See Accompanying Notes to Unaudited Condensed
Consolidated Financial Statements.
See Accompanying Notes to the Unaudited
Condensed Consolidated Financial Statements
See Accompanying Notes to the Unaudited
Condensed Consolidated Financial Statements
See Accompanying Notes to Unaudited Condensed
Consolidated Financial Statements
Notes to Unaudited Condensed Consolidated
Financial Statements
Throughout
this Quarterly Report on Form 10-Q (this “Report”), the words “we,” “us,” “our,”
or “the Company” refer to Ekso Bionics Holdings, Inc. and its wholly owned subsidiaries, Ekso Bionics, Inc. and Ekso
Bionics Ltd. unless stated otherwise.
1. Organization
Description of Business and Liquidity
On January 15, 2014, a wholly-owned subsidiary
of Ekso Bionics Holdings, Inc. (formerly known as PN Med Group Inc.), Ekso Acquisition Corp, merged with and into Ekso Bionics,
Inc. Ekso Bionics, Inc. was the surviving corporation and became a wholly-owned subsidiary of Ekso Bionics Holdings, Inc. As a
result of this transaction, Ekso Bionics Holdings, Inc. discontinued its pre-merger operations, acquired the business of Ekso Bionics,
inc. and will continue the operations of Ekso Bionics, Inc. as a publicly traded company. See
Note 3, The Merger, Offering and
Other Related Matters.
Ekso Bionics, Inc. was incorporated in January 2005 in the State of Delaware.
We are currently headquartered
in Richmond, California. We are a leading developer and manufacturer of human bionic exoskeletons and were founded after the University
of California at Berkeley’s Robotics and Human Engineering Laboratory had a breakthrough in demonstrating human exoskeletons
that are more energy efficient than previously thought possible.
We pioneered the field of human exoskeletons
to augment human strength, endurance and mobility. We design, develop and sell wearable robots, or “human exoskeletons,”
that have applications in medical, military, industrial, and consumer markets. Our exoskeleton systems are strapped over the user’s
clothing, enabling individuals with neurological conditions affecting gait (e.g., spinal cord injury or stroke) to walk again;
permitting soldiers to carry heavy loads for long distances while mitigating lower back, knee, and ankle injuries; and allowing
industrial workers to perform heavy duty work for extended periods.
We also have a collaborative partnership
with Lockheed Martin Corporation to develop products for military applications.
Ekso Labs is the engineering services division
of the Company and is primarily focused on technology development and future applications. In essence it is an exoskeleton laboratory
that continually integrates emerging technologies into new product applications and expands on it for our partners. Ekso Labs develops
intellectual property through research grants from government organizations, including the Department of Defense.
Liquidity
Largely, as a result of significant research
and development activities to create our advanced technology, we have incurred significant operating losses and negative cash flows
from operations. As of March 31, 2014, we had an accumulated deficit of $119.8 million and a stockholders’ deficit of $74.5
million.
We believe that our cash resources as of
March 31, 2014 are sufficient to implement our business plan, support operations, fund research and development and meet our obligations
through at least the middle of 2015. We plan to raise additional capital to finance our operations beyond the middle of 2015. 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, we may have to reduce our discretionary overhead costs substantially,
including general and administrative, sales and marketing, and research and development or otherwise curtail operations.
Ekso Bionics Holdings, Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
Basis of Presentation
These unaudited condensed
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States (“U.S. GAAP”) and pursuant to the rules and regulations of the United States Securities and
Exchange Commission (the “SEC”) for the presentation of interim financial information. Accordingly, certain
information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have
been condensed, or omitted, pursuant to such rules and regulations. The condensed consolidated balance sheet at December 31,
2013 and the condensed consolidated statement of stockholders’ deficit for the year ended December 31, 2013 have been
derived from the audited consolidated financial statements at that date but do not include all disclosures required for the
annual financial statements and should be read in conjunction with our audited consolidated financial statements and notes
thereto included as part of our Current Report on Form 8-K/A filed with the SEC on March 31, 2014 .
In management’s opinion, the condensed
consolidated financial statements reflect all adjustments (including reclassifications and normal recurring adjustments) necessary
to present fairly the financial position at March 31, 2014, and results of operations and cash flows for all periods presented.
The interim results presented are not necessarily indicative of results that can be expected for a full year. The condensed consolidated
financial statements included the accounts of the Company and our wholly-owned subsidiaries. All intercompany accounts and transactions
have been eliminated in consolidation.
2. Summary of Significant Accounting
Policies and Estimates
There have been no material changes to
our significant accounting policies as compared to those described in our Current Report on Form 8-K/A filed with the SEC on March
31, 2014 other than as noted below in
Common Stock Warrants.
Use of Estimates
The preparation of the consolidated financial
statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts
in the financial statements and accompanying footnotes. These estimates include, but are not limited to: revenue recognition, useful
lives assigned to long-lived assets, realizability of deferred tax assets, valuation of common and preferred stock options, and
the valuation of common stock for purposes of determining stock-based compensation and contingencies. Actual results could differ
from those estimates.
