UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One) 

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2017

 

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                      

 

Commission File No. 001-37406

 

 

CORINDUS VASCULAR ROBOTICS, INC.  

(Exact name of registrant as specified in its charter)

 

  

Delaware	30-0687898
(State or other jurisdiction of  incorporation or organization)	(I.R.S. Employer  Identification No.)

309 Waverley Oaks Rd., Suite 105, Waltham, MA 02452	(508) 653-3335
(Address of principal executive offices)	(Registrant’s Telephone Number)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
(Do not check if a smaller reporting company.)		Emerging growth company	☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 31(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

 

The number of shares outstanding of the issuer’s common stock as of November 6, 2017 was 188,702,919.

 

 

CORINDUS VASCULAR ROBOTICS, INC.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

INDEX

			Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements		3
Unaudited Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016			3
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2017 and 2016			4
Unaudited Condensed Consolidated Statement of Stockholders’ Equity for the Nine Months Ended September 30, 2017			5
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016			6
Notes to Unaudited Condensed Consolidated Financial Statements			7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		24
Item 4.	Controls and Procedures		25
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings		25
Item 1A.	Risk Factors		25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		25
Item 3.	Defaults Upon Senior Securities		25
Item 4.	Mine Safety Disclosures		26
Item 5.	Other Information		26
Item 6.	Exhibits		26

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

CORINDUS VASCULAR ROBOTICS, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

		September 30, 2017				December 31, 2016
Assets
Current Assets:
Cash and cash equivalents		$	26,196			$	9,183
Accounts receivable			1,255				384
Due from related party			—				250
Inventories, net			2,764				1,545
Prepaid expenses and other current assets			313				448
Total current assets			30,528				11,810
Property and equipment, net			1,012				982
Deposits and other assets			147				221
Total assets		$	31,687			$	13,013
Liabilities and stockholders’ equity
Current Liabilities:
Accounts payable		$	2,092			$	2,463
Accrued expenses			2,833				1,794
Customer deposits			1,038				—
Deferred revenue			462				750
Long-term debt			250				3,755
Total current liabilities			6,675				8,762
Long-term liabilities:
Deferred revenue, net of current portion			163				129
Other liabilities			68				52
Total long-term liabilities			231				181
Total liabilities			6,906				8,943
Commitments and Contingencies
Stockholders’ equity:
Preferred stock, par value $0.0001 par value; 10,000,000 shares authorized; none issued and outstanding			—				—
Common stock, $0.0001 par value; 250,000,000 shares authorized; 187,309,314 shares issued and outstanding at September 30, 2017 and 119,025,221 shares issued and outstanding at December 31, 2016			19				12
Additional paid-in capital			197,632				150,776
Accumulated deficit			(172,870	)			(146,718	)
Total stockholders’ equity			24,781				4,070
Total liabilities and stockholders’ equity		$	31,687			$	13,013

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

CORINDUS VASCULAR ROBOTICS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share amounts)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2017				2016				2017				2016
Revenue		$	2,425			$	688			$	5,460			$	2,304
Cost of revenue			2,183				1,220				6,275				3,412
Gross profit (loss)			242				(532	)			(815	)			(1,108	)
Operating expenses:
Research and development			2,493				2,728				7,546				7,373
Selling, general and administrative			5,588				4,585				17,566				13,987
Total operating expense			8,081				7,313				25,112				21,360
Operating loss			(7,839	)			(7,845	)			(25,927	)			(22,468	)
Interest and other expense, net			(14	)			(221	)			(225	)			(819	)
Net loss		$	(7,853	)		$	(8,066	)		$	(26,152	)		$	(23,287	)
Net loss per share--basic and diluted		$	(0.04	)		$	(0.07	)		$	(0.15	)		$	(0.20	)
Weighted-average common shares used in computing net loss per share--basic and diluted			187,301,161				118,958,430				168,993,532				119,017,846
Other comprehensive loss:
Net loss		$	(7,853	)		$	(8,066	)		$	(26,152	)		$	(23,287	)
Unrealized gain (loss) on marketable securities			—				(9	)			—				14
Comprehensive loss		$	(7,853	)		$	(8,075	)		$	(26,152	)		$	(23,273	)

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

  

CORINDUS VASCULAR ROBOTICS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(In thousands, except share and per share amounts)

										Additional
		Common Stock, $0.0001 Par Value								Paid-in				Accumulated
		Shares				Amount				Capital				Deficit				Total
Balance at December 31, 2016			119,025,221			$	12			$	150,776			$	(146,718	)		$	4,070
Stock-based compensation expense			—				—				2,194				—				2,194
Issuance of common stock in connection with private placement of common stock, net of issuance costs of $415			68,055,700				7				44,604				—				44,611
Issuance of common stock upon exercise of stock options			228,393				—				58				—				58
Net loss			—				—				—				(26,152	)			(26,152	)
Balance at September 30, 2017			187,309,314			$	19			$	197,632			$	(172,870	)		$	24,781

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

CORINDUS VASCULAR ROBOTICS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) 

		Nine Months Ended September 30,
		2017				2016
Operating activities
Net loss		$	(26,152	)		$	(23,287	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on disposal of fixed assets			—				59
Depreciation and amortization			532				564
Stock-based compensation expense			2,194				1,646
Accretion of interest expense			101				343
Accretion of available-for-sale securities			—				(15	)
Write down of inventories			299				—
Changes in operating assets and liabilities:
Accounts receivable			(871	)			347
Due from related party			250				—
Prepaid expenses and other current assets			135				286
Inventories			(2,006	)			(290	)
Deposits and other assets			3				4
Accounts payable, accrued expenses, and other liabilities			684				659
Customer deposits			1,038				—
Deferred revenue			(254	)			(378	)
Net cash used in operating activities			(24,047	)			(20,062	)
Investing activities
Maturities of available-for-sale securities			—				20,553
Collections of notes receivable			71				65
Purchase of property and equipment			(74	)			(305	)
Net cash provided by (used in) investing activities			(3	)			20,313
Financing activities
Proceeds from issuance of common stock, net of issuance costs			44,611				—
Proceeds from exercise of stock options			58				72
Payment for common stock repurchase and retirement			—				(741	)
Payments for withholding taxes on stock option exercises			—				(410	)
Payments on debt			(3,606	)			(3,235	)
Net cash provided by (used in) financing activities			41,063				(4,314	)
Net increase (decrease) in cash and cash equivalents			17,013				(4,063	)
Cash and cash equivalents at beginning of period			9,183				22,142
Cash and cash equivalents at end of period		$	26,196			$	18,079
Supplemental Disclosure of Cash Flow Information:
Interest paid		$	150			$	534
Transfer from inventories to property and equipment in the field		$	488			$	—

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

CORINDUS VASCULAR ROBOTICS, INC.  

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

(In thousands, except share and per share amounts)

  

Note 1    Nature of Operations

 

The Company

 

Corindus Vascular Robotics, Inc. (the “Company”), a Delaware corporation, acquired Corindus, Inc., a privately-held company, in a reverse acquisition on August 12, 2014. The Company’s corporate headquarters, manufacturing and research and development facility are in Waltham, Massachusetts and the Company is engaged in the design, manufacture and sales of precision vascular robotic-assisted systems (“CorPath System”) for use in interventional vascular procedures.

 

Since its inception on March 21, 2002, the Company has devoted its efforts principally to research and development, business development activities, and raising capital. In July 2012, the Company received clearance from the United States Food and Drug Administration (“FDA”) to market its CorPath System in the United States and shipped its first commercial product under this clearance in September 2012. In 2013, the Company moved into the growth stage, investing in sales and marketing in order to build its customer base. While the Company is initially cleared for and is targeting percutaneous coronary intervention (“PCI”) procedures, the Company believes its technology platform has the capability to be developed in the future for other segments of the vascular market, including peripheral vascular, neurointerventional and other more complex cardiac interventions, such as structural heart.

 

In October 2015, the Company announced that it had received 510(k) clearance from the FDA for its robotic-assisted CorPath System to be used during percutaneous coronary interventions performed via radial access. The 510(k) clearance was based on results of a clinical trial conducted at Spectrum Health, Grand Rapids, Michigan, and St. Joseph’s Hospital Health Center, Syracuse, New York.

