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 JUNE 30, 2021

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 001-36159

STEREOTAXIS, INC.

(Exact name of the Registrant as Specified in its Charter)

delaware

94-3120386

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification Number)

4320 Forest Park Avenue, Suite 100

St. Louis, MO 63108

(Address of Principal Executive Offices including Zip Code)

(314) 678-6100

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.001 per share		STXS		NYSE American LLC

Securities registered pursuant to Section 12(g) of the Act: None

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T “See 232.405 of this Chapter” during the preceding 12 months (or for such shorter period that the registrant was required to submit 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 ☒
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 13(a) of the Exchange Act. ☐

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

The number of outstanding shares of the registrant’s common stock on July 31, 2021 was 74,507,581.

Table of Contents

STEREOTAXIS, INC.

INDEX TO FORM 10-Q

		Page

Part I Financial Information

Item 1.	Financial Statements (unaudited)	3
	Balance Sheets	3
	Statements of Operations	4
	Statements of Convertible Preferred Stock and Stockholders’ Equity	5-6
	Statements of Cash Flows	7
	Notes to Financial Statements	8-18
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19-24
Item 3.	[Reserved]	25
Item 4.	Controls and Procedures	25

Part II Other Information

Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25-26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults upon Senior Securities	26
Item 4.	[Reserved]	26
Item 5.	Other Information	26
Item 6.	Exhibits	27
Signatures		28

ITEM 1. FINANCIAL STATEMENTS

STEREOTAXIS, INC.

BALANCE SHEETS

	June 30, 2021			December 31, 2020
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	42,054,296		$	43,939,512
Restricted cash - current		1,484,018			-
Compensating cash arrangement		251,232			250,620
Accounts receivable, net of allowance of $154,727 and $123,614 at 2021 and 2020, respectively		4,651,804			3,515,136
Inventories, net		4,146,691			3,295,457
Prepaid expenses and other current assets		2,646,806			1,716,014
Total current assets		55,234,847			52,716,739
Property and equipment, net		291,578			195,129
Restricted cash		382,813			-
Operating lease right-of-use assets		1,143,355			2,235,442
Other assets		283,093			308,515
Total assets	$	57,335,686		$	55,455,825

Liabilities and stockholders’ equity
Current liabilities:
Short-term debt	$	-		$	1,185,058
Accounts payable		1,124,178			1,608,636
Accrued liabilities		2,857,479			3,209,235
Deferred revenue		8,284,600			5,282,770
Current portion of operating lease liabilities		1,169,378			2,287,487
Total current liabilities		13,435,635			13,573,186
Long-term debt		-			973,252
Long-term deferred revenue		1,648,792			548,915
Other liabilities		206,596			131,231
Total liabilities		15,291,023			15,226,584

Series A - Convertible preferred stock:
Convertible preferred stock, Series A, par value $0.001; 22,407 and 22,513 shares outstanding at 2021 and 2020, respectively		5,578,181			5,605,323

Stockholders’ equity:
Convertible preferred stock, Series B, par value $0.001; 10,000,000 shares authorized, 5,610,121 shares outstanding at 2021 and 2020		5,610			5,610

Common stock, par value $0.001; 300,000,000 shares authorized, 74,428,865 and 73,694,203 shares issued at 2021 and 2020, respectively		74,429			73,694
Additional paid in capital		527,294,470			522,709,846
Treasury stock, 4,015 shares at 2021 and 2020		(205,999	)		(205,999	)
Accumulated deficit		(490,702,028	)		(487,959,233	)
Total stockholders’ equity		36,466,482			34,623,918
Total liabilities and stockholders’ equity	$	57,335,686		$	55,455,825

See accompanying notes.

STEREOTAXIS, INC.

STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Revenue:
Systems	$	2,686,180		$	12,769		$	5,288,692		$	12,769
Disposables, service and accessories		6,118,712			5,086,156			11,892,228			10,595,867
Sublease		246,530			246,530			493,060			493,060
Total revenue		9,051,422			5,345,455			17,673,980			11,101,696

Cost of revenue:
Systems		1,389,588			157,514			2,825,123			222,536
Disposables, service and accessories		883,289			680,937			1,807,907			1,320,800
Sublease		246,530			246,530			493,060			493,060
Total cost of revenue		2,519,407			1,084,981			5,126,090			2,036,396

Gross margin		6,532,015			4,260,474			12,547,890			9,065,300

Operating expenses:
Research and development		2,717,078			1,976,942			5,084,119			4,086,112
Sales and marketing		3,044,750			2,541,749			5,991,966			5,457,173
General and administrative		4,160,909			1,663,456			6,390,648			3,496,181
Total operating expenses		9,922,737			6,182,147			17,466,733			13,039,466
Operating loss		(3,390,722	)		(1,921,673	)		(4,918,843	)		(3,974,166	)

Interest (expense) income, net		(2,567	)		567			(6,843	)		81,529
Gain on extinguishment of debt		2,182,891			-			2,182,891			-
Net loss	$	(1,210,398	)	$	(1,921,106	)	$	(2,742,795	)	$	(3,892,637	)

Cumulative dividend on Series A convertible preferred stock		(335,197	)		(342,126	)		(667,748	)		(685,849	)
Loss attributable to common stockholders	$	(1,545,595	)	$	(2,263,232	)	$	(3,410,543	)	$	(4,578,486	)

Net loss per share attributable to common stockholders:
Basic	$	(0.02	)	$	(0.03	)	$	(0.05	)	$	(0.06	)
Diluted	$	(0.02	)	$	(0.03	)	$	(0.05	)	$	(0.06	)

Weighted average number of common shares and equivalents:
Basic		75,547,574			71,628,762			75,362,521			70,749,401
Diluted		75,547,574			71,628,762			75,362,521			70,749,401

See accompanying notes.

STEREOTAXIS, INC

STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

(Unaudited)

Three Months Ended June 30, 2020


	Convertible Preferred Stock Series A (Mezzanine)						Convertible Preferred Stock Series B				Common Stock				Additional Paid-In		Treasury			Accumulated			Total Stockholders’ Equity
	Shares			Amount			Shares		Amount		Shares		Amount		Capital		Stock			Deficit			(Deficit)
Balance at March 31, 2020		22,918		$	5,709,027			5,610,121	$	5,610		69,040,781	$	69,041	$	504,990,377	$	(205,999	)	$	(483,284,305	)	$	21,574,724
Issuance of common stock										-		3,774,276		3,774		15,028,445		-						15,032,219
Share-based compensation												7,500		8		935,401								935,409
Components of net loss																					(1,921,106	)		(1,921,106	)
Employee stock purchase plan												11,429		11		32,790								32,801
Preferred stock conversion		(105	)		(26,886	)						196,838		197		26,689								26,886
Balance at June 30, 2020		22,813		$	5,682,141			5,610,121	$	5,610		73,030,824	$	73,031	$	521,013,702	$	(205,999	)	$	(485,205,411	)	$	35,680,933

Three Months Ended June 30, 2021

	Convertible Preferred Stock Series A (Mezzanine)						Convertible Preferred Stock Series B				Common Stock				Additional Paid-In		Treasury			Accumulated			Total Stockholders’ Equity
	Shares			Amount			Shares		Amount		Shares		Amount		Capital		Stock			Deficit			(Deficit)

Balance at March 31, 2021		22,408		$	5,578,437			5,610,121	$	5,610		74,089,659	$	74,090	$	524,388,783	$	(205,999	)	$	(489,491,630	)	$	34,770,854
Issuance of common stock										-		89,778		90		86,761		-						86,851
Share-based compensation												242,250		242		2,785,475								2,785,717
Components of net loss																					(1,210,398	)		(1,210,398	)
Employee stock purchase plan												5,204		5		33,197								33,202
Preferred stock conversion		(1	)		(256	)						1,974		2		254								256
Balance at June 30, 2021		22,407		$	5,578,181			5,610,121	$	5,610		74,428,865	$	74,429	$	527,294,470	$	(205,999	)	$	(490,702,028	)	$	36,466,482

See accompanying notes.

