| Summary of Significant Accounting Policies | 2.
Summary of Significant Accounting Policies Basis
of Presentation The
accompanying unaudited financial statements of Stereotaxis, Inc. have been prepared in accordance with U.S. generally accepted accounting
principles (“GAAP”) for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include
all the disclosures required by GAAP for complete financial statements. In the opinion of management, they include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented. Operating results
for the three-month period ended March 31, 2023, are not necessarily indicative of the results that may be expected for the year ending
December 31, 2023, or for future operating periods. These
interim financial statements and the related notes should be read in conjunction with the annual financial statements and notes included
in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission
(SEC) on March 9, 2023. Risks
and Uncertainties The
global healthcare system is continuing to respond to the unprecedented challenges posed by the COVID-19 pandemic. While we cannot reliably
estimate the duration of the impact, or the severity of ongoing resurgences, we continue to anticipate periodic disruptions to our manufacturing
operations, supply chains, procedures volumes, service activities, and capital system orders and placements, any of which could have
a material adverse effect on our business, financial condition, results of operations, or cash flows. In 2022, procedure volumes were
challenged by periodic resurgences of COVID-19, ongoing hospital staffing issues and other factors. Procedure volumes continue to be
challenged in 2023 by supply chain delays, ongoing hospital staffing issues and other factors. To-date,
we have experienced challenges and disruptions due to the pandemic and other macroeconomic factors,
such as periodic worldwide supply chain disruptions, including shortages and inflationary pressures, and logistics delays which makes
it difficult for us to source parts and ship our products. Our customers have also experienced similar supply chain issues as well as
labor shortages, both of which have contributed to delayed hospital construction project timelines. We have been generally able to conduct
normal business activities albeit in a more deliberate manner than prior to the pandemic, including taking action to increase inventory
levels, but we cannot guarantee that they will not be impacted more severely in the future. We
have experienced business disruptions, including travel restrictions on us and our third-party distributors, which have negatively affected
our complex sales, marketing, installation, distribution and service network relating to our products and services. The COVID-19 pandemic,
or other macroeconomic or geopolitical factors, may continue to negatively affect demand for both our systems and our disposable products. Hospitals
are experiencing challenges with staffing and cost pressures as supply chain constraints and inflation drive up operating costs. Many
of our hospital customers, for whom the purchase of our system involves a significant capital purchase which may be part of a larger
construction project at the customer site (typically the construction of a new building), may themselves be under economic pressures.
This may cause delays or cancellations of current purchase orders and other commitments and may exacerbate the long and variable sales
and installation cycles for our robotic magnetic navigation systems. Our hospital customers are also experiencing challenges in sourcing
supplies, such as catheters, needed to perform procedures. Such shortages have, and may continue to, put pressure on procedures and our
disposable revenue. We may also experience significant reductions in demand for our disposable products if our healthcare customers (physicians
and hospitals) re-prioritize the treatment of patients and divert resources away from non-coronavirus areas, which we anticipate could
lead to the performance of fewer procedures in which our disposable products are used. Significant decreases to our capital or recurring
revenues could have a material adverse effect on our business, operating results, and financial condition. If
governmental authorities around the world reinstitute preventative and precautionary measures such as prolonged mandatory closures, social
distancing protocols and shelter-in-place orders, or as private parties on whom we rely to operate our business put in place their own
protocols that go beyond those instituted by relevant governmental authorities, our ability to adequately staff and maintain our operations
or further our product development could be negatively impacted. Any
disruption to the capital markets could negatively impact our ability to raise capital. If the capital markets are disrupted for an extended
period of time and we need to raise additional capital, such capital may not be available on acceptable terms, or at all. Continued disruptions
to the capital markets and other financing sources could also negatively impact our hospital customers’ ability to raise capital
or otherwise obtain financing to fund their operations and capital projects. Such could result in delayed spending on current projects,
a longer sales cycle for new projects where a large capital commitment is required, and decreased demand for our disposable products
as well as an increased risk of customer defaults or delays in payments for our systems installation, service contracts and disposable