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 perform ongoing credit evaluations
of our customers and do not require collateral from our customers to secure accounts receivable.
Accounts receivable are derived from the
sale of products shipped and services performed for customers located in the U.S. and throughout the world. Invoices are aged based
on contractual terms with the customer. We review accounts receivable for collectability and provide an allowance for credit losses,
as needed. We have not experienced any losses related to accounts receivable as of March 31, 2014 and December 31, 2013.
Ekso Bionics Holdings, Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
Many of the sales contracts with customers
outside of the U.S. are settled in a foreign currency other than the U.S. dollar. We do not enter into any foreign currency hedging
agreements and are susceptible to gains and losses from foreign currency fluctuations. To date, we have not experienced significant
gains or losses upon settling foreign contracts.
As of March 31, 2014, we had three customers
with accounts receivable balances totaling 10% or more of our total accounts receivable (27%, 12% and 10%), compared with five
customers as of March 31, 2013 (18%, 18%, 16% 13% and 12%).
In the three months ended March 31, 2014,
we had two customers with net revenue balances of 10% or more of our total customer revenue (25% and 11%), compared with four customers
in the three months ended March 31, 2013 (14%, 13%, 11% and 10%).
Common Stock Warrants
We account for the common stock warrants issued
in connection with our merger, See
Note 3, The Merger, Offering and Other Related Matters,
in accordance with the guidance
in Accounting Standards Codification (“ASC”) 815-40 whereby under that provision the warrants do not meet the criteria
for equity treatment and are recorded as a liability. The warrants have an anti-dilution clause that allows for a decrease in the
exercise price of the warrants if the Company issues additional shares of common stock without consideration or for consideration
per share less than the common stock warrant’s exercise price. Accordingly, we classified the warrant instruments as liabilities
at their fair market value at the date of the merger and will re-measure the warrants at each balance sheet date until they are
exercised or they expire. Any change in the fair value is recognized in our consolidated statement of operations.
The fair value of the warrant liability
was determined using the Binomial Lattice pricing model. This model is dependent upon several variables such as the
instrument’s term, expected strike price, current stock price, risk-free interest rate estimated over the expected
term, and the estimated volatility of our stock over the term of warrant. The expected strike price is estimated based on
a weighted average probability analysis of the strike price changes expected during the term as a result of the
anti-dilution clause in the agreement. The risk-free rate is based on U.S. Treasury securities with similar maturities as the
expected terms of the warrants. The volatility is estimated based on blending the volatility rates for a number of
similar publicly-traded companies.
Recently Adopted Accounting Standards
No new accounting pronouncements issued
or effective during the three months ended March 31, 2014 had or is expected to have a material impact on our results of operations
or financial condition.
Ekso Bionics Holdings, Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
3. The Merger, Offering and Other Related
Transactions
In January and February 2014, we entered
into and executed several contemporaneous and related transactions (together, the “Merger” or the “Transaction”),
as described below.
As used in this Note 3, the term “the
Company” refers to the combination of Ekso Bionics, Inc. and Ekso Bionics Holdings, Inc. formally known as PN Med Group,
Inc., after giving effect to the Merger; the term “Holdings” refers to the business of Ekso Bionics Holdings, Inc.
prior to the Merger, and the term “Ekso Bionics” refers to Ekso Bionics, Inc. prior to the Merger.
Holdings was incorporated in the State
of Nevada on January 30, 2012, as a distributor of medical supplies and equipment to municipalities, hospitals, pharmacies, care
centers, and clinics in Chile. At the time of the Merger, Holdings was a “shell company” as defined in Rule 12b-2 of
the Exchange Act. Holdings’ fiscal year end was March 31 but has been changed to December 31 in connection with the Merger.
On January 15, 2014, Holdings and a newly
formed wholly-owned subsidiary of Holdings, Ekso Acquisition Corp. (“Acquisition Sub”) entered into an Agreement and
Plan of Merger and Reorganization (the “Merger Agreement”)with Ekso Bionics. Under the Merger Agreement, Acquisition
Sub merged with and into Ekso Bionics, with Ekso Bionics remaining as the surviving corporation and with the shareholders of Ekso
Bionics exchanging all of their common stock, preferred stock and warrants to purchase preferred stock issued and outstanding immediately
prior to the closing of the Merger into an aggregate of 42,615,556 shares of Holdings’ common stock and warrants to purchase
621,363 shares of common stock. In addition, options to purchase 4,978,645 shares of common stock of Ekso Bionics were converted
into options to purchase 7,586,459 shares of common stock of Holdings. These shares are in addition to 5,280,368 outstanding shares
of Holdings common stock held by pre-merger PN Med Group, Inc. shareholders, consisting of 4,500,600 shares held by such shareholders
prior to the merger and an additional 779,768 shares issued to such shareholders pursuant to a provision in the Merger Agreement
requiring us to issue a number of shares such that the aggregate ownership of the pre-Merger shareholders (not including any shares
of common stock purchased by them in the PPO) remained approximately 6.8% of our outstanding common stock of the Company.
