. This ASU aligns much of the guidance on measuring and classifying nonemployee awards with that of awards to employees. Under the new guidance, the measurement of nonemployee equity awards is fixed on the grant date. This ASU becomes effective in the first quarter of fiscal year 2019 and early adoption is permitted but no earlier than an entity’s adoption date of ASC 606. Entities will apply the ASU by recognizing a cumulative-effect adjustment to retained earnings as of the adoption date. The Company adopted this update on July 1, 2018 and the adoption had no material impact to the Company’s consolidated financial statements.

 

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (ASC 718) - Scope of Modification Accounting, which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. It is effective prospectively for annual periods beginning on or after December 15, 2017, with early adoption permitted. The Company adopted this update on January 1, 2018 and the adoption had no impact to the Company’s consolidated financial statements.

 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (ASC 230), Classification of Certain Cash Receipts and Cash Payments, which reduces diversity in how certain cash receipts and cash payments are presented and classified in the Consolidated Statements of Cash Flows. It is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 and will be required to be applied retrospectively, with early adoption permitted. The Company adopted this update on January 1, 2018 and the adoption had no impact to the Company’s consolidated financial statements.

 

Other Recent Accounting Pronouncements not yet Adopted

 

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 standard requires a transition adoption election using either 1) a modified retrospective approach with periods prior to the adoption date being recast or 2) a prospective adoption approach with a cumulative-effect adjustment recognized to the opening balance of retained earnings on the adoption date with prior periods not recast. The Company anticipates adopting this standard with an effective date of January 1, 2019 using the prospective adoption approach. The Company has evaluated the changes from this standard to its future financial reporting and disclosures, and has designed and implemented related processes and controls to address these changes. The Company believes the most significant effects relate to (1) the recognition of new ROU assets and lease liabilities on its balance sheet for its office operating lease; and (2) providing significant new disclosures about its leasing activities related to the amount, timing and uncertainty of cash flows arising from leases.

v3.19.1
Inventories
12 Months Ended
Dec. 31, 2018
Inventory Disclosure [Abstract]  
Inventories

3.            Inventories

 

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

 

    December 31,  
    2018     2017  
Raw material   $ 1,036     $ 945  
Work in progress     348       310  
Finished goods     1,124       848  
     Total   $ 2,508     $ 2,103  

 

The Company wrote down inventories by $268 during the year ended December 31, 2018 to properly state amounts at the lower of cost or net realizable value.

v3.19.1
Property and Equipment
12 Months Ended
Dec. 31, 2018
Property, Plant and Equipment [Abstract]  
Property and Equipment

4.             Property and Equipment

 

Property and equipment are stated at cost and are being depreciated using the straight-line method over the assets’ estimated useful lives. Depreciation and amortization expense related to  property and equipment was $700 and $723 for the fiscal years 2018 and 2017, respectively. Property and equipment consist of the following:

 

    December 31,  
    2018     2017  
Machinery and equipment   $ 849     $ 546  
Computer equipment     172       147  
Office furniture and equipment     340       320  
Leasehold improvements     62       62  
Vendor tooling     910       898  
Software     813       658  
Demonstration equipment     914       593  
Field equipment     551       819  
Construction in progress     83        
      4,694       4,043  
Less accumulated depreciation and amortization     (2,915 )     (2,591 )
Property and equipment net   $ 1,779     $ 1,452  

 

Construction in progress at December 31, 2018 relates to vendor tooling that is currently in the design and testing stage which will be used in the Company’s production process.

v3.19.1
Accrued Expenses
12 Months Ended
Dec. 31, 2018
Payables and Accruals [Abstract]  
Accrued Expenses

5.             Accrued Expenses

 

Accrued expenses consist of the following:

 

    December 31,  
    2018     2017  
Payroll and benefits   $ 1,715     $ 1,764  
Commissions     570       542  
Professional and consultant fees     484       579  
Warranty     237       296  
Travel expense     86       242  
Sales tax payable     59       83  
Interest     43        
Other     98       131  
      Total   $ 3,292     $ 3,637  

 

v3.19.1
Long-Term Debt
12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]  
Long-Term Debt

6.            Long-Term Debt

 

On March 16, 2018, the Company completed a financing arrangement with two lenders which provides 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.

 

Term Loan.

