Ekso Bionics(EKSO) - 2019 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the first quarter of 2019 Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations and comprehensive loss, statements of stockholders' equity, and statements of cash flows, along with detailed notes explaining accounting policies, financial instruments, and significant transactions for the period ended March 31, 2019 Condensed Consolidated Balance Sheets This section presents the company's financial position, including assets, liabilities, and equity, at specific reporting dates Condensed Consolidated Balance Sheets (in thousands) | Metric (in thousands) | March 31, 2019 (unaudited) | December 31, 2018 | | :-------------------- | :------------------------- | :------------------ | | Total Assets | $20,860 | $17,655 | | Total Liabilities | $16,326 | $14,927 | | Total Stockholders' Equity | $4,534 | $2,728 | Condensed Consolidated Statements of Operations and Comprehensive Loss This section details the company's revenues, cost of revenues, operating expenses, and net loss over specific reporting periods Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands) | Metric (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Revenue | $3,616 | $2,518 |\ | Cost of Revenue | $2,017 | $1,751 |\ | Gross Profit | $1,599 | $767 |\ | Total Operating Expenses | $6,511 | $9,380 |\ | Loss from Operations | $(4,912) | $(8,613) |\ | Net Loss | $(6,551) | $(7,901) |\ | Basic and Diluted Net Loss Per Share | $(0.10) | $(0.13) | - Revenue increased by 44% ($1,098 thousand) for the three months ended March 31, 2019, compared to the same period in 2018[14][171] - Gross profit increased by 108% ($832 thousand) for the three months ended March 31, 2019, compared to the same period in 2018[14][173] Condensed Consolidated Statements of Stockholders' Equity This section outlines changes in the company's total stockholders' equity and its components over specific reporting periods Condensed Consolidated Statements of Stockholders' Equity (in thousands) | Metric (in thousands) | Balance at Dec 31, 2018 | Net Loss | Equity Financing, net | Stock-based Compensation | Foreign Currency Translation Adjustments | Balance at Mar 31, 2019 | | :-------------------- | :---------------------- | :------- | :-------------------- | :----------------------- | :--------------------------------------- | :---------------------- | | Total Stockholders' Equity | $2,728 | $(6,551) | $7,305 | $636 | $148 | $4,534 | Condensed Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from the company's operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net Cash Used in Operating Activities | $(5,177) | $(6,745) |\ | Net Cash Used in Investing Activities | $(7) | $(31) |\ | Net Cash Provided by (Used in) Financing Activities | $6,769 | $(399) |\ | Net Increase (Decrease) in Cash | $1,581 | $(7,241) |\ | Cash at End of Period | $9,236 | $20,572 | - Net cash used in operating activities decreased by $1.6 million (23%) for the three months ended March 31, 2019, primarily due to decreased employment costs, lower consulting and marketing costs, and increased cash collections from sales[189] - Net cash provided by financing activities was $6.8 million in Q1 2019, driven by $2.3 million from common stock sales under the ATM program and $5.0 million from equity investors associated with the China JV, offset by $0.6 million in principal payments on debt[190] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for accounting policies, financial instruments, and significant transactions 1. Organization This note describes the company's business, products, financial condition, and going concern considerations - Ekso Bionics designs, develops, and sells exoskeleton technology for medical rehabilitation (Ekso GT) and industrial use (EksoVest, EksoZeroG)[25][157][158][159] - The Company had an accumulated deficit of $177.7 million as of March 31, 2019, and has incurred significant operating losses and negative cash flows since inception[26][182] - Cash on hand was $9.2 million at March 31, 2019, but after considering restricted cash ($4.9 million), effective unrestricted cash was $4.3 million, raising substantial doubt about the Company's ability to continue as a going concern for the next twelve months[27][183] - The Company is actively pursuing additional financing through equity/debt and corporate collaborations to fund operations and continued investments in clinical, sales, R&D, and commercialization activities[28][29][185][186] 2. Basis of Presentation and Summary of Significant Accounting Policies and Estimates This note outlines accounting principles, estimates, and the impact of new accounting standard adoptions - The Company adopted ASU No. 2016-02, Leases (Topic 842), effective January 1, 2019, recognizing right-of-use assets and corresponding lease liabilities of $1.454 million and $1.498 million, respectively, upon adoption[42][59][60][167][168] - The adoption of ASC 842 did not materially impact the Company's condensed consolidated statements of operations or cash flows, nor its long-term debt financial covenants[60][168] 3. Accumulated Other Comprehensive