Upon the closing of the Merger, under the
terms of a split-off agreement and a general release agreement, Holdings transferred all of its pre-Merger operating assets and
liabilities to a newly formed wholly-owned special-purpose subsidiary (“Split-Off Subsidiary”), and transferred all
of the outstanding shares of capital stock of Split-Off Subsidiary to the pre-Merger stockholders of Holdings and the former officers
and sole director of Holdings (the “Split-Off”), in consideration of and in exchange for (i) the surrender and cancellation
of an aggregate of all shares of Holdings’ common stock held by such stockholders (which will be cancelled and will resume
the status of authorized but unissued shares of our common stock) and (ii) certain representations, covenants and indemnities.
Accounting for Reverse Merger
Ekso Bionics, as the accounting
acquirer, recorded the merger as the issuance of stock for the net monetary assets of Holdings accompanied by a
recapitalization. This accounting was identical to that resulting from a reverse merger, except that no goodwill or
intangible assets was recorded. The historical financial statements of Holdings before the Merger will be replaced with the
historical financial statements of Ekso Bionics before the Merger in all future filings with the SEC. The Merger is intended
to be treated as a tax-free exchange under Section 368(a) of the Internal Revenue Code of 1986, as amended.
Ekso Bionics Holdings, Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
Retroactive Conversion of all Share
and Per Share amounts
In accordance with reverse merger accounting
guidance, amounts for Ekso Bionics’ historical (pre-merger) common stock, preferred stock, warrants on stock and options
on common stock including share and per share amounts have been retroactively adjusted using their respective exchange ratios in
these financial statements, unless otherwise disclosed. The conversion ratios were 1.5238, 1.6290, 1.9548 and 1.9548 for shares
of common stock, Series A preferred stock Series A-2 preferred stock and Series B preferred stock, respectively.
Private Placement Offering and Repayment
of 2013 Bridge Note
As more fully discussed in
Note 8, Capitalization
and Equity Structure
, during January and February, 2014, in contemplation of the Merger, the Company completed multiple closings
of a private placement offering (the “PPO”) of 30,300,000 Units (as described below) at a purchase price of $1.00 per
Unit, consisting of the sale of 25,300,000 Units for a total of $25,300,000 in net cash proceeds, and the conversion of the 2013
Bridge Notes (as defined below) into 5,000,000 Units and additional warrants to purchase 2,500,000 shares of common stock. The
Units consist of one share of common stock and a warrant to purchase one share of stock in the Company.
Other warrants, shares and stock options
were issued in connection with the Merger as more fully discussed in
Note 8, Capitalization and Equity Structure.
4. Fair Value Measurements
We record our consolidated financial assets
and liabilities at fair value. The accounting standard for fair value provides a framework for measuring fair value, and defines
fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction
between market participants at the reporting date. The accounting standard establishes a three-tier hierarchy, which prioritizes
the inputs used in the valuation methodologies in measuring fair value:
|
•
|
Level 1
—Quoted prices in active markets for identical assets or liabilities. We consider 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 assets or liabilities requires the use of significant management judgments or estimation.
|
Ekso Bionics Holdings, Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
Our fair value hierarchies for our financial
assets and liabilities which require fair value measurement on a recurring basis are as follows:
|
|
Total
|
|
|
Quoted Prices in
Active Markets for
Identical Items
Level 1
|
|
|
Significant Other
Observable Inputs
Level 2
|
|
|
Significant
Unobservable
Inputs
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
88,050,250
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
88,050,250
|
|
Convertible debt
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total liabilities measured at estimated fair value
|
|
$
|
88,050,250
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
88,050,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
377,747
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
377,747
|
|
Convertible debt
|
|
|
5,062,417
|
|
|
|
–
|
|
|
|
–
|
|
|
|
5,062,417
|
|
Total liabilities measured at estimated fair value
|
|
$
|
5,440,164
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
5,440,164
|
|
The following
table sets forth a summary of the changes in the fair value of our Level 3 financial liabilities, which were measured at fair
value on a recurring basis.
|
|
Warrant liability
|
|
|
Convertible debt
|
|
Beginning balance December 31, 2013
|
|
$
|
377,747
|
|
|
$
|
5,062,417
|
|
Transfer to equity upon settlement
|
|
|
(377,747
|
)
|
|
|
(5,062,417
|
)
|
Fair value of warrants on date of issuance
|
|
|
10,613,550
|
|
|
|
–
|
|
Change in fair value of warrants during the period
|
|
|
77,436,700
|
|
|
|
–
|
|
Ending balance March 31, 2014
|
|
$
|
88,050,250
|
|
|
$
|
–
|
|
The fair value of each warrant was determined using a lattice pricing model using the following assumptions:
|
|
Three months
ended March 31,
|
|
|
2014
|
|
|
|
Dividend yield
|
|
—
|
Risk-free interest rate
|
|
0.81-0.90%
|
Current share price
|
|
$0.60 - $3.19
|
Expected term (in years)
|
|
2.80-3.00
|
Volatility
|
|
79.0%
|
Periodic rate
|
|
0.24-0.25%
|
Periods in the model
|
|
10
|
During the three months ended March 31,
2014 the Level 3 warrant liability and convertible debt outstanding as of December 31, 2013 were settled in transactions related
to the Merger.