 

On March 29, 2016, the Company announced that it had received 510(k) clearance from the FDA for its robotic-assisted CorPath System for use in peripheral vascular interventions. This 510(k) clearance for peripheral intervention was based on results of a clinical trial known as the RAPID (Robotic-assisted Peripheral Intervention for Peripheral Artery Disease) Study conducted at Medical University Graz in Austria.

 

On October 27, 2016, the Company announced that it had received 510(k) clearance from the FDA for its CorPath GRX System, the second generation of the CorPath System. The Company began commercial shipment of the CorPath GRX System in late January 2017.

 

The Company’s future capital requirements will depend upon many factors, including progress with developing, manufacturing and marketing its technologies, the time and costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other proprietary rights, its ability to establish collaborative arrangements, marketing activities and competing technological and market developments, including regulatory changes affecting medical procedure reimbursement, and overall economic conditions in the Company’s target markets.

 

Liquidity

 

On March 15, 2017, the Company closed on a private placement for the sale of an aggregate of 68,055,700 shares of its common stock at $0.6616 per share, for an aggregate purchase price of approximately $45,026 before deducting offering expenses of approximately $415. In connection with the private placement, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with the investors participating in the financing, requiring the Company to register the resale of the shares sold in the private placement. Under the Registration Rights Agreement, the Company was required to file a registration statement with the Securities and Exchange Commission (“SEC”) within 45 days of the closing of the private placement. These shares were registered and the registration statement declared effective as of May 1, 2017. The Registration Rights Agreement also contains piggyback registration rights in favor of the investors and customary indemnification provisions.

 

The Company has incurred losses since inception and has funded its operations primarily through the issuance of capital stock and debt. As of September 30, 2017, the Company had an accumulated deficit of $172,870 and net borrowings outstanding of $250, which were fully repaid on October 2, 2017.

 

As of September 30, 2017, the Company had cash and cash equivalents of $26,196 and working capital of $23,853. The Company anticipates that these available resources, along with cash generated from operating activities, will be sufficient to meet the Company’s cash requirements for a least the next 12 months from November 8, 2017, including funding its anticipated losses and scheduled debt maturities. Additionally, the Company is in compliance with its debt covenant requirements as of September 30, 2017.

 

  

CORINDUS VASCULAR ROBOTICS, INC.  

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

(In thousands, except share and per share amounts)

 

Accounting standards require management to evaluate the Company’s ability to continue as a going concern for a period of one year subsequent to the date of the filing of the Form 10-Q (“evaluation period”). As such, the Company has evaluated whether or not cash and cash equivalents on hand and cash generated through operating activities would be sufficient to sustain projected operating activities through November 8, 2018. The Company anticipates that these resources, along with cash generated from operations and potential non-dilutive or dilutive financings in the future, will be sufficient to meet the Company’s cash requirements for at least 12 months from November 8, 2017, including funding anticipated losses and scheduled debt maturities. However, if the Company is unable to substantially achieve its operating plans and secure non-dilutive or dilutive financing opportunities, the Company’s existing capital resources at September 30, 2017 would not be sufficient to support the current operating plan through November 8, 2018.  Because such financing transactions have not been finalized, receipt of additional funding is not considered probable under current accounting standards. If the Company does not generate sufficient cash flows from operations or obtain sufficient funds when needed, the Company expects it would scale back its operating plan by deferring or limiting some or all of our capital spending and discretionary compensation payouts, reducing our spending on travel, clinical trial and prototypes, eliminating planned headcount additions, reducing external consulting resources and current headcount. Such contingency actions have not been finalized (because the specifics would depend on the situation at the time); therefore, these and other such actions are also not considered probable for purposes of current accounting standards. Under current accounting standards, since none of the future cash generated from operating activities, the future financings, nor the Company’s contingency plans to mitigate the risk and extend cash resources through November 8, 2018, are considered probable, substantial doubt exists about the Company’s ability to continue as a going concern. As the Company continues to incur losses, its transition to profitability is dependent upon achieving a level of revenues adequate to support its cost structure. The Company may never achieve profitability, and unless and until doing so, the Company intends to fund future operations through additional non-dilutive or dilutive financings. There can be no assurances, however, that additional funding will be available on terms acceptable to the Company, if at all.

 

Note 2    Significant Accounting Policies

 

Basis of Presentation

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of the Company’s financial statements for interim periods in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The information included in this quarterly report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and the accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (“2016 Form 10-K”). The Company’s accounting policies are described in the “Notes to Consolidated Financial Statements” in the 2016 Form 10-K and are updated, as necessary, in this Form 10-Q. The year-end condensed consolidated balance sheet data presented for comparative purposes was derived from the audited financial statements, but does not include all disclosures required by U.S. GAAP. The results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.

 

Principles of Consolidation

 

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Corindus, Inc. and Corindus Security Corporation. All intercompany transactions and balances have been eliminated in consolidation. The functional currency of both wholly-owned subsidiaries is the U.S. dollar and, therefore, the Company has not recorded any currency translation adjustments.

 

In the fourth quarter of 2014, the Company participated in the formation of a not-for-profit, which was established to generate awareness of the health risks linked to the use of fluoroscopy in hospital catheterization. As of September 30, 2017, the Company’s Chief Executive Officer and one of its senior executives represented two of the three voting members of the board of directors of the entity. As a result, under the voting model used for the consolidation of related parties which are controlled by a company, the Company has consolidated the financial statements of the entity and recognized expenses of $5 and $12 for the three months ended September 30, 2017 and 2016, respectively, and $51 and $94 for the nine months ended September 30, 2017 and 2016, respectively. The entity had assets and liabilities of $26 and $19, respectively, on the Company’s balance sheet at September 30, 2017 and had both assets and liabilities of $23 on its balance sheet at December 31, 2016.

 

 

CORINDUS VASCULAR ROBOTICS, INC.  

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

(In thousands, except share and per share amounts)

 

Segment Information

 

The Company operates in one business segment, which is the development, marketing and sales of robotic-assisted vascular interventions. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. To date, the chief operating decision-maker has made such decisions and assessed performance at the company level, as one segment. The Company’s chief operating decision-maker is the Chief Executive Officer.

 

Use of Estimates

 

The process of preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date of the financial statements. Such management estimates include those relating to revenue recognition, inventory valuation, assumptions used in the valuation of stock-based awards, and valuation allowances against deferred income tax assets. Actual results could differ from those estimates.

 

Significant Customers

 

The table below sets forth the Company’s customers that accounted for greater than 10% of its revenues for the three and nine month periods ended September 30, 2017 and 2016, respectively:

 

			Three months ended September 30,								Nine months ended September 30,
Customer			2017				2016				2017				2016
A				22	%			—	%			10	%			2	%
B				22	%			—	%			10	%			—	%
C				19	%			—	%			8	%			—	%
D				12	%			—	%			19	%			—	%
E				11	%			—	%			8	%			—	%
F				1	%			—	%			15	%			—	%
G				—	%			49	%			—	%			15	%
H				2	%			—	%			1	%			34	%

 

Customers B and C accounted for 42% and 37%, respectively, of the Company’s accounts receivable balance at September 30, 2017. Given the current revenue levels, in a period in which the Company sells a system, that customer is likely to represent a significant customer.

 

Off-Balance Sheet Arrangements

 

The Company has no significant off-balance sheet risk such as foreign exchange contracts, option contracts, or other hedging arrangements.

 

Fair Value Measurements

 

In accordance with ASC 820, Fair Value Measurements and Disclosures, the Company generally defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company uses a three-tier fair value hierarchy, which classifies the inputs used in measuring fair values. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

 

●

Level 1 - inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

 

 

CORINDUS VASCULAR ROBOTICS, INC.  

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

(In thousands, except share and per share amounts)

 

●

Level 2 - inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability.

 

●

Level 3 - inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date.

 

At both September 30, 2017 and December 31, 2016, the Company had only one asset that was measured at fair value on a recurring basis. The Company had cash equivalents totaling approximately $20,184 and $164 at September 30, 2017 and December 31, 2016, respectively, which were valued based on Level l inputs.

 

The Company’s financial instruments of deposits and notes receivable are carried at cost and approximate their fair values given the liquid nature of such items. The fair value of the Company’s long-term debt is calculated based on discounted cash flow analysis, which includes Level 3 inputs and fair value approximates recorded amounts.

 

Cash Equivalents

 

The Company considers highly liquid short-term investments, which consists of money market funds, to be cash equivalents. From time to time, the Company’s cash balances may exceed federal deposit insurance limits.