 

As of December 31, 2018, the Company had $12,000 in principal outstanding under the term loan facility and zero outstanding under the revolving loan facility. The initial term loan was made on March 16, 2018 in the amount of $12,000 (Term A Loan) and is repayable in equal monthly installments of principal and interest over 30 months beginning on October 1, 2019. Prior to October 1, 2019, the Company is required to make interest only payments. Term A Loan bears 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 Term A Loan was 9.6% at December 31, 2018.

 

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 potentially available under the term loan facility. Both loan 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. Upon the earlier of the second advance under the term loan facility or the first advance under the revolving loan facility, the Company must also achieve minimum revenue on a monthly basis measured against a percentage of the Company’s Board of Directors-approved projections for the applicable fiscal year. The Company’s failure to satisfy the revenue, or any other, covenant could result in an event of default under the loan facilities. At the Company’s option, the Company may prepay the outstanding principal balance of any term loan 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 being issued, 1.5% of the amount prepaid if the prepayment occurs after the first anniversary of the term loan 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 Effective Date through and including the third anniversary of the term loan being issued. The Company is also required to make a final payment of $720 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 payment is included within long term debt on the consolidated balance sheet. As of December 31, 2018, $183 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 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.

 

Both 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 December 31, 2018.

   

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 (see Note 2), and were reclassified to equity in the accompanying consolidated balance sheet. The Company also incurred costs of $373 related to the issuance of the credit facility. After allocating the costs between the Term Loan and the revolving line-of-credit the Company recorded a debt discount of $532 to the Term loan which is being amortized to interest expense using the effective interest method and $51 of costs allocated to the revolving line-of-credit were recorded in other assets and are being recognized as interest expense on a straight-line basis.

 

Future principal payments under the term loan facility as of December 31, 2018 are as follows:

 

Year Ending December 31,    

Amount

 
2019     $ 1,200  
2020       4,800  
2021       4,800  
2022       1,200  
      $ 12,000  
v3.19.1
Income Taxes
12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
Income Taxes

7.            Income Taxes

 

There was no federal or state provision for income taxes for the years ended December 31, 2018 or 2017 due to the Company’s operating losses and a full valuation allowance on deferred income tax assets for all periods since inception. All of the Company’s losses before provision for income taxes are attributable to its United States operations.

 

The Company’s effective income tax rate differs from the statutory federal income tax rate as follows:

 

    Years ended December 31,  
    2018     2017  
Statutory U.S. federal rate     21.0 %     34.0 %
State income tax     2.2       2.6  
Permanent items     ( 0.1 )       0.3  
Other     (0.9 )     1.0  
Change in state tax rate     (0.2 )     0.1  
Deferred federal rate reduction (Effect of US tax reform)           (58.9 )
Federal R&D credit     0.9       1.0  
State R&D and other credits     0.5       0.5  
Change in valuation allowance     (23.4 )     19.4  
Total expense (benefit)     —%       —%  

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and the related valuation allowance were as follows:

 

    Years ended December 31,  
    2018     2017  
Deferred income tax assets:                
Operating loss carryforward   $ 43,428     $ 35,950  
Start-up expenditures     1,237       1,404  
Property and equipment     1       40  
Intangibles     1,142        
Stock-based compensation expense     1,733       1,420  
R&D investment tax credit carryforwards     3,434       2,928  
Accrued expenses and other     778       628  
Total deferred income tax assets     51,753       42,370  
                 
Deferred income tax liabilities:                
     Deferred commissions     (15 )      
Total deferred income tax liabilities     (15 )      
                 
Net deferred income tax assets before valuation allowance     51,738       42,370  
Valuation allowance     (51,738 )     (42,370 )
Net deferred income tax assets   $     $  

 

On December 22, 2017, the SEC staff issued SAB 118 which allows the recording of provisional amounts during a measurement period not to extend beyond one year of the enactment date. The Company has completed its analysis consistent with the guidance provided in SAB 118 and the final impact did not result in any material change from the original estimate.

 

In 2016, the FASB issued ASU No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”), which removes the previous exception in GAAP prohibiting an entity from recognizing current and deferred income tax expenses or benefits related to the transfer of assets, other than inventory, within the consolidated entity. The exception to defer the recognition of any tax impact on the transfer of inventory within the consolidated entity until it is sold to a third party remains unaffected. ASU 2016-16 became effective January 1, 2018. In 2018, upon adoption of ASU 2016-16, the Company recorded a deferred tax asset and corresponding full valuation allowance of $1,296 million equal to the unamortized cost of intellectual property rights transferred to the United States in 2010 multiplied by an appropriate statutory rate. There was no cumulative effect adjustment to “Accumulated deficit” using the modified-retrospective adoption method.