STEREOTAXIS, INC

STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

(Unaudited)

Six Months Ended June 30, 2020


	Convertible Preferred Stock Series A (Mezzanine)						Convertible Preferred Stock Series B				Common Stock				Additional Paid-In		Treasury			Accumulated			Total Stockholders’ Equity
	Shares			Amount			Shares		Amount		Shares		Amount		Capital		Stock			Deficit			(Deficit)
Balance at December 31, 2019		23,110		$	5,758,190			5,610,121	$	5,610		68,529,623	$	68,530	$	504,211,040	$	(205,999	)	$	(481,312,774	)	$	22,766,407
Issuance of common stock and warrants										-		3,815,092		3,815		15,004,554		-						15,008,369
Share-based compensation												116,989		117		1,657,604								1,657,721
Components of net loss																					(3,892,637	)		(3,892,637	)
Employee stock purchase plan												17,835		18		65,006								65,024
Preferred stock conversion		(297	)		(76,049	)						551,285		551		75,498								76,049
Balance at June 30, 2020		22,813		$	5,682,141			5,610,121	$	5,610		73,030,824	$	73,031	$	521,013,702	$	(205,999	)	$	(485,205,411	)	$	35,680,933

Six Months Ended June 30, 2021


	Convertible Preferred Stock Series A (Mezzanine)						Convertible Preferred Stock Series B				Common Stock				Additional Paid-In		Treasury			Accumulated			Total Stockholders’ Equity
	Shares			Amount			Shares		Amount		Shares		Amount		Capital		Stock			Deficit			(Deficit)

Balance at December 31, 2020		22,513		$	5,605,323			5,610,121	$	5,610		73,694,203	$	73,694	$	522,709,846	$	(205,999	)	$	(487,959,233	)	$	34,623,918
Issuance of common stock										-		244,584		246		339,440		-						339,686
Share-based compensation												272,500		272		4,156,002								4,156,274
Components of net loss																					(2,742,795	)		(2,742,795	)
Employee stock purchase plan												11,207		11		62,246								62,257
Preferred stock conversion		(106	)		(27,142	)						206,371		206		26,936								27,142
Balance at June 30, 2021		22,407		$	5,578,181			5,610,121	$	5,610		74,428,865	$	74,429	$	527,294,470	$	(205,999	)	$	(490,702,028	)	$	36,466,482

See accompanying notes.

STEREOTAXIS, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,
	2021			2020
Cash flows from operating activities
Net loss	$	(2,742,795	)	$	(3,892,637	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation		53,272			58,300
Non-cash lease expense		1,165,424			1,171,170
Share-based compensation		4,156,274			1,657,721
Gain on debt extinguishment		(2,182,891	)		-
Non-cash interest		24,581			-
Changes in operating assets and liabilities:
Accounts receivable		(1,136,668	)		2,288,477
Inventories		(851,234	)		(2,728,548	)
Prepaid expenses and other current assets		(930,792	)		(140,582	)
Compensating cash arrangement		(612	)		-
Other assets		25,422			(51,439	)
Accounts payable		(484,458	)		(527,418	)
Accrued liabilities		(351,756	)		(319,479	)
Deferred revenue		4,101,707			318,654
Operating lease liability		(1,191,446	)		(1,170,979	)
Other liabilities		75,365			-
Net cash used in operating activities		(270,607	)		(3,336,760	)
Cash flows from investing activities
Purchase of property and equipment		(149,721	)		(70,896	)
Net cash used in investing activities		(149,721	)		(70,896	)
Cash flows from financing activities
Proceeds from Paycheck Protection Program loan		-			2,158,310
Proceeds from issuance of stock, net of issuance costs		401,943			15,073,393
Net cash provided by financing activities		401,943			17,231,703
Net (decrease) increase in cash and cash equivalents		(18,385	)		13,824,047
Cash and cash equivalents at beginning of period		43,939,512			30,182,115
Cash and cash equivalents at end of period	$	43,921,127		$	44,006,162

Reconciliation of cash, cash equivalents, and restricted cash to balance sheet as of June 30th:
Cash and cash equivalents	$	42,054,296		$	44,006,162
Restricted cash - current		1,484,018			-
Restricted cash		382,813			-
Total cash, cash equivalents, and restricted cash	$	43,921,127		$	44,006,162
Cash and cash equivalents at end of period	$	43,921,127		$	44,006,162

See accompanying notes.

