Quarterly report pursuant to Section 13 or 15(d)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 _____________________________________________________________________________________________

 

FORM 10-Q

 _____________________________________________________________________________________________

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2017

 

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______ to ______

 

Commission File Number: 001-37854 

 

 _____________________________________________________________________________________________

Ekso Bionics Holdings, Inc.

(Exact name of registrant as specified in its charter)

 _____________________________________________________________________________________________

 

 

Nevada   99-0367049
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

1414 Harbour Way South, Suite 1201
Richmond, CA
  94804
(Address of principal executive offices)   (Zip Code)

 

(510) 984-1761

(Registrant’s telephone number, including area code)

 _____________________________________________________________________________________________

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x    No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted to its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x     No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨   Accelerated filer x
     
Non-accelerated filer ¨   Smaller reporting company ¨
(Do not check if a smaller reporting company)    

 

Emerging growth company x

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

The number of shares of registrant’s common stock outstanding as of August 1, 2017 was 25,789,159.

 

  

 

 

 Ekso Bionics Holdings, Inc.

 

Quarterly Report on Form 10-Q

 

Table of Contents

 

 

  PART I. FINANCIAL INFORMATION Page No.
     
Item 1. Financial Statements 3
     
  Condensed Consolidated Balance Sheets as of June 30, 2017 (unaudited) and December 31, 2016 3
     
  Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months ended June 30, 2017 and 2016 (unaudited) 4
     
  Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2017 and 2016 (unaudited) 5
     
  Notes to Condensed Consolidated Financial Statements (unaudited) 6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 21
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 32
     
Item 4. Controls and Procedures 32
     
  PART II. OTHER INFORMATION  
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 32
     
Item 5. Other Information 32
     
Item 6. Exhibits 33
     
  Signatures 33

 

 2 

 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

Ekso Bionics Holdings, Inc.
Condensed Consolidated Balance Sheets

(In thousands, except par value)

(Unaudited)

 
   June 30,   December 31, 
   2017   2016 
Assets  (unaudited)   (Note 2) 
Current assets:          
Cash  $10,701   $16,846 
Accounts receivable, net   2,107    1,780 
Inventories, net   1,896    1,556 
Prepaid expenses and other current assets   597    502 
Total current assets   15,301    20,684 
Property and equipment, net   2,562    2,435 
Intangible assets, net   762    1,026 
Goodwill   189    189 
Other assets   118    91 
Total assets  $18,932   $24,425 
Liabilities and Stockholders' Equity          
Current liabilities:          
Accounts payable  $2,068   $1,879 
Accrued liabilities   2,458    3,556 
Deferred revenues, current   948    825 
Note payable, current   972    - 
Accrued restructuring   95    - 
Other liabilities, current   46    54 
Total current liabilities   6,587    6,314 
Deferred revenue   653    805 
Note payable   5,906    6,789 
Warrant liabilities   3,810    3,546 
Contingent consideration liability   238    217 
Contingent success fee liability   37    116 
Other non-current liabilities   73    107 
Total liabilities   17,304    17,894 
Commitments and contingencies (Note 15)          
Stockholders' equity:          
Convertible preferred stock, $0.001 par value; 10,000 shares authorized;          
none issued and outstanding at June 30, 2017 and December 31, 2016, respectively   -    - 
Common stock, $0.001 par value; 71,429 shares authorized;          
25,789  and 21,894 shares issued and outstanding          
as of June 30, 2017 and December 31, 2016, respectively   26    22 
Additional paid-in capital   130,598    121,291 
Accumulated other comprehensive (loss) income   (155)   79 
Accumulated deficit   (128,841)   (114,861)
Total stockholders' equity   1,628    6,531 
Total liabilities and stockholders' equity  $18,932   $24,425 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

 3 

 

 

Ekso Bionics Holdings, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except per share amounts)
(Unaudited)

 

   Three months ended   Six months ended 
   June 30,   June 30, 
   2017   2016   2017   2016 
Revenue:                    
Device and related  $1,867   $1,451   $3,275   $9,508 
Engineering services   -    101    28    530 
Total revenue   1,867    1,552    3,303    10,038 
                     
Cost of revenue:                    
Device and related   1,471    1,286    2,548    7,955 
Engineering services   -    63    7    382 
Total cost of revenue   1,471    1,349    2,555    8,337 
                     
Gross profit   396    203    748    1,701 
                     
Operating expenses:                    
Sales and marketing   3,270    2,913    6,337    5,416 
Research and development   2,632    2,221    5,505    4,370 
General and administrative   2,475    2,465    5,016    5,953 
Restructuring   665    -    665    - 
Change in fair value, contingent liabilities   (187)   -    (175)   - 
Total operating expenses   8,855    7,599    17,348    15,739 
                     
Loss from operations   (8,459)   (7,396)   (16,600)   (14,038)
                     
Other income, net:                    
Gain on warrant liabilities   3,106    1,665    3,037    4,650 
Interest and other, net   (154)   (34)   (246)   (28)
Total other income, net   2,952    1,631    2,791    4,622 
                     
Net loss   (5,507)   (5,765)   (13,809)   (9,416)
                     
Less: Preferred deemed dividend   -    (4,205)   -    (7,329)
Net loss applicable to common shareholders   (5,507)   (9,970)   (13,809)   (16,745)
Foreign currency translation adjustments   (203)   18    (234)   11 
Comprehensive loss  $(5,710)  $(9,952)  $(14,043)  $(16,734)
                     
Net loss per share applicable                    
to common shareholders, basic and diluted  $(0.22)  $(0.61)  $(0.58)  $(1.06)
                     
Weighted average number of shares of common                    
stock outstanding, basic and diluted   25,515    16,247    23,717    15,817 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

 4 

 

 

 Ekso Bionics Holdings, Inc.

Consolidated Statements of Cash Flows
(In thousands, except per share amounts)
(Unaudited)

 

   Six months ended 
   June 30, 
   2017   2016 
Operating activities:          
Net loss  $(13,809)  $(9,416)
Adjustments to reconcile net loss to net cash used in operating activities          
Gain on change in fair value of warrant liabilities   (3,037)   (4,650)
Stock-based compensation expense   1,105    2,101 
Depreciation and amortization   881    908 
Provision for doubtful accounts   55    - 
Amortization of deferred rent   (15)   (18)
Accretion of final payment fee of debt   48    - 
Amortization of debt discounts   41    - 
Gain on change in fair value of contingent liabilities   (58)   - 
Unrealized (gain)/loss on foreign currency transactions   (273)   11 
Changes in operating assets and liabilities:          
Accounts receivable   (382)   503 
Inventories   (836)   (1,330)
Note receivable   -    (90)
Prepaid expense and other assets   (122)   (252)
Deferred costs of revenue   -    4,590 
Accounts payable   328    (620)
Accrued liabilities   (851)   1,257 
Accrued restructuring cost   95    - 
Deferred revenues   (29)   (7,116)
Net cash used in operating activities   (16,859)   (14,122)
           
Investing activities:          
Acquisition of property and equipment   (248)   (597)
Net cash used in investing activities   (248)   (597)
           
Financing activities:          
Proceeds from issuance of common stock and warrants, net   10,919    - 
Principal payments on note payable   (38)   (56)
Fees paid related to issuance of convertible preferred stock   -    (173)
Proceeds from exercise of stock options   42    57 
Net cash provided by (used in) financing activities   10,923    (172)
Effect of exchange rate changes on cash   39    - 
Net decrease increase in cash   (6,145)   (14,891)
Cash at beginning of period   16,846    19,552 
Cash at end of period  $10,701   $4,661 

  

The accompanying notes are an integral part of these condensed consolidated financial statements

 

 5 

 

 

Ekso Bionics Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

($ and share amounts in thousands, except per share amounts)

(Unaudited)

 

 

1.Organization

 

Description of Business

 

Ekso Bionics Holdings, Inc. (the “Company”) is a leading developer of exoskeleton solutions that amplify human potential by supporting or enhancing strength, endurance and mobility across medical, industrial and defense applications. Founded in 2005, the Company continues to build upon its unparalleled expertise to design some of the most cutting-edge, innovative wearable robots available on the market. Ekso Bionics is the only exoskeleton company to offer technologies that range from helping those with paralysis to stand up and walk, to enhancing human capabilities on job sites across the globe, to providing research for the advancement of R&D projects intended to benefit U.S. defense capabilities. The Company is headquartered in the Bay Area and is listed on the Nasdaq Capital Market under the symbol “EKSO”.

 

All common stock share and per share amounts have been adjusted to reflect the one-for-seven reverse stock split completed on May 4, 2016. See Note 12, Capitalization and Equity Structure – Reverse Stock Split.

 

Liquidity

 

Largely as a result of significant research and development activities related to the development of the Company’s advanced technology and commercialization of this technology into its medical device business, the Company has incurred significant operating losses and negative cash flows from operations since inception. The Company has also recognized significant non-cash losses in previous periods associated with the revaluation of certain securities, which have also contributed significantly to its accumulated deficit. As of June 30, 2017, the Company had an accumulated deficit of $128,841. 

 

Cash on hand at June 30, 2017 was $10,701 compared to $16,846 at December 31, 2016. For the six months ended June 30, 2017, the Company used $16,859 of cash in operations compared to $14,122 for the six month period ended June 30, 2016. As noted in Note 10, Long-Term Debt, borrowings under our long-term debt agreement have a requirement of minimum cash on hand roughly equivalent to three months of cash burn using the average of recent six month results, recomputed each month. As of June 30, 2017, the most recent determination of this restriction, which included one-time restructuring costs of $665, $7,518 of cash must remain as unrestricted. After considering such cash restriction, effective unrestricted cash as of June 30, 2017 is estimated to be $3,183.

 

Based upon the Company’s current cash resources, the recent rate of using cash for operations and investment, and assuming modest increases in current revenue, reduced expenses related to the Company’s recently announced restructuring and workforce reduction, as well as assuming the ability to exhaust its cash resources despite the covenant regarding minimum cash, the Company believes it has sufficient resources to meet its financial obligations into the first quarter of 2018. The Company’s cash on hand; however, will not be sufficient to satisfy its operations for the next twelve months from the date of issuance of these condensed consolidated financial statements, which raises substantial doubt about our ability to continue as a going concern. The Company will require significant additional financing. The Company is actively pursuing opportunities to obtain additional financing in the future through public or private equity and/or debt financings, corporate collaborations, or warrant solicitations.