See Note 3, The Merger, Offering and Other Related Transactions.
Ekso Bionics Holdings, Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
5. Customer Deposits, Advances and Deferred
Revenues
In connection with our device sales
and research services, we often receive cash payments before our earnings process is complete. In these instances, we record
the payments as customer deposits or customer advances until the device is shipped to the customer or in the case of research
services until the earnings process or milestone is achieved.
As
described in our revenue recognition policy for Ekso
Ô
unit sales, revenues are deferred and recognized over the maintenance period. Accordingly, at the time of shipment the
amount billed is recorded as deferred revenue. Also, at the time of shipment to the customer, the related inventory is reclassified
to deferred cost of revenue where it is amortized to cost of revenue over the same period as the related revenue.
Customer deposits, advances, deferred revenues,
and deferred unit costs consist of the following:
|
|
March
31, 2014
|
|
|
December,
31, 2013
|
|
|
|
|
|
|
|
|
Customer deposits and advances
|
|
$
|
501,893
|
|
|
$
|
443,436
|
|
Deferred Ekso unit revenues
|
|
|
3,928,224
|
|
|
|
3,462,980
|
|
Deferred service, leasing and software revenues
|
|
|
977,289
|
|
|
|
721,921
|
|
Customer advances and deferred revenues
|
|
|
5,407,406
|
|
|
|
4,628,337
|
|
Less current portion
|
|
|
(2,960,026
|
)
|
|
|
(2,419,226
|
)
|
Customer advances and deferred revenues, non-current
|
|
$
|
2,447,380
|
|
|
$
|
2,209,111
|
|
|
|
|
|
|
|
|
|
|
Deferred Ekso unit costs
|
|
$
|
2,101,674
|
|
|
$
|
1,571,897
|
|
Less current portion
|
|
|
(974,405
|
)
|
|
|
(768,599
|
)
|
|
|
|
|
|
|
|
|
|
Deferred cost of revenue, non-current
|
|
$
|
1,127,269
|
|
|
$
|
803,298
|
|
6. Accrued Liabilities
Accrued liabilities consist of the following:
|
|
March
31, 2014
|
|
|
December
31, 2013
|
|
|
|
|
|
|
|
|
Salaries, benefits and related expenses
|
|
$
|
792,095
|
|
|
$
|
657,628
|
|
Professional fees
|
|
|
502,044
|
|
|
|
421,966
|
|
Warranty expense
|
|
|
232,211
|
|
|
|
288,110
|
|
Taxes
|
|
|
39,448
|
|
|
|
62,283
|
|
Other
|
|
|
–
|
|
|
|
812
|
|
Total
|
|
$
|
1,565,798
|
|
|
$
|
1,430,799
|
|
Ekso Bionics Holdings, Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
7. Debt Instruments
Senior Notes Payable and Warrants
On April 27, 2011, we entered into a senior
note payable agreement with Venture Lending & Leasing VI, Inc. (the “Lender”). The initial loan commitment of
$1,500,000 was funded in two tranches: $1,000,000 in April 2011 and $500,000 in October 2011. In May 2012, the Lender funded an
additional $3,500,000 under an amendment to the 2011 agreement. The aggregate of $5,000,000 in funded loans is referred to as
the “Senior Note Payable”.
The Senior Note
Payable was interest-only for the first six months, after which it converted into a fully-amortizing 30-month term note. The Senior
Note Payable was secured by substantially all of our assets, including accounts receivable, inventories, property and equipment,
and intangible assets, including intellectual property.
Under the terms of the 2011 agreement and
2012 amendment thereto, the Lender received warrants to purchase shares of our preferred stock. Under the 2011 agreement, the Lender
received warrants to purchase 128,570 shares of our Series A convertible preferred stock.
In connection with the 2012 amendment,
the Lender received additional warrants to purchase shares of Series B convertible preferred stock.
On January 15, 2014, upon the closing of
the Merger and the private placement financing discussed in
Note 3, The
Merger, Offering and Related Transactions
,
the Senior Notes Payable were settled with proceeds from the Transaction, and the warrants to purchase preferred stock issued to
the Lender were exchanged for warrants to purchase common stock, which warrants remain outstanding.
As of March 31, 2014 and December 31,
2013, the outstanding principal of the loan amounted to $0 and $2,344,302 respectively, and the Company recorded interest expense
of $421,793 and $631,098, respectively, for the periods then ended.