 

Inventories

 

Inventories are valued at the lower of cost or net realizable value using the first-in, first-out (FIFO) method. The Company routinely monitors the recoverability of its inventory and records the lower of cost or market reserves based on current selling prices and reserves for excess and obsolete inventory based on historical and forecasted usage, as required. Scrap and excess manufacturing costs are charged to cost of revenue as incurred and not capitalized as part of inventories. The Company only capitalizes pre-launch inventories when purchased for commercial use and it deems regulatory approval to be probable.

 

Customer Deposits

 

Customer deposits represent cash received from customers for related products that have not been delivered or services that have not yet been performed.

 

Revenue Recognition

 

The CorPath System is a capital medical device used by hospitals and surgical centers to perform heart catheterizations. Use of the CorPath System requires a sterile, single-use cassette (the “CorPath Cassette”), which is sold separately, for each procedure. Products are sold to customers with no rights of return. The Company recognizes revenue on the sale of products when the following criteria are met:

 

●

Persuasive evidence of an arrangement exists

●

The price to the buyer is fixed or determinable

●

Collectability is reasonably assured

●

Risk of loss transfers and the product is delivered

 

In each arrangement, the Company is responsible for installation of the CorPath System and initial user training, which services are deemed essential to the functionality of the system. Therefore, the Company recognizes system revenue when the CorPath System is delivered and installed, and accepted by the end user customer.

 

Each CorPath System is sold with a standard one year warranty, which provides that the CorPath System will function as intended and during that one year period, the Company will either replace the product or a portion thereof or provide the necessary repair service during the Company’s normal service hours. The Company accrues for the estimated costs of the warranty once the CorPath System revenue is recognized.

 

The Company generally enters into multiple element arrangements, which include the sale of a CorPath System with an initial order of CorPath Cassettes, and may include either a basic service plan or a premium service plan. The basic service plan provides for an extended warranty period and the premium service plan provides for the extended warranty as well as component upgrades, when and if they become available during the service period. Deliverables, which are accounted for as separate units of accounting under multiple-element arrangements include: (a) the CorPath System, including installation and initial training, which are subject to customer acceptance and (b) the initial shipment of CorPath Cassettes to the customer, and may include either (c) an extended warranty or (d) component upgrades.

 

 

CORINDUS VASCULAR ROBOTICS, INC.  

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

(In thousands, except share and per share amounts)

 

The Company recognizes revenue on multiple-element arrangements in accordance with ASU 2009-13, Revenue Recognition (Topic 605): Multiple Deliverable Revenue Arrangements, based on the estimated selling price of each element. In accordance with ASU 2009-13, the Company uses vendor-specific objective evidence (“VSOE”), if available, to determine the selling price of each element. If VSOE is not available, the Company uses third-party evidence (“TPE”) to determine the selling price. If TPE is not available, the Company uses its best estimate to develop the estimated selling price (“BESP”). The Company uses BESP to determine the selling price of its systems as well as the basic and premium service plans. BESP is determined based on estimated costs plus a reasonable margin, and has generally been consistent with the price charged to the customer for such products and services. The determination of BESP also considers the price of the service plans charged to customers when such services are sold separately in subsequent transactions. The Company also uses BESP to determine the selling price of the initial order of cassettes, which considers the price at which it charges its customers when the cassettes are sold separately.

 

Revenue related to basic and premium service plans is recognized on a straight-line basis over the life of the service contract. Revenue from accessories is recorded upon delivery and services provided by the Company outside of a basic or premium service contract are recognized as the services are provided. If a revenue arrangement contains an undelivered element, such as a specified upgrade, revenues are deferred until delivery is complete.

 

There are no performance, cancellation, termination, and refund-type provisions under the Company’s multiple element arrangements.

 

The Company also sells CorPath Cassettes under a CorPath Utilization Program (“CUP”), which is a multi-year arrangement that involves the placement of a CorPath System at a customer’s site free of charge and the customer agrees to purchase a minimum number of CorPath Cassettes each month at a premium over the regular price. The Company records revenue upon shipment of the CorPath Cassettes based on their selling price. The CorPath System is capitalized as field equipment in property and equipment and is depreciated on a straight line basis through cost of revenue over the estimated useful life of the CorPath System, which generally approximates the length of the CUP program contract, which is typically 36 months.

 

At times, the Company may provide products to customers in exchange for future purchases of products and provision of services. The costs of any such products are included in cost of revenue in the accompanying condensed consolidated statements of operations.

 

The Company also uses a One-Stent Program to demonstrate its confidence in the CorPath System’s ability to help accurately measure anatomy and precisely place only one stent per lesion. The Company provides eligible customers registered under the program a $1 credit against future CorPath Cassette purchases for a qualifying CorPath PCI procedure which uses more than one stent per lesion. The estimated cost of honoring the potential obligation under the program is recorded as a reduction of revenue at the time of shipment. These costs have not been significant to date.

 

The Company records shipping and handling costs as a selling expense in the period incurred, and records payments from customers for shipping costs as a reduction of selling expenses. Such amounts have not been material in the periods presented.

 

Warrants

 

The Company classifies warrants within stockholders’ equity on the consolidated balance sheets if the warrants are considered to be indexed to the Company’s own capital stock, and otherwise would be recorded in stockholders’ equity.

 

 

CORINDUS VASCULAR ROBOTICS, INC.  

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

(In thousands, except share and per share amounts)

 

The table below is a summary of the Company’s warrant activity during the nine months ended September 30, 2017:

 

			Number of Warrants				Weighted Average Exercise Price
Outstanding at December 31, 2016				5,083,219			$	1.08
Granted				—				—
Exercised				—				—
Expired				—				—
Outstanding at September 30, 2017				5,083,219			$	1.08

 

On October 11, 2017, a warrant to purchase 4,728,191 shares of Common Stock held by Koninklijke Philips NV (“Philips”) was automatically exercised on a net exercise basis in connection with its expiration. Upon expiration of the warrant, Philips paid the exercise price of $1.06 per share through the Company’s withholding of 3,334,586 of the warrant shares to pay the exercise price and issuing 1,393,605 shares of Common Stock to Philips. The shares were issued in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.

 

Stock-Based Compensation

 

The Company recognizes compensation costs resulting from the issuance of service stock-based awards to employees and directors as an expense in the consolidated statements of operations over the requisite service period based on a measurement of fair value for each stock award. The awards issued to date have primarily been stock options with service-based vesting periods over two to four years. During 2016, the Company issued certain stock-based awards that contain both performance and service-based vesting conditions which vest over periods of up to 25 months. The Company records expense on these awards when it becomes probable that the performance condition and requisite service will be met. The Company recognizes compensation costs resulting from the issuance of stock-based awards to non-employees as an expense in the consolidated statements of operations over the service period based on a measurement of fair value for each stock award at each performance date and period end. The Company estimates forfeitures when initially recognizing expenses for share-based payment awards.

 

Income Taxes

 

The Company accounts for income taxes using the liability method, whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to amounts that are realizable. Consistent with all prior periods, the Company did not record any income tax benefit for its operating losses for the three or nine months ended September 30, 2017 and 2016 due to the uncertainty regarding future taxable income.

 

Comprehensive Loss

 

Comprehensive loss is comprised of net loss and changes in the unrealized gains and losses on marketable securities. Accumulated other comprehensive loss, a component of stockholders’ equity, is comprised of the cumulative unrealized gains and/or losses from the change in fair market value of the Company’s marketable securities. Accumulated other comprehensive loss was $0 at both September 30, 2017 and December 31, 2016.

 

 

CORINDUS VASCULAR ROBOTICS, INC.  

