Stereotaxis Annual Report 2017

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017OR ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934FOR 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 ofIncorporation or Organization) (I.R.S. EmployerIdentification Number)4320 Forest Park Avenue, Suite 100St. 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: NoneSecurities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 Par Value Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒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 of1934 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 suchfiling 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 DataFile required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that theregistrant was required to submit and post such files). Yes ☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not becontained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K, or any amendment to this Form 10-K. ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company,or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerginggrowth 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 reportingcompany) 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 withany 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 aggregate market value of the registrant’s common stock held by non-affiliates of the registrant on the last business day of the registrant’smost recently completed second fiscal quarter (based on the closing sales prices on the OTCQX on June 30, 2017) was approximately $11.2 million.The number of outstanding shares of the registrant’s common stock on March 13, 2018 was 58,865,036.DOCUMENTS INCORPORATED BY REFERENCEPortions of the Proxy Statement for the registrant’s 2018 Annual Meeting of Shareholders are incorporated by reference in Part III, Items 10, 11, 12, 13and 14. Table of ContentsSTEREOTAXIS, INC.INDEX TO ANNUAL REPORT ON FORM 10-K Page PART I. Item 1. Business 1 Item 1A. Risk Factors 18 Item 1B. Unresolved Staff Comments 37 Item 2. Properties 37 Item 3. Legal Proceedings 38 Item 4. Mine Safety Disclosures 38 PART II. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 39 Item 6. Selected Financial Data 39 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 40 Item 8. Financial Statements and Supplementary Data 50 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 77 Item 9A. Controls and Procedures 78 Item 9B. Other Information 78 PART III. Item 10. Directors and Executive Officers of the Registrant 79 Item 11. Executive Compensation 80 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 80 Item 13. Certain Relationships and Related Person Transactions and Director Independence 80 Item 14. Principal Accounting Fees and Services 80 PART IV. Item 15. Exhibits and Financial Statement Schedules 81 SCHEDULE II—Valuation and Qualifying Accounts 82 EXHIBIT INDEX 83 SIGNATURES 90 Table of ContentsPART I ITEM 1.BUSINESSIn this report, “Stereotaxis”, the “Company”, “Registrant”, “we”, “us”, and “our” refer to Stereotaxis, Inc. and its wholly owned subsidiaries.Epoch, Niobe, Odyssey, Odyssey Cinema, Vdrive, Vdrive Duo, V-CAS, V-Loop, V-Sono, V-CAS DeflectQuikCAS, and Cardiodrivearetrademarks of Stereotaxis, Inc. All other trademarks that appear in this report are the property of their respective owners.FORWARD-LOOKING STATEMENTSThis annual report on Form 10-K, including the sections entitled “Business” and “Management’s Discussion and Analysis of FinancialCondition and Results of Operations,” contains forward-looking statements. These statements relate to, among other things: • our business strategy; • our value proposition; • our ability to fund operations; • our ability to convert backlog to revenue; • the ability of physicians to perform certain medical procedures with our products safely, effectively and efficiently; • the adoption of our products by hospitals and physicians; • the market opportunity for our products, including expected demand for our products; • the timing and prospects for regulatory approval of our additional disposable interventional devices; • the success of our business partnerships and strategic relationships; • our estimates regarding our capital requirements; • our plans for hiring additional personnel; and • any of our other plans, objectives, expectations and intentions contained in this annual report that are not historical facts.These statements relate to future events or future financial performance, and involve known and unknown risks, uncertainties, and other factorsthat may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity,performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements byterminology such as “may”, “will”, “should”, “could”, “expects”, “plans”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, or“continue”, or the negative of such terms or other comparable terminology. Although we believe that the expectations reflected in the forward-lookingstatements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. These statements are only predictions.Factors that may cause our actual results to differ materially from our forward-looking statements include, among others, changes in generaleconomic and business conditions and the risks and other factors set forth in “Item 1A—Risk Factors” and elsewhere in this annual report on Form10-K.Our actual results may be materially different from what we expect. We undertake no duty to update these forward-looking statements after thedate of this annual report, even though our situation may change in the future. We qualify all of our forward-looking statements by these cautionarystatements. 1®®®™®™™™™™, ™® Table of ContentsOVERVIEWWe design, manufacture and market robotic systems and instruments for use primarily by electrophysiologists for the treatment of abnormal heartrhythms known as cardiac arrhythmias. We offer our proprietary Epoch Solution, an advanced remote robotic navigation system, for use in a hospital’sinterventional surgical suite, or “interventional lab”. We believe the Epoch Solution revolutionizes the treatment of arrhythmias and coronary arterydisease by enabling enhanced safety, efficiency and efficacy for catheter-based, or interventional procedures.The Epoch Solution is comprised of the Niobe ES Remote Magnetic Navigation System (“Niobe ES system”), Odyssey Information ManagementSolution (“Odyssey Solution”), and the Vdrive Robotic Navigation System (“Vdrive system”), and related devices. We consider our technology animportant advancement in the ongoing trend toward fully digitized, integrated and automated interventional labs. We believe our technology providessubstantial, clinically important improvements over manual interventional methods, which often result in long and unpredictable procedure times withsuboptimal therapeutic outcomes. We believe our products also support efficient and effective information management and physician collaboration.The core elements of our technology, especially the Niobe ES system, are protected by an extensive patent portfolio, as well as substantial expertiseand trade secrets.We promote the full Epoch Solution in a typical hospital implementation, subject to regulatory approvals or clearances. The full Epoch Solutionimplementation requires a hospital to agree to an upfront capital payment and recurring payments. The upfront capital payment typically includesequipment and installation charges. The recurring payments typically include disposable costs for each procedure, equipment service costs beyondwarranty period, and software licenses. In hospitals where the full Epoch Solution has not been implemented, equipment upgrade or expansion can beimplemented upon purchasing of the necessary upgrade or expansion.Not all products have and/or require regulatory clearance in all of the markets we serve. Please refer to “Regulatory Approval” in Item 1 for adescription of our regulatory clearance, licensing, and/or approvals we currently have or are pursuing.As of December 31, 2017, we had approximately $1.5 million of backlog, consisting of outstanding purchase orders and other commitments forthese systems. We had backlog of approximately $4.5 million and $6.0 million as of December 31, 2016 and 2015, respectively. Of the December 31,2017 backlog, we expect approximately 68.0% to be recognized as revenue over the course of 2018. There can be no assurance that we will recognizesuch revenue in any particular period or at all because some of our purchase orders and other commitments are subject to contingencies that are outsideour control. These orders and commitments may be revised, modified or canceled, either by their express terms, as a result of negotiations or by projectchanges or delays. In addition, the sales cycle for the Epoch Solution is lengthy and generally involves construction or renovation activities atcustomer sites. Consequently, revenues and/or orders resulting from sales of our Epoch Solution can vary significantly from one reporting period to thenext.We have business arrangements with technology leaders in the global interventional market, including two multinational fluoroscopy systemmanufacturers and one provider of catheters and electrophysiology mapping systems. Through these arrangements, we integrate our Niobe system withmarket-leading cath lab imaging systems and catheter location sensing technology. The catheter arrangement also provides development anddistribution of disposable interventional devices.We were incorporated in Delaware in June, 1990 as Stereotaxis, Inc. Our principal executive offices are located at 4320 Forest Park Avenue, Suite100, St. Louis, Missouri 63108, and our telephone number is (314)678-6100. 2Table of ContentsTHE STEREOTAXIS VALUE PROPOSITIONAlthough great strides have been made in manual device technology and in related manual interventional techniques, significant challengesremain that reduce interventional productivity and limit both the number of complex procedures and the types of diseases that can be treated manually.These challenges primarily involve the inherent mechanical limitations of manual instrument control and the lack of integration of the informationsystems used by physicians in the interventional lab as well as a significant amount of training and experience required to ensure proficiency. As aresult, many complex cases in electrophysiology are treated with palliative drug therapy, and many complex procedures in interventional cardiologyare still referred to highly invasive bypass surgery.The Epoch Solution addresses the current challenges in the interventional lab by providing precise computerized control of the working tip ofthe interventional instrument and by integrating this control with the visualization technology and information systems used during electrophysiologyand interventional cardiology procedures, on a cost-justified basis.We believe that our systems will: • Improve patient outcomes by optimizing therapy. Difficulty in controlling the working tip of disposable interventional devices can lead tosub-optimal results in many procedures. Conversely, the precise control of multiple complex diagnostic and therapeutic devices by a singlephysician can lead to better outcomes for the patient. Precise instrument control is necessary for treating a number of cardiac conditions. Totreat arrhythmias, precise placement of an ablation catheter against a beating inner heart wall is necessary. Maintaining this precision andcontact can be very challenging, especially in the most complex procedures, such as those for the treatment of ventricular tachycardia. Forcoronary artery disease, precise and correct navigation and placement of expensive stents also have a significant impact on procedure costsand outcomes. We believe our robotic technology can enhance procedure results by improving navigation of disposable interventionaldevices to treatment sites, and by affecting more precise, safe, treatments once these sites are reached. • Expand the market by enhancing the treatment of more complex cases. Treatment of a number of major diseases, including ventriculartachycardia, atrial fibrillation, congenital heart diseases, and critical limb ischemia due to chronic total occlusions of peripheral arteries, ishighly problematic using conventional wire and/or catheter-based techniques. Additionally, many patients with multi-vessel disease andcertain complex arrhythmias, such as ventricular tachycardia and atrial fibrillation are often referred to other more invasive or less curativetherapies because of the difficulty in precisely and safely controlling the working tip of disposable interventional devices used to treatthese complex cases interventionally. Because our robotic technology provides precise, computerized control of the working tip ofdisposable interventional devices, we believe that it will potentially enable difficult ventricular tachycardia, atrial fibrillation, andcongenital heart diseases to be treated interventionally on a much broader scale than today. • Enhance patient and physician safety. The Niobe system has been used in more than 100,000 procedures and the incidence of reportedmajor adverse cardiac events associated with the use of the system for all procedures is approximately 0.76%. This represents what webelieve to be a clinically significant improvement in major complication rates over conventional procedures, which can range as high as5.46% for complex ablations, and significantly higher for new physicians and fellows. Additionally, during conventional catheter-basedprocedures, each of the physicians who stand by the patient table to manually control the catheter, the nursing staff assisting with theprocedure, and the patient are exposed to the potentially harmful x-ray radiation from the fluoroscopy field. This exposure can beminimized through reduced usage of fluoroscopy during procedures with the Niobe system due to enhanced and more fully integratedmapping capabilities of the Niobe software. Our robotic technology can further improve physician safety and reduce physician fatigue byenabling them to conduct procedures remotely from an adjacent control room, which reduces their exposure to harmful radiation, and theorthopedic burden of wearing lead. 3Table of Contents • Improve clinical workflow and information management. Complex ablation procedures involve several sources of information, whichconventionally require a physician to mentally integrate and process large quantities of information from different sources in real time,often from separate user interfaces. Sources of information include real time x-ray and/or ultrasound images, real time location sensingsystems providing the 3-D location of a catheter tip, pre-operative map of the electrical activity of the heart, real time recording of electricalactivity of the heart, and temperature feedback from an ablation catheter. The Odyssey Solution improves clinical workflow andinformation management efficiency by integrating and synchronizing the multiple sources of diagnostic and imaging information found inthe interventional labs into a large-screen user interface with single mouse and keyboard control. • Enhance hospital efficiency by reducing and standardizing procedure times, disposables utilization and staffing needs. Conventionalinterventional procedure times currently range from several minutes to many hours as physicians often engage in repetitive, “trial anderror” maneuvers due to difficulties with manually controlling the working tip of disposable interventional devices. By reducing bothnavigation time and the time needed to carry out therapy at the target site, we believe that our robotic technology can reduce proceduretimes compared to manual procedures, especially in the most complex procedures such as the treatment of ventricular tachycardia. Webelieve the Niobe system can also reduce the variability in procedure times compared to manual methods. Greater standardization ofprocedure times allows for more efficient scheduling of interventional cases including staff requirements. We also believe that additionalcost savings from robotics can result from decreased use of multiple catheters, high-end deflectable sheaths, and contrast media inprocedures compared with manual methods further enhancing the rate of return to hospitals. • Improve physician skill levels in order to improve the efficacy of complex cardiology procedures. Training required for physicians to safelyand effectively carry out manual interventional procedures typically takes years, over and above the training required to become aspecialist in cardiology. This has led to a shortage of physicians who are skilled in performing more complex procedures. We believe thatour robotic technology can allow procedures that previously required the highest levels of manual dexterity and skill to be performedeffectively by a broader range of interventional physicians, with more standardized outcomes. In addition, interventional physicians canlearn to use robotic systems in a relatively short period of time. The Niobe system can also be programmed to carry out sequences ofcomplex navigation automatically further enhancing ease of use. We believe the Odyssey Solution can allow advanced training onlinethereby accelerating learning. • Help hospitals recruit physicians and attract patients. Due to the clinical benefits of the Epoch Solution, we believe hospitals will realizesignificant operational benefits when recruiting physicians to work in a more safe procedure environment, while attracting patients whodesire to have safer procedures that lead to better long term outcomes.OUR PRODUCTSNiobe ES Remote Magnetic Navigation SystemOur proprietary Niobe ES system is the latest generation of the Niobe system, which provides the physician with precise remote digitalinstrument control through user friendly “point and click” computer mouse control, in combination with sophisticated image integration and 3Dreconstruction. It can be operated either from an adjacent room and outside the x-ray fluoroscopy field or beside the patient table, as in traditionalinterventional procedures. The Niobe system allows the operator to navigate disposable interventional devices to the treatment site through complexpaths in the blood vessels and chambers of the heart to deliver treatment by using computer controlled, externally applied magnetic fields to directlygovern the motion of the working tip of these devices, each of which has a magnetically sensitive tip that predictably responds to magnetic fieldsgenerated by our system. Because the working tip of the disposable interventional device is directly controlled by these external magnetic fields, thephysician has the same degree of control regardless of the number or type of turns, or the distance traveled by the working tip to arrive at its position inthe blood vessels or chambers of the heart. This results in highly precise digital control of the working tip of the disposable interventional device whilestill giving the physician the option to manually advance the device. 4®Table of ContentsThrough our arrangements with two multinational fluoroscopy system manufacturers and one provider of catheters and electrophysiologymapping systems, the Niobe ES system has been integrated with the visualization and information systems used during electrophysiology proceduresin order to provide the physician with a fully-integrated and automated information and instrument control system. We have integrated our Niobesystem with market-leading digital x-ray fluoroscopy systems. In addition, we have integrated the Niobe system with 3D catheter location sensingtechnology to provide accurate real-time information as to the 3D location of the working tip of the instrument.The components of the Niobe system are identified and described below:Niobe Remote Magnetic Navigation System. Our Niobe system utilizes two permanent magnets mounted on articulating and pivoting arms thatare enclosed within a stationary housing, with one magnet on either side of the patient table. These magnets generate magnetic navigation fields thatare less than 10% of the strength of fields typically generated by MRI equipment and therefore require significantly less shielding, and causesignificantly less interference, than MRI equipment. The Niobe system is indicated for use in cardiac, peripheral and neurovascular applications.Cardiodrive Automated Catheter Advancement System. As the physician conducts the procedure from the adjacent control room, theCardiodrive Automated Catheter Advancement System (“Cardiodrive”) in conjunction with the QuikCAS automated catheter advancement system isused to remotely advance and retract the electrophysiology catheter in the patient’s heart while the Niobe magnets precisely steer the working tip ofthe device.Odyssey SolutionThe Odyssey Solution offers a fully integrated, real-time information solution to manage, control, record and share procedures across networks oraround the world. We believe that the Odyssey Solution enhances the physician workflow in interventional labs through a consolidated user interfaceof multiple systems on a single display to enable greater focus on the case and improve the efficiency of the lab. Through the use of a single mouse andkeyboard, the Odyssey Solution allows the user to command multiple systems in the lab from a single point of control. In addition, the OdysseySolution acquires a real-time, remote view of the lab capturing synchronized procedure data for review of important events during cases. The OdysseySolution enables physicians to access recorded cases and create snapshots following procedures for enhanced clinical reporting, auditing andpresentation. The Odyssey Solution enables physicians to establish a comprehensive master archive of procedures performed in the lab providing anexcellent tool for training new staff on the standard practices. The Odyssey Solution further enables procedures to be observed remotely around theworld with high speed Internet access over a hospital VPN even wirelessly using a standard laptop or Windows tablet computer. The Odyssey Solutionmay be acquired either as part of the Epoch Solution or on a stand-alone basis for installation in interventional labs and other locations whereclinicians desire improved clinical workflows and related efficiencies.Vdrive™ Robotic Navigation SystemThe Vdrive system provides navigation and stability for diagnostic and ablation devices designed with key features to assist in the delivery ofbetter ablations. Important features include complementing the Niobe ES control of catheters with fully remote, single operator workflow; andproviding robotic control of diagnostic devices independent of magnetic navigation. The Vdrive Duo system is an optional expansion of the Vdrivehardware that allows control of up to two of the four available disposable options (V-Loop, V-Sono, V-CAS, and V-CAS Deflect). 5®®®Table of ContentsDisposables and Other AccessoriesOur Niobe system is designed to use a toolkit of proprietary disposable interventional devices. The toolkit currently consists of: • Our QuikCAS automated catheter advancement disposables designed to provide precise remote advancement of proprietaryelectrophysiology catheters; and • Biosense Webster’s CARTO RMT navigation and ablation system, CELSIUS RMT, NAVISTAR RMT, NAVISTAR RMT DS,NAVISTAR RMT THERMOCOOL and CELSIUS RMT THERMOCOOL Irrigated Tip Diagnostic/Ablation Steerable Tip Cathetersco-developed by Biosense Webster and Stereotaxis, as described below, with sales of such magnetically-enabled catheters generatingroyalty payable from Biosense Webster to Stereotaxis;We believe that we can adapt many of the applicable disposable interventional devices for use with our system by using our proprietarytechnology to add an inexpensive micro-magnet at their working tip. This micro-magnet is activated by an external magnetic field, which allowsinterventional devices with tip dimensions as small as 14 thousandths (0.014) of an inch to be oriented and positioned in a predictable andcontrollable fashion. We believe this approach to bringing digital control to disposable interventional devices using embedded magnets can simplifythe overall design of these devices because mechanical controls are no longer required.In addition to the Vdrive and Vdrive Duo systems, we also manufacture and market various disposable components which can be manipulated bythese systems. These include: • our V-CAS catheter advancement system (“V-CAS system”) that controls both the magnetic catheter body and a standard fixed-curvesheath; • our V-CAS Deflect fully integrated catheter advancement system (“V-CAS Deflect system”) with a robotic deflectable sheath for maximumintegration and versatility, allowing users to advance and retract the magnetic catheter body at angles up to 210°; • our V-Loop circular catheter manipulator (“V-Loop device”), which allows the user to control certain circular mapping catheters, such asBiosense Webster’s LASSO2515 or LASSO2515 NAV Circular Mapping Catheter, advance, retract, rotate, deflect and adjust loop radius,and hold the catheter position against the tissue to optimize electrograms; and • our V-Sono ICE catheter manipulator (“V-Sono device”) that allows a single physician to manipulate BWI SoundStar™ and AcuNav™catheters from the control room, store and recall previous positions and automatically sweep over an area of interest with adjustable speedand angle, and automatically track a 3.5mm NAVISTAR RMT THERMOCOOL Irrigated Tip Catheter – all without leaving the controlroom.Disposable revenue including royalties represented 42% and 40% of revenue for the years ended December 31, 2017 and 2016, respectively.Other Recurring RevenueOther recurring revenue includes revenue from software licenses, product maintenance plans, and other post warranty maintenance. Revenue fromservices and license fees is deferred and amortized over the service or license fee period, which is typically one year. Other recurring revenuerepresented 44% and 42% of revenue for the years ended December 31, 2017 and 2016, respectively.Regulatory ApprovalWe have received regulatory clearance, licensing and/or CE Mark approvals necessary for us to market the Niobe system, Cardiodrive, andvarious disposable devices in the U.S., Canada, Europe, China, Japan, and various other countries. 6®®®®®®®®®®®®Table of ContentsWe have received regulatory clearance, licensing and/or CE Mark approvals necessary for us to market the Odyssey Solution in the U.S., Canada,European Union, China, Japan and other selected countries and we are in the process of obtaining necessary approvals for extending our markets inother countries.We have received regulatory clearance, licensing and/or CE Mark approvals necessary for us to market the Vdrive and Vdrive Duo systems withthe V-CAS, V-Loop and V-Sono devices in the U.S., Canada and European Union. The V-CAS Deflect catheter advancement system has been CE Markedfor sale in the European Union.Biosense Webster has received FDA approval, and CE Mark for the CARTO RMT navigation system for use with the Niobe system, the 4mmCELSIUS RMT Diagnostic/Ablation Steerable Tip Catheter, the 4mm NAVISTAR RMT Diagnostic/Ablation Steerable Tip Catheter, the 8mmNavistar RMT DS Diagnostic/Ablation Steerable Tip Catheter, and the 3.5mm NAVISTAR RMT THERMOCOOL Irrigated Tip Catheter. In addition,Biosense Webster has received FDA approval and CE Mark for the 3.5mm CELSIUS RMT THERMOCOOL Irrigated Tip Catheter. Biosense Websteralso received China CFDA approval and Japan PMDA approval for the CARTO RMT navigation system for use with the Niobe system, and the 3.5mmNAVISTAR RMT THERMOCOOL Irrigated Tip Catheter. Our strategic relationship with Biosense Webster provides for co-development of cathetersthat can be navigated with our system, both with and without Biosense Webster’s 3D catheter location sensing technology. In addition, we can utilizetechnology which allows our system to recognize specific disposable interventional devices in order to prevent unauthorized use of our system. See“Strategic Relationships” below for a description of our arrangements with Biosense Webster.FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS AND CUSTOMERSOur total U.S. revenue was $18.0 million and $19.4 million for the years ended December 31, 2017 and 2016, respectively. Our totalinternational revenue was $13.1 million and $12.8 million for the years ended December 31, 2017 and 2016, respectively. No single country other thanthe U.S. accounted for more than 10% of total revenue for the years ended December 31, 2017 and 2016. Revenue from Biosense Webster Inc. relatedto royalties and Odyssey system sales accounted for $3.3 million, and $4.1 million, or 11%, and 13% of total net revenue for the years endedDecember 31, 2017 and 2016, respectively. No other single customer accounted for more than 10% of total revenue for the years ended December 31,2017 and 2016.CLINICAL APPLICATIONSWe have focused our clinical and commercial efforts on applications of the Epoch Solution primarily in electrophysiology procedures for thetreatment of arrhythmias and secondarily in complex interventional cardiology procedures for the treatment of coronary artery disease. Our systempotentially has broad applicability in other areas, such as structural heart repair, interventional neurosurgery, interventional neuroradiology, peripheralvascular, renal denervation, pulmonology, urology, gynecology and gastrointestinal medicine, and some of our patents may be applicable in theseareas as well.ElectrophysiologyThe rhythmic beating of the heart results from the transmission of electrical impulses. When these electrical impulses are mistimed oruncoordinated, the heart fails to function properly, resulting in symptoms that can range from fatigue to stroke or death. Over 5.0 million people in theU.S. currently suffer from the resulting abnormal heart rhythms, which are known as arrhythmias. The prevalence of arrhythmias is expected to continueto rise as the population ages and life expectancy continues to increase. These conditions are a major physical and economic burden and are associatedwith stroke, heart failure, and adverse symptoms causing patients to be very motivated to seek treatment. The combination of symptoms, prevalenceand co-morbidities make arrhythmias a major economic factor in healthcare. We believe payors are very interested in therapies that may reduce thefinancial impact of these diseases. 7®®®®®®®®®®Table of ContentsDrug therapies for arrhythmias often fail to adequately control the arrhythmia and may have significant side effects. Consequently, physicianshave increasingly sought more permanent, non-pharmacological, solutions for arrhythmias. The most common interventional treatment forarrhythmias, and in particular tachyarrhythmias, where the patient’s heart rate is too high or irregular, is an ablation procedure in which the diseasedtissue giving rise to the arrhythmia is isolated or destroyed. Prior to performing an electrophysiology ablation, a physician typically performs adiagnostic procedure in which the electrical signal patterns of the heart wall are “mapped” to identify the heart tissue generating the aberrant electricalsignals. Following the mapping procedure, the physician may then use an ablation catheter to eliminate the aberrant signal or signal path, restoring theheart to its normal rhythm. In cases where an ablation is anticipated, physicians will choose an ablation catheter and perform both the mapping andablation with the same catheter. In February 2009 the FDA approved the Biosense Webster NAVISTAR THERMOCOOL irrigated catheter to belabeled for the treatment of atrial fibrillation. This is the first device approved by the FDA to be labeled for the interventional treatment of thisarrhythmia.We believe more than 3,000 interventional labs around the world are currently capable of conducting electrophysiology procedures. Nearly onemillion electrophysiology procedures are performed annually worldwide, and the procedure growth rate is over 10% annually.We believe the Epoch Solution is particularly well-suited for those electrophysiology procedures which are time consuming or which can onlybe performed by highly experienced physicians. These procedures include: • Ventricular Tachycardia. Ventricular tachycardia is a malignant, potentially lethal arrhythmia that is extremely difficult and timeconsuming to treat. The magnetic catheter has been characterized as the ideal tool for this application. These arrhythmias can often bemodified or interrupted by the pressure of a conventional catheter making it very difficult to identify the appropriate location for theablation, whereas magnetic catheters produce fewer extra beats and provide for easier and more efficient mapping of the diseased tissue.Successful ablation of ventricular tachycardia can extend the useful life of an implantable defibrillator, reduce shocks to the patient, reducethe need for antiarrhythmic drugs or, in some cases, obviate the need for an expensive implantable device and its associated follow-up. • Atrial Fibrillation. The most commonly diagnosed abnormal heart rhythm, atrial fibrillation, is a particular type of arrhythmiacharacterized by rapid, disorganized contractions of the heart’s upper chambers, the atria, which lead to ineffective heart pumping andblood flow and can be a major risk factor for stroke. This chaotic electrical activity of the top chambers of the heart is estimated to bepresent in three million people in the United States and over seven million people worldwide. The number of potential patients for manualcatheter-based procedures for atrial fibrillation has been limited because the procedures are extremely complex and are performed by onlythe most highly skilled electrophysiologists. They also typically have much longer procedure times than general ablation cases and thesuccess rates have been lower and more variable. We believe that our system can allow these procedures to be performed by a broader rangeof electrophysiologists and, by automating some of the more complex catheter maneuvers, can standardize and reduce procedure times andsignificantly improve outcomes. • General Mapping and Ablations. For the more routine mapping and ablation procedures, our system offers the unique benefit of precisecatheter movement and consistent heart wall contact. Additionally, the system can control the procedure and direct catheter movementfrom the control room, saving the physician time and helping to avoid unnecessary exposure to high doses of radiation.We believe that our system can address the current challenges in electrophysiology by permitting the physician to remotely navigate disposableinterventional devices from a control room outside the x-ray field. Additionally, we believe that our system allows for more predictable and efficientnavigation of these devices to the treatment site, and enables catheter contact to be consistently maintained to efficiently apply energy on the wall ofthe beating heart. We also believe that our system will significantly lower the skill barriers required for physicians to perform complexelectrophysiology procedures and, additionally, improve interventional lab efficiency and reduce disposable interventional device utilization. 8®®Table of ContentsInterventional CardiologyMore than half a million people die annually from coronary artery disease, a condition in which the formation of plaque in the coronary arteriesobstructs the supply of blood to the heart, making this the leading cause of death in the U.S. Despite various attempts to reduce risk factors, each yearover one million patients undergo interventional procedures in an attempt to open blocked vessels and another one half million patients undergo openheart surgery to bypass blocked coronary arteries.Blockages within a coronary artery, often called lesions, are categorized by degree of obstruction as partial occlusions, non-chronic totalocclusions and chronic total occlusions. Lesions are also categorized by the degree of difficulty with which they can be opened as simple or complex.Complex lesions, such as chronic total occlusions, longer lesions, and lesions located within smaller diameter vessels, are often very difficult or timeconsuming to open with manual interventional techniques.We believe approximately 11,000 interventional labs worldwide are currently capable of conducting interventional cardiology. Over 4 millioninterventional cardiology procedures are performed annually in the U.S. alone. We estimate that approximately 10-15% of these interventionalcardiology procedures currently being performed are complex and therefore require longer procedure times and may have sub-optimal outcomes. Webelieve that our system can substantially benefit this subset of complex interventional cardiology procedures.Interventional Neuroradiology, Neurosurgery and Other Interventional ApplicationsPhysicians used a predecessor to our Niobe system to conduct a number of procedures for the treatment of brain aneurysms, a condition in whicha portion of a blood vessel wall balloons and which can result in debilitating or fatal bleeding and strokes. We believe the Niobe system also has arange of potential applications in minimally invasive neurosurgery, including biopsies and the treatment of tumors, treatment of vascularmalformations and fetal interventions.STRATEGIC RELATIONSHIPSWe have entered into business arrangements with technology leaders in the global interventional market, including two multinationalfluoroscopy system manufacturers and one provider of catheters and electrophysiology mapping systems, that we believe aid us in commercializingour Niobe system. We believe the two imaging companies have a significant percentage of the installed base of imaging systems worldwide. Webelieve our arrangement with the provider of catheters and electrophysiology mapping systems is favorable to us because it provides for the integrationof our system with market leading digital imaging and 3D catheter location sensing technology, as well as catheters compatible with our system.ImagingWe have successfully integrated our Niobe system with digital fluoroscopy systems to provide advanced interventional lab visualization andinstrument control through user-friendly computerized interfaces. The maintenance of these arrangements, or the establishment of equivalentalternatives, is critical to our commercialization efforts. The commercial availability of both currently compatible digital imaging fluoroscopy systemsis unlikely to continue for multiple years and efforts are being made to ensure the availability of integrated next generation systems and/or equivalentalternatives; however, we cannot provide assurance as to the timeline of the ongoing availability of such compatible systems or our ability to obtainequivalent alternatives on competitive terms or at all.Disposables DevicesWe have successfully integrated advanced Biosense Webster’s 3D catheter location sensing technology, which we believe has the leading marketposition in this important field of visualization for electrophysiology 9Table of Contentsprocedures, with the Niobe system. We have jointly developed associated location and non-location sensing electrophysiology mapping and ablationcatheters that are navigable with the Niobe system. We believe that these integrated products provide physicians with the elements required foreffective complex electrophysiology procedures: highly accurate information as to the exact location of the catheter in the body and highly precisecontrol over the working tip of the catheter.The co-developed catheters are manufactured and distributed by Biosense Webster, and both of the parties agreed to contribute to the resourcesrequired for their development. We are entitled to royalty payments from Biosense Webster, payable quarterly based on net revenues from sales of theco-developed catheters. Royalty revenue from the co-developed catheters represented 10% and 9% of revenue for the years ended December 31, 2017and 2016, respectively. These royalties were used to make payments under the debt agreement with Healthcare Royalty Partners II, L.P. (formerly“Cowen Healthcare Royalty Partners II, L.P.”) as discussed in Item 7 prior to its extinguishment in September, 2016.Biosense Webster’s distribution rights for co-developed catheters were exclusive through December 31, 2015 and currently are nonexclusiveuntil December 31, 2018. Biosense Webster’s right to distribute such products in Japan is exclusive until March 22, 2018 and nonexclusive untilMarch 22, 2021. Upon the expiration or termination of the agreement, other than due to a change of control of Stereotaxis, the agreement provides fora continuation of supply by Biosense Webster of the co-developed catheters to us or our customers for three years. The agreement provides anopportunity to expand the product offering covered by the agreement to include a next generation irrigated magnetic catheter, subject to mutuallyagreeable terms including exclusive distribution rights.Under the agreements with Biosense Webster, we granted Biosense Webster certain notice and discussion rights for product developmentactivities we undertake relating to localization of magnetically enabled interventional disposable devices in fields outside of electrophysiology andmapping.Either party may terminate this agreement in certain specified “change of control” situations, although the termination would not be effectiveuntil one year after the change of control and then would be subject to a wind-down period during which Biosense Webster would continue to supplyco-developed catheters to us or to our customers for three years (or, for non-location sensing mapping and ablation catheters, until our first sale of acompetitive product after a change of control, if earlier than three years). If either party terminates the agreement under this provision, we must pay atermination fee to Biosense Webster equal to 5% of our total equity value in the change of control transaction, up to a maximum of $10 million. If achange of control of Stereotaxis occurs after Biosense Webster has received approval from the U.S. FDA for atrial fibrillation indication for theNAVISTAR RMT THERMOCOOL catheter, we would be required to pay an additional $10 million fee to Biosense Webster, and termination of theagreement by either party would not be effective until two years after the change of control. We also agreed to notify Biosense Webster if wereasonably believe that we are engaged in substantive discussions with respect to the sale of the Company or substantially all of our assets.RESEARCH AND DEVELOPMENTWe have assembled an experienced group of engineers and physicists with recognized expertise in magnetics, software, control algorithms,systems integration and disposable interventional device modeling and design.Our research and development efforts are focused in the following areas: • continuing to enhance our existing Niobe system, Odyssey Solution, and Vdrive system through ongoing product and softwaredevelopment; and • designing new proprietary disposable interventional devices for use with our system.Our research and development team collaborates with strategic third parties to integrate our Niobe system’s open architecture platform with keyimaging, location sensing and information systems in the interventional lab. 10®®Table of ContentsWe have also collaborated with a number of highly regarded interventional physicians in key clinical areas and have entered into agreements with anumber of universities and teaching hospitals, which serve to increase our access to world class physicians and to expand our name recognition in themedical community. Our research and development expenses for the years ending December 31, 2017, 2016, and 2015, were $4.7 million, $5.5 million,and $6.3 million, respectively.CUSTOMER SERVICE AND SUPPORTWe provide worldwide maintenance and support services to our customers for our integrated products directly or with the assistance ofoutsourced product and service representatives. By utilizing these relationships, we provide direct, on-site technical support activities, including callcenter, customer support engineers and service parts logistics and delivery. In certain situations, we use these third parties as a single point of contactfor the customer, which allows us to focus on providing installation, training, and back-up technical support.Our back-up technical support includes a combination of on-line, telephone and on-site technical assistance services 24 hours a day, seven daysa week. We employ service and support engineers with networking and medical equipment expertise, and outsource a portion of our installation andsupport services. We offer different levels of support to our customers, including basic hardware and software maintenance, extended productmaintenance, and rapid response capability for both parts and service.We have established a call center in our St. Louis facilities, which provides real-time clinical and technical support to our customers worldwide.MANUFACTURINGNiobe, Odyssey, and Vdrive SystemsOur manufacturing strategy for our Niobe system and Odyssey Solution is to sub-contract the manufacture of major subassemblies of our systemto maximize manufacturing flexibility and lower fixed costs. Our current manufacturing strategy for the Vdrive system is to build all subassembliesin-house using sub-contract manufactured components. We maintain quality control for all of our systems by completing final system assembly andinspection in-house.We purchase both custom and off-the-shelf components from a large number of suppliers and subject them to quality specifications andprocesses. Some of the components necessary for the assembly of our products are currently provided to us by sole-sourced suppliers (the onlyrecognized supply source available to us) or single-sourced suppliers (the only approved supply source for us among other sources). We purchase themajority of our components and major assemblies through purchase orders rather than long-term supply agreements and generally do not maintainlarge volumes of finished goods.Disposable Interventional DevicesOur manufacturing strategy for disposable interventional devices is to outsource their manufacture through subcontracting and to expandpartnerships for other interventional devices. We work closely with our contract manufacturers and have strong relationships with componentsuppliers. We have entered into manufacturing agreements to provide high volume capability for devices other than catheters.SoftwareThe software components of the Niobe system, the Vdrive system and Odyssey Solution, including control and application software, aredeveloped both internally and with integrated modules we purchase or license. We perform final testing of software products in-house prior to theircommercial release. 