 

The Company has provided a full valuation allowance against the deferred income tax assets, since it has a history of losses, which are all attributable to the U.S. and currently does not have enough positive evidence required under U.S. GAAP to reverse its valuation allowance. Management does not believe it is more likely than not that its deferred tax assets relating to the loss carryforwards and other temporary differences will be realized in the future. For the year ended December 31, 2017, the valuation allowance decreased by $6,338, resulting principally from the change in deferred federal tax rate from 34% to 21% due to the U.S. tax reform. For the year ended December 31, 2018, the valuation allowance increased by $9,368, resulting principally from an increase in operating loss carryforwards.

 

As a result of passage of the 2017 U.S. Tax Reform (“TCJA”), net operating losses generated in years ending after December 31, 2018 will be carried forward indefinitely and can no longer be carried back, and net operating losses generated in years beginning after December 31, 2017, can only reduce taxable income by 80% when utilized in a future period. The exact ramifications of the legislation are subject to interpretation and could have a material impact on the Company’s financial position and/or results of operations. The TCJA is complex and far-reaching, and its effect, whether adverse or favorable, may not become evident for some period of time. Due to cumulative losses, the Company continues to maintain a full valuation allowance against deferred tax assets.

 

At December 31, 2018, the Company had U.S. federal and state net operating loss carryforwards of approximately $180,780 and $103,703, respectively, that can be carried forward and offset against future taxable income. The federal NOL carryforward will begin to expire in 2028. In 2018, the Company generated a federal NOL of $32,182, which can be carried forward indefinitely. The state NOL carryforward will expire in various amounts, but none before 2022.

 

The Company also had federal and state tax credits of approximately $2,254 and $1,493 at December 31, 2018, respectively, which may be used to offset future tax liabilities. These tax credit carryforwards will expire at various times beginning in 2029 for federal purposes and 2019 for state purposes.

 

Utilization of net operating losses and tax credit carryforwards may be subject to a substantial annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986, and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization. Through December 31, 2018, the Company had completed several financings since its inception which it believes had not resulted in any changes in ownership as defined by Sections 382 and 383 of the Internal Revenue Code. If the financings caused an “ownership change”, generally defined as a greater than 50 percent change (by value) in its equity ownership over a three-year period, the Company’s attributes may be subject to an annual limitation. Subsequent ownership changes may further affect the limitation in future years.

 

Significant judgment is required in evaluating the Company’s tax positions and in determining the Company’s provision for income taxes. In the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. As of December 31, 2018, the Company was not under audit in any tax jurisdiction. The U.S. statute of limitations will remain open to examination by the tax authorities until the utilization of net operating loss carryforwards. The Company accrues interest and penalties, if any, related to unrecognized tax benefits in income tax expenses.

 

v3.19.1
Stockholders' (Deficit) Equity
12 Months Ended
Dec. 31, 2018
Equity [Abstract]  
Stockholders' (Deficit) Equity

8.       Stockholders’ (Deficit) Equity

 

Common Stock

 

On April 10, 2018, the Board of Directors authorized the amendment of the Company’s Certificate of Incorporation to increase the number of authorized shares of common stock from 250,000,000 shares to 350,000,000 shares. This amendment was approved by the Company’s stockholders on May 31, 2018. There was no change in the stated par value of the shares as a result of this amendment. Holders of Common Stock shall be entitled to receive dividends when and if declared by the Board of Directors. No dividends on Common Stock shares have been declared to date.

 

At December 31, 2018, there were 34,801,224 shares of common stock reserved for the potential exercise of warrants (9,246,315), stock options (25,391,173), and restricted stock units (163,736) and 11,128,882 shares that are available for grant under the 2018 Stock Award Plan. Additionally, there were 20,000,000 shares of common stock reserved for the potential conversion of and Series A Preferred Stock and 12,000,000 shares of common stock reserved for the potential conversion of and Series A-1 Preferred stock.

 

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. During the twelve months ended December 31, 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’ (deficit) equity 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 (in 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 (in years)     3.8  
         

 

Dividends. Shares of the Series A Preferred Stock are 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 $50,000 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. Shares of Series A-1 Preferred Stock do not have Accrued Dividends (as such term is defined in the Certificate of Designation).