 

In July of 2017, the Company announced that its board of directors approved a proposed rights offering to raise gross proceeds of up to $34,000 (refer to Note 18 Subsequent Events for additional information). Based on a look-forward period of one year from the date of issuance of these financial statements, and assuming the Company is able to generate expected proceeds in the third quarter of 2017 in connection with the proposed rights offering, the Company would have sufficient cash on hand to satisfy its operations for the next twelve months from the date of issuance of these condensed consolidated financial statements.  In support of the anticipated financing described in Note 18 Subsequent Events , the Company and Lender agreed to an amendment of the long-term debt agreement described in Note 10 Long-term Debt, whereby the minimum liquidity requirement has been suspended until after the anticipated close and funding date(s) of the proposed rights offering described in Note 18 Subsequent Events.

 

The Company’s actual capital requirements may vary significantly and will depend on many factors. The Company plans to continue its investments (i) in its clinical, sales and marketing initiatives to accelerate adoption of the Ekso robotic exoskeleton in the rehabilitation market, (ii) in its research, development and commercialization activities with respect to an Ekso robotic exoskeleton for home use, and/or (iii) in the development and commercialization of able-bodied exoskeletons for industrial use. Consequently, the Company will require significant additional financing in the future, which the Company intends to raise through corporate collaborations, public or private equity offerings, debt financings, or warrant solicitations. Sales of additional equity securities by us could result in the dilution of the interests of existing stockholders. There can be no assurance that financing will be available when required in sufficient amounts, on acceptable terms or at all. In the event that the necessary additional financing is not obtained, the Company may be required to reduce its discretionary overhead costs substantially, including research and development, general and administrative, and sales and marketing expenses or otherwise curtail operations.

 

 6 

 

 

Ekso Bionics Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

($ and share amounts in thousands, except per share amounts)

(Unaudited)

 

 

2.Basis of Presentation and Summary of Significant Accounting Policies and Estimates

 

Basis of Presentation

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements have been prepared on a consistent basis with the audited consolidated financial statements for the fiscal year ended December 31, 2016, and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly state the information set forth herein. The condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and therefore, omit certain information and footnote disclosure necessary to present the financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, which was filed with the SEC on March 15, 2017. The results of operations for the three months and six months of fiscal year 2017 are not necessarily indicative of the results to be expected for the entire fiscal year or any future periods.

 

Use of Estimates

 

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet, and the reported amounts of revenues and expenses during the reporting period. For the Company, these estimates include, but are not limited to: revenue recognition, deferred revenue and the deferral of the associated costs, future warranty costs, maintenance and planned improvement costs associated with medical device units sold prior to 2016, useful lives assigned to long-lived assets, realizability of deferred tax assets, the valuation of options and warrants, and contingencies. Actual results could differ from those estimates.

 

Going Concern

 

The Company assesses its ability to continue as a going concern at every interim and annual period in accordance with Accounting Standards Codification 205-40. The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The ability to meet our obligations as they come due and the attainment of sustainable profitability and positive cash flow from operations is dependent on certain future events. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for the look-forward period one year from the issuance of these financial statements. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. We evaluate whether it is probable that our plans to mitigate those conditions will alleviate that substantial doubt at every interim and annual period and disclose the conditions giving rise to substantial doubt and the results of our evaluation.

 

Concentration of Credit Risk and Other Risks and Uncertainties

 

Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and accounts receivable. We maintain our cash accounts in excess of federally insured limits. However, we believe we are not exposed to significant credit risk due to the financial position of the depository institutions in which these deposits are held.  We extend credit to customers in the normal course of business and perform ongoing credit evaluations of our customers. Concentrations of credit risk with respect to accounts receivable exist to the full extent of amounts presented in the consolidated financial statements. We do not require collateral from our customers to secure accounts receivable.

 

 7 

 

 

Ekso Bionics Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

($ and share amounts in thousands, except per share amounts)

(Unaudited)

 

 

Accounts receivable are derived from the sale of products shipped to and services performed for customers. Invoices are aged based on contractual terms with the customer. The Company reviews accounts receivable for collectability and records an allowance for credit losses, as needed. The Company has not experienced any material losses related to accounts receivable as of June 30, 2017 and December 31, 2016.

 

Many of the sales contracts with customers outside of the U.S. are settled in a foreign currency. The Company does not enter into any foreign currency hedging agreements and is susceptible to gains and losses from foreign currency fluctuations. To date, we have not experienced significant gains or losses upon settling foreign currency denominated accounts receivable.

 

As of June 30, 2017, we had one customer with an accounts receivable balance totaling 10% or more of our total accounts receivable (13%) compared with three customers as of December 31, 2016 (18%, 16% and 11%).

 

In the three months ended June 30, 2017, we had two customers with revenue of 10% or more of total revenue (12% and 10%), compared with two customers in the three months ended June 30, 2016 (11% and 12%). In the six months ended June 30, 2017, we had one customer with sales comprising 10% or more of our total customer sales (14%).We had no customers with sales 10% or more of total billed revenue in the six months ended June 30, 2016.

 

Medical Device Revenue and Cost of Revenue Recognition

 

The Company builds medical device robotic exoskeletons for sale and capitalizes into inventory materials, direct and indirect labor and overhead in connection with the manufacture and assembly of these units.

 

When the Company brought its first version medical device to market in 2012, the Company could not be certain as to the costs it would incur to support, maintain, service, and upgrade these early stage devices. Primarily for this reason, prior to January 1, 2016, the sale of a device, associated software, initial training, and extended support and maintenance were deemed as a single unit of accounting due to the uncertainty of the Company’s follow-up maintenance and upgrade expenses, which were forecast to extend over three years. Accordingly, the revenue from the sales of the device and associated cost of revenue were deferred at the time of shipment. Upon completion of training, the amount of the arrangements was recognized as revenue and cost of revenue over a three-year period on a straight-line basis, while all service expenses, whether or not covered by the Company’s original warranty, extended warranty contracts, or neither, were recognized as incurred. 

 

Effective January 1, 2016, the Company determined it had established (i) separate individual pricing for training, extended warranty coverage, and out-of-contract service or repairs, (ii) sufficient historical evidence of customer buying patterns for extended warranty and maintenance coverage, and (iii) a basis for estimating and recording warranty and service costs to allow the Company to separate its multiple element arrangements into two distinct units of accounting: (1) the device, associated software, original manufacturer warranty and training if required, and (2) extended support and maintenance. As a result, in the first quarter of 2016, the Company began to recognize revenue related to its sales transactions on a multiple element approach in which revenue is recognized upon the delivery of the separate elements to the customer. Revenue relating to the undelivered elements is deferred using the relative selling price method, which allocates revenue to each element using the estimated selling prices for the deliverables when vendor-specific objective evidence or third-party evidence is not available. For sales on or after January 1, 2016, revenue and associated cost of revenue of medical devices is recognized when delivered, or training has been completed, if required. Revenue for extended maintenance and support agreements is recognized on a straight-line basis over the contractual term of the agreement, which typically ranges from one to four years. As a result of this change, the Company recognized medical device revenue previously deferred at December 31, 2015 of $6,517 and associated cost of revenue of $4,159, resulting in additional gross profit, reduction in net loss from operations, and reduction of net loss applicable to common stockholders of $2,358, or $0.13 per share, in its results of operations for the six months ended June 30, 2016.  In addition, the Company recorded $212 for warranty expenses and a one-time charge of $911 for a planned preventative maintenance and upgrade program associated with the devices it had sold prior to 2016 in the same period.

 


Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. In August 2015, the FASB issued an update, ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, to defer the effective date of this update by one year. In April 2016, the FASB issued a further update, ASU 2016-10 Revenue from Contracts with Customers (Topic 606) Identifying Performance Obligations and Licensing. ASU 2016-10 clarifies that contractual provisions that explicitly or implicitly require an entity to transfer control of additional goods or services to a customer should be distinguished from contractual provisions that explicitly or implicitly define the attributes of a single promised license. In May 2016, the FASB issued a further update, ASU 2016-12 Revenue from Contracts with Customers (Topic 606) Narrow-Scope Improvements and Practical Expedients. ASU 2016-12 clarifies key areas concerning: (1) assessment of collectability, (2) presentation of sales taxes and other similar taxes collected from customers, (3) non-cash consideration, (4) contract modifications at transition, (5) completed contracts at transition, and (6) disclosing the accounting change in the period of adoption. The updated standard becomes effective for the Company in the first quarter of fiscal year 2018. The Company has identified the existing contracts likely to fall under ASC 606 and plans to adopt this guidance on January 1, 2018 applying the modified-retrospective approach.

 

 8 

 

 

Ekso Bionics Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

($ and share amounts in thousands, except per share amounts)

(Unaudited)

 

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) which will require lessees to recognize assets and liabilities for leases with lease terms of more than 12 months. For finance leases, a lessee is required to: (1) recognize a right-of-use asset and a lease liability, initially measured at  the present value of the lease payments, in the statement of financial position, (2) recognize interest on the lease liability separately from amortization of the right-of-use asset in the statement of comprehensive income, and (3) classify repayments of the principal portion of the lease liability within financing activities and payments of interest on the lease liability and variable lease payments within operating activities in the statement of cash flows. For operating leases, a lessee is required to: (1) recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position, (2) recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis, and (3) classify all cash payments within operating activities in the statement of cash flows. The new guidance is effective for fiscal years beginning after December 15, 2018.  The Company is evaluating the impact that ASU 2016-02 will have on its consolidated financial statements and related disclosures.

 

In March 2016, the FASB issued ASU 2016-09 Compensation – Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies several aspects of the accounting for share-based payment award transactions for public companies, including: (1) income tax consequences, (2) classification of awards as either equity or liabilities, and (3) classification on the statement of cash flows. The amendments in this update are effective for annual periods beginning after December 15, 2016. Effective January 1, 2017, the Company adopted ASU 2016-09 and elected to change its accounting policy to account for forfeitures as they occur to more closely align compensation expense to services provided. The change was applied on a modified retrospective basis with a cumulative effect adjustment to retained earnings of $171 as of January 1, 2017.

 

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminated the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities are required to record an impairment charge based on the excess of the carrying amount over its fair value. The new standard will be effective for the Company beginning January 1, 2020 and early adoption is permitted. The Company does not expect the impact of adopting ASU 2017-04 to be material on its consolidated financial statements.

 

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting (ASU 2017-09). The FASB issued the update to provide clarity and reduce the cost and complexity when applying the guidance in Topic 718. The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 will be effective for public companies for fiscal years beginning after December 15, 2017, including interim periods. Early adoption is permitted. The Company is evaluating the effect that ASU 2017-09 will have on its financial statements and related disclosures.