11Table of ContentsGeneralOur manufacturing facility operates under processes that meet the FDA’s requirements under the Quality System Regulation (QSR). Our ISOregistrar and European notified British Standard Institution (BSI) has audited our facility annually since 2001 and found the facility to be incompliance with relevant requirements. The initial ISO 9001 certification was issued in January 2002 and the most recent ISO 13485 certificate wasissued in 2016.SALES AND MARKETINGWe market our products in the U.S and internationally through a direct sales force of senior sales specialists, distributors and sales agents,supported by account managers and clinical specialists who provide training, clinical support, and other services to our customers. In addition,Biosense Webster distributes magnetically-enabled electrophysiology mapping and ablation catheters, co-developed pursuant to our agreement withthem.Our sales and marketing efforts include two important elements: (1) selling Niobe systems, Odyssey Solutions, and Vdrive systems directly andthrough distributors; and (2) leveraging our installed base of systems to drive recurring sales of disposable interventional devices, software and service.REIMBURSEMENTWe believe that substantially all of the procedures, whether commercial or in clinical trials, conducted in the U.S. with the Niobe system orVdrive system have been reimbursed to date. We expect that third-party payors will reimburse, under existing billing codes, procedures in whichcompatible ablation catheters are used. We expect healthcare facilities in the U.S. to bill various third-party payors, such as Medicare, Medicaid, othergovernment programs and private insurers, for services performed with our products. We believe that procedures performed using our products, ortargeted for use by products that do not yet have regulatory clearance or approval, are generally already reimbursable under government programs andmost private plans. Accordingly, we believe providers in the U.S. will generally not be required to obtain new billing authorizations or codes in orderto be compensated for performing medically necessary procedures using our products on insured patients. We cannot guarantee that reimbursementpolicies of third-party payors will not change in the future with respect to some or all of the procedures using the Niobe system.In countries outside the United States, reimbursement is obtained from various sources, including governmental authorities, private healthinsurance plans, and labor unions. In most foreign countries, private insurance systems may also offer payments for some therapies. Additionally,health maintenance organizations are emerging in certain European countries. In the European Union, we believe that substantially all of theprocedures, whether commercial or in clinical trials, conducted with the Niobe system or Vdrive system have been reimbursed to date. In Japan, theMinistry of Health, Labor and Welfare (MHLW) has classified the Niobe system as a C2 medical device (the highest reimbursement category), and hasestablished a “technical fee” of Japanese Yen 50,000 per procedure. In other foreign countries, we may need to seek international reimbursementapprovals, and we do not know if these required approvals will be obtained in a timely manner or at all.See “Item 1A—Risk Factors” for a discussion of various risks associated with reimbursement from third-party payors.INTELLECTUAL PROPERTYThe proprietary nature of, and protection for, our products, processes and know-how are important to our business. We seek patent protection inthe United States and internationally for our systems and other technology where available and when appropriate.We have an extensive patent portfolio that we believe protects the fundamental scope of our technology, including our magnet technology,navigational methods, procedures, systems, disposable interventional devices 12Table of Contentsand our 3D integration technology. As of December 31, 2017, we had 86 issued U.S. patents, 1 co-owned U.S. patent and no licensed-in U.S. patents. Inaddition, we had 7 pending U.S. patent applications and 1 co-owned U.S. patent application. As of December 31, 2017 we had 29 issued foreignpatents and 8 owned foreign patent applications. The key patents that protect our Niobe system extend until 2022 and beyond. We also have a numberof invention disclosures under consideration and several applications that are being prepared for filing. We cannot be certain that any patents will beissued from any of our pending patent applications, nor can we be certain that any of our existing patents or any patents that may be granted in thefuture will provide us with protection.It would be technically difficult and costly to reverse engineer our Niobe system, which contains numerous complex algorithms that control ourdisposable devices inside the magnetic fields generated by the Niobe system. We further believe that our patent portfolio is broad enough in scope toenable us to obtain legal relief if any entity not licensed by us attempted to market disposable devices in the U.S. that can be navigated by the Niobesystem. We can also utilize security keys, such as embedded smart chips or associated software that could allow our system to recognize specificdisposable interventional devices in order to prevent unauthorized use of our system.We have also developed substantial expertise in magnet design, magnet physics and magnetic instrument control that was developed inconnection with the development of the Niobe system, which we maintain as trade secrets. This expertise centers around our proprietary magnet design,which is a critical aspect of our ability to design, manufacture and install a cost-effective magnetic navigation system that is small enough to beinstalled in a standard interventional lab. Our Odyssey Solution contains numerous complex algorithms and proprietary software and hardwareconfigurations, and requires substantial knowledge to design and assemble, which we maintain as trade secrets. This proprietary software and hardware,some of which is owned by Stereotaxis, and some of which is licensed to Stereotaxis, is a material aspect of the ability to design, manufacture andinstall a cost-effective and efficient information integration, storage, and delivery platform.In addition, we seek to protect our proprietary information by entering into confidentiality, assignment of invention or license agreements withour employees, consultants, contractors, advisers and other third parties. However, we believe that these measures afford only limited protection.COMPETITIONThe markets for medical devices are intensely competitive and are characterized by rapid technological advances, frequent new productintroductions, evolving industry standards and price erosion. In electrophysiology we consider the primary competition to our Epoch Solution to be traditional catheter-based electrophysiology ablationapproaches including RF (radiofrequency) ablation and non-RF therapies. To our knowledge, we are the only company that has commercializedremote, digital and direct control of the working tip of catheters for use in RF ablation procedures. Our success depends in part on convincing hospitalsand physicians to convert traditional interventional procedures to procedures using our Epoch Solution.We face competition from companies that are developing and marketing new products for use in electrophysiology. These products include nextgeneration mapping systems and RF ablation devices with which our Epoch Solution is not currently compatible, as well as non-RF ablation devicesincluding single-shot cryoablation devices and other new products for use in other interventional therapies. Some of these products are marketed bycompanies that may have an established presence in the field of electrophysiology, including major imaging, capital equipment and disposablescompanies that are currently selling products in the interventional lab. In addition, we face competition from companies that currently market or aredeveloping drugs, gene or cellular therapies to treat the conditions for which our products are intended.We also face competition from companies that are developing remote interventional techniques. We are aware of three private companies thathave commercialized endovascular catheter navigation systems which have 13Table of Contentsbeen cleared by the FDA for mapping procedures only. In addition, we are aware of two private companies with an electromagnetic catheter navigationsystem that have received CE Mark approval in Europe. However, each of these companies has limited or no commercial activities.We face direct competition to certain products in our Odyssey Solution, such as the Odyssey Vision system. These competitors includeestablished imaging companies as well as dedicated solution providers. We expect to continue to face competitive pressure in this market in the future,based on the rapid pace of advancements with this technology.We believe that the primary competitive factors in the market we address are capability, safety, efficacy, ease of use, price, quality, reliability andeffective sales, support, training and service. The length of time required for products to be developed and to receive regulatory and reimbursementapproval is also an important competitive factor. See “Item 1A—Risk Factors” for a discussion of other competitive risks facing our business.GOVERNMENT REGULATIONOur products are medical devices that are subject to extensive regulation in the U.S. and in foreign countries where we do business. The U.S. FDAregulates the development, testing, manufacturing, labeling, storage, recordkeeping, promotion, marketing, distribution and service of medical devicesin the U.S. to ensure that medical products distributed domestically are safe and effective for their intended uses. In addition, the FDA regulates theexport of medical devices manufactured in the U.S. to international markets and the importation of medical devices manufactured abroad.In many foreign countries in which we market our products, we are subject to regulations affecting, among other things, product standards,packaging requirements, labeling requirements, import restrictions, tariff regulations, duties and tax requirements. Many of these regulations are similarto those of the FDA or other U.S. regulations. In addition, our products must meet the requirements of a large and growing body of internationalstandards which govern the design, manufacture, materials content and sourcing, testing, certification, packaging, installation, use and disposal of ourproducts. Failure to meet these standards could limit the ability to market our products in those regions which require compliance to such standards.Examples of groups of such standards are electrical safety standards such as those of the International Electrotechnical Commission and compositionstandards such as the Reduction of Hazardous Substances (“RoHS”) and Waste Electrical and Electronic Equipment (“WEEE”) Directives.U.S. Food and Drug AdministrationUnless an exemption applies, each medical device we wish to commercially market in the United States will require 510(k) clearance, de novoapproval, or pre-market approval from the FDA. The FDA classifies medical devices into one of three classes. Devices deemed to pose lower risks areplaced in either Class I or II, which requires the manufacturer to submit to the FDA a pre-market notification requesting permission to commerciallydistribute the device, known as 510(k) clearance. Some low risk devices are exempted from this requirement. Devices deemed by the FDA to pose thegreatest risks, such as life-sustaining, or life-supporting, or devices deemed not substantially equivalent to a previously cleared 510(k) device, areplaced in Class III, requiring pre-market approval, or PMA. The majority of our current products are Class II devices requiring 510(k) clearances.Biosense Webster’s compatible catheters used with our Niobe system are Class III therapeutic devices and are subject to the PMA process.If U.S. clinical data are needed to support clearance, approval or a marketing application for our devices, generally, an investigational deviceexemption, or IDE, is assembled and submitted to the FDA. The FDA reviews and must approve the IDE before the study can begin. In addition, thestudy must be approved by an Institutional Review Board covering each clinical site involved in the study. When all approvals are obtained, weinitiate a clinical study to evaluate the device. Following completion of the study, we collect, analyze and present the data in an appropriatesubmission to the FDA (i.e. in support of a 510(k), de novo, or PMA). 14Table of ContentsWhen a 510(k) clearance is required, we must submit a pre-market notification demonstrating that our proposed device is substantiallyequivalent to a previously cleared and legally marketed 510(k) device, de novo approved device, or a device that was in commercial distributionbefore May 28, 1976, for which the FDA has not yet called for the submission of pre-market approval applications. To establish substantialequivalence, the applicant must show that the new device has the same intended use as the predicate device, and it either has the same technologicalcharacteristics or has been shown to be equally safe and effective and does not raise different questions of safety and effectiveness as compared to thepredicate device. The FDA may require further information, including clinical trial results or product test data, to make a determination regardingsubstantial equivalence. The FDA’s 510(k) clearance process usually takes from four to 12 months, but can take longer.If a device is not eligible for the 510(k) clearance process, but the product is low or moderate risk, we may be able to obtain de novo review. Thede novo process allows FDA to classify a low- to moderate-risk device not previously classified into Class I or II. If the device is not eligible for eitherthe 510(k) or de novo processes, a PMA must be submitted to the FDA. A PMA must be supported by extensive data, including but not limited to,technical, preclinical, clinical trials, manufacturing and labeling to demonstrate reasonable evidence of the device’s safety and efficacy to the FDA’ssatisfaction. The PMA process is much more costly, lengthy and uncertain than the 510(k) clearance process, and it generally takes from one to threeyears, but can take longer. We cannot be sure that the FDA will ever grant 510(k) clearance, de novo approval or pre-market approval for any productwe propose to market in the United States.After a device receives 510(k) clearance or de novo approval, any modification that could significantly affect its safety or effectiveness, or thatwould constitute a significant change in its intended use, will require a new clearance. Modification to a PMA approved device or its labeling mayrequire either a new PMA or PMA supplement approval, which could be a costly and lengthy process.After a device is placed on the market, numerous regulatory requirements apply. These include for example: • The Quality System Regulation, or QSR, which requires manufacturers, including third-party manufacturers, to follow stringent design,testing, documentation and other quality assurance procedures during product design and throughout the manufacturing process; • Labeling requirements and the FDA prohibitions against promoting products for uncleared, unapproved or “off-label” uses; • Medical device reporting regulations, which requires that manufacturers report to the FDA if their device may have caused or contributedto a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunctionwere to recur; and • Reports of Corrections and Removals regulation, which requires manufacturers to report recalls and field actions to the FDA if initiated toreduce a risk to health posed by the device or to remedy a violation of the FD&C Act.The FDA has broad post-market and regulatory enforcement powers. We are subject to unannounced inspections by the FDA to determine ourcompliance with the QSR and other regulations. If we fail to comply with the QSR or other regulatory requirements, we may receive a warning oruntitled letter from the FDA or be subject to other enforcement actions, including fines, injunctions, civil penalties, seizures, operating restrictions,partial suspension or total shutdown of production, refusing requests for 510(k) clearance, de novo petitions, or PMA approval of new products,withdrawing 510(k) clearance, de novo approvals, or PMA approvals already granted, and criminal prosecution. The FDA also has the authority torequire us to repair, replace or refund the cost of any medical device that we have manufactured or distributed, if there is a reasonable probability thatthe device would cause serious, adverse health consequences or death.International RegulationIn order for us to market our products in other countries, we must obtain regulatory approvals and comply with extensive safety and qualityregulations in other countries. These regulations, including the requirements for 15Table of Contentsapprovals or clearance and the time required for regulatory review, vary from country to country and can involve additional product testing andadditional administrative review periods. The time required to obtain approval in other countries may differ from that required to obtain FDA clearanceor approval. The primary regulatory environment in Europe is that of the European Union, which encompasses most of the major countries in Europe. TheEuropean Union, along with other member countries of the European Economic Area, or EEA, requires that manufacturers of medical products obtainthe right to affix the CE Mark to their products before selling them in member countries of the EEA. The CE Mark is an international symbol ofadherence to quality assurance standards and compliance with applicable directives. In order to obtain the right to affix the CE Mark to products, amanufacturer must obtain certification that its processes meet certain quality standards. Compliance with the Medical Device Directive, as certified bya recognized European Notified Body, permits the medical device manufacturer to affix the CE Mark on its products and commercially distribute thoseproducts throughout the EEA. We are subject to annual surveillance audits and periodic re-certification audits in order to maintain our CE Markpermissions. To be sold in Japan, most medical devices must undergo thorough safety examinations and demonstrate medical efficacy before they receiveregulatory (“Shonin”) approval. We are subject to additional regulations in other foreign countries, including, but not limited to, Canada, Taiwan,China, Korea, and Russia, in order to sell our products. We intend that either we or our distributors will receive any necessary approvals or clearanceprior to marketing our products in these international markets.Please refer to “Regulatory Approval” in Item 1 of this annual report for a description of the regulatory clearance, licensing and/or approvals wecurrently have or are pursuing.Anti-Kickback and False Claims LawsWe are subject to various federal and state laws relating to healthcare fraud and abuse, including anti-kickback and false claims laws. The U.S.federal healthcare program Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, offering, receiving or providingremuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or furnishing or arranging for a good or service, forwhich payment may be made under a federal healthcare program such as the Medicare and Medicaid programs. The definition of “remuneration” hasbeen broadly interpreted to include anything of value, including for example, gifts, discounts, the furnishing of supplies or equipment, creditarrangements, payments of cash and waivers of payments, and providing anything of value at less than fair market value. Penalties for violationsinclude criminal penalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other federalhealthcare programs. Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment tothe federal government, or knowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several healthcarecompanies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would billfederal programs for the product. In addition, certain marketing practices, including off-label promotion, may also violate false claims laws.Many states have adopted laws similar to the federal healthcare program Anti-Kickback Statute and the federal false claims laws. Some of thesestate prohibitions apply to healthcare items or services reimbursed by any source, not only the Medicare and Medicaid programs.Transparency LawsUnder the Physician Payments Sunshine Act, or the Sunshine Act, which was enacted by Congress as part of the Patient Protection and AffordableCare Act, we are required to track and report to the federal government on an annual basis, subject to certain exceptions, all payments and othertransfers of value to U.S. physicians and teaching hospitals, as well as ownership interests held by physicians. Such data are made available by the 16Table of Contentsgovernment on a publicly searchable website. In addition, we are subject to similar state laws related to the tracking and reporting of certain paymentsand other transfers of value to healthcare professionals.HIPAA and Other Privacy LawsWe are subject to laws and regulations protecting the privacy and integrity of patient medical information, including the Health InsurancePortability and Accountability Act of 1996, or HIPAA, which imposes certain requirements relating to the privacy, security and transmission ofindividually identifiable health information, and the applicable Privacy and Security Standards of HITECH, the Health Information Technology forEconomic and Clinical Health Act. HIPAA also prohibits executing a scheme to defraud any healthcare benefit program or making false statementsrelating to healthcare matters. In addition to federal regulations issued under HIPAA, some states and foreign countries have enacted privacy andsecurity statutes or regulations that, in some cases, are more stringent than those issued under HIPAA. In those cases, it may be necessary to modify ouroperations and procedures to comply with the more stringent state and foreign laws, which may entail significant and costly changes for us.Certificate of Need LawsIn a number of states in the U.S., a certificate of need or similar regulatory approval is required prior to the acquisition of high-cost capital itemsor various types of advanced medical equipment, such as our Niobe system. Many of the states in which we sell Niobe systems have laws that requireinstitutions located in those states to obtain a certificate of need in connection with the purchase of our system, and some of our purchase orders areconditioned upon our customer’s receipt of necessary certificate of need approval.EmployeesAs of December 31, 2017, we had 117 employees, 22 of whom were engaged directly in research and development, 55 in sales and marketingactivities, 15 in manufacturing and service, and 25 in general administrative activities including accounting, regulatory, clinical affairs, quality andtraining. A significant majority of our employees is not covered by a collective bargaining agreement, and we consider our relationship with ouremployees to be good.Availability of InformationWe make certain filings with the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,and all amendments and exhibits to those reports, available free of charge in the Investors section of our website, http://www.stereotaxis.com, as soonas reasonably practicable after they are filed with the SEC. The filings are also available through the SEC at the SEC’s Public Reference Room at 100 FStreet, N.E., Washington, D.C. 20549 or by calling 1-800-SEC-0330. Further, these filings are available on the Internet at http://www.sec.gov.Information contained on our website is not part of this report and such information is not incorporated by reference into this report.Executive OfficersSee Part III – Item 10 for information about our Executive Officers. 17Table of ContentsITEM 1A.RISK FACTORSThe following uncertainties and factors, among others, could affect future performance and cause actual results to differ materially from thoseexpressed or implied by forward looking statements.We may not generate cash from operations or be able to raise the necessary capital to continue operations.We may require additional funds to meet our operational, working capital and capital expenditure needs in the future. We cannot be certain thatwe will be able to obtain additional funds on favorable terms or at all. If we cannot raise capital on acceptable terms, we will not be able to, amongother things: • service our debt obligations and meet our financial covenants; • maintain customer and vendor relationships; • hire, train and retain employees; • maintain or expand our operations; • enhance our existing products or develop new ones; or • respond to competitive pressures.Our failure to do any of these things could result in lower revenue and adversely affect our financial condition and results of operations, and wemay have to curtail or cease operations.We may not be able to continue as a going concern if we do not improve the operating performance of the Company or raise additional capital.The Company has sustained operating losses throughout its corporate history and expects that its 2018 expenses will exceed its 2018 grossmargin. The Company expects to continue to incur operating losses and negative cash flows until revenues reach a level sufficient to support ongoingoperations or expense reductions are in place. The Company’s liquidity needs will be largely determined by the success of clinical adoption within theinstalled base of Niobe ES systems as well as by new placements of capital systems. The Company’s plans for improving the liquidity conditionsprimarily include its ability to control the timing and spending of its operating expenses and raising additional funds through debt or equity financing.There can be no assurance that any of our plans will be successful or that additional capital will be available to us on reasonable terms, or at all,when needed. If we are unable to improve the operating performance of the Company or if we are unable to obtain sufficient additional capital, it mayimpair our ability to raise new capital, obtain new customers, and hire and retain employees, which could force us to substantially revise our businessplan or cease operations, which may reduce or negate the value of your investment.We may lose key personnel or fail to attract and retain replacement or additional personnel.We are highly dependent on the principal members of our management, as well as our scientific and sales staff. Attracting and retaining qualifiedpersonnel will be critical to our success, and competition for qualified personnel is intense. We may not be able to attract and retain personnel onacceptable terms given the competition for qualified personnel among technology and healthcare companies and universities. The loss of personnel, orour inability to attract and retain other qualified personnel could harm our business and our ability to compete. In addition, the loss of members of ourscientific staff may significantly delay or prevent product development and other business objectives. A loss of key sales personnel could result in areduction of revenue. In addition, if we outsource certain employee functions that were formerly handled in-house, our personnel costs could increase. 18Table of ContentsHospital decision-makers may not purchase our Niobe, Odyssey, or Vdrive systems or may think that such systems are too expensive.To achieve and grow sales, hospitals must purchase our products, and in particular, our Niobe ES system. The Niobe ES system is a novel device,and hospitals and physicians are traditionally slow to adopt new products and treatment practices. In addition, hospitals may delay their purchase orinstallation decision for the Niobe ES system based on the disposable interventional devices that have received regulatory clearance or approval.Moreover, the Niobe ES system is an expensive piece of capital equipment, representing a significant portion of the cost of a new or replacementinterventional lab. Although priced significantly below a Niobe ES system, the Odyssey Solution and Vdrive system are still expensive products. Ifhospitals do not widely adopt our systems, or if they decide that they are too expensive, we may never become profitable. Any failure to sell as manysystems as our business plan requires could also have a seriously detrimental impact on our results of operations, financial condition, and cash flow.If we are unable to fulfill our current purchase orders and other commitments on a timely basis or at all, we may not be able to achieve futuresales growth.Our backlog, which consists of purchase orders and other commitments, is considered by some investors to be a significant indicator of futureperformance. Consequently, negative changes to this backlog or its failure to grow commensurate with expectations could negatively impact our futureoperating results or our share price. Our backlog includes those outstanding purchase orders and other commitments that management believes willresult in recognition of revenue upon delivery or installation of our systems. We cannot assure you that we will recognize revenue in any particularperiod or at all because some of our purchase orders and other commitments are subject to contingencies that are outside our control. In addition, theseorders and commitments may be revised, modified or cancelled, either by their express terms, as a result of negotiations or by project changes or delays.System installation is by its nature subject to the interventional lab construction or renovation process which comprises multiple stages, all of whichare outside of our control. Although the actual installation of our Niobe ES system requires only a few weeks, and can be accomplished by either ourstaff or by subcontractors, successful installation of our system can be subjected to delays related to the overall construction or renovation process. Ifwe experience any failures or delays in completing the installation of these systems, our reputation would suffer and we may not be able to selladditional systems. We have experienced situations in which our purchase orders and other commitments did not result in recognizing revenue fromplacement of a system with a customer. In addition to construction delays, there are risks that an institution will attempt to cancel a purchase order as aresult of subsequent project review by the institution or the departure from the institution of physicians or physician groups who have expressed aninterest in the Epoch Solution.Decreases in our backlog have occurred in the past and could occur in the future, causing delays in revenue recognition or even removal of ordersand other commitments from our backlog. Such events would have a negative effect on our revenue and results of operations.We will likely experience long and variable sales and installation cycles, which could result in substantial fluctuations in our quarterly results ofoperations.We anticipate that our Niobe ES system will continue to have a lengthy sales cycle because it consists of a relatively expensive piece of capitalequipment, the purchase of which requires the approval of senior management at hospitals, inclusion in the hospitals’ interventional lab budgetprocess for capital expenditures, and, in some instances, a certificate of need from the state or other regulatory approval. In addition, historically themajority of our Niobe ES systems and Odyssey systems have been delivered less than one year after the receipt of a purchase order from a hospital, withthe timing being dependent on the construction cycle for the new or replacement interventional suite in which the equipment will be installed. In somecases, this time frame has been extended further because the interventional suite construction is part of a larger construction project at the customer site(typically the construction of a new building), which may occur with our existing and future 19Table of Contentspurchase orders. We cannot assure you that the time from purchase order to delivery for systems to be delivered in the future will be consistent with ourhistorical experience. Moreover, a global economic slowdown may cause our customers to further delay construction or significant capital purchases,which could further lengthen our sales cycle. This may contribute to substantial fluctuations in our quarterly operating results. As a result, in futurequarters our operating results could fall below the expectations of securities analysts or investors, in which event our stock price would likely decrease.The rate of technological innovation of our products might not keep pace with the rest of the market.The rate of innovation for the market in which our products compete is fast-paced and requires significant resources and innovation. If otherproducts and technologies are developed that compete with, or may compete with, the Niobe, Odyssey and Vdrive systems, it could be difficult for us tomaintain our advantages associated with being an early developer of this technology. In addition, connectivity with other devices in theelectrophysiology lab is a key driver of value. If the Company is not able to continue to commit sufficient resources to ensure that its products arecompatible with other products within the electrophysiology lab, this could have a negative impact on revenue.General economic conditions could materially adversely impact us.Our operating performance is dependent upon economic conditions in the United States and in other countries in which we operate. Uncertaintyabout current global economic conditions and future global economic crises may cause customers to delay purchasing or installation decisions orcancel existing orders. The Niobe ES system, Odyssey Solution and Vdrive system are typically purchased as part of a larger overall capital project andan economic downturn or the lack of a robust recovery might make it more difficult for our customers, including distributors, to obtain adequatefinancing to support the project or to obtain requisite approvals. Any delay in purchasing decisions or cancellation of purchasing commitments mayresult in a decrease in our revenues. Another credit crisis similar to the credit crisis that began in 2008 could further affect our business if key suppliersare unable to obtain financing to manufacture our products or become insolvent and we are unable to manufacture product to meet customer demand. Ifthe United States and global economy becomes sluggish or deteriorates for a longer period than we anticipate, we may experience a material negativedecrease on the demand for our products which may, in turn, have a material adverse effect on our revenue, profitability, financial condition, ability toraise additional capital and the market price of our stock.Physicians may not use our products if they do not believe they are safe, efficient and effective.We believe that physicians will not use our products unless they determine that the Niobe ES system and Vdrive system provide a safe, effectiveand preferable alternative to interventional methods in general use today. If longer-term patient studies or clinical experience indicate that treatmentwith our system or products is less effective, less efficient or less safe than our current data suggest, our sales would be harmed, and we could be subjectto significant liability. Further, unsatisfactory patient outcomes or patient injury could cause negative publicity for our products, particularly in theearly phases of product introduction. In addition, physicians may be slow to adopt our products if they perceive liability risks arising from the use ofthese new products. It is also possible that as our products become more widely used, latent defects could be identified, creating negative publicity andliability problems for us and adversely affecting demand for our products. If physicians do not use our products, we likely will not become profitable orgenerate sufficient cash to survive as a going concern.Our collaborations with two multinational fluoroscopy system manufacturers and one provider of catheters and electrophysiology mappingsystems or other parties may fail, or we may not be able to enter into additional collaborations in the future.We have collaborated with and are continuing to collaborate with two multinational fluoroscopy system manufacturers and one provider ofcatheters and electrophysiology mapping systems and other parties to 20Table of Contentsintegrate our instrument control technology with their respective imaging products or disposable interventional devices and to co-develop additionaldisposable interventional devices for use with our Niobe system. A significant portion of our revenue from system sales is derived from these integratedproducts. The maintenance of these collaborations, or the establishment of equivalent alternatives, is critical to our commercialization efforts. Thecommercial availability of both currently compatible digital imaging fluoroscopy systems is unlikely to continue for multiple years and efforts arebeing made to ensure the availability of integrated next generation systems and/or equivalent alternatives; however, we cannot assure as to thetimeline of the ongoing availability of such compatible systems or our ability to obtain equivalent alternatives on competitive terms or at all.Our product commercialization plans could be disrupted, leading to lower than expected revenue and a material and adverse impact on ourresults of operations and cash flow, if: • we fail to or are unable to maintain adequate compatibility of our products with the most prevalent imaging products or disposableinterventional devices expected by our customers for their clinical practice; • any of our collaboration partners delays or fails in the integration of its technology or new products with our Niobe system; • any of our collaboration partners fails to develop or commercialize the integrated products in a timely manner; or • we become involved in disputes with one or more of our collaboration partners regarding our collaborations.Some of our collaborators are large, global organizations with diverse product lines and interests that may diverge from our interests incommercializing our products. Accordingly, our collaborators may not devote adequate resources to our products, or may experience financialdifficulties, change their business strategy or undergo a business combination that may affect their willingness or ability to fulfill their obligations tous.The failure of one or more of our collaborations could have a material adverse effect on our financial condition, results of operations and cashflow. In addition, if we are unable to enter into additional collaborations in the future, or if these collaborations fail, our ability to develop andcommercialize products could be impacted negatively and our revenue could be adversely affected.The complexity associated with selling, marketing, and distributing products could impair our ability to increase revenue.We currently market our products in the U.S., Europe and the rest of the world through a direct sales force of sales specialists, distributors andsales agents, supported by account managers and clinical specialists who provide training, clinical support, and other services to our customers. If weare unable to effectively utilize our existing sales force or increase our existing sales force in the foreseeable future, we may be unable to generate therevenue we have projected in our business plan. Factors that may inhibit our sales and marketing efforts include: • our inability to recruit and retain adequate numbers of qualified sales and marketing personnel; • our inability to accurately forecast future product sales and utilize resources accordingly; • the inability of sales personnel to obtain access to or persuade adequate numbers of hospitals and physicians to purchase and use ourproducts; and • unforeseen costs associated with maintaining and expanding an independent sales and marketing organization.In addition, if we fail to effectively use distributors or contract sales agents for distribution of our products where appropriate, our revenue andprofitability would be adversely affected. 