UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
Ekso Bionics Holdings, Inc.
(Exact name of registrant as specified in its charter)
| | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| | |
| (Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
(Former name, former address, and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Name of each exchange on which registered:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| | | |
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 | ☐ | |
| | ☒ | Smaller reporting company | | |
| Emerging growth company | |
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 ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of registrant’s common stock outstanding as of October 23, 2023 was
Quarterly Report on Form 10-Q
Table of Contents
Condensed Consolidated Balance Sheets
(In thousands, except par value)
| September 30, 2023 | December 31, 2022 | |||||||
| (unaudited) | (Note 2) | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and restricted cash | $ | $ | ||||||
| Accounts receivable, net of allowances of $ and $, respectively | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use assets | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Deferred revenues, current | ||||||||
| Notes payable, current | ||||||||
| Lease liabilities, current | ||||||||
| Total current liabilities | ||||||||
| Deferred revenues | ||||||||
| Notes payable, net | ||||||||
| Lease liabilities | ||||||||
| Warrant liabilities | ||||||||
| Other non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 15) | ||||||||
| Stockholders’ equity: | ||||||||
| Convertible preferred stock, $ par value; shares authorized; issued and outstanding at September 30, 2023 and December 31, 2022 | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
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| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Revenue |
$ | $ | $ | $ | ||||||||||||
| Cost of revenue |
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| Gross profit |
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| Operating expenses: |
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| Sales and marketing |
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| Research and development |
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| General and administrative |
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| Total operating expenses |
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| Loss from operations |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other (expense) income, net: |
||||||||||||||||
| Interest expense, net |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Gain on revaluation of warrant liabilities |
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| Unrealized loss on foreign exchange |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other income (expense), net |
( |
) | ||||||||||||||
| Total other expense, net |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Other comprehensive income |
||||||||||||||||
| Comprehensive loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Net loss per share applicable to common shareholders, basic and diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted average number of shares outstanding, basic and diluted |
||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)
| Accumulated |
||||||||||||||||||||||||||||||||
| Other |
Total |
|||||||||||||||||||||||||||||||
| Convertible Preferred Stock |
Common Stock |
Additional |
Comprehensive |
Accumulated |
Stockholders’ |
|||||||||||||||||||||||||||
| Shares |
Amount |
Shares |
Amount |
Paid-in Capital |
(Loss) Income |
Deficit |
Equity |
|||||||||||||||||||||||||
| Balance as of December 31, 2022 |
$ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||
| Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Issuance of common stock under: |
||||||||||||||||||||||||||||||||
| Equity incentive plan |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Stock-based compensation expense |
— | — | ||||||||||||||||||||||||||||||
| Foreign currency translation adjustments |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance as of March 31, 2023 |
$ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||
| Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Issuance of common stock under: |
||||||||||||||||||||||||||||||||
| Matching contribution to 401(k) plan |
||||||||||||||||||||||||||||||||
| Equity incentive plan |
— | 1 | — | — | — | 1 | ||||||||||||||||||||||||||
| Stock-based compensation expense |
— | — | ||||||||||||||||||||||||||||||
| Foreign currency translation adjustments |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance as of June 30, 2023 |
$ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||
| Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Issuance of common stock under: |
||||||||||||||||||||||||||||||||