Income (Loss) This note details the components of accumulated other comprehensive income, specifically foreign currency translation adjustments Accumulated Other Comprehensive Income (Loss) (in thousands) | Metric (in thousands) | Foreign Currency Translation | | :-------------------- | :--------------------------- | | Balance at Dec 31, 2018 | $(92) |\ | Current period other comprehensive income | $148 |\ | Balance at Mar 31, 2019 | $56 | 4. Fair Value Measurements This note presents the fair value hierarchy and measurements for financial instruments, including warrant and contingent liabilities Fair Value Measurements of Liabilities (in thousands) | Liability (in thousands) | March 31, 2019 | December 31, 2018 | | :----------------------- | :------------- | :---------------- | | Warrant liabilities | $1,964 | $585 |\ | Contingent success fee liability | $35 | $34 | - The warrant liability increased significantly from $585 thousand at December 31, 2018, to $1,964 thousand at March 31, 2019, primarily due to a $1.122 million loss on revaluation of warrants and a $257 thousand loss on modification of warrants[68] 5. Inventories, net This note provides a detailed breakdown of the company's inventory components and their net valuation Inventories, Net Breakdown (in thousands) | Inventory Component (in thousands) | March 31, 2019 | December 31, 2018 | | :--------------------------------- | :------------- | :---------------- | | Raw materials | $2,967 | $2,676 |\ | Work in progress | $303 | $331 |\ | Finished goods | $335 | $730 |\ | Less: inventory reserve | $(305) | $(366) |\ | Inventories, net | $3,300 | $3,371 | 6. Revenue Recognition This note explains the company's revenue recognition policies and provides details on deferred revenue and revenue by source Deferred Revenue (in thousands) | Deferred Revenue (in thousands) | March 31, 2019 | December 31, 2018 | | :------------------------------ | :------------- | :---------------- | | Deferred extended maintenance and support | $2,281 | $2,114 |\ | Total deferred revenues | $2,710 | $2,597 |\ | Less current portion | $(1,211) | $(1,102) |\ | Deferred revenues, non-current | $1,499 | $1,495 | - The Company expects to recognize approximately $764 thousand of deferred revenue in the remainder of 2019, $788 thousand in 2020, and $1,103 thousand thereafter[76] Revenue by Source (in thousands) | Revenue Source (in thousands) | EksoHealth | EksoWorks | Total | | :---------------------------- | :--------- | :-------- | :---- | | Device revenue | $2,075 | $717 | $2,792 |\ | Service, support and rentals | $705 | — | $705 |\ | Parts and other | $34 | $85 | $119 |\ | Total Revenue | $2,814 | $802 | $3,616 | 7. Investment in Unconsolidated Affiliate This note describes the formation of a joint venture in China and the related equity investment and technology transfer agreements - The Company entered into a joint venture agreement on January 30, 2019, to establish Exoskeleton Intelligent Robotics Co. Limited (the 'Investee') in China, aiming to develop and serve the exoskeleton market in China and other Asian markets and create a global manufacturing center[83] - The Company will receive a 20% ownership interest in the Investee by transferring licenses for its manufacturing technology and relevant Chinese patent rights, and will also receive royalties on the Investee's medical and industrial product sales in certain Asian markets[84] - In connection with the JV, ZYVC invested $5.0 million in the Company's common stock in February 2019, with a further $5.0 million investment contingent upon the first product shipment from the manufacturing facility[86][113][161] 8. Accrued Liabilities This note details the composition of the company's accrued liabilities, including salaries, warranty, and clinical trial costs Accrued Liabilities Breakdown (in thousands) | Accrued Liability (in thousands) | March 31, 2019 | December 31, 2018 | | :------------------------------- | :------------- | :---------------- | | Salaries, benefits and related expenses | $2,458 | $2,446 |\ | Device warranty | $289 | $307 |\ | Clinical trials | $273 | $227 |\ | Severance | $116 | $270 |\ | Other | $114 | $256 |\ | Total | $3,286 | $3,541 | 9. Long-Term Debt This note outlines the terms of the company's long-term loan agreement, including interest rates, maturity, and liquidity covenants - The Company has a loan agreement from December 2016 for $7.0 million, bearing interest at 30-day U.S. LIBOR plus 5.41%, maturing on January 1, 2021, with a final payment of $245 thousand[92][93] - A liquidity covenant requires maintaining unrestricted cash equal to at least three months of 'Monthly Cash Burn,' which was $4.908 million as of March 31, 2019. The Company was compliant with $9.236 million cash on hand[98] Scheduled Principal Payments on Long-Term Debt (in thousands) | Scheduled Principal Payments (in thousands) | Amount | | :---------------------------------------- | :----- | | 2019 - remainder | $1,750 |\ | 2020 | $2,333 |\ | 2021 | $440 |\ | Total principal payments | $4,523 | 10. Lease Obligations This note describes the company's operating lease commitments for facilities