products. While
we cannot reliably estimate the ultimate duration of the impact or the severity of ongoing periodic resurgences thereof, we continue
to anticipate periodic disruptions to our manufacturing operations, supply chains, procedures volumes, service activities, and capital
system orders and placements, any of which could have a material adverse effect on our business, financial condition, results of operations,
or cash flows. Concentration
of Credit Risk Financial
instruments that potentially subject the Company to concentration of credit risk consist of cash, cash equivalents and marketable
securities. Our investments may include, at any
time, a diversified portfolio of cash equivalents and short-term and long-term investments in a variety of high-quality securities,
including money market funds, U.S. treasury and U.S. government agency securities, corporate notes and bonds, commercial paper,
non-U.S. government agency securities, and municipal notes. The Company’s exposure to
any individual corporate entity is limited by policy. Deposits may exceed federally insured limits, and the Company is exposed to
credit risk on deposits in the event of default by the financial institutions to the extent account balances exceed the amount
insured by the Federal Deposit Insurance Corporation (FDIC). The Company is closely monitoring ongoing events involving limited
liquidity, defaults, non-performance or other adverse developments that affect financial institutions or other companies in the
financial services industry or the financial services industry generally, including Silicon Valley Bank. On March 10, 2023, Silicon
Valley Bank (“SVB”), where the Company maintained accounts with a cash balance of less than 6% Cash
and Cash Equivalents Cash
and cash equivalents include cash on hand, money market instruments, and other highly liquid investments with original maturities of
three months or less. Restricted
Cash Restricted
cash primarily consists of cash that the Company is obligated to maintain in accordance with contractual obligations. The Company’s
restricted cash was $ 1.1 1.3 Investments Our
investments may include, at any time, a diversified portfolio of cash equivalents and short- and long-term investments in a variety of
high-quality securities, including money market funds, U.S. treasury and U.S. government agency securities, corporate notes and bonds,
commercial paper, non-U.S. government agency securities, and municipal notes. As of March 31, 2023, the Company’s short-term investments
consisted of U.S. treasury securities and fixed maturity, marketable debt securities with original maturities of one year or less, but
greater than 90 days. These investments are classified as held to maturity. Securities classified as held to maturity are securities
that the Company has the ability and intent to hold to maturity or redemption and are carried at amortized cost. Amortized
cost of U.S. treasury securities and marketable debt securities are based on the Company’s purchase price adjusted for accrual
of discount, or amortization of premium, and recognition of impairment charges, if any. The amortized cost of securities the Company
purchases at a discount or premium will equal the face or par value at maturity or the call date, if applicable. Stated interest on
investments is reported as income when earned and is adjusted for amortization or accretion of any premium or discount. Accrued interest receivable on investments, included in other current assets,
was less than $ 0.1 Effective
January 1, 2023, the Company reports held to maturity investments net of an allowance for expected credit losses in accordance with Accounting
Standards Codification Topic 326, Financial Instruments – Credit Losses (“ASC 326”). The adoption of ASC 326 had no
material impact on the Company’s financial results for any prior periods, therefore no cumulative adjustment to beginning retained
earnings was recorded. The Company segments its portfolio based on the underlying risk profiles of the securities and has a zero-loss
expectation for U.S. treasury and U.S. government agency securities. The Company regularly reviews the securities using the probability
of default method and analyzes the unrealized loss positions and evaluates the current expected credit loss by considering factors such
as credit ratings, issuer-specific factors, current economic conditions, and reasonable and supportable forecasts. The Company did not
have any material expected credit losses on investments or material expected credit losses on accrued interest related to investments
during the three months ended March 31, 2023 and year ended December 31, 2022. Fair
Value Measurements Financial
instruments consist of cash and cash equivalents, restricted cash, investments, accounts receivable, and accounts payable. The
Company measures certain financial assets and liabilities at fair value on a recurring basis. General accounting principles for fair
value measurement establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (“Level
1”) and the lowest priority to unobservable inputs (“Level 3”). The three levels of the fair value hierarchy are described
below:
Level
1: Values
are based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets
or liabilities.
Level
2: Values
are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets
that are not active, or other model-based valuation techniques for which all significant assumptions are observable in the market.