| Equity incentive plan |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Stock-based compensation expense |
— | — | ||||||||||||||||||||||||||||||
| Foreign currency translation adjustments |
— | — | ||||||||||||||||||||||||||||||
| Balance as of September 30, 2023 |
$ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||
Ekso Bionics Holdings, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)
| Accumulated |
||||||||||||||||||||||||||||||||
| Other |
Total |
|||||||||||||||||||||||||||||||
| Convertible Preferred Stock |
Common Stock |
Additional |
Comprehensive |
Accumulated |
Stockholders’ |
|||||||||||||||||||||||||||
| Shares |
Amount |
Shares |
Amount |
Paid-in Capital |
(Loss) Income |
Deficit |
Equity |
|||||||||||||||||||||||||
| Balance as of December 31, 2021 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Issuance of common stock under: |
||||||||||||||||||||||||||||||||
| Matching contribution to 401(k) plan |
||||||||||||||||||||||||||||||||
| Equity incentive plan |
||||||||||||||||||||||||||||||||
| Stock-based compensation expense |
— | — | ||||||||||||||||||||||||||||||
| Foreign currency translation adjustments |
— | — | ||||||||||||||||||||||||||||||
| Balance as of March 31, 2022 |
$ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||
| Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Issuance of common stock under: |
||||||||||||||||||||||||||||||||
| Equity incentive plan |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Stock-based compensation expense |
— | — | ||||||||||||||||||||||||||||||
| Foreign currency translation adjustments |
— | — | ||||||||||||||||||||||||||||||
| Balance at June 30, 2022 |
$ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||
| Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Issuance of common stock under: |
||||||||||||||||||||||||||||||||
| Equity incentive plan |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Stock-based compensation expense |
— | — | ||||||||||||||||||||||||||||||
| Foreign currency translation adjustments |
— | — | ||||||||||||||||||||||||||||||
| Balance as of September 30, 2022 |
$ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Nine Months Ended September 30, |
||||||||
| 2023 |
2022 |
|||||||
| Operating activities: |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities |
||||||||
| Depreciation and amortization |
||||||||
| Changes in allowance for doubtful accounts |
( |
) | ||||||
| Gain on revaluation of warrant liabilities |
( |
) | ( |
) | ||||
| Amortization of debt discounts |
||||||||
| Stock-based compensation expense |
||||||||
| Common stock contribution to 401(k) plan |
||||||||
| Unrealized loss on foreign currency transactions |
||||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
( |
) | ||||||
| Inventories |
( |
) | ( |
) | ||||
| Prepaid expenses and other assets, current and noncurrent |
( |
) | ( |
) | ||||
| Accounts payable |
( |
) | ( |
) | ||||
| Accrued, lease and other liabilities, current and noncurrent |
( |
) | ( |
) | ||||
| Deferred revenues |
( |
) | ||||||
| Net cash used in operating activities |
( |
) | ( |
) | ||||
| Investing activities: |
||||||||
| Acquisition of property and equipment |
( |
) | ( |
) | ||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| Effect of exchange rate changes on cash |
( |
) | ( |
) | ||||
| Net decrease in cash |
( |
) | ( |
) | ||||
| Cash and restricted cash at beginning of period |
||||||||
| Cash and restricted cash at end of period |
$ | $ | ||||||
| Supplemental disclosure of cash flow activities |
||||||||
| Cash paid for interest |
$ | $ | ||||||
| Cash paid for income taxes |
$ | $ | ||||||
| Supplemental disclosure of non-cash activities |
||||||||
| Transfer of inventory (from) to property and equipment |
$ | ( |
) | $ | ||||
| Initial recognition of operating lease liability and right of use asset |
$ | $ | ||||||
| Modification of operating lease right-of-use asset and lease liability |
$ | ( |
) | $ | ||||
| Share issuance for common stock contribution to 401(k) plan |
$ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
Description of Business
Ekso Bionics Holdings, Inc. (the “Company”) designs, develops, and markets exoskeleton products to augment human strength, endurance and mobility. The Company’s exoskeleton technology serves multiple markets and can be utilized both by able-bodied users and by persons with physical disabilities. The Company has marketed devices that (i) enable individuals with neurological conditions affecting gait, including acquired brain injury ("ABI") and multiple sclerosis ("MS"), and spinal cord injury ("SCI"), to rehabilitate and to walk again, (ii) assist individuals with a broad range of upper extremity impairments, and (iii) allow industrial workers to perform difficult repetitive work for extended periods. Founded in 2005, the Company is headquartered in the San Francisco Bay area and listed on the Nasdaq Capital Market under the symbol “EKSO”.