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

(In thousands, except share and per share amounts)

 

New Accounting Pronouncements

 

In May 2014, August 2015, April 2016, May 2016 and September 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, ASU 2015-14, Revenue from Contracts with Customers, Deferral of the Effective Date, ASU 2016-10, Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing, ASU 2016-12, Revenue from Contracts with Customers, Narrow-Scope Improvements and Practical Expedients, and ASU 2017-13, Revenue from Contracts with Customers et al., Amendments to SEC Paragraphs Pursuant to Staff Announcement, respectively, (collectively referred to as “Topic 606”). Topic 606 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers, and supersedes current revenue recognition guidance, including industry-specific guidance. It also requires entities to disclose both quantitative and qualitative information that enable financial statements users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amendments in these ASUs are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented and the cumulative effect of applying the standard would be recognized at the earliest period shown, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. The Company will adopt the guidance on January 1, 2018 and currently intends to elect the modified retrospective transition approach only to contracts that are not completed as of this date. The Company has developed a project plan for the implementation of the guidance, including a review of all revenue streams to identify any differences in the timing, measurement or presentation of revenue recognition. The Company has assessed all CorPath System installations and a large number will not be impacted by the implementation of Topic 606 since the Company has determined there will be no future performance obligations under those arrangements upon adoption. As a result, the Company has identified a limited number of contracts for which there will be future performance obligations. The Company has completed its review of contracts with future performance obligations and is continuing the process of evaluating the impact of the adoption of Topic 606 on its consolidated financial statements and disclosures. The Company is also assessing its incremental costs of obtaining customer contracts and the related impacts on its financial statements and disclosures.

 

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. Under this accounting guidance, inventory is measured at the lower of cost and net realizable value and other options that currently exist for market value will be eliminated. ASU 2015-11 defines net realizable value as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. No other changes were made to the current guidance on inventory measurement. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2016. The Company adopted this standard effective January 1, 2017. There was no impact upon the initial adoption as the Company had no inventories which required adjustment to the lower of cost or market at January 1, 2017.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which amends leasing accounting requirements. The new standard requires lessee recognition on the balance sheet of a right-of-use asset and a lease liability, initially measured at the present value of the lease payments. It further requires recognition in the income statement of a single lease cost, calculated so that the cost of the lease is allocated over the lease term generally on a straight-line basis. Finally, it requires classification of all cash payments within operating activities in the statement of cash flows. It is effective for fiscal years commencing after December 15, 2018 and early adoption is permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements.

 

In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects related to the accounting and presentation of stock-based payments. The amendments require entities to record all tax effects related to stock-based payments at settlement or expiration through the income statement and the windfall tax benefit to be recorded when it arises, subject to normal valuation allowance considerations. All tax-related cash flows resulting from the stock-based payments are required to be reported as operating activities in the statement of cash flows. The updates relating to the income tax effects of the stock-based payments including the cash flow presentation was adopted prospectively. Further, the amendments allow the entities to make an accounting policy election to either estimate forfeitures or recognize forfeitures as they occur. The Company adopted this standard on January 1, 2017, and since the Company historically has maintained a full valuation allowance on its net deferred tax asset, there was no net impact to the Company’s accumulated deficit or on its net loss per share from the adoption of ASU 2016-09. As such, adoption of this standard did not have any impact on the Company’s unaudited condensed consolidated financial statements. The Company elected to continue its practice of estimating forfeitures when recognizing expense for share-based payment awards in each period.

 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments, which reduces diversity in how certain cash receipts and cash payments are presented and classified in the Consolidated Statements of Cash Flows. It is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 and will be required to be applied retrospectively, with early adoption permitted. The Company is currently evaluating the impact of this update on its consolidated financial statements and related disclosures.

 

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718) - Scope of Modification Accounting, which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. It is effective prospectively for annual periods beginning on or after December 15, 2017, with early adoption permitted. The Company is currently evaluating the impact of this update on its consolidated financial statements and related disclosures.

 

 

CORINDUS VASCULAR ROBOTICS, INC.  

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

(In thousands, except share and per share amounts)

 

Note 3     Inventories

 

Inventories are valued at the lower of cost or net realizable value using the FIFO method and consist of the following:

 

		September 30, 2017				December 31, 2016
Raw material		$	1,303			$	578
Work in progress			802				163
Finished goods			659				804
Total		$	2,764			$	1,545

 

The Company wrote down inventories by $39 and $299 during the three and nine months ended September 30, 2017, respectively.

 

Note 4     Long-Term Debt

 

On June 11, 2014, the Company entered into a Loan and Security Agreement pursuant to which the lender agreed to make available to the Company $10,000 in two separate $5,000 loans under secured promissory notes. The initial note was made on June 11, 2014 in an aggregate principal amount equal to $5,000 (the “Initial Promissory Note”) and is repayable in equal monthly installments of principal and interest over 27 months beginning on July 1, 2015. Prior to July 1, 2015, the Company was required to make interest only payments. The Initial Promissory Note bears interest at a rate equal to the greater of (a) 11.25% or (b) 11.25% plus the Wall Street Journal Prime Rate, less 3.25%, and includes an additional interest payment of $125 due no later than October 1, 2017, which is accreted over the term of the loan. The effective interest rate of the Initial Promissory Note was 12.25% at September 30, 2017.

 

On December 31, 2014, the Company borrowed the additional $5,000 (the “Second Promissory Note”) under the Loan and Security Agreement. The Second Promissory Note is also repayable in equal monthly installments of principal and interest over 27 months beginning on July 1, 2015. Prior to July 1, 2015, the Company was required to make interest only payments. The Second Promissory Note bears interest at a rate equal to the greater of (a) 9.95% or (b) 9.95% plus the Wall Street Journal Prime Rate, less 3.25%, and also includes an additional interest payment of $125 due no later than October 1, 2017, which is accreted over the term of the loan. The effective interest rate of the Second Promissory Note was 10.95% at September 30, 2017. The notes are secured by substantially all the assets of the Company.

 

In connection with the Initial Promissory Note, the Company issued the lender warrants to purchase 177,514 shares of the Company’s common stock at an exercise price of $1.41 per share. The fair value of the warrant issued to the lender was determined to be $230 at the date of issuance, and was recorded as a discount on the debt. Additionally, in connection with the Second Promissory Note, the Company issued the lender warrants to purchase 177,514 shares of the Company’s common stock at an exercise price of $1.41 per share. The fair value of the warrant issued to the lender was determined to be $619 at the date of issuance, and was recorded as a discount on the debt. The Company amortizes the debt discount to interest expense over the term of the debt using the effective interest method.

 

The Loan and Security Agreement also contains covenants which include certain restrictions with respect to subsequent indebtedness, liens, loans and investments, asset sales and share repurchases and other restricted payments, subject to certain exceptions. The Loan and Security Agreement also contains financial reporting obligations. An event of default under the Loan and Security Agreement includes, but is not limited to, breach of covenants, insolvency, and occurrence of any default under any agreement or obligation of the Company. In addition, the Loan and Security Agreement contains a customary material adverse effect clause which states that in the event of a material adverse effect, an event of default would occur and the lender has the option to accelerate and demand payment of all or any part of the loan. A material adverse effect is defined in the Loan and Security Agreement as a material change in the Company’s business, operations, properties, assets or financial condition or a material impairment of its ability to perform all obligations under its Loan and Security Agreement. The Company was not in default of any conditions under the Loan and Security Agreements as of September 30, 2017, and all amounts due under the Loan and Security Agreements were fully repaid on October 2, 2017.

 

 

CORINDUS VASCULAR ROBOTICS, INC.  

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

(In thousands, except share and per share amounts)

 

Note 5     Stock-based Compensation

 

Stock-based compensation expense was allocated based on the employees’ or non-employees’ function as follows:

 

		Three months ended  September 30,								Nine months ended  September 30,
		2017				2016				2017				2016
Research and development		$	71			$	45			$	188			$	113
Selling, general and administrative			545				617				2,006				1,533
Total		$	616			$	662			$	2,194			$	1,646

 

The Company granted options to purchase 1,857,326 shares of common stock at exercise prices ranging from $1.17 to $1.85 per share during the nine months ended September 30, 2017. The Company granted options to purchase 10,097,994 shares of common stock at exercise prices ranging from $0.99 to $2.03 per share during the nine months ended September 30, 2016. The weighted-average fair value of the stock options granted was $0.82 and $0.71 per share for the nine months ended September 30, 2017 and 2016, respectively.

  

The following assumptions were used to estimate the fair value of stock options granted using the Black-Scholes-Merton option-pricing model:

 

		Nine Months Ended  September 30,
		2017				2016
Risk-free interest			1.8%-2.4	%			1.3%-1.6	%
Expected term in years			6-10				6.1
Expected volatility			55%-63	%			48%-53	%
Expected dividend yield			0	%			0	%

 

On June 22, 2017, the stockholders of the Company approved an amendment to the Company’s Amended and Restated 2014 Stock Award Plan to increase the number of shares of common stock available for issuance under the plan by 4,038,144 shares, from 18,661,856 shares to 22,700,000 shares (the “Plan Amendment”). The Plan Amendment was previously adopted by the Company’s Board of Directors, subject to stockholder approval, and became effective upon the receipt of stockholder approval at the Company’s Annual Meeting.

