Stereotaxis, Inc. — Fiscal 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014, including fourth-quarter results. The company designs and markets robotic navigation and information-management systems for electrophysiology and interventional cardiology, principally through its Epoch Solution, comprising Niobe ES, Odyssey and Vdrive systems, related disposables, services, licenses and royalties.
Financial performance and liquidity
| Metric | 2014 | 2013 | Change |
|---|---|---|---|
| Revenue | $35.0 million | $38.0 million | Down 8% |
| Systems revenue | $7.8 million | $12.7 million | Down 38% |
| Disposables, service and accessories | $27.2 million | $25.3 million | Up 7% |
| Gross profit | $26.8 million | $27.0 million | Down 1% |
| Gross margin | 77% | 71% | Up 6 percentage points |
| Operating loss | $5.4 million | $8.8 million | Improved $3.5 million |
| Net loss | $5.2 million | $68.8 million | Improved $63.6 million |
| Net loss per share | $0.26 | $5.95 | Improved |
| Cash flow from operations | $(9.1) million | $(6.3) million | Use increased $2.8 million |
Fourth-quarter revenue was $9.8 million, gross profit was $7.5 million and net income was $0.9 million, compared with a $4.0 million net loss in the fourth quarter of 2013. Management reported operating profitability in the fourth quarter, but not for the full year.
Cash and cash equivalents were $7.3 million at year-end, compared with $13.8 million in 2013. Working capital was $4.6 million. Long-term debt was $18.4 million, consisting principally of Healthcare Royalty Partners debt bearing 16% annual interest and maturing December 31, 2018. The company had no borrowings under its revolving credit line and reported $4.5 million of borrowing capacity, subject to collateral and covenants.
Stockholders’ deficit was $12.5 million at year-end, and accumulated deficit was $458.6 million. The company sold 878,077 shares through its controlled equity offering for gross proceeds of $3.1 million and net proceeds of $3.0 million during 2014.
Material changes versus prior comparable periods
- Revenue declined primarily because system revenue fell sharply, reflecting recognition on three Niobe ES systems in 2014 versus nine in 2013. Recurring and consumables-related revenue increased.
- Revenue mix shifted toward higher-margin disposables, service, accessories and royalties. Disposables, service and accessories represented approximately 78% of revenue in 2014, compared with approximately 66% in 2013.
- Operating expenses declined to $32.2 million from $35.9 million, reflecting reductions in research and development, sales and marketing, and general and administrative costs.
- Interest expense decreased to $3.3 million from $12.6 million, mainly because convertible debentures and certain prior credit facilities were extinguished in 2013.
- Other income of $3.5 million in 2014 primarily reflected a non-cash decrease in the fair value of warrant liabilities. The 2013 results included a $47.3 million non-cash other expense related principally to warrant and convertible-debt adjustments.
- Backlog decreased to approximately $5.7 million at December 31, 2014, from $6.8 million at December 31, 2013 and $8.9 million at December 31, 2012. Management expected approximately 83% of the 2014 backlog to be recognized in 2015, subject to customer, construction, regulatory and other contingencies.
Outlook, risks and unusual items
- Management expected negative operating cash flow and additional losses into 2015. Operating expenses were expected to be generally consistent with 2014, with targeted additional investment.
- The company stated that existing cash, cash equivalents and borrowing facilities might not fund operating expenses and capital requirements for the following 12 months, creating a need for additional financing. The auditors expressed substantial doubt about the company’s ability to continue as a going concern.
- The Silicon Valley Bank revolving line of credit matured on March 31, 2015. The facility was secured by substantially all company assets and contained tangible-net-worth, liquidity and other covenants; the company reported compliance at December 31, 2014.
- Healthcare Royalty Partners receives 100% of royalties payable under the Biosense Webster agreement until the debt is repaid. If royalties are insufficient to cover interest, unpaid interest increases principal.
- The business depends on hospital adoption of expensive capital equipment, long and variable sales and installation cycles, regulatory clearances, reimbursement, strategic alliances and third-party suppliers. Purchase orders may be delayed, modified or canceled.
- Biosense Webster accounted for $4.7 million, or 13%, of 2014 revenue. The company’s installed base was 119 Niobe ES systems at year-end.
- During the fourth quarter, the company’s market value of listed securities occasionally fell below NASDAQ’s $35 million continued-listing threshold, creating a potential delisting risk if the requirement was not maintained.
- The company reported no material unresolved legal proceedings. A securities class action was dismissed with prejudice in March 2014, and a related derivative action was dismissed without prejudice in July 2014.
Most important facts for investors to verify
- Whether additional equity, debt or strategic financing was obtained after the filing to address the going-concern uncertainty and negative cash flow.
- Whether the revolving credit facility was renewed, replaced or repaid after its March 31, 2015 maturity date.
- Conversion of the $5.7 million backlog into recognized revenue and the pace of new Niobe ES system placements.
- Growth and utilization of recurring revenue streams, particularly disposables, service contracts and Biosense Webster royalties.
- Debt repayment capacity given the 16% Healthcare Royalty Partners obligation and the pledge of royalties and certain assets.
- Compliance with NASDAQ listing requirements and the potential dilution from approximately 2.2 million outstanding warrants, options and other equity awards.