2013 Convertible Bridge Notes
In November 2013, in anticipation of the
Merger and related financing completed in January and February 2014, we completed a private placement to accredited investors of
$5,000,000 of its senior subordinated secured convertible notes (the “2013 Bridge Notes”). The 2013 Bridge Notes bore
interest at 10% per annum and were payable on July 15, 2014, subject to earlier conversion as described below. Interest on the
2013 Bridge Notes was to be payable at maturity, provided that upon conversion of the 2013 Bridge Notes accrued interest was forgiven.
Similar to the accounting for the 2012
Bridge Notes, we determined that the 2013 Bridge Notes should be recorded at fair market value at inception and remeasured at each
subsequent reporting period. The 2013 Bridge Notes were secured by a second priority security interest on all of our assets, subject
to certain limited exceptions. This security interest terminated upon conversion of the 2013 Bridge Notes in connection with the
Merger and related private placement financing.
On January 15, 2014, upon the closing of the
Merger and the private placement financing discussed in
Note 3, The Merger, Offering and Related Transactions
, the outstanding
principal amount and accrued interest of the 2013 Bridge Notes was converted into Units at a conversion price of $1.00 per Unit.
Also, the investors received an additional warrant to purchase a number of shares of Company common stock equal to 50% of the number
of shares of Company common stock contained in the Units into which the Bridge Notes were converted (i.e. 2,500,000 shares in the
aggregate), at an exercise price of $1.00 per share, for a term of three years (the “Bridge Warrants”).
As of March 31, 2014 and December 31, 2013,
the outstanding principal of the notes amounted to $0 and $5,062,417 including accrued interest of $62,417, respectively.
Ekso Bionics Holdings, Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
Other Notes Payable
We also financed certain leasehold improvements
to our Richmond, California facility. As of March 31, 2014 and December 31, 2013, the outstanding principal on the loan was $134,626
and $144,041, respectively. Interest expense for each three month period then ending was approximately $2,466 and $2,629, respectively.
8. Capitalization and Equity Structure
Merger Agreement, Recapitalization and
PPO
As discussed in
Note 3. The Merger,
Offering and Other Related Transactions
, on January 15, 2014 (the “Closing Date”), Ekso Bionics, Inc., Ekso Acquisition
Corp. and Ekso Bionics Holdings, Inc. entered into an Agreement and Plan of Merger and Reorganization, which closed on the same
date. Pursuant to the terms of the Merger Agreement, Ekso Acquisition Corp. merged with and into Ekso Bionics, Inc. which was the
surviving corporation and thus became a wholly-owned subsidiary of Ekso Bionics Holdings, Inc.. The Merger, Offering and other
Related Transactions are described more fully in our Form 8-K/A filed with the SEC on March 31, 2014.
Share Exchanges
At the closing of the Merger, all of the
outstanding capital stock of Ekso Bionics, Inc. was exchanged for an aggregate of 42,615,556 shares of our common stock.
In addition, pursuant to the Merger Agreement
warrants to purchase 407,772 shares of Ekso Bionics’ common stock issued and outstanding immediately prior to the closing
of the Merger were converted into warrants to purchase 621,363 shares of the Company’s common stock and options to purchase
4,978,645 shares of Ekso Bionics’ common stock issued and outstanding immediately prior to the closing of the Merger were
converted into options to purchase 7,586,459 shares of the Company’s common stock.
Upon the closing of the Merger and the
PPO, $5,000,000 of outstanding of convertible bridge notes issued by Ekso Bionics in November 2013 (the “2013 Bridge Notes”)
automatically converted into Units, each consisting of one share of the Company’s common stock and a warrant to purchase
one share of common stock (the “Units”) at a conversion price of $1.00 per Unit, and investors in the 2013 Bridge Notes
received a warrant to purchase 2,500,000 shares of common stock at an exercise price of $1.00 per share for a term of three years
(the “Bridge Warrants”). The Bridge Warrants have weighted average anti-dilution protection, subject to customary exceptions.
Concurrently with the closing of the Merger
and in contemplation of the Merger, the Company held a closing of the PPO in which it sold 20,580,000 Units (including Units issued
upon conversion of the Bridge Notes as described above) of securities, at a purchase price of $1.00 per Unit, each Unit consisting
of one share of our common stock and a warrant to purchase one share of common stock with an exercise price per share of $2.00
and a term of 5 years (the “PPO Warrants”). Between January 29, 2014 and February 6, 2014, the Company issued an additional
9,720,000 Units in subsequent closings of the PPO.
Investors in the Units have weighted average
anti-dilution protection with respect to the shares of common stock included in the Units if within 24 months after the final closing
of the PPO the Company shall issue additional shares of common stock or common stock equivalents (subject to customary exceptions,
including but not limited to issuances of awards under the Company’s 2014 Plan (as defined below)) for consideration per
share less than $1.00.
In connection with the conversion of the
2013 Bridge Notes and the PPO, the Placement Agent and its sub-agents were paid an aggregate commission of $3,030,000 and were
issued warrants to purchase an aggregate of 500,000 shares of our common stock, with an exercise price per share of $1.00 and
a term of five years (“Bridge Agent Warrants”) and warrants to purchase an aggregate of 2,500,000 shares of common
stock with a term of five years and an exercise price of $1.00 per share (the “PPO Agent Warrants”). The Bridge Agent
Warrants and PPO Agent Warrants have weighted average anti-dilution protection, subject to customary exceptions.