 

Note 6     Net Loss per Share

 

Basic net loss per share is computed by dividing net loss by the weighted average shares of common stock outstanding for each period. Diluted net loss per share is the same as basic net loss per share since the Company has net losses for each period presented. The following common stock equivalents were excluded from the calculation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect:

 

		As of September 30,
		2017				2016
Options to purchase common stock			18,966,896				15,164,711
Warrants to purchase common stock			5,083,219				5,083,219
Total			24,050,115				20,247,930

 

Note 7     Related Party Transactions

 

Philips Medical Systems, Nederland B.V.

 

On January 21, 2011, Corindus, Inc. entered into a distributor agreement with Philips Medical Systems Nederland B.V. (“Philips”) appointing Philips to be a distributor for the promotion and sale of the Company’s CorPath System. The agreement was terminated on August 7, 2014. The Company continues to sell CorPath Systems through Philips on a sale by sale basis under a non-exclusive arrangement under mutually agreeable terms, which may include a continued level of discounted pricing, until such time the Company either executes a new distribution arrangement with Philips or the Company no longer does business with Philips.

 

 

CORINDUS VASCULAR ROBOTICS, INC.  

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

(In thousands, except share and per share amounts)

 

There were no revenues from or shipments to Philips during the nine months ended September 30, 2017. For the nine month period ended September 30, 2016, the Company recorded revenues of $125 from shipments to Philips. There were no amounts outstanding from Philips at September 30, 2017 resulting from selling activity under the agreement. At December 31, 2016, Philips owed the Company $250 resulting from selling activity under the agreement.

 

On October 11, 2017, a warrant to purchase 4,728,191 shares of Common Stock held by Philips was automatically exercised on a net exercise basis in connection with its expiration. Upon expiration of the warrant, Philips paid the exercise price of $1.06 per share through the Company’s withholding of 3,334,586 of the warrant shares to pay the exercise price and issuing 1,393,605 shares of Common Stock to Philips. The shares were issued in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.

 

Shareholder Loans

 

On June 14, 2010, the Company loaned funds to certain stockholders of the Company for tax payments to be made to the Israel Tax Authority in connection with a tax ruling related to a reorganization that took place in 2008 and the Company received non-interest bearing notes receivable, which documented such loans. The total amount of notes receivable issued was $145.

 

The notes receivable were repayable upon the disposition of the Company’s common stock by the existing shareholder. Notes receivable amounted to $71 at December 31, 2016 and was included in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheet. The notes receivable were collected during 2017.

 

Private Placement

 

On March 15, 2017, the Company closed on a private placement for the sale of an aggregate of 68,055,700 shares of its common stock at $0.6616 per share, for an aggregate purchase price of approximately $45,026 before deducting offering expenses of approximately $415. The financing round involved a syndicate of top-tier healthcare investors. Existing key investors who participated in this financing included HealthCor Partners Management, the Company’s largest shareholder, Royal Philips, an affiliate of Philips, and Energy Capital. New investors whose participation in this financing resulted in beneficial ownership of greater than 5% of the Company’s common stock included Consonance Capital and Hudson Executive Capital, L.P.

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

General

 

The following discussion and analysis provides information which our management believes to be relevant to an assessment and understanding of the results of operations and financial condition of Corindus Vascular Robotics, Inc. (“we” or the “Company”). This discussion should be read together with our condensed consolidated financial statements and the notes included therein, which are included in this Quarterly Report on Form 10-Q (the “Report”). This information should also be read in conjunction with the information contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 15, 2017, including the audited consolidated financial statements and notes included therein as of and for the year ended December 31, 2016. The reported results will not necessarily reflect future results of operations or financial condition. Unless otherwise defined herein, all initially capitalized terms herein shall be as defined in our Annual Report on Form 10-K.

 

Overview

 

We design, manufacture and sell precision vascular robotic-assisted systems for use in interventional vascular procedures (the “CorPath^® System”). The CorPath System is the first medical device cleared by the United States Food and Drug Administration (“FDA”) to bring robotic-assisted precision to radial, coronary and peripheral procedures. During these procedures, the interventional cardiologist sits at a radiation-shielded workstation to advance interventional devices with millimeter-by-millimeter precision. The workstation allows the physician greater control and the freedom from wearing heavy lead protective equipment that causes musculoskeletal injuries. The CorPath System brings robotic precision to radial and complex interventional procedures to help optimize clinical outcomes and minimize the costs associated with complications of improper stent placement with manual procedures. In October 2016, we announced that we had received 510(k) clearance from the FDA for our CorPath GRX System, the second generation of the CorPath System. CorPath GRX significantly builds upon the CorPath 200 platform, the first generation of the CorPath System, adding a significant number of key upgrades that increase precision, improve workflow, and extend the capabilities and range of the procedures that can be performed robotically. These features include active guide management which enables control of the guide catheter along with robotic control of the guidewire and balloon or stent catheter, with one-millimeter advancement, from the control console. This precise positioning will enable physicians to adjust guide catheter position during procedures and may expand use of CorPath to more complex cases. We began commercial shipment of the CorPath GRX System in late January 2017. While the CorPath GRX has been cleared for and we are targeting percutaneous coronary intervention procedures, and the CorPath 200 for an additional indication for peripheral vascular interventions, we believe our technology platform has the capability to be developed in the future for other segments of the vascular market, including neurointerventional and other more complex cardiac interventions such as structural heart. As of September 30, 2017, we have installed 23 CorPath GRX Systems. Additionally, as of September 30, 2017, we shipped three CorPath GRX Systems that were accepted by a distributor. During 2017, the majority of our consumable revenues relate to the CorPath GRX System.

 

Results of Operations

 

In the following discussion, all dollar amounts are reported in thousands:

 

Three months ended September 30, 2017 compared to three months ended September 30, 2016

 

		Three months ended September 30,
		2017				2016				Change
		(in thousands)
Revenue		$	2,425			$	688			$	1,737
Cost of revenue			2,183				1,220				963
Gross profit (loss)			242				(532	)			774
Operating expense:
Research and development			2,493				2,728				(235	)
Selling, general and administrative			5,588				4,585				1,003
Total operating expense			8,081				7,313				768
Operating loss			(7,839	)			(7,845	)			6
Interest and other expense, net			(14	)			(221	)			207
Net loss		$	(7,853	)		$	(8,066	)		$	213

 

 

Revenue

 

Revenue increased to $2,425 for the three months ended September 30, 2017 from $688 for the three months ended September 30, 2016 due primarily to the increase in CorPath Systems during the three months ended September 30, 2017.

 

Our revenue associated with CorPath Systems increased to $2,083 for the three months ended September 30, 2017 from $325 for the three months ended September 30, 2016. We installed five and one new CorPath Systems during the three month period ended September 30, 2017 and 2016, respectively. Additionally, CorPath System revenues included revenues related to one CorPath System shipped and accepted by a distributor during the three month period ended September 30, 2017. For the three months ended September 30, 2017, CorPath System revenues included $256 of previously deferred CorPath System revenue where the customer arrangement included a previously undelivered item that was completed in the quarter. We have experienced, and we expect to continue to experience, some unevenness in the number and trend of units sold and the average selling price of units sold on a quarterly basis given the early stage of commercialization of our product and market acceptance along with the continued development of a dedicated and consistent sales force.

 

Our revenue for CorPath Cassettes and accessories increased to $231 for the three months ended September 30, 2017 as compared to $171 for the three months ended September 30, 2016. The volume and average price of our CorPath Cassettes increased by 116 units and decreased by 10.7%, respectively, from the three months ended September 30, 2016 compared to the three months ended September 30, 2017. Revenues under our CorPath Utilization Program (“CUP”) represented 9.4% and 22.9% for the three months ended September 30, 2017 and 2016, respectively, of our total revenues from the sale of consumables. We expect variability in the sales of our consumables until our product receives wider market acceptance.

 

Our revenue associated with services decreased to $111 for the three months ended September 30, 2017 as compared to $192 for the three months ended September 30, 2016. The decrease relates to revenue recognized under the terms of outstanding service agreements for the three months ended September 30, 2017 and a decrease in service projects for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. We have experienced, and expect to continue to experience, fluctuations in our service revenues based upon whether our customers elect to purchase service contracts with their CorPath Systems to be performed under such arrangements.

