Stereotaxis
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10-K
STEREOTAXIS, INC. filed this Form 10-K on 03/15/2019
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Convertible Preferred Stock and Warrants

 

In September 2016, the Company issued 24,000 shares of Series A Convertible Preferred Stock, par value $0.001 with a stated value of $1,000 per share which are convertible into shares of the Company’s common stock at an initial conversion rate of $0.65 per share and (ii) warrants to purchase an aggregate of 36,923,078 shares of common stock. The convertible preferred shares are entitled to vote on an as-converted basis with the common stock, subject to specified beneficial ownership issuance limitations. The convertible preferred shares bear dividends at a rate of six percent (6%) per annum, which are cumulative and accrue daily from the date of issuance on the $1,000 stated value. Such dividends will not be paid in cash except in connection with any liquidation, dissolution or winding up of the Company or any redemption of the convertible preferred shares. Each holder of convertible preferred shares has the right to require us to redeem such holder’s convertible preferred shares upon the occurrence of specified events, which include certain business combinations, the sale of all or substantially all of the Company’s assets, or the sale of more than 50% of the outstanding shares of the Company’s common stock. In addition, the Company has the right to redeem the convertible preferred shares in the event of a defined change of control. The convertible preferred shares rank senior to our common stock as to distributions and payments upon the liquidation, dissolution, and winding up of the Company. Since the convertible preferred shares are subject to conditions for redemption that are outside the Company’s control, the convertible preferred shares are presently reported in the mezzanine section of the balance sheet.

 

The warrants issued in conjunction with the convertible preferred stock (the “SPA Warrants”) have an exercise price equal to $0.70 per share subject to adjustments as provided under the terms of the warrants. The warrants are exercisable through September 29, 2021, subject to specified beneficial ownership issuance limitations. Prior to their modification in February 2018, the warrants were puttable upon the occurrence of certain events outside of the Company’s control, and were classified as liabilities under Accounting Standards Codification (“ASC”) Topic 480-10. The calculated fair value of the warrants was periodically re-measured with any changes in value recognized in “Other income (expense)” in the Statements of Operations. See Note 10 for additional details.

 

The warrants were modified on February 28, 2018 to allow for a reduction in the exercise price from $0.70 per share to $0.28 per share for a period between March 1, 2018 and March 5, 2018. Additionally, the beneficial ownership limitation related to the warrants was modified and the right of holders to require the Company to redeem their SPA Warrants in exchange for cash in certain circumstances was eliminated. Following these modifications, the warrants were no longer subject to liability accounting and were reclassified to equity. During the restricted exercise period, Stereotaxis received exercise notices for 35,791,927 warrants and received an aggregate of $10.0 million in cash from the warrant exercise. As a result of these transactions, total stockholders’ equity increased by $27 million and common shares outstanding increased by 35,791,927 shares. The Consent and Amendment and the Amended and Restated Form of Warrants are available in a Form 8-K filed with the Securities and Exchange Commission on March 6, 2018.

 

Liquidity

 

The following table summarizes our cash flow by operating, investing and financing activities for each of years ended December 31, 2018 and 2017 (in thousands):

 

   Twelve Months Ended December 31, 
   2018   2017 
Cash flow used in operating activities  $(2,547)  $(4,675)
Cash flow used in investing activities   (265)   (82)
Cash flow (used in)/provided by financing activities   9,922    (59)

 

Net cash used in operating activities. We used approximately $2.5 million and $4.7 million of cash in operating activities during the years ended December 31, 2018 and 2017, respectively. The decrease in cash used in operating activities from 2017 to 2018 was driven by reduced operating losses after adjusting for large non-cash transactions in 2017 including inventory obsolescence and revenue recognized during the period for which cash had been collected in 2016.

 

Net cash used in investing activities. We used approximately $0.3 million and approximately $0.1 million during the years ended December 31, 2018 and December 31, 2017, respectively, for the purchase of property and equipment.

 

Net cash used in/provided by financing activities. We generated approximately $9.9 million of cash for the year ended December 31, 2018, compared to approximately $0.1 million used for the year ended December 31, 2017. The cash generated for the year ended December 31, 2018 was driven by proceeds from the warrant exercise. The cash used for the year ended December 31, 2017 was driven by payments of deferred financing costs offset by proceeds from issuance of stock.

 

At December 31, 2018, we had working capital of approximately $7.8 million, compared to a working capital deficit of $20.3 million at December 31, 2017. The increase in working capital was primarily driven by proceeds from the warrant modification and exercise.

 

As of December 31, 2018, the Company had no outstanding debt under the revolving line of credit. Draws on the line of credit are made based on the borrowing capacity one week in arrears. As of December 31, 2018, the Company had a borrowing capacity of $3.3 million based on the Company’s collateralized assets. The maturity date of the revolving line of credit is April 25, 2019.

 

The credit facility is secured by substantially all of our assets. The credit agreements include customary affirmative, negative and financial covenants. For example, we are restricted from incurring additional debt, disposing of or pledging our assets, entering into merger or acquisition agreements, making certain investments, allowing fundamental changes to our business, ownership, management or business locations, and from making certain payments in respect of stock or other ownership interests, such as dividends and stock repurchases. Under our loan arrangements, as in effect at December 31, 2018, we are required to meet liquidity covenants as defined in the loan agreement. We are also required under the credit agreements to maintain our primary operating account and the majority of our cash and investment balances in accounts with our primary lending bank. As of December 31, 2018, we were in compliance with all financial covenants of this agreement.

 

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