Ekso Bionics(EKSO) - 2019 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This item includes the company's unaudited condensed consolidated balance sheets, statements of operations and comprehensive loss, statements of stockholders' equity, statements of cash flows, and accompanying notes, providing a detailed financial overview for the reported periods Condensed Consolidated Balance Sheets The balance sheets show an increase in total assets and stockholders' equity from December 31, 2018, to June 30, 2019, primarily driven by an increase in cash and additional paid-in capital, despite an accumulated deficit Balance Sheet Summary (in thousands) | Metric | June 30, 2019 | December 31, 2018 | Change ($) | Change (%) | | :------------------------- | :------------ | :---------------- | :--------- | :--------- | | Cash | $13,262 | $7,655 | $5,607 | 73.2% | | Total Current Assets | $22,133 | $14,967 | $7,166 | 47.9% | | Total Assets | $25,583 | $17,655 | $7,928 | 44.9% | | Total Current Liabilities | $9,343 | $10,132 | $(789) | (7.8%) | | Total Liabilities | $20,179 | $14,927 | $5,252 | 35.2% | | Total Stockholders' Equity | $5,404 | $2,728 | $2,676 | 98.1% | | Accumulated Deficit | $(180,763) | $(171,146) | $(9,617) | (5.6%) | Condensed Consolidated Statements of Operations and Comprehensive Loss For the three months ended June 30, 2019, the company reported a significant reduction in net loss and an increase in gross profit compared to the prior year, driven by higher revenue and a substantial gain on revaluation of warrant liabilities, despite increased warrant issuance expenses Three Months Ended June 30 (in thousands, except per share) | Metric | 2019 | 2018 | Change ($) | Change (%) | | :----------------------------------- | :---------- | :---------- | :--------- | :--------- | | Revenue | $3,262 | $2,967 | $295 | 10% | | Cost of Revenue | $1,702 | $2,000 | $(298) | (15%) | | Gross Profit | $1,560 | $967 | $593 | 61% | | Total Operating Expenses | $6,658 | $8,152 | $(1,494) | (18%) | | Loss from Operations | $(5,098) | $(7,185) | $2,087 | (29%) | | Gain (loss) on revaluation of warrant liabilities | $2,737 | $(213) | $2,950 | (1385%) | | Warrant issuance expense | $(706) | $0 | $(706) | N/A | | Net Loss | $(3,066) | $(7,978) | $4,912 | (62%) | | Basic and Diluted Net Loss Per Share | $(0.04) | $(0.13) | $0.09 | (69%) | Six Months Ended June 30 (in thousands, except per share) | Metric | 2019 | 2018 | Change ($) | Change (%) | | :----------------------------------- | :---------- | :---------- | :--------- | :--------- | | Revenue | $6,878 | $5,486 | $1,392 | 25% | | Cost of Revenue | $3,719 | $3,750 | $(31) | (1%) | | Gross Profit | $3,159 | $1,736 | $1,423 | 82% | | Total Operating Expenses | $13,169 | $17,532 | $(4,363) | (25%) | | Loss from Operations | $(10,010) | $(15,796) | $5,786 | (37%) | | Gain on revaluation of warrant liabilities | $1,615 | $520 | $1,095 | 211% | | Loss on modification of warrant | $(257) | $0 | $(257) | N/A | | Warrant issuance expense | $(706) | $0 | $(706) | N/A | | Net Loss | $(9,617) | $(15,877) | $6,260 | (39%) | | Basic and Diluted Net Loss Per Share | $(0.14) | $(0.26) | $0.12 | (46%) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity increased significantly from December 31, 2018, to June 30, 2019, primarily due to equity financing and stock-based compensation, despite ongoing net losses Stockholders' Equity Changes (in thousands) | Item | Six Months Ended June 30, 2019 | | :--------------------------------- | :----------------------------- | | Balance at December 31, 2018 | $2,728 | | Net loss | $(9,617) | | Equity financing, net | $9,698 | | Stock-based compensation expense | $1,193 | | Foreign currency translation adjustments | $42 | | Balance at June 30, 2019 | $5,404 | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2019, the company experienced a net increase in cash, primarily driven by significant cash provided by financing activities, which offset the cash used in operating and investing activities Cash Flow Summary (Six Months Ended June 30, in thousands) | Activity | 2019 | 2018 | Change ($) | Change (%) | | :---------------------------------------- | :---------- | :---------- | :--------- | :--------- | | Net cash used in operating activities | $(9,708) | $(12,804) | $3,096 | (24%) | | Net