On December 5, 2022, the Company acquired the Human Motion and Control (“HMC”) Business Unit from Parker Hannifin Corporation (“Parker”), an Ohio corporation. The assets acquired from the business unit include intellectual property rights for devices which are U.S. Food and Drug Administration ("FDA")-cleared lower-limb powered exoskeletons that enable task-specific, overground gait training to patients with weakness or paralysis in their lower extremities. Products include Ekso Indego Personal, a light-weight exoskeleton for safe use in most home and community environments, and Ekso Indego Therapy, an adjustable exoskeleton for patients with spinal cord injury and stroke, complementing Ekso’s product offering in outpatient facilities.
Liquidity and Going Concern
As of September 30, 2023, the Company had an accumulated deficit of $
As described in Note 10, Notes payable, net, borrowings under the Company’s secured term loan agreement with Pacific Western Bank have a liquidity covenant requiring minimum cash on hand equivalent to the current outstanding principal balance. As of September 30, 2023, $
Our expectation to generate operating losses and negative operating cash flows in the future and the need for additional funding to support our planned operations raise substantial doubt regarding our ability to continue as a going concern for a period of one year after the date that the financial statements are issued. Management intends to raise funds through one or more financings. However, due to several factors, including those outside management’s control, there can be no assurance that the Company will be able to complete such financings on acceptable terms or in amounts sufficient to continue operating the business under the operating plan. If we are unable to complete sufficient additional financings, management’s plans include delaying or abandoning certain product development projects, cost reduction efforts for our products, and refocused sales efforts to accelerate revenue growth above historical results. We have concluded the likelihood that our plan to successfully reduce expenses to align with our available cash, while reasonably possible, is less than probable. Accordingly, we have concluded that substantial doubt exists about our ability to continue as a going concern for a period of at least 12 months from the date of issuance of these unaudited financial statements.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.
2. Basis of Presentation and Summary of Significant Accounting Policies and Estimates
Basis of Presentation and Consolidation
The accompanying condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. 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, 2022, which was filed with the SEC on March 28, 2023.
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, 2022, and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly state the information set forth herein.
Certain reclassifications have been made to the amounts in prior periods to conform to the current period’s presentation.
The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or any future periods.
The condensed consolidated financial statements include the financial statements of Ekso Bionics Holdings, Inc. and its subsidiaries. All significant transactions and balances between Ekso Bionics Holdings, Inc. and its subsidiaries have been eliminated in consolidation.
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, assets acquired and liabilities assumed in business combinations, revenue recognition, deferred revenue, the valuation of warrants and employee equity awards, future warranty costs, accounting for leases, useful lives assigned to long-lived assets, valuation of inventory, realizability of deferred tax assets, and contingencies. Actual results could differ from those estimates.
Foreign Currency
The assets and liabilities of foreign subsidiaries and equity investments, where the local currency is the functional currency, are translated from their respective functional currencies into U.S. dollars at the rates in effect at the balance sheet date, and revenue and expense amounts are translated at average rates during the period, with resulting foreign currency translation adjustments recorded in accumulated other comprehensive income as a component of stockholders’ equity. Gains and losses from the re-measurement of balances denominated in currencies other than the entities' functional currencies, are recorded in other expense, net in the accompanying condensed consolidated statements of operations and comprehensive loss.
Inventory
Inventories are recorded at the lower of cost or net realizable value. Cost is computed using the standard cost method, which approximates actual cost on a first-in, first-out basis. Materials from vendors are received and recorded as raw materials. Once the raw materials are incorporated in the fabrication of the product, the related value of the component is recorded as work in progress ("WIP"). Direct and indirect labor and applicable overhead costs are also allocated and recorded to WIP inventory. Finished goods are comprised of completed products that are ready for customer shipment. The Company periodically evaluates the carrying value of inventory on hand for potential excess amounts over sales and forecasted demand. Excess and obsolete inventories identified, if any, are recorded as an inventory impairment charge within the condensed consolidated statements of operations and comprehensive loss. The Company's estimate of write-downs for excess and obsolete inventory is based on a detailed analysis which includes on-hand inventory and purchase commitments in excess of forecasted demand. Subsequent disposals of inventories are recorded as a reduction of inventory.