 

3.Accumulated Other Comprehensive (Loss) Income

 

The change in accumulated other comprehensive (loss) income presented on the condensed consolidated balance sheets and the impact of significant amounts reclassified from accumulated other comprehensive (loss) income on information presented in the condensed consolidated statements of operations and comprehensive loss for the six months ending June 30, 2017 are reflected in the table below, net of tax:

 

 9 

 

 

Ekso Bionics Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

($ and share amounts in thousands, except per share amounts)

(Unaudited)

 

 

   Foreign 
   Currency 
   Translation 
Balance at December 31, 2016  $79 
Other comprehensive loss before reclassification   (234)
Balance at June 30, 2017  $(155)

 

4.Fair Value Measurements

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Three levels of inputs, of which the first two are considered observable and the last unobservable, may be used to measure fair value which are the following:

 

  Level 1—Quoted prices in active markets for identical assets or liabilities. The Company considers a market to be active when transactions for the asset occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

 

  Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

  Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The valuation of Level 3 investments requires the use of significant management judgments or estimation.

 

The Company’s fair value hierarchies for its financial assets and liabilities which require fair value measurement are as follows:

 

   Total   Level 1   Level 2   Level 3 
June 30, 2017                
Liabilities                    
Warrant liabilities  $3,810   $-   $-   $3,810 
Contingent consideration liability  $238   $-   $-   $238 
Contingent success fee liability  $37   $-   $-   $37 
                     
December 31, 2016                    
Liabilities                    
Warrant liability  $3,546   $-   $-   $3,546 
Contingent consideration liability  $217   $-   $-   $217 
Contingent success fee liability  $116   $-   $-   $116 

 

 

The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities for the six months ended June 30, 2017, which were measured at fair value on a recurring basis:

 

       Contingent   Contingent 
   Warrant   Consideration   Success Fee 
   Liabilities   Liability   Liability 
Balance at December 31, 2016  $3,546   $217   $116 
Initial fair value of warrants issued in conjunction with 2017 financing   3,301    -    - 
Gain on decrease in fair value of warrants issued   -    -    - 
in conjunction with 2015 and 2017 financing   (3,037)   -    - 
Loss on increase in fair value of obligation   -    21    - 
Gain on decrease in fair value of obligation   -    -    (79)
Balance at June 30, 2017  $3,810   $238   $37 

 

 10 

 

 

Ekso Bionics Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

($ and share amounts in thousands, except per share amounts)

(Unaudited)

 

 

Refer to Note 12 Capitalization and Equity Structure – Warrants for additional information regarding the valuation of warrants.

 

5.Inventories, net

 

Inventories consisted of the following:

 

   June 30,   December 31, 
   2017   2016 
Raw materials  $1,196   $1,193 
Work in process   106    198 
Finished goods   696    267 
    1,998    1,658 
Less: inventory reserve   (102)   (102)
Inventories, net  $1,896   $1,556 

 

6.Deferred Revenues

 

In connection with our medical devices, the Company often receives cash payments before the earnings process is complete. The Company records the payments as customer deposits until a device is shipped to the customer. The cash received is recorded as a component of deferred revenue.

 

Deferred revenues consisted of the following:

 

   June 30,   December 31, 
   2017   2016 
Customer deposits and advances  $55   $47 
Deferred rental income   104    60 
Deferred extended maintenance and support   1,442    1,523 
Total deferred revenues   1,601    1,630 
Less current portion   (948)   (825)
Deferred revenues, non-current  $653   $805 

 

7.Intangible Assets

 

The following table reflects the amortization of the purchased intangible assets as of June 30, 2017:

 

   Cost   Accumulated Amortization   Net 
Developed technology  $1,160   $(611)  $549 
Customer relationships   70    (37)   33 
Customer trade name   380    (200)   180 
   $1,610   $(848)  $762 

 

Estimated future amortization for the remainder of 2017 is $272 and $490 for 2018.

 

 11 

 

 

Ekso Bionics Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

($ and share amounts in thousands, except per share amounts)

(Unaudited)

 

 

8.Accrued Liabilities

 

Accrued liabilities consisted of the following:

 

   June 30,   December 31, 
   2017   2016 
Salaries, benefits and related expenses  $1,544   $2,349 
Device maintenance   338    483 
Device warranty   123    203 
Professional fees   123    56 
Clinical trials   55    - 
Equipois earn-out   -    355 
Other   275    110 
Total  $2,458   $3,556 

 

A reconciliation of the changes in the current portion of maintenance and warranty liabilities for the period ended June 30, 2017 was as follows: 

 

   Maintenance   Warranty   Total 
Balance at December 31, 2016  $483   $203   $686 
Incurred costs   (145)   (80)   (225)
Balance at June 30, 2017  $338   $123   $461 

 

9.Restructuring

 

In May of 2017, the Company streamlined its operations and reduced its workforce by approximately 27 employees to lower operating expenses and reduce cash burn. The Company will focus its on the commercialization of its proprietary Ekso GT for rehabilitation and its exoskeleton offerings for industrial applications. The restructuring plan was completed by the end of the second quarter of 2017.

 

The Company recorded restructuring expense of $0.7 million for the three and six months ended June 30, 2017 comprised of employee severance payments of $0.4 million, stock compensation expense of $0.2 million related to restricted stock units issued to terminated employees, and $0.1 million of other severance related benefits. (refer to Note 13 Stock Based Compensation for issuance of restricted stock units) As of June 30, 2017, $0.1 million of the restructuring expenses remained in accrued restructuring on the Company’s condensed consolidated balance sheet.

 

The following table summarizes accrued restructuring costs as of June 30, 2017:

 

   Employee Severance 
   and Other Benefits 
Balance at December 31, 2016  $- 
Restructuring charges   665 
Cash payments   (384)
Stock based compensation expense   (186)
Balance at June 30, 2017  $95 

 

10.Long-Term Debt

 

In December 2016, the Company entered into a loan agreement and received $7,000 that bears interest on the outstanding daily balance at a floating per annum rate equal to the 30-day U.S. LIBOR rate plus 5.41%. The agreement also allows the Company to borrow an additional $3,000 if certain conditions are met, which as of June 30, 2017 had not been met. The loan agreement created a first priority security interest with respect to substantially all assets of the Company, including proceeds of intellectual property, but expressly excluding intellectual property itself.

 

 12 

 

 

Ekso Bionics Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

($ and share amounts in thousands, except per share amounts)

(Unaudited)

 

 

The Company is required to pay accrued interest on the current loan on the first day of each month through and including January 1, 2018. Commencing on February 1, 2018, the Company is required to make equal monthly payments of principal, together with accrued and unpaid interest. The principal balance of the current loan amortizes ratably over 36 months and matures on January 1, 2021, at which time all unpaid principal and accrued and unpaid interest shall be due and payable in full. In addition, a final payment of $245 will be due on the maturity date, of which $48 has accreted as of June 30, 2017, to be paid in 2021 and is included as a component of note payable in the Company’s condensed consolidated balance sheets.

 

In December 2016, and pursuant to the loan agreement, the Company entered into a success fee agreement with the lender under which the Company agreed to pay the lender a $250 success fee upon the first to occur of any of the following events: (a) a sale or other disposition by the Company of all or substantially all of its assets; (b) a merger or consolidation of the Company into or with another person or entity, where the holders of the Company’s outstanding voting equity securities immediately prior to such merger or consolidation hold less than a majority of the issued and outstanding voting equity securities of the successor or surviving person or entity immediately following the consummation of such merger or consolidation; or (c) the closing price per share for the Company’s common stock being $8.00 or more for five successive business days. The estimated fair value of the success fee was determined using the Binomial Lattice Model and was recorded as a discount to the debt obligation. The fair value of the contingent success fee is re-measured each reporting period with any adjustments in fair value being recognized in the condensed consolidated statements of operations and comprehensive loss. The success fee is classified as a liability on the condensed consolidated balance sheets. At June 30, 2017, the carrying value of the contingent success fee liability was $37.

 

The loan agreement includes a liquidity covenant requiring that the Company maintain unrestricted cash and cash equivalents in accounts of the lender or subject to control agreements in favor of the lender in an amount equal to at least three months of “Monthly Cash Burn,” which is the Company’s average monthly net income (loss) for the trailing six-month period plus certain expenses and plus the average monthly principal due and payable on interest-bearing liabilities in the immediately succeeding three-month period. Such amount was determined to be $7,518 as of June 30, 2017, the most current determination, with the amount subject to change on a month-to-month basis. At June 30, 2017, with cash on hand of $10,701, the Company was compliant with this liquidity covenant and all other covenants. Pursuant to the restructuring and in anticipation of the financing described in Note 18 Subsequent Events, the lender and the Company executed an amendment to the loan agreement which suspended the minimum liquidity requirement until September 16, 2017, which is expected to be after the anticipated close of the financing.

 

The final payment fee, debt issuance costs, and the initial fair value of the success fee combined with the stated interest result in an effective annual interest rate of 8.98% for three-month period ended June 30, 2017 and 8.88% for the six month period ended June 30, 2017. The final payment fee, the initial fair value of the success fee and debt issuance costs will be accreted and amortized, respectively, to interest expense using the effective interest method over the life of the loan.

 

The following table presents scheduled principal payments of our long-term debt and final payment fee as of June 30, 2017:

 

Period  Amount 
2017  $- 
2018   2,139 
2019   2,333 
2020   2,333 
2021   440 
Total principal payments   7,245 
Less final payment fee, discount and issuance cost   (367)
Long-term debt, net  $6,878 
Current portion   972 
Long-term portion   5,906 
Total principal payments  $6,878 

 

 13 

 

 

Ekso Bionics Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

($ and share amounts in thousands, except per share amounts)

(Unaudited)

 

 

11.Lease Obligations

 

The Company has an operating lease agreement for its headquarters and manufacturing facility in Richmond, California that expires in May 2022.

 

In July 2017, the Company entered into an operating lease agreement having a five-year lease term for an office in Hamburg, Germany. The Company has an option to extend the lease for another five-year term. The Company continues to lease an office in Freiburg with plans to vacate the premises and terminate the lease agreement by the end of 2017.

 

In August 2015, the Company entered into a long-term capital lease obligation for equipment. The aggregate principal of the lease is $166, with an interest rate of 4.7%, minimum monthly payments of $3 and a July 1, 2020 maturity. This capital lease is classified as a component of other liabilities, current and other non-current liabilities in the condensed consolidated balance sheets.

 

The Company estimates future minimum payments as of June 30, 2017 to be the following:

 

Period  Capital Lease   Operating Lease 
2017 – remainder  $19   $320 
2018   37    598 
2019   37    613 
2020   22    625 
2021   -    552 
Thereafter   -    249 
Total minimum payments   115   $2,957 
Less interest   (8)     
Present value minimum payments   107      
Less current portion   (34)     
Long-term portion  $73      

 

Rent expense under the Company’s operating leases was $108 and $102 for the three months ended June 30, 2017 and 2016, respectively, and $209 and $198 for the six months ended June 30, 2017 and 2016, respectively.