Level
3: Values
are generated from model-based techniques that use significant assumptions not observable in the market. As
of March 31, 2023 and December 31, 2022, financial assets that are classified as Level 2 include money market funds, U.S. treasury securities
and corporate debt securities. The Company reviews trading activity and pricing for these investments as of the measurement date. When
sufficient quoted pricing for identical securities is not available, the Company uses market pricing and other observable market inputs
for similar securities. These inputs either represent quoted prices for similar assets in active markets or have been derived from observable
market data. This approach results in the Level 2 classification of these securities within the fair value hierarchy. Accounts
Receivable, Contract Assets, and Allowance for Credit Losses Accounts
receivable primarily include amounts due from hospitals and distributors for acquisition of magnetic systems, associated disposable device
sales and service contracts, net of allowances for expected credit losses. Credit is granted on a limited basis, with balances due generally
within 30 days of billing. Contract assets primarily represent the difference between the revenue that was earned but not billed on service
contracts and revenue from system contracts that was recognized based on the relative selling price of the related performance obligations
and the contractual billing terms in the arrangements. Effective January 1, 2023, the Company reports accounts receivable and contract
assets net of an allowance for expected credit losses in accordance with Accounting Standards Codification Topic 326, Financial Instruments
– Credit Losses (“ASC 326”). The adoption of ASC 326 had no material impact on the Company’s financial results
for any prior periods, therefore no cumulative adjustment to beginning retained earnings was recorded. The provision for credit loss
is based upon management’s assessment of historical and expected net collections considering business and economic conditions and
other collection indicators. We assess collectability by reviewing the accounts receivable aging schedule on an aggregated basis where
similar characteristics exist and on an individual basis when we identify specific customers with known disputes or collectability issues.
Amounts deemed uncollectible are recorded as an allowance for expected credit losses. Revenue
and Costs of Revenue The
Company accounts for revenue in accordance with Accounting Standards Codification Topic 606 (“ASC 606”), “Revenue from
Contracts with Customers”. We
generate revenue from the initial capital sales of systems as well as recurring revenue from the sale of our proprietary disposable devices,
from royalties paid to the Company on the sale of various devices as provided by co-development and co-placement arrangements, and from
other recurring revenue including ongoing software updates and service contracts. We
account for a contract with a customer when there is a legally enforceable contract between the Company and the customer, the rights
of the parties are identified, the contract has commercial substance, and collectability of the contract consideration is probable. We
record our revenue based on consideration specified in the contract with each customer, net of any taxes collected from customers that
are remitted to government authorities. For
contracts containing multiple products and services, the Company accounts for individual products and services as separate performance
obligations if they are distinct, which is if a product or service is separately identifiable from other items in the bundled package,
and if a customer can benefit from it on its own or with other resources that are readily available to the customer. The Company recognizes
revenues as the performance obligations are satisfied by transferring control of the product or service to a customer. For
arrangements with multiple performance obligations, revenue is allocated to each performance obligation based on its relative standalone
selling price. Standalone selling prices are based on observable prices at which the Company separately sells the products or services.
If a standalone selling price is not directly observable, then the Company estimates the standalone selling price considering market
conditions and entity-specific factors including, but not limited to, features and functionality of the products and services and market
conditions. The Company regularly reviews standalone selling prices and updates these estimates if necessary. Our
revenue recognition policy affects the following revenue streams in our business as follows: Systems: Contracts
related to the sale of systems typically contain separate obligations for the delivery of system(s), installation and an implied obligation
to provide software enhancements if and when available for one year following installation. Revenue is recognized when the Company transfers
control to the customer, which is generally at the point when acceptance occurs that indicates customer acknowledgment of delivery or
installation, depending on the terms of the arrangement. Revenue from the implied obligation to deliver software enhancements if and
when available is recognized ratably over the first year following installation of the system as the customer receives the right to software
enhancements throughout the period and is included in Other Recurring Revenue. The Company’s system contracts do not provide a