Leases
The Company records its leases in accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 842, Leases. At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes its incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset may be required for items, such as initial direct costs paid or incentives received.
Lease expense is recognized over the expected lease term on a straight-line basis. Operating leases are recognized on the balance sheet as right-of-use assets, lease liabilities current and lease liabilities non-current.
Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes the lease expense for such leases on a straight-line basis over the lease term.
Revenue Recognition
The Company records its revenue in accordance with ASC 606, Revenue from Contracts with Customers. Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company enters into contracts that can include various combinations of products and services, which when capable of being distinct, are accounted for as separate performance obligations. Revenue recognition is evaluated based on the following five steps: (i) identification of the contract with the customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied.
For multiple-element arrangements, revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are determined based on observable prices at which the Company separately sells its products or services. If a standalone selling price is not directly observable, judgment is made to estimate the selling price based on market conditions and entity-specific factors including cost plus analyses, features and functionality of the product and/or services, the geography of the Company’s customers, and type of customer. Any discounts or other reductions to the transaction price are allocated proportionately to all performance obligations within the multiple-element arrangement. The Company periodically validates the stand-alone selling price for performance obligations by evaluating whether changes in the key assumptions used to determine the stand-alone selling prices will have a significant effect on the allocation of transaction price between multiple performance obligations.
The Company exercised judgement to determine that a product return reserve was not required as historical returns activity have not been material.
Concentration of Credit Risk and Other Risks and Uncertainties
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. The Company has significant cash balances at financial institutions which throughout the year regularly exceed the federally insured limit of $250. Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company's financial condition, results of operations, and cash flows. The Company extends credit to customers in the normal course of business. Concentrations of credit risk with respect to accounts receivable exist to the full extent of amounts presented in the condensed consolidated financial statements. The Company does not require collateral from its customers to secure accounts receivable.
Accounts receivable are derived from the sale of products shipped and services performed for customers primarily located in the U.S., Europe, Asia, and Australia. Invoices are aged based on contractual terms with the customer. The Company reviews accounts receivable for collectability and provides an allowance for potential credit losses. The allowance for potential credit losses on trade receivables reflects the Company’s best estimate of probable losses inherent in the accounts receivable balance based on known troubled accounts, historical experience, and other currently available evidence. Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 90 days. The Company has not experienced material losses related to accounts receivable as of September 30, 2023 and December 31, 2022.
Many of the sales contracts with customers outside of the U.S. are settled in a foreign currency other than the U.S. dollar. The Company does not enter into any foreign currency hedging agreements and is susceptible to gains and losses from foreign currency fluctuations. To date, the Company has not experienced significant gains or losses upon collecting receivables denominated in a foreign currency.