 

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 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 (as such term is defined in the Certificate of Designation) 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 December 31, 2018, the redemption value and Liquidation Preference of the Preferred Stock was $26,760 and it was convertible into 21,408,000 shares of the Company’s Common Stock. On April 16, 2018, July 16, 2018, October 15, 2018, and January 15, 2019 (the Series A dividend payment dates), the Company issued 10,400, 30,000, 30,000, and 30,000 shares, respectively, of Series A-1 Preferred Stock to the holders of Series A Preferred Stock to fulfill the dividend payment obligation.

 

v3.19.1
Stock-based Compensation
12 Months Ended
Dec. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-based Compensation

9.           Stock-based Compensation

 

In connection with the Acquisition, Corindus exchanged options to purchase shares of its Common Stock for YIDI’s options to purchase shares of YIDI’s Common Stock (the “Replacement Plan Options”). The 2014 Stock Award Plan is the replacement plan for options previously awarded under the Corindus, Inc. 2006 Umbrella Option Plan and the Corindus, Inc. 2008 Stock Incentive Plan, and is the plan under which all future Company options will be issued. The 2014 Stock Award Plan was limited to award issuances which in the aggregate could not exceed 9,035,016 shares, all of which shares will be used for the issuance of the Company stock-based awards, including options to purchase common stock, restricted stock and restricted stock units. Replacement Plan Options are exercisable for up to ten years from the date of original vesting commencement date of the options.

 

On April 30, 2015, the Company’s Board of Directors and shareholders owning a majority of the Company’s outstanding shares of common stock approved an increase in the authorized shares of common stock under the 2014 Stock Award Plan from 9,035,016 shares to 18,661,856 shares. On June 22, 2017, the stockholders of the Company approved an amendment to the Company’s Amended and Restated 2014 Stock Award Plan to increase the number of shares of common stock available for issuance under the plan by 4,038,144 shares, from 18,661,856 shares to 22,700,000 shares (the “Plan Amendment”). The Plan Amendment was previously adopted by the Company’s Board of Directors, subject to stockholder approval, and became effective upon the receipt of stockholder approval at the Company’s Annual Meeting.

 

On May 31, 2018, the stockholders of the Company approved the 2018 Stock Award Plan at the Company’s 2018 Annual Meeting of Stockholders (the “Annual Meeting”). The 2018 Stock Award Plan was previously adopted by the Company’s Board of Directors, subject to stockholder approval, and became effective upon the receipt of stockholder approval at the Annual Meeting. As a result of the approval, the Amended and Restated 2014 Stock Award Plan was terminated. The 2018 Stock Award plan included 17,500,000 new shares of the Company’s common stock that were available for issuance under the plan, as well as up to 19,558,403 additional shares that may be issued if awards outstanding under the 2014 Stock Award Plan are cancelled or expire on or after the date of the Annual Meeting.

 

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 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 20 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, 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 is 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 stock price of the Company’s Common Stock, 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 expenses on these stock-based awards ratably over the expected term of the award.

 

A summary of the activity under the Company’s stock option plans is as follows:

 

  Options     Weighted
Average
Exercise
Price
    Weighted 
Average
Remaining
Contractual
Term/Years
    Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2017     18,215,932     $ 1.29       7.64     $ 1,830  
   Granted     10,209,322     $ 0.85                  
   Exercised     (168,539 )   $ 0.75                  
   Canceled     (2,865,542 )   $ 1.52                  
Outstanding at December 31, 2018     25,391,173     $ 1.09       7.73     $ 1,460  
Exercisable at December 31, 2018     11,413,154     $ 1.19       6.33     $ 864  
Vested and expected to vest at December 31, 2018     23,993,371     $ 1.09       7.66     $ 1,432  

 

The fair value of employee options is estimated on the date of each grant using the Black-Scholes Model. The weighted-average grant date fair value of options granted during the year ended December 31, 2018 and 2017 were $0.46 and $0.81, respectively. As of December 31, 2018, there was approximately $6,214 of unrecognized compensation cost related to non-vested stock-based compensation arrangements under the 2018 Stock Award Plan. That cost was expected to be recognized over a weighted-average period of 2.33 years.

 

The total intrinsic value of options exercised in 2018 was $28.