 

Given the relatively small number of customers due to the early stage of the commercialization and the higher price of the CorPath System relative to consumables, customers that purchase a CorPath System in a specific period tend to make up a significant percentage of revenue in that period.

 

Cost of Revenue

 

Cost of revenue increased to $2,183 for the three months ended September 30, 2017 from $1,220 for the three months ended September 30, 2016. Cost of revenue for both the three month periods ended September 30, 2017 and September 30, 2016 included the effect of under-utilization of our production facilities, which we expect will continue for the remainder of 2017.

 

Cost of revenue represents the cost of materials for the CorPath System and CorPath Cassettes, as well as labor and overhead at our production facility. At current volumes, our cost to manufacture the CorPath GRX System and CorPath GRX Cassettes is approximately $200 and $2, respectively. We expect these costs to decrease as we obtain economies of scale with respect to purchasing and production and continue to incorporate design enhancements.

 

Gross Profit (Loss)

 

Our gross margin increased to a gross profit of $242 for the three months ended September 30, 2017 from a gross loss of $532 for the three months ended September 30, 2016 based on the changes in revenue and cost of revenues as discussed above. For the three months ended September 30, 2017, we have not generated enough sales volume of CorPath Systems and CorPath Cassettes to significantly offset our manufacturing costs, including the effect of the under-utilization of our production facility, a portion of which represents excess manufacturing capacity, and we have therefore generated a minimal gross profit.

 

Research and Development

 

Research and development expenses decreased to $2,493 for the three months ended September 30, 2017 from $2,728 for the three months ended September 30, 2016 primarily due to decreased purchases of prototype materials of $239 and decreased spending on consulting services of $151 as the prior year costs were higher in preparation for the pending GRX launch. These decreases were offset by increased compensation expense of $81 primarily related to investment in employees hired subsequent to September 30, 2016.

 

 

Selling, General and Administrative

 

Selling, general and administrative expenses increased to $5,588 for the three months ended September 30, 2017 from $4,585 for the three months ended September 30, 2016 primarily due to increased compensation expense of $930 primarily for sales-related employees hired subsequent to September 30, 2016 and increased travel-related expenses of $77.

 

Interest and Other Expense, net

 

Interest and other expense decreased to $14 for the three months ended September 30, 2017 from $221 for the same period in 2016. The interest and other expense for both periods was primarily the result of interest expense on borrowings under the Company’s Loan and Security Agreement (as defined below). The decrease in interest and other expense for the three months ended September 30, 2017 as compared to the prior year period is primarily due to lower interest expense as a result of a reduction in our overall debt balance as a result of contractual principal payments made during the past year.

 

Income Taxes

 

We have not recorded any income tax benefit related to operating losses due to the uncertainty regarding future taxable income.

 

Nine months ended September 30, 2017 compared to nine months ended September 30, 2016

 

		Nine months ended September 30,
		2017				2016				Change
		(in thousands)
Revenue		$	5,460			$	2,304			$	3,156
Cost of revenue			6,275				3,412				2,863
Gross loss			(815	)			(1,108	)			293
Operating expense:
Research and development			7,546				7,373				173
Selling, general and administrative			17,566				13,987				3,579
Total operating expense			25,112				21,360				3,752
Operating loss			(25,927	)			(22,468	)			(3,459	)
Interest and other expense, net			(225	)			(819	)			594
Net loss		$	(26,152	)		$	(23,287	)		$	(2,865	)

 

Revenue

 

Revenue increased to $5,460 for the nine months ended September 30, 2017 from $2,304 for the nine months ended September 30, 2016 due primarily to the increase in CorPath Systems and capital upgrades installed during the nine months ended September 30, 2017.

 

Our revenue associated with CorPath Systems increased to $3,976 for the nine months ended September 30, 2017 from $1,228 for the nine months ended September 30, 2016. We installed eleven and three CorPath Systems during the nine month periods ended September 30, 2017 and 2016, respectively. Additionally, CorPath System revenues included revenues related to three CorPath Systems shipped and accepted by a distributor during the nine month period ended September 30, 2017. For the nine months ended September 30, 2017, CorPath Systems revenue included $743 of previously deferred CorPath System revenue where the customer arrangements included a previously undelivered item that was completed in 2017. Our average selling price associated with CorPath Systems for which revenue was recognized during the nine months ended September 30, 2017 when compared to CorPath Systems for which revenue was recognized during the nine months ended September 30, 2016 decreased by 40% primarily due to the inclusion of a significant international sale, which had a higher than average selling price, during the nine months ended September 30, 2016. We have experienced, and we expect to continue to experience, some unevenness in the number and trend of Systems sold and the average selling price of Systems sold on a quarterly basis given the early stage of commercialization of our product and market acceptance along with the continued development of a dedicated and consistent sales force.

 

With the recent launch of our second generation CorPath GRX System in January 2017, revenue also includes upgrade revenues for existing customers of CorPath 200 Systems who purchased capital upgrades to the CorPath GRX System. Revenues associated with capital upgrades during the nine months ended September 30, 2017 totaled $540 and there were no such items during the nine months ended September 30, 2016.

 

 

Our revenue for CorPath Cassettes and accessories increased to $602 for the nine months ended September 30, 2017 as compared to $460 for the nine months ended September 30, 2016. The volume and average price of our CorPath Cassettes increased by 289 units and decreased by 11.0%, respectively, from the nine months ended September 30, 2017 to the nine months ended September 30, 2016. Revenues under our CorPath Utilization Program (“CUP”) represented 13.1% and 23.9% for the nine months ended September 30, 2017 and 2016, respectively, of our total revenues from the sale of consumables. We expect variability in the sales of our consumables until our product receives wider market acceptance.

 

Our revenue associated with services decreased to $342 for the nine months ended September 30, 2017 as compared to $616 for the nine months ended September 30, 2016 related to revenue recognized under the terms of outstanding service agreements for the nine months ended September 30, 2017. We have experienced, and expect to continue to experience, fluctuations in our service revenues based upon whether to customers elect to purchase service contracts with their CorPath Systems to be performed under such arrangements.

 

Given the relatively small number of customers due to the early stage of the commercialization and the higher price of the CorPath System relative to consumables, customers that purchase a CorPath System in a specific period tend to make up a significant percentage of revenue in that period.

 

Cost of Revenue

 

Cost of revenue increased to $6,275 for the nine months ended September 30, 2017 from $3,412 for the nine months ended September 30, 2016. Cost of revenue for both the nine month periods ended September 30, 2017 and 2016 included the effect of under-utilization of our production facilities, which we expect will continue for the remainder of 2017. For the nine months ended September 30, 2017, cost of revenue included the cost of CorPath GRX System installations and upgrades of CorPath Systems to CorPath GRX Systems which combined totaled 23 system installations and upgrades. We also recorded a lower of cost or market reserve of $299 for our CorPath GRX Cassettes due to the higher material and production costs associated with the early stage of our production of these items.

 

Cost of revenue represents the cost of materials for the CorPath System and CorPath Cassettes, as well as labor and overhead at our production facility. At current volumes, our cost to manufacture the CorPath GRX System and CorPath GRX Cassettes is approximately $200 and $2, respectively. We expect these costs to decrease as we obtain economies of scale with respect to purchasing and production and continue to incorporate design enhancements.

 

Gross Profit (Loss)

 

Our gross margin increased to a gross loss of $815 for the nine months ended September 30, 2017 from a gross loss of $1,108 for the nine months ended September 30, 2016 based on the changes in revenue and cost of revenues as discussed above. For the nine months ended September 30, 2017, we have not generated enough sales volume of CorPath Systems and CorPath Cassettes to significantly offset our manufacturing costs, including the effect of the under-utilization of our production facility, a portion of which represents excess manufacturing capacity, and we have therefore generated a gross loss.

 

Research and Development

 

Research and development expenses increased to $7,546 for the nine months ended September 30, 2017 from $7,373 for the nine months ended September 30, 2016 primarily due to increased compensation expense of $516 primarily related to employees hired subsequent to September 30, 2016, incremental stock-based compensation expense of $75 associated with stock options granted in 2016 and 2017, increased spending for consulting services of approximately $58, increased costs for expensed equipment of $180, increased international regulatory costs of $122, and increased patent-related costs of $53, offset by reduced purchases of prototype materials of approximately $716 and reduced spending on clinical trials of $161 in the nine months ended September 30, 2017.

