Stereotaxis
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10-K
STEREOTAXIS, INC. filed this Form 10-K on 03/15/2019
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Stock-based Compensation

 

Stock compensation expense, which is a non-cash charge, results from stock option and stock appreciation rights grants made to employees, and directors at the fair value of the option granted, and from grants of restricted shares and units to employees, directors, and third-party consultants. The fair value of options and stock appreciation rights granted was determined using the Black-Scholes valuation method which gives consideration to the estimated value of the underlying stock at the date of grant, the exercise price of the option, the expected dividend yield and volatility of the underlying stock, the expected life of the option and the corresponding risk-free interest rate. The fair value of the grants of restricted shares and units was determined based on the closing price of our stock on the date of grant. Stock compensation expense for options, stock appreciation rights and for time-based restricted share grants and units is amortized on a straight-line basis over the vesting period of the underlying issue, generally over four years except for grants to directors which generally vest between one and five years. Stock compensation expense for performance-based restricted shares, if any, is amortized on a straight-line basis over the anticipated vesting period and is subject to adjustment based on the actual achievement of objectives. Compensation expenses related to grants to non-employees are re-measured quarterly through the vesting date. Compensation expense is recognized only for those options expected to vest, net of actual forfeitures. Estimates of the expected life of options have been based on the average of the vesting and expiration periods, which is the simplified method under general accounting principles for share-based payments. Estimates of volatility utilized in calculating stock-based compensation have been prepared based on historical data. Actual experience to date has been consistent with these estimates.

 

The amount of compensation expense to be recorded in future periods may increase if we make additional grants of options, stock appreciation rights or restricted shares. The amount of expense to be recorded in future periods may decrease if the requisite service periods are not completed.

 

Valuation of Inventory

 

We value our inventory at the lower of the actual cost of our inventory, as determined using the first-in, first-out (FIFO) method, or its current estimated market value. We periodically review our physical inventory for excess, obsolete, and potentially impaired items and reserve accordingly. Our reserve estimate for excess and obsolete is based on expected future use. Our reserve estimates have historically been consistent with our actual experience as evidenced by actual sale or disposal of the goods.

 

Income Taxes

 

Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using the enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. We have established a valuation allowance against the entire amount of our deferred tax assets because we are not able to conclude, due to our history of operating losses, that it is more likely than not that we will be able to realize any portion of the deferred tax assets.

 

In assessing whether and to what extent deferred tax assets are realizable, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable losses, limitations imposed by Section 382 of the Internal Revenue Code and projections for future losses over periods which the deferred tax assets are deductible, we determined that a 100% valuation allowance of deferred tax assets was appropriate.

 

Results of Operations

 

Comparison of the Years ended December 31, 2018 and 2017

 

Revenue. Revenue decreased to $29.3 million for the year ended December 31, 2018, from $31.1 million for the year ended December 31, 2017, a decrease of approximately 6%. Revenue from sales of systems decreased to $1.6 million for the year ended December 31, 2018, from $4.3 million for the year ended December 31, 2017, a decrease of approximately 63%. We recognized a total of $1.6 million in revenue for Odyssey and Odyssey Cinema systems during the 2018 period. System revenue for the prior year included revenue on two Niobe ES systems and a total of $2.2 million for Odyssey and Odyssey Cinema systems. Revenue from sales of disposable interventional devices, service and accessories increased to $27.8 million for the year ended December 31, 2018, from $26.9 million for the year ended December 31, 2017, an increase of approximately 3%. The increase was primarily attributable to service revenue.

 

Cost of Revenue. Cost of revenue decreased to $5.7 million for the year ended December 31, 2018, from $10.8 million for the year ended December 31, 2017, a decrease of approximately 47%. As a percentage of our total revenue, overall gross margin increased from 65% for the year ended December 31, 2017, to 81% for the year ended December 31, 2018, primarily due to lower inventory-related charges and higher current year margins on disposable products and service contracts. Cost of revenue for systems sold decreased to $1.8 million for the year ended December 31, 2018, from $6.2 million for the year ended December 31, 2017 and gross margin for systems improved to (13%) for the year ended December 31, 2018 from (45%) for the year ended December 31, 2017 due to the 2017 inventory-related charge. Gross margin from systems was negative in 2018 due to low sales volumes and obsolescence charges on the receipt of committed inventory related to its Niobe ES product line. Cost of revenue for disposable interventional devices, service and accessories decreased to $3.9 million for the year ended December 31, 2018, from $4.6 million for the year ended December 31, 2017, resulting in an increase in gross margin to 86% from 83% driven by higher margins on disposables products and service contracts between these periods in the current year.

 

Research and Development Expense. Research and development expense increased to $8.2 million for the year ended December 31, 2018 from $6.7 million for the year ended December 31, 2017, an increase of approximately 23%. This increase was primarily due to higher project-based expenses.

 

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