Stereotaxis, Inc. — Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2013; filed August 14, 2013. Stereotaxis develops and sells the Epoch Solution, including Niobe robotic magnetic navigation, Odyssey information management, Vdrive robotic navigation, and related disposable products, service and accessories. The company reported an installed base of 88 Niobe ES systems and cumulative net losses of approximately $393 million.
Key Financial Metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Total revenue | 2013: $9.7 million; 2012: $10.5 million | 2013: $18.1 million; 2012: $22.8 million |
| Systems revenue | 2013: $3.3 million; 2012: $3.9 million | 2013: $5.6 million; 2012: $9.0 million |
| Disposables, service and accessories | 2013: $6.4 million; 2012: $6.6 million | 2013: $12.6 million; 2012: $13.8 million |
| Gross margin | 75% versus 69% | 74% versus 69% |
| Operating loss | $(1.8) million versus $(4.6) million | $(5.3) million versus $(8.8) million |
| Net income (loss) | $(3.0) million versus $2.8 million | $(7.9) million versus $(3.0) million |
| Basic loss per share | $(0.37) versus $0.42 | $(0.98) versus $(0.49) |
| Cash flow from operating activities | Not separately provided | $(3.3) million versus $(8.4) million |
Balance sheet and liquidity at June 30, 2013: Cash and cash equivalents were $4.1 million, compared with $7.8 million at December 31, 2012. Working capital was negative approximately $11.0 million, compared with negative $5.7 million at year-end. Total assets were $24.0 million, while stockholders’ deficit was $25.6 million.
Debt: Total debt was $29.9 million, including $12.1 million classified as current and $17.8 million long term. Debt included $6.5 million under a revolving line, $2.0 million under a term note, $18.6 million owed to Healthcare Royalty Partners, and $2.7 million of subordinated convertible debentures. The revolving facility was fully drawn based on collateral availability, leaving no additional borrowing capacity at June 30.
Margins and expenses: Six-month systems gross margin was 50%, while disposables, service and accessories gross margin increased to 85% from 82%. Six-month research and development, sales and marketing, and general and administrative expenses were $3.0 million, $9.1 million and $6.7 million, respectively.
Material Changes Versus Prior Comparable Period
- Second-quarter revenue declined approximately 7%, driven by lower systems revenue and lower disposable volume. Six-month revenue declined approximately 20%, with systems revenue down approximately 39%.
- Gross margin improved because of better system margins in the second quarter and a greater mix of high-margin disposables, service and accessories during the six-month period.
- Operating expenses declined substantially following the company’s cost-reduction program: six-month research and development expense fell approximately 40%, sales and marketing expense 25%, and general and administrative expense 9%.
- Despite the lower operating loss, six-month net loss increased to $7.9 million from $3.0 million, primarily reflecting lower revenue and increased interest expense. Second-quarter net income in the prior year included significant noncash other income from changes in the fair value of warrants and debt conversion features.
- Cash used in operations improved to $3.3 million from $8.4 million, but cash declined $3.7 million during the first six months to $4.1 million.
Guidance, Outlook, Risks and Unusual Items
- Management expected additional losses and negative operating cash flow throughout 2013 while continuing product development, commercialization, research and development, and sales and marketing activities.
- Management stated that existing cash, cash equivalents and borrowing facilities would not fund operating expenses and capital requirements for the next 12 months, requiring additional financing. The filing warned that financing might be unavailable, dilutive, delayed or unavailable on acceptable terms, and that inadequate funding could require reductions in operations or cessation of the business.
- The primary lender repeatedly extended the revolving facility maturity and waived certain covenant testing. The June 28, 2013 amendment extended maturity to July 31, 2013, reduced available advances to $6.0 million and waived tangible-net-worth and liquidity-ratio testing for June 30. A July 31 amendment subsequently extended maturity to August 31, 2013 and waived liquidity-ratio testing for July 31.
- Healthcare Royalty Partners debt bears 16% annual interest, is secured by certain assets and intellectual property, and is repaid from 100% of royalties under the Biosense Agreement until the obligation is satisfied.
- On August 7, 2013, after quarter-end, holders exercised warrants for $8.475 million of cash, exchanged the remaining convertible notes, and received shares and additional warrants. The company issued approximately 5.2 million shares and retired $8.1 million of convertible subordinated notes. Management also planned a rights offering at $3.00 per share, with an anticipated minimum fraction of 0.25 share per existing share, subject to SEC registration and a future record date.
- Nasdaq had notified the company that it did not satisfy certain continued-listing requirements. The company requested transfer from the Nasdaq Global Market to the Nasdaq Capital Market and had not received the hearing result as of the filing. Delisting could impair liquidity, financing access and compliance with debt and warrant agreements.
- The company disclosed a pending securities class action and a stayed shareholder derivative action. Management believed the claims were without merit, but stated that outcomes and potential losses could not be estimated.
- Approximately 19% of six-month revenue and 15% of total expenses were denominated in foreign currencies. The company did not hedge foreign-exchange exposure.
Most Important Facts to Verify
- Whether the post-quarter-end debt exchange and $8.475 million warrant exercise materially improved liquidity and reduced interest obligations.
- Whether the planned rights offering was completed, on what terms, and the resulting dilution to existing stockholders.
- Whether the company obtained Nasdaq Capital Market approval or otherwise maintained an exchange listing.
- Available cash, operating cash burn, borrowing capacity and covenant compliance after August 31, 2013.
- Trends in Niobe system placements, disposable procedure volume, recurring service revenue and deferred revenue.
- Potential dilution from approximately 6.2 million shares issuable upon outstanding warrants as of June 30, 2013, in addition to other equity awards and subsequent financing securities.
- Developments in the securities litigation and any material legal or contingent liabilities.