 

Restricted stock units of 334,955 and 68,768 shares of common stock were granted to non-employee directors in 2018 and 2017, respectively. Upon vesting, the Company issues shares of common stock for its restricted stock units. The shares issued have a required holding period of 36 months from the grant date of the restricted stock units. As a result, the Company has valued the restricted stock units based on the closing price of the Company’s common stock on the date of grant less a discount of 18% for lack of marketability during the holding period. The 18% discount was calculated based on various studies quantifying discounts for lack of marketability with similar metrics to the Company. The factors considered in the discount for lack of marketability analysis include market value of equity, holding period, total revenue, total assets, volatility, total shareholders’ equity, and net income. Restricted stock studies are a source of public information on the discount for lack of marketability as the focus of these studies is the purchase of restricted securities. Restricted securities are shares issued and sold by a publicly traded company without prior registration with the Securities and Exchange Commission. Because of the restriction on the marketability of the securities, companies purchase the securities at prices lower than the price of a registered security of the same company. The difference between the two prices represents the discount for the lack of marketability. The related compensation expense is being amortized over the twelve-month vesting period. Compensation costs recognized related to these awards totaled $149 and $27 in 2018 and 2017, respectively, and were included in selling, general and administrative in the accompanying consolidated statement of operations.

 

The following table summarizes the activities for the Company’s unvested restricted stock units for the year ended December 31, 2018:

 

      Unvested Restricted Stock Units  

Number of
Shares

      Weighted-
average Grant Date Fair
Value
 
Unvested as of December 31, 2017     42,406     $ 0.87  
Granted     334,955     $ 0.65  
Vested     (197,589 )   $ 0.69  
Forfeited/Cancelled     (16,036 )   $ 0.87  
Unvested as of December 31, 2018     163,736     $ 0.63  

 

There were awards of 31,014 and 2,293 shares of common stock granted to non-employee directors in 2018 and 2017, respectively, that were valued at the closing price of the Company’s common stock at the date of grant and were fully vested on the date of grant.

 

Stock-based compensation expenses were allocated based on the employees’ or non-employees’ functions as follows:

 

    Years ended December 31,  
    2018     2017  
Cost of revenue   $ 137        
Research and development     282       258  
Selling, general and administrative     2,816       2,634  
      Total   $ 3,235     $ 2,892  
v3.19.1
Warrants to Purchase Common Stock
12 Months Ended
Dec. 31, 2018
Warrants To Purchase Common Stock  
Warrants to Purchase Common Stock

10.       Warrants to Purchase Common Stock

 

The table below is a roll-forward of the Company’s warrants activity for the year ended December 31, 2018:

 

      Number of
Warrants
    Weighted-
Average
Exercise Price
 
Outstanding at December 31, 2017       355,028     $ 1.41  
     Granted       8,891,287     $ 1.40  
     Exercised           $  
     Expired           $  
Outstanding at December 31, 2018       9,246,315     $ 1.40  

 

The Company has the following warrants outstanding as December 31, 2018:

 

Exercise Price     Date of
Expiration
    Number of
Warrants
 
$ 1.41       May 28, 2020       355,028  
$ 1.40       March 15, 2028       8,750,000  
$ 1.27       March 15, 2028       141,287  
                  9,246,315  
v3.19.1
Related Party Transactions
12 Months Ended
Dec. 31, 2018
Related Party Transactions [Abstract]  
Related Party Transactions

11.        Related Party Transactions

 

Philips Medical Systems, Nederland B.V.

 

On January 21, 2011, the Company entered into a distributor agreement with Philips appointing Philips to be the sole distributor for the promotion and sale of the Company’s CorPath System. The agreement was terminated on August 7, 2014. The Company may continue to sell CorPath Systems through Philips on a sale by sale basis under a non-exclusive arrangement under mutually agreeable terms, which may include a continued level of discounted pricing, until such time the Company either executes a new distribution arrangement with Philips or the Company no longer does business with Philips.

 

There were no revenues from or shipments to Philips during the years ended December 31, 2018 or 2017. At December 31, 2018 and 2017, there were no amounts outstanding from Philips resulting from the selling activities under the agreement.

 

On October 11, 2017, a warrant to purchase 4,728,191 shares of common stock held by Philips was automatically exercised on a net exercise basis in connection with its expiration. Upon expiration of the warrant, Philips paid the exercise price of $1.06 per share through the Company’s withholding of 3,334,586 of the warrant shares to pay the exercise price and issuing 1,393,605 shares of common stock to Philips. The shares were issued in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.