At September 30, 2023 the Company had
During the three months ended September 30, 2023, the Company had
During the nine months ended September 30, 2023 the Company had
Accounting Pronouncements Adopted in 2023
In June 2016, the FASB issued Accounting Standard Update ("ASU") No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04, ASU 2019-05 and ASU 2019-10, which amended the current approach to estimate credit losses on certain financial assets, including trade and other receivables. Generally, this amendment requires entities to establish a valuation allowance for the expected lifetime losses of these certain financial assets. Upon the initial recognition of such assets, which is based on, among other things, historical information, current conditions, and reasonable supportable forecasts. Subsequent changes in the valuation allowance are recorded in current earnings and reversal of previous losses are permitted. Previously, U.S. GAAP required entities to write down credit losses only when losses were probable and loss reversals were not permitted. The Company adopted ASU 2016-13 as of January 1, 2023, using the modified retrospective transition method. The adoption of ASU 2016-13 did not have a material impact on the Company's financial position or the results of operations.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which simplifies the accounting for convertible instruments. ASU 2020-06 eliminates certain models that require separate accounting for embedded conversion features, in certain cases. Additionally, among other changes, the guidance eliminates certain of the conditions for equity classification for contracts in an entity’s own equity. The guidance also requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share calculation and include the effect of share settlement for instruments that may be settled in cash or shares, except for certain liability-classified share-based payment awards. This guidance is effective for the Company beginning in the first quarter of 2024 and must be applied using either a modified or full retrospective approach. Early adoption is permitted. The Company does not expect the impact of adopting ASU 2020-06 to be material on its condensed consolidated financial statements.
3. Accumulated Other Comprehensive Income (Loss)
The Company's accumulated other comprehensive income (loss) consists of the accumulated net unrealized gains or losses on foreign currency translation adjustments. The change in accumulated other comprehensive income (loss) presented on the condensed consolidated balance sheets for the nine months ended September 30, 2023 and 2022, is reflected in the table below net of tax:
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Balance at beginning of period | $ | $ | ( | ) | ||||
| Net unrealized gain on foreign currency translation | ||||||||
| Balance at end of period | $ | $ | ||||||
4. Human Motion and Control Acquisition
On December 5, 2022, the Company acquired the HMC business from Parker. The assets acquired from the business unit include intellectual property rights for devices which are FDA-cleared lower-limb powered exoskeletons that enable task-specific, overground gait training to patients with weakness or paralysis in their lower extremities. Products include Ekso Indego Personal, a light-weight exoskeleton for safe use in most home and community environments, and Ekso Indego Therapy, an adjustable exoskeleton for patients with spinal cord injury and stroke, complementing Ekso’s product offering in outpatient facilities.
The assets purchased by the Company include intellectual property related to the aforementioned Ekso Indego devices and future products in the orthotics and prosthetics space, inventories related to the Ekso Indego product line, fixed assets configured for the manufacture of the Ekso Indego products, and Ekso Indego devices maintained for service and sales demonstrations. The Company did not acquire any cash in connection with the acquisition of the business unit.
As consideration for the assets acquired, the Company (i) paid Parker $
The Company accounted for the acquisition as a business combination in accordance with ASC 805, Business Combinations, by applying the acquisition method, and accordingly, the purchase price of $
The following table summarizes the preliminary fair values of the assets acquired, liabilities assumed and consideration given as of the acquisition date. These estimates are preliminary, pending final evaluation of certain assets, and therefore, are subject to revisions that may result in adjustments to the values presented below:
| Inventories | $ | |||
| Fixed assets | ||||
| Intangible assets | ||||
| Goodwill | ||||
| Total assets | $ | |||
| Accrued royalties | ||||
| Total liabilities | $ | |||
| Net assets acquired | $ | |||
| Cash delivered at close | $ | |||
| Fair value of promissory note | ||||
| Total consideration | $ |
The fair value of finished goods inventories acquired was estimated at retail selling price less estimated costs to sell and a reasonable profit allowance for the selling effort. The fair value of raw materials acquired were estimated using current prices from suppliers. The preliminary fair value of fixed assets was estimated using a cost approach, adjusting historical gross asset values for inflation, reduced for the remaining estimated economic life of the assets. The preliminary fair values of intangible assets were estimated using a relief from royalty method, the excess earnings method, and a distributor method, all income approaches, which required significant estimates from management regarding future sales expectations, long-term operating margins, the weighted average cost of capital or other appropriate discount rates, and royalty rates. The fair value of the promissory note was estimated as the present value of scheduled principal payments discounted at the Company's estimated borrowing rate.