 

Selling, General and Administrative

 

Selling, general and administrative expenses increased to $17,566 for the nine months ended September 30, 2017 from $13,987 for the nine months ended September 30, 2016 primarily due to increased compensation expense of $3,053 primarily for sales-related employees hired subsequent to September 30, 2016, incremental stock-based compensation expense of $473 associated with stock options granted in 2016 and 2017, and increased travel-related expenses of $426, offset by a reduction in consulting fees of $221.

 

 

Interest and Other Expense, net

 

Interest and other expense decreased to $225 for the nine months ended September 30, 2017 from $819 for the nine months ended September 30, 2016. The interest and other expense for both periods was primarily the result of interest expense on borrowings under the Company’s Loan and Security Agreement (as defined below). The decrease in interest and other expense for the nine months ended September 30, 2017 as compared to the prior year period is primarily due to lower interest expense as a result of a reduction in our overall debt balance as a result of contractual principal payments made during the past year.

 

Income Taxes

 

We have not recorded any income tax benefit related to operating losses due to the uncertainty regarding future taxable income.

 

Liquidity and Capital Resources

 

We began our medical device business in 2002 and began selling FDA-cleared robotic medical devices in 2012. Our management does not contemplate attaining profitable operations until 2019, nor is there any assurance that such an operating level can ever be achieved. Since inception, we have financed our operations primarily through private sales of capital stock, a public offering of common stock in May 2015 and borrowing arrangements totaling approximately $200.9 million, as well as limited revenues from the sale of our products.

 

On February 28, 2017, we entered into a Purchase Agreement with multiple investors relating to the issuance and sale of shares of our common stock in a private placement. At the closing of the private placement on March 15, 2017, we sold an aggregate of 68,055,700 shares of common stock at $0.6616 per share for an aggregate gross purchase price of approximately $45 million, before deducting offering expenses of approximately $415 thousand.

 

As of September 30, 2017, we had an accumulated deficit of $172.9 million. We also had outstanding borrowings of $0.3 million, which were fully repaid on October 2, 2017.

 

At September 30, 2017, we had cash and cash equivalents of $26.2 million and working capital of $23.9 million. We anticipate that these resources, along with cash generated from operations and potential non-dilutive or dilutive financings in the future, will be sufficient to meet our cash requirements for at least 12 months from November 8, 2017, including funding anticipated losses and scheduled debt maturities. However, if we are unable to substantially achieve our operating plans and secure non-dilutive or dilutive financing opportunities, our existing capital resources at September 30, 2017 would not be sufficient to support the current operating plan through November 8, 2018. Because such financing transactions have not been finalized, receipt of additional funding is not considered probable under current accounting standards. If we do not generate sufficient cash flows from operations or obtain sufficient funds when needed, we expect we would scale back our operating plan by deferring or limiting some or all of our capital spending and discretionary compensation payouts, reducing our spending on travel, clinical trial and prototypes, eliminating planned headcount additions, reducing external consulting resources and current headcount. Such contingency actions have not been finalized (because the specifics would depend on the situation at the time); therefore, these and other such actions are also not considered probable for purposes of current accounting standards. Under current accounting standards, since none of the future cash generated from operating activities, the future financings, nor our contingency plans to mitigate the risk and extend cash resources through November 8, 2018, are considered probable, substantial doubt exists about our ability to continue as a going concern. As we continue to incur losses, our transition to profitability is dependent upon achieving a level of revenues adequate to support our cost structure. We may never achieve profitability, and unless and until doing so, we intend to fund future operations through additional non-dilutive or dilutive financings. There can be no assurances, however, that additional funding will be available on terms acceptable to us, if at all.

 

 

On June 11, 2014, we entered into a Loan and Security Agreement (the “Loan and Security Agreement”) pursuant to which the lender agreed to make available to Corindus, Inc. $10 million in the aggregate under two $5 million secured promissory notes. The Initial Note was made on June 11, 2014 (the “Initial Note”) and the Second Note was made on December 31, 2014 (the “Second Note” and, together with the Initial Note, the “Secured Promissory Notes”). The Secured Promissory Notes are repayable over a term of 27 months which began on July 1, 2015. The Initial Note bears interest at a rate equal to the greater of (w) 11.25% or (x) 11.25% plus the Wall Street Journal Prime Rate, less 3.25%, and includes an additional interest payment of $125 thousand due no later than October 1, 2017, which is accreted over the term of the loan. The Second Note bears interest at a rate equal to the greater of (y) 9.95% or (z) 9.95% plus the Wall Street Journal Prime Rate, less 3.25%, and includes an additional interest payment of $125 thousand due no later than October 1, 2017, which is accreted over the term of the loan. The borrowings require a final payment in the amount of $0.3 million in addition to the interest and principal amounts due during the term of the Loan and Security Agreement. The Loan and Security Agreement also contains, among other things, covenants which include certain restrictions with respect to subsequent indebtedness, liens, loans and investments, financial reporting obligations, asset sales, share repurchase and other restricted payments, subject to certain exceptions. In addition, the Loan and Security Agreement contains a customary material adverse effect clause which states that in the event of a material adverse effect, an event of default would occur and the lender has the option to accelerate and demand payment of all or any part of the loan. A material adverse effect is defined in the Loan and Security Agreement as a material change in our business, operations, properties, assets or financial condition or a material impairment of our ability to perform all obligations under this Loan and Security Agreement.  Future principal payments under the borrowing arrangement as of September 30, 2017 total $0.3 million and were fully repaid on October 2, 2017.

 

In summary, our cash flows were as follows:

 

		Nine Months Ended September 30,
		2017				2016
		(in thousands)
Net cash used in operating activities		$	(24,047	)		$	(20,062	)
Net cash provided by (used in) investing activities		$	(3	)		$	20,313
Net cash provided by (used in) financing activities		$	41,063			$	(4,314	)

 

Operating Activities

 

Operating activities used cash of $24,047 for the nine months ended September 30, 2017 compared to $20,062 for the nine months ended September 30, 2016. The $3,985 increase in the use of cash for operating activities was due primarily to the increase in the net loss and increased inventory purchases offset by an increase in customer deposits and other changes in working capital.

 

Investing Activities

 

Net cash used in investing activities was $3 for the nine months ended September 30, 2017 compared to net cash provided by investing activities of $20,313 for the nine months ended September 30, 2016. The change was primarily due to maturities of available-for-sale securities during the first nine months of 2016 with no similar activity during the same period in 2017.

 

Financing Activities

 

For the nine months ended September 30, 2017, net cash provided by financing activities totaled $41,063 and was primarily due to proceeds from the issuance of common stock in a private placement offset by contractual payments on long-term debt. Net cash used in financing activities for the nine months ended September 30, 2016 totaled $4,314 and was due to contractual payments on long-term debt, payment for common stock repurchase and retirement and the payment of withholding taxes on stock option exercises.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) as of September 30, 2017 that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Contractual Obligations

 

There have been no material changes in the quarter ended September 30, 2017 related to our contractual obligations as set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2016.

 

Critical Accounting Policies and Estimates

 

Management’s discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses, as well as related disclosures. We base our estimates and judgments on historical experience and other assumptions that we believe to be reasonable at the time and under the circumstances, and we evaluate these estimates and judgments on an ongoing basis. Information concerning our critical accounting policies with respect to these items is available in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the SEC on March 15, 2017.

 

 

Recently Issued Accounting Standards

 

In May 2014, August 2015, April 2016, May 2016 and September 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, ASU 2015-14, Revenue from Contracts with Customers, Deferral of the Effective Date, ASU 2016-10, Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing, ASU 2016-12, Revenue from Contracts with Customers, Narrow-Scope Improvements and Practical Expedients, and ASU 2017-13, Revenue from Contracts with Customers et al., Amendments to SEC Paragraphs Pursuant to Staff Announcement, respectively, (collectively referred to as “Topic 606”). Topic 606 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers, and supersedes current revenue recognition guidance, including industry-specific guidance. It also requires entities to disclose both quantitative and qualitative information that enable financial statements users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amendments in these ASUs are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented and the cumulative effect of applying the standard would be recognized at the earliest period shown, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. We will adopt the guidance on January 1, 2018 and currently intend to elect the modified retrospective transition approach only to contracts that are not completed as of this date. We have developed a project plan for the implementation of the guidance, including a review of all revenue streams to identify any differences in the timing, measurement or presentation of revenue recognition. We have assessed all CorPath System installations and a large number will not be impacted by the implementation of Topic 606 since we have determined there will be no future performance obligations under those arrangements upon adoption. As a result, we have identified a limited number of contracts for which there will be future performance obligations. We have completed our review of contracts with future performance obligations and are continuing the process of evaluating the impact of the adoption of Topic 606 on our consolidated financial statements and disclosures. We are also assessing our incremental costs of obtaining customer contracts and the related impacts on our financial statements and disclosures.