and presents related financial metrics - The Company renewed its headquarters and manufacturing facility lease in Richmond, CA, expiring May 2022, and has an operating lease for its European office in Hamburg, Germany, ending July 2022[101][102] Operating Lease Payments (in thousands) | Lease Payments (in thousands) | Operating Leases | | :---------------------------- | :--------------- | | 2019 - remainder | $406 |\ | 2020 | $551 |\ | 2021 | $564 |\ | 2022 | $261 |\ | Total lease payments | $1,782 |\ | Present value of lease liabilities | $1,412 |\ | Weighted-average remaining lease term | 3.2 years |\ | Weighted-average discount rate | 10.5% | 11. Capitalization and Equity Structure This note provides details on the company's common stock, equity offerings, and modifications to warrant liabilities - As of March 31, 2019, the Company had 67,529 thousand shares of common stock issued and outstanding[109][18] - The Company sold 1,294 thousand shares of common stock under its at-the-market (ATM) offering program for $2.3 million net proceeds in Q1 2019, with $17.734 million remaining available[112][162] - In connection with the China JV, the Company sold 3,067 thousand shares of common stock for $5.0 million at $1.63 per share on January 30, 2019[113][161] - The Company recorded a $257 thousand loss on modification of 2015 Warrants due to a reduction in their exercise price from $3.74 to $2.75 per share[117][179] 12. Stock-based Compensation This note presents information on stock option activity, unrecognized compensation cost, and stock-based compensation expense Stock Options Activity (in thousands) | Stock Options Activity (in thousands) | Stock Awards | Weighted-Average Exercise Price | | :------------------------------------ | :----------- | :------------------------------ | | Balance as of Dec 31, 2018 | 6,466 | $3.05 |\ | Options granted | 65 | $2.23 |\ | Options exercised | (54) | $1.23 |\ | Options forfeited | (372) | $2.07 |\ | Balance as of Mar 31, 2019 | 6,105 | $3.12 | - Total unrecognized compensation cost for unvested stock options was $4.856 million, expected to be recognized over 2.85 years[122] Stock-based Compensation Expense (in thousands) | Stock-based Compensation Expense (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :---------------------------------------------- | :-------------------------------- | :-------------------------------- | | Sales and marketing | $223 | $109 |\ | Research and development | $45 | $179 |\ | General and administrative | $368 | $604 |\ | Total | $636 | $892 | 13. Income Taxes This note discusses the company's income tax position, including unrecognized tax benefits and open tax examination years - There were no material changes to unrecognized tax benefits in Q1 2019, and due to a history of tax losses, all years remain open to tax examination[130] 14. Commitments and Contingencies This note outlines the company's contractual obligations, royalty agreements, purchase commitments, and legal matters - The Company has license agreements requiring 1% royalty on net sales (excluding U.S. government sales) and minimum annual royalties of $50 thousand[134][193] - Purchase obligations, primarily for inventory and manufacturing services, totaled $1.221 million as of March 31, 2019, expected to be paid within one year[136][195] - Management believes the resolution of current legal matters will not have a material adverse effect on the condensed consolidated financial statements[137] 15. Net Loss Per Share This note provides the calculation of basic and diluted net loss per share for the reporting periods Net Loss Per Share Calculation (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :----- | :-------------------------------- | :-------------------------------- | | Net loss applicable to common stockholders | $(6,551) | $(7,901) |\ | Weighted-average number of shares, basic and diluted | 65,067 | 60,146 |\ | Net loss per share, basic and diluted | $(0.10) | $(0.13) | 16. Segment Disclosures This note presents financial performance data segmented by the company's operating segments and geographic regions - The Company operates in two reportable segments: EksoHealth (medical devices) and EksoWorks (industrial devices)[141] Segment Performance (in thousands) | Segment Performance (in thousands) | EksoHealth (2019) | EksoWorks (2019) | Total (2019) | EksoHealth (2018) | EksoWorks (2018) | Total (2018) | | :--------------------------------- | :---------------- | :--------------- | :----------- | :---------------- | :--------------- | :----------- | | Revenue | $2,814 | $802 | $3,616 | $2,122 | $396 | $2,518 |\ | Cost of revenue | $1,300 | $717 | $2,017 | $1,387 | $364 | $1,751 |\ | Gross profit | $1,514 | $85 | $1,599 | $735 | $32 | $767 | Geographic Revenue (in thousands) | Geographic Revenue (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | United States | $2,371 | $1,353 |\ | All Other | $1,245 | $1,165 |\ | Total | $3,616 | $2,518 | 17. Related Party Transactions This note details transactions with entities affiliated with the company's directors and major stockholders - The Company paid $30 thousand for consulting services