The Company recorded $
5. Fair Value Measurement
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 on a recurring basis are as follows:
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| September 30, 2023 | ||||||||||||||||
| Liabilities | ||||||||||||||||
| Warrant liabilities | $ | $ | $ | $ | ||||||||||||
| December 31, 2022 | ||||||||||||||||
| Liabilities | ||||||||||||||||
| Warrant liabilities | $ | $ | $ | $ | ||||||||||||
The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities for the nine months ended September 30, 2023, which were measured at fair value on a recurring basis:
| Warrant Liabilities | ||||
| Balance as of December 31, 2022 | $ | |||
| Net gain on revaluation of warrants issued | ( | ) | ||
| Balance as of September 30, 2023 | $ | |||
Refer to Note 12. Capitalization and Equity Structure – Warrants for additional information regarding the valuation of warrants.
6. Inventories
Inventories consisted of the following:
| September 30, 2023 | December 31, 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Work in progress | ||||||||
| Finished goods | ||||||||
| Inventories | $ | $ | ||||||
7. Revenue
The Company’s medical device segment (EksoHealth) revenue is primarily generated through the sale and subscription of the EksoNR, Ekso Indego Therapy, Ekso Indego Personal devices, and Ekso UE along with the sale of support and maintenance contracts. Revenue from medical device product sales is recognized at the point in time when control of the product transfers to the customer. Transfer of control generally occurs upon shipment from the Company’s facility for sales of the EksoNR, Ekso Indego Therapy, Ekso Indego Personal devices, and Ekso UE. Support and maintenance contracts extend coverage beyond the Company’s standard warranty agreements. The separately priced support and maintenance contracts range from
The Company’s industrial device segment (EksoWorks) revenue is primarily generated through the sale of the upper body exoskeleton EVO and associated accessories. Revenue from industrial device sales is recognized at the point in time when control of the product transfers to the customer. Transfer of control generally occurs upon shipment from the Company’s facility. In June of 2022, the Company ceased commercialization of the EksoZeroG support arm and related products and accessories.
Deferred Revenue
Deferred revenue is comprised mainly of unearned revenue related to extended support and maintenance contracts, but also includes other offerings for which the Company has been paid in advance and earns revenue when the Company transfers control of the product or service.
Deferred revenue consisted of the following:
| September 30, 2023 | December 31, 2022 | |||||||
| Deferred extended maintenance and support | $ | |||||||
| Customer advances | ||||||||
| Total deferred revenues | ||||||||
| Less current portion | ( | ) | ( | ) | ||||
| Deferred revenues, non-current | $ | $ | ||||||
On September 25, 2023, the Company entered into a warranty claim lump-sum agreement with Parker, pursuant to which, among other things, Parker paid the Company $
Deferred revenue activity consisted of the following for the nine months ended September 30, 2023:
| Beginning balance | $ | |||
| Deferral of revenue | ||||
| Recognition of deferred revenue | ( | ) | ||
| Ending balance | $ |
The Company expects to recognize approximately $
In addition to deferred revenue, the Company has a non-cancellable backlog of $
Disaggregation of Revenue
The following table disaggregates the Company’s revenue by major source for the three months ended September 30, 2023:
| EksoHealth | EksoWorks | Total | ||||||||||
| Device revenue | $ | $ | $ | |||||||||
| Service and support | ||||||||||||
| Subscriptions | ||||||||||||
| Parts and other | ||||||||||||
| $ | $ | $ | ||||||||||
The following table disaggregates the Company’s revenue by major source for the nine months ended September 30, 2023:
| EksoHealth | EksoWorks | Total | ||||||||||
| Device revenue | $ | $ | $ | |||||||||
| Service and support | ||||||||||||
| Subscriptions | ||||||||||||
| Parts and other | ||||||||||||
| $ | $ | $ | ||||||||||