right of return. Systems are generally covered by a one-year assurance type warranty; warranty costs were less than $ 0.1 28% 23% Disposables: Revenue
from sales of disposable products is recognized when control is transferred to the customers, which generally occurs at the time of shipment,
but can also occur at the time of delivery depending on the customer arrangement. Disposable products are covered by an assurance type
warranty that provides for the return of defective products. Warranty costs were not material for the three months ended March 31, 2023
and 2022. Disposable revenue represented 24% 29% Royalty: The
Company receives royalties on the sale of various devices as provided by co-development and
co-placement arrangements with various manufacturers. 1 8% Other
Recurring Revenue: Other
recurring revenue includes revenue from product maintenance plans, other post warranty maintenance, and the implied obligation to provide
software enhancements if and when available for a specified period, typically one year following installation of our systems. Revenue
from services and software enhancements is deferred and amortized over the service or update period, which is typically one year. Revenue
related to services performed on a time-and-materials basis is recognized when performed. Other recurring revenue represented 48% 40% The
following table summarizes the Company’s revenue for systems, disposables, and service and accessories for the three months ended
March 31, 2023 and 2022 (in thousands): Schedule
of Revenue Disaggregated by Type
2023 2022
Three Months Ended March 31,
2023 2022
Systems $ 1,821 $ 1,634
Disposables, service and accessories 4,727 5,403
Total revenue $ 6,548 $ 7,037 Transaction
price allocated to remaining performance obligations relates to amounts allocated to products and services for which the revenue has
not yet been recognized. A significant portion of this amount relates to the Company’s systems contracts and obligations that
will be recognized as revenue in future periods. These obligations are generally satisfied within two years after contract inception
but may occasionally extend longer. Transaction price representing revenue to be earned on remaining performance obligations on
system contracts was approximately $ 15.1
million as of March 31, 2023. Performance obligations arising from contracts for disposables and service are generally expected to
be satisfied within one year after entering into the contract. The
following table summarizes the Company’s contract assets and liabilities (in thousands): Summary
of Contract Assets and Liabilities
March 31, 2023 December 31, 2022
Contract Assets - unbilled receivables $ 659 $ 539
Customer deposits $ 2,144 $ 2,339
Product shipped, revenue deferred 1,389 1,389
Deferred service and license fees 5,723 5,268
Total deferred revenue $ 9,256 $ 8,996
Less: Long-term deferred revenue (1,711 ) (1,654 )
Total current deferred revenue $ 7,545 $ 7,342 The
Company invoices its customers based on the billing schedules in its sales arrangements. Contract assets primarily represent the difference
between the revenue that was earned but not billed on service contracts and revenue from system contracts that was recognized based on
the relative selling price of the related satisfied performance obligations and the contractual billing terms in the arrangements. Customer
deposits primarily relate to future system sales but can also include deposits on disposable sales. Deferred revenue is primarily related
to service contracts, for which the service fees are billed up-front, generally quarterly or annually, and for amounts billed in advance
for system contracts for which some performance obligations remain outstanding. For service contracts, the associated deferred revenue
is generally recognized ratably over the service period. For system contracts, the associated deferred revenue is recognized when the
remaining performance obligations are satisfied. The Company did not have any credit losses on its contract assets for the periods
presented therefore no allowance for credit losses was recorded as of March 31, 2023, or December 31, 2022. Revenue
recognized for the three months ended March 31, 2023 and 2022, that was included in the deferred revenue balance at the beginning of
each reporting period was $ 3.0 3.2 Assets
Recognized from the Costs to Obtain a Contract with a Customer The
Company has determined that sales incentive programs for the Company’s sales team meet the requirements to be capitalized as the
Company expects to generate future economic benefits from the related revenue generating contracts after the initial capital sales transaction.
The costs capitalized as contract acquisition costs included in prepaid expenses and other assets, in the Company’s balance sheet
was $ 0.2 Costs
of systems revenue include direct product costs, installation labor and other costs, estimated warranty costs, and initial training and
product maintenance costs. These costs are recognized at the time of sale. Costs of disposable revenue include direct product costs and
estimated warranty costs and are recognized at the time of sale. Cost of revenue from services and license fees are recognized when incurred. Leasing
Arrangements A
lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment
for a period of time in exchange for consideration. The Company accounts for leases in accordance with Accounting Standards Update No.