 

12.Capitalization and Equity Structure

 

Reverse Stock Split

 

After the close of the stock market on May 4, 2016, the Company effected a 1-for-7 reverse split of its common stock. As a result, all common stock share amounts included in this filing have been retroactively reduced by a factor of seven, and all common stock per share amounts have been increased by a factor of seven, with the exception of our common stock par value. Common stock outstanding, including the issuance of new shares of common stock as a result of the conversion of preferred stock and the exercise of stock options and warrants, was affected by the 1-for-7 reverse split.

 

Common Stock

 

In April 2017, the Company sold in a registered direct offering an aggregate of 3,732 shares of its common stock, par value $0.001 per share, and warrants to purchase 1,866 shares of common stock. The aggregate net proceeds of the transaction were approximately $10.9 million.

 

 14 

 

 

Ekso Bionics Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

($ and share amounts in thousands, except per share amounts)

(Unaudited)

 

 

Warrants

 

Warrant shares outstanding as of December 31, 2016, and June 30, 2017 were as follows:

  

Source 

Exercise

Price

  

Term

(Years)

  

December 31,

2016

   Issued   Exercised   Expired  

June 30,

2017

 
2017 Warrants  $4.10    5    -    1,866    -    -    1,866 
2015 Warrants  $3.74    5    1,634    -    -    -    1,634 
2014 PPO and Merger                                   
Placement agent warrants  $7.00    5    426    -    -    -    426 
Bridge warrants  $7.00    3    371    -    -    (371)   - 
PPO warrants  $14.00    5    1,078    -    -    -    1,078 
Pre-2014 warrants  $9.66    9-10    88    -    -    -    88 
              3,597    1,866    -    (371)   5,092 

  

2017 Warrants

 

In April 2017, the Company issued warrants to purchase 1,866 shares of the Company’s common stock with an exercise price of $4.10 per share (the “2017 Warrants”). The 2017 Warrants will become exercisable six months following the issuance date and will expire five years from the date they become exercisable. The 2017 Warrants contain a put-option provision. Under this provision, while the 2017 Warrants are outstanding, if the Company enters into a Fundamental Transaction, defined as a merger, consolidation or similar transaction, the Company or any successor entity will, at the option of each warrant holder, exercisable at any time within 30 days after the consummation of the Fundamental Transaction, purchase the warrant from the holder exercising such option by paying to the holder an amount of cash equal to the Black-Scholes value of the remaining unexercised portion of such holder’s warrant on the date of the consummation of the Fundamental Transaction. Because of this put-option provision, a portion of the proceeds from the sale of common stock in the registered direct offering was recorded as a warrant liability equal to the fair value of the warrants on the date of issuance and the 2017 Warrants are marked to market at each reporting date. Issuance costs allocated to the 2017 Warrants were $185 and have been expensed as financing costs on the date of issuance.

  

2015 Warrants

 

In December 2015, the Company issued warrants to purchase 2,122 shares with an exercise price of $3.74 per share (the “2015 Warrants”). The 2015 Warrants contain a put-option provision. Under this provision, while the 2015 Warrants are outstanding, if the Company enters into a Fundamental Transaction, defined as a merger, consolidation or similar transaction, the Company or any successor entity will, at the option of each warrant holder, exercisable at any time within 30 days after the consummation of the Fundamental Transaction, purchase the warrant from the holder exercising such option by paying to the holder an amount of cash equal to the Black-Scholes value of the remaining unexercised portion of such holder’s warrant on the date of the consummation of the Fundamental Transaction. Because of this put-option provision, the 2015 Warrants are classified as a liability and are marked to market at each reporting date.

 

The warrant liabilities related to the 2017 Warrants and 2015 Warrants are measured at fair value at each reporting date using certain estimated inputs, which are classified within Level 3 of the fair value hierarchy. The following assumptions were used in the Black Scholes Option Pricing Model to measure the fair value of the warrants as of June 30, 2017:

 

Current share price  $2.32 
Conversion price  $3.74 - 4.10 
Risk-free interest rate   1.63% - 1.92% 
Term (years)   3.50 - 5.27  
Volatility of stock   75% 

 

13.Stock-based Compensation

 

In June 2017, the Company shareholders approved an amendment of the Company’s Amended and Restated 2014 Equity Incentive Plan (the “2014 Plan”) to increase the number of shares available for grant by 1,000 shares.  The total shares authorized for grant under the 2014 Plan was 4,714, of which 1,543 are available for future grant as of June 30, 2017.

 

 15 

 

  

Ekso Bionics Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

($ and share amounts in thousands, except per share amounts)

(Unaudited)

 

 

Stock Options

 

The following table summarizes information about the Company’s stock options outstanding at June 30, 2017, and activity during the six-month period then ended:

 

           Weighted-     
           Average     
       Weighted-   Remaining   Aggregate 
   Stock   Average   Contractual   Intrinsic 
   Awards   Exercise Price   Life (Years)   Value 
Balance as of December 31, 2016   2,477   $6.50           
Options granted   266   $2.98           
Options exercised   (73)  $0.58           
Options forfeited   (105)  $7.69           
Options cancelled   (28)  $8.12           
Balance as of June 30, 2017   2,537   $6.23    7.24   $75 
Vested and expected to vest at June 30, 2017   2,537   $6.23    7.24   $75 
Exercisable as of June 30, 2017   1,424   $6.44    5.99   $75 

 

As of June 30, 2017, total unrecognized compensation cost related to unvested stock options was $3,734. This amount is expected to be recognized as stock-based compensation expense in the Company’s condensed consolidated statements of operations and comprehensive income over the remaining weighted average vesting period of 2.5 years.

 

The per-share fair value of each stock option was determined on the date of grant using the Black-Scholes option pricing model using the following assumptions:

 

   Three months ended June 30,   Six months ended June 30, 
   2017   2016   2017   2016 
                 
Dividend yield                
Risk-free interest rate   1.88%   1.28% - 1.43%    1.88% - 2.29%    1.24% - 1.78% 
Expected term (in years)   6    5-6    6 - 9    5-10 
Volatility   77%   78%   77%   78%

 

Restricted Stock Units

 

In April 2017, the Company granted a total of 153 restricted stock units (“RSUs”) to certain executive officers, which vest over four years, with 25% becoming exercisable on each yearly anniversary of the date of grant.

 

In May 2017, the Company granted a total of 120 restricted stock units to terminated employees, which will vest in September 2017. The valuation of RSUs was determined at the date of grant using the closing stock price.

 

RSU activity for the six months ended June 30, 2017 is summarized below:

 

   Number of Shares   Weighted- Average Grant Date Fair Value 
Unvested as of January 1, 2017   -      
Granted   273   $2.30 
Vested   -      
Forfeited   -      
Unvested at June 30, 2017   273      

 

 16 

 

 

Ekso Bionics Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

($ and share amounts in thousands, except per share amounts)

(Unaudited)

 

 

Employee Stock Purchase Plan

 

In June 2017, the Company’s stockholders approved the Employee Stock Purchase Plan (the “2017 ESPP”). Under the 2017 ESPP, the Company reserved 500 shares of common stock for issuance as of its effective date of April 26, 2017, subject to adjustment in the event of a stock split, stock dividend, combination or reclassification or similar event. The 2017 ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 25% of their eligible compensation, subject to any plan limitations. The 2017 ESPP provides for six-month offering periods ending on June 30 and December 31 of each year. At the end of each offering period, employees can purchase shares at 85% of the lower of the fair market value of the Company’s common stock on the first trading day of the offering period or on the last day of the offering period.

 

Compensation Expense

 

Total stock-based compensation expense related to options granted to employees and non-employees is included in the condensed consolidated statements of operations and comprehensive loss as follows:

 

   Three months ended June 30,   Six months ended June 30, 
   2017   2016   2017   2016 
Sales and marketing  $158   $206   $178   $438 
Research and development   82    141    184    372 
General and administrative   283    180    557    1,291 
Restructuring Charges   186    -    186    - 
   $709   $527   $1,105   $2,101 

 

14.Income Taxes

 

There were no material changes to the unrecognized tax benefits in the six months ended June 30, 2017, and the Company does not expect significant changes to unrecognized tax benefits through the end of the fiscal year. Because of the Company’s history of tax losses, all years remain open to tax examination.

 

15.Commitments and Contingencies

 

Material Contracts

 

The Company enters various license, research collaboration and development agreements which provide for payments to the Company for government grants, fees, cost reimbursements typically with a markup, technology transfer and license fees, and royalty payments on sales.

 

The Company has two license agreements to maintain exclusive rights to patents. The Company is also required to pay 1% of net sales of products sold to entities other than the U.S. government. In the event of a sub-license, the Company will owe 21% of license fees and must pass through 1% of the sub-licensee’s net sales of products sold to entities other than the U.S. government. The agreements also stipulate minimum annual royalties of $50.

 

In connection with acquisition of Equipois, the Company assumed the rights and obligations of Equipois under a license agreement with the developer of certain intellectual property related to mechanical balance and support arm technologies, which grants the Company an exclusive license with respect to the technology and patent rights for certain fields of use. Pursuant to the terms of the license agreement, the Company will be required to pay the developer a single-digit royalty on net receipts, subject to a $50 annual minimum royalty requirement.

 

Contingencies

 

In the normal course of business, the Company is subject to various legal matters. In the opinion of management, the resolution of such matters will not have a material adverse effect on the Company’s condensed consolidated financial statements.

 

 17 

 

 

Ekso Bionics Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

($ and share amounts in thousands, except per share amounts)

(Unaudited)

 

 

16.Net Loss Per Share

 

The following table sets forth the computation of basic and diluted net loss per share:

 

   Three months ended June 30,   Six months ended June 30, 
   2017   2016   2017   2016 
Numerator:                
Net loss applicable to common stockholders, basic and diluted  $(5,507)  $(9,970)  $(13,809)  $(16,745)
                     
Denominator:                    
Weighted-average number of shares, basic and diluted   25,515    16,247    23,717    15,817 
                     
                     
Net loss per share, basic and diluted  $(0.22)  $(0.61)  $(0.58)  $(1.06)

 

The following table sets forth potential shares of common stock that are not included in the calculation of diluted net loss per share because to do so would be anti-dilutive as of the end of each period presented:

 

   June 30, 
   2017   2016 
Options to purchase common stock   2,537    2,303 
Warrants for common stock   5,092    4,085 
Common stock issuable upon conversion of preferred shares   -    547 
Total common stock equivalents   7,629    6,935 

 

17.Segment Disclosures

 

The Company has three reportable segments: Medical Devices, Industrial Sales, and Engineering Services. The Medical Devices segment designs and engineers technology for, and commercializes, manufactures, and sells exoskeletons for applications in the medical markets. The Industrial Sales segment designs, engineers, commercializes, and sells exoskeleton devices to allow able-bodied users to perform heavy duty work for extended periods. Engineering Services generates revenue principally from collaborative research and development service arrangements, technology license agreements, and government grants where the Company uses its robotics domain knowledge in bionic exoskeletons to bid on and procure contracts and grants from entities such as the National Science Foundation and the Defense Advanced Research Projects Agency.