The following table disaggregates the Company’s revenue by major source for the three months ended September 30, 2022:
| EksoHealth | EksoWorks | Total | ||||||||||
| Device revenue | $ | $ | $ | |||||||||
| Service and support | ||||||||||||
| Subscriptions | ||||||||||||
| Parts and other | ||||||||||||
| $ | $ | $ | ||||||||||
The following table disaggregates the Company’s revenue by major source for the nine months ended September 30, 2022:
| EksoHealth | EksoWorks | Total | ||||||||||
| Device revenue | $ | $ | $ | |||||||||
| Service and support | ||||||||||||
| Subscriptions | ||||||||||||
| Parts and other | ||||||||||||
| Collaborative arrangements | ||||||||||||
| $ | $ | $ | ||||||||||
8. Accrued Liabilities
Accrued liabilities consisted of the following:
| September 30, 2023 | December 31, 2022 | |||||||
| Salaries, benefits and related expenses | $ | $ | ||||||
| Device warranty | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
Warranty
The current portion of the device warranty liability is classified as a component of Accrued liabilities, while the long-term portion of the device warranty liability is classified as a component of Other non-current liabilities in the condensed consolidated balance sheets. A reconciliation of the changes in the device warranty liability for the three and nine months ended September 30, 2023 is as follows:
| Three Months Ended | Nine Months Ended | |||||||
| September 30, 2023 | September 30, 2023 | |||||||
| Balance at beginning of period | $ | $ | ||||||
| Additions for estimated future costs | ||||||||
| Incurred costs | ( | ) | ( | ) | ||||
| Balance at end of period | $ | $ | ||||||
| Balance as of September 30, 2023 | ||||
| Current portion | $ | |||
| Long-term portion | ||||
| Total | $ | |||
9. Goodwill and Intangible Assets
Goodwill
The Company determined no impairment existed for goodwill for the three and nine months ended September 30, 2023.
Intangible Assets
The following table summarizes the components of preliminary gross assets, accumulated amortization, and net carrying values for definite and indefinite lived intangible asset balances as of September 30, 2023:
| September 30, 2023 | ||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||
| Developed technology | $ | $ | ( | ) | $ | |||||||
| Trade name | — | |||||||||||
| Intellectual property | ||||||||||||
| Customer relationships | ( | ) | ||||||||||
| Below market lease | ( | ) | ||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | |||||||
Definite lived intangible assets are amortized over their estimated lives using the straight line method, which is estimated as years for developed technology,
The estimated future amortization expenses related to definite lived intangible assets as of September 30, 2023 is as follows:
| Fiscal Year | Amount | |||
| 2023 - remainder | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 and thereafter | ||||
| Total | $ | |||
10. Notes Payable, net
PWB Term Loan
In August 2020, the Company entered into a loan agreement (the "PWB Loan Agreement") with a lender, Pacific Western Bank, and received a loan in the principal amount of $
The Company was required to pay accrued interest on the current loan on the 13th day of each month through and including August 13, 2023, at which time the unpaid principal and accrued and unpaid interest was due and payable in full. On August 17, 2023, the Company entered into an amendment to the PWB Loan Agreement extending the maturity date to August 13, 2026 with interest only payments until such date, having daily borrowings bearing interest at a variable annual rate equal to the greater of the Lender's "prime rate" then in effect and
The PWB Loan Agreement contains a liquidity covenant, which requires that the Company maintain cash in accounts of the lender or subject to control agreements in favor of the lender in an amount equal to at least the outstanding balance of the PWB Term Loan, which was $
The interest rate of the PWB Term Loan is subject to increase in the event of late payment and after occurrence of and during the continuation of an event of default. The Company may elect to prepay the PWB Term Loan at any time, in whole or in part, without penalty or premium.