STEREOTAXIS, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Notes to Financial Statements

In this report, “Stereotaxis”, the “Company”, “Registrant”, “we”, “us”, and “our” refer to Stereotaxis, Inc. and its wholly owned subsidiaries. Genesis RMN^®, Niobe^®, Navigant®, Odyssey^®, Odyssey Cinema^™, Vdrive^®, Vdrive Duo^™, V-CAS^™, V-Loop^™, V-Sono^™, QuikCAS^™and Cardiodrive^®are trademarks of Stereotaxis, Inc. All other trademarks that appear in this report are the property of their respective owners.

1. Description of Business

Stereotaxis designs, manufactures and markets an advanced robotic magnetic navigation system for use in a hospital’s interventional surgical suite, or “interventional lab”, that we believe revolutionizes the treatment of arrhythmias by enabling enhanced safety, efficiency, and efficacy for catheter-based, or interventional, procedures. Our primary products include the Genesis RMN System, the Niobe System, the Odyssey Solution, and related devices. We also offer to our customers the Stereotaxis Imaging Model S x-ray System.

The Genesis RMN and Niobe Systems are designed to enable physicians to complete more complex interventional procedures by providing image-guided delivery of catheters through the blood vessels and chambers of the heart to treatment sites. This is achieved using externally applied magnetic fields that govern the motion of the working tip of the catheter, resulting in improved navigation, efficient procedures, and reduced x-ray exposure.

In addition to the robotic magnetic navigation systems and their components, Stereotaxis also has developed the Odyssey Solution, which consolidates lab information enabling physicians to focus on the patient for optimal procedure efficiency. The system also features a remote viewing and recording capability called Odyssey Cinema, which is an innovative solution that delivers synchronized content for optimized workflow, advanced care, and improved productivity. This tool includes an archiving capability that allows clinicians to store and replay entire procedures or segments of procedures. This information can be accessed from locations throughout the hospital local area network and over the global Odyssey Network providing physicians with a tool for clinical collaboration, remote consultation, and training.

We promote our full suite of products in a typical hospital implementation, subject to regulatory approvals or clearances. This implementation requires a hospital to agree to an upfront capital payment and recurring payments. The upfront capital payment typically includes equipment and installation charges. The recurring payments typically include disposable costs for each procedure, equipment service costs beyond the warranty period, and ongoing software enhancements. In hospitals where our full suite of products has not been implemented, equipment upgrade or expansion can be implemented upon purchasing of the necessary upgrade or expansion.

We have received regulatory clearance, licensing and/or CE Mark approvals necessary for us to market the Genesis RMN System in the U.S. and Europe, and we are in the process of obtaining necessary registrations for extending our markets in other countries. The Niobe System, Odyssey Solution, Cardiodrive, and various disposable interventional devices have received regulatory clearance in the U.S., Europe, Canada, China, Japan and various other countries. We have received the regulatory clearance, licensing and/or CE Mark approvals that allow us to market the Vdrive and Vdrive Duo Systems with the V-CAS, V-Loop and V-Sono devices in the U.S., Canada and Europe. Stereotaxis Imaging Model S is CE marked and FDA cleared.

We have strategic relationships with technology leaders and innovators in the global interventional market. Through these strategic relationships we provide compatibility between our robotic magnetic navigation system and digital imaging and 3D catheter location sensing technology, as well as disposable interventional devices. The maintenance of these strategic relationships, or the establishment of equivalent alternatives, is critical to our commercialization efforts. There are no guarantees that any existing strategic relationships will continue and efforts are ongoing to ensure the availability of integrated next generation systems and/or equivalent alternatives. We cannot provide assurance as to the timeline of the ongoing availability of such compatible systems or our ability to obtain equivalent alternatives on competitive terms or at all.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited financial statements of Stereotaxis, Inc. have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all the disclosures required by GAAP for complete financial statements. In the opinion of management, they include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented. Operating results for the six-month period ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or for future operating periods.

These interim financial statements and the related notes should be read in conjunction with the annual financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission (SEC) on March 12, 2021.