 

The Company evaluates performance and allocates resources based on segment gross profit margin. The reportable segments are each managed separately because they serve distinct markets, and one segment provides a service and the others manufacture and distribute unique products. The Company does not consider net assets as a segment measure and, accordingly, assets are not allocated.

 

Segment reporting information is as follows:

 

   Device and Related   Engineering     
   Medical   Industrial   Total   Services   Total 
Three months ended June 30, 2017                    
Revenue  $1,502   $365   $1,867   $-   $1,867 
Cost of revenue   1,185    286    1,471    -    1,471 
Gross profit  $317   $79   $396   $-   $396 
                          
Three months ended June 30, 2016                         
Revenue  $1,451   $-   $1,451   $101   $1,552 
Cost of revenue   1,286    -    1,286    63    1,349 
Gross profit  $165   $-   $165   $38   $203 

 

 18 

 

 

Ekso Bionics Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

($ and share amounts in thousands, except per share amounts)

(Unaudited)

 

 

   Device and Related         
   Medical   Industrial   Total   Engineering Services   Total 
Six months ended June 30, 2017                         
Revenue  $2,372   $903   $3,275   $28   $3,303 
Cost of revenue   1,906    642    2,548    7    2,555 
Gross profit  $466   $261   $727   $21   $748 
                          
Six months ended June 30, 2016                         
Revenue  $9,373   $135   $9,508   $530   $10,038 
Cost of revenue   7,810    145    7,955    382    8,337 
Gross profit  $1,563   $(10)  $1,553   $148   $1,701 

 

 

Geographic information for revenue based on location of customers is as follows:

 

   Three months ended June 30,   Six months ended June 30, 
   2017   2016   2017   2016 
United States  $1,031   $1,176   $1,962   $5,697 
All Other   836    376    1,341    4,341 
   $1,867   $1,552   $3,303   $10,038 

 

18.Subsequent Events

 

In July of 2017, the Company announced that its board of directors has approved a proposed rights offering to raise gross proceeds of up to $34,000. The rights offering is proposed to be made through the pro rata distribution of non-transferable subscription rights to purchase, in the aggregate, up to a potential 34,000 shares of the Company’s common stock at a subscription price of $1.00 per share, to shareholders and certain warrant holders of the Company on the record date of August 10, 2017. Each holder of shares of common stock as of the record date will receive, at no charge, one subscription right for each share of common stock owned on the record date, and certain holders of warrants issued by the Company on the record date will receive subscription rights pursuant to the terms of the warrants. Each holder of subscription rights will have a basic subscription right to purchase its pro rata portion of the shares of common stock offered in the proposed rights offering. The proposed rights offering will also include an over-subscription right, which will entitle a rights holder who exercises all of its basic subscription right in full the opportunity to purchase additional shares of common stock up to the amount of its basic subscription right, subject to the availability and pro rata allocation of shares among rights holders exercising their over-subscription right.

 

Puissance Capital Management (“Puissance”), pursuant to a purchase agreement entered into between Puissance and the Company, has committed to purchase, at the subscription price of $1.00 per share, any unsubscribed shares of common stock following exercise of the basic subscription right, provided that the number of shares purchased by Puissance is subject to a cap such that Puissance will not own more than 40% of the Company’s outstanding shares of common stock following the proposed rights offering. The shares of common stock to be sold to Puissance pursuant to the purchase agreement will not be registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The Company has agreed, subject to certain terms and conditions, to file a registration statement under the Securities Act covering the resale of the securities to be sold to Puissance pursuant to the purchase agreement. The Company is planning to commence the proposed rights offering in August of 2017.

 

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Ekso Bionics Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

($ and share amounts in thousands, except per share amounts)

(Unaudited)

 

The proposed rights offering will be made pursuant to the Company’s effective shelf registration statement on Form S-3 (Reg. No. 333-218517) on file with the Securities and Exchange Commission.

 

On July 17, 2017, the Company entered into a consulting agreement with Angel Pond Capital LLC (“Angel Pond”), an entity affiliated with Puissance. Angel Pond will assist the Company with strategic positioning in the Asia Pacific region, including the introduction to potential strategic and capital partner(s) and the development of strategic partnership(s) for the sale and manufacture of the Company’s products in that market. The Company will pay Angel Pond retainer and success fees of a minimum of $2,000 subject to the satisfaction of certain milestones, including the successful establishment of joint venture partnership(s) in the Asia Pacific region.

 

On August 4, 2017, the Company entered into Warrant Repurchase and Amendment Agreements (the “Amendment Agreements”) with all of the holders (collectively, the “Holders”) of the Company’s warrants (the “2017 Warrants”) issued pursuant to that certain Securities Purchase Agreement dated April 2, 2017 among the Company and the purchasers identified on the signature pages thereto (the “Purchase Agreement”), pursuant to which the Company and the Holders agreed to amend the Purchase Agreement to remove the prohibition on the Company effecting a variable rate transaction and to clarify that the distribution of rights pro rata to all record holders of the Company’s common stock would be an exempt issuance not subject to certain rights of the purchasers under the Purchase Agreement, and provided for a mutual release of prior claims. In addition, the Company agreed to repurchase the 2017 Warrants from each Holder for $1.23 per share, subject to such Holder exercising at least their basic subscription right in the Company’s proposed rights offering, and to permit each Holder to use all or a portion of the consideration received pursuant to the Amendment Agreements to pay the subscription price for the exercise of their subscription rights in the rights offering. The closing of the transactions contemplated by the Amendment Agreements is expected to occur simultaneously with the closing of the rights offering, subject to the satisfaction of certain closing conditions.

 

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

You should read the following discussion of our financial condition and results of operation in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2016.

 

This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements include all statements other than statements of historical facts contained or incorporated by reference in this quarterly report, including statements regarding (i) the plans and objectives of management for future operations, including plans or objectives relating to the design, development and commercialization of human exoskeletons, (ii) a projection of income (including income/loss), earnings (including earnings/loss) per share, capital expenditures, dividends, capital structure or other financial items, (iii) our future financial performance, including any such statement contained in a discussion and analysis of financial condition by management or in the results of operations included pursuant to the rules and regulations of the SEC, (iv) our beliefs regarding the potential for commercial opportunity for exoskeleton technology in general and our exoskeleton products in particular, (v) our beliefs regarding potential clinical and other health benefits of our medical devices, and (vi) the assumptions underlying or relating to any statement described in points (i), (ii), (iii), (iv) or (v) above. The words “may,” “might,” “would,” “should,” “could,” “project,” “estimate,” “pro-forma,” “predict,” “potential,” “strategy,” “anticipate,” “attempt,” “develop,” “plan,” “help,” “believe,” “continue,” “intend,” “expect,” “future,” and similar expressions (including the negative of any of the foregoing) are intended to identify forward-looking statements.

 

The following factors, among others, including those described in the section titled “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2016, could cause our future results to differ materially from those expressed in the forward-looking information:

 

·our ability to obtain adequate financing to fund operations and to develop or enhance our technology;
·our ability to obtain or maintain regulatory approval to market the Company’s medical devices;
·the anticipated timing, cost and progress of the development and commercialization of new products or services, and improvements to our existing products, and related impacts on our profitability and cash position;
·our ability to effectively market and sell our products and expand our business, both in unit sales and product diversification;
·our ability to achieve broad customer adoption of our products and services;
·our ability to complete clinical trials on a timely basis and that completed clinical trials will be sufficient to support commercialization of our products;
·existing or increased competition;
·rapid changes in technological solutions available to our markets;
·volatility with our business, including long and variable sales cycles, which could have a negative impact on our results of operations for any given quarter;
·our ability to obtain or maintain patent protection for the Company’s intellectual property;
·the scope, validity and enforceability of our and third party intellectual property rights;
·significant government regulation of medical devices and the healthcare industry;
·our customers’ ability to get third party reimbursement for our products and services associated with them;
·our failure to implement our business plan or strategies;
·our ability to retain or attract key employees;
·stock volatility or illiquidity;
·our ability to maintain adequate internal controls over financial reporting; and
·overall economic and market conditions.

 

Although we believe that the assumptions underlying the forward-looking statements and forward-looking information contained herein are reasonable, any of the assumptions could be inaccurate, and therefore such statements and information included in this Quarterly Report on Form 10-Q may not prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements and forward-looking information included herein, the inclusion of such statements and information should not be regarded as a representation by us or any other person that the results or conditions described in such statements and information or that our objectives and plans will be achieved. Such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

 

Overview

 

The Company designs, develops and sells exoskeleton technology to augment human strength, endurance and mobility. The Company’s exoskeleton technology serves multiple markets and can be used both by able-bodied users as well as by persons with physical disabilities. The Company has sold, rented or leased devices that (a) enable individuals with neurological conditions affecting gait (stroke and spinal cord injury) to rehabilitate and to walk again and (b) allow industrial workers to perform heavy duty work for extended periods.

 

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Today, the Company’s medical exoskeleton, Ekso GT, is used as a rehabilitation tool to allow physicians and therapists to rehabilitate patients who have suffered a stroke or spinal cord injury. With its unique features designed specifically for hospitals and its proprietary SmartAssist software, Ekso GT allows for the early mobilization of patients, with high step count and high dosage treatments. The intent is to allow the patient’s central nervous system to take advantage of a person’s neuroplasticity to maximize a patient’s recovery.

 

For able-bodied industrial workers, last year we introduced a new product innovation for aerial work platforms (AWP) and scaffolding, the EksoZeroG, which is intended to significantly improve workforce productivity while dramatically reducing workplace related injuries in order to keep workers healthy, strong, and safe. EksoZeroG is a mobile arm mount that makes heavy tools feel weightless and enables workers to be more productive and safer. In 2017, we are focusing on increasing sales of the EksoZeroG by pursuing alternative channels such as rental agreements with construction equipment and heavy tool providers. In addition, we believe there is additional mid-to-long-term potential in the industrial markets, and accordingly, we will continue development efforts to expand EksoWorks product offerings.

 

The Company believes the commercial opportunity for exoskeleton technology adoption is accelerating as a result of recent advancements in material technologies, electronic and electrical engineering, control technologies, and sensor and software development. Taken individually, many of these advancements have become ubiquitous in peoples’ everyday lives. The Company believes it has learned how to integrate these existing technologies and wrap the result around a human being efficiently, elegantly and safely, supported by an industry leading intellectual property portfolio. The Company further believes it can do so across a broad spectrum of applications, from persons with lower limb paralysis to able-bodied users.