cash used in investing activities | $(60) | $(31) | $(29) | 93.5% | | Net cash provided by (used in) financing activities | $15,368 | $(994) | $16,362 | (1646%) | | Net increase (decrease) in cash | $5,607 | $(13,923) | $19,530 | (140%) | | Cash at end of period | $13,262 | $13,890 | $(628) | (4.5%) | Non-cash Activities (Six Months Ended June 30, in thousands) | Item | 2019 | 2018 | | :---------------------------------------- | :------ | :------ | | Initial recognition of operating lease right-of-use assets | $1,454 | $0 | | Initial recognition of operating lease liabilities | $1,498 | $0 | | Share issuance for employee bonuses | $919 | $230 | Notes to Condensed Consolidated Financial Statements These notes provide detailed disclosures on the company's accounting policies, financial instruments, debt, equity, and other significant financial information, offering context to the condensed consolidated financial statements 1. Organization Ekso Bionics designs, develops, and sells exoskeleton technology for medical rehabilitation (Ekso GT, EksoUE) and industrial use (EksoVest, EksoZeroG). The company has a significant accumulated deficit and negative cash flows from operations, raising substantial doubt about its ability to continue as a going concern beyond Q4 2019 without additional financing - Ekso Bionics designs, develops, and sells exoskeleton technology for medical (stroke, spinal cord injury rehabilitation) and industrial (heavy duty work) markets[21][164][165] - The company had an accumulated deficit of $180,763 thousand as of June 30, 2019, and used $9,708 thousand cash in operations for the six months ended June 30, 2019[22] - Cash on hand at June 30, 2019, was $13,262 thousand, with $4,546 thousand restricted, leaving $8,716 thousand unrestricted. This raises substantial doubt about the company's ability to continue as a going concern for the next twelve months without additional financing, with current resources projected to last until late Q4 2019[24][25] - The company is actively pursuing opportunities to obtain additional financing through public or private equity and/or debt financings and corporate collaborations[26] 2. Basis of Presentation and Summary of Significant Accounting Policies and Estimates The financial statements are unaudited, prepared in accordance with SEC rules and U.S. GAAP, and include normal recurring adjustments. Key accounting policies cover revenue recognition, leases (adopted ASC 842 in Q1 2019), foreign currency, investments in unconsolidated affiliates, variable interest entities, inventory valuation, government grants, and concentration of credit risk - The unaudited condensed consolidated financial statements are prepared consistent with the 2018 10-K, include normal recurring adjustments, and adhere to SEC rules and U.S. GAAP[27][29] - The company adopted ASC 842 (Leases) effective January 1, 2019, using the modified retrospective transition method, recognizing right-of-use assets and lease liabilities of $1,454 thousand and $1,498 thousand, respectively, upon adoption. This had no material impact on operations or cash flows[40][61][62] - Revenue is recognized upon transfer of control of products or services, disaggregated by medical (EksoHealth) and industrial (EksoWorks) segments[43][46][47] - In the three months ended June 30, 2019, one customer accounted for 31% of total revenue. For the six months ended June 30, 2019, one customer accounted for 21% of total revenue[56][57] 3. Accumulated Other Comprehensive Income (Loss) The accumulated other comprehensive loss improved from $(92) thousand at December 31, 2018, to $(50) thousand at June 30, 2019, primarily due to positive foreign currency translation adjustments Accumulated Other Comprehensive Income (Loss) (in thousands) | Item | Amount | | :--------------------------------- | :----- | | Balance at December 31, 2018 | $(92) | | Current period other comprehensive income | $42 | | Balance at June 30, 2019 | $(50) | 4. Fair Value Measurements The company measures certain financial liabilities, specifically warrant liabilities and contingent success fees, at fair value using Level 3 unobservable inputs, with warrant liabilities showing a significant increase from December 2018 to June 2019 due to new issuances Fair Value Hierarchy (in