Ekso Bionics Holdings, Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
2014 Equity Incentive Plan
Before the Merger, the Board of Directors
adopted, and the stockholders approved, the 2014 Equity Incentive Plan (the “2014 Plan”), which provides for the issuance
of incentive awards of up to 14,410,000 shares of common stock to officers, key employees, consultants and directors. In connection
with the Merger, options to purchase an aggregate of 7,586,459 shares of our common stock were issued under the 2014 Plan.
On the closing of the Merger, the Board
granted to officers and directors options to purchase an aggregate of 2,300,000 shares of common stock under the 2014 Plan.
Summary Capitalization Subsequent to
Reverse Merger and PPO
The Company’s authorized capital
stock consists of 500,000,000 shares of common stock and 10,000,000 shares of preferred stock. At March 31, 2014, 78,480,019 shares
of common stock were issued and outstanding, and no shares of preferred stock were issued and outstanding.
Common Stock
The holders of outstanding shares of
common stock are entitled to receive dividends out of assets or funds legally available for the payment of dividends of such
times and in such amounts as the board from time to time may determine. Holders of common stock are entitled to one vote for
each share held on all matters submitted to a vote of stockholders. There is no cumulative voting for the election of
directors. The common stock is not entitled to pre-emptive rights and is not subject to conversion or redemption. Upon
liquidation, dissolution or winding up of our company, the assets legally available for distribution to stockholders are
distributable ratably among the holders of the common stock after payment of liquidation preferences, if any, on any
outstanding payment of other claims of creditors. Each outstanding share of common stock is duly and validly issued, fully
paid and non-assessable.
Preferred Stock
We may issue shares of preferred stock
from time to time in one or more series, each of which will have such distinctive designation or title as shall be determined by
our Board of Directors and will have such voting powers, full or limited, or no voting powers, and such preferences and relative,
participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated
in such resolution or resolutions providing for the issue of such class or series of preferred stock as may be adopted from time
to time by the Board of Directors.
Ekso Bionics Holdings, Inc.
Notes to Unaudited Condensed
Consolidated Financial Statements
Options on Common Stock
Options to purchase an aggregate of 10,748,459
shares of our common stock have been issued under the 2014 Plan, as follows:
|
·
|
Options to purchase 4,978,645 shares of
Ekso Bionics, Inc.’s common stock issued and outstanding immediately prior to the closing of the Merger were converted into
options to purchase 7,586,459 shares of our common stock, with a weighted average exercise price of $0.46 per share. Most of these
option grants vest over a term of 48 months, beginning on the first anniversary of an employee’s employment, and have a term
of ten years.
|
|
·
|
Options to purchase 450,000 shares of
our common stock were granted to our directors. These option grants have an exercise price of $1.00 per share, will become exercisable
over a term of 48 months, with 1/4 of the shares becoming exercisable on the first anniversary of the date of grant and with 1/48
of the shares becoming exercisable at the end of each month thereafter, and have a term of ten years.
|
|
·
|
Options to purchase 1,850,000 shares of
our common stock were granted to our officers in connection with the Merger. These option grants have an exercise
price of $1.00 per share, will become exercisable over a term of 48 months, with 1/4 of the shares becoming exercisable on the
first anniversary of the date of grant and with 1/48 of the shares becoming exercisable at the end of each month thereafter, and
have a term of ten years.
|
|
|
|
|
·
|
Options to purchase 862,000 shares of our common stock were granted to officers and
employees subsequent to the Merger through March
31, 2014. These options have a weighted average
exercise price of $5.99, will become exercisable over a term of 48 months, with 1/4 of the shares becoming exercisable on
the first anniversary of the date of grant and with
1/48 of
the shares
becoming exercisable at the end of each month
thereafter, and
have a term of ten years.
|
Warrants
As of the date hereof:
|
·
|
The Bridge Warrants entitle their holders
to purchase 2,725,000 shares of common stock, with a term of three years and an exercise price of $1.00 per share.
|
|
·
|
The Bridge Agent Warrants entitle their
holders to purchase 500,000 shares of common stock, with a term of five years and an exercise price of $1.00 per share.
|
|
·
|
The PPO Warrants entitle their holders
to purchase 30,300,000 shares of common stock, with a term of five years and an exercise price of $2.00 per share.
|
|
·
|
The PPO Agent Warrants entitle their holders
to purchase 2,500,000 shares of common stock, with a term of five years and an exercise price of $1.00 per share.
|
|
·
|
Holders of warrants to purchase Ekso Bionics,
Inc. common stock prior to the Merger hold warrants to purchase 621,363 shares of common stock, which expire on various dates from
June 1, 2022 to August 30, 2023 and have an exercise price of $1.38 per share. These warrants may, at the option of the holders,
be exercised on a “cashless exercise” basis, which means that in lieu of paying the aggregate exercise price for the
shares being purchased upon exercise of the warrants for cash, the holder will forfeit a number of shares underlying the warrants
with a “fair market value” equal to such aggregate exercise price. We will not receive additional proceeds to the extent
these warrants are exercised on a “cashless exercise” basis.