2016-02 “Leases” (Topic 842) and all subsequent ASUs that modified Topic 842 (“ASC 842”). The Company determines
if an arrangement contains a lease at inception. The
Company leases its facilities under operating leases. In accordance with ASC 842, operating lease agreements are recognized on the balance
sheet as a right-of-use (“ROU”) asset and a corresponding lease liability. These leases generally do not have significant
rent escalation holidays, concessions, leasehold improvement incentives, or other build-out clauses. Further, the leases do not contain
contingent rent provisions. Many of our leases include both lease (i.e., fixed payments including rent, taxes, and insurance costs) and
non-lease components (i.e., common-area or other maintenance costs) which are accounted for as a single lease component as we have elected
the practical expedient to group lease and non-lease components for all leases. The
Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception,
the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the
calculation of the ROU asset and lease liability. The Company elected not to include short-term leases (i.e., leases with initial terms
of twelve months or less) on the balance sheet. The
calculated amounts of the ROU assets and lease liabilities are impacted by the length of the lease term and the discount rate used to
calculate the present value of the minimum lease payments. ASC 842 requires the use of the discount rate implicit in the lease whenever
this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease
inception. Stock-Based
Compensation The
Company accounts for its grants of stock options, stock appreciation rights, restricted shares, restricted stock units and for its employee
stock purchase plan in accordance with the provisions of general accounting principles for share-based payments. These accounting principles
require the determination of the fair value of the stock-based compensation at the grant date and the recognition of the related expense
over the period in which the stock-based compensation vests. For
time-based awards, the Company utilizes the Black-Scholes valuation model to determine the fair value of stock options and stock appreciation
rights at the date of grant. The weighted average assumptions and fair value for options granted
during the three months ended March 31, 2023, were 1) expected dividend rate of 0% 76% 6.25 For
market-based awards, stock-based compensation expense is recognized over the minimum service period regardless of whether or not the
market target is probable of being achieved. The fair value of such awards is estimated on the grant date using Monte Carlo simulations. Shares
purchased by employees under the 2022 Employee Stock Purchase Plans are considered to be non-compensatory. Net
Earnings (Loss) per Common Share Basic
earnings (loss) per common share is computed by dividing the net earnings (loss) for the period by the weighted average number of common
shares outstanding during the period. In periods where there is net income, we apply the two-class method to calculate basic and diluted
net income (loss) per share of common stock, as our convertible preferred stock is a participating security. The two-class method is
an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available
to common stockholders. In periods where there is a net loss, the two-class method of computing earnings per share does not apply as
our convertible preferred stock does not contractually participate in our losses. We compute diluted net income (loss) per common share
using net income (loss) as the “control number” in determining whether potential common shares are dilutive, after giving
consideration to all potentially dilutive common shares, including stock options, warrants, unvested restricted stock units outstanding
during the period and potential issuance of stock upon the conversion of our convertible preferred stock issued and outstanding during
the period, except where the effect of such securities would be antidilutive. The
following table sets forth the computation of basic and diluted EPS (in thousands except for share and per share amounts): Schedule
of Computation of Basic and Diluted Earnings Per Share
2023 2022
Three Months Ended March 31,
2023 2022
Net loss $ (5,347 ) $ (4,086 )
Cumulative dividend on convertible preferred stock (331 ) (331 )
Net loss attributable to common stockholders $ (5,678 ) $ (4,417 )
Weighted average number of common shares and equivalents: 76,500,965 75,877,391
Basic EPS $ (0.07 ) $ (0.06 )
Diluted EPS $ (0.07 ) $ (0.06 ) The
Company did not include any portion of unearned restricted shares, outstanding options, stock appreciation rights, warrants or convertible
preferred stock in the calculation of diluted loss per common share because all such securities are anti-dilutive for all periods presented.
The application of the two-class method of computing earnings per share under general accounting principles for participating securities
is not applicable during these periods because those securities do not contractually participate in its losses. As
of March 31, 2023, the Company had 3,813,206 3.95 47,873,675 5,610,121 1,389,009 Recently
Issued Accounting Pronouncements In
June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial
Instruments” and also issued subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04 and ASU 2019-05. The
standard modifies the measurement approach for credit losses on financial instruments, including trade receivables, from an incurred
loss method to a current expected credit loss method, otherwise known as “CECL.” The standard requires the measurement of
expected credit losses to be based on relevant information, including historical experience, current conditions and a forecast that is
supportable. The standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal
years; early adoption is permitted. The standard must be adopted by applying a cumulative adjustment to retained earnings. The Company
adopted the standard in the first quarter of 2023. The impact to the Company’s financial results was immaterial. |