21Table of ContentsOur marketing strategy is dependent on collaboration with physician “thought leaders.”Our research and development efforts and our marketing strategy depend heavily on obtaining support, physician training assistance, andcollaboration from highly regarded physicians at leading commercial and research hospitals, particularly in the U.S. and Europe. If we are unable togain and/or maintain such support, training services, and collaboration or if the reputation or standing of these physicians is impaired or otherwiseadversely affected, our ability to market our products and, as a result, our financial condition, results of operations and cash flow could be materiallyand adversely affected.Physicians may not commit enough time to sufficiently learn our system.In order for physicians to learn to use the Niobe system, they must attend structured training sessions in order to familiarize themselves with asophisticated user interface and they must be committed to learning the technology. Further, physicians must utilize the technology on a regular basisto ensure they maintain the skill set necessary to use the interface. Continued market acceptance could be delayed by lack of physician willingness toattend training sessions, by the time required to complete this training, or by state or institutional restrictions on our ability to provide training. Aninability to train a sufficient number of physicians to generate adequate demand for our products could have a material adverse impact on our financialcondition and cash flow.Customers may choose to purchase competing products and not ours.Our products must compete with traditional interventional methods. These methods are widely accepted in the medical community, have a longhistory of use and do not require the purchase of an additional expensive piece of capital equipment. In addition, many of the medical conditions thatcan be treated using our products can also be treated with pharmaceuticals or other medical devices and procedures. Many of these alternativetreatments are also widely accepted in the medical community and have a long history of use.We are aware of three private companies that have commercialized endovascular catheter navigation systems which have been cleared by theFDA for mapping procedures only. In addition, we are aware of two private companies with an electromagnetic catheter navigation system that hasreceived CE Mark approval in Europe.We face competition from companies that are developing drugs, gene or cellular therapies or other medical devices or procedures to treat theconditions for which our products are intended. The medical device and pharmaceutical industries make significant investments in research anddevelopment, and innovation is rapid and continuous. Other companies in the medical device industry continue to develop new devices andtechnologies for traditional interventional methods.If these or other new products or technologies emerge that provide the same or superior benefits as our products at equal or lesser cost, it couldrender our products obsolete or unmarketable. In addition, the presence of other competitors may cause potential customers to delay their purchasingdecisions, resulting in a longer than expected sales cycle, even if they do not choose our competitors’ products. We cannot be certain that physicianswill use our products to replace or supplement established treatments or that our products will be competitive with current or future products andtechnologies.Many of our other competitors also have longer operating histories, significantly greater financial, technical, marketing and other resources,greater name recognition and a larger base of customers than we do. In addition, as the markets for medical devices develop, additional competitorscould enter the market. We cannot assure you that we will be able to compete successfully against existing or new competitors. Our revenue would bereduced or eliminated if our competitors develop and market products that are more effective and less expensive than our products. 22Table of ContentsIf the magnetic fields generated by our system are not compatible with, or interfere with, other widely used equipment in the interventional labs,sales of our products would be negatively affected.Our Niobe system generates magnetic fields that directly govern the motion of the internal, or working, tip of disposable interventional devices.If other equipment in the interventional labs or elsewhere in a hospital is incompatible with the magnetic fields generated by our system, or if oursystem interferes with such equipment, we may be required to install additional shielding, which may be expensive and which may not solve theproblem. If magnetic interference becomes a significant issue at targeted institutions, it would increase our installation costs at those institutions andcould limit the number of hospitals that would be willing to purchase and install our systems, either of which would adversely affect our financialcondition, results of operations and cash flow.The use of our products could result in product liability claims that could be expensive, divert management’s attention, and harm our reputationand business.Our business exposes us to significant risks of product liability claims. The medical device industry has historically been litigious, and we couldface product liability claims if the use of our products were to cause injury or death. The coverage limits of our product liability insurance policies maynot be adequate to cover future claims, and we may be unable to maintain product liability insurance in the future at satisfactory rates or adequateamounts. A product liability claim, regardless of its merit or eventual outcome, could divert management’s attention, and result in significant legaldefense costs, significant harm to our reputation and a decline in revenue.Our costs could substantially increase if we receive a significant number of warranty claims.We generally warrant each of our products against defects in materials and workmanship for a period of 12 months following the installation ofour system. If product returns or warranty claims increase, we could incur unanticipated additional expenditures for parts and service. In addition, ourreputation and goodwill in the interventional lab market could be damaged. Unforeseen warranty exposure in excess of our established reserves forliabilities associated with product warranties could materially and adversely affect our financial condition, results of operations and cash flow.We have incurred substantial losses in the past and may not be profitable in the future.We have incurred substantial net losses since inception, and we expect to incur losses into 2018 as we continue the commercialization of ourproducts. We are still in the process of realizing the full potential of the commercialization of our technology, and will need to continue to makeimprovements to that technology. Moreover, the extent of our future losses and the timing of profitability are highly uncertain. Although we haveachieved operating profitability during certain quarters, we may not achieve profitable operations on an annual basis, and if we achieve profitableoperations, we may not sustain or increase profitability on a quarterly or annual basis. If we require more time than we expect to generate significantrevenue and achieve annual profitability, or if we are unable to sustain profitability once achieved, we may not be able to continue our operations. Ourfailure to achieve annual profitability or sustain profitability on an annual or quarterly basis could negatively impact the market price of our commonstock. Furthermore, even if we achieve significant revenue, we may choose to pursue a strategy of increasing market penetration and presence orexpand or accelerate new product development or clinical research activities at the expense of profitability.We may not be able to comply with debt covenants and may have to repay outstanding indebtedness.Our current borrowing agreement contains various covenants, including financial covenants under our credit agreement with our primary lender.If we violate our covenants, it could impact our ability to borrow and we could be required to repay any related outstanding debt. We could be unableto make these payments, which 23Table of Contentscould lead to insolvency. Even if we are able to make these payments, it will lead to the lack of availability for additional borrowings under our bankloan agreement due to our borrowing capacity. There can be no assurance that we will be able to maintain compliance with these covenants or that wecould replace this source of liquidity if these covenants were to be violated and our loans and other borrowed amounts were forced to be repaid.Our reliance on contract manufacturers and on suppliers, and in some cases, a single supplier, could harm our ability to meet demand for ourproducts in a timely manner or within budget.We depend on contract manufacturers to produce and assemble certain of the components of our systems and other products such as ourelectrophysiology catheter advancement device and disposable devices for our Vdrive system. We also depend on various third party suppliers for themagnets we use in our Niobe ES system and certain components of our Odyssey Solution and Vdrive system. In addition, some of the componentsnecessary for the assembly of our products are currently provided to us by a single supplier, including the magnets for our Niobe ES system and certaincomponents of our Odyssey Solution, and we generally do not maintain large volumes of inventory. Our reliance on these third parties involves anumber of risks, including, among other things, the risk that: • we may not be able to control the quality and cost of our system or respond to unanticipated changes and increases in customer orders; • we may lose access to critical services, materials, or components, resulting in an interruption in the manufacture, assembly and shipment ofour systems; and • we may not be able to find new or alternative components for our use or reconfigure our system and manufacturing processes in a timelymanner if the components necessary for our system become unavailable.If any of these risks materialize, it could significantly increase our costs and impair product delivery.Lead times for materials and components ordered by us and our contract manufacturers vary and depend on factors such as the specific supplier,contract terms and demand for a component at a given time. We and our contract manufacturers acquire materials, complete standard subassemblies andassemble fully configured systems based on sales forecasts. If orders do not match forecasts, our contract manufacturers and we may have excess orinadequate inventory of materials and components.In addition, if these manufacturers or suppliers stop providing us with the components or services necessary for the operation of our business, wemay not be able to identify alternate sources in a timely fashion. Any transition to alternate manufacturers or suppliers would likely result inoperational problems and increased expenses and could delay the shipment of, or limit our ability to provide, our products. We cannot assure you thatwe would be able to enter into agreements with new manufacturers or suppliers on commercially reasonable terms or at all. Additionally, obtainingcomponents from a new supplier may require a new or supplemental filing with applicable regulatory authorities and clearance or approval of the filingbefore we could resume product sales. Any disruptions in product flow may harm our ability to generate revenue, lead to customer dissatisfaction,damage our reputation and result in additional costs or cancellation of orders by our customers.We also rely on Biosense Webster and other parties to manufacture a number of disposable interventional devices for use with our Niobe system.If these parties cannot manufacture sufficient quantities of disposable interventional devices to meet customer demand, or if their manufacturingprocesses are disrupted, our revenue and profitability would be adversely affected. 24Table of ContentsRisks associated with international manufacturing and trade could negatively impact the availability and cost of our products because materialsused to manufacture our magnets, one of our key system components, are sourced from overseas.We purchase the permanent magnets for our Niobe ES system from a manufacturer that uses material produced in Japan, and we anticipate thatcertain of the production work for these magnets will be performed for this manufacturer in China. In addition, our subcontractor purchases magnets forour disposable interventional devices directly from a manufacturer in Japan. Any event causing a significant increase in price or a disruption ofimports, including the imposition of import restrictions, could adversely affect our business. The flow of components from our vendors could also beadversely affected by financial or political instability in any of the countries in which the goods we purchase are manufactured, if the instability affectsthe production or export of product components from those countries. Trade restrictions in the form of tariffs or quotas, or both, could also affect theimportation of those product components and could increase the cost and reduce the supply of products available to us. In addition, decreases in thevalue of the U.S. dollar against foreign currencies could increase the cost of products we purchase from overseas vendors.We may encounter problems at our manufacturing facilities or those of our subcontractors or otherwise experience manufacturing delays thatcould result in lost revenue.We subcontract all or part of the manufacture and assembly of components of our Niobe ES system, Odyssey Solution, and Vdrive system, and allof our disposable devices. The products we design may not satisfy all of the performance requirements of our customers and we may need to improve ormodify the design or ask our subcontractors to modify their production process in order to do so. In addition, we or our subcontractors may experiencequality problems, substantial costs and unexpected delays related to efforts to upgrade and expand manufacturing, assembly and testing capabilities. Ifwe incur delays due to quality problems or other unexpected events, our revenue may be impacted.Security breaches and other disruptions to our information technology infrastructure could interfere with our operations, compromiseconfidential information, and expose us to liability which could materially adversely impact our business and reputation.Security breaches and other disruptions to our information technology infrastructure could interfere with our operations; compromiseinformation belonging to us, our employees, customers, and suppliers; and expose us to liability which could adversely impact our business andreputation. In the ordinary course of business, we rely on information technology networks and systems, some of which are managed by third parties, toprocess, transmit, and store electronic information, and to manage or support a variety of business processes and activities. Additionally, we collect andstore certain data, including proprietary business information and customer and employee data, and may have access to confidential or personalinformation in certain of our businesses that is subject to privacy and security laws, regulations, and customer-imposed controls. Despite our cybersecurity measures (including employee and third-party training, monitoring of networks and systems, and maintenance of backup and protectivesystems) which are continuously reviewed and upgraded, our information technology networks and infrastructure may still be vulnerable to damage,disruptions, or shutdowns due to attack by hackers, breaches, employee error or malfeasance, power outages, computer viruses, telecommunication orutility failures, systems failures, natural disasters, or other catastrophic events. Any such events could result in legal claims or proceedings, liability orpenalties under privacy laws, disruption in operations, and damage to our reputation, which could materially adversely affect our business. While wehave experienced, and expect to continue to experience, these types of threats to our information technology networks and infrastructure, to date noneof these threats has had a material impact on our business or operations.We may be unable to protect our technology from use by third parties.Our commercial success depends in part on obtaining patent and other intellectual property right protection for the technologies contained in ourproducts and on successfully defending these rights against third party 25Table of Contentschallenges. The patent positions of medical device companies, including ours, can be highly uncertain and involve complex and evolving legal andfactual questions. We cannot assure you that we will obtain the patent protection we seek, that any protection we do obtain will be found valid andenforceable if challenged or that it will confer any significant commercial advantage. U.S. patents and patent applications may also be subject tointerference proceedings and U.S. patents may be subject to re-examination proceedings in the U.S. Patent and Trademark Office, and foreign patentsmay be subject to opposition or comparable proceedings in the corresponding foreign patent office, which proceedings could result in either loss of thepatent, or denial of the patent application, or loss or reduction in the scope of one or more of the claims of the patent or patent application. In addition,such interference, re-examination, and opposition proceedings may be costly. Thus, any patents that we own or license from others may not provideany protection against competitors. Our pending patent applications, those we may file in the future, or those we may license from third parties may notresult in patents being issued and certain foreign patent applications for medical related devices and methods may be found unpatentable. If issued,they may not provide us with proprietary protection or competitive advantages against competitors with similar technology.Some of our technology was developed in conjunction with third parties, and thus there is a risk that a third party may claim rights in ourintellectual property. Outside the U.S., we rely on third-party payment services for the payment of foreign patent annuities and other fees. Non-paymentor delay in payment of such fees, whether intentional or unintentional, may result in loss of patents or patent rights important to our business. Manycountries, including certain countries in Europe, have compulsory licensing laws under which a patent owner may be compelled to grant licenses tothird parties (for example, the patent owner has failed to “work” the invention in that country, or the third party has patented improvements). Inaddition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patentowner may have limited remedies, which could materially diminish the value of the patent. We also cannot assure you that we will be able to developadditional patentable technologies. If we fail to obtain adequate patent protection for our technology, or if any protection we obtain becomes limitedor invalidated, others may be able to make and sell competing products, impairing our competitive position.Our trade secrets, nondisclosure agreements and other contractual provisions to protect unpatented technology provide only limited and possiblyinadequate protection of our rights. As a result, third parties may be able to use our unpatented technology, and our ability to compete in the marketwould be reduced. In addition, employees, consultants and others who participate in developing our products or in commercial relationships with usmay breach their agreements with us regarding our intellectual property, and we may not have adequate remedies for the breach.Our competitors may independently develop similar or alternative technologies or products that are equal or superior to our technology andproducts without infringing any of our patent or other intellectual property rights, or may design around our proprietary technologies. Our competitorsmay acquire similar or even the same technology components that are utilized in our current offering eroding some differentiation in the marketplace.In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent, as do the laws of the U.S., particularly inthe field of medical products and procedures.Third parties may assert that we are infringing their intellectual property rights.Successfully commercializing our products depends in part on not infringing patents held by third parties. It is possible that one or more of ourproducts, including those that we have developed in conjunction with third parties, infringes existing patents. We may also be liable for patentinfringement by third parties whose products we use or combine with our own and for which we have no right to indemnification. In addition, becausepatent applications are maintained under conditions of confidentiality and can take many years to issue, there may be applications now pending ofwhich we are unaware and which may later result in issued patents that our products infringe. Determining whether a product infringes a patentinvolves complex legal and factual issues and may not become clear until finally determined by a court in litigation. Our competitors may assert thatour products 26Table of Contentsinfringe patents held by them. Moreover, as the number of competitors in our market grows the possibility of a patent infringement claim against usincreases. If we were not successful in obtaining a license or redesigning our products, we could be subject to litigation. If we lose in this kind oflitigation, a court could require us to pay substantial damages or prohibit us from using technologies essential to our products covered by third-partypatents. An inability to use technologies essential to our products would have a material adverse effect on our financial condition, results of operationsand cash flow and could undermine our ability to continue operating as a going concern.Expensive intellectual property litigation is frequent in the medical device industry.Infringement actions, validity challenges and other intellectual property claims and proceedings, whether with or without merit, can beexpensive and time-consuming and would divert management’s attention from our business. We have incurred, and expect to continue to incur,substantial costs in obtaining patents and may have to incur substantial costs defending our proprietary rights. Incurring such costs could have amaterial adverse effect on our financial condition, results of operations and cash flow.We may not be able to maintain all the licenses or rights from third parties necessary for the development, manufacture, or marketing of new andexisting products.As we develop additional products and improve or maintain existing products, we may find it advisable or necessary to seek licenses or otherwisemake payments in exchange for rights from third parties who hold patents covering certain technology. If we cannot obtain or maintain the desiredlicenses or rights for any of our products, we could be forced to try to design around those patents at additional cost or abandon the product altogether,which could adversely affect revenue and results of operations. If we have to abandon a product, our ability to develop and grow our business in newdirections and markets would be adversely affected. If we do not maintain licenses or exclusivity with suppliers of certain components of our OdysseySolution, competitors may enter the market, negatively impacting our ability to develop and commercialize the Odyssey Solution.Our products and related technologies can be applied in different medical applications, and we may fail to focus on the most profitable areas.The Niobe system is designed to have the potential for expanded applications beyond electrophysiology and interventional cardiology,including congestive heart failure, structural heart repair, interventional neurosurgery, interventional neuroradiology, peripheral vascular,pulmonology, urology, gynecology and gastrointestinal medicine. We continue to develop the Odyssey Solution and Vdrive system for interventionallabs that have a Niobe system installed as well as those standard interventional labs that do not have a Niobe system installed. However, we havelimited financial and managerial resources and therefore may be required to focus on products in selected industries and sites and to forego efforts withregard to other products and industries. Our decisions may not produce viable commercial products and may divert our resources from more profitablemarket opportunities. Moreover, we may devote resources to developing products in these additional areas but may be unable to justify the valueproposition or otherwise develop a commercial market for products we develop in these areas, if any. In that case, the return on investment in theseadditional areas may be limited, which could negatively affect our results of operations.We may be subject to damages resulting from claims that our employees or we have wrongfully used or disclosed alleged trade secrets of theirformer employers.Many of our employees were previously employed at hospitals, universities or other medical device companies, including our competitors orpotential competitors. We could in the future be subject to claims that these employees or we have used or disclosed trade secrets or other proprietaryinformation of their former employers. Litigation may be necessary to defend against these claims. If we fail in defending such claims, in addition topaying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we 27Table of Contentsare successful in defending against these claims, litigation could result in substantial costs and be a distraction to management. Incurring such costscould have a material adverse effect on our financial condition, results of operations and cash flow.If we or the parties in our strategic collaborations fail to obtain or maintain necessary FDA clearances or approvals for our medical deviceproducts, or if such clearances or approvals are delayed, we will be unable to continue to commercially distribute and market our products.Our products are medical devices that are subject to extensive regulation in the U.S. and in foreign countries where we do business. Each medicaldevice that we wish to market in the U.S. must be designated as exempt from premarket approval or notification, or first receive either a 510(k)clearance, de novo approval, or a pre-market approval, or PMA, from the U.S. FDA pursuant to the Federal Food, Drug, and Cosmetic Act, or FD&C Act.The FDA’s 510(k) clearance process usually takes from four to 12 months, but it can take longer. The process of obtaining PMA approval is much morecostly, lengthy, and uncertain, generally taking from one to three years or even longer. Although we have 510(k) clearance for many of our products,including disposable interventional devices, and we are able to market these products commercially in the U.S., our business model relies significantlyon revenue from new disposable interventional devices, some of which may not achieve FDA clearance or approval. We cannot assure you that any ofour devices will not be required to undergo the lengthier and more burdensome PMA process. We cannot commercially market any disposableinterventional devices in the U.S. until the necessary clearances or approvals from the FDA have been received. In addition, we are working with thirdparties to co-develop disposable products. In some cases, these companies are responsible for obtaining appropriate regulatory clearance or approval tomarket these disposable devices. If these clearances or approvals are not received or are substantially delayed or if we are not able to offer a sufficientarray of approved disposable interventional devices, we may not be able to successfully market our system to as many institutions as we currentlyexpect, which could have a material adverse impact on our financial condition, results of operations and cash flow.Furthermore, obtaining 510(k) clearances, de novo approvals, PMAs or PMA supplement approvals, from the FDA could result in unexpected andsignificant costs for us and consume management’s time and other resources. The FDA could ask us to supplement our submissions, collectnon-clinical data, conduct clinical trials or engage in other time-consuming actions, or it could simply deny our applications. In addition, even if weobtain a 510(k) clearance, de novo approvals, or PMA or PMA supplement approval, the clearance or approval could be revoked or other restrictionsimposed if post-market data demonstrates safety issues or lack of effectiveness. We cannot predict with certainty how, or when, the FDA will act on ourmarketing applications. If we are unable to obtain the necessary regulatory approvals, our financial condition and cash flow may be adversely affected.Also, a failure to obtain approvals may limit our ability to grow domestically and internationally.If our strategic collaborations elect not to or we fail to obtain regulatory approvals in other countries for products under development, we willnot be able to commercialize these products in those countries.In order to market our products outside of the U.S., we and our strategic collaborations or distributors must establish and comply with numerousand varying regulatory requirements of other countries regarding safety and efficacy. Approval procedures vary among countries and can involveadditional product testing and additional administrative review periods. The time required to obtain approval in other countries might differ from thatrequired to obtain FDA approval. The regulatory approval process in other countries may include all of the risks detailed above regarding FDAapproval in the U.S. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatoryapproval in one country may negatively impact the regulatory process in others. Failure to obtain regulatory approval in other countries or any delayor setback in obtaining such approval could have the same adverse effects described above regarding FDA approval in the U.S. In addition, we mayrely on our distributors and strategic collaborations in some instances to assist us in this regulatory approval process in countries outside the U.S. andEurope, for example, in Japan. 28Table of ContentsWe may fail to comply with continuing regulatory requirements of the FDA and other authorities and become subject to enforcement action,which may include substantial penalties.Even after product clearance or approval, we must comply with continuing regulation by the FDA and other authorities, including the FDA’sQuality System Regulation, or QSR, requirements, labeling and promotional requirements and medical device adverse event and other reportingrequirements. Any failure to comply with continuing regulation by the FDA or other authorities could result in enforcement action that may includesuspension or withdrawal of regulatory approvals, recalling products, ceasing product manufacture and/or marketing, seizure and detention ofproducts, paying significant fines and penalties, criminal prosecution and similar actions that could limit product sales, delay product shipment andharm our profitability. Congress could amend the FD&C Act, and the FDA could modify its regulations promulgated under this law or its policies in away to make ongoing regulatory compliance more burdensome and difficult.Additionally, any modification to an FDA 510(k) cleared or de novo-approved device that could significantly affect its safety or effectiveness, orthat would constitute a major change in its intended use, requires a new 510(k) clearance. Modifications to a PMA approved device or its labeling mayrequire either a new PMA or PMA supplement approval, which could be a costly and lengthy process. In addition, if we are unable to obtain approvalfor key applications, we may face product market adoption barriers that we cannot overcome. In the future, we may modify our products after they havereceived clearance or approval, and we may determine that new clearance or approval is unnecessary. We cannot assure you that the FDA would agreewith any of our decisions not to seek new clearance or approval. If the FDA requires us to seek clearance or approval for any modification that wedetermined to not require clearance or approval in the first instance, we could be subject to enforcement sanctions and we also may be required to ceasemarketing or recall the modified product until we obtain FDA clearance or approval which could also limit product sales, delay product shipment andharm our profitability.In many foreign countries in which we market our products, we are subject to regulations affecting, among other things, product standards,packaging requirements, labeling requirements, import restrictions, tariff regulations, duties and tax requirements. Many of these regulations are similarto those of the FDA or other U.S. regulations. In addition, in many countries the national health or social security organizations require our products tobe qualified before procedures performed using our products become eligible for reimbursement. Failure to receive or delays in the receipt of, relevantforeign qualifications could have a material adverse effect on our business, financial condition and results of operations. Due to the movement towardharmonization of standards in the European Union, we expect a changing regulatory environment in Europe characterized by a shift from acountry-by-country regulatory system to a European Union-wide single regulatory system. We cannot predict the timing of this harmonization and itseffect on us. Adapting our business to changing regulatory systems could have a material adverse effect on our business, financial condition, andresults of operations. If we fail to comply with applicable foreign regulatory requirements, we may be subject to fines, suspension, or withdrawal ofregulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.In addition, we are subject to the U.S. Foreign Corrupt Practices Act, anti-bribery, antitrust and anti-competition laws, and similar laws in foreigncountries. Any violation of these laws by our distributors or agents or by us could create a substantial liability for us and also cause a loss of reputationin the market. From time to time, we may face audits or investigations by one or more government agencies, compliance with which could be costlyand time-consuming, and could divert our management and key personnel from our business operations. An adverse outcome under any suchinvestigation or audit could subject us to fines or other penalties, which could adversely affect our business and financial results. 29Table of ContentsOur suppliers, subcontractors, or we may fail to comply with the FDA quality system regulation or other quality standards.Our manufacturing processes must comply with the FDA’s QSR, which covers the methods and documentation of the design, testing, production,control, quality assurance, labeling, packaging and shipping of our products. The FDA enforces the QSR through inspections. We cannot assure youthat we or our suppliers or subcontractors would pass such an inspection. If we or our suppliers or subcontractors fail to comply with the FDAregulation or EN ISO 13485:2003 standards, we or they may be required to cease all or part of our operations for some period of time until we or theycan demonstrate that appropriate steps have been taken to comply with such standards or face other enforcement action, such as a public warning letter,untitled letter, fines, injunctions, civil penalties, seizures, operating restrictions, partial suspension or total shutdown of production, refusing requestsfor 510(k) clearance, de novo petitions, or PMA approval of new products, withdrawing 510(k) clearance, de novo approvals, or PMA approvalsalready granted, and/or criminal prosecution. Furthermore, the European Union recently adopted new EN ISO 13485:2016 standards, with which wemust comply no later than April 2019. We cannot assure you that we will be able to timely comply with EN ISO 13485:2016 standards. We cannot becertain that our facilities or those of our suppliers or subcontractors will comply with the FDA, EN ISO 13485:2003, or when applicable, EN ISO13485:2016 standards in future audits by regulatory authorities. Failure to pass such an inspection could force a shutdown of manufacturingoperations, a recall of our products or the imposition of other enforcement sanctions, which would significantly harm our revenue and profitability.Further, we cannot assure you that our key component suppliers are or will continue to be in compliance with applicable regulatory requirements andquality standards and will not encounter any manufacturing difficulties. Any failure to comply with the FDA’s QSR, EN ISO 13485:2003 or whenapplicable, EN ISO 13485:2016 by us or our suppliers could significantly harm our available inventory and product sales. Further, any failure tocomply with FDA’s QSR by us or our suppliers could result in FDA refusing requests for and/or delays in 510(k) clearance, de novo approval, or PMAapproval of new products.Software errors or other defects may be discovered in our products.Our products incorporate many components, including sophisticated computer software. Complex software frequently contains errors, especiallywhen first introduced. Because our products are designed to be used to perform complex interventional procedures, we expect that physicians andhospitals will have an increased sensitivity to the potential for software defects. We cannot assure you that our software or other components will notexperience errors or performance problems in the future. If we experience software errors or performance problems, we would likely also experience: • loss of revenue; • delay in market acceptance of our products; • damage to our reputation; • additional regulatory filings; • product recalls; • increased service or warranty costs; and/or • product liability claims relating to the software defects. 