 

Recent Business Developments

 

Restructuring

 

In May of 2017, the Company streamlined its operations and reduced its workforce by approximately 27 employees to lower operating expenses and reduce cash burn. The Company will focus its efforts on the commercialization of its proprietary Ekso GT for rehabilitation and its exoskeleton offerings for industrial applications. The restructuring plan was completed by the end of the second quarter of 2017. The Company recorded restructuring expense of $0.7 million for the three and six months ended June 30, 2017,comprised of employee severance payments, stock compensation expense related to restricted stock units issued to terminated employees, and other severance related benefits. (Refer to Note 9 Restructuring of the Condensed Consolidated Financial Statements).

 

Equity Financings

 

In April 2017, the Company sold in a registered direct offering an aggregate of 3,732,356 shares of its common stock, par value $0.001 per share, and warrants to purchase 1,866,178 shares of common stock with an exercise price of $4.10 per share. The aggregate net proceeds of the transaction were approximately $10.9 million. The warrants will become exercisable six months following the issuance date and will expire five years from the date they become exercisable.

 

In July of 2017, the Company announced that its board of directors approved a proposed rights offering to raise gross proceeds of up to $34.0 million. (Refer to Note 18 Subsequent Event of the Condensed Consolidated Financial Statements).

 

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Clinical Update

 

The Company’s strategy continues to be to expand clinical data associated with robotic exoskeleton use and, in particular, Ekso GT. To date, there have been 55 studies announced utilizing the Ekso GT, including 33 completed studies and 22 ongoing studies, encompassing a total of over 1,200 patients. This includes the first Company-sponsored clinical trial, which is led by Professor Dylan Edwards, Ph.D., P.T., of The Burke Medical Research Institute. The study, entitled WISE (Walking Improvement for SCI with Exoskeletons), evaluates improvement in independent gait speeds of Spinal Cord Injury (“SCI”) patients undergoing rehabilitation with the Ekso GT and compares it to both conventional therapy and a control group. The US-based, multi-center study seeks to enroll approximately 160 people with chronic incomplete SCI.

 

The Company also continues to work with investigators who have independently initiated large clinical trials to study the use of the Ekso GT, including: a Kessler Foundation study that is enrolling acute stroke patients in a grant-funded randomized, controlled trial with the goal of demonstrating the benefits of early intervention with gait therapy using the Ekso GT; a study by the Rehabilitation Institute of Chicago focusing on the clinical efficacy of the Ekso GT in both SCI and stroke survivors; a study being conducted by nine European rehabilitation centers working in collaboration to study the progression of SCI patients over 8 weeks of therapy; and a study being conducted by the Moritz Klink entitled The MOST Study (Mobility improved after stroke when a robotic device was used in comparison to physical therapy) investigating the impact of gait training with the Ekso GT on functional independence of 80 patients with impaired gait as a consequence of stroke when compared to conventional physiotherapy alone.

 

In January 2017, the National Institute for Health and Care Excellence, a public body of the Department of Health in the United Kingdom, released a Medtech Innovation Briefing (MIB) on the Ekso GT robotic exoskeleton, the first and only such briefing on exoskeletons.  The MIB highlights the innovative aspect of Ekso Bionics’ proprietary SmartAssist software, which differentiates Ekso GT from other available wearable exoskeletons.   The MIB notes that SmartAssist technology allows physiotherapists to strategically target aspects of a patient's gait by providing different amounts of support to each leg, effectively personalizing the treatment for each patient’s specific needs.

 

Sales and Marketing Update - Rehabilitation

 

In conjunction with our FDA clearance in April 2016, including the only approved label in the industry that includes patients with hemiplegia due to stroke, we completed a full review of our sales and marketing efforts. We have begun to broaden the launch of our Ekso GT and our go-to-market plan in the US and in Europe, including an increase in marketing campaigns to educate the market on the benefits of stroke rehabilitation using exoskeletons, and arranging product demonstrations with various stakeholders at our target customer.

 

Today we have five direct salespersons, and one sales development representative in the US, one direct sales representative and a distributor manager for over 10 distributors in Europe, as well as a sales operations manager that supports the efforts of both regions This sales team is supported by 10 physical therapists to provide customer demonstrations and training, and six sales operation and customer service personnel. Over the past several quarters the Company has endeavored to better understand its customer’s decision cycle for adopting the Company’s new technology, in order to optimize the pace of placements and adoption, and has piloted a number of alternative approaches for trial, sales, and rental options. For example, in the United States, we have piloted a short-term (three to six months) customer rental with an option to convert to purchase or rent to place units with customers, which in several cases has been more effective than pursuing sales through the standard capital purchase budget cycle. Given the track record of converting previous rentals to sales, we could see these short term rentals in the United States and other operating rental options facilitate expansion of the Company’s rehabilitation program, while also allowing us to reduce the timeline to place our Ekso GT units.

 

Recently we launched our Centers of Excellence program in both the US and Europe, a unique peer-to-peer program through which some of our key customers and thought leaders share their knowledge and experience with potential and new customers. The program spans the operational areas of clinical, sales and marketing to bring together the user experience and share it with new customers to facilitate adoption and utilization. These Centers of Excellence will work with our integrated sales and marketing teams and will be available to prospective customers/partners to discuss the clinical, business and financial merits of using the Ekso GT as a tool in rehabilitation. These Centers of Excellence complement the more than 175 hospitals and clinics that already have incorporated Ekso GT in their rehabilitation programs.

 

Ekso Bionics has been granted 35 Continuing Competence Units, through the Federation of State Board of Physical Therapy (FSBPT), for physical therapists that successful complete the Ekso GT training program. The FSBPT recognized the comprehensive overview of gait analysis, robotic technology integration into gait training, and interactive learning through guided instruction during our training program.

 

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Regulatory Update

 

On April 4, 2016, the Company received clearance from the FDA to market its Ekso GT robotic exoskeleton for use in the treatment of individuals with hemiplegia due to stroke, individuals with spinal cord injuries at levels T4 to L5, and individuals with spinal cord injuries at levels of T3 to C7 (ASIA D), in accordance with the device’s labeling. On July 19, 2016, the Company received clearance from the FDA to expand/clarify the indications and labeling to expressly include individuals with hemiplegia due to stroke who have upper extremity function of at least 4/5 in only one arm. The Company’s prior cleared indications for use statement required that individuals with hemiplegia due to stroke have upper extremity function of at least 4/5 in both arms.


The US government regulates the medical device industry through various agencies, including but not limited to, the FDA, which administers the federal Food, Drug and Cosmetic Act. The FDA classifies medical devices into one of three classes (Class I, II or III) based on the degree of risk the FDA determines to be associated with a device and the extent of control deemed necessary to ensure the device’s safety and effectiveness. Devices requiring fewer controls because they are deemed to pose lower risk are placed in Class I or II. Class I devices are deemed to pose the least risk and are subject only to general controls applicable to all devices, such as requirements for device labeling, premarket notification, and adherence to the FDA’s current good manufacturing practice requirements, as reflected in its Quality System Regulation (“QSR”). Class II devices are intermediate risk devices that are subject to general controls and may also be subject to special controls such as performance standards, product-specific guidance documents, special labeling requirements, patient registries or post-market surveillance. Class III devices are those for which insufficient information exists to assure safety and effectiveness solely through general or special controls, and include life-sustaining, life-supporting, or implantable devices, and devices not “substantially equivalent” to a device that is already legally marketed. Most Class I devices, and some Class II devices are exempted by regulation from the 510(k) clearance requirement and can be marketed without prior authorization from FDA. Class I and Class II devices that have not been so exempted are eligible for marketing through the 510(k) clearance pathway. By contrast, devices placed in Class III generally require premarket approval, or PMA, prior to commercial marketing.

 

The Company believes that prior to April 4, 2016, the Company’s Ekso GT robotic exoskeleton had been appropriately marketed as a Class I 510(k) exempt Powered Exercise Equipment device since February 2012. On June 26, 2014, the FDA announced the creation of a new product classification for Powered Exoskeleton devices. On October 21, 2014, the FDA published the summary for the new Powered Exoskeleton classification and designated it as being Class II, which requires the clearance of a 510(k) notice.

 

On October 21, 2014, concurrent with the FDA’s publication of the reclassification of Powered Exoskeleton devices, the FDA issued the Company an “Untitled Letter” which informed the Company in writing of the agency’s belief that this new product classification applied to our Ekso GT device. On December 24, 2014, the Company filed a 510(k) notice for the Ekso robotic exoskeleton, which was accepted by the FDA for substantive review on July 29, 2015. As discussed above, the Company received FDA clearance to market its Ekso GT in accordance with the device’s labeling on April 4, 2016.

 

Critical Accounting Policies and Estimates

 

Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Our estimates form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

 

An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimate that are reasonably likely to occur, could materially impact the condensed consolidated financial statements. We believe that our critical accounting policies reflect the more significant estimates and assumptions used in the preparation of the condensed consolidated financial statements.

 

The Company builds medical device robotic exoskeletons for sale and capitalizes into inventory materials, direct and indirect labor, and overhead in connection with the manufacture and assembly of these units.


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When the Company brought its first version medical device to market in 2012, the Company could not be certain as to the costs it would incur to support, maintain service and upgrade these early stage devices. Primarily for this reason, prior to January 1, 2016, the sale of a device, associated software, initial training, and extended support and maintenance were deemed as a single unit of accounting due to the uncertainty of the Company’s follow-up maintenance and upgrade expenses, which were forecast to extend over three years. Accordingly, the revenue from the sales of the device and associated cost of revenue were deferred at the time of shipment. Upon completion of training, the amount of the arrangements were recognized as revenue and cost of revenue over a three-year period on a straight line basis, while all service expenses, whether or not covered by the Company’s original warranty, extended warranty contracts, or neither, were recognized as incurred. 

 

Effective January 1, 2016, the Company determined it had established (i) separate individual pricing for training, extended warranty coverage, and out-of-contract service or repairs, (ii) sufficient historical evidence of customer buying patterns for extended warranty and maintenance coverage, and (iii) a basis for estimating and recording warranty and service costs to allow the Company to bifurcate its sales transactions into two separate units of accounting: (1) the device, associated software, original manufacturer warranty and training, if required, and (2) extended support and maintenance. As a result, in the first quarter of 2016, the Company began to recognize revenue related to its sales transactions on a multiple element approach in which revenue is recognized upon the delivery of the separate elements to the customer. Revenue relating to the undelivered elements is deferred using the relative selling price method, which allocates revenue to each element using the estimated selling prices for the deliverables when vendor-specific objective evidence or third-party evidence is not available. For sales on or after January 1, 2016, revenue and associated cost of revenue of medical devices is recognized when delivered, or training has been completed, if required. Revenue for extended maintenance and support agreements is recognized on a straight-line basis over the contractual term of the agreement, which typically ranges from one to four years. As a result of this change, the Company recognized medical device revenue previously deferred at December 31, 2015 of $6.5 million and associated cost of revenue of $4.2 million, resulting in additional gross profit, reduction in net loss from operations, and reduction of net loss applicable to common stockholders of $2.4 million, or $0.13 per share, in its results of operations in the three-month period ended March 31, 2016. In addition, the Company recorded $0.2 million for warranty expenses and a one-time charge of $0.9 million for a planned preventative maintenance and upgrade program associated with the devices it had sold prior to 2016 in the same time period.