Risks and Uncertainties

The novel coronavirus COVID-19 (“COVID-19”) pandemic has resulted, and is likely to continue to result, in periodic and unexpected disruptions to the economy, as well as business and capital markets around the world. The full extent of the impact of the ongoing COVID-19 pandemic on our business, results of operations and financial condition will depend on numerous evolving factors that we may not be able to accurately predict.

As a result of the COVID-19 outbreak, we have experienced business disruptions, including travel restrictions on us and our third-party distributors, which have negatively affected our complex sales, marketing, installation, distribution and service network relating to our products and services. The COVID-19 pandemic may continue to negatively affect demand for both our systems and our disposable products by limiting the ability of our sales personnel to maintain their customary contacts with customers as governmental authorities institute new or continuing quarantines, travel restrictions, and shelter-in-place orders, or as our customers impose limitations on contacts and in-person meetings that go beyond those imposed by governmental authorities.

In addition, many of our hospital customers, for whom the purchase of our system involves a significant capital purchase which may be part of a larger construction project at the customer site (typically the construction of a new building), may themselves be under economic pressures. This may cause delays or cancellations of current purchase orders and other commitments and may exacerbate the long and variable sales and installation cycles for our robotic magnetic navigation systems. We may also experience significant reductions in demand for our disposable products as our healthcare customers (physicians and hospitals) continue to re-prioritize the treatment of patients and divert resources away from non-coronavirus areas, which we anticipate will lead to the performance of fewer procedures in which our disposable products are used. In addition, patients may consider foregoing or deferring procedures utilizing our products, even if physicians and hospitals are willing to perform them, which could also reduce demand for, and sales of, our disposable products.

As of the date of the filing of this Quarterly Report on Form 10-Q, we believe our manufacturing operations and supply chains have been manageably interrupted, but we cannot guarantee that they will not be interrupted more severely in the future. If our manufacturing operations or supply chains are materially interrupted, it may not be possible for us to timely manufacture relevant products at required levels, or at all. A material reduction or interruption to any of our manufacturing processes would have a material adverse effect on our business, operating results, and financial condition.

If governmental authorities around the world continue to institute prolonged mandatory closures, social distancing protocols and shelter-in-place orders, or as private parties on whom we rely to operate our business put in place their own protocols that go beyond those instituted by relevant governmental authorities, our ability to adequately staff and maintain our operations or further our product development could be negatively impacted.

Any disruption to the capital markets could negatively impact our ability to raise capital. If the capital markets are disrupted for an extended period of time and we need to raise additional capital, such capital may not be available on acceptable terms, or at all. Continued disruptions to the capital markets and other financing sources could also negatively impact our hospital customers’ ability to raise capital or otherwise obtain financing to fund their operations and capital projects. Such could result in delayed spending on current projects, a longer sales cycle for new projects where a large capital commitment is required, and decreased demand for our disposable products as well as an increased risk of customer defaults or delays in payments for our systems, installation, service contracts and disposable products.

We continue to evaluate and, where appropriate, take actions to reduce costs and spending across our organization. We will continue to actively monitor the situation and may take further actions that alter our business operations that may be required by federal, state, or local governmental authorities or that may be implemented by our vendors, suppliers or customers, or that we determine are in the best interests of our employees, customers, suppliers and stockholders.

Cash and Cash Equivalents

The Company considers all short-term investments purchased with original maturities of three months or less to be cash equivalents. The Company places its cash with high-credit-quality financial institutions and invests primarily in money market accounts.

Restricted Cash

Restricted cash primarily consists of cash that the Company is obligated to maintain in accordance with contractual obligations. The Company’s restricted cash was $1.9 million at June 30, 2021. No cash was restricted at December 31, 2020.

Compensating Cash Arrangement

In July 2020, the Company entered into a letter of credit to support a commitment of less than $0.3 million. As a condition of the letter of credit, the Company is required to maintain a $0.3 million compensating balance until the expiration of the letter of credit.

Financial Instruments

Financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and debt. The carrying value of such amounts reported at the applicable balance sheet dates approximates fair value.