30Table of ContentsIf we fail to comply with health care regulations, we could face substantial penalties and our business, operations and financial condition could beadversely affected.While we do not control referrals of health care services or bill directly to Medicare, Medicaid or other third-party payors, many health care lawsand regulations apply to our business. We are subject to health care fraud and patient privacy regulation by the federal government, the states in whichwe conduct our business, and internationally. The regulations that may affect our ability to operate include: • the federal healthcare program Anti-Kickback Statute, which prohibits, among other things, persons from soliciting, receiving or providingremuneration, directly or indirectly, to induce either the referral of an individual, for an item or service or the purchasing or ordering of agood or service, for which payment may be made under federal health care programs such as the Medicare and Medicaid programs; • federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented,claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent, and which may apply to entities likeus if we provide coding and billing advice to customers; • the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which prohibits executing a scheme to defraud anyhealth care benefit program or making false statements relating to health care matters and which also imposes certain requirements relatingto the privacy, security and transmission of individually identifiable health information; and the applicable Privacy and Security Standardsof HITECH, the Health Information Technology for Economic and Clinical Health Act, which is Title XIII of the American Recovery andReinvestment Act; • state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or servicesreimbursed by any third-party payor, including commercial insurers, and state laws governing the privacy of health information in certaincircumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicatingcompliance efforts; • federal self-referral laws, such as the Stark Anti-Referral Law, which prohibits a physician from making a referral to a provider of certainhealth services with which the physician or the physician’s family member has a financial interest; • federal and state Sunshine laws, which require manufacturers of certain medical devices to collect and report information on payments ortransfers of value to physicians and teaching hospitals, as well as investment interests held by physicians and their immediate familymembers; and • regulations pertaining to receipt of CE mark for our products marketed outside of the United States and submission to periodic regulatoryaudits in order to maintain these regulatory approvals.If our operations are found to be in violation of any of the laws described above or any other governmental laws or regulations that apply to us,we may be subject to penalties, including civil and criminal penalties, damages, fines, loss of reimbursement for our products under federal or stategovernment health programs such as Medicare and Medicaid and the curtailment or restructuring of our operations. Any penalties, damages, fines,curtailment, or restructuring of our operations could adversely affect our ability to operate our business and our financial results. The risk of our beingfound in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts,and their provisions are open to a variety of interpretations. Any action against us for violation of these laws, even if we successfully defend against it,could cause us to incur significant legal expense and divert our management’s attention from the operation of our business. Moreover, to achievecompliance with applicable federal and state privacy, security, and electronic transaction laws, we may be required to modify our operations withrespect to the handling of patient information. Implementing these modifications may prove costly. At this time, we are not able to determine the fullconsequences to us, including the total cost of compliance, of these various federal and state laws. 31Table of ContentsHealthcare policy changes, including legislation enacted in 2010 as well as the potential repeal or amendment of such legislation, may have amaterial adverse effect on us.In response to perceived increases in health care costs in recent years, there have been and continues to be proposals by the Trumpadministration, members of Congress, state governments, regulators and third-party payors to control these costs and, more generally, to reform the U.S.healthcare system.In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act (PPACA). Among other things, the law imposeda tax on medical device manufacturers and producers equal to 2.3% of the sales price for all sales beginning January 1, 2013. This excise tax applies tothe majority of our products sold within the United States. Although a two-year moratorium on the excise tax was enacted for 2016 and 2017, andextended for 2018 and 2019, the tax is currently scheduled to resume collection on January 1, 2020. We expect that the PPACA could have a materialadverse effect on our industry generally and our ability to successfully commercialize our products or could limit or eliminate our spending on certaindevelopment projects.On August 2, 2011, the President signed into law the Budget Control Act of 2011, which created the Joint Select Committee on DeficitReduction to recommend proposals in spending reductions to Congress. The Joint Select Committee was charged with identifying a reduction of atleast $1.2 trillion for the years 2013 through 2021. The Committee did not achieve this target by the imposed deadline, triggering the legislation’sautomatic reduction to several government programs. Included in the automatic reduction are aggregate reductions to Medicare payments to providersof up to 2% per fiscal year, starting in 2013.Changes to, or repeal of, the PPACA, which the new administration and certain members of Congress have affirmatively indicated that they willpursue, could materially and adversely affect our business and financial position, and results of operations. Even if the PPACA is not amended orrepealed, the new administration could propose changes impacting implementation of the PPACA, which could materially and adversely affect ourfinancial position or operations. However, we cannot currently predict the content, timing or impact that any such future legislation will have on ourbusiness.The application of state certificate of need regulations and compliance by our customers with federal and state licensing or other internationalrequirements could substantially limit our ability to sell our products and grow our business.Some states require health care providers to obtain a certificate of need or similar regulatory approval prior to the acquisition of high-cost capitalitems such as our Niobe ES system, Odyssey Solution, or Vdrive system. In many cases, a limited number of these certificates are available. As a result ofthis limited availability, hospitals and other health care providers may be unable to obtain a certificate of need for the purchase of our systems. Further,our sales and installation cycle for the Niobe ES system is typically longer in certificate of need states due to the time it takes our customers to obtainthe required approvals. In addition, our customers must meet various federal and state regulatory and/or accreditation requirements in order to receivepayments from government-sponsored health care programs such as Medicare and Medicaid, receive full reimbursement from third party payors, andmaintain their customers. Our international customers may be required to meet similar or other requirements. Any lapse by our customers inmaintaining appropriate licensure, certification or accreditation, or the failure of our customers to satisfy the other necessary requirements undergovernment-sponsored health care programs or other requirements could cause our sales to decline.Hospitals or physicians may be unable to obtain reimbursement from third-party payors for procedures using the Niobe or Vdrive systems, orreimbursement for procedures may be insufficient to recoup the costs of purchasing our products.We expect that U.S. hospitals will continue to bill various third-party payors, such as Medicare, Medicaid and other government programs andprivate insurance plans, for procedures performed with our products, 32Table of Contentsincluding the costs of the disposable interventional devices used in these procedures. If in the future our disposable interventional devices do not fallwithin U.S. reimbursement categories and our procedures are not reimbursed, or if the reimbursement is insufficient to cover the costs of purchasing oursystem and related disposable interventional devices, the adoption of our systems and products would be significantly slowed or halted, and we may beunable to generate sufficient sales to support our business. Our success in international markets also depends upon the eligibility of our products forreimbursement through government-sponsored health care payment systems and third-party payors. In both the U.S. and foreign markets, health carecost-containment efforts are prevalent and are expected to continue. These efforts could reduce levels of reimbursement available for proceduresinvolving our products and, therefore, reduce overall demand for our products as well. A failure to generate sufficient sales could have a materialadverse impact on our financial condition, results of operations and cash flow.Our growth may place a significant strain on our resources, and if we fail to manage our growth, our ability to develop, market, and sell ourproducts will be harmed.Our business plan contemplates a period of substantial growth and business activity. This growth and activity will likely result in new andincreased responsibilities for management personnel and place significant strain upon our operating and financial systems and resources. Toaccommodate our growth and compete effectively, we will be required to improve our information systems, create additional procedures and controlsand expand, train, motivate and manage our work force. We cannot be certain that our personnel, systems, procedures, and controls will be adequate tosupport our future operations. Any failure to effectively manage our growth could impede our ability to successfully develop market and sell ourproducts.We face currency and other risks associated with international operations.We intend to continue to devote significant efforts to marketing our systems and products outside of the U.S. This strategy will expose us tonumerous risks associated with international operations, which could adversely affect our results of operations and financial condition, including thefollowing: • currency fluctuations that could impact the demand for our products or result in currency exchange losses; • export restrictions, tariff and trade regulations and foreign tax laws; • customs duties, export quotas or other trade restrictions; • economic and political instability; and • shipping delays.In addition, contracts may be difficult to enforce and receivables difficult to collect through a foreign country’s legal system.We are limited by our inability to use a short form registration statement on Form S-3, which may affect our ability to access the capital markets,if needed.A Registration Statement on Form S-3 permits an eligible issuer to incorporate by reference its past and future filings and reports made under theSecurities Exchange Act of 1934, as amended, or the Exchange Act. In addition, Form S-3 enables eligible issuers to conduct primary offerings “off theshelf” under Rule 415 of the Securities Act of 1933, as amended, or the Securities Act. The shelf registration process under Form S-3 combined with theability to incorporate information on a forward basis, allows issuers to avoid additional delays and interruptions in the offering process and to accessthe capital markets in a more expeditious and efficient manner than raising capital in a standard offering on Form S-1.To be eligible to use Form S-3 for a registered offering of our securities to investors, either (1) the aggregate market value of our common stockheld by non-affiliates would have to exceed $75 million or (2) our common 33Table of Contentsstock would have to be listed and registered on a national securities exchange. Currently, we do not meet either of those eligibility requirements andare therefore precluded from using a Form S-3 in connection with a registered offering of our securities to investors.Due to our present inability to use Form S-3, if we wanted to conduct a registered offering of securities to investors, we will be required to uselong form registration and may experience delays. In addition, our ability to undertake certain types of financing transactions may be limited orunavailable to us without the ability to use Form S-3. Furthermore, because of the delay associated with long form registration and the limitations onthe financing transactions we may undertake, the terms of any financing transaction we are able to conduct may not be advantageous to us or maycause us not to obtain capital in a timely fashion to execute our business strategies and continue to operate as a going concern.Risks Related To Our Common StockOur principal stockholders continue to own a large percentage of our voting stock, and they have the ability to substantially influence mattersrequiring stockholder approval.Certain of our directors and individuals or entities affiliated with them as well as other principal stockholders beneficially own or control asubstantial percentage of the outstanding shares of our common stock. Moreover, as a result of the issuance of warrants to certain institutionalinvestors, certain of our directors and their affiliated funds have the ability to obtain a substantial portion of our common stock. Accordingly, thesestockholders acting as a group, will have substantial influence over the outcome of corporate actions requiring stockholder approval, including theelection of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transaction. Thesestockholders may also delay or prevent a change of control, even if such a change of control would benefit our other stockholders. This significantconcentration of stock ownership may adversely affect the trading price of our common stock due to investors’ perception that conflicts of interest mayexist or arise.Future issuances of our securities could dilute current stockholders’ ownership.As of December 31, 2017, we had 39.5 million shares of our common stock issuable upon conversion of our Series A Convertible Preferred Stockbearing dividends at a rate of six percent (6.0%) per annum, which are cumulative and accrue daily from the date of issuance on the $1,000 statedvalue. Such dividends will not be paid in cash, except in connection with any liquidation, dissolution or winding up of the Company or anyredemption of the Series A Convertible Preferred Stock. Instead, the value of the accrued dividends is added to the liquidation preference of the SeriesA Convertible Preferred Stock and will increase the number of shares of common stock issuable upon conversion, which will dilute the ownership ofour common stockholders.In addition, a significant number of shares of our common stock are subject to warrants, stock options and stock appreciation rights, and we mayrequest the ability to issue additional such securities. We may also decide to raise additional funds through public or private debt or equity financingto fund our operations. While we cannot predict the effect, if any, that future exercises of warrants or future sales of debt, our common stock, otherequity securities or securities convertible into our common stock or other equity securities or the availability of any of the foregoing for future sale,will have on the market price of our common stock, it is likely that sales of substantial amounts of our common stock (including shares issued upon theexercise of warrants, stock options, stock appreciation rights or the conversion of any convertible securities outstanding now or in the future, includingthe Series A Convertible Preferred Shares), will dilute the ownership of our existing stockholders and that the perception that such sales could occur,will adversely affect prevailing market prices for our common stock.Further, the Series A Convertible Preferred Shares rank senior to our common stock as to distributions and payments upon the liquidation,dissolution and winding up of the Company. No such distributions or payments upon the liquidation, dissolution and winding up of the Company maybe made to holders of common stock 34Table of Contentsunless and until the holders of the Series A Convertible Preferred Shares have received the stated value of $1,000 per share plus any accrued andunpaid dividends. Until all Series A Convertible Preferred Shares have been converted or redeemed, no dividends may be paid on the common stockwithout the express written consent of the holders of a majority of the outstanding Series A Convertible Preferred Shares. In the event that dividends orother distributions of assets are made or paid by the Company to the holders of the common stock, the holders of Series A Convertible Preferred Sharesare entitled to participate in such dividend or distribution on an as-converted basis. Any such distributions or payments upon the liquidation,dissolution or winding up of the Company may dilute the ownership interests of our existing stockholders.We have never paid dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable future.We have paid no cash dividends on any of our classes of capital stock to date and we currently intend to retain our future earnings to fund thedevelopment and growth of our business. In addition, the terms of our loan agreement prohibit us from declaring dividends without the prior consent ofour lender. As a result, capital appreciation, if any, of our common stock will be an investor’s sole source of gain for the foreseeable future.Our certificate of incorporation and bylaws, Delaware law and one of our collaboration agreements contain provisions that could discourage atakeover.Our certificate of incorporation and bylaws and Delaware law contain provisions that might enable our management to resist a takeover. Theseprovisions may: • discourage, delay or prevent a change in the control of our company or a change in our management; • adversely affect the voting power of holders of common stock; and • limit the price that investors might be willing to pay in the future for shares of our common stock.In addition, our collaboration agreement with Biosense Webster contains provisions that may similarly discourage a takeover and negativelyaffect our share price as described above.Evolving regulation of corporate governance and public disclosure may result in additional expenses and continuing uncertainty.Changing laws, regulations and standards relating to corporate governance and public disclosure, including the new SEC regulations such as theDodd-Frank Wall Street Reform and Consumer Protection Act have in the past created uncertainty for public companies. We continue to evaluate andmonitor developments with respect to new and proposed rules and cannot predict or estimate the amount of the additional compliance costs we mayincur or the timing of such costs. These new or changed laws, regulations and standards are subject to varying interpretations, in many cases due totheir lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by courts and regulatory andgoverning bodies. This could result in uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure andgovernance practices. Maintaining appropriate standards of corporate governance and public disclosure may result in increased general andadministrative expense and a diversion of management time and attention from revenue-generating activities to compliance activities. In addition, ifwe fail to comply with new or changed laws, regulations and standards, regulatory authorities may initiate legal proceedings against us and ourbusiness and reputation may be harmed. 35Table of ContentsOur future operating results may be below securities analysts’ or investors’ expectations, which could cause our stock price to decline.The revenue and income potential of our products and our business model are unproven, and we may be unable to generate significant revenue orgrow at the rate expected by securities analysts or investors. In addition, our costs may be higher than we, securities analysts, or investors expect. If wefail to generate sufficient revenue or our costs are higher than we expect, our results of operations will suffer, which in turn could cause our stock priceto decline. Our results of operations will depend upon numerous factors, including: • demand for our products; • the performance of third-party contract manufacturers and component suppliers; • our ability to develop sales and marketing capabilities; • the success of our strategic relationships with two multinational fluoroscopy system manufacturers and one provider of catheters andelectrophysiology mapping systems; • our ability to develop, introduce and market integrated next generation systems and/or alternatives to our current strategic relationshipswith fluoroscopy system manufacturers and the catheter and electrophysiology mapping system provider on a timely basis; • our ability to develop, introduce and market new or enhanced versions of our products on a timely basis; • our ability to obtain regulatory clearances or approvals for our new products; and • our ability to obtain and protect proprietary rights.Our operating results in any particular period may not be a reliable indication of our future performance. In some future quarters, our operatingresults may be below the expectations of securities analysts or investors. If this occurs the price of our common stock will likely decline.Nasdaq delisted our common stock from The Nasdaq Capital Market and our common stock began trading on the OTCQX Best Market inAugust 2016. Trading of our shares on the over-the-counter markets could negatively impact the liquidity of our common stock and our ability toaccess the capital markets and, in turn, could impair the value of your investment.On August 4, 2016, trading in our common stock on The Nasdaq Capital Market (“Nasdaq”) was suspended as a result of a determination fromNasdaq to delist our common stock due to our failure to meet certain applicable requirements. On August 4, 2016, shares of our common stockcommenced trading on the OTCQX Best Market under the Company’s existing ticker symbol of “STXS.” Trading of our shares on theover-the-counter markets could negatively impact the liquidity of our common stock and our ability to access the capital markets, which could impairthe value of your investment.The trading of our common stock on the over-the-counter market, including the OTCQX Best Market, may adversely affect the market liquidityof our common stock, limit our ability to issue additional securities (including pursuant to registration statements on Form S-3) and adversely affectour ability to obtain financing for the continuation of our operations, which could harm our business or cause us to cease operations.Furthermore, our common stock may not continue to trade on the OTCQX Best Market in the future, broker-dealers may cease to provide publicquotes of our common stock on this market, or the trading volume of our common stock may be insufficient to provide for an efficient trading market.Any such developments could impair the value of your investment. 36®®®®Table of ContentsWe expect that the price of our common stock could fluctuate substantially, possibly resulting in class action securities litigation.Our common stock is traded on the OTCQX Best Market and trading volume may be limited or sporadic. The market price of our common stockhas experienced, and may continue to experience, substantial volatility. During 2017, our common stock traded between $0.48 and $1.10 per share, ontrading volume ranging from approximately 0 to 0.4 million shares per day. The market price of our common stock will be affected by a number offactors, including: • actual or anticipated variations in our results of operations or those of our competitors; • the receipt or denial of regulatory approvals; • announcements of new products, technological innovations or product advancements by us or our competitors; • developments with respect to patents and other intellectual property rights; • changes in earnings estimates or recommendations by securities analysts or our failure to achieve analyst earnings estimates; • developments in our industry; and • participants in the market for our common stock may take short positions with respect to our common stock.These factors, as well as general economic, credit, political and market conditions, may materially adversely affect the market price of ourcommon stock. As with the stock of many other public companies, the market price of our common stock has been particularly volatile during therecent period of upheaval in the capital markets and world economy. This excessive volatility may continue for an extended period of time followingthe filing date of this report. Furthermore, the stock prices of many companies in the medical device industry have experienced wide fluctuations thathave often been unrelated to the operating performance of these companies. Volatility in the price of our common stock on the OTCQX Best Marketmay depress the trading price of our common stock, which could, among other things, allow a potential acquirer of the Company to purchase asignificant amount of our common stock at low prices. In addition, the volatility of our stock price could lead to class action securities litigation beingfiled against us, which could result in substantial costs and a diversion of our management resources, which could significantly harm our business. ITEM 1B.UNRESOLVED STAFF COMMENTSWe have not received any written comments regarding our periodic or current reports from the staff of the SEC that were issued 180 days or morepreceding the end of our 2017 fiscal year and that remain unresolved. ITEM 2.PROPERTIESOur primary company facilities are located in St. Louis, Missouri where we currently lease approximately 52,000 square feet of office and 12,000square feet of demonstration and assembly space. In the third quarter of 2013, the Company modified the existing lease agreement to terminateapproximately 13,000 square feet of unimproved space. The costs associated with the termination were $515,138 and were accrued as a rent liability asof September 30, 2013. As of December 31, 2017, the remaining accrued costs associated with the termination were $95,455.Between the fourth quarter of 2015 and July, 2016, the Company sublet 3,152 square feet of the first floor office space.In August 2016, the Company entered into an agreement to sublease approximately 11,000 square feet of office space immediately and anadditional 16,000 square feet of office space beginning in January of 2017, with the term of the sublease ending on December 31, 2018. As ofDecember 31, 2017, the remaining accrued costs associated with the termination were $26,202. 37®®Table of ContentsWe lease approximately 2,200 square feet of office space in Maple Grove, Minnesota, under a lease agreement through October 31, 2018, andhave leased office space in Amsterdam, The Netherlands through August 31, 2018. In addition, we lease an office space in Beijing, China under a leaseagreement through September 8, 2020 and an office space in Japan through April 30, 2018. ITEM 3.LEGAL PROCEEDINGSWe are involved from time to time in various lawsuits and claims arising in the normal course of business. Although the outcomes of theselawsuits and claims are uncertain, we do not believe any of them will have a material adverse effect on our business, financial condition or results ofoperations. ITEM 4.MINE SAFETY DISCLOSURESNot applicable. 38Table of ContentsPART II ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIESPRICE RANGE OF COMMON STOCKOur common stock began trading on the NASDAQ Global Market under the symbol “STXS” on August 12, 2004 and was transferred to theNASDAQ Capital Market effective August 19, 2013. On August 4, 2016 our common stock was transferred to the OTCQX Best Market. The followingtable sets forth the high and low sales prices of our common stock for the periods indicated. High Low Year Ended December 31, 2017 First Quarter $0.74 $0.48 Second Quarter 0.65 0.52 Third Quarter 0.83 0.51 Fourth Quarter 1.10 0.70 Year Ended December 31, 2016 First Quarter $1.14 $0.54 Second Quarter 1.95 0.90 Third Quarter 1.46 0.57 Fourth Quarter 0.91 0.47 As of March 13, 2018, there were approximately 470 stockholders of record of our common stock, although we believe that there is asignificantly larger number of beneficial owners of our common stock.DIVIDEND POLICYWe have never declared or paid any cash dividends. We currently expect to use cash and cash equivalents in the operation and expansion of ourbusiness, and therefore do not anticipate paying any cash dividends for the next several years. In addition, the terms of our loan agreement prohibit usfrom declaring cash dividends without the prior consent of our lender.The information required by this item regarding equity compensation is incorporated by reference to the information set forth in Item 12 of thisAnnual Report on Form 10-K. ITEM 6.SELECTED FINANCIAL DATANot applicable. 39®Table of ContentsITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis should be read in conjunction with our financial statements and notes thereto included in this report onForm 10-K. Operating results are not necessarily indicative of results that may occur in future periods.This report includes various forward-looking statements that are subject to risks and uncertainties, many of which are beyond our control. Ouractual results could differ materially from those anticipated in these forward looking statements as a result of various factors, including those setforth in Item 1A. “Risk Factors.” Forward-looking statements discuss matters that are not historical facts. Forward-looking statements include, butare not limited to, discussions regarding our operating strategy, sales and marketing strategy, regulatory strategy, industry, economic conditions,financial condition, liquidity and capital resources and results of operations. Such statements include, but are not limited to, statements preceded by,followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “estimates,” “projects,” “can,” “could,” “may,”“will,” “would,” or similar expressions. For those statements, we claim the protection of the safe harbor for forward-looking statements contained inthe Private Securities Litigation Reform Act of 1995. You should not unduly rely on these forward-looking statements, which speak only as of the dateon which they were made. They give our expectations regarding the future but are not guarantees. We undertake no obligation to update publicly orrevise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.OverviewStereotaxis designs, manufactures and markets the Epoch Solution, which is an advanced cardiology instrument control system for use in ahospital’s interventional surgical suite to enhance the treatment of arrhythmias and coronary artery disease. The Epoch Solution is comprised of theNiobe ES robotic system, Odyssey Solution, and the Vdrive system. We believe that the Epoch Solution represents a revolutionary technology in theinterventional surgical suite, or “interventional lab,” and has the potential to become the standard of care for a broad range of complex cardiologyprocedures. We also believe that our technology represents an important advance in the ongoing trend toward digital instrumentation in theinterventional lab and provides substantial, clinically important improvements and cost efficiencies over manual interventional methods, whichrequire years of physician training and often result in long and unpredictable procedure times and sub-optimal therapeutic outcomes.The Niobe ES system is the latest generation of the Niobe Remote Magnetic Navigation System (“Niobe system”). This system is designed toenable physicians to complete more complex interventional procedures by providing image-guided delivery of catheters through the blood vessels andchambers of the heart to treatment sites. This is achieved using externally applied magnetic fields that govern the motion of the working tip of thecatheter, resulting in improved navigation, efficient procedures and reduced x-ray exposure. The core components of the Niobe system have receivedregulatory clearance in the U.S., Canada, Europe, China, Japan and various other countries. As of December 31, 2017, the Company had an installedbase of 128 Niobe ES systems.Stereotaxis also has developed the Odyssey Solution which consolidates all lab information enabling doctors to focus on the patient for optimalprocedure efficiency. The system also features a remote viewing and recording capability called Odyssey Cinema, which is an innovative solutiondelivering synchronized content for optimized workflow, advanced care and improved productivity. This tool includes an archiving capability thatallows clinicians to store and replay entire procedures or segments of procedures. This information can be accessed from locations throughout thehospital local area network and over the global Odyssey Network providing physicians with a tool for clinical collaboration, remote consultation andtraining. The Odyssey Solution may be acquired in conjunction with a Niobe system or on a stand-alone basis for installation in interventional labs andother locations where clinicians often desire the benefits of the Odyssey Solution that we believe can improve clinical workflows and relatedefficiencies. 40Table of ContentsOur Vdrive system provides navigation and stability for diagnostic and therapeutic devices designed to improve interventional procedures. TheVdrive system complements the Niobe ES system control of therapeutic catheters for fully remote procedures and enables single-operator workflow andis sold as two options, the Vdrive system and the Vdrive Duo system. In addition to the Vdrive system and the Vdrive Duo system, we also manufactureand market various disposable components (V-Loop, V-Sono, V-CAS, and V-CAS Deflect) which can be manipulated by these systems.We generate revenue from both the initial capital sales of the Niobe, Odyssey and Vdrive systems as well as recurring revenue from the sale of ourproprietary disposable devices, from ongoing license and service contracts, and from royalties paid to the Company on the sale by Biosense Webster ofco-developed catheters. We market our products to a broad base of hospitals in the United States and internationally as detailed in Note 19 to thefinancial statements.We have strategic relationships with technology leaders in the global interventional market. Through these strategic relationships we integrateour Niobe system with market leading digital imaging and 3D catheter location sensing technology, as well as disposable interventional devices, inorder to continue to develop new solutions in the interventional lab. The maintenance of these strategic relationships, or the establishment ofequivalent alternatives, is critical to our commercialization efforts. The commercial availability of both currently compatible digital imagingfluoroscopy systems is unlikely to continue for multiple years and efforts are being made to ensure the availability of integrated next generationsystems and/or equivalent alternatives; however, we cannot provide assurance as to the timeline of the ongoing availability of such compatiblesystems or our ability to obtain equivalent alternatives on competitive terms or at all.The Company believes the cash on hand at December 31, 2017 plus the $10 million of proceeds from the March 2018 financing will be sufficientto meet its obligations as they become due in the ordinary course of business for at least 12 months following the date these financial statements areissued. The Company has sustained operating losses throughout its corporate history and expects that its 2018 expenses will exceed its 2018 grossmargin. The Company expects to continue to incur operating losses and negative cash flows until revenues reach a level sufficient to support ongoingoperations or expense reductions are in place. The Company’s liquidity needs will be largely determined by the success of clinical adoption within theinstalled base of Niobe systems as well as by new placements of capital systems. The Company also may consider raising cash through capitaltransactions, which could include either debt or equity financing.Critical Accounting Policies and EstimatesOur discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been preparedin accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates andjudgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures. We review our estimates and judgmentson an ongoing basis. We base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonableunder the circumstances. Actual results may differ from these estimates. We believe the following accounting policies are critical to the judgments andestimates we use in preparing our financial statements.Revenue RecognitionThe Company adopted Accounting Standards Update 2009-13, Multiple-Deliverable Revenue Arrangements (“ASU 2009-13”) in the fourthquarter of 2009, effective as of January 1, 2009.ASU 2009-13 permits management to estimate the selling price of undelivered components of a bundled sale for which it is unable to establishvendor-specific objective evidence (“VSOE”) or third-party evidence (“TPE”). This requires management to record revenue for certain elements of atransaction even though it might 41Table of Contentsnot have delivered other elements of the transaction, for which it was unable to meet the requirements for establishing VSOE or TPE. This guidancealso prohibits the use of the residual method for allocating revenue to the various elements of a transaction and requires that the revenue be allocatedproportionally based on the relative estimated selling prices.Under our revenue recognition policy, a portion of revenue for Niobe systems, Vdrive systems and Odyssey systems is recognized upon delivery,provided that title has passed, there are no uncertainties regarding acceptance, persuasive evidence of an arrangement exists, the sales price is fixed anddeterminable, and collection of the related receivable is reasonably assured. When installation is the responsibility of the customer, revenue fromsystem sales is recognized upon shipment since these arrangements do not include an installation element or right of return privileges. We do notrecognize revenue in situations in which inventory remains at a Stereotaxis warehouse or in situations in which title and risk of loss have nottransferred to the customer. Amounts collected prior to satisfying the above revenue recognition criteria are reflected as deferred revenue. Revenuefrom services and license fees, whether sold individually or as a separate unit of accounting in a multi-element arrangement, is deferred and amortizedover the service or license fee period, which is typically one year. Revenue from services is derived primarily from the sale of annual productmaintenance plans. We recognize revenue from disposable device sales or accessories upon shipment and establish an appropriate reserve for returns.The return reserve, which is applicable only to disposable devices, is estimated based on historical experience which is periodically reviewed andupdated as necessary. In the past, changes in estimate have had only a de minimis effect on revenue recognized in the period. We believe that theestimate is not likely to change significantly in the future.Stock-based CompensationStock compensation expense, which is a non-cash charge, results from stock option and stock appreciation rights grants made to employees, anddirectors at the fair value of the option granted, and from grants of restricted shares and units to employees, directors, and third-party consultants. Thefair value of options and stock appreciation rights granted was determined using the Black-Scholes valuation method which gives consideration to theestimated value of the underlying stock at the date of grant, the exercise price of the option, the expected dividend yield and volatility of theunderlying stock, the expected life of the option and the corresponding risk-free interest rate. The fair value of the grants of restricted shares and unitswas determined based on the closing price of our stock on the date of grant. Stock compensation expense for options, stock appreciation rights and fortime-based restricted share grants and units is amortized on a straight-line basis over the vesting period of the underlying issue, generally over fouryears except for grants to directors which generally vest between one and five years. Stock compensation expense for performance-based restrictedshares, if any, is amortized on a straight-line basis over the anticipated vesting period and is subject to adjustment based on the actual achievement ofobjectives. Compensation expenses related to grants to non-employees are re-measured quarterly through the vesting date. Compensation expense isrecognized only for those options expected to vest, net of actual forfeitures. Estimates of the expected life of options have been based on the average ofthe vesting and expiration periods, which is the simplified method under general accounting principles for share-based payments. Estimates ofvolatility utilized in calculating stock-based compensation have been prepared based on historical data. Actual experience to date has been consistentwith these estimates.The amount of compensation expense to be recorded in future periods may increase if we make additional grants of options, stock appreciationrights or restricted shares. The amount of expense to be recorded in future periods may decrease if the requisite service periods are not completed.Long-Lived and Intangible AssetsIn accordance with accounting rules for the impairment or disposal of long-lived assets, including intangible assets, such assets are reviewed atleast quarterly to determine whether any events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Forlong-lived assets to be held and used, 42Table of Contentswe base our evaluation on impairment indicators such as the nature of the assets, the future economic benefit of the assets, any historical or futureprofitability measurements and other external market conditions or factors that may be present. If impairment indicators