 

Private Placement

 

On March 16, 2018, the Company closed on a private placement of convertible preferred stock for gross proceeds of $24,671. The preferred stock is convertible into an aggregate of 20,000,000 shares of common stock and is entitled to receive non-compounding dividends in additional shares of preferred stock, at the rate of 12.0% per annum, subject to reduction in the event certain milestones are achieved. The preferred stock purchasers were also issued warrants to purchase an aggregate of 8,750,000 shares of common stock at an exercise price of $1.40 per share, exercisable either for cash or on a cashless basis. Existing investors who participated in this financing included HEC Master Fund LP and BioStar Ventures III, LP.  Additionally, a new investor whose participation in this financing resulted in beneficial ownership of greater than 5% of the Company's common stock was Heritage Medical Systems.

 

On March 15, 2017, the Company closed on a private placement for the sale of an aggregate of 68,055,700 shares of its common stock at $0.6616 per share, for an aggregate purchase price of approximately $45,026 before deducting offering expenses of approximately $415. The financing round involved a syndicate of top-tier healthcare investors. Existing key investors who participated in this financing included HealthCor Partners Management, the Company’s largest shareholder, Royal Philips, an affiliate of Philips, and Energy Capital. New investors whose participation in this financing resulted in beneficial ownership of greater than 5% of the Company’s common stock included Consonance Capital and HEC Master Fund LP.

v3.19.1
Commitments and Contingencies
12 Months Ended
Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

12.          Commitments and Contingencies

 

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 are recognized over the life of the lease on a straight-line basis. The difference between the amounts expensed and actual rent payments is recorded as deferred rents included within other liabilities in the consolidated balance sheets. In connection with the lease, the Company is required to maintain a security deposit with its landlord. The security deposit is approximately $134 at December 31, 2018 and 2017 and is included in deposits and other assets in the accompanying consolidated balance sheets. The Company has a capital lease covering office furniture and carpeting, which expires in November 2020.

  

Total rent expense was $632 and $661 for the years ended December 31, 2018 and 2017, respectively. At December 31, 2018, the Company’s future minimum lease payments are indicated below:

 

For the Year Ended December 31,   Operating 
Lease
    Capital
Lease
 
             
2019   $ 648     $ 67  
2020     664       48  
2021     55        
    $ 1,367       115  
Less amount representing interest             13  
Minimum lease payments             102  
Less current portion of obligation under capital lease             56  
Long-term obligation under capital lease           $ 46  

 

Assets held under the capital lease arrangement and the related accumulated amortization totaled $164 and $55, respectively, at December 31, 2018. Amortization of properties under the capital lease is included in depreciation and amortization in the accompanying financial statements.

v3.19.1
Net Loss per Share
12 Months Ended
Dec. 31, 2018
Earnings Per Share [Abstract]  
Net Loss per Share

13.       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:

 

    As of December 31,  
    2018     2017  
Options to purchase common stock     25,391,173       18,215,932  
Warrants to purchase common stock     9,246,315       355,028  
Restricted stock units     163,736       42,406  
Series A Preferred Stock     20,000,000        
Series A-1 Preferred Stock     1,408,000        
v3.19.1
Restructuring Charge
12 Months Ended
Dec. 31, 2018
Restructuring and Related Activities [Abstract]  
Restructuring Charge

14.       Restructuring Charge

 

In May 2018, the Company undertook cost cutting initiatives which included a reduction in force from each functional area of the Company’s operations. In the second quarter of 2018, the Company recorded a restructuring charge of approximately $349 relating to severance-related costs. As of December 31, 2018, $346 of this amount had been paid and $3 of previously accrued restructuring charges was reversed.

v3.19.1
401(k) Plan
12 Months Ended
Dec. 31, 2018
Retirement Benefits [Abstract]  
401(k) Plan

15.       401(k) Plan

 

The Company has a tax-qualified employee savings and retirement 401(k) plan, covering all qualified employees. Participants may elect a salary deferral up to the statutorily-prescribed annual limit for tax-deferred contributions. The Company matches 100% of the participant’s first 3% of eligible contributions plus 50% of the participant’s next 2% of contributions. Amounts expensed related to this plan totaled $459 and $392 in 2018 and 2017, respectively.

v3.19.1
Selected Quarterly Financial Data (Unaudited)
12 Months Ended
Dec. 31, 2018
Quarterly Financial Information Disclosure [Abstract]  
Selected Quarterly Financial Data (Unaudited)