The Company measures certain financial assets and liabilities at fair value on a recurring basis. General accounting principles for fair value measurement established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (“Level 1”) and the lowest priority to unobservable inputs (“Level 3”).

The Company’s financial assets consist of restricted cash and cash equivalents invested in money market funds which totaled $1.9 million and $1.4 million as of June 30, 2021 and December 31, 2020, respectively. The financial assets consisting of cash equivalents invested in money market funds are classified as Level 2 as described above and total interest income recorded for these investments was insignificant for the six months ended June 30, 2021. As of June 30, 2021, the Company did not have any financial liabilities valued at fair value on a recurring basis. As of June 30, 2020, the Company did not have any financial assets or liabilities valued at fair value on a recurring basis.

Revenue and Costs of Revenue

The Company accounts for revenue in accordance with Accounting Standards Codification Topic 606 (“ASC 606”), “Revenue from Contracts with Customers”.

We generate revenue from initial capital sales of systems as well as recurring revenue from the sale of our proprietary disposable devices, from royalties paid to the Company on the sale by Biosense Webster of co-developed catheters, and from ongoing software enhancements and service contracts.

We account for a contract with a customer when there is a legally enforceable contract between the Company and the customer, the rights of the parties are identified, the contract has commercial substance, and collectability of the contract consideration is probable. We record our revenue based on consideration specified in the contract with each customer, net of any taxes collected from customers that are remitted to government authorities.

For contracts containing multiple products and services, the Company accounts for individual products and services as separate performance obligations if they are distinct, which is if a product or service is separately identifiable from other items in the bundled package, and if a customer can benefit from it on its own or with other resources that are readily available to the customer. The Company recognizes revenues as the performance obligations are satisfied by transferring control of the product or service to a customer.

For arrangements with multiple performance obligations, revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are based on observable prices at which the Company separately sells the products or services. If a standalone selling price is not directly observable, then the Company estimates the standalone selling price considering market conditions and entity-specific factors including, but not limited to, features and functionality of the products and services and market conditions. The Company regularly reviews standalone selling prices and updates these estimates if necessary.

Our revenue recognition policy affects the following revenue streams in our business as follows:

Systems:

Contracts related to the sale of systems typically contain separate obligations for the delivery of system(s), installation and an implied obligation to provide software enhancements if and when available for one year following installation. Revenue is recognized when the Company transfers control to the customer, which is generally at the point when acceptance occurs that indicates customer acknowledgment of delivery or installation, depending on the terms of the arrangement. Revenue from the implied obligation to deliver software enhancements if and when available is recognized ratably over the first year following installation of the system as the customer receives the right to software enhancements throughout the period and is included in Other Recurring Revenue. The Company’s system contracts do not provide a right of return. Systems are generally covered by a one-year assurance type warranty; warranty costs were $0.1 million and less than $0.1 million for the six months ended June 30, 2021 and 2020, respectively. Revenue from system delivery and installation represented 30% and less than 1% of revenue for the six months ended June 30, 2021 and 2020, respectively.

Disposables:

Revenue from sales of disposable products is recognized when control is transferred to the customers, which generally occurs at the time of shipment, but can also occur at the time of delivery depending on the customer arrangement. Disposable products are covered by an assurance type warranty that provides for the return of defective products. Warranty costs were not material for the six months ended June 30, 2021 and 2020. Disposable revenue represented 25% and 31% of revenue for the six months ended June 30, 2021 and 2020, respectively.

Royalty:

The Company is entitled to royalty payments from Biosense Webster, payable quarterly based on net revenues from sales of the co-developed catheters. Royalty revenue from the co-developed catheters represented 7% and 9% of revenue for the six months ended June 30, 2021 and 2020, respectively.

Other Recurring Revenue:

Other recurring revenue includes revenue from product maintenance plans, other post warranty maintenance, and the implied obligation to provide software enhancements if and when available for a specified period, typically one year following installation of our systems. Revenue from services and software enhancements is deferred and amortized over the service or update period, which is typically one year. Revenue related to services performed on a time-and-materials basis is recognized when performed. Other recurring revenue represented 35% and 56% of revenue for the six months ended June 30, 2021 and 2020, respectively.