|
|
·
|
Other warrants entitle their holders to
purchase 225,000 shares of common stock, with a term of three years and an exercise price of $1.00 per share.
|
Ekso Bionics Holdings, Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
The outstanding warrants, other than those
converted from warrants to purchase Ekso Bionics common stock, contain “weighted average” anti-dilution protection
in the event that we issue common stock or securities convertible into or exercisable for shares of common stock at a price lower
than the subject warrant’s exercise price, subject to certain customary exceptions, as well as customary provisions for adjustment
in the event of stock splits, subdivision or combination, mergers, etc.
The fair value of the warrant liability was
determined using the Binomial Lattice pricing model. This model is dependent upon several variables such as the instrument’s
term, expected strike price, risk-free interest rate estimated over the expected term, and the estimated volatility of our stock
over the term of warrant. The expected strike price is estimated based on a weighted average probability analysis of the strike
price changes expected during the term as a result of the anti-dilution clause in the agreement. The risk-free rate is based on
U.S. Treasury securities with similar maturities as the expected terms of the warrants. The volatility is estimated based on blending
the volatility rates for a number of similar publicly-traded companies.
9. Stock-based Compensation Plans and
Awards
In January 2014, the Board of Directors
adopted the 2014 Equity Incentive Plan. Options previously issued under the 2007 Equity Incentive Plan were converted into options
to purchase shares of the Company’s common stock under the 2014 Equity Incentive Plan. Under the terms of the 2014 Equity
Incentive Plan, the Board of Directors may award stock, options or similar rights having either a fixed or variable price related
to the fair market value of the shares and with an exercise or conversion privilege related to the passage of time, the occurrence
of one or more events, or the satisfaction of performance criteria or other conditions, or any other security with the value derived
from the value of the shares. Such awards include stock options, restricted stock, restricted stock units, stock appreciation
rights and dividend equivalent rights.
The Board of Directors may grant stock
options under the 2014 Equity Incentive Plan at a price of not less than 100% of the fair market value of our common stock on the
date the option is granted. Incentive stock options granted to employees who, on the date of grant, own stock representing more
than 10% of the voting power of all of our classes of stock are granted at an exercise price of not less than 110% of the fair
market value of our common stock. The maximum term of these incentive stock options, granted to employees who own stock possessing
more than 10% of the voting power of all classes of the our stock, may not exceed five years. The maximum term of an incentive
stock option granted to any other participant may not exceed ten years. Subject to the limitations discussed above, the Board of
Directors determines the term and exercise or purchase price of other awards granted under the 2014 Equity Incentive Plan. The
Board of Directors also determines the terms and conditions of awards, including the vesting schedule and any forfeiture provisions.
Awards under the 2014 Equity Incentive Plan may vest upon the passage of time or upon the attainment of certain performance criteria
established by the Board of Directors.
We may from time to time grant options
to purchase common stock to non-employees for advisory and consulting services. Pursuant to ASC 505-50,
Equity-Based Payments
to Non-Employees
, we periodically remeasure the fair value of these stock options using the Black-Scholes option pricing model
and recognize expense ratably over the vesting period of each stock option award. Non-employee stock compensation is included in
the Condensed Consolidated Statements of Operation in general and administrative, research and development or sales and marketing
expenses, depending upon the nature of the non-employee services provided.
Ekso Bionics Holdings, Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
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 March 31,
|
|
|
2014
|
|
2013
|
|
|
|
|
|
Dividend yield
|
|
—
|
|
—
|
Risk-free interest rate
|
|
1.74% - 2.68%
|
|
0.83%-1.13%
|
Expected term (in years)
|
|
5-10
|
|
5-10
|
Volatility
|
|
66%
|
|
65%
|
Total stock-based compensation expense
related to options granted to employees and non-employees was included in the unaudited Condensed Consolidated Statements of Operations
as follows:
|
|
Three
months ended
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
$
|
100,522
|
|
|
$
|
24,686
|
|
Research and development
|
|
|
87,947
|
|
|
|
19,655
|
|
General and administrative
|
|
|
178,171
|
|
|
|
41,814
|
|
|
|
$
|
366,640
|
|
|
$
|
86,155
|
|
10. Income Taxes
The effective tax rate for the three months
ended March 31, 2013 was less than one percent based on the estimated tax loss for the fiscal year. There were no material changes
to the unrecognized tax benefits in the three months ended March 31, 2014 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 audit.
11. Commitments
and Contingencies
Contingencies
In the normal course of business, we may
be subject to various legal matters. As of March 31, 2014 we were not a party to any legal matters that could have a material affect
on our consolidated financial position, results of operations or cash flows.