to Angel Pond Capital LLC, an entity affiliated with a director and major stockholder, for strategic positioning in the Asia Pacific region[144] - A contingent payment of $1.0 million is due to Angel Pond upon the formation and registration of the China joint venture[145] 18. Subsequent Events This note discloses significant events that occurred after the balance sheet date, specifically an amendment to the China JV agreement - An amendment to the China JV Agreement on April 30, 2019, reduced the initial capital contributions required from JV Partners within 90 days from 30% (RMB 187.2 million) to 10% (RMB 62.4 million)[150] - The JV Partners are now required to contribute RMB 124.8 million upon notice by the China JV based on its operating plan, with the remaining RMB 436.8 million paid over 10 years[150] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance, liquidity, and capital resources for the three months ended March 31, 2019, highlighting key operational achievements, critical accounting policies, and the impact of new accounting standards Overview This section provides a general description of the company's business, products, and market opportunities for exoskeleton technology - The Company designs, develops, and sells exoskeleton technology for medical rehabilitation (Ekso GT) and industrial applications (EksoVest, EksoZeroG)[157][158][159] - The Ekso GT is used for stroke and spinal cord injury rehabilitation, while EksoVest assists industrial workers with heavy-duty tasks[158][159] - The Company believes the commercial opportunity for exoskeleton technology is accelerating due to advancements in material, electronic, control, sensor, and software technologies[160] First Quarter 2019 Highlights This section summarizes key operational and financial achievements during the first quarter of 2019, including the China JV and equity offerings - Entered into a joint venture agreement in January 2019 to form a Chinese limited liability company for the exoskeleton market in China and other Asian markets, and to establish a global manufacturing center[161] - Received $5.0 million in proceeds from the sale of 3,067,485 shares of common stock to a China JV partner affiliate in February 2019[161] - Sold 1.3 million shares of common stock under the at-the-market offering program for $2.3 million net proceeds and booked 23 Ekso GT units (9 rentals, 4 conversions to sales) in Q1 2019[162] Critical Accounting Policies and Estimates This section discusses the significant accounting policies and estimates that require management's judgment in preparing the financial statements - The preparation of financial statements requires management to make estimates, judgments, and assumptions that affect reported amounts, including revenue recognition, deferred revenue, warranty costs, leases, inventory valuation, and stock options[163][166] Adoption of New Accounting Policy This section explains the impact of adopting new accounting standards, specifically ASC 842 on leases, on the company's financial statements - The adoption of ASC 842 (Leases) on January 1, 2019, resulted in a material impact on the balance sheet, with the recognition of $1.5 million in right-of-use assets and $1.5 million in corresponding lease liabilities[167][168] - The adoption did not materially impact the condensed consolidated statements of operations or cash flows, nor the financial covenants of the long-term debt agreement[168] Results of Operations This section analyzes the company's financial performance, including revenue, gross profit, operating expenses, and net loss, for the reporting periods Results of Operations (in thousands) | Metric (in thousands) | 2019 | 2018 | Change | % Change | | :-------------------- | :---------- | :---------- | :---------- | :------- | | Revenue | $3,616 | $2,518 | $1,098 | 44% |\ | Cost of Revenue | $2,017 | $1,751 | $266 | 15% |\ | Gross profit | $1,599 | $767 | $832 | 108% |\ | Sales and marketing | $2,809 | $3,853 | $(1,044) | (27)% |\ | Research and development | $1,384 | $1,808 | $(424) | (23)% |\ | General and administrative | $2,317 | $3,738 | $(1,421) | (38)% |\ | Total operating expenses | $6,511 | $9,380 | $(2,869) | (31)% |\ | Loss from operations | $(4,912) | $(8,613) | $3,701 | (43)% |\ | Net loss | $(6,551) | $(7,901) | $1,350 | (17)% | - Revenue increased by $1.1 million (44%) in Q1 2019, driven by a $0.7 million increase in EksoHealth revenue and a $0.4 million increase in EksoWorks revenue due to higher device sales volume[171] - Operating expenses decreased significantly across sales and marketing (-27%), research and development (-23%), and general and administrative (-38%), primarily due to lower employment costs, reduced advertising, and the absence of a prior-year severance charge[174][175][176] - A $1.1 million loss on revaluation of warrant liability in Q1 2019 (compared to a $0.7 million gain in Q1 2018) was caused by an increase in the Company's stock price, and a $0.3 million loss was recorded due to warrant modification[178][179] Financial Condition, Liquidity and Capital Resource This section discusses the company's financial position, cash