are present or other factorsexist that indicate the carrying amount of the asset may not be recoverable, the Company determines whether an impairment has occurred through theuse of an undiscounted cash flow analysis of the asset at the lowest level for which identifiable cash flows exist. Management’s assumptions related tofuture cash flows require significant judgment as actual operating levels have fluctuated in the past and are expected to continue to do so in the future.If the carrying value of the asset exceeds the total anticipated undiscounted future cash flows generated by that asset, the asset is impaired and animpairment charge is incurred. The loss on impairment is recognized for the difference between the asset’s carrying amount and the asset’s discountedfair value, which in most cases is estimated based upon Level 2 or Level 3 inputs.Valuation of InventoryWe value our inventory at the lower of the actual cost of our inventory, as determined using the first-in, first-out (FIFO) method, or its currentestimated market value. We periodically review our physical inventory for excess, obsolete, and potentially impaired items and reserve accordingly.Our reserve estimate for excess and obsolete is based on expected future use. Our reserve estimates have historically been consistent with our actualexperience as evidenced by actual sale or disposal of the goods.Income TaxesDeferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilitiesusing the enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are establishedwhen necessary to reduce deferred tax assets to the amounts expected to be realized. We have established a valuation allowance against the entireamount of our deferred tax assets because we are not able to conclude, due to our history of operating losses, that it is more likely than not that we willbe able to realize any portion of the deferred tax assets.In assessing whether and to what extent deferred tax assets are realizable, we consider whether it is more likely than not that some portion or all ofthe deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable incomeduring the periods in which those temporary differences become deductible. We consider projected future taxable income and tax planning strategiesin making this assessment. Based upon the level of historical taxable losses, limitations imposed by Section 382 of the Internal Revenue Code andprojections for future losses over periods which the deferred tax assets are deductible, we determined that a 100% valuation allowance of deferred taxassets was appropriate.Results of OperationsComparison of the Years ended December 31, 2017 and 2016Revenue. Revenue decreased to $31.1 million for the year ended December 31, 2017, from $32.2 million for the year ended December 31, 2016, adecrease of approximately 3%. Revenue from sales of systems decreased to $4.3 million for the year ended December 31, 2017, from $5.8 million forthe year ended December 31, 2016, a decrease of approximately 26%. We recognized revenue on two Niobe ES systems and a total of $2.2 million forOdyssey and Odyssey Cinema systems during the 2017 period. System revenue for the prior year included revenue on two Niobe ES systems, a total of$2.9 million for Odyssey and Odyssey Cinema systems, and $0.1 million for Vdrive systems. Revenue from sales of disposable interventional devices,service and accessories increased slightly to $26.9 million for the year ended December 31, 2017, from $26.4 million for the year ended December 31,2016, an increase of approximately 2%. The increase was primarily attributable to higher disposable sales and royalties in the current year.Cost of Revenue. Cost of revenue increased to $10.7 million for the year ended December 31, 2017, from $7.5 million for the year endedDecember 31, 2016, an increase of approximately 43%. As a percentage of our 43Table of Contentstotal revenue, overall gross margin decreased from 77% for the year ended December 31, 2016, to 66% for the year ended December 31, 2017, primarilydue to a $3.8 million inventory- related charge in the fourth quarter of 2017. This inventory- related charge was recorded based on low sales of Niobesystems in recent years. Excluding the inventory-related charge, gross margin for the year ended December 31, 2017 would have been 78%. Cost ofrevenue for systems sold increased to $6.2 million for the year ended December 31, 2017, from $3.7 million for the year ended December 31, 2016 andgross margin for systems decreased to (45%) for the year ended December 31, 2017 from 37% for the year ended December 31, 2016 due to theinventory-related charge. Excluding the inventory-related charge, gross margin from systems for the year ended December 31, 2017 would have been45%. Cost of revenue for disposable interventional devices, service and accessories increased to $4.6 million for the year ended December 31, 2017,from $3.9 million for the year ended December 31, 2016, resulting in a decrease in gross margin to 83% from 85% between these periods driven byhigher expenses incurred under service contracts in the current year period.Research and Development Expense. Research and development expense decreased to $4.8 million for the year ended December 31, 2017 from$5.5 million for the year ended December 31, 2016, a decrease of approximately 13%. This decrease was primarily due to a reduction in headcountexpense as a result of retirements and the timing of open positions as well as lower project-based spending and rent expense.Sales and Marketing Expense. Sales and marketing expense decreased to $13.0 million for the year ended December 31, 2017, from$15.2 million for the year ended December 31, 2016, a decrease of approximately 14%. This decrease was primarily due to lower headcount costs andrelated travel expenses as a result of improved efficiency of distribution of clinical sales resources and the timing of open positions as well as lower rentexpense.General and Administrative Expense. General and administrative expenses include regulatory, clinical, general management and routine trainingexpenses. General and administrative expense decreased to $8.5 million for the year ended December 31, 2017, from $10.3 million for the year endedDecember 31, 2016, a decrease of approximately 18%. This decrease was primarily driven by reduced executive headcount costs, administrative, andrent expense.Other Income (Expense). Other income (expense) represents the non-cash change in market value of certain warrants classified as a derivative andrecorded as a current liability under general accounting principles for determining whether an instrument (or embedded feature) is indexed to anentity’s own stock. The primary drivers of fluctuations in this balance are changes in the Company’s stock price from one period to the next. Otherincome was $0.2 million for the year ended December 31, 2017 and other expense was $2.0 million for the year ended December 31, 2016 dueprimarily to the adjustment in fair value of warrants.Interest Expense. Interest expense decreased to $0.2 million for the year ended December 31, 2017 from $2.5 million for the year endedDecember 31, 2016, due primarily to the extinguishment of the Healthcare Royalty Partners debt.Income TaxesRealization of deferred tax assets is dependent upon future earnings, the timing and amount of which are uncertain. Accordingly, net deferred taxassets have been fully offset by valuation allowances as of December 31, 2017, and December 31, 2016 to reflect these uncertainties. As ofDecember 31, 2017, we had gross federal net operating loss carryforwards of approximately $98.5 million which will expire between 2030 and 2037.As of December 31, 2017, we had state net operating loss deferred tax assets of approximately $1.7 million which will expire at various dates between2018 and 2037 if not utilized. We may not be able to utilize all of these loss carryforwards prior to their expiration. 44Table of ContentsCapital ResourcesAs of December 31, 2017, our accumulated deficit was $477.1 million with cash and cash equivalents of $3.7 million. Since inception, we havefinanced our operations primarily through cash generated by operations, borrowings on our revolving line of credit and proceeds from our debt andstock offerings. As of December 31, 2017, our borrowing facility was comprised of a revolving line of credit with $2.7 million of unborrowedavailability with our primary lender, Silicon Valley Bank.Revolving line of creditThe Company has had a working capital line of credit with its primary lender, Silicon Valley Bank, since 2004. The revolving line of credit issecured by substantially all of the Company’s assets. The maximum available under the line is $5.0 million subject to the value of collateralized assets.The Company is required under the revolving line of credit to maintain its primary operating account and the majority of its cash and investmentbalances in accounts with its primary lender. The facility was amended on March 27, 2015, extending the maturity date to March 31, 2018. On May 10,2016, the Company and the primary lender agreed to modify certain financial covenants, and on November 7, 2017 to adjust the maximum availabilityunder the Company’s revolving line of credit from $10.0 million to $5.0 million with a pro-rata reduction in related loan costs, as well as a reduction inthe interest rate floor from 7.0% to 5.75%. The current agreement requires the Company to maintain a liquidity ratio greater than 1.50:1.00, excludingcertain short term advances from the calculation, and a minimum tangible net worth of not less than (no worse than) negative $24.0 million for thequarters ended June 30, 2016, September 30, 2016, December 31, 2016, March 31, 2017, June 30, 2017, and September 30, 2017; and not less than (noworse than) negative $24.5 million for the quarters ended December 31, 2017 and March 31, 2018. As of December 31, 2017, we were in compliancewith all financial covenants of this agreement.As of December 31, 2017, the Company had no outstanding debt under the revolving line of credit. Draws on the line of credit are made based onthe borrowing capacity one week in arrears. As of December 31, 2017 the Company had a borrowing capacity of $2.7 million based on the Company’scollateralized assets. The Company’s total liquidity as of December 31, 2017, was $6.4 million which included cash and cash equivalents of$3.7 million.Healthcare Royalty Partners DebtIn November 2011, the Company entered into a loan agreement with Healthcare Royalty Partners. Under the agreement the Company borrowed$15 million from Healthcare Royalty Partners. The Company was permitted to borrow up to an additional $5 million in the aggregate based on theachievement by the Company of certain milestones related to Niobe ES system sales in 2012. On August 8, 2012, the Company borrowed an additional$2.5 million based upon achievement of a milestone related to Niobe ES system sales for the nine months ended June 30, 2012. On January 31, 2013,the Company borrowed an additional $2.5 million based upon achievement of a milestone related to Niobe ES system sales for the twelve monthsended December 31, 2012. The loan was to be repaid through, and secured by, royalties payable to the Company under its Development, Alliance andSupply Agreement with Biosense Webster, Inc. (the “Biosense Agreement”). The Biosense Agreement relates to the development and distribution ofmagnetically enabled catheters used with Stereotaxis’ Niobe ES system in cardiac ablation procedures. Under the terms of the agreement, HealthcareRoyalty Partners was entitled to receive 100% of all royalties due to the Company under the Biosense Agreement until the loan was repaid. The loanwas a full recourse loan, scheduled to mature on December 31, 2018, and included interest at an annual rate of 16% payable quarterly with royaltiesreceived under the Biosense Agreement. If the payments received by the Company under the Biosense Agreement were insufficient to pay all amountsof interest due on the loan, then such deficiency would have increased the outstanding principal amount on the loan. The loan was also secured bycertain assets and intellectual property of the Company. The agreement also contained customary affirmative and negative covenants. The use ofpayments due to the Company under the Biosense Agreement was approved by our primary lender. 45Table of ContentsIn September 2016, the Company extinguished the remainder of the debt of $18.1 million, net of deferred financing costs of approximately$0.3 million, as well as accrued interest of $0.5 million for $13.0 million based upon an agreement entered into with Healthcare Royalty Partners.Following the repayment of the loan obligation, the royalties under the Biosense Agreement are now paid to the Company. As a result of the debtextinguishment, the Company recognized a net gain of $5.6 million in 2016.Common StockThe holders of common stock are entitled one vote for each share held and to receive dividends whenever funds are legally available and whendeclared by the Board of Directors subject to the prior rights of holders of all classes of stock having priority rights as dividends and certain conditionsof our agreement with our primary lender. No dividends have been declared or paid as of December 31, 2017.Convertible Preferred Stock and WarrantsOn September 26, 2016, the Company entered into a Securities Purchase Agreement with certain institutional and other accredited investorswhereby it agreed to sell, for an aggregate purchase price of $24.0 million, (i) an aggregate of 24,000 shares of Series A Convertible Preferred Stock, parvalue $0.001 with a stated value of $1,000 per share which are convertible into shares of the Company’s common stock and (ii) warrants to purchase anaggregate of 36,923,078 shares of common stock. The transaction closed on September 29, 2016.The Company received net proceeds from the sale of the convertible preferred stock and warrants of $23.2 million, after offering expenses. TheCompany used $13.0 million of the funds to satisfy in full all amounts outstanding under the Loan Agreement with Healthcare Royalty Partners, asnoted above, and the remaining proceeds were used for general corporate purposes.The designations, preferences, powers and rights of the convertible preferred shares are set forth in a Certificate of Designations, Preferences andRights of Series A Convertible Preferred Stock (“Certificate of Designations”) filed with the Delaware Secretary of State. The convertible preferredshares are entitled to vote on an as-converted basis with the common stock, subject to specified beneficial ownership issuance limitations. Theconvertible preferred shares bear dividends at a rate of six percent (6%) per annum, which are cumulative and accrue daily from the date of issuance onthe $1,000 stated value. Such dividends will not be paid in cash except in connection with any liquidation, dissolution or winding up of the Companyor any redemption of the convertible preferred shares. Instead the value of the accrued dividends is added to the liquidation preference of theconvertible preferred shares and will increase the number of shares of common stock issuable upon conversion. Each convertible preferred share isconvertible at the option of the holder from and after the date of issuance with no expiration date, at an initial conversion price of $0.65 per share,subject to adjustment in the event of stock splits, dividends, mergers, sales of all or substantially all of our assets or similar transactions, subject tospecified beneficial ownership issuance limitations. Each holder of convertible preferred shares has the right to require us to redeem such holder’sconvertible preferred shares upon the occurrence of specified events, which include certain business combinations, the sale of all or substantially all ofthe Company’s assets or the sale of more than 50% of the outstanding shares of the Company’s common stock. In addition, the Company has the rightto redeem the convertible preferred shares in the event of a change of control as defined in the Certificate of Designations.The convertible preferred shares rank senior to our common stock as to distributions and payments upon the liquidation, dissolution and windingup of the Company. No such distributions or payments upon the liquidation, dissolution and winding up of the Company may be made to the holdersof common stock unless and until the holders of convertible preferred shares have received the stated value of $1,000 per share plus any accrued andunpaid dividends. Until all convertible preferred shares have been converted or redeemed, no dividends may be paid on the common stock without theexpress written consent of the holders of a majority of the outstanding 46Table of Contentsconvertible preferred shares. In the event that dividends or other distributions of assets are made or paid by the Company to the holders of the commonstock, the holders of convertible preferred shares are entitled to participate in such dividend or distribution on an as-converted basis.On the date of the issuance, the fair value of the convertible preferred stock was greater than the allocated proceeds received for the Series Aconvertible preferred stock. As such, the Company accounted for the beneficial conversion feature under ASC 470-20, Debt with Conversion featureunder ASC 470-20, Debt with Conversion and Other Options. The Company recorded a deemed dividend charge of $6.1 million for the accretion of adiscount on the Series A convertible preferred stock. The deemed dividend was a non-cash transaction and is reflected below net loss to arrive at netloss available to common stockholders. Since the convertible preferred shares are subject to conditions for redemption that are outside the Company’scontrol, the convertible preferred shares are presently reported in the mezzanine section of the balance sheet.The warrants issued in conjunction with the convertible preferred stock have an exercise price equal to $0.70 per share subject to adjustments asprovided under the terms of the warrants. The warrants are exercisable through September 29, 2021, subject to specified beneficial ownership issuancelimitations. The warrants may be exercised by any holder on a cashless basis if, at any time after the date that is 180 days after the closing, theregistration statement required by the Registration Rights Agreement described below is not effective and available for resale of all of the shares ofcommon stock issuable upon exercise of such holder’s warrants. Due to the fact that the warrants were puttable upon the occurrence of certain eventsoutside of the Company’s control prior to being amended in February 2018, the warrants qualified as liabilities under ASC 480-10 as of December 31,2017. The calculated fair value of the warrants was classified as a liability and was periodically re-measured with any changes in value recognized in“Other income (expense)” in the Statements of Operations. See Note 12 for additional details.On December 2, 2016, 100 shares of convertible preferred stock plus accumulated dividends were converted into 155,439 common shares.On February 28, 2018, the Company entered into a Consent and Amendment with the holders of a majority of the shares of common stockissuable upon exercise of the outstanding warrants (the “SPA Warrants”) issued pursuant to the Stock Purchase Agreement dated September 26, 2016.The Consent and Amendment amended and restated the SPA Warrants providing for a reduction in the exercise price of the SPA Warrants from $0.70per share to $0.28 per share for a period between March 1, 2018 and March 5, 2018 to encourage early exercise. Among other changes, the Consent andAmendment modified the beneficial ownership limitation related to the warrants and eliminated the right of holders to require the Company to redeemtheir SPA Warrants in exchange for cash in certain circumstances which required liability accounting for the warrants on the balance sheet. During therestricted exercise period, Stereotaxis received exercise notices for 35,791,927 warrants and received an aggregate of $10.0 million in cash from thewarrant exercise.Listing Transfer to OTCQX Best MarketOn August 2, 2016, the Company received a determination letter from the Nasdaq Hearings Panel (the “Panel”) notifying the Company that itscommon stock would be delisted from The Nasdaq Capital Market (“Nasdaq”) and that suspension of trading in the shares would be effective at theopen of business on August 4, 2016. The delisting was completed by filing of a Form 25 Notification of Delisting with the Securities ExchangeCommission on November 10, 2016. The Panel made the determination to delist the Company’s common stock because the Company did notdemonstrate compliance with the minimum $35 million market value of listed securities requirement for a period of ten consecutive trading days byAugust 1, 2016, as required by a decision previously issued by the Panel on May 2, 2016. The Company’s shares of common stock commenced tradingon the OTCQX Best Market on August 4, 2016 under the Company’s current ticker symbol of “STXS.” 47®®Table of ContentsControlled Equity OfferingIn May 2014, the Company entered into a Controlled Equity Offering sales agreement (the “Sales Agreement”), with Cantor Fitzgerald & Co.(“Cantor”), as agent and/or principal, pursuant to which the Company could issue and sell, from time to time, shares of its common stock having anaggregate gross sales price of up to $18.0 million. The Company paid Cantor a commission of 3.0% of the gross proceeds from any common stock soldthrough the Sales Agreement.There were no proceeds from the Controlled Equity Offering during the twelve months ended December 31, 2016. The Sales Agreement expiredin November 2016 upon the expiration of our Registration Statement on Form S-3.LiquidityThe following table summarizes our cash flow by operating, investing and financing activities for each of years ended December 31, 2017 and2016 (in thousands): Twelve Months Ended December 31, 2017 2016 Cash flow used in operating activities $(4,675) $(6,563) Cash flow used in investing activities (82) (410) Cash flow (used in)/provided by financing activities (59) 9,881 Net cash used in operating activities. We used approximately $4.7 million and $6.6 million of cash in operating activities during the yearsended December 31, 2017 and 2016, respectively. The decrease in cash used in operating activities from 2016 to 2017 was driven by reducedoperating losses and interest expense.Net cash used in investing activities. We used approximately $0.1 million and approximately $0.4 million during the years ended December 31,2017 and December 31, 2016, respectively, for the purchase of property and equipment.Net cash used in/provided by financing activities. We used approximately $0.1 million of cash for the year ended December 31, 2017, comparedto approximately $9.9 million generated for the year ended December 31, 2016. The cash used for the year ended December 31, 2017 was driven bypayments of deferred financing costs offset by proceeds from issuance of stock, net of issuance costs. The cash generated from the year endedDecember 31, 2016 was driven by the proceeds from our September 29, 2016 preferred stock issuance, net of issuance costs and the payoff of theHealthcare Royalty Partners debt.At December 31, 2017, we had a working capital deficit of approximately $20.3 million, compared to a working capital deficit of $16.2 millionat December 31, 2016. The increase in the working capital deficit was primarily driven by the 2017 operating loss including the inventory-relatedcharge of $3.8 million partially offset by lower deferred revenue.As of December 31, 2017, the Company had no outstanding debt under the revolving line of credit. Draws on the line of credit are made based onthe borrowing capacity one week in arrears. As of December 31, 2017, the Company had a borrowing capacity of $2.7 million based on the Company’scollateralized assets. The maturity date of the revolving line of credit is March 31, 2018.The credit facility is secured by substantially all of our assets. The credit agreements include customary affirmative, negative and financialcovenants. For example, we are restricted from incurring additional debt, disposing of or pledging our assets, entering into merger or acquisitionagreements, making certain investments, allowing fundamental changes to our business, ownership, management or business locations, and frommaking certain payments in respect of stock or other ownership interests, such as dividends and stock repurchases. Under 48SMTable of Contentsour loan arrangements, as in effect at December 31, 2017, we are required to meet minimum tangible net worth and liquidity covenants as defined inthe loan agreement. We are also required under the credit agreements to maintain our primary operating account and the majority of our cash andinvestment balances in accounts with our primary lending bank. As of December 31, 2017, we were in compliance with all financial covenants of thisagreement.The Company believes the cash on hand at December 31, 2017 plus the $10 million of proceeds from the March 2018 financing will be sufficientto meet its obligations as they become due in the ordinary course of business for at least 12 months following the date these financial statements areissued. The Company has sustained operating losses throughout its corporate history and expects that its 2018 expenses will exceed its 2018 grossmargin. The Company expects to continue to incur operating losses and negative cash flows until revenues reach a level sufficient to support ongoingoperations or expense reductions are in place. The Company’s liquidity needs will be largely determined by the success of clinical adoption within theinstalled base of Niobe systems as well as by new placements of capital systems. The Company also may consider raising cash through capitaltransactions, which could include either debt or equity financing.Until we can generate significant cash flow from our operations, we expect to continue to fund our operations with cash resources primarilygenerated from the proceeds of our past and future public offerings, private sales of our equity securities and working capital and equipment financingloans. In the future, we may finance cash needs through the sale of other equity securities or non-core assets, strategic collaboration agreements, debtfinancings or through distribution rights. We cannot assure you that such additional financing will be available on a timely basis on terms acceptableto us or at all, that we will be able to engage in equity financings because our common stock is no longer listed on a national securities exchange, orthat such financing will not be dilutive to our stockholders. If adequate funds are not available to us, we could be required to delay development orcommercialization of new products, to license to third parties the rights to commercialize products or technologies that we would otherwise seek tocommercialize ourselves or to reduce the sales, marketing, customer support or other resources devoted to our products, any of which could have amaterial adverse effect on our business, financial condition and results of operations. In addition, we could be required to cease operations.Off-Balance Sheet ArrangementsWe do not currently have, nor have we ever had, any relationships with unconsolidated entities or financial partnerships, such as entities oftenreferred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheetarrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange tradedcontracts. As a result, we are not materially exposed to any financing, liquidity, market or credit risk that could have arisen if we had engaged in theserelationships. 49Table of ContentsITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAFinancial StatementsIndex To Financial Statements PAGE Report of Ernst & Young LLP, Independent Registered Public Accounting Firm 51 Balance Sheets at December 31, 2017 and 2016 52 Statements of Operations for the years ended December 31, 2017 and 2016 53 Statements of Convertible Preferred Stock and Stockholders’ Equity for the years ended December 31, 2017 and 2016 54 Statements of Cash Flows for the years ended December 31, 2017 and 2016 55 Notes to the Financial Statements 56 Schedule II—Valuation and Qualifying Accounts 82 All other schedules have been omitted because they are not applicable or the required information is shown in the Financial Statements or theNotes thereto. 50Table of ContentsReport of Independent Registered Public Accounting FirmTo the Stockholders and the Board of Directors of Stereotaxis, Inc.Opinion on the Financial StatementsWe have audited the accompanying balance sheets of Stereotaxis, Inc. (the Company) as of December 31, 2017 and 2016, the related statements ofoperations, convertible preferred stock and stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2017, andthe related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “financial statements”). In ouropinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016, and theresults of its operations and its cash flows for each of the two years in the period ended December 31, 2017, in conformity with U.S. generally acceptedaccounting principles.Basis for OpinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’sfinancial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (UnitedStates) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicablerules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is notrequired to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtainan understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’sinternal control over financial reporting. Accordingly, we express no such opinion.Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, andperforming procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts anddisclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for ouropinion./s/ Ernst & Young LLPWe have served as the Company’s auditor since 2002.St. Louis, MissouriMarch 20, 2018 51Table of ContentsSTEREOTAXIS, INC.BALANCE SHEETS December 31,2017 December 31,2016 Assets Current assets: Cash and cash equivalents $3,686,302 $8,501,392 Accounts receivable, net of allowance of $361,350 and $379,817 in 2017 and 2016, respectively 4,287,255 4,665,959 Inventories, net 1,146,971 5,381,103 Prepaid expenses and other current assets 750,085 855,295 Total current assets 9,870,613 19,403,749 Property and equipment, net 592,688 1,086,244 Intangible assets, net 159,470 436,569 Other assets 44,432 39,241 Total assets $10,667,203 $20,965,803 Liabilities and stockholders’ deficit Current liabilities: Accounts payable $1,654,101 $2,623,010 Accrued liabilities 3,195,247 4,491,164 Deferred revenue 5,702,769 8,751,336 Warrants 19,574,977 19,787,007 Total current liabilities 30,127,094 35,652,517 Long-term deferred revenue 611,863 522,329 Other liabilities 535,369 320,409 Total liabilities 31,274,326 36,495,255 Convertible Preferred stock: Convertible Preferred stock, par value $0.001; 10,000,000 shares authorized, 23,900 shares outstanding at2017 and 2016 5,960,475 5,960,475 Stockholders’ deficit: Common stock, par value $0.001; 300,000,000 shares authorized, 22,805,731 and 22,063,582 sharesissued at 2017 and 2016, respectively 22,806 22,064 Additional paid in capital 450,748,403 449,939,406 Treasury stock, 4,015 shares at 2017 and 2016 (205,999) (205,999) Accumulated deficit (477,132,808) (471,245,398) Total stockholders’ deficit (26,567,598) (21,489,927) Total liabilities and stockholders’ deficit $10,667,203 $20,965,803 See accompanying notes. 52Table of ContentsSTEREOTAXIS, INC.STATEMENTS OF OPERATIONS Twelve Months Ended December 31, 2017 2016 Revenue: Systems $4,275,798 $5,776,843 Disposables, service and accessories 26,868,302 26,387,273 Total revenue 31,144,100 32,164,116 Cost of revenue: Systems 6,199,643 3,660,012 Disposables, service and accessories 4,554,596 3,869,321 Total cost of revenue 10,754,239 7,529,333 Gross margin 20,389,861 24,634,783 Operating expenses: Research and development 4,760,806 5,487,609 Sales and marketing 13,039,499 15,228,193 General and administrative 8,509,153 10,345,338 Total operating expenses 26,309,458 31,061,140 Operating loss (5,919,597) (6,426,357) Other income (expense) 212,031 (2,009,150) Interest expense (net) (179,844) (2,483,384) Gain on extinguishment of debt — 5,632,171 Net loss $(5,887,410) $(5,286,720) Deemed dividend on convertible preferred stock — (6,145,402) Cumulative dividend on convertible preferred stock (1,432,259) (368,152) Net loss attributable to common stockholders $(7,319,669) $(11,800,274) Net loss per share attributable to common stockholders: Basic $(0.32) $(0.54) Diluted $(0.32) $(0.54) Weighted average number of common shares and equivalents: Basic 22,614,248 21,807,634 Diluted 22,614,248 21,807,634 See accompanying notes. 53Table of ContentsSTEREOTAXIS, INC.STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY ConvertiblePreferred Stock Common Stock AdditionalPaid-InCapital TreasuryStock AccumulatedDeficit TotalStockholders’Equity(Deficit) Shares Amount Shares Amount Balance at December 31, 2015 — $— 21,551,173 $21,551 $448,517,472 $(205,999) $(465,958,678) $(17,625,654) Issuance of common stock (1,464) (1,464) Share-based compensation 1,365,121 1,365,121 Restricted stock vestings 317,962 318 (318) — Components of comprehensive loss: net loss (5,286,720) (5,286,720) Employee stock purchase plan 39,008 39 33,145 33,184 Issuance of Convertible Preferred Stock, net of discount related towarrants of $17,649,231 and issuance costs of $159,322 24,000 5,986,081 — Beneficial conversion feature of Convertible Preferred Stock (6,145,402) 6,145,402 6,145,402 Deemed dividend related to beneficial conversion feature of ConvertiblePreferred Stock 6,145,402 (6,145,402) (6,145,402) Conversion of Convertible Preferred Stock (100) (25,606) 155,439 156 25,450 25,606 Balance at December 31, 2016 23,900 $5,960,475 22,063,582 $22,064 $449,939,406 $(205,999) $(471,245,398) $(21,489,927) ConvertiblePreferred Stock Common Stock AdditionalPaid-InCapital TreasuryStock AccumulatedDeficit TotalStockholders’Equity(Deficit) Shares Amount Shares Amount Balance at December 31, 2016 23,900 $5,960,475 22,063,582 $22,064 $449,939,406 $(205,999) $(471,245,398) $(21,489,927) Share-based compensation 768,682 768,682 Restricted stock vestings 675,473 675 (552) 123 Components of comprehensive loss: net loss (5,887,410) (5,887,410) Employee stock purchase plan 66,676 67 40,867 40,934 Balance at December 31, 2017 23,900 $5,960,475 22,805,731 $22,806 $450,748,403 $(205,999) $(477,132,808) $(26,567,598) See accompanying notes. 54Table of ContentsSTEREOTAXIS, INC.STATEMENTS OF CASH FLOWS Twelve Months Ended December 31, 2017 2016 Cash flows from operating activities Net loss $(5,887,410) $(5,286,720) Adjustments to reconcile net loss to cash used in operating activities: Depreciation 554,361 367,611 Amortization of intangibles 199,321 199,320 Amortization of deferred finance costs 99,998 188,239 Share-based compensation 768,682 1,365,121 Gain on debt extinguishment — (5,632,171) Noncash interest — 485,857 Loss on asset disposal 98,550 Adjustment of warrants (212,030) 2,009,150 Provisions for obsolete inventory 3,948,726 283,441 Changes in operating assets and liabilities: Accounts receivable 378,704 1,710,511 Inventories 285,406 (1,136,612) Prepaid expenses and other current assets 105,215 (187,940) Other assets (5,191) (7,548) Accounts payable (968,909) 782,875 Accrued liabilities (1,295,917) (1,567,226) Deferred revenue (2,959,033) (181,468) Other liabilities 214,960 44,806 Net cash used in operating activities (4,674,567) (6,562,754) Cash flows from investing activities Purchase of fixed assets (81,577) (410,184) Net cash used in investing activities (81,577) (410,184) Cash flows from financing activities Payments of deferred financing costs (100,000) (100,000) Proceeds from revolving line of credit — 7,650,000 Payments of revolving line of credit — (7,650,000) Payments of Healthcare Royalty Partners debt — (13,020,780) Proceeds from issuance of stock, net of issuance costs 41,054 23,001,528 Net cash provided by (used in) financing activities (58,946) 9,880,748 Net increase (decrease) in cash and cash equivalents (4,815,090) 2,907,810 Cash and cash equivalents at beginning of period 8,501,392 5,593,582 Cash and cash equivalents at end of period $3,686,302 $8,501,392 Supplemental disclosures of cash flow information: Interest paid — 2,251,613 Certain prior year amounts have been reclassified to conform to the 2017 presentation.See accompanying notes. 55Table of ContentsSTEREOTAXIS, INC.NOTES TO FINANCIAL STATEMENTSNotes to Financial StatementsIn this report, “Stereotaxis”, the “Company”, “Registrant”, “we”, “us”, and “our” refer to Stereotaxis, Inc. and its wholly owned subsidiaries.Epoch, Niobe, Odyssey, Odyssey Cinema, Vdrive, Vdrive Duo, V-CAS, V-Loop, V-Sono, V-CAS Deflect, QuikCASand Cardiodrive aretrademarks of Stereotaxis, Inc. All other trademarks that appear in this report are the property of their respective owners.1. Description of BusinessStereotaxis designs, manufactures and markets the Epoch Solution, which is an advanced remote robotic navigation system for use in a hospital’sinterventional surgical suite, or “interventional lab”, that we believe revolutionizes the treatment of arrhythmias and coronary artery disease byenabling enhanced safety, efficiency and efficacy for catheter-based, or interventional, procedures. The Epoch Solution is comprised of the Niobe ESRemote Magnetic Navigation System (“Niobe ES system”), Odyssey Information Management Solution (“Odyssey Solution”), and the Vdrive RoboticNavigation System (“Vdrive system”), and related devices.The Niobe system is designed to enable physicians to complete more complex interventional procedures by providing image-guided delivery ofcatheters through the blood vessels and chambers of the heart to treatment sites. This is achieved using externally applied magnetic fields that governthe motion of the working tip of the catheter resulting in improved navigation, efficient procedures and reduced x-ray exposure. As of December 31,2017, the Company had an installed base of 128 Niobe ES systems.In addition to the Niobe system and its components, Stereotaxis also has developed the Odyssey Solution, which consolidates all lab informationenabling doctors to focus on the patient for optimal procedure efficiency. The system also features a remote viewing and recording capability calledOdyssey Cinema, which is an innovative solution delivering 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 canbe accessed from locations throughout the hospital local area network and over the global Odyssey Network providing physicians with a tool forclinical collaboration, remote consultation and training.Our Vdrive system provides navigation and stability for diagnostic and therapeutic devices designed to improve interventional procedures. TheVdrive system complements the Niobe ES system control of therapeutic catheters for fully remote procedures and enables single-operator workflow andis sold as two options, the Vdrive system and the Vdrive Duo system. In addition to the Vdrive system and the Vdrive Duo system, we also manufactureand market various disposable components which can be manipulated by these systems.We promote the full Epoch Solution in a typical hospital implementation, subject to regulatory approvals or clearances. The full Epoch Solutionimplementation requires a hospital to agree to an upfront capital payment and recurring payments. The upfront capital payment typically includesequipment and installation charges. The recurring payments typically include disposable costs for each procedure, equipment service costs beyondwarranty period, and software licenses. In hospitals where the full Epoch Solution has not been implemented, equipment upgrade or expansion can beimplemented upon purchasing of the necessary upgrade or expansion.The core components of Stereotaxis systems, such as Niobe system, Odyssey Solution, Cardiodrive and various disposable interventional deviceshave 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 theU.S., Canada and European Union. The V-CAS Deflect catheter advancement system has been CE Marked for sale in the European Union. 56®®®™®™™™™™™ ®Table of Contents2. Summary of Significant Accounting PoliciesBasis of PresentationThe Company believes the cash on hand at December 31, 2017 plus the $10 million of proceeds from the March 2018 financing will be sufficientto meet its obligations as they become due in the ordinary course of business for at least 12 months following the date these financial statements areissued. The Company has sustained operating losses throughout its corporate history and expects that its 2018 expenses will exceed its 2018 grossmargin. The Company expects to continue to incur operating losses and negative cash flows until revenues reach a level sufficient to support ongoingoperations or expense reductions are in place. The Company’s liquidity needs will be largely determined by the success of clinical adoption within theinstalled base of Niobe systems as well as by new placements of capital systems. The Company also may consider raising cash through capitaltransactions, which could include either debt or equity financing.Cash and Cash EquivalentsThe Company considers all short-term investments purchased with original maturities of three months or less to be cash equivalents. TheCompany places its cash with high-credit-quality financial institutions and invests primarily in money market accounts. No cash was restricted atDecember 31, 2017 or 2016.Accounts Receivable and Allowance for Uncollectible AccountsAccounts receivable primarily include amounts due from hospitals and distributors for acquisition of magnetic systems, associated disposabledevice sales and service contracts. Credit is granted on a limited basis, with balances due generally within 30 days of billing. The provision for baddebts is based upon management’s assessment of historical and expected net collections considering business and economic conditions and othercollection indicators.Financial InstrumentsFinancial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and debt. The carrying value of such amountsreported at the applicable balance sheet dates approximates fair value.The Company measures certain financial assets and liabilities at fair value on a recurring basis, including warrants. General accounting principlesfor fair value measurement established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Thehierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (“Level 1”) and the lowest priorityto unobservable inputs (“Level 3”). See Note 12 for disclosure of fair value measurements.InventoryThe Company values its inventory at the lower of cost, as determined using the first-in, first-out (FIFO) method, or market. The Companyperiodically reviews its physical inventory for obsolete items and provides a reserve upon identification of potential obsolete items.Property and EquipmentProperty and equipment consist primarily of leasehold improvements, computer, office, research and demonstration equipment, and equipmentheld for lease and are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives or life of the base leaseterm, ranging from three to ten years. 