 

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. Under this accounting guidance, inventory will be measured at the lower of cost and net realizable value and other options that currently exist for market value will be eliminated. ASU 2015-11 defines net realizable value as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. No other changes were made to the current guidance on inventory measurement. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2016. We adopted this standard effective January 1, 2017. There was no impact upon the initial adoption as we had no inventories which required adjustment to the lower of cost or market at January 1, 2017.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which amends leasing accounting requirements. The new standard requires lessee recognition on the balance sheet of a right-of-use asset and a lease liability, initially measured at the present value of the lease payments. It further requires recognition in the income statement of a single lease cost, calculated so that the cost of the lease is allocated over the lease term generally on a straight-line basis. Finally, it requires classification of all cash payments within operating activities in the statement of cash flows. It is effective for fiscal years commencing after December 15, 2018 and early adoption is permitted. We are currently evaluating the impact of this standard on our consolidated financial statements.

 

In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects related to the accounting and presentation of stock-based payments. The amendments require entities to record all tax effects related to stock-based payments at settlement or expiration through the income statement and the windfall tax benefit to be recorded when it arises, subject to normal valuation allowance considerations. All tax-related cash flows resulting from the stock-based payments are required to be reported as operating activities in the statement of cash flows. The updates relating to the income tax effects of the stock-based payments including the cash flow presentation was adopted prospectively. Further, the amendments allow the entities to make an accounting policy election to either estimate forfeitures or recognize forfeitures as they occur. We adopted this standard on January 1, 2017, and since we have historically maintained a full valuation allowance on our net deferred tax asset, there was no net impact to our accumulated deficit or on our net loss per share from the adoption of ASU 2016-09. As such, adoption of this standard did not have any impact on our unaudited condensed consolidated financial statements. We elected to continue our practice of estimating forfeitures when recognizing expense for share-based payment awards in each period.

 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments, which reduces diversity in how certain cash receipts and cash payments are presented and classified in the Consolidated Statements of Cash Flows. It is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 and will be required to be applied retroactively, with early adoption permitted. We are currently evaluating the impact of this update on our consolidated financial statements and related disclosures.

 

 

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718) - Scope of Modification Accounting, which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. It is effective prospectively for annual periods beginning on or after December 15, 2017, with early adoption permitted. We are currently evaluating the impact of this update on our consolidated financial statements and related disclosures.

 

Forward Looking Statements

 

This Quarterly Report on Form 10-Q incorporates a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, including statements regarding: our estimates regarding anticipated operating losses, future revenue, expenses, capital requirements, uses and sources of cash and liquidity, including our anticipated revenue growth and cost savings; our ability to market, improve, grow, commercialize and achieve market acceptance of any of our products or any product candidates that we are developing or may develop in the future; our beliefs about the enhanced features, strengths and benefits of our products and product platform and our intention to provide unmatched service to the physician community; our beliefs about the attractiveness of the features and benefits of our products; our ability to successfully achieve and maintain regulatory clearance or approval for our products in applicable jurisdictions and in a timely manner; the effect of any existing or future federal, state or international regulations on our ability to effectively conduct our business; our estimates of market sizes and anticipated uses of our products, including the market size of the vascular market and our ability to successfully penetrate such markets; our business strategy and our underlying assumptions about market data, demographic trends, reimbursement trends, pricing trends; our ability to achieve profitability, and the potential need to raise additional funding; our ability to maintain an adequate sales network for our products; our ability to enhance our U.S. and international sales networks and product penetration; our ability to increase the use and promotion of our products by training and educating physicians; our ability to attract and retain a qualified management team, as well as other qualified personnel and advisors; our ability to protect our intellectual property, and to not infringe upon the intellectual property of third parties; our ability to maintain compliance with the quality requirements of the FDA and similar regulatory authorities outside of the U.S.; the effects of the escalating cost of medical products and services and the effects of market demand, government regulation, third-party reimbursement policies and societal pressures on the worldwide healthcare industry and our business; our ability to meet the financial reporting obligations under our Loan and Security Agreement; our ability to meet or exceed the industry standard in clinical and legal compliance and corporate governance programs; potential liability resulting from litigation; our beliefs with respect to our critical accounting policies and the reasonableness of our estimates and assumptions; and other factors discussed elsewhere in this Quarterly Report on Form 10-Q or any document incorporated by reference herein or therein.

 

The words “believe,” “anticipate,” “plan,” “expect,” “estimate,” “may,” “potential,” “should,” “intend,” “continue,” “project,” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. The forward-looking statements contained in this quarterly report are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described in the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

We are exposed to market risk related to changes in interest rates. We had cash and cash equivalents of $26.2 million as of September 30, 2017. The cash and cash equivalents as of September 30, 2017 consist of cash in bank deposits and money market funds. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investment strategy is primarily to invest in short term securities.

 

We pay interest on our outstanding debt at interest rates that fluctuate based upon changes in various base interest rates. The carrying value of our debt, which is all included in current liabilities, was $0.3 million at September 30, 2017. See “Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and Note 4 — “Long-Term Debt” to the unaudited condensed consolidated financial statements for additional information regarding our outstanding debt. The effect of an immediate hypothetical 10% change in variable interest rates would not have a material effect on our consolidated financial statements. We have generated limited net revenue from operations to date and depend on funds raised through other sources. One possible source of funding is through further equity offerings. Our ability to raise funds in this manner depends upon capital market forces affecting our stock price.

 

 

Item 4.

Controls and Procedures

 

Disclosure Controls and Procedures

 

As required by Rules 13a-15(e) and 15d-15(e) under the Exchange Act, we carried out an evaluation under the supervision and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2017. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that material information relating to the Company required to be disclosed by the Company in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and to ensure that such information is accumulated and communicated to senior management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired control objectives, and management necessarily was required to apply its judgment in designing and evaluating the controls and procedures.

 

We continue to review our disclosure controls and procedures, and our internal control over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.

 

Changes in Internal Controls Over Financial Reporting

 

During the three months ended September 30, 2017, there were no changes in our internal control over financial reporting that occurred that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

Item 1.

Legal Proceedings.

 

From time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. Litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

 

Item 1A.

Risk Factors.

 

Please see Risk Factors found in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 15, 2017.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

 

On October 11, 2017, a warrant to purchase 4,728,191 shares of Common Stock held by Koninklijke Philips NV (“Philips”) was automatically exercised on a net exercise basis in connection with its expiration. Upon expiration of the warrant, Philips paid the exercise price of $1.06 per share through the Company’s withholding of 3,334,586 of the warrant shares to pay the exercise price and issuing 1,393,605 shares of Common Stock to Philips. The shares were issued in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.

 

Item 3.

Defaults upon Senior Securities.

 

None.

 

 

Item 4.

Mine Safety Disclosures.

 

Not applicable.

 

Item 5.

Other Information.

 

None.

 

Item 6.

Exhibits.

 

Exhibit No.		Date of Document		Name of Document
31.1		11/08/17		Certification of Principal Executive Officer of Periodic Report pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2		11/08/17		Certification of Principal Financial Officer of Periodic Report pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1		11/08/17		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.*
32.2		11/08/17		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350.*
101.INS		n/a		XBRL Instance Document*
101.SCH		n/a		XBRL Taxonomy Extension Schema Document*
101.CAL		n/a		XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF		n/a		XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB		n/a		XBRL Taxonomy Extension Label Linkbase Document*
101.PRE		n/a		XBRL Taxonomy Extension Presentation Linkbase Document*

 

* Filed herewith.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

DATE: November 8, 2017

	CORINDUS VASCULAR ROBOTICS, INC.
	By:	/s/ Mark J. Toland
		Mark J. Toland
		Chief Executive Officer and President
	By:	/s/ David W. Long
		David W. Long
		Chief Financial Officer and Senior Vice President