 

Adoption of New Accounting Policy

 

Effective January 1, 2017, the Company adopted Accounting Standards Update (“ASU”) 2016-09 Compensation – Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting. In adopting ASU 2016-09, the Company elected to change its accounting policy to account for forfeitures as they occur to more closely align compensation expense to services provided. The change was applied on a modified retrospective basis with a cumulative effect adjustment to retained earnings as of January 1, 2017 of $0.2 million.

 

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Results of Operations

 

The following table presents our results of operations for the three-month period ended June 30 (in thousands):

 

   Three months ended June 30,         
   2017   2016   Change   % Change 
Revenue:                
Device and related  $1,867   $1,451   $416    29%
Engineering services   -    101    (101)   -100%
Total revenue   1,867    1,552    315    20%
                     
Cost of revenue:                    
Device and related   1,471    1,286    185    14%
Engineering services   -    63    (63)   -100%
Total cost of revenue   1,471    1,349    122    9%
                     
Gross profit   396    203    193    95%
                     
Operating expenses:                    
Sales and marketing   3,270    2,913    357    12%
Research and development   2,632    2,221    411    19%
General and administrative   2,475    2,465    10    0%
Restructuring   665    -    665    -- 
Gain in fair value, contingent consideration   (187)   -    (187)   -- 
Total operating expenses   8,855    7,599    1,256    17%
                     
Loss from operations   (8,459)   (7,396)   (1,063)   14%
                     
Other income, net:                    
Gain on warrant liabilities   3,106    1,665    1,441    87%
Interest and other, net   (154)   (34)   (120)   353%
Total other income, net   2,952    1,631    1,321    81%
                     
Net loss   (5,507)   (5,765)   258    -4%
                     
Less: Preferred deemed dividend   -    (4,205)   4,205    -100%
Net loss applicable to common shareholders  $(5,507)  $(9,970)  $4,463    -45%

 

 

Revenue

 

Device and related increased $0.4 million, or 29%, for the three months ended June 30, 2017 compared to the same period of 2016 primarily due to an increase in industrial device revenue of $0.3 million related to the commercial sale of industrial products not offered in the same period of 2016. We also recorded a $0.1 million increase in medical device revenue due to higher medical device sales.

 

We did not have engineering service contracts for the three months ended June 30, 2017.

 

Gross Profit

 

Gross profit increased $0.2 million, or 95%, for the three months ended June 30, 2017 primarily due to higher sales of medical devices.

 

Operating Expenses

 

Sales and marketing expenses increased $0.4 million, or 12%, for the three months ended June 30, 2017 compared to the same period of 2016 primarily due to an increase in marketing efforts related to the commercialization of the Company’s medical devices for rehabilitation and its exoskeleton offerings for industrial applications, and an increase in clinical research activity.

 

Research and development expenses increased $0.4 million, or 19%, for the three months ended June 30, 2017 compared to the same period of 2016 primarily due to labor being redirected to product innovation activity from billable engineering service projects, which was recorded in cost of revenue.

 

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General and administrative expenses was consistent with the same period of 2016.

 

Restructuring expense of $0.7 million for the three months ended June 30, 2017 includes employee severance payments of $0.4 million, stock compensation expense of $0.2 million related to restricted stock units issued to terminated employees, and $0.1 million of other severance related benefits.

 

Gain on fair value, contingent consideration of $0.2 million for the quarter ended June 30, 2017 includes the changes of the fair value of the contingent consideration liability related to Equipois sales earnouts and contingent success fee liability related to the outstanding debt with lender.

 

Other Income, Net

 

Other income, net, increased $1.3 million, or 81%, primarily related to the changes of fair value of the warrant liabilities.

 

Gain on warrant liabilities includes the gain of $3.1 million from the revaluation of warrants issued in 2015 and 2017 compared to a gain of $1.7 million from the revaluation of warrants issued in 2015 for the three months ended June 30, 2016. The gains and losses on revaluation of warrants is primarily driven by changes in the Company’s stock price.

 

Interest and other expense, net increased $0.1 million, or 353%, primarily due to interest expense associated with $7.0 million debt obtained in December 2016. The Company had substantially no debt outstanding in 2016.

 

Preferred Deemed Dividend

 

In the three months ended June 30, 2016, 5,391 shares of convertible preferred stock were converted into approximately 762,500 shares of common stock, resulting in a $4.2 million non-cash preferred deemed dividend that related to the amortization of the discount associated with the warrants issued in December 2015.

 

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The following table presents our results of operations for the six months ended June 30 (in thousands):

 

   Six months ended June 30,         
   2017   2016   Change   % Change 
Revenue:                
Device and related (see Note 2)  $3,275   $9,508   $(6,233)   -66%
Engineering services   28    530    (502)   -95%
Total revenue   3,303    10,038    (6,735)   -67%
                     
Cost of revenue:                    
Device and related   2,548    7,955    (5,407)   -68%
Engineering services   7    382    (375)   -98%
Total cost of revenue   2,555    8,337    (5,782)   -69%
                     
Gross profit   748    1,701    (953)   -56%
                     
Operating expenses:                    
Sales and marketing   6,337    5,416    921    17%
Research and development   5,505    4,370    1,135    26%
General and administrative   5,016    5,953    (937)   -16%
Restructuring   665    -    665    -- 
Gain in fair value, contingent consideration   (175)   -    (175)   -- 
Total operating expenses   17,348    15,739    1,609    10%
                     
Loss from operations   (16,600)   (14,038)   (2,562)   18%
                     
Other income, net:                    
Gain on warrant liabilities   3,037    4,650    (1,613)   -35%
Interest and other, net   (246)   (28)   (218)   779%
Total other income, net   2,791    4,622    (1,831)   -40%
                     
Net loss   (13,809)   (9,416)   (4,393)   47%
                     
Less: Preferred deemed dividend   -    (7,329)   7,329    -100%
Net loss applicable to common shareholders  $(13,809)  $(16,745)  $2,936    -18%

 

Revenue

 

Device and related revenue decreased $6.2 million, or 66%, for the six months ended June 30, 2017 compared to the same period of 2016 primarily due to the revenue recognition during the six months ended June 30, 2016 of $6.5 million of previously deferred revenue resulting from a change of an accounting estimate (see Note 2 in the notes to our condensed consolidated financial statements under the caption Basis of Presentation and Summary of Significant Accounting Policies and Estimates - Medical Device Revenue and Cost of Revenue Recognition); partially offset by increased medical device sales.

 

We did not have any substantial engineering projects for the six months ended June 30, 2017. Engineering services revenue was $0.5 million for the six months ended June 30, 2016.

 

Gross Profit

 

Gross profit decreased $1.0 million, or 56%, for the six months ended June 30, 2017 primarily due to $2.4 million of gross profit from our change in accounting estimate related to revenue recognition during the six months ended June 30, 2016 (see Note 2 in the notes to our condensed consolidated financial statements under the caption Basis of Presentation and Summary of Significant Accounting Policies and Estimates - Medical Device Revenue and Cost of Revenue Recognition); partially offset by increased medical device sales.

 

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Operating Expenses

 

Sales and marketing expenses increased $0.9 million, or 17%, for the six months ended June 30, 2017 compared to the same period of 2016 primarily due to an increase in marketing efforts related to the commercialization of the Company’s medical devices for rehabilitation and its exoskeleton offerings for industrial applications, an increase in clinical research activity, and increased employee headcount.

 

Research and development expenses increased $1.1 million, or 26%, for the six months ended June 30, 2017 compared to the same period of 2016 primarily due to labor being redirected to product innovation activities from billable engineering service projects which was recorded in cost of revenue, and increases in outside services and material purchases for the development of medical and industrial products, respectively.

 

General and administrative expenses decreased $0.9 million, or 16%, for the six months ended June 30, 2017 compared to the same period of 2016 primarily due to the absence of a $0.8 million non-cash stock compensation charge in the six months ended June 30, 2016 related to the modification of stock options that had been granted to the then Chief Executive Officer. In addition, the 2016 period included a $0.3 million severance charge with respect to the departure of the then Chief Executive Officer.

 

Restructuring expense of $0.7 million for the six months ended June 30, 2017 includes employee severance payments of $0.4 million, stock compensation expense of $0.2 million related to restricted stock units issued to terminated employees, and $0.1 million of other related severance related benefits.

 

Gain on fair value, contingent consideration of $0.2 million for the six months ended June 30, 2017 includes the changes of the fair value of the contingent consideration liability related to Equipois sales earnouts and contingent success fee liability related to the outstanding debt with lender.

 

Other Income, Net

 

Gain on warrant liabilities decreased $1.6 million, or 35%, for the six months ended June 30, 2017 compared to the same period of 2016. We recorded a gain of $3.0 million on the revaluation of warrant liabilities related to warrants issued in 2015 and 2017 for the six months ended June 30, 2017 compared to a gain of $4.7 million on the revaluation of warrant liabilities related to warrants issued in 2015 for the six months ended June 30, 2016. Gains and losses on revaluation of warrants is primarily driven by changes in the Company’s stock price.

 

Interest and other expense, net increased $0.2 million, or 779%, primarily due to interest expense associated with $7.0 million debt obtained in December 2016. The Company had substantially no debt outstanding in 2016.

 

Preferred Deemed Dividend

 

In the six months ended June 30, 2016, 9,396 shares of convertible preferred stock were converted into approximately 1,328,900 shares of common stock, resulting in a $7.3 million non-cash preferred deemed dividend that related to the amortization of the discount associated with the warrants issued in December 2015.

 

Financial Condition, Liquidity and Capital Resource

 

Since the Company’s inception, it has devoted substantially all its efforts toward the development of exoskeletons for the medical, military and industrial markets, toward the commercialization of medical exoskeletons to rehabilitation centers and toward raising capital. Accordingly, the Company is in the early commercialization stage. The Company has financed its operations primarily through the issuance and sale of equity securities for cash consideration and convertible and promissory notes, as well as from government research grant awards and strategic collaboration payments.

 

Cash and Working Capital

 

Cash on hand at June 30, 2017 was $10.7 million compared to $16.8 million at December 31, 2016. For the six months ended June 30, 2017, the Company used $16.9 million of cash in operations compared to $14.1 million for the six months ended June 30, 2016.

 

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Liquidity and Capital Resources

 

Largely as a result of significant research and development activities related to the development of the Company’s advanced technology and commercialization of this technology into its medical device business, the Company has incurred significant operating losses and negative cash flows from operations since inception. The Company has also recognized significant non-cash losses associated with the revaluation of certain securities, which have also contributed significantly to its accumulated deficit. As of June 30, 2017, the Company had an accumulated deficit of $128.8 million.