Sublease Revenue:

A portion of our principal executive office is subleased to a third party through 2021. In accordance with Accounting Standards Update (ASU) 2016-02, “Leases” (Topic 842), the Company records sublease income as revenue. Sublease revenue represented 3% and 4% of revenue for the six months ended June 30, 2021 and 2020, respectively.

	Three Months Ended June 30				Six Months Ended June 30,
	2021		2020		2021		2020
Systems	$	2,686,180	$	12,769	$	5,288,692	$	12,769
Disposables, service and accessories		6,118,712		5,086,156		11,892,228		10,595,867
Sublease		246,530		246,530		493,060		493,060
Total revenue	$	9,051,422	$	5,345,455	$	17,673,980	$	11,101,696

Transaction price allocated to remaining performance obligations relates to amounts allocated to products and services for which the revenue has not yet been recognized. A significant portion of this amount relates to the Company’s systems contracts and obligations that will be recognized as revenue in future periods. These obligations are generally satisfied within two years after contract inception but may occasionally extend longer. Transaction price representing revenue to be earned on remaining performance obligations on system contracts was approximately $8.7 million as of June 30, 2021. Performance obligations arising from contracts for disposables, royalty and service are generally expected to be satisfied within one year after entering into the contract.

The following information summarizes the Company’s contract assets and liabilities:

	June 30, 2021			December 31, 2020
Contract Assets - unbilled receivables	$	180,751		$	284,415

Customer deposits	$	2,132,598		$	-
Product shipped, revenue deferred		2,173,300			645,200
Deferred service and license fees		5,627,494			5,186,485
Total deferred revenue	$	9,933,392		$	5,831,685
Less: Long-term deferred revenue		(1,648,792	)		(548,915	)
Total current deferred revenue	$	8,284,600		$	5,282,770

The Company invoices its customers based on the billing schedules in its sales arrangements. Contract assets primarily represent the difference between the revenue that was earned but not billed on service contracts and revenue from system contracts that was recognized based on the relative selling price of the related performance obligations and the contractual billing terms in the arrangements. Customer deposits primarily relate to future system sales but can also include deposits on disposable sales. Deferred revenue is primarily related to service contracts, for which the service fees are billed up-front, generally quarterly or annually, and for amounts billed in advance for system contracts for which some performance obligations remain outstanding. For service contracts, the associated deferred revenue is generally recognized ratably over the service period. For system contracts, the associated deferred revenue is recognized when the remaining performance obligations are satisfied. The Company did not have any impairment losses on its contract assets for the periods presented.

Revenue recognized for the six months ended June 30, 2021 and 2020, that was included in the deferred revenue balance at the beginning of each reporting period remained consistent at $4.0 million.

Assets Recognized from the Costs to Obtain a Contract with a Customer

The Company has determined that sales incentive programs for the Company’s sales team meet the requirements to be capitalized as the Company expects to generate future economic benefits from the related revenue generating contracts after the initial capital sales transaction. The costs capitalized as contract acquisition costs included in prepaid expenses and other assets, in the Company’s balance sheet was $0.2 million and $0.3 million as of June 30, 2021 and December 31, 2020, respectively. The Company did not incur any impairment losses during any of the periods presented.

Costs of systems revenue include direct product costs, installation labor and other costs, estimated warranty costs, and initial training and product maintenance costs. These costs are recognized at the time of sale. Costs of disposable revenue include direct product costs and estimated warranty costs and are recognized at the time of sale. Cost of revenue from services and license fees are recognized when incurred.

Share-Based Compensation

The Company accounts for its grants of stock options, stock appreciation rights, restricted shares, and restricted stock units and for its employee stock purchase plan in accordance with the provisions of general accounting principles for share-based payments. These accounting principles require the determination of the fair value of the share-based compensation at the grant date and the recognition of the related expense over the period in which the share-based compensation vests.

For time-based awards, the Company utilizes the Black-Scholes valuation model to determine the fair value of stock options and stock appreciation rights at the date of grant. The resulting compensation expense is recognized over the requisite service period, which is generally four years. Restricted shares and units granted to employees are valued at the fair market value at the date of grant. The Company amortizes the fair market value to expense over the service period. If the shares are subject to performance objectives, the resulting compensation expense is amortized over the anticipated vesting period and is subject to adjustment based on the actual achievement of objectives.