The debt issuance costs and debt discounts combined with the stated interest resulted in an effective interest rate of
The following table presents scheduled principal payments of the Company’s PWB term loan as of September 30, 2023:
| Period | Amount | |||
| 2023-2025 | $ | |||
| 2026 | ||||
| Total principal payments | ||||
| Less debt discount and issuance cost | ||||
| Note payable, net | $ | |||
| Current portion | $ | |||
| Long-term portion | ||||
| Note payable, net | $ | |||
Parker Hannifin Promissory Note
In connection with the HMC Acquisition, on December 5, 2022, the Company delivered a $
The Promissory Note, upon the occurrence of an event of default, allows for the levying of interest equal to the lesser of (a)
The Company recorded the Promissory Note of $
The following table presents scheduled principal payments of the Company's note payable as of September 30, 2023:
| Period | Amount | |||
| 2023 - remainder | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total principal payments | ||||
| Less debt discount | ( | ) | ||
| Note payable, net | $ | |||
| Current portion | ||||
| Long-term portion | ||||
| Note payable, net | $ | |||
11. Lease Obligations
The Company maintained a -year operating lease agreement for its headquarters and manufacturing facility in Richmond, California (the "Richmond Lease") which expired at the end of May 2022. The Company continued to maintain its tenancy at this location until the end of August 2022, while incurring monthly expenses equal to the most recent monthly lease payment under the expired lease agreement and common area maintenance costs.
In July 2022, the Company entered into an operating lease agreement for its new headquarters and manufacturing facility in San Rafael, California (the "San Rafael Lease") expiring in October 2026 with the option to renew for an additional -year period at the prevailing market rate at the time of extension. At the end of August 2022, the Company relocated to its new headquarters and manufacturing facility in San Rafael.
The Company has determined that the new San Rafael Lease constitutes an operating lease under ASC 842 and estimates the lease term as July 2022 through October 2026. The option to extend for a -year period lacks significant economic incentives and disincentives, which would make exercise reasonably certain. Fixed lease payments for identified lease components over the identified term have been discounted at the Company's estimated incremental borrowing rate as of the date of contract execution and are reflected in the condensed consolidated balance sheets under the captions Lease liabilities, current and Lease liabilities, and the corresponding right of use asset is reflected in the condensed consolidated balance sheets under the caption Right-of-use assets. Non-lease components, such as common area maintenance costs, are excluded from the lease liability calculation and expensed as incurred. The Company records a straight-line monthly rent expense for the San Rafael Lease equal to the sum of all fixed lease payments divided by the number of months in the lease term.
The Company previously maintained a -year operating lease agreement for its European operations office in Hamburg, Germany, which was originally set to expire in July 2022. In February 2022, the Company executed a new lease agreement with the same landlord for a replacement office in Hamburg, Germany commencing May 1, 2022 and expiring June 30, 2025 with an option to renew for -year period. Upon the early termination of the previous lease agreement, it was agreed between the landlord and the Company that access to the previously leased office space would be revoked and the Company would be relieved of its payment obligations for the final months of the lease term. Consequently, the Company removed the right of use asset and lease liability, $
The Company has determined that the new Hamburg lease agreement constitutes a lease under ASC 842 and estimates the lease term as May 2022 through June 2025. The option to extend for a -year period lacks significant economic incentives and disincentives which would make exercise reasonably certain. Fixed lease payments for identified lease components over the identified term have been discounted at the Company's estimated incremental borrowing rate and are reflected in the condensed consolidated balance sheets under the captions Lease liabilities, current and Lease liabilities, and the corresponding right of use asset is reflected in the condensed consolidated balance sheets under the caption Right-of-use assets. Non-lease components, such as common area maintenance costs, are excluded from the lease liability calculation and expensed as incurred. The Company records a straight-line monthly rent expense for this lease equal to the sum of all fixed lease payments divided by the number of months in the lease term.
The Company’s future lease payments as of September 30, 2023, which are presented as Lease liabilities, current and Lease liabilities on the Company’s condensed consolidated balance sheets are as follows:
| Periods | Operating Leases | |||
| 2023 - remainder | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||