Ekso Bionics Holdings, Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
Material Contracts
We enter into various license, research
collaboration and development agreements which provide for payments to us for government grants, fees, cost reimbursements typically
with a markup, technology transfer and license fees, and royalty payments on sales. As of March 31, 2014 we were not a party to
any agreements that were not in the normal course of our business.
In connection
with the PPO, we entered into a Registration Rights Agreement, pursuant to which we have agreed that promptly, but no later than
90 calendar days from the final closing of the PPO, the Company will file a registration statement with the SEC (the “Registration
Statement”) covering (a) the shares of common stock issued in the PPO (including those issued upon conversion of the Bridge
Notes), (b) the shares of common stock issuable upon exercise of the Bridge Warrants, (c) the shares of common stock issuable upon
exercise of the PPO Warrants, and (d) the shares of common stock underlying Bridge Agent Warrants and PPO Agent Warrants (the “Registrable
Shares”). The Company is required to use its commercially reasonable efforts to ensure that such Registration Statement is
declared effective within 180 calendar days of filing with the SEC. In the unanticipated event that the Company fails to file the
registration statement or the registration statement is not declared effective by the applicable deadline, the Company will pay
to each holder of Registrable Securities an amount equal to 1.0% of the PPO offering price per share for each full month after
the deadline until the registration statement is filed or declared effective, as applicable, up to a maximum of 8% of the PPO offering
price per share (the “Liquidated Damages”). The Company must keep the Registration Statement “evergreen”
for one year from the date it is declared effective by the SEC or until Rule 144 is available to the holders of Registrable Shares
who are not and have not been affiliates of the Company with respect to all of their registrable shares, whichever is earlier.
During such time, the Company will be required to pay Liquidated Damages if the Registration Statement, after being filed and declared
effective, ceases to be continuously effective for more than 30 calendar days.
12. Net Loss Per Share
Basic net loss per share excludes the effect
of dilution and is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding less
the weighted-average number of shares subject to repurchase during the period.
Diluted net loss per share is computed
by giving effect to all potential shares of common stock, including stock options and warrants to the extent dilutive. Basic net
loss per share was the same as diluted net loss per share for the three months ended March 31, 2014 and 2013 as the inclusion of
all potential common shares outstanding would have had an anti-dilutive effect.
The following table sets forth the computation
of historical basic and diluted net loss per share:
|
|
Three Months Ended
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Numerator
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(81,765,359
|
)
|
|
$
|
(3,796,754
|
)
|
Denominator
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding used in computing basic and
diluted net loss per share
|
|
|
67,072,057
|
|
|
|
20,636,529
|
|
Net loss per share, basic and diluted
|
|
$
|
(1.22
|
)
|
|
$
|
(0.18
|
)
|
A total of 5,280,368 shares of common
stock held by pre-merger shareholders of Ekso Bionics Holdings, Inc. as described in Note 3,
The Merger, Offering and
Related Transactions
have been retroactively reflected as outstanding for the three months ended March 31, 2014 and 2013
for purposes of determining the basic and diluted net loss pershare in the accompanying Condensed Consolidated Statements
of Operations.
Ekso Bionics Holdings, Inc.
Notes to Unaudited Condensed Consolidated
Financial Statements
13.
Segment Disclosures
We have two reportable segments, Engineering
Services and Medical Devices. Engineering Services generates revenue principally from collaborative research and development service
arrangements, technology license agreements, and government grants where we use our robotics domain knowledge in bionic exoskeletons
to bid on and procure contracts and grants from entities such as the United States Special Operations Command, the Defense Advanced
Research Projects Agency and the National Science Foundation. The Medical Devices segment designs, engineers, and manufactures
exoskeletons for applications in the medical markets.
We evaluate performance and allocate 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 other manufactures and distributes a unique product. We do not consider net assets
as a segment measure and, accordingly, assets are not allocated.
Segment reporting information is as follows:
|
|
Engineering
|
|
|
Medical
|
|
|
|
|
|
|
Services
|
|
|
Devices
|
|
|
Total
|
|
Three months ended March 31, 2014
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
534,958
|
|
|
$
|
526,753
|
|
|
$
|
1,061,711
|
|
Cost of revenue
|
|
|
252,103
|
|
|
|
330,125
|
|
|
|
582,228
|
|
Gross profit
|
|
$
|
282,855
|
|
|
$
|
196,628
|
|
|
$
|
479,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
363,330
|
|
|
$
|
332,919
|
|
|
$
|
696,249
|
|
Cost of revenue
|
|
|
347,214
|
|
|
|
232,563
|
|
|
|
579,777
|
|
Gross profit
|
|
$
|
16,116
|
|
|
$
|
100,356
|
|
|
$
|
116,472
|
|
Geographic information for revenue based
on location of customer is as follows:
|
|
For
the three months ended
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
889,785
|
|
|
$
|
623,485
|
|
Europe, Middle East, Asia
|
|
|
171,926
|
|
|
|
72,764
|
|
|
|
$
|
1,061,711
|
|
|
$
|
696,249
|
|