 

As noted in Note 10, Long-Term Debt, borrowings under our long-term debt agreement have a requirement of minimum cash on hand roughly equivalent to three months of cash burn using the average of recent six month results, recomputed each month. As of June 30, 2017, the most recent determination of this restriction which included one-time restructuring costs of $0.7 million, $7.5 million of cash must remain as unrestricted. After considering such cash restriction, effective unrestricted cash as of June 30, 2017 is estimated to be $3.2 million.

 

Based on a look-forward period of one year from the filing of this Quarterly Report on Form 10-Q, the Company’s cash on hand will not be sufficient to satisfy its operations for the next twelve months from the date of issuance of these consolidated financial statements, which raises substantial doubt about our ability to continue as a going concern.

 

In July of 2017, the Company announced that its board of directors has approved a proposed rights offering to raise gross proceeds of up to $34.0 million. (Refer to Note 18 Subsequent Events for additional information).

 

Based upon the Company’s current cash resources, the recent rate of using cash for operations and investment, and assuming modest increases in current revenue, reduced expenses related to the Company’s recently announced restructuring and workforce reduction, as well as assuming the ability to exhaust its cash resources despite the covenant regarding minimum cash, the Company believes it has sufficient resources to meet its financial obligations into the first quarter of 2018. The Company’s cash on hand; however, will not be sufficient to satisfy its operations for the next twelve months from the date of issuance of these condensed consolidated financial statements, which raises substantial doubt about our ability to continue as a going concern. The Company will require significant additional financing. The Company is actively pursuing opportunities to obtain additional financing in the future through public or private equity and/or debt financings, corporate collaborations, or warrant solicitations.

 

In July of 2017, the Company announced that its board of directors approved a proposed rights offering to raise gross proceeds of up to $34.0 million. (Refer to Note 18 Subsequent Events for additional information). Based on a look-forward period of one year from the date of issuance of these financial statements, and after assuming the Company is able to generate expected proceeds in the third quarter of 2017 in connection with the proposed rights offering, the Company would have sufficient cash on hand to satisfy its operations for the next twelve months from the date of issuance of these condensed consolidated financial statements. 

 

The Company’s actual capital requirements may vary significantly and will depend on many factors. The Company plans to continue its investments (i) in its clinical, sales and marketing initiatives to accelerate adoption of the Ekso robotic exoskeleton in the rehabilitation market, (ii) in its research, development and commercialization activities with respect to an Ekso robotic exoskeleton for home use, and/or (iii) in the development and commercialization of able-bodied exoskeletons for industrial use. Consequently, the Company will require significant additional financing in the future, which the Company intends to raise through corporate collaborations, public or private equity offerings, debt financings, or warrant solicitations. Sales of additional equity securities by us could result in the dilution of the interests of existing stockholders. There can be no assurance that financing will be available when required in sufficient amounts, on acceptable terms or at all. In the event that the necessary additional financing is not obtained, the Company may be required to reduce its discretionary overhead costs substantially, including research and development, general and administrative, and sales and marketing expenses or otherwise curtail operations.

 

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Cash and Cash Equivalents

 

The following table summarizes the sources and uses of cash (in thousands). The Company held no cash equivalents for any of the periods presented.

 

   Six months ended 
   June 30, 
   2017   2016 
Net cash used in operating activities  $(16,859)  $(14,122)
Net cash used in investing activities   (248)   (597)
Net cash provided by (used in) financing activities   10,923    (172)
Effect of exchange rate changes on cash   39    - 
Net decrease in cash   (6,145)   (14,891)
Cash at the beginning of the period   16,846    19,552 
Cash at the end of the period  $10,701   $4,661 

 

Net Cash Used in Operating Activities

 

Net cash used in operations increased $2.7 million, or 19%, for the six months ended June 30, 2017 compared to the same period of 2016 primarily due to increases in cash expenditures toward marketing efforts related to the commercialization of the Company’s medical devices for rehabilitation and exoskeleton offerings for industrial applications; product innovation activities for the development of medical and industrial products, and clinical research activities.

 

Net Cash Used in Investing Activities

 

Net cash used in investing activities decreased $0.3 million for six months ended June 30, 2017 compared to the same period of 2016. Acquisition of property and equipment include the expansion of our company-owned fleet of Ekso units used for demonstrations and loaned to current customers.

 

Net Cash (Used in) Provided by Financing Activities

 

The net cash provided by financing activities of $10.9 million for the six months ended June 30, 2017 included proceeds from the sale of common stock related to the equity financing in April 2017.

 

The net cash used in financing activities for the six months ended June 30, 2016 included expenses paid related to the December 2015 issuance of convertible preferred stock.

 

Contractual Obligations and Commitments

 

The following table summarizes our outstanding contractual obligations as of June 30, 2017, and the effect those obligations are expected to have on our liquidity and cash flows in future periods (in thousands):

 

   Payments Due By Period: 
       Less than           After 
   Total   One Year   1-3 Years   4-5 Years   5 Years 
Term loan  $8,207   $1,415   $5,157   $1,635   $- 
Facility operating  lease   2,957    616    1,226    1,115    - 
Capital lease   115    38    74    3    - 
Total  $11,279   $2,069   $6,457   $2,753   $- 

  

In addition to the table above, which reflects only fixed payment obligations, the Company has two license agreements to maintain exclusive rights to certain patents. Under these license agreements, the Company is required to pay 1% of net sales of products sold to entities other than the U.S. government. In the event of a sublicense, the Company will owe 21% of license fees and must pass through 1% of the sub-licensee’s net sales of products sold to entities other than the U.S. government. The license agreements also stipulate minimum annual royalties of $50,000 per year.

 

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In connection with our acquisition of Equipois in December 2015, the Company assumed the rights and obligations of Equipois under a license agreement with the developer of certain intellectual property related to mechanical balance and support arm technologies, which grants the Company an exclusive license with respect to the technology and patent rights for certain fields of use. Pursuant to the terms of the license agreement, the Company will be required to pay the developer a single-digit royalty on net receipts, subject to a $50,000 annual minimum royalty requirement.

 

Item 3. Quantitative and Qualitative Disclosure About Market Risk

 

We are exposed to market risks in the ordinary course of our business, including inflation risks.

 

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

 

In addition, we conduct business in foreign countries and have subsidiaries based in the United Kingdom and Germany. Accordingly, we are exposed to exchange rate risk. See Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our Annual Report on Form 10-K for the year ended December 31, 2016.

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures.

 

Our management, with the participation of our principal executive officer and principal financial officer, conducted an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”) as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective to ensure that information required to be disclosed in reports filed by us under the Exchange Act is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

It should be noted that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment and makes assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.  Management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

 

PART II. OTHER INFORMATION

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

On May 2, 2017, as consideration for 2016 supply and sales efforts provided by Equipois, LLC, the Company issued a total of 89,286 shares of common stock pursuant to the terms of its Asset Purchase Agreement with Equipois, LLC dated December 1, 2015.

 

Item 5. Other Information

 

On August 3, 2017, pursuant to the restructuring and in anticipation of the proposed rights offering, the lender and the Company executed an amendment to the loan agreement which suspended the minimum liquidity requirement until September 16, 2017, which is expected to be after the anticipated close of the financing. The foregoing description of the amendment to the loan agreement does not purport to be complete and is qualified in its entirety by reference to the amendment to the loan agreement attached hereto as Exhibit 10.48, which is incorporated herein by reference.

 

On August 4, 2017, the Company entered into Warrant Repurchase and Amendment Agreements (the “Amendment Agreements”) with all of the holders (collectively, the “Holders”) of the Company’s warrants (the “2017 Warrants”) issued pursuant to that certain Securities Purchase Agreement dated April 2, 2017 among the Company and the purchasers identified on the signature pages thereto (the “Purchase Agreement”), pursuant to which the Company and the Holders agreed to amend the Purchase Agreement to remove the prohibition on the Company effecting a variable rate transaction and to clarify that the distribution of rights pro rata to all record holders of the Company’s common stock would be an exempt issuance not subject to certain rights of the purchasers under the Purchase Agreement, and provided for a mutual release of prior claims. In addition, the Company agreed to repurchase the 2017 Warrants from each Holder for $1.23 per share, subject to such Holder exercising at least their basic subscription right in the Company’s proposed rights offering, and to permit each Holder to use all or a portion of the consideration received pursuant to the Amendment Agreements to pay the subscription price for the exercise of their subscription rights in the rights offering. The closing of the transactions contemplated by the Amendment Agreements is expected to occur simultaneously with the closing of the rights offering, subject to the satisfaction of certain closing conditions.

 

The foregoing description of the Amendment Agreements does not purport to be complete and is qualified in its entirety by reference to the form of Amendment Agreement attached hereto as Exhibit 10.47, which is incorporated herein by reference.

 

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Item 6. Exhibits

 

Exhibit
Number
  Description
10.44   Purchase Agreement, dated as of July 19, 2017, by and between Ekso Bionics Holdings, Inc. and Puissance Cross-Border Opportunities II LLC (incorporated by reference from Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed July 15, 2017).
     

10.45

 

Registration Rights Agreement, dated as of July 19, 2017, by and between Ekso Bionics Holdings, Inc. and Puissance Cross-Border Opportunities II LLC (incorporated by reference from Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed July 25, 2017).

     
10.46*   Form of Employee Restricted Stock Unit Agreement under 2014 Equity Incentive Plan.
     
10.47*   Form of Warrant Repurchase and Amendment Agreement.
     
10.48*   First Amendment to Loan and Security Agreement, dated as August 3, 2017, by and among EKSO Bionics Holdings, Inc., EKSO Bionics, Inc. and Western Alliance Bank.
     
31.1*   Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.
     
31.2*   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.
     
32.1*   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
32.2* Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101*   The following financial statements from the Ekso Bionics Holdings, Inc. Quarterly Report on Form 10Q for the quarter ended June 30, 2017, formatted in Extensible Business Reporting Language (“XBRL”):

·unaudited condensed consolidated balance sheets;
·unaudited condensed consolidated statements of operations and comprehensive loss;
·unaudited condensed consolidated statement of cash flows;
·notes to unaudited condensed consolidated financial statements;

 

*Filed herewith

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, Ekso Bionics Holdings, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  EKSO BIONICS HOLDINGS, INC.
   
Date: August 7, 2017 By: /s/ Thomas Looby
    Thomas Looby
    President and Chief Executive Officer
     
Date: August 7, 2017 By: /s/ Maximilian Scheder-Bieschin
    Maximilian Scheder-Bieschin
    Chief Financial Officer
     
    (Duly Authorized Officer and Principal Financial and Accounting Officer)

 

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