16.       Selected Quarterly Financial Data (Unaudited)

 

The following table presents unaudited operating results for each of the Company’s quarters in the years ended December 31, 2018 and 2017:

 

    Fiscal Year 2018 Quarters  
    First     Second     Third     Fourth     Year  
Revenue   $ 1,485     $ 1,665     $ 2,958     $ 4,673     $ 10,781  
Cost of revenue     1,929       2,151       1,834       2,759       8,673  
Gross profit (loss)     (444 )     (486 )     1,124       1,914       2,108  
Total operating expense     9,590       9,223       8,403       9,199       36,415  
Operating loss     (10,034 )     (9,709 )     (7,279 )     (7,285 )     (34,307 )
Total other income (expense), net     (16 )     (200 )     (316 )     (150 )     (682 )
Net loss     (10,050 )     (9,909 )     (7,595 )     (7,435 )     (34,989 )
Accretion of beneficial conversion feature of Series A and Series A-1 preferred stock     (5,236 )                 (30 )     (5,266 )
Dividends on preferred stock     (125 )     (753 )     (758 )     (752 )     (2,388 )
Net loss attributable to common stockholders   $ (15,411 )   $ (10,662 )   $ (8,353 )   $ (8,217 )   $ (42,643 )
Net loss per share attributable to common stockholders – basic and diluted   $ (0.08 )   $ (0.06 )   $ (0.04 )   $ (0.04 )   $ (0.22 )

 

    Fiscal Year 2017 Quarters  
    First     Second     Third     Fourth     Year  
Revenue   $ 777     $ 2,258     $ 2,425     $ 4,190     $ 9,650  
Cost of revenue     1,892       2,200       2,183       2,990       9,265  
Gross profit (loss)     (1,115 )     58       242       1,200       385  
Total operating expense     8,636       8,395       8,081       9,182       34,294  
Operating loss     (9,751 )     (8,337 )     (7,839 )     (7,982 )     (33,909 )
Total other income (expense), net     (134 )     (77 )     (14 )     11       (214 )
Net loss attributable to common stockholders   $ (9,885 )   $ (8,414 )   $ (7,853 )   $ (7,971 )   $ (34,123 )
Net loss per share attributable to common stockholders – basic and diluted   $ (0.07 )   $ (0.04 )   $ (0.04 )   $ (0.04 )   $ (0.20 )

 

Note: Quarterly amount of net loss per share attributable to common stockholders – basic and diluted may not sum to the amount for the year due to rounding.

v3.19.1
Subsequent Events
12 Months Ended
Dec. 31, 2018
Subsequent Events [Abstract]  
Subsequent Events

17.          Subsequent Events

 

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 approximately $19,800 and the aggregate net proceeds was approximately $19,500. 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.

 

The Company is required to register the shares sold in the Private Placement for resale and is required to prepare and file a registration statement with the Securities and Exchange Commission within 90 days of each closing of the Private Placement, and to use commercially reasonable efforts to have such registration statement declared effective within 180 days of such closing.

 

On March 14, 2019, the Company entered into the first amendment (the “Amendment”) to the loan and security agreement (the “Loan Agreement”) by and among Silicon Valley Bank (“SVB”), as collateral agent, and the lenders party thereto from time to time, including Solar Capital Ltd. and SVB, dated March 16, 2018 (the “Effective Date”). The Amendment provides the Company with an additional term loan of $2,750 (the “New Term Loan”), all of which was outstanding principal as of March 14, 2019. The New Term Loan bears interest at a floating rate per annum equal to the greater of (i) 8.83% and (ii) the sum of (a) the one month ICE Benchmark LIBOR based on U.S. Dollar deposits, plus (b) 7.25%. Proceeds from the New Term Loan may be used for working capital and general business purposes. The New Term Loan is secured by substantially all of the Company’s personal property, other than its intellectual property. The New Term Loan restricts the Company’s ability to grant any interest in its intellectual property other than certain permitted licenses and permitted encumbrances set forth in the Loan Agreement. The Company is required to make monthly interest-only payments on the New Term Loan commencing on April 1, 2019, and continuing on the first calendar day of each calendar month thereafter through March 31, 2020. Commencing on April 1, 2020, and continuing on the first calendar day of each calendar month thereafter, the Company is required to make consecutive equal monthly payments of principal, together with applicable interest, in arrears to each lender, calculated pursuant to the Loan Agreement. All unpaid principal and accrued and unpaid interest with respect to the New Term Loan is due and payable in full on March 1, 2022. Upon repayment of the New Term Loan, the Company is also required to make a final payment to the lenders equal to 6.0% of the original principal amount of the New Term Loan. At the Company’s option, the Company may prepay the outstanding principal balance of the New Term Loan in whole but not in part, subject to a prepayment fee of 2.5% of any amount prepaid prior to the first anniversary of the Effective Date, 1.5% of the amount prepaid if the prepayment occurs after the first anniversary of the Effective Date through and including the second anniversary of the Effective Date, or 1.0% of the amount prepaid if the prepayment occurs after the second anniversary of the Effective Date through and including the third anniversary of the Effective Date. Except as amended by the Amendment, all other the terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Agreement and other loan documents remain in full force and effect.