57Table of ContentsLong-Lived AssetsIf facts and circumstances suggest that a long-lived asset may be impaired, the carrying value is reviewed. If this review indicates that thecarrying value of the asset will not be recovered, as determined based on projected undiscounted cash flows related to the asset over its remaining life,the carrying value of the asset is reduced to its estimated fair value, which in most cases is estimated based upon Level 2 or Level 3 inputs.Intangible AssetsIntangible assets consist of purchased technology and intellectual property rights valued at cost on the acquisition date and amortized over theirestimated useful lives of 10-15 years. If facts and circumstances suggest that an intangible asset may be impaired, the carrying value is reviewed. If thisreview indicates that the carrying value of the asset will not be recovered, as determined based on projected undiscounted cash flows related to theasset over its remaining life, the carrying value of the asset is reduced to its estimated fair value, which in most cases is estimated based upon Level 2 orLevel 3 inputs.Use of EstimatesThe preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of income and loss during the reporting period. Actual results could differ from those estimates.Revenue and Costs of RevenueThe Company recognizes revenue based on the Multiple-Deliverable Revenue Arrangements guidance (“ASU 2009-13”).ASU 2009-13 permits management to estimate the selling price of undelivered components of a bundled sale for which it is unable to establishvendor-specific objective evidence (“VSOE”) or third-party evidence (“TPE”). This requires management to record revenue for certain elements of atransaction even though it might not have delivered other elements of the transaction, for which it was unable to meet the requirements for establishingVSOE or TPE. This guidance also prohibits the use of the residual method for allocating revenue to the various elements of a transaction and requiresthat the revenue be allocated proportionally based on the relative estimated selling prices.Under our revenue recognition policy, a portion of revenue for Niobe systems, Vdrive systems and Odyssey systems is recognized upon delivery,provided that title has passed, there are no uncertainties regarding acceptance, persuasive evidence of an arrangement exists, the sales price is fixed anddeterminable, and collection of the related receivable is reasonably assured. When installation is the responsibility of the customer, revenue fromsystem sales is recognized upon shipment since these arrangements do not include an installation element or right of return privileges. The Companydoes not recognize revenue in situations in which inventory remains at a Stereotaxis warehouse or in situations in which title and risk of loss have nottransferred to the customer. Amounts collected prior to satisfying the above revenue recognition criteria are reflected as deferred revenue. Revenuefrom services and license fees, whether sold individually or as a separate unit of accounting in a multiple-deliverable arrangement, is deferred andamortized over the service or license fee period, which is typically one year. Revenue from services is derived primarily from the sale of annual productmaintenance plans. We recognize revenue from disposable device sales or accessories upon shipment and establish an appropriate reserve for returns.The return reserve, which is applicable only to disposable devices, is estimated based on historical experience which is periodically reviewed andupdated as necessary. In the past, changes in estimate have had only a de minimis effect on revenue recognized in the period. We believe that theestimate is not likely to change significantly in the future. 58Table of ContentsCosts of systems revenue include direct product costs, installation labor and other costs, estimated warranty costs, and initial training andproduct maintenance costs. These costs are recorded at the time of sale. Costs of disposable revenue include direct product costs and estimatedwarranty costs and are recorded at the time of sale. Cost of revenue from services and license fees are recorded when incurred.Research and Development CostsInternal research and development costs are expensed in the period incurred. Amounts receivable from strategic relationships under researchreimbursement agreements are recorded as a contra-research and development expense in the period reimbursable costs are incurred. There were nomaterial receivables at December 31, 2017 or 2016 under these types of agreements. Advance receipts or other unearned reimbursements are includedin accrued liabilities on the accompanying balance sheet until earned.Share-Based CompensationStock options or stock appreciation rights issued to certain non-employees are recorded at their fair value as determined in accordance withgeneral accounting principles for share-based payments and accounting for equity instruments that are issued to other than employees for acquiring, orin conjunction with selling, goods or services, and recognized over the service period. Deferred compensation for options granted to non-employees isremeasured on a quarterly basis through the vesting or forfeiture date.The Company utilized the Black-Scholes valuation model to determine the fair value of share-based payments at the date of previously issuedgrant using risk-free interest rate based on the Treasury yield on the date of the grant and expected volatility based on the Company’s historicalvolatility over the expected term of the option. The resulting compensation expense is recognized over the requisite service period, generally one tofour years.Restricted shares and units granted to employees are valued at the fair market value at the date of grant. The Company amortizes the amount toexpense over the service period on a straight-line basis for those shares with graded vesting. If the shares are subject to performance objectives, theresulting compensation expense is amortized over the anticipated vesting period and is subject to adjustment based on the actual achievement ofobjectives.Shares purchased by employees under the 2004 Employee Stock Purchase Plan were considered to be compensatory and were accounted for inaccordance with general accounting principles for share-based payments. Shares purchased by employees under the 2009 Employee Stock PurchasePlan are considered to be non-compensatory.Net Earnings (Loss) per Common ShareBasic earnings (loss) per common share is computed by dividing the net earnings (loss) for the period by the weighted average number ofcommon shares outstanding during the period. In periods where there is net income, we apply the two-class method to calculate basic and diluted netincome (loss) per share of common stock, as our Convertible Preferred Stock is a participating security. The two-class method is an earnings allocationformula that treats a participating security as having rights to earnings that otherwise would have been available to common stockholders. In periodswhere there is a net loss, the two-class method of computing earnings per share does not apply as our Convertible Preferred Stock does notcontractually participate in our losses. We compute diluted net income (loss) per common share using net income (loss) as the “control number” indetermining whether potential common shares are dilutive, after giving consideration to all potentially dilutive common shares, including stockoptions, warrants, unvested restricted stock units outstanding during the period and potential issuance of stock upon the conversion of our ConvertiblePreferred Stock issued and outstanding during the period, except where the effect of such securities would be antidilutive. 59Table of ContentsThe Company did not include any portion of unearned restricted shares, outstanding options, stock appreciation rights, warrants or convertiblepreferred stock in the calculation of diluted loss per common share because all such securities are anti-dilutive for all periods presented. Theapplication of the two-class method of computing earnings per share under general accounting principles for participating securities is not applicableduring these periods because those securities do not contractually participate in its losses.As of December 31, 2017, the Company had 413,301 shares of common stock issuable upon the exercise of outstanding options and stockappreciation rights at a weighted average exercise price of $9.04 per share, 38,779,119 shares of common stock issuable upon the exercise ofoutstanding warrants at a weighted average exercise price of $0.82 per share, and 39,537,501 shares of our common stock issuable upon conversion ofour Series A Convertible Preferred Stock. The Company had no unearned restricted shares outstanding for the period ended December 31, 2017.Income TaxesIn accordance with general accounting principles for income taxes, a deferred income tax asset or liability is determined based on the differencebetween the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates that will be in effect when these differencesreverse. The Company provides a valuation allowance against net deferred income tax assets unless, based upon available evidence, it is more likelythan not the deferred income tax assets will be realized.Product Warranty ProvisionsThe Company’s standard policy is to warrant all systems against defects in material or workmanship for one year following installation. TheCompany’s estimate of costs to service the warranty obligations is based on historical experience and current product performance trends. A regularreview of warranty obligations is performed to determine the adequacy of the reserve and adjustments are made to the estimated warranty liability(included in other accrued liabilities) as appropriate.Patent CostsCosts related to filing and pursuing patent applications are expensed as incurred, as recoverability of such expenditures is uncertain.Concentrations of RiskThe majority of the Company’s cash, cash equivalents and investments are deposited with one major financial institution in the U.S. Deposits inthis institution exceed the amount of government provided insurance on such deposits.Revenue from Biosense Webster Inc. related to royalties and Odyssey system sales accounted for $3,304,126 and $4,099,075 or 11%, and 13%, oftotal net revenue for the years ended December 31, 2017, and 2016, respectively. No other single customer accounted for more than 10% of totalrevenue for the year ended December 31, 2017.ReclassificationsCertain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. Thesereclassifications had no effect on reported losses. 60Table of ContentsRecently Issued Accounting PronouncementsIn March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU” or “Update”) No. 2016-09,“Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This amendment is intended tosimplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards aseither equity or liabilities, forfeitures, and classification on the statement of cash flows. This update was effective for fiscal years beginning afterDecember 15, 2016 (January 1, 2017 for the Company) and interim periods within those fiscal years, with earlier application permitted. The Companyadopted this guidance in the first quarter of 2017. The adoption of ASU 2016-09 did not materially impact the Company’s consolidated financialposition, results of operations, equity, or cash flows.In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory” regarding the subsequentmeasurement of inventory as part of its Simplification Initiative. This standard was effective for public companies for fiscal years beginning afterDecember 15, 2016 (January 1, 2017 for the Company), including interim periods within those fiscal years. This Update should be appliedprospectively, and early application is permitted as of the beginning of an interim or annual reporting period. The Company adopted this accountingstandard update in the first quarter of 2017. The adoption of ASU 2015-11 did not materially impact the company’s results of operations, financialconditions, cash flows, or financial statement presentation.In November 2015, the FASB issued Accounting Standards Update (“ASU” or “Update”) No. 2015-17, “Income Taxes (Topic 740): To simplifythe presentation of deferred income taxes.” The amendments in this Update require that deferred tax liabilities and assets be classified as noncurrent ina classified statement of financial position. The amendments in this Update apply to all entities that present a classified statement of financial position.The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is notaffected by the amendments in this Update. This standard is effective for public companies for financial statements issued for annual periods beginningafter December 15, 2016 (January 1, 2017 for the Company), and interim periods within those annual periods. We have adopted this accountingstandard update and there was no impact to the results of operations or cash flowsIn February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02 - Leases (ASC 842), which sets out the principles forthe recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requireslessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectivelya financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on astraight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with aterm of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existingguidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent toexisting guidance for sales-type leases, direct financing leases and operating leases. ASC 842 supersedes the previous leases standard, ASC 840 Leases.The standard is effective for interim and annual periods beginning after December 31, 2018 (January 1, 2019 for the Company), with early adoptionpermitted. The Company is in the process of evaluating the impact of this accounting standard update.In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU” or “Update”) No. 2014-15, tocommunicate amendments to FASB Account Standards Codification Subtopic 205-40, “Disclosure of Uncertainties about an Entity’s Ability toContinue as a Going Concern.” The ASU requires management to evaluate relevant conditions, events and certain management plans that are known orreasonably knowable as of the evaluation date when determining whether substantial doubt about an entity’s ability to continue as a going concernexists. Management will be required to make this evaluation for both 61Table of Contentsannual and interim reporting periods. Management will have to make certain disclosures if it concludes that substantial doubt exists or when it plans toalleviate substantial doubt about the entity’s ability to continue as a going concern. The standard is effective for annual periods ending afterDecember 15, 2016 and for interim reporting periods starting in the first quarter of 2017 (December 31, 2016 for the Company). We have adopted thisaccounting standard update and provided the relevant disclosures in Note 1.In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which converges the FASB’s and the InternationalAccounting Standards Board’s current standards on revenue recognition. The standard provides companies with a single model to use in accounting forrevenue arising from contracts with customers and supersedes current revenue guidance. The core principle of the ASU is that an entity shouldrecognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. ASU2014-09 requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts,including significant judgments and changes in judgments. The standard is effective for annual and interim periods beginning after December 15, 2017(January 1, 2018 for the Company). Early adoption is not permitted. The standard permits companies to either apply the adoption to all periodspresented, or apply the requirements in the year of adoption through a cumulative adjustment. The Company will adopt ASU 2014-09 during the firstquarter of 2018 using the modified retrospective method. We are substantially complete with our evaluation of the impact of adopting ASU 2014-09on our consolidated financial statements, and we do not expect significant changes in the timing or method of revenue recognition for any of ourmaterial revenue streams. In connection with adopting ASU 2014-09, we expect to record a cumulative-effect reduction to accumulated deficit of $0.4million on January 1, 2018. This adjustment primarily relates to the deferral of costs to obtain a contract that were previously expensed at thebeginning of the contract period.3. InventoryInventory consists of the following: December 31,2017 December 31,2016 Raw materials $2,528,270 $2,397,430 Work in process 4,836 341,125 Finished goods 2,515,637 2,915,162 Reserve for obsolescence (3,901,772) (272,614) Total inventory $1,146,971 $5,381,103 In the fourth quarter of 2017, Stereotaxis recorded a non-cash inventory-related charge related to its Niobe ES product line.4. Prepaid Expenses and Other Current AssetsPrepaid expenses and other current assets consist of the following: December 31,2017 December 31,2016 Prepaid expenses $575,501 $575,886 Deferred financing costs 24,658 24,658 Deposits 194,358 293,992 Total prepaid expenses and other assets 794,517 894,536 Less: Noncurrent prepaid expenses and other assets (44,432) (39,241) Total current prepaid expenses and other assets $750,085 $855,295 62Table of Contents5. Property and EquipmentProperty and equipment consist of the following: December 31, December 31, 2017 2016 Equipment $7,295,698 $8,397,528 Equipment held for lease — 303,412 Leasehold improvements 2,592,339 2,719,860 9,888,037 11,420,800 Less: Accumulated depreciation (9,295,349) (10,334,556) Net property and equipment $592,688 $1,086,244 6. Intangible AssetsAs of December 31, 2017 and 2016, the Company had total intangible assets of $3,143,291 and $3,221,069, respectively. Accumulatedamortization at December 31, 2017 and 2016 was $2,983,821 and $2,784,500, respectively. Amortization expense for the years 2017 and 2016 was$199,321 and $199,320, respectively, as determined under the straight-line method. The estimated future amortization of intangible assets is $65,988in 2018, $65,988 in 2019 and $27,495 through May 2020. During the fourth quarter of 2017, the Company also recognized impairment charges of$77,778 in research and development expense for certain intellectual property rights relating to the Company’s Niobe ES system. The impairment isthe result of an analysis that indicated it was probable the undiscounted future cash flows produced by the intellectual property would not exceed itsbook value during the remaining six months of its useful life.7. Accrued LiabilitiesAccrued liabilities consist of the following: December 31, December 31, 2017 2016 Accrued salaries, bonus, and benefits $1,641,491 $2,452,183 Accrued rent 441,417 965,412 Accrued licenses and maintenance fees 581,672 561,450 Accrued warranties 164,365 222,845 Accrued taxes 234,668 219,017 Accrued professional services 367,072 180,450 Other 299,931 210,216 Total accrued liabilities 3,730,616 4,811,573 Less: Long term accrued liabilities (535,369) (320,409) Total current accrued liabilities $3,195,247 $4,491,164 63Table of Contents8. Deferred RevenueDeferred revenue consists of the following: December 31, December 31, 2017 2016 Product shipped, revenue deferred $941,724 $549,709 Customer deposits — 2,910,000 Deferred service and license fees 5,372,908 5,813,956 Total deferred revenue 6,314,632 9,273,665 Less: Long-term deferred revenue (611,863) (522,329) Total current deferred revenue $5,702,769 $8,751,336 9. Long-Term Debt and Credit FacilitiesAs of December 31, 2017 and 2016, there were no contractual principal maturities of debt.The revolving line of credit is secured by substantially all of the Company’s assets. The Company is required under the Credit Agreements tomaintain its primary operating account and the majority of its cash and investment balances in accounts with the primary lender.Revolving line of creditThe Company has had a working capital line of credit with its primary lender, Silicon Valley Bank, since 2004. The revolving line of credit issecured by substantially all of the Company’s assets. The maximum available under the line is $5.0 million subject to the value of collateralized assets.The Company is required under the revolving line of credit to maintain its primary operating account and the majority of its cash and investmentbalances in accounts with its primary lender. The facility was amended on March 27, 2015, extending the maturity date to March 31, 2018. On May 10,2016, the Company and the primary lender agreed to modify certain financial covenants, and on November 7, 2017 to adjust the maximum availabilityunder the Company’s revolving line of credit from $10.0 million to $5.0 million with a pro-rata reduction in related loan costs, as well as a reduction inthe interest rate floor from 7.0% to 5.75%. The current agreement requires the Company to maintain a liquidity ratio greater than 1.50:1.00, excludingcertain short term advances from the calculation, and a minimum tangible net worth of not less than (no worse than) negative $24.0 million for thequarters ended June 30, 2016, September 30, 2016, December 31, 2016, March 31, 2017, June 30, 2017, and September 30, 2017; and not less than (noworse than) negative $24.5 million for the quarters ended December 31, 2017 and March 31, 2018.As of December 31, 2017, the Company had no outstanding debt under the revolving line of credit. Draws on the line of credit are made based onthe borrowing capacity one week in arrears. As of December 31, 2017 the Company had a borrowing capacity of $2.7 million based on the Company’scollateralized assets. The Company’s total liquidity as of December 31, 2017, was $6.4 million, which included cash and cash equivalents of$3.7 million. As of December 31, 2017, we were in compliance with all financial covenants of this agreement and we anticipate continued compliancethroughout the remainder of 2018.Healthcare Royalty Partners DebtIn November 2011, the Company entered into a loan agreement with Healthcare Royalty Partners (formerly “Cowen Healthcare Royalty PartnersII, L.P.”). Under the agreement the Company borrowed from Healthcare Royalty Partners $15 million. The Company was permitted to borrow up to anadditional $5 million in the aggregate based on the achievement by the Company of certain milestones related to Niobe system sales in 2012. 64Table of ContentsOn August 8, 2012, the Company borrowed an additional $2.5 million based upon achievement of a milestone related to Niobe system sales for thenine months ended June 30, 2012. On January 31, 2013, the Company borrowed an additional $2.5 million based upon achievement of a milestonerelated to Niobe system sales for the twelve months ended December 31, 2012. The loan was to be repaid through, and secured by, royalties payable tothe Company under its Development, Alliance and Supply Agreement with Biosense Webster, Inc. The Biosense Agreement relates to the developmentand distribution of magnetically enabled catheters used with Stereotaxis’ Niobe system in cardiac ablation procedures. Under the terms of theAgreement, Healthcare Royalty Partners was entitled to receive 100% of all royalties due to the Company under the Biosense Agreement until the loanwas repaid. The loan was a full recourse loan, scheduled to mature on December 31, 2018, and bore interest at an annual rate of 16% payable quarterlywith royalties received under the Biosense Agreement. If the payments received by the Company under the Biosense Agreement were insufficient topay all amounts of interest due on the loan, then such deficiency would have increased the outstanding principal amount on the loan. The loan wasalso secured by certain assets and intellectual property of the Company. The agreement also contained customary affirmative and negative covenants.The use of payments due to the Company under the Biosense Agreement was approved by our primary lenderIn September 2016, the Company extinguished the remainder of the debt of $18.1 million, net of deferred financing costs of approximately$0.3 million, as well as accrued interest of $0.5 million for $13.0 million based upon an agreement entered into with Healthcare RoyaltyPartners. Following the repayment of the loan obligation, the royalties under the Biosense Agreement are now paid to the Company. As a result of thedebt extinguishment, the Company recognized a net gain of $5.6 million in 2016.10. Lease ObligationsThe Company leases its facilities under operating leases. For the years ended December 31, 2017 and 2016 rent expense was $588,197 and$1,187,989, respectively. The rent expense for the years ended December 31, 2017 and 2016 is net of sublease income of $812,660 and $91,579,respectively.In January 2006, the Company moved its primary operations into its current facilities. The facility is subject to a lease which expires inDecember 31, 2018. Under the terms of the lease, the Company has an option to renew for up to three additional years. The lease contains an escalatingrent provision which the Company has straight-lined over the term of the lease.In the third quarter of 2013, the Company modified the existing lease agreement to terminate approximately 13,000 square feet of unimprovedspace. The costs associated with the termination were $515,138, and were accrued as a rent liability as of September 30, 2013. As of December 31,2017, the remaining accrued costs associated with the termination were $95,455.Between the fourth quarter of 2015 and July, 2016, the Company sublet 3,152 square feet of the first floor office space.In August 2016, the Company entered into an agreement to sublease approximately 11,000 square feet of office space immediately and anadditional 16,000 square feet of office space beginning in January of 2017, with the term of the sublease ending on December 31, 2018. As ofDecember 31, 2017, the remaining accrued costs associated with the termination were $26,202. 65Table of ContentsThe future minimum lease payments under non-cancelable leases as of December 31, 2017 are as follows (excluding sublease income): Year OperatingLeasePayments 2018 $2,067,3922019 11,4972020 8,622Total minimum lease payments 2,087,511Less amounts representing sublease receipts (764,917) $1,322,59411. Convertible Preferred Stock and Stockholders’ EquityThe holders of common stock are entitled one vote for each share held and to receive dividends whenever funds are legally available and whendeclared by the Board of Directors subject to the prior rights of holders of all classes of stock having priority rights as dividends and the conditions ofthe Revolving Credit Agreement. No dividends have been declared or paid as of December 31, 2017.Convertible Preferred Stock and WarrantsOn September 26, 2016, the Company entered into a Securities Purchase Agreement with certain institutional and other accredited investorswhereby it agreed to sell, for an aggregate purchase price of $24.0 million, (i) an aggregate of 24,000 shares of Series A Convertible Preferred Stock, parvalue $0.001 with a stated value of $1,000 per share which are convertible into shares of the Company’s common stock and (ii) warrants to purchase anaggregate of 36,923,078 shares of common stock. The transaction closed on September 29, 2016.The Company received net proceeds from the sale of the convertible preferred stock and warrants of $23.0 million, after offering expenses. TheCompany used $13.0 million of the funds to satisfy in full all amounts outstanding under the Loan Agreement with Healthcare Royalty Partners, asnoted above, and the remaining proceeds were used for general corporate purposes.The designations, preferences, powers and rights of the convertible preferred shares are set forth in a Certificate of Designations, Preferences andRights of Series A Convertible Preferred Stock (“Certificate of Designations”) filed with the Delaware Secretary of State. The convertible preferredshares are entitled to vote on an as-converted basis with the common stock, subject to specified beneficial ownership issuance limitations. Theconvertible preferred shares bear dividends at a rate of six percent (6%) per annum, which are cumulative and accrue daily from the date of issuance onthe $1,000 stated value. Such dividends will not be paid in cash except in connection with any liquidation, dissolution or winding up of the Companyor any redemption of the convertible preferred shares. Instead the value of the accrued dividends is added to the liquidation preference of theconvertible preferred shares and will increase the number of shares of common stock issuable upon conversion. Each convertible preferred share isconvertible at the option of the holder from and after the date of issuance with no expiration date, at an initial conversion price of $0.65 per share,subject to adjustment in the event of stock splits, dividends, mergers, sales of all or substantially all of our assets or similar transactions, subject tospecified beneficial ownership issuance limitations. Each holder of convertible preferred shares has the right to require us to redeem such holder’sconvertible preferred shares upon the occurrence of specified events, which include certain business combinations, the sale of all or substantially all ofthe Company’s assets or the sale of more than 50% of the outstanding shares of the Company’s common stock. In addition, the Company has the rightto redeem the convertible preferred shares in the event of a change of control as defined in the Certificate of Designations. 66Table of ContentsThe convertible preferred shares rank senior to our common stock as to distributions and payments upon the liquidation, dissolution and windingup of the Company. No such distributions or payments upon the liquidation, dissolution and winding up of the Company may be made to the holdersof common stock unless and until the holders of convertible preferred shares have received the stated value of $1,000 per share plus any accrued andunpaid dividends. Until all convertible preferred shares have been converted or redeemed, no dividends may be paid on the common stock without theexpress written consent of the holders of a majority of the outstanding convertible preferred shares. In the event that dividends or other distributions ofassets are made or paid by the Company to the holders of the common stock, the holders of convertible preferred shares are entitled to participate insuch dividend or distribution on an as-converted basis.On the date of the issuance, the fair value of the convertible preferred stock was greater than the allocated proceeds received for the Series Aconvertible preferred stock. As such, the Company accounted for the beneficial conversion feature under ASC 470-20, Debt with Conversion featureunder ASC 470-20, Debt with Conversion and Other Options. The Company recorded a deemed dividend charge of $6.1 million for the accretion of adiscount on the Series A convertible preferred stock. The deemed dividend was a non-cash transaction and is reflected below net loss to arrive at netloss available to common stockholders. Since the convertible preferred shares are subject to conditions for redemption that are outside the Company’scontrol, the convertible preferred shares are presently reported in the mezzanine section of the balance sheet.The warrants issued in conjunction with the convertible preferred stock have an exercise price equal to $0.70 per share subject to adjustments asprovided under the terms of the warrants. The warrants are exercisable through September 29, 2021, subject to specified beneficial ownership issuancelimitations. The warrants may be exercised by any holder on a cashless basis if, at any time after the date that is 180 days after the closing, theregistration statement required by the Registration Rights Agreement described below is not effective and available for resale of all of the shares ofcommon stock issuable upon exercise of such holder’s warrants. Due to the fact that the warrants were puttable upon the occurrence of certain eventsoutside of the Company’s control prior to being amended in February 2018, the warrants qualified as liabilities under ASC 480-10 as of December 31,2017. The calculated fair value of the warrants was classified as a liability and was periodically re-measured with any changes in value recognized in“Other income (expense)” in the Statements of Operations. See Note 12 for additional details.On December 2, 2016, 100 shares of convertible preferred stock plus accumulated dividends were converted into 155,439 common shares.On February 28, 2018, the Company entered into a Consent and Amendment with the holders of a majority of the shares of common stockissuable upon exercise of the outstanding warrants (the “SPA Warrants”) issued pursuant to the Stock Purchase Agreement dated September 26, 2016.The Consent and Amendment amended and restated the SPA Warrants providing for a reduction in the exercise price of the SPA Warrants from $0.70per share to $0.28 per share for a period between March 1, 2018 and March 5, 2018 to encourage early exercise. Among other changes, the Consent andAmendment modified the beneficial ownership limitation related to the warrants and eliminated the right of holders to require the Company to redeemtheir SPA Warrants in exchange for cash in certain circumstances which required liability accounting for the warrants on the balance sheet. During therestricted exercise period, Stereotaxis received exercise notices for 35,791,927 warrants. Refer to Note 20 for discussion of subsequent events.Listing Transfer to OTCQX Best MarketOn August 2, 2016, the Company received a determination letter from the Nasdaq Hearings Panel (the “Panel”) notifying the Company that itscommon stock would be delisted from The Nasdaq Capital Market (“Nasdaq”) and that suspension of trading in the shares would be effective at theopen of business on August 4, 2016. The delisting was completed by the filing of a Form 25 Notification of Delisting with the Securities ExchangeCommission on November 10, 2016. The Panel made the determination to delist the Company’s 67®Table of Contentscommon stock because the Company did not demonstrate compliance with the minimum $35 million market value of listed securities requirement for aperiod of ten consecutive trading days by August 1, 2016, as required by a decision previously issued by the Panel on May 2, 2016. The Company’sshares of common stock commenced trading on the OTCQX Best Market on August 4, 2016 under the Company’s current ticker symbol of “STXS.”Controlled Equity OfferingThe Company entered into a Controlled Equity Offering sales agreement (the “Sales Agreement”) in May 2014, as amended on March 26,2015, with Cantor Fitzgerald & Co. (“Cantor”), as agent and/or principal, pursuant to which the Company could issue and sell, from time to time,shares of its common stock having an aggregate gross sales price of up to $18.0 million. The Company paid Cantor a commission of 3.0% of the grossproceeds from any common stock sold through the Sales Agreement.There were no proceeds from the Controlled Equity Offering during the twelve months ended December 31, 2016. The Sales Agreement expiredin November 2016 upon the expiration of our Registration Statement on Form S-3.The Company has reserved shares of common stock for conversion of convertible preferred stock, exercise of warrants, and the issuance ofoptions granted under the Company’s stock option plan and its stock purchase plan as follows: December 31,2017 December 31,2016 Warrants 38,779,119 38,963,443 Series A Convertible Preferred Stock Series 47,844,562 47,844,562 Stock award plans 5,573,046 1,524,996 Employee Stock Purchase Plan 125,618 192,290 92,322,345 88,525,291 Refer to Note 20 for discussion of subsequent events.Stock Award PlansThe Company has various stock plans that permit the Company to provide incentives to employees and directors of the Company in the form ofequity compensation. In August 2012, the Board of Directors adopted a stock incentive plan (the 2012 Stock Incentive Plan) which was subsequentlyapproved by the Company’s stockholders. This plan replaces the 2002 Stock Incentive Plan which expired on March 25, 2012.The 2012 Stock Incentive Plan allows for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restrictedshares and restricted share units to employees, directors, and consultants. Options granted under the 2012 Stock Incentive Plan expire no later than tenyears from the date of grant. The exercise price of each incentive stock option shall not be less than 100% of the fair value of the stock subject to theoption on the date the option is granted. The vesting provisions of individual options may vary, but incentive stock options generally vest 25% on thefirst anniversary of each grant and 1/48 per month over the next three years. Stock appreciation rights are rights to acquire a calculated number ofshares of the Company’s common stock upon exercise of the rights. The number of shares to be issued is calculated as the difference between theexercise price of the right and the aggregate market value of the underlying shares on the exercise date divided by the market value as of the exercisedate. Stock appreciation rights granted under the 2012 Stock Incentive Plan generally vest 25% on the first anniversary of such grant and 1/48 permonth over the next three years and expire no later than ten years from the date of grant. The Company generally issues new shares upon the exercise ofstock options and stock appreciation rights. 68®SMTable of ContentsRestricted share grants are either time-based or performance-based. Time-based restricted shares generally cliff vest three years after grant.Performance-based restricted shares vest upon the achievement of performance objectives which are determined by the Company’s Board of Directors.Restricted stock unit grants are time-based and generally vest over a period of four years. Options granted to non-employee directors expire nolater than ten years from the date of grant. The exercise price of options to non-employee directors shall not be less than 100% of the fair value of thestock subject to the option on the date the option is granted. Initial grants of equity awards to new directors generally vest over a two year period.Annual grants to directors generally vest between one and five years following grant.A summary of the option and stock appreciation rights activity for the year ended December 31, 2017 is as follows: Number ofOptions/SARs Range ofExercise Price WeightedAverage ExercisePrice per Share Outstanding, December 31, 2016 671,887 $1.45 - $116.40 $8.77 Granted 10,000 $0.62 $0.62 Exercised — — — Forfeited (268,586) $2.15 - $116.40 $8.06 Outstanding, December 31, 2017 413,301 $0.62 - $54.90 $9.04 As of December 31, 2017, the weighted average remaining contractual life of the options and stock appreciation rights outstanding was 6.07years. Of the 413,301 options and stock appreciation rights that were outstanding as of December 31, 2017, 339,002 were vested and exercisable with aweighted average exercise price of $10.56 per share and a weighted average remaining term of 5.8 years.A summary of the options and stock appreciation rights outstanding by range of exercise price is as follows: Year Ended December 31, 2017 Range of Exercise Prices OptionsOutstanding WeightedAverageRemainingLife WeightedAverageExercise Price Number ofOptionsCurrentlyExercisable WeightedAverageExercisePrice PerVested Share $0.00 - $2.00 63,500 7.43 years $1.66 38,362 $1.86 $2.01- $4.00 154,001 7.11 years $2.15 111,974 $2.15 $4.01 - $10.00 126,055 6.24 years $4.04 118,921 $4.04 $30.01 - $40.00 45,245 2.99 years $34.89 45,245 $34.89 $40.01 - $50.00 12,250 1.44 years $43.90 12,250 $43.90 $50.01 - $60.00 12,250 0.41 years $54.90 12,250 $54.90 413,301 6.07 years $9.04 339,002 $10.56 The intrinsic value of options and stock appreciation rights is calculated as the difference between the exercise price of the underlying awardsand the quoted price of the Company’s common stock for the options and stock appreciation rights that were in-the-money at December 31, 2017. Theintrinsic value of the options and stock appreciation rights outstanding at December 31, 2017 was approximately $1,800 based on a closing share priceof $0.80 on December 31, 2017. There were no fully vested options or stock appreciation rights outstanding at December 31, 2017 with an exerciseprice less than the closing stock price on December 31, 2017. No options or stock appreciation rights were exercised under the Company’s stock optionplans during the years ended December 31, 2016 or 2017 and the Company realized no proceeds during these periods. The weighted average grant datefair value of options and stock appreciation rights granted during the year ended December 31, 2017 was $0.62 per share. 