thousands) | Liability | June 30, 2019 | December 31, 2018 | Level | | :--------------------------------- | :------------ | :---------------- | :---- | | Warrant liabilities | $6,561 | $585 | 3 | | Contingent success fee liability | $35 | $34 | 3 | Changes in Level 3 Financial Liabilities (in thousands) | Item | Warrant Liability | Contingent Success Fee Liability | | :----------------------------------------------------------------- | :---------------- | :------------------------------- | | Balance at December 31, 2018 | $585 | $34 | | Initial fair value of warrants issued in May 2019 financing | $7,334 | — | | Gain on revaluation of warrants | $(1,615) | — | | Loss on modification of December 2015 warrants | $257 | — | | Loss on revaluation of contingent liabilities | — | $1 | | Balance at June 30, 2019 | $6,561 | $35 | 5. Inventories, net Net inventories increased to $3,724 thousand at June 30, 2019, from $3,371 thousand at December 31, 2018, primarily due to an increase in raw materials and work in progress, partially offset by a decrease in finished goods and inventory reserve Inventories, Net (in thousands) | Item | June 30, 2019 | December 31, 2018 | | :------------------ | :------------ | :---------------- | | Raw materials | $2,800 | $2,676 | | Work in progress | $446 | $331 | | Finished goods | $673 | $730 | | Less: inventory reserve | $(195) | $(366) | | Inventories, net| $3,724 | $3,371 | 6. Revenue Recognition Revenue is recognized when control of products or services transfers to customers. Deferred revenue, primarily from extended maintenance contracts, increased to $3,130 thousand at June 30, 2019, with a significant portion expected to be recognized in 2019 and 2020. The company also has a non-cancellable backlog of $642 thousand for rental units - Revenue is recognized upon transfer of control of promised products or services to customers[73] - The company has a non-cancellable backlog of $642 thousand related to rental units[80] Deferred Revenues (in thousands) | Item | June 30, 2019 | December 31, 2018 | | :---------------------------------- | :------------ | :---------------- | | Deferred extended maintenance and support | $2,705 | $2,114 | | Total deferred revenues | $3,130 | $2,597 | | Less current portion | $(1,369) | $(1,102) | | Deferred revenues, non-current | $1,761 | $1,495 | Disaggregation of Revenue (Six Months Ended June 30, 2019, in thousands) | Source | EksoHealth | EksoWorks | Other | Total | | :------------------------- | :--------- | :-------- | :---- | :---- | | Device revenue | $4,239 | $1,076 | $0 | $5,315 | | Service, support and rentals | $1,375 | $0 | $0 | $1,375 | | Parts and other | $40 | $140 | $0 | $180 | | Collaborative arrangements | $0 | $0 | $8 | $8 | | Total Revenue | $5,654 | $1,216 | $8 | $6,878 | 7. Investment in Unconsolidated Affiliate The company entered a Joint Venture (JV) Agreement in January 2019 to establish Exoskeleton Intelligent Robotics Co. Limited in China, aiming to develop the Asian exoskeleton market and create a global manufacturing center. The company will receive a 20% ownership interest in exchange for IP transfer and will earn royalties. The JV is a Variable Interest Entity (VIE) where the company is not the primary beneficiary, and its investment is accounted for using the equity method - Ekso Bionics entered a JV Agreement in January 2019 to establish Exoskeleton Intelligent Robotics Co. Limited in China, aiming to develop the exoskeleton market in China and other Asian markets and create a global manufacturing center[86] - The company has the right to receive a 20% ownership interest in the Investee in exchange for the successful transfer of licenses for its manufacturing technology and relevant Chinese patent rights (IP)[87] - The Investee is a Variable Interest Entity (VIE) for which the company is not the primary beneficiary, and the investment is accounted for under the equity method[88] - ZYVC or its designees agreed to invest $10,000 thousand in equity in the company, with $5,000 thousand already received for 3,067 thousand shares at $1.63 per share. The remaining $5,000 thousand is contingent upon the shipment of the first products from the manufacturing facility[92][93] 8. Accrued Liabilities Total accrued liabilities decreased to $2,768 thousand at June 30, 2019, from $3,541 thousand at December 31, 2018, primarily due to reductions in salaries, benefits, and severance-related expenses Accrued Liabilities (in thousands) | Item | June 30, 2019 | December 31, 2018 | | :---------------------------------- | :------------ | :---------------- | | Salaries, benefits and related expenses | $1,865 | $2,446 | | Device warranty | $294 | $307 | | Clinical trials | $307 | $227 | | Severance | $46 | $270 | | Other | $220 | $256 | | Total | $2,768 | $3,541 | Device Warranty Liability (Six Months Ended June 30, 2019, in thousands) | Item | Amount | | :---------------------------------- | :----- | | Balance at December 31, 2018 | $307 | | Additions for estimated future expense | $180 | | Incurred costs | $(193) | | Balance at June 30, 2019 | $294 | 9. Long-Term Debt The company has a $7,000 thousand loan agreement from December 2016, bearing interest at LIBOR plus 5.41%, maturing January 2021. It includes a $250 thousand contingent success fee liability (fair value $35 thousand at June 30, 2019) and a liquidity covenant requiring minimum unrestricted cash. The company was compliant with covenants as of June 30, 2019 - The company has a $7,000 thousand loan agreement from December 2016, bearing interest at 30-day U.S. LIBOR plus 5.41%, with principal payments amortizing over 36 months and maturity on January 1, 2021[95][96][100] - A $250 thousand contingent success fee is due upon certain events (e.g., sale of assets, merger, stock price reaching $8.00 for five days), with a fair value of $35 thousand at June 30, 2019[101] - The loan agreement includes a liquidity covenant requiring minimum unrestricted cash equal to three months of 'Monthly Cash Burn,' which was $4,546 thousand as of June 30, 2019. The company was compliant with all covenants[102] Scheduled Principal Payments of Long-Term Debt (as of June 30, 2019, in thousands) | Period | Amount | | :-------------- | :----- | | 2019 - remainder| $1,167 | | 2020 | $2,333 | | 2021 | $440 | | Total principal payments | $3,940 | 10. Lease Obligations The company's lease liabilities, primarily for its Richmond headquarters and Hamburg office, totaled $1,327 thousand at June 30, 2019, following the adoption of ASC 842. The company also recorded a $125 thousand credit to sales and marketing expenses in H1 2019 due to the termination of a Freiburg office lease - The company's operating lease for its Richmond, CA headquarters expires in May 2022, and its European operations office in Hamburg, Germany, expires in July 2022 with a five-year extension option[105][108] - A $125 thousand credit was recorded to sales and marketing expenses for the six months ended June 30, 2019, due to the termination of a Freiburg office lease[108] - The present value of lease liabilities was $1,327 thousand at June 30, 2019 (current: $393 thousand, non-current: $934 thousand), with a weighted-average remaining lease term of 2.94 years and a weighted-average discount rate of 10.5%[109] Future Lease Payments (as of June 30, 2019, in thousands) | Period | Operating Leases | | :-------------- | :--------------- | | 2019 - remainder| $273 | | 2020 | $553 | | 2021 | $565 | | 2022 | $262 | | Total lease payments | $1,653 | 11. Capitalization and Equity Structure The company's authorized capital includes 141,429 thousand common shares and 10,000 thousand preferred shares. As of June 30, 2019, 74,895 thousand common shares were outstanding. Significant equity financing occurred in May 2019, raising $9.0 million net proceeds from common stock and warrant sales, and $5.0 million from JV-related equity investors in January 2019 - As of June 30, 2019, the company had 141,429 thousand authorized common shares and 10,000 thousand authorized preferred shares, with 74,895 thousand common shares issued and outstanding[114] - In May 2019, the company sold 6,667 thousand common shares and accompanying warrants for $10,000 thousand gross proceeds (net $9,037 thousand), with $7,334 thousand allocated to warrants and $2,666 thousand to common stock[23][117] - In January 2019, the company sold 3,067 thousand common shares for $5,000 thousand at $1.63 per share in connection with the JV Agreement[92][116] - The 2019 Warrants, issued in May 2019, include price protection and put-option features, classifying them as a liability