 

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.

v3.19.1
Significant Accounting Policies (Policies)
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Principles of Consolidation

Principles of Consolidation

 

The 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 December 31, 2018, the Company’s Chief Executive Officer and one of its senior executives represented two of the three 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 $24 and $36 for the years ended December 31, 2018 and 2017, respectively and other income of $40 and $0 for the years ended December 31, 2018 and 2017, respectively. The entity had assets and liabilities of $33 and $1, respectively, on its balance sheet at December 31, 2018 and had assets and liabilities of $15 and $7, respectively, on its balance sheet at December 31, 2017.

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 the United States Generally Accepted Accounting Principles (the “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.

Cash and Cash Equivalents

Cash and Cash Equivalents

 

The Company considers money market funds and other highly liquid short-term investments with original maturity dates of three months or less at the purchase date, to be cash equivalents. From time to time, the Company’s cash balances may exceed federal deposit insurance limits.

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.

 

During 2018, the Company had two items, cash equivalents and warrant liability, measured at fair value on a recurring basis. The warrant liability was reclassed to equity as of December 31, 2018 as described in Note 6. The Company had cash equivalents (measured at fair value on a recurring basis) totaling $23,849 and $0 at December 31, 2018 and 2017, respectively, which were valued based on Level l inputs. The warrant liability relates to warrants to purchase shares of the Company’s common stock that were issued to the Company’s lenders in connection with a debt financing arrangement executed on March 16, 2018. See Note 8 for additional details. 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.

 

In order to determine the fair value of these warrants, the Company utilized a Monte-Carlo simulation in combination with a Black-Scholes-Merton option pricing model (“Black-Scholes Model”). Estimates and assumptions impacting the fair value measurement include the fair value of the underlying shares of common stock, the remaining contractual term of the warrant, risk-free interest rate, expected dividend yield, expected volatility of the price of the underlying preferred stock and management’s assessment of the probability of additional borrowing on the credit facility. Due to the available public market information for the Company’s common stock for only a limited period of time, the Company estimates its expected stock volatility based on a blended approach utilizing the Company’s historical volatility and the historical volatility of publicly traded guideline companies for a term equal to the estimated remaining contractual term of the warrants. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of the warrants. The Company estimated no expected dividend yield based on the fact that the Company has never paid or declared dividends on its common stock and does not intend to do so in the foreseeable future. The Company also estimated the number of shares issuable under the warrant based upon its assessment of the timing and amounts of future advances drawn under the financing arrangement.

 

The assumptions that the Company used to determine the fair value of these warrants are as follows:

 

    March 16, 2018
(Date of Issuance)
    December 31,
2018
 
Volatility     75.0% to 83.0%       81.0 %
Risk-free interest rate     2.8 %     2.7 %
Estimated term (in years)     8.5 to 10.0       9.2  

 

The following table sets forth a summary of changes in fair value of the Company’s common stock warrant based on Level 3 inputs:

 

Balance at December 31, 2017   $  
Issuance of warrants in connection with debt financing arrangements     210  
Revaluation of warrants     (120 )
Reclass to equity     (90 )
Balance at December 31, 2018   $  

 

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 capital lease obligation approximates their carrying values due to their recent negotiation and variable market rate for the long-term debt.

Concentrations of Credit Risk and Significant Customers

Concentrations of Credit Risk and Significant Customers

 

The Company had the following customers that accounted for greater than 10.0% of its revenues for the years ended December 31, 2018 and 2017, respectively:

 

      For the Year ended December 31,  
Customer