69Table of ContentsA summary of the restricted stock unit activity for the year ended December 31, 2017 is as follows: Number ofRestrictedStock Units Weighted AverageGrant Date FairValue per Unit Outstanding, December 31, 2016 1,167,099 $1.48 Granted 274,736 $0.61 Vested (675,472) $1.51 Forfeited (86,000) $1.43 Outstanding, December 31, 2017 680,363 $1.11 The intrinsic value of restricted stock units outstanding at December 31, 2017 was $0.5 million based on a closing share price of $0.80 as ofDecember 31, 2017. During the year ended December 31, 2017, the aggregate intrinsic value of restricted stock units vested was $0.4 milliondetermined at the date of vesting.As of December 31, 2017, the total compensation cost related to options, stock appreciation rights and non-vested stock granted to employeesunder the Company’s stock award plans but not yet recognized was approximately $0.5 million. This cost will be amortized over a period of up to fouryears over the underlying estimated service periods and will be adjusted for subsequent changes in actual forfeitures and anticipated vesting periods.2009 Employee Stock Purchase PlanIn 2009, the Company adopted its 2009 Employee Stock Purchase Plan (“ESPP”). In June 2014, our shareholders approved an amendment of theESPP to increase the number of shares authorized for issuance under the ESPP by 250,000 shares. Eligible employees have the opportunity toparticipate in a new purchase period every 3 months. Under the terms of the plan, employees can purchase up to 15% of their compensation of theCompany’s common stock, subject to an annual maximum of $25,000, at 95% of the fair market value of the stock at the end of the purchase period,subject to certain plan limitations. As of December 31, 2017, there were 125,618 remaining shares available for issuance under the Employee StockPurchase Plan.12. Fair Value MeasurementsThe Company measures certain financial assets and liabilities at fair value on a recurring basis, including cash equivalents and warrants. Generalaccounting principles for fair value measurement established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measurefair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (“Level 1”) and thelowest priority to unobservable inputs (“Level 3”). The three levels of the fair value hierarchy are described below: Level 1: Values are based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical,unrestricted assets or liabilities.Level 2: Values are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instrumentsin markets that are not active, or other model-based valuation techniques for which all significant assumptions areobservable in the market.Level 3: Values are generated from model-based techniques that use significant assumptions not observable in the market. 70Table of ContentsThe following table sets forth the Company’s assets and liabilities measured at fair value on a recurring basis by level within the fair valuehierarchy. As required by the Fair Value Measurements and Disclosures topic of the Accounting Standards Codification, assets and liabilities areclassified in their entirety based on the lowest level of input that is significant to the fair value measurement. Fair Value Measurement Using Total Quoted Prices inActive Marketsfor IdenticalInstruments(Level 1) SignificantOtherObservableInputs (Level 2) SignificantUnobservableInputs(Level 3) Liabilities at December 31, 2017: Warrants issued May 2012 $— $— $— $— Warrants issued August 2013 5,746 — — 5,746 Warrants issued September 2016 19,569,231 — — 19,569,231 Total liabilities at fair value: $19,574,977 $— $— $19,574,977 Liabilities at December 31, 2016: Warrants issued May 2012 $66,081 $— $— $66,081 Warrants issued August 2013 151,695 — — 151,695 Warrants issued September 2016 19,569,231 — — 19,569,231 Total liabilities at fair value: $19,787,007 $— $— $19,787,007 Level 1The Company does not have any financial assets or liabilities classified as Level 1.Level 2The Company does not have any financial assets or liabilities classified as Level 2.Level 3In conjunction with the Company’s May 2012, August 2013 and September 2016 financing transactions, the Company issued warrants topurchase shares of the Company’s common stock. Due to the provisions included in the warrant agreements at the time of issuance, the warrants did notmeet the exemptions for equity classification and as such, the Company accounts for these warrants as derivative instruments. The calculated fair valueof the warrants is classified as a liability and is periodically re-measured with any changes in value recognized in “Other income (expense)” in theStatements of Operations.The remaining warrants from the May 2012 transaction (PIPE Warrants) expire in May 2018 and were valued using an option pricing model as ofDecember 31, 2016 using the following assumptions: 1) volatility of 121.12%; 2) risk-free interest rate of 1.20%; and 3) a closing stock price of $0.65.The PIPE warrants were revalued using an option pricing model as of December 31, 2017 using the following assumptions: 1) volatility of68.47%; 2) risk-free interest rate of 1.76%; and 3) a closing stock price of $0.80.The remaining warrants from the August 2013 transaction (Exchange warrants) expire in November 2018 and were valued using an optionpricing model as of December 31, 2016 using the following assumptions: 1) volatility of 110.32%; 2) risk-free interest rate of 1.20%; and 3) a closingstock price of $0.65.The Exchange warrants were revalued using an option pricing model as of December 31, 2017 using the following assumptions: 1) volatility of70.56%; 2) risk-free interest rate of 1.76%; and 3) a closing stock price of $0.80. 71Table of ContentsThe remaining warrants from the September 2016 warrants expire in September 2021 and were valued using an option pricing model as ofDecember 31, 2016 using the following assumptions: 1) volatility of 121.31%; 2) risk-free interest rate of 1.93%; and 3) a closing stock price of $0.65.The September 2016 warrants were revalued using an option pricing model as of December 31, 2017 using the following assumptions: 1)volatility of 91.38%; 2) risk-free interest rate of 2.20%; and 3) a closing stock price of $0.80.The significant unobservable input used in the fair value measurement of the Company’s warrants is volatility. Significant increases (decreases)in the volatility in isolation would result in a significantly higher (lower) liability fair value measurement.The following table sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities for the year endedDecember 31, 2017: Warrantsissued May2012 Warrantsissued August2013 Warrantsissued September2016 TotalLiabilities Balance at beginning of period $66,081 $151,695 $19,569,231 $19,787,007 Issues — — — — Settlements — — — — Revaluation (66,081) (145,949) — (212,030) Balance at end of period $— $5,746 $19,569,231 $19,574,977 The Company currently does not have derivative instruments to manage its exposure to currency fluctuations or other business risks. TheCompany evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embeddedderivatives. All derivative financial instruments are recognized in the balance sheet at fair value.Refer to Note 20 for discussion of subsequent events.13. Income TaxesThe provision for income taxes consists of the following: Year Ended December 31, 2017 2016 Deferred: Federal $13,308,196 $(757,955) State and local (263,860) (328,867) 13,044,336 (1,086,822) Valuation allowance (13,044,336) 1,086,822 $— $— 72Table of ContentsThe provision for income taxes varies from the amount determined by applying the U.S. federal statutory rate to income before income taxes as aresult of the following: Year Ended December 31, 2017 2016 U.S. statutory income tax rate 34.0% 34.0% State and local taxes, net of federal tax benefit 1.8% 1.0% Permanent differences between book and tax (1.5)% (15.9)% Deferred tax adjustments (6.1)% (5.9)% Tax cuts & jobs act (244.9)% 0.0% State rate adjustments (4.0)% 7.4% Valuation allowance 220.7% (20.6)% Effective income tax rate — % — % Included in permanent differences between book and tax in the above table are the impacts of the non-deductible mark-to-market activityassociated with convertible debt and warrants as well as permanent differences such as nondeductible meals and entertainment and stock compensationshortfalls. The deferred state rate adjustments are a result of changes in apportionment and various state rate law changes. The deferred tax adjustmentsare primarily attributable to the write-off of deferred tax assets associated with the unexercised stock compensation awards that expired during thecurrent year. The revaluation of the deferred tax assets reflects a $14.5 million provisional write-down as a result of the enactment of the Tax Cuts andJobs Act on December 22, 2017.The components of the deferred tax asset are as follows: December 31, 2017 2016 Current accruals $1,718,808 $1,638,298 Deferred revenue 30,648 126,631 Depreciation and amortization 1,311,718 2,131,933 Deferred compensation 633,303 1,464,533 Net operating loss carryovers 22,359,693 33,943,745 Deferred tax assets 26,054,170 39,305,140 Valuation allowance (25,955,759) (39,000,095) Net deferred tax assets before deferred tax liabilities 98,411 305,045 Accounting method changes (98,411) (305,045) Net deferred tax assets $— $— On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted, which made significant changes to the Internal Revenue Code. TheTCJA lowered the U.S. federal income tax rate to 21%, beginning on January 1, 2018. Additionally, among other changes, the TCJA imposes aone-time transition tax on the mandatory repatriation of unremitted foreign earnings, as well as a minimum tax on global intangible low-taxed income(“GILTI”) of foreign subsidiaries.Additionally, in response to the enactment of the TCJA, the SEC issued SAB 118 on December 22, 2017. SAB 118 provides for a “measurementperiod” that allows the Company additional time to complete the accounting for certain tax effects of the TCJA that are considered “provisional” in theCompany’s financial statements as of December 31, 2017.As of December 31, 2017, the Company had not yet completed its accounting for the TCJA as additional time is needed to evaluate certainfactors that could impact the Company’s accounting. Such factors include, but are not limited to, the completion of the Company’s 2017 income taxreturns and changes in interpretations of existing tax laws. However, the Company was able to determine a reasonable estimate of the impacts of theTCJA as of December 31, 2017. As of December 31, 2017, the Company recorded a provisional $14.5 million 73Table of Contentsdeferred income tax expense as a result of revaluing the Company’s deferred tax assets to incorporate the newly-enacted federal statutory rate of 21%.The $14.5 million deferred tax expense was fully offset as a result of the Company’s corresponding release of valuation allowance, resulting in a$14.5 million deferred tax benefit. Additionally, based upon the Company’s initial analysis of the one-time transition tax, the Company recorded aprovisional amount of $0 associated with the transition tax on mandatory repatriation, as it is estimated that all of the Company’s foreign earnings willhave been remitted in the U.S. through Subpart F inclusions prior to applying the mandatory repatriation provisions. Additionally, the Company is stillin the process of evaluating whether or not to treat the GILTI provisions of the TCJA as a period expense or to provide deferred taxes on certain foreignbasis differences. Such policy election will be made within the measurement period as additional guidance and interpretations of existing tax lawsbecome available.Under Section 382 and 383 of the Internal Revenue Code of 1986, as amended, or the “Code”, if a corporation undergoes an “ownershipchange,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits,to offset its post-change income may be limited. In general, an “ownership change” will occur if there is a cumulative change in our ownership by“5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. Followingsignificant ownership changes during 2013, the Company initiated a review of the availability of its U.S. net operating loss carryforwards. As a result ofthis review, it was determined that approximately $288.1 million of the Company’s federal net operating loss carryovers would expire unused due tothe limitation under IRC Section 382. The Company reduced the net operating loss carryover and corresponding valuation allowance as a result ofthese limitations. The remaining net operating loss carryforwards following the ownership change have been assigned a full valuation allowanceagainst all deferred tax assets.In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of thedeferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income duringthe periods in which those temporary differences become deductible. The Company considers projected future taxable income and tax planningstrategies in making this assessment. Based upon the level of historical taxable losses, and projections for future periods over which the deferred taxassets are deductible, the Company determined that a 100% valuation allowance of deferred tax assets was appropriate. The valuation allowance fordeferred tax assets includes amounts for which subsequently recognized tax benefits will be applied directly to the contributed capital.As of December 31, 2017, we had gross federal net operating loss carryforwards of approximately $98.5 million. The federal net operating losscarryforwards reflect accumulated book losses reduced for the 2013 IRC Section 382 ownership change limitation of $288.1 million andapproximately $90 million of book/ tax differences and expiration of unused carryforwards. The federal net operating loss carryforwards will expirebetween 2030 and 2037. As of December 31, 2017, we had state net operating loss deferred tax assets of approximately $1.7 million which will expireat various dates between 2018 and 2037 if not utilized.On February 28, 2018, the Company amended the outstanding warrants issued pursuant to the September 26, 2016 Stock Purchase Agreementproviding for a temporary reduction in the exercise price to encourage early exercise. During the restricted exercise period, Stereotaxis receivedexercise notices for a majority of the outstanding warrants. As a result of this transaction, the Company believes that an ownership change may haveoccurred under Section 382 of the Code. Any change could significantly limit the value of the existing net operating loss carryforward. The Companyis currently evaluating the impact of the warrant exercise on the availability of its U.S. net operating loss carryforward. Refer to Note 20 for a fulldiscussion of subsequent events.The Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. As the Company has a federal netoperating loss carryforward from the year ended December 31, 1998 forward, all tax years from 1998 forward are subject to examination. As states havevarying carryforward periods, and the Company has recently entered into additional states, the states are generally subject to examination for theprevious 10 years or less. 74Table of ContentsThe Company recognizes interest accrued, if any, net of tax and penalties, related to unrecognized tax benefits as components of income taxprovision as applicable. As of December 31, 2017 accrued interest and penalties were less than $0.1 million.At December 31, 2017 and 2016, the Company had approximately $0.1 in reserves for uncertain tax positions.14. Net Loss per ShareThe following is a reconciliation of the numerator (net loss) and the denominator (number of shares) used in the basic and diluted earnings pershare calculations: Twelve months ended December 31, 2017 2016 Net loss $(5,887,410) $(5,286,720) Deemed dividend on convertible preferred stock — (6,145,402) Cumulative dividend on convertible preferred stock (1,432,259) (368,152) Net loss attributable to common stockholders $(7,319,669) $(11,800,274) Weighted average number of common shares and equivalents: 22,614,248 21,807,634 Basic EPS $(0.32) $(0.54) Diluted EPS $(0.32) $(0.54) The following table sets forth the number of common shares that were excluded from the computation of diluted earnings per share because theirinclusion would have been anti-dilutive as follows: December 31, 2017 2016 Shares issuable upon vesting/exercise of: Options to purchase common stock 413,301 671,887 Series A Convertible Preferred Stock and Accumulated Dividends 39,537,501 37,335,618 Restricted stock units 680,363 1,167,099 Warrants 38,779,119 38,963,443 79,410,284 78,138,047 15. Employee Benefit PlanThe Company offers employees the opportunity to participate in a 401(k) plan. Employer contributions are discretionary under the 401(k)plan. The Company did not match employee contributions made in 2016 or 2017.16. Product Warranty ProvisionsThe Company’s standard policy is to warrant all Niobe, Odyssey and Vdrive systems against defects in material or workmanship for one yearfollowing installation. The Company’s estimate of costs to service the warranty obligations is based on historical experience and current productperformance trends. A regular review of warranty obligations is performed to determine the adequacy of the reserve and adjustments are made to theestimated warranty liability as appropriate. 75Table of ContentsAccrued warranty, which is included in other accrued liabilities, consists of the following: December 31,2017 December 31,2016 Warranty accrual, beginning of the fiscal period $222,845 $316,835 Accrual adjustment for product warranty 32,679 103,743 Payments made (91,159) (197,733) Warranty accrual, end of the fiscal period $164,365 $222,845 17. Related Party TransactionsIn September 2016, the Company entered into a Securities Purchase Agreement with certain institutional and other accredited investors wherebyit agreed to sell, for an aggregate purchase price of $24.0 million, (i) an aggregate of 24,000 shares of Series A Convertible Preferred Stock, and(ii) warrants to purchase an aggregate of 36,923,078 shares of common stock (see Note 11 for further information). Pursuant to the transactionagreements, the Company reimbursed transaction related legal fees of $85,000 to a law firm engaged by DAFNA Capital Management. Funds managedby DAFNA Capital Management own more than 5% of the outstanding shares of the Company. Also, pursuant to the Securities Purchase Agreement,the Board appointed David Fischel, Principal at DAFNA Capital Management, and Joe Kiani, also an investor in the offering, to the Board, effective asof the closing of the Offering. Subsequent to the transaction, the Company reimbursed an additional $120,367 in transaction-related legal fees incurredby law firms engaged by these investors. In February, 2017, David Fischel was appointed acting Chief Executive Officer of Stereotaxis, Inc., and hebecame Chief Executive Officer during 2017.18. Commitments and ContingenciesThe Company at times becomes a party to claims in the ordinary course of business. Management believes that the ultimate resolution ofpending or threatened proceedings will not have a material effect on the financial position, results of operations or liquidity of the Company.19. Segment InformationThe Company considers reporting segments in accordance with general accounting principles for disclosures about segments of an enterprise andrelated information. The Company’s system and disposable devices are developed and marketed to a broad base of hospitals in the United States andinternationally. The Company considers all such sales to be part of a single operating segment. Geographic revenues for the years ended December 31,2017 and 2016 were as follows: Year Ended December 31, 2017 2016 United States $18,038,638 $19,420,815 International 13,105,462 12,743,301 Total $31,144,100 $32,164,116 All of the Company’s long-lived assets are located in the United States. Revenues are attributed to countries based on the location of thecustomer. 76Table of Contents20. Subsequent EventsOn February 28, 2018, the Company entered into a Consent and Amendment with the holders of a majority of the shares of common stockissuable upon exercise of the outstanding warrants (the “SPA Warrants”) issued pursuant to the Stock Purchase Agreement dated September 26, 2016.The Consent and Amendment amended and restated the SPA Warrants providing for a reduction in the exercise price of the SPA Warrants from $0.70per share to $0.28 per share for a period between March 1, 2018 and March 5, 2018 to encourage early exercise. Among other changes, the Consent andAmendment also eliminated the right of holders to require the Company to redeem their SPA Warrants in exchange for cash in certain circumstanceswhich required liability accounting for the warrants on the balance sheet. During the restricted exercise period, Stereotaxis received exercise notices for35,791,927 warrants and received an aggregate of $10.0 million in cash from the warrant exercise. The Consent and Amendment and the Amended andRestated Form of Warrants is available in a Form 8-K filed with the Securities and Exchange Commission on March 6, 2018. ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone. 77Table of ContentsITEM 9A.CONTROLS AND PROCEDURESReport on Internal Control Over Financial ReportingAs of December 31, 2017, the Company’s management, with the participation of the Company’s Chief Executive Officer and Chief FinancialOfficer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e)promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on such evaluation, the Company’s ChiefExecutive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedureswere effective.The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined inRules 13a-15(f) and 15(d)-15(f) promulgated under the Exchange Act. The Company’s internal control over financial reporting is designed to providereasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles in the United States of America. The Company’s management assessed the effectiveness of our internalcontrol over financial reporting as of December 31, 2017. In making the assessment, management used the criteria set forth by the Committee ofSponsoring Organizations of the Treadway Commission (2013 Framework) in Internal Control—Integrated Framework. Based on our assessment, ourmanagement has concluded that our internal control over financial reporting is effective as of December 31, 2017.A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of thecontrol system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls mustbe considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absoluteassurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realitiesthat judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can becircumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design ofany system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any designwill succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes inconditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective controlsystem, misstatements due to error or fraud may occur and not be detected.Based on the evaluation of internal control over financial reporting, the Chief Executive Officer and Chief Financial Officer have concluded thatthere have been no changes in the Company’s internal controls over financial reporting during the period that is covered by this report that hasmaterially affected or is reasonably likely to materially affect, the Company’s internal control over financial reporting. ITEM 9B.OTHER INFORMATIONOn March 19, 2018, Karen W. Duros, Senior Vice President, General Counsel and Secretary, notified Stereotaxis, Inc. (the “Company”) of herdecision to retire from the Company effective April 13, 2018. 78Table of ContentsPART IIICertain information required by Part III is omitted from this Report on Form 10-K since we intend to file our definitive Proxy Statement for ournext Annual Meeting of Stockholders, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended (the “Proxy Statement”), nolater than April 30, 2018, and certain information to be included in the Proxy Statement is incorporated herein by reference. ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTInformation required by this item concerning our directors is incorporated by reference to the information set forth in the section titled“Information About the Board of Directors” in our Proxy Statement. Information regarding Section 16 reporting compliance is incorporated byreference to the information set forth in the section titled “Section 16(a) Beneficial Ownership Reporting Compliance” in our Proxy Statement.Information about our audit committee members and audit committee financial expert is incorporated by reference to the information set forth in thesection titled “Board Meetings and Committees” in our Proxy Statement.Our Board of Directors adopted a Code of Business Conduct and Ethics for all our directors, officers and employees effective August 1, 2004 asamended from time to time. Stockholders may request a free copy of our Code of Business Conduct and Ethics from our Chief Financial Officer asfollows:Stereotaxis, Inc.Attn: Martin C. Stammer4320 Forest Park Avenue, Suite 100St. Louis, MO 63108314-678-6100We intend to promptly disclose any amendments to, or waivers from, any provision of the Code of Business Conduct and Ethics by posting therelevant material on our website (www.stereotaxis.com) in accordance with SEC rules.The following is information with respect to our executive officers:David L. FischelChief Executive Officer and Chairman of the Board since February 2017Director since September 2016Mr. Fischel, 31, was named Chief Executive Officer and Chairman of the Board on February 3, 2017. He has served as a director of Stereotaxis sinceleading the equity investment and positive strategic initiatives announced in September 2016. He has served for over eight years as Principal andportfolio manager for medical device investments at DAFNA Capital Management, LLC. In addition to his research responsibilities, Mr. Fischel hasbeen deeply involved in all aspects of DAFNA Capital’s operations including legal, accounting, IT, compliance, human resources and marketing. Priorto joining DAFNA Capital, he was a research analyst at SCP Vitalife, a healthcare venture capital fund. Mr. Fischel completed his B.S. magna cumlaude in Applied Mathematics with a minor in Accounting at the University of California at Los Angeles and received his MBA from Bar-IlanUniversity in Tel Aviv. He is a Certified Public Accountant, Chartered Financial Analyst and Chartered Alternative Investment Analyst.Karen W. DurosSenior Vice President, General Counsel and SecretaryOfficer since October 2010Ms. Duros, 63, joined Stereotaxis in 2010. She has over 30 years of business and corporate legal experience in large and small companies. Prior tojoining Stereotaxis, she was Senior Counsel for Monsanto Company from 79Table of Contents2005 to 2010. From 1998 to 2005, Ms. Duros held several legal positions of increasing responsibility with Great Lakes Chemical Corporation,including Vice President and Secretary from 2004 to 2005, and General Counsel of Great Lakes’ Industrial Products division from 1999 to 2005.Previously, she was Vice President, General Counsel and Secretary of Tastemaker, a joint venture of Mallinckrodt, Inc. and Hercules, Inc., and prior tothat, she held several legal positions with Mallinckrodt, Inc. Ms. Duros began her legal career with the St. Louis law firm, Thompson & Mitchell. Sheearned a law degree from Washington University School of Law and a B.A., Political Science, from Benedictine College.Martin C. StammerChief Financial OfficerOfficer since February 2013Mr. Stammer, 37, was appointed as the Chief Financial Officer in February 2013. He previously served as Vice President, Controller since August 2012and as Corporate Controller from July 2011 to August 2012. He joined the Company as Senior Manager, Financial Reporting in October 2009. Prior tojoining the Company, from 2003 to 2009, Mr. Stammer was employed in various roles and capacities at Deloitte & Touche LLP, including mostrecently as Audit Manager. Mr. Stammer received his M.S. and B.S. in Accountancy from the University of Illinois and is a Certified PublicAccountant. ITEM 11.EXECUTIVE COMPENSATIONThe information required by this item regarding executive compensation is incorporated by reference to the information set forth in the sectiontitled “Executive Compensation” in our Proxy Statement. ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERSThe information required by this item regarding security ownership of certain beneficial owners and management is incorporated by reference tothe information set forth in the section titled “Security Ownership of Certain Beneficial Owners and Management” in our Proxy Statement. Theinformation required by this item regarding securities authorized for issuance under equity plans is incorporated by reference to the information setforth in the section titled “Executive Compensation” in our Proxy Statement. ITEM 13.CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS AND DIRECTOR INDEPENDENCEThe information required by this item regarding certain relationships and related transactions is incorporated by reference to the information setforth in the section titled “Certain Relationships and Related Party Transactions” in our Proxy Statement. The information required by this itemregarding director independence is incorporated by reference to the information set forth in the section titled “Corporate Governance Information” inour Proxy Statement. ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICESThe information required by this item regarding principal accounting fees and services is incorporated by reference to the information set forth inthe section titled “Principal Accounting Fees and Services” in our Proxy Statement. 80Table of ContentsPART IV ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a)The following documents are filed as part of this Annual Report on Form 10-K (1)Financial Statements—See Index to the Financial Statements at Item 8 of this Report on Form 10-K. (2)The following financial statement schedule of Stereotaxis, Inc. is filed as part of this Report and should be read in conjunction with thefinancial statements of Stereotaxis, Inc.: —Schedule II: Valuation and Qualifying Accounts.All other schedules have been omitted because they are not applicable, not required under the instructions, or the information requested isset forth in the consolidated financial statements or related notes thereto. (3)ExhibitsSee Exhibit Index appearing on page 83 herein. 81Table of ContentsSCHEDULE IIVALUATION AND QUALIFYING ACCOUNTSFOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 Balance atBeginning ofYear AdditionsCharged toCost andExpenses Deductions Balance at theEnd of Year Allowance for doubtful accounts and returns: Year ended December 31, 2017 $379,817 $(18,467) $0 $361,350 Year ended December 31, 2016 $93,478 $292,690 $(6,351) $379,817 Allowance for inventories valuation: Year ended December 31, 2017 $272,614 $3,948,726 $(319,568) $3,901,772 Year ended December 31, 2016 $19,971 $283,441 $(30,798) $272,614 82Table of ContentsEXHIBIT INDEX Number Description 3.1a Restated Articles of Incorporation of the Registrant, incorporated by reference to Exhibit 3.1 of the Registrant’s Form 10-Q (FileNo. 000-50884) for the fiscal quarter ended September 30, 2004. 3.1b Certificate of Amendment to Amended and Restated Certificate of Incorporation, incorporated by reference to Exhibit 3.1 of theRegistrant’s Form 8-K (File No. 000-50884) filed on July 10, 2012. 3.2 Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock, incorporated by reference to Exhibit 3.1 ofthe Registrant’s Current Report on Form 8-K (File No. 001-36159) filed on September 30, 2016. 3.3 Restated Bylaws of the Registrant, incorporated by reference to Exhibit 3.2 of the Registrant’s Form 10-Q (File No. 000-50884) for thefiscal quarter ended September 30, 2004. 4.1 Form of Specimen Stock Certificate, incorporated by reference to the Registration Statement on Form S-1 (File No. 333-115253)originally filed with the Commission on May 7, 2004, as amended thereafter, at Exhibit 4.1. 4.2 Form of PIPE Warrant issued pursuant to that certain Stock and Warrant Purchase Agreement dated May 7, 2012, between the Companyand certain purchasers named therein, incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K (FileNo. 000-50884) filed on May 8, 2012. 4.3a Form of Warrant Issued Pursuant to that Certain Fourth Amendment to Note and Warrant Purchase Agreement dated March 30, 2012,incorporated by reference to Exhibit 4.1 of the Registrant’s Form 10-Q (File No. 000-50884) for the fiscal quarter ended March 31,2012. 4.3b Form of Warrant issued pursuant to that certain Fifth Amendment to Note and Warrant Purchase Agreement, dated May 1, 2012,between the Company and certain investors named therein (included in Exhibit 10.3 of the Registrant’s Current Report on Form 8-K(File No. 000-50884) filed on May 2, 2012.). 4.3c Form of Warrant issued pursuant to that certain Sixth Amendment to Note and Warrant Purchase Agreement, dated May 7, 2012,between the Company and certain investors named therein (included in Exhibit 10.77 of the Registrant’s Registration Statement onForm S-1 (File No. 000-50884) filed May 23, 2012). 4.3d Amendment to Warrants of Stereotaxis, Inc., dated May 10, 2012, by and between the Company and the Warrant Holders, incorporatedby reference to Exhibit 4.7 of the Registrant’s Registration Statement on Form S-1 (File No. 000-50884) filed May 23, 2012. 4.3e Form of Warrant issued pursuant to that certain Seventh Amendment to Note and Warrant Purchase Agreement dated March 29, 2013,between the Company and certain investors named therein, incorporated by reference to Exhibit 4.5i of the Registrant’s Form 10-K (FileNo. 001-36159) for the fiscal year ended December 31, 2013. 4.3f Form of Warrant issued pursuant to that certain Eighth Amendment to Note and Warrant Purchase Agreement dated June 28, 2013,between the Company and certain investors named therein, incorporated by reference to Exhibit 4.1 of the Registrant’s Form 10-Q (FileNo. 001-36159) filed for the fiscal quarter ended June 30, 2013. 4.3g Form of Warrant issued to certain investors in connection with extensions of loan guarantees by such investors, incorporated byreference to Exhibit 4.5k of the Registrant’s Form 10-K (File No. 001-36159) for the fiscal year ended December 31, 2013. 83Table of ContentsNumber Description 4.4 Form of Warrant issued pursuant to that certain Exchange Agreement, dated August 7, 2013, incorporated by reference to Exhibit 10.2of the Registrant’s Current Report on Form 8-K (File No. 000-50884) filed on August 8, 2013. 4.5 Form of Warrant issued pursuant to that certain Securities Purchase Agreement, dated September 26, 2016, incorporated by reference toExhibit 4.1 of the Registrant’s Current Report on Form 8-K (file No. 001-36159) filed on September 28, 2016.10.1a# Amended and Restated Stereotaxis, Inc. 2012 Stock Incentive Plan, effective February 22, 2017, incorporated by reference to Exhibit10.1 of the Registrant’s Form 10-Q (File No. 001-36159) for the fiscal quarter ended June 30, 2017.10.1b# Amended and Restated Stereotaxis, Inc. 2012 Stock Incentive Plan, effective February 9, 2016, incorporated by reference to Exhibit10.2 of the Registrant’s Form 10-Q (File No. 001-36159) for the fiscal quarter ended June 30, 2016.10.1c# Form of Restricted Share Unit Terms of Award Under Stereotaxis, Inc. 2012 Stock Incentive Plan, Director Award, incorporated byreference to Exhibit 10.1c of the Registrant’s Form 10-K (File No. 000-50884) for the fiscal year ended December 31, 2012.10.1d# Form of Restricted Share Unit Terms of Award Under Stereotaxis, Inc. 2012 Stock Incentive Plan, March 5, 2013, incorporated byreference to Exhibit 10.1d of the Registrant’s Form 10-K (File No. 000-50884) for the fiscal year ended December 31, 2012.10.1e# Form of Restricted Share Unit Terms of Award Under Stereotaxis, Inc. 2012 Stock Incentive Plan, Director Award, incorporated byreference to Exhibit 10.1 of the Registrant’s Form 10-Q (File No. 001-36159) for the fiscal quarter ended March 31, 2017.10.1f# Form of Incentive Stock Option Terms of Award Under Stereotaxis, Inc. 2012 Stock Incentive Plan, filed herewith.10.1g# Form of Non-Qualified Stock Option Terms of Award Under Stereotaxis, Inc. 2012 Stock Incentive Plan, filed herewith.10.1h# Form of Restricted share Unit Terms of Award Under Stereotaxis, Inc. 2012 Stock Incentive Plan, incorporated by reference to Exhibit10.2 of Registrant’s Form 10-Q (File No. 000-50884) for the fiscal quarter ended September 30, 2012.10.2# 2002 Stock Incentive Plan, as amended and restated June 10, 2009, incorporated by reference to Exhibit 10.2 of the Registrant’s Form10-Q (File No. 000-50884) for the fiscal quarter ended June 30, 2009.10.3a# Amended and Restated Stereotaxis, Inc. Employee Stock Purchase Plan, as adopted March 27, 2014, incorporated by reference toExhibit 10.5 of the Registrant’s Form 10-Q (File No. 001-36159) for the fiscal quarter ended June 30, 2014.10.3b# Amendment to Stereotaxis, Inc. 2009 Employee Stock Purchase Plan, as adopted February 27, 2015, incorporated by reference toExhibit 10.3 of the Registrant’s Form 10-Q (File No. 001-36159) for the fiscal quarter ended March 31, 2015.10.4a# Executive Employment Agreement dated May 30, 2014, between Stereotaxis, Inc. and William C. Mills III, incorporated by referenceto Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (File No. 001-36159) filed on June 2, 2014.10.4b# Severance Agreement and Release dated February 3, 2017, between the Company and William C. Mills III, incorporated by reference toexhibit 10.1 of the Registrant’s Current report on Form 8-K (File No. 001-36159) filed on February 6, 2017.10.5# Form of Amended and Restated Executive Employment Agreement, 2013, between certain executive officers and the Company,incorporated by reference to Exhibit 10.6 of the Registrant’s Form 10-K (File No. 000-50884) for the fiscal year ended December 31,2012. 84Table of ContentsNumber Description10.6# Summary of Management Bonus Plan adopted as of February 24, 2015, incorporated by reference to Exhibit 10.4 of the Registrant’sForm 10-Q (File No, 001-36159) for the fiscal quarter ended March 31, 2015.10.7# Description of compensation of named executive officers, incorporated by reference to Exhibit 10.9 of the Registrant’s Form 10-K(File No. 001-36159) for the fiscal year ending December 31, 2013.10.8# Summary of Non-Employee Director Compensation Program effective January 1, 2017, incorporated by reference to Exhibit 10.1 ofthe Registrant’s Form 10-Q (File No. 001-36159) for the fiscal quarter ended March 31, 2017.10.9a† Collaboration Agreement dated June 8, 2001, between the Registrant and Siemens AG, Medical Solutions, incorporated by referenceto the Registration Statement on Form S-1 (File No. 333-115253) originally filed with the Commission on May 7, 2004, as amendedthereafter, at Exhibit 10.9.10.9b† Extended Collaboration Agreement dated May 27, 2003, between the Registrant and Siemens AG, Medical Solutions, incorporatedby reference to the Registration Statement on Form S-1 (File No. 333-115253) originally filed with the Commission on May 7, 2004,as amended thereafter, at Exhibit 10.10.10.9c† Amendment to Collaboration Agreement dated May 5, 2006, between the Company and Siemens Aktiengesellschaft, MedicalSolutions, incorporated by reference to Exhibit 10.1 of the Registrant’s Form 10-Q (File No. 000-50884) for the fiscal quarter endedJune 30, 2006.10.10a† Development and Supply Agreement dated May 7, 2002, between the Registrant and Biosense Webster, Inc., incorporated byreference to the Registration Statement on Form S-1 (File No. 333-115253) originally filed with the Commission on May 7, 2004, asamended thereafter, at Exhibit 10.11.10.10b† Amendment to Development and Supply Agreement dated November 3, 2003, between the Registrant and Biosense Webster, Inc.,incorporated by reference to the Registration Statement on Form S-1 (File No. 333-115253) originally filed with the Commission onMay 7, 2004, as amended thereafter, at Exhibit 10.12.10.10c† Alliance Expansion Agreement, dated as of May 4, 2007, between Biosense Webster, Inc. and the Registrant, incorporated byreference to Exhibit 10.1 of the Registrant’s Form 10-Q (File No. 000-50884) for the fiscal quarter ended June 30, 2007.10.10d† Second Amendment to Development Alliance and Supply Agreement, dated as of July 18, 2008, between the Registrant and BiosenseWebster, Inc., incorporated by reference to Exhibit 10.1 of the Registrant’s Form 10-Q (File No. 000-50884) for the fiscal quarterended September 30, 2008.10.10e Third Amendment to Development Alliance and Supply Agreement with Biosense Webster, Inc. effective as of December 21, 2009,incorporated by reference to Exhibit 10.22 of the Registrant’s Form 10-K (File No. 000-50884) for the fiscal year ended December 31,2009.10.10f Fourth Amendment to Development Alliance and Supply Agreement with Biosense Webster, Inc., effective May 1, 2010, incorporatedby reference to Exhibit 10.1 of the Registrant’s Form 10-Q (File No. 000-50884) for the fiscal quarter ended March 31, 2010.10.10g Fifth Amendment to Development Alliance and Supply Agreement with Biosense Webster, Inc., dated as of July 30, 2010,incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K/A (File No. 000-50884) filed on August 3, 2010. 