measured at fair value (Level 3)[119][122] - The 2015 Warrants were modified in March 2019, reducing their exercise price from $3.74 to $2.75, resulting in a $257 thousand loss on modification[126] Warrant Shares Outstanding (in thousands) | Source | Exercise Price | Term (Years) | Dec 31, 2018 | Issued | Expired | June 30, 2019 | | :--------------------- | :------------- | :----------- | :----------- | :----- | :------ | :------------ | | 2019 Warrants | $2.00 | 5 | — | 6,667 | — | 6,667 | | Information Agent Warrants | $1.50 | 3 | 200 | — | — | 200 | | 2015 Warrants | $2.75 | 5 | 1,604 | — | — | 1,604 | | Pre-2014 warrants | $9.66 | 9-10 | 88 | — | — | 88 | | Total | | | 3,396 | 6,667 | (1,504) | 8,559 | 12. Stock-based Compensation Stockholders approved an increase of 3,500 thousand shares for the 2014 Equity Incentive Plan, bringing the total authorized to 12,614 thousand shares. Total stock-based compensation expense for H1 2019 was $1,193 thousand, with significant unrecognized costs remaining for both stock options and RSUs - The 2014 Equity Incentive Plan's authorized shares increased by 3,500 thousand to 12,614 thousand, with 4,015 thousand shares available for future grants as of June 30, 2019[130] - As of June 30, 2019, total unrecognized compensation cost related to unvested stock options was $4,849 thousand (expected over 2.84 years) and for unvested RSUs was $326 thousand (expected over 2.98 years)[131][136] Stock Options Activity (Six Months Ended June 30, 2019, in thousands) | Item | Number of Shares | Weighted-Average Exercise Price | | :---------------------------------- | :--------------- | :------------------------------ | | Balance as of December 31, 2018 | 6,466 | $3.05 | | Options granted | 674 | $1.45 | | Options exercised | (186) | $1.23 | | Options forfeited | (451) | $2.12 | | Options cancelled | (180) | $3.75 | | Balance as of June 30, 2019 | 6,323 | $2.98 | Total Stock-based Compensation Expense (in thousands) | Expense Category | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 | | :----------------------- | :------ | :------ | :------ | :------ | | Sales and marketing | $156 | $166 | $379 | $275 | | Research and development | $73 | $47 | $118 | $225 | | General and administrative | $328 | $189 | $696 | $794 | | Total | $557 | $402 | $1,193 | $1,294 | 13. Income Taxes No material changes to unrecognized tax benefits in H1 2019, and none expected for the fiscal year. All years remain open to tax examination due to the company's history of tax losses - There were no material changes to unrecognized tax benefits in the six months ended June 30, 2019, and no significant changes are expected through the end of the fiscal year[139] - All years remain open to tax examination due to the company's history of tax losses[139] 14. Commitments and Contingencies The company has license agreements requiring minimum annual royalties of $50 thousand for certain patents and a single-digit royalty on net receipts for mechanical balance and support arm technologies. Purchase obligations for inventory and manufacturing services totaled $803 thousand as of June 30, 2019, expected to be paid within a year. Management believes current legal matters will not materially affect financial statements - The company has two license agreements with the Regents of the University of California requiring minimum annual royalties of $50 thousand[143][215] - A license agreement related to the Equipois acquisition requires a single-digit royalty on net receipts, subject to a $50 thousand annual minimum royalty[144][216] - Purchase obligations for inventory and manufacturing related service contracts totaled $803 thousand as of June 30, 2019, expected to be paid within a year[145][217] - Management believes the resolution of current legal matters will not have a material adverse effect on the company's condensed consolidated financial statements[146] 15. Net Loss Per Share Basic and diluted net loss per share for Q2 2019 was $(0.04) and for H1 2019 was $(0.14). Potential common stock equivalents, including options, RSUs, and warrants, were anti-dilutive due to the net loss and thus excluded from diluted EPS calculations Net Loss Per Share (in thousands, except per share) | Metric | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 | | :----------------------------------- | :------ | :------ | :------ | :------ | | Net loss applicable to common stockholders | $(3,066) | $(7,978) | $(9,617) | $(15,877) | | Weighted-average shares outstanding | 70,702 | 60,621 | 67,886 | 60,386 | | Net loss per share, basic and diluted | $(0.04) | $(0.13) | $(0.14) | $(0.26) | Anti-dilutive Common Stock Equivalents (in thousands) | Item | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 | | :--------------------------------- | :------ | :------ | :------ | :------ | | Options to purchase common stock | 6,323 | 2,916 | 6,323 | 2,916 | | Restricted stock units | 239 | 78 | 239 | 78 | | Warrants for common stock | 8,559 | 3,396 | 8,559 | 3,396 | | Total common stock equivalents | 15,121 | 6,390 | 15,121 | 6,390 | 16. Segment Disclosures The company operates in two reportable segments: EksoHealth (medical devices) and EksoWorks (industrial devices), managed separately due to distinct markets. Performance is evaluated based on segment gross profit margin. Both segments showed revenue growth for H1 2019, with EksoHealth significantly contributing to the overall gross profit increase - The company has two reportable segments: EksoHealth (medical devices) and EksoWorks (industrial devices), which are managed separately due to serving distinct markets[150] Segment Reporting (Six Months Ended June 30, 2019, in thousands) | Metric | EksoHealth | EksoWorks | Other | Total | | :----------- | :--------- | :-------- | :---- | :---- | | Revenue | $5,654 | $1,216 | $8 | $6,878 | | Cost of revenue | $2,627 | $1,085 | $7 | $3,719 | | Gross profit | $3,027 | $131 | $1 | $3,159 | Geographic Revenue (Six Months Ended June 30, in thousands) | Region | 2019 | 2018 | | :------------ | :------ | :------ | | United States | $4,728 | $3,131 | | All Other | $2,150 | $2,355 | | Total | $6,878 | $5,486 | 17. Related Party Transactions The company has a consulting agreement with Angel Pond Capital LLC, an entity affiliated with a director, for strategic positioning in Asia Pacific. Services amounted to $30 thousand in H1 2019. A $1,000 thousand payment to Angel Pond is contingent upon the consummation of the China joint venture - The company has a consulting agreement with Angel Pond Capital LLC, an entity solely owned and managed by director Dr. Ted Wang, for strategic positioning in the Asia Pacific region[153][156] - Consulting services provided by Angel Pond Capital LLC amounted to $30 thousand during the six months ended June 30, 2019[156] - A $1,000 thousand payment to Angel Pond is contingent upon the consummation of the China joint venture, which has not yet been recorded as the JV has not completed registration[157] 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 and six months ended June 30, 2019. It highlights revenue growth, improved gross profit, reduced operating expenses, and the ongoing need for additional financing due to accumulated losses and negative cash flows, despite recent equity raises - The company designs, develops, and sells exoskeleton technology for medical (Ekso GT, EksoUE) and industrial (EksoVest, EksoZeroG) markets[164][165][166] - In May 2019, the company sold 6,666,667 shares of common stock and warrants for $9.0 million net proceeds. In Q2 2019, 22 EksoGT units were booked, including 11 conversions from rental to capital purchases[168][203] - For the three months ended June 30, 2019, revenue increased by 10% ($0.3 million), gross profit increased by 61% ($0.6 million), and net loss decreased by 62% ($4.9 million), primarily due to a $2.7 million gain on warrant revaluation[176][178][179][183] - For the six months ended June 30, 2019, revenue increased by 25% ($1.4 million), gross profit increased by 82% ($1.4 million), and net loss decreased by 39% ($6.3 million), driven by higher EksoHealth sales and reduced operating expenses[188][189][190] - The company had an accumulated deficit of $180.8 million and used $9.7 million cash in operations for H1 2019. Unrestricted cash was $8.7 million at June 30, 2019, raising substantial doubt about its ability to continue as a going concern beyond Q4 2019 without additional financing[202][204][205] Contractual Obligations (as of June 30, 2019, in thousands) | Obligation | Total | Less than One Year | 1-3 Years | 3-5 Years | After 5 Years | | :---------------------- | :------ | :----------------- | :-------- | :-------- | :------------ | | Term loan | $4,181 | $2,539 | $1,642 | $0 | $0 | | Facility operating leases | $1,654 | $548 | $1,106 | $0 | $0 | | Purchase obligations | $803 | $803 | $0 | $0 | $0 | | Financing lease | $39 | $36 | $3 | $0 | $0 | | Total | $6,677 | $3,926 | $2,751 | $0 | $0 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks, including inflation and foreign exchange rate fluctuations, but does not believe inflation has had a material effect. It conducts business in foreign countries (Germany, Singapore) and is susceptible to exchange rate risk, but does not use hedging agreements - The company does not believe that inflation has had a material effect on its business, financial condition, or results of operations[219] - The company is exposed to exchange rate risk due to conducting business in foreign countries (Germany and Singapore) but does not enter into foreign currency hedging agreements[220] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2019, ensuring timely and accurate reporting. No material changes in internal control over financial reporting occurred during the quarter - Management, with the participation of the principal executive officer and principal financial officer, concluded that disclosure controls and procedures were effective as of June 30, 2019[222] - There were no changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the most recent fiscal quarter[224] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in several shareholder derivative actions alleging breach of fiduciary duties, unjust enrichment, and gross mismanagement, stemming from a previously disclosed material weakness in internal controls. Management believes these lawsuits are without merit and plans to defend against them - The company is defending against a Nevada state court derivative action (D'Arcy v. Looby et al.) filed in February 2018, alleging breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets[226] - Multiple California state court derivative actions (Elmes v. Peurach et al., Leung v. Peurach et al., and Herby v. Hamilton et al.) were consolidated, alleging similar claims. The court dismissed the consolidated complaint with leave to amend in July 2019[227] - Management believes these lawsuits are without merit and plans to defend against them[226][227] Item 1A. Risk Factors A new risk factor highlights potential delays, restrictions, or adverse impacts on the China Joint Venture (JV) operations due to U.S. regulatory review, specifically inquiries from the Department of Defense (DoD) and CFIUS regarding export control classifications and national security concerns - A new risk factor addresses potential delays, restrictions, or other adverse impacts on the operations of the China Joint Venture (JV) due to U.S. regulatory review[230] - The Department of Defense (DoD) and the Treasury Department (CFIUS) have inquired about the China JV and related Share Purchase, concerning export control classifications and potential national security risks[231] - CFIUS has broad discretion to review foreign investments and could impose mitigation measures (e.g., prior U.S. government approval for technology transfer) or recommend Presidential action to compel abandonment or unwinding of the JV or Share Purchase[234][235] - The Department of Commerce could also require licenses for technology export to the China JV, potentially delaying and restricting the transfer of manufacturing technology[236] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including warrant forms, amendments to the China JV contract, an offer letter, CEO/CFO certifications, and XBRL financial statements - Key exhibits include the Form of Warrant (4.1), Amendment to the Joint Venture Contract of Exoskeleton Intelligent Robotics Co. Limited (10.1†), Bill Shaw Offer Letter (10.2**), CEO/CFO Certifications (31.1*, 31.2*, 32.1*, 32.2*), and XBRL Financial Statements (101*)[239][240][241][242][243] Signatures The report is signed by Jack Peurach, President and Chief Executive Officer, and John F. Glenn, Chief Financial Officer, on August 1, 2019, certifying its submission - The report was signed by Jack Peurach, President and Chief Executive Officer, and John F. Glenn, Chief Financial Officer, on August 1, 2019[249]