For market-based awards, stock-based compensation expense is recognized over the minimum service period regardless of whether or not the market target is probable of being achieved. The fair value of such awards is estimated on the grant date using Monte Carlo simulations.

Shares purchased by employees under the 2009 Employee Stock Purchase Plan are considered to be non-compensatory.

Net Earnings (Loss) per Common Share

Basic earnings (loss) per common share is computed by dividing the net earnings (loss) for the period by the weighted average number of common shares outstanding during the period. In periods where there is net income, we apply the two-class method to calculate basic and diluted net income (loss) per share of common stock, as our convertible preferred stock is a participating security. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to common stockholders. In periods where there is a net loss, the two-class method of computing earnings per share does not apply as our convertible preferred stock does not contractually participate in our losses. We compute diluted net income (loss) per common share using net income (loss) as the “control number” in determining whether potential common shares are dilutive, after giving consideration to all potentially dilutive common shares, including stock options, warrants, unvested restricted stock units outstanding during the period and potential issuance of stock upon the conversion of our convertible preferred stock issued and outstanding during the period, except where the effect of such securities would be antidilutive.

The following table sets forth the computation of basic and diluted EPS:

	2021			2020			2021			2020
	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Net loss	$	(1,210,398	)	$	(1,921,106	)	$	(2,742,795	)	$	(3,892,637	)
Cumulative dividend on Series A Convertible Preferred Stock		(335,197	)		(342,126	)		(667,748	)		(685,849	)
Net loss attributable to common stockholders	$	(1,545,595	)	$	(2,263,232	)	$	(3,410,543	)	$	(4,578,486	)

Weighted average number of common shares and equivalents:		75,547,574			71,628,762			75,362,521			70,749,401
Basic EPS	$	(0.02	)	$	(0.03	)	$	(0.05	)	$	(0.06	)
Diluted EPS	$	(0.02	)	$	(0.03	)	$	(0.05	)	$	(0.06	)

The Company did not include any portion of unearned restricted shares, outstanding options, stock appreciation rights, warrants or convertible preferred stock in the calculation of diluted loss per common share because all such securities are anti-dilutive for all periods presented. The application of the two-class method of computing earnings per share under general accounting principles for participating securities is not applicable during these periods because those securities do not contractually participate in its losses.

As of June 30, 2021, the Company had 2,845,041 shares of common stock issuable upon the exercise of outstanding options and stock appreciation rights at a weighted average exercise price of $3.93 per share, 15,385 shares of common stock issuable upon the exercise of outstanding warrants at a weighted average exercise price of $0.70 per share, 44,303,996 shares of our common stock issuable upon conversion of our Series A Convertible Preferred Stock, 5,610,121 shares of our common stock issuable upon conversion of our Series B Convertible Preferred Stock and 1,044,973 shares of unvested restricted share units. The Company had no unearned restricted shares outstanding for the period ended June 30, 2021.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued Accounting Standards Update (ASU) 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” as part of its effort to reduce the complexity of accounting standards. The ASU is effective for fiscal years beginning after December 15, 2020. The Company adopted with no impact to the Company’s financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments” and also issued subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04 and ASU 2019-05. The standard modifies the measurement approach for credit losses on financial instruments, including trade receivables, from an incurred loss method to a current expected credit loss method, otherwise known as “CECL.” The standard requires the measurement of expected credit losses to be based on relevant information, including historical experience, current conditions and a forecast that is supportable. The standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years; early adoption is permitted. The standard must be adopted by applying a cumulative adjustment to retained earnings. The Company anticipates adopting the standard in the first quarter of 2023, although it does not expect a significant impact to the Company’s financial results.

3. Inventories

Inventories consist of the following:

Schedule of Inventories

	June 30, 2021			December 31, 2020
Raw materials	$	3,284,691		$	2,950,912
Work in process		919,214			433,026
Finished goods		2,397,991			2,987,039
Reserve for excess and obsolescence		(2,455,205	)		(3,075,520	)
Total inventory

SEC Form 10-Q filed by Stereotaxis, Inc.