flows, liquidity, capital resources, and going concern considerations - The Company had an accumulated deficit of $177.7 million and used $5.2 million in cash from operations in Q1 2019, leading to substantial doubt about its ability to continue as a going concern[182][183] - Cash on hand at March 31, 2019, was $9.2 million, with $4.3 million considered unrestricted after accounting for debt covenant requirements[183] - The Company is actively seeking additional financing through equity, debt, and corporate collaborations to fund ongoing operations and strategic investments[185][186] Contractual Obligations (in thousands) | Contractual Obligation (in thousands) | Total | Less than One Year | 1-3 Years | 3-5 Years | After 5 Years | | :------------------------------------ | :---- | :----------------- | :-------- | :-------- | :------------ | | Term loan | $4,847 | $2,587 | $2,260 | — | — |\ | Facility operating leases | $1,782 | $543 | $1,239 | — | — |\ | Purchase obligations | $1,221 | $1,221 | — | — | — |\ | Financing lease | $48 | $36 | $12 | — | — |\ | Total | $7,898 | $4,387 | $3,511 | — | — | Item 3. Quantitative and Qualitative Disclosures About Market Risk This section addresses the Company's exposure to market risks, specifically inflation and foreign exchange rate fluctuations, noting that inflation has not had a material effect to date but acknowledging exposure to foreign currency risk due to international operations - The Company does not believe inflation has had a material effect on its business, but an inability to offset higher costs from significant inflationary pressures could harm financial results[197] - The Company is exposed to exchange rate risk due to conducting business in foreign countries and having subsidiaries in Germany and Singapore[198] Item 4. Controls and Procedures Management, including the principal executive and financial officers, evaluated the effectiveness of disclosure controls and procedures as of March 31, 2019, concluding they were effective. No material changes in internal control over financial reporting occurred during the quarter - Management concluded that disclosure controls and procedures were effective as of March 31, 2019, ensuring timely and accurate reporting of required information[200] - There were no changes in internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[203] PART II. OTHER INFORMATION This section provides information on legal proceedings, risk factors, other disclosures, exhibits, and official signatures Item 1. Legal Proceedings This section provides updates on ongoing shareholder derivative actions filed against the Company and its officers/directors, primarily related to previously disclosed material weaknesses in internal controls. The Company maintains that the lawsuits are without merit and plans to defend against them - Multiple shareholder derivative actions (D'Arcy v. Looby et al., Elmes v. Peurach et al.) have been filed, alleging breach of fiduciary duties, unjust enrichment, and gross mismanagement, stemming from a material weakness in internal controls identified in December 2017[205][206] - The Company's management believes these lawsuits are without merit and intends to defend against them[205][206] Item 1A. Risk Factors This section updates previously disclosed risk factors, specifically highlighting new risks associated with the China Joint Venture, including potential U.S. regulatory review by CFIUS and the Department of Commerce, which could lead to delays, restrictions, or adverse impacts on the JV's operations and technology transfer - The China JV and related equity investment may be subject to review by the Committee on Foreign Investment in the United States (CFIUS), which has broad discretion to assert jurisdiction and impose mitigation measures or even compel abandonment if national security concerns are identified[209][213][214] - The Department of Commerce could also require licenses for exporting items or technology to certain destinations, potentially delaying or restricting the Company's ability to transfer manufacturing technology to the China JV[215] - Any U.S. government actions related to the China JV could materially and adversely affect the JV, and consequently, the Company's business, financial condition, and operating results[214][216] Item 5. Other Information This section refers readers to Note 18, 'Subsequent Events,' within the financial statements for additional information - Refers to Note 18, 'Subsequent Events,' in the financial statements for additional information[217] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including key agreements, certifications, and financial statements in XBRL format - Key exhibits include the Equity Joint Venture Contract, Share Purchase Agreement, certifications of CEO and CFO, and financial statements in XBRL format[219] Signatures This section contains the official signatures of the Company's President and Chief Executive Officer, and Chief Financial Officer, certifying the report - The report is signed by Jack Peurach, President and Chief Executive Officer, and John F. Glenn, Chief Financial Officer, on May 1, 2019[224]