85Table of ContentsNumber Description10.10h† Sixth Amendment and Catheter and Mapping System Extension to Development Alliance and Supply Agreement with BiosenseWebster, Inc., dated January 3, 2011, effective as of December 17, 2010, incorporated by reference to Exhibit 10.13h of theRegistrant’s Form 10-K (File No. 000-50884) for the fiscal year ended December 31, 2010.10.10i Seventh Amendment to the Development Alliance and Supply Agreement with Biosense Webster, Inc., effective December 5, 2011,incorporated by reference to Exhibit 10.13i of the Registrant’s Form 10-K (File No. 000-50884) for the fiscal year ended December 31,2011.10.11 Form of Indemnification Agreement between the Registrant and its directors and executive officers, incorporated by reference to theRegistration Statement on Form S-1 (File No. 333-115253) originally filed with the Commission on May 7, 2004, as amendedthereafter, at Exhibit 10.14.10.12† Letter Agreement, effective October 6, 2003, between the Registrant and Philips Medizin Systeme G.m.b.H., incorporated by referenceto the Registration Statement on Form S-1 (File No. 333-115253) originally filed with the Commission on May 7, 2004, as amendedthereafter, at Exhibit 10.16.10.13a† Office Lease dated November 15, 2004, between the Registrant and Cortex West Development I, LLC, incorporated by reference toExhibit 10.39 of the Registrant’s Form 10-K (File No. 000-50884) for the fiscal year ended December 31, 2004.10.13b Amendment to Office Lease dated November 30, 2007, between the Registrant and Cortex West Development I, LLC, incorporated byreference to Exhibit 10.22 of the Registrant’s Form 10-K (File No. 000-50884) for the fiscal year ended December 31, 2007.10.13c Second Amendment to Office Lease dated May 1, 2013, between Registrant and Wexford 4320 Forest Park, LLC, successor to CortexWest Development I, LLC, incorporated by reference to Exhibit 10.17c of the Registrant’s Form 10-K (File No. 001-36159) for thefiscal year ending December 31, 2013.10.13d Third Amendment to Office Lease dated August 14, 2013, between Registrant and Wexford 4320 Forest Park, LLC, successor toCortex West Development I, LLC, incorporated by reference to Exhibit 10.17d of the Registrant’s Form 10-K (File No. 001-36159) forthe fiscal year ending December 31, 2013.10.13e Fourth Amendment to Office Lease, effective October 1, 2015, between Registrant and Wexford 4320 Forest Park, LLC, successor toCortex West Development I, LLC, incorporated by reference to Exhibit 10.13e of the Registrant’s Form 10-K (File No. 001-36159) forthe fiscal year ending December 31, 2015.10.14a Securities Purchase Agreement, dated May 7, 2012, between the Company and each purchaser identified on the signature pagethereto, incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K (File No. 000-50884) filed onMay 8, 2012.10.14b Form of Convertible Debt Registration Rights Agreement incorporated by reference to Exhibit 10.5 of the Registrant’s Current Reporton Form 8-K (File No. 000-50884) filed on May 8, 2012.10.14c Form of Amendment and Exchange Agreement between Company and each of the holders of its convertible debentures participatingin the exchange, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (File No. 000-50884) filedon August 8, 2013.10.15a Second Amended and Restated Loan and Security Agreement, effective November 30, 2011, by and among the Company, StereotaxisInternational, Inc. and Silicon Valley Bank incorporated by reference to Exhibit 10.19f of the Registrant’s Form 10-K (FileNo. 000-50884) for the fiscal year ended December 31, 2011. 86Table of ContentsNumber Description10.15b First Loan Modification Agreement (Domestic), between the Company, Stereotaxis International, Inc. and Silicon Valley Bank, datedMarch 30, 2012, incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K (File No. 000-50884) filed on April 2, 2012.10.15c Second Amendment to the Amended and Restated Loan and Security Agreement (Domestic) dated May 1, 2012, between theCompany, Stereotaxis International, Inc. and Silicon Valley Bank, incorporated by reference to Exhibit 10.1 of the Registrant’sCurrent Report on Form 8-K (File No. 000-50884) filed on May 2, 2012.10.15d Third Amendment to Amended and Restated Loan and Security Agreement (Domestic), dated May 7, 2012, between the Company,Stereotaxis International, Inc. and Silicon Valley Bank, incorporated by reference to Exhibit 10.75 of the Registrant’s RegistrationStatement on Form S-1 (File No. 000-50884) filed May 23, 2012.10.15e Fourth Loan Modification Agreement (Domestic), dated December 28, 2012, between the Company, Stereotaxis International, Inc.and Silicon Valley Bank incorporated by reference to Exhibit 10.19f of the Registrant’s Form 10-K (File No. 000-50884) for the fiscalyear ended December 31, 2012.10.15f Fifth Loan Modification Agreement (Domestic) dated March 29, 2013 between the Company, Stereotaxis International, Inc. andSilicon Valley Bank, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (File No. 000-50884)filed on April 1, 2013.10.15g Sixth Loan Modification and Waiver Agreement (Domestic), dated June 28, 2013, between the Company, Stereotaxis International,Inc., and Silicon Valley Bank, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (FileNo. 000-50884) filed on July 1, 2013.10.15h Seventh Loan Modification and Waiver Agreement (Domestic), dated July 31, 2013, between the Company, Stereotaxis International,Inc. and Silicon Valley Bank, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (FileNo. 000-50884) filed on August 2, 2013.10.15i Eighth Loan Modification Agreement (Domestic), dated August 30, 2013, between the Company, Stereotaxis International, Inc. andSilicon Valley Bank, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (File No. 000-50884)filed on September 3, 2013.10.15j Ninth Loan Modification Agreement (Domestic), dated March 28, 2014, between the Company, Stereotaxis International, Inc. andSilicon Valley Bank, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (File No. 001-36159)filed on March 31, 2014.10.15k Tenth Loan Modification Agreement (Domestic), dated March 27, 2015, between Silicon Valley Bank, the Company, and StereotaxisInternational, Inc., incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (File No. 001-36159)filed on March 30, 2015.10.15l Eleventh Loan Modification Agreement (Domestic), dated May 10, 2016, between the Company, Stereotaxis International, Inc., andSilicon Valley Bank, incorporated by reference to Exhibit 10.1 of the Registrant’s Form 10-Q (File No. 001-36159) filed on May 11,2016.10.15m Third Amended and Restated Loan and Security Agreement, effective November 7, 2017, among the Company, StereotaxisInternational, Inc., and Silicon Valley Bank, incorporated by reference to Exhibit 10.1 of the Registrant’s Form 10-Q (FileNo. 001-36159) for the fiscal quarter ended September 30, 2017.10.16a Note and Warrant Purchase Agreement, effective February 7, 2008, between the Registrant and the investors named therein,incorporated by reference to Exhibit 10.31 of the Registrant’s Form 10-K (File No. 000-50884) for the fiscal year ended December 31,2007. 87Table of ContentsNumber Description10.16b First Amendment to Note and Warrant Purchase Agreement, effective December 29, 2008, between the Registrant and the investorsnamed therein, incorporated by reference to Exhibit 10.32 of the Registrant’s Form 10-K (File No. 000-50884) for the fiscal year endedDecember 31, 2008.10.16c Second Amendment to Note and Warrant Purchase Agreement, effective October 9, 2009, between the Registrant and the investorsnamed therein, incorporated by reference to Exhibit 10.31c of the Registrant’s Form 10-K (File No. 000-50884) for the fiscal year endedDecember 31, 2009.10.16d Third Amendment to Note and Warrant Purchase Agreement, effective November 10, 2010, between the Registrant and the investorsnamed therein incorporated by reference to Exhibit 10.21d of the Registrant’s Form 10-K (File No. 000-50884) filed for the fiscal yearended December 31, 2010.10.16e Fourth Amendment to the Note and Warrant Purchase Agreement between the Registrant and the investors named therein, datedMarch 30, 2012, incorporated by reference to Exhibit 10.3 of the Registrant’s Form 8-K (File No. 000-50884) filed on April 2, 2012.10.16f Fifth Amendment to Note and Warrant Purchase Agreement, dated May 1, 2012, between the Registrant and the investors namedtherein, incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K (File No. 000-50884) filed on May 2,2012.10.16g Sixth Amendment to Note and Warrant Purchase Agreement, dated May 7, 2012, between the Registrant and the investors namedtherein, incorporated by reference to Exhibit 10.77 of the Registrant’s Registration Statement on Form S-1 (File No. 000-50884) filedMay 23, 2012.10.16h Seventh Amendment to Note and Warrant Purchase Agreement, dated March 29, 2013, between the Registrant and the investors namedtherein, incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K (File No. 000-50884) filed on April 1,2013.10.16i Eighth Amendment to Note and Warrant Purchase Agreement, dated June 28, 2013, between the Registrant and the investors namedtherein, incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K (File No. 000-50884) filed on July 1,2013.10.17a Loan Agreement dated as of November 30, 2011, by and among the Company, Stereotaxis International, Inc. and Healthcare RoyaltyPartners II, L.P. f/k/a Cowen Healthcare Royalty Partners II LLC incorporated by reference to Exhibit 10.22a of the Registrant’s Form10-K (File No. 000-50884) for the fiscal year ended December 31, 2011.10.17b Intercreditor Agreement dated as of December 5, 2011, by and among the Company, Stereotaxis International, Inc., Healthcare RoyaltyPartners II, L.P. f/k/a Cowen Healthcare Royalty Partners II LLC and Silicon Valley Bank incorporated by reference to Exhibit 10.22b ofthe Registrant’s Form 10-K (File No. 000-50884) for the fiscal year ended December 31, 2011.10.18 Stock and Warrant Purchase Agreement, effective May 7, 2012, between the Company, and certain purchasers named therein,incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (File No. 000-50884) filed on May 8, 2012.10.19a Consulting Agreement effective June 4, 2014, between Stereotaxis, Inc. and Eric N. Prystowsky, M.D., incorporated by reference toExhibit 10.3 of the Registrant’s Form 10-Q (File No. 001-36159) for the fiscal quarter ended June 30, 2014.10.19b Second Amendment, dated June 2, 2016, to Consulting Agreement, dated June 4, 2014, between Stereotaxis, Inc. and Eric N.Prystowsky, M.D., incorporated by reference to Exhibit 10.19(B) of the Registrant’s Form 10-K (File No. 001-36159) for the fiscal yearended December 31, 2016.10.20 Securities Purchase Agreement, dated September 26, 2016, between the Company and certain investors named therein, incorporated byreference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (File No. 001-36159) filed on September 28, 2016. 88Table of ContentsNumber Description10.21 Registration Rights Agreement, dated September 26, 2016, between the Company and certain purchasers named therein,incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K (File No. 001-36159) filed onSeptember 28, 2016.10.22 Letter Agreement, dated February 3, 2017, between the Company and David Fischel, incorporated by reference to Exhibit 10.2 ofthe Registrant’s Current Report on Form 8-K (File No. 001-36159) filed on February 6, 2017.21.1 List of Subsidiaries of the Registrant, incorporated by reference to Exhibit 21.1 of the Registrant’s Form 10-K (File No. 000-50884)for the fiscal year ended December 31, 2009.23.1 Consent of Ernst & Young LLP.31.1 Rule 13a-14(a)/15d-14(a) Certification (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, executed by Chief ExecutiveOfficer).31.2 Rule 13a-14(a)/15d-14(a) Certification (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, executed by Chief FinancialOfficer).32.1 Section 1350 Certification (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Chief Executive Officer).32.2 Section 1350 Certification (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Chief Financial Officer).101.INS XBRL Instance Document.101.SCH XBRL Taxonomy Extension Schema Document.101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.101.DEF XBRL Taxonomy Extension Definition Linkbase Document.101.LAB XBRL Taxonomy Extension Label Linkbase Document.101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. #Indicates management contract or compensatory plan.†Confidential treatment granted as to certain portions, which portions are omitted and filed separately with the Securities and ExchangeCommission.††Confidential treatment requested as to certain portions, which portions are omitted and filed separately with the Securities and ExchangeCommission. 89Table of ContentsSIGNATURESPursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized. STEREOTAXIS, INC.(Registrant)Date: March 20, 2018 By: /s/ DAVID L. FISCHEL David L. FischelChief Executive OfficerKNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David L. Fischel and MartinC. Stammer, and each of them, his true and lawful attorneys-in-fact and agents, with full Power of substitution and resubstitution, for him and in hisname, place and stead, in any and all capacities to sign any and all amendments to this Annual Report on Form 10-K and any other documents andinstruments incidental thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities andExchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full Power and authority to do and perform each and everyact and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, herebyratifying and confirming all that said attorneys-in-fact and agents and/or any of them, or their or his substitute or substitutes, may lawfully do or causeto be done by virtue hereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theRegistrant and in the capacities and on the dates indicated. Signature Title Date/s/ DAVID L. FISCHELDavid L. Fischel Chairman of the Board of Directors and ChiefExecutive Officer (principal executive officer) March 20, 2018/s/ MARTIN C. STAMMERMartin C. Stammer Chief Financial Officer (principal financial officerand principal accounting officer) March 20, 2018/s/ DAVID W. BENFERDavid W. Benfer Director March 20, 2018/s/ NATHAN FISCHELNathan Fischel Director March 20, 2018/s/ JOE KIANIJoe Kiani Director March 20, 2018/s/ ARUN MENAWATArun Menawat Director March 20, 2018/s/ ROBERT J. MESSEYRobert J. Messey Director March 20, 2018/s/ FRED A. MIDDLETONFred A. Middleton Director March 20, 2018 90Exhibit 10.1fINCENTIVE STOCK OPTIONTERMS OF AWARDUNDERSTEREOTAXIS, INC. 2012 STOCK INCENTIVE PLANStereotaxis, Inc. (the “Company”) has made an Award to the Participant of Incentive Stock Options (the “Option”) under the Stereotaxis, Inc.2012 Stock Incentive Plan, as amended the (“Plan”). The date of grant, the number of shares of Stock (“Shares”) covered by the Option, and theexercise price of the Option are set forth in the Award letter the Participant received from the Company (“Statement”). The Statement and these Termsof Award collectively constitute the terms and conditions of the Option and describe the conditions applicable to the Option.1. Award Subject to Plan. The Option is granted under and is expressly subject to, all the terms and provisions of the Plan, which terms areincorporated herein by reference2. Definitions. All capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan. The following terms shall have thefollowing meanings, except where otherwise noted:(a) “Cause” means Participant’s fraud or willful misconduct as determined by the Committee.(b) “Change of Control” means the occurrence of one or more of the following:(i) The purchase or other acquisition (other than from the Company) by any person, entity or group of persons, within the meaningof Section 13(d) or 14(d) of the Act (excluding, for this purpose, the Company or its subsidiaries or any employee benefit plan of theCompany or its subsidiaries), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act) of 35% or more ofeither the then-outstanding shares of common stock of the Company or the combined power of the Company’s then-outstanding votingsecurities entitled to vote generally in the election of directors;(ii) Individuals who, as of the date hereof, constitute the Board (as of the date hereof, the “Incumbent Board”) cease for any reasonto constitute at least a majority of the Board, provided that any person who becomes a director subsequent to the date hereof whoseelection, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors thencomprising the Incumbent Board (other than an individual whose initial assumption of office is in connection with an actual or threatenedelection contest relating to the election of directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgatedunder the Act) shall be, for purposes of this section, considered as though such person were a member of the Incumbent Board; or(iii) The consummation of a reorganization, merger or consolidation, in each case with respect to which persons who were thestockholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own morethan 50% of, respectively, the common stock and the combined voting power entitled to vote generally in the election of directors of thereorganized, merged or consolidated corporation’s then-outstanding voting securities, or of a liquidation or dissolution of the Company orof the sale of all or substantially all of the assets of the Company.(c) “Company” means Stereotaxis, Inc., a Delaware corporation.(d) “Disability” or “Disabled” means the Participant is permanently and totally disabled within the meaning of Sections 422(c)(6) and22(e)(3) of the Internal Revenue Code (the “Code”) which, as of the date hereof, shall mean that the Participant is unable to engage in anysubstantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or 1which has lasted or can be expected to last for a continuous period of not less than 12 months. The Participant shall be considered Disabled onlyif the Participant furnishes such proof of Disability as the Committee may require.(e) “Good Reason” means:(i) Requiring the Participant to be based at any office or location more than 50 miles from the Participant’s office or location as ofthe date of the Change of Control;(ii) A material reduction in the Participant’s job responsibilities, provided that neither a mere change in title alone nor reassignmentto a substantially similar position shall constitute a material reduction in job responsibilities; or(iii) A material reduction in the Participant’s total compensation.(f) “Termination of Service” means the date on which the Participant is no longer an employee of the Company or any of its Subsidiaries.3. Term. The term of the Option shall expire on the tenth anniversary of the date of grant.4. Vesting. The Option shall vest as follows: (i) twenty-five percent (25%) of the Option shall vest on the first annual anniversary of the date ofgrant; and (ii) as of the first day of each calendar month after the first annual anniversary of the date of grant, an additional 2.0833% of the Option shallvest; so that on the fourth annual anniversary of the date of grant, 100% of the Option will become vested. Notwithstanding the foregoing, in the eventof a Change of Control (as hereinafter defined) and (x) the Participant experiences an involuntarily Termination of Service for reasons other thanCause, or (y) the Participant experiences a Termination of Service for Good Reason, in either case, on or within one (1) year after the date of the Changeof Control, the unvested portion of the Option will become vested as of such Termination of Service.5. Anti-Dilution Provisions. In the event that, during the term of the Option, there is any change in the number or kind of shares of outstandingStock of the Company by reason of stock dividends, recapitalizations, mergers, consolidations, split-ups, combinations or exchanges of shares and thelike, the number of underlying Shares covered by the Option and the exercise price thereof shall be adjusted, to the same proportionate number ofShares and price as in the original grant of the Option.6. Non-Transferability. The Option may not be assigned or transferred except upon death by will or the laws of descent and distribution, and anyattempted assignment or transfer except as herein authorized shall be void and of no effect. The Option may be exercised during the Participant’slifetime only by the Participant or his or her guardian or legal representative.7. Termination of Service. Upon a Termination of Service, the unvested portion of the Option shall be forfeited. The Participant must exercisethe Option prior to a Termination of Service, except that upon a Termination of Service, the Option shall remain exercisable to the extent, and only tothe extent, provided in this Section 7.(a) Disability. In the event of a Termination of Service of the Participant due to Disability, the Option will remain exercisable, to theextent vested on the date of such termination, until the earlier of one (1) year from the date of the Termination of Service or the tenth anniversaryof the date of grant pursuant to Section 422(c)(6) of the Code.(b) Death. In the event of a Termination of Service of the Participant as a result of death, the Option shall remain exercisable, to the extentvested on the date of death, and, pursuant to Section 1.421-1(b)(2) of the Treasury Regulations, (a) it may be exercised by the executor oradministrator of the Participant’s estate or by such person or persons who shall have acquired the Participant’s rights hereunder by bequest orinheritance or by designation as the Participant’s beneficiary for the full number of Shares covered by the 2Option (less any shares for which the Option was previously exercised), but (b) such person’s right to exercise this Option shall terminate uponthe earlier of the tenth anniversary of the date of grant or a date which is one (1) year after the date of the Participant’s death.(c) Voluntary or Involuntary Termination Without Cause. In the event of a voluntary Termination of Service (which shall includeretirement) or involuntary Termination of Service without Cause, the Option shall remain exercisable, to the extent vested on the date of suchtermination, until the earlier of three (3) months after the date of Termination of Service or the tenth anniversary of the date of grant.8. Exercise Procedures. The purchase price of the Shares subject to the exercise of the Option shall be paid in full upon the exercise of theOption, either (i) in cash, (ii) in the discretion of the Committee, by tender of shares of Stock already owned by the Participant, (iii) through a net orcashless exercise (including broker-assisted cashless exercise) form of exercise as permitted by the Committee, or (iv) in the discretion of theCommittee, by any combination of the payment methods specified in clauses (i), (ii) and (iii) hereof; provided that, no Shares of Stock may be tenderedin exercise of the Option if such Shares were acquired by the Participant through the exercise of an Incentive Stock Option unless (a) such Shares havebeen held by the Participant for at least one year and (b) at least two years have elapsed since such prior Incentive Stock Option was granted.9. No Right to Continued Employment or Service. This Terms of Award shall not limit or restrict the right of the Company to terminate theemployment or service of a Participant at any time or for any reason.10. Committee Administration. The Option has been granted pursuant to a determination made by the Committee, and such Committee or anysuccessor or substitute committee authorized by the Board of Directors or the Board of Directors itself, subject to the terms of this Terms of Award, shallhave plenary authority to interpret any provision of this grant and to make any determinations necessary or advisable for the administration of thisgrant and the exercise of the rights herein granted, and may waive or amend any provisions hereof in any manner not adversely affecting the rights ofthe Participant under this Terms of Award.11. Effect of Terms of Award; Severability. This Terms of Award shall be binding upon and shall inure to the benefit of any successor of theCompany and the person or entity to whom the Option may have been transferred by will or the laws of descent and distribution. The invalidity orunenforceability of any provision of this Terms of Award shall not affect the validity or enforceability of any other provision of this Terms of Award.12. Consent to Collection/Processing/Transfer of Personal Data. Pursuant to applicable personal data protection laws, the Company herebynotifies the Participant of the following in relation to the Participant’s personal data and the collection, processing and transfer of such data in relationto the Company’s grant of the Option and the Participant’s participation in the Plan. The collection, processing and transfer of the Participant’spersonal data is necessary for the Company’s administration of the Plan and the Participant’s participation in the Plan, and the Participant’s denialand/or objection to the collection, processing and transfer of personal data may affect the Participant’s participation in the Plan. As such, theParticipant voluntarily acknowledges and consents (where required under applicable law) to the collection, use, processing and transfer of personaldata as described herein.The Company holds certain personal information about the Participant, including the Participant’s name, home address and telephone number, date ofbirth, Social Security number or other employee identification number, salary, nationality, job title, any Shares or directorships held in the Company,details of all options, units or any other entitlement to Shares awarded, canceled, purchased, vested, unvested or outstanding in the Participant’s favor,for the purpose of managing and administering the Plan (“Data”). The Data may be provided by the Participant or collected, where lawful, from thirdparties, and the Company will process the Data for the exclusive purpose of implementing, administering and managing the Participant’s participationin the Plan. The Data processing will take place through electronic and non-electronic means according to logics and procedures 3strictly correlated to the purposes for which the Data are collected and with confidentiality and security provisions as set forth by applicable laws andregulations in the Participant’s country of residence (and country of employment, if different). Data processing operations will be performedminimizing the use of personal and identification data when such operations are unnecessary for the processing purposes sought. Data will beaccessible within the Company’s organization only by those persons requiring access for purposes of the implementation, administration and operationof the Plan and for the Participant’s participation in the Plan.The Company will transfer Data internally as necessary for the purpose of implementation, administration and management of the Participant’sparticipation in the Plan, and the Company may further transfer Data to any third parties assisting the Company in the implementation, administrationand management of the Plan. These recipients may be located in the European Economic Area, or elsewhere throughout the world, such as the UnitedStates. The Participant hereby authorizes (where required under applicable law) them to receive, possess, use, retain and transfer the Data, in electronicor other form, for purposes of implementing, administering and managing the Participant’s participation in the Plan, including any requisite transfer ofsuch Data as may be required for the administration of the Plan and/or the subsequent holding of Shares on the Participant’s behalf by a broker or otherthird party with whom the Participant may elect to deposit any Shares acquired pursuant to the Plan.The Participant may, at any time, exercise his or her rights provided under applicable personal data protection laws, which may include the right to(a) obtain confirmation as to the existence of the Data, (b) verify the content, origin and accuracy of the Data, (c) request the integration, update,amendment, deletion, or blockage (for breach of applicable laws) of the Data, (d) oppose, for legal reasons, the collection, processing or transfer of theData which is not necessary or required for the implementation, administration and/or operation of the Plan and the Participant’s participation in thePlan, and (e) withdraw the Participant’s consent to the collection, processing or transfer of Data as provided hereunder (in which case, the Option willbe null and void). The Participant may seek to exercise these rights by contacting the human resources manager or the Company’s human resourcesdepartment.13. Option an Incentive Stock Option. It is intended that the Option shall be treated as an incentive stock option under Section 422 of the Code.14. Section 409A. It is intended that benefits under this Terms of Award be exempt from the provisions of Section 409A of the Code inaccordance with Section 1.409A-1(b)(5)(ii) of the Treasury Regulations and, accordingly, to the maximum extent permitted, this Terms of Award shallbe interpreted to be limited, construed and administered in accordance with such intent. In no event whatsoever shall the Company be liable for anyadditional tax, interest or penalties that may be imposed on the Participant by Section 409A of the Code or any damages for failing to comply withSection 409A of the Code hereunder or otherwise.15. Choice of Law. This Terms of Award shall be governed by the laws of the State of Delaware, excluding any conflicts or choice of law rule orprinciple that might otherwise refer construction or interpretation of the Agreement to the substantive law of another jurisdiction. The Participant isdeemed to submit to the exclusive jurisdiction and venue of the federal or state courts of Missouri, County of St. Louis, to resolve any and all issuesthat may arise out of or relate to this Terms of Award.***** 4Exhibit 10.1gNON-QUALIFIED STOCK OPTIONTERMS OF AWARDUNDERSTEREOTAXIS, INC. 2012 STOCK INCENTIVE PLANStereotaxis, Inc. (the “Company”) has made an Award to the Participant of Non-Qualified Stock Options (the “Option”) under the Stereotaxis, Inc.2012 Stock Incentive Plan, as amended the (“Plan”). The date of grant, the number of shares of Stock (“Shares”) covered by the Option, and theexercise price of the Option are set forth in the Award letter the Participant received from the Company (“Statement”). The Statement and these Termsof Award collectively constitute the terms and conditions of the Option and describe the conditions applicable to the Option.1. Award Subject to Plan. The Option is granted under and is expressly subject to, all the terms and provisions of the Plan, which terms areincorporated herein by reference2. Definitions. All capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan. The following terms shall have thefollowing meanings, except where otherwise noted:(a) “Cause” means Participant’s fraud or willful misconduct as determined by the Committee.(b) “Company” means Stereotaxis, Inc., a Delaware corporation.(c) “Disability” or “Disabled” means the Participant is permanently and totally disabled within the meaning of Sections 422(c)(6) and22(e)(3)of the Internal Revenue Code (the “Code”) which, as of the date hereof, shall mean that the Participant is unable to engage in anysubstantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death orwhich has lasted or can be expected to last for a continuous period of not less than twelve (12) months. The Participant shall be consideredDisabled only if the Participant furnishes such proof of Disability as the Committee may require.(d) “Termination of Service” means the date on which the agreement or arrangement under which the Participant is providing services tothe Company expires or is terminated.3. Term. The term of the Option shall expire on the tenth anniversary of the date of grant.4. Vesting. The Option shall vest as follows: (i) twenty-five percent (25%) of the Option shall vest on the first annual anniversary of the date ofgrant; and (ii) as of the first day of each calendar month after the first annual anniversary of the date of grant, an additional 2.0833% of the Option shallvest; so that on the fourth annual anniversary of the date of grant, 100% of the Option will become vested.5. Anti-Dilution Provisions. In the event that, during the term of the Option, there is any change in the number or kind of shares of outstandingStock of the Company by reason of stock dividends, recapitalizations, mergers, consolidations, split-ups, combinations or exchanges of shares and thelike, the number of underlying Shares covered by the Option and the exercise price thereof shall be adjusted, to the same proportionate number ofShares and price as in the original grant of the Option.6. Non-Transferability. The Option may not be assigned or transferred except upon death by will or the laws of descent and distribution, and anyattempted assignment or transfer except as herein authorized shall be void and of no effect. The Option may be exercised during the Participant’slifetime only by the Participant or his or her guardian or legal representative.7. Termination of Service. Upon a Termination of Service, the unvested portion of the Option shall be forfeited. The Participant must exercisethe Option prior to a Termination of Service, except the Option shall remain exercisable to the extent, and only to the extent, provided in thisSection 7. Form of Terms for Contractors (Nov. 2017)(a) Disability. In the event of a Termination of Service of the Participant due to Disability, the Option will remain exercisable, to theextent vested on the date of such termination, until the earlier of one (1) year from the date of the Termination of Service or the tenth anniversaryof the date of grant.(b) Death. In the event of a Termination of Service of the Participant as a result of death, the Option shall remain exercisable, to the extentvested on the date of death, and it may be exercised by the executor or administrator of the Participant’s estate or by such person or persons whoshall have acquired the Participant’s rights hereunder by bequest or inheritance or by designation as the Participant’s beneficiary for the fullnumber of Shares covered by the Option (less any shares for which the Option was previously exercised), but (b) such person’s right to exercisethe Option shall terminate upon the earlier of the tenth anniversary of the date of grant or a date which is one (1) year after the date of theParticipant’s death.(c) Voluntary or Involuntary Termination Without Cause. In the event of a voluntary Termination of Service (which shall includeretirement) or involuntary Termination of Service without Cause, the Option shall remain exercisable, to the extent vested on the date of suchtermination, until the earlier of three (3) months after the date of Termination of Service or the tenth anniversary of the date of grant.8. Exercise Procedures. The purchase price of the Shares subject to the exercise of the Option shall be paid in full upon the exercise of theOption, either (i) in cash, (ii) in the discretion of the Committee, by tender of shares of Stock already owned by the Participant, (iii) through a net orcashless exercise (including broker-assisted cashless exercise) form of exercise as permitted by the Committee, or (iv) in the discretion of theCommittee, by any combination of the payment methods specified in clauses (i), (ii) and (iii) hereof.9. No Right to Continued Employment or Service. This Terms of Award shall not limit or restrict the right of the Company to terminate theemployment or service of a Participant at any time or for any reason.10. Committee Administration. The Option has been granted pursuant to a determination made by the Committee, and such Committee or anysuccessor or substitute committee authorized by the Board of Directors or the Board of Directors itself, subject to the terms of this Terms of Award, shallhave plenary authority to interpret any provision of this grant and to make any determinations necessary or advisable for the administration of thisgrant and the exercise of the rights herein granted, and may waive or amend any provisions hereof in any manner not adversely affecting the rights ofthe Participant under this Terms of Award.11. Effect of Terms of Award; Severability. This Terms of Award shall be binding upon and shall inure to the benefit of any successor of theCompany and the person or entity to whom the Option may have been transferred by will or the laws of descent and distribution. The invalidity orunenforceability of any provision of this Terms of Award shall not affect the validity or enforceability of any other provision of this Terms of Award.12. Consent to Collection/Processing/Transfer of Personal Data. Pursuant to applicable personal data protection laws, the Company herebynotifies the Participant of the following in relation to the Participant’s personal data and the collection, processing and transfer of such data in relationto the Company’s grant of the Option and the Participant’s participation in the Plan. The collection, processing and transfer of the Participant’spersonal data is necessary for the Company’s administration of the Plan and the Participant’s participation in the Plan, and the Participant’s denialand/or objection to the collection, processing and transfer of personal data may affect the Participant’s participation in the Plan. As such, theParticipant voluntarily acknowledges and consents (where required under applicable law) to the collection, use, processing and transfer of personaldata as described herein.The Company holds certain personal information about the Participant, including the Participant’s name, home address and telephone number, date ofbirth, Social Security number or other employee identification number, salary, nationality, job title, any Shares or directorships held in the Company,details of all options, units or any other entitlement to Shares awarded, canceled, purchased, vested, unvested or outstanding in the Participant’s favor,for the purpose of managing and administering the Plan (“Data”). The Data may be provided by the Participant or collected, where lawful, from thirdparties, and the Company will process the Data for the Page 2exclusive purpose of implementing, administering and managing the Participant’s participation in the Plan. The Data processing will take placethrough electronic and non-electronic means according to logics and procedures strictly correlated to the purposes for which the Data are collected andwith confidentiality and security provisions as set forth by applicable laws and regulations in the Participant’s country of residence (and country ofemployment, if different). Data processing operations will be performed minimizing the use of personal and identification data when such operationsare unnecessary for the processing purposes sought. Data will be accessible within the Company’s organization only by those persons requiring accessfor purposes of the implementation, administration and operation of the Plan and for the Participant’s participation in the Plan.The Company will transfer Data internally as necessary for the purpose of implementation, administration and management of the Participant’sparticipation in the Plan, and the Company may further transfer Data to any third parties assisting the Company in the implementation, administrationand management of the Plan. These recipients may be located in the European Economic Area, or elsewhere throughout the world, such as the UnitedStates. The Participant hereby authorizes (where required under applicable law) them to receive, possess, use, retain and transfer the Data, in electronicor other form, for purposes of implementing, administering and managing the Participant’s participation in the Plan, including any requisite transfer ofsuch Data as may be required for the administration of the Plan and/or the subsequent holding ofShares on the Participant’s behalf by a broker or other third party with whom the Participant may elect to deposit any Shares acquired pursuant to thePlan.The Participant may, at any time, exercise his or her rights provided under applicable personal data protection laws, which may include the right to(a) obtain confirmation as to the existence of the Data, (b) verify the content, origin and accuracy of the Data, (c) request the integration, update,amendment, deletion, or blockage (for breach of applicable laws) of the Data, (d) oppose, for legal reasons, the collection, processing or transfer of theData which is not necessary or required for the implementation, administration and/or operation of the Plan and the Participant’s participation in thePlan, and (e) withdraw the Participant’s consent to the collection, processing or transfer of Data as provided hereunder (in which case, the Option willbe null and void). The Participant may seek to exercise these rights by contacting the human resources manager or the Company’s human resourcesdepartment.13. Code Section 409A. It is intended that benefits under this Terms of Award be exempt from the provisions of Section 409A of the Code inaccordance with Section 1.409A-1(b)(5)(ii) of the Treasury Regulations and, accordingly, to the maximum extent permitted, this Terms of Award shallbe interpreted to be limited, construed and administered in accordance with such intent. In no event whatsoever shall the Company be liable for anyadditional tax, interest or penalties that may be imposed on the Participant by Section 409A of the Code or any damages for failing to comply withSection 409A of the Code hereunder or otherwise.14. Choice of Law. This Terms of Award shall be governed by the laws of the State of Delaware, excluding any conflicts or choice of law rule orprinciple that might otherwise refer construction or interpretation of the Agreement to the substantive law of another jurisdiction. The Participant isdeemed to submit to the exclusive jurisdiction and venue of the federal or state courts of Missouri, County of St. Louis, to resolve any and all issuesthat may arise out of or relate to this Terms of Award.***** Page 3Exhibit 23.1Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in the following Registration Statements and the related prospectuses: (1)Registration Statement (Form S-8 No. 333-197930) of Stereotaxis, Inc. pertaining to the Stereotaxis, Inc. 2009 Employee Stock PurchasePlan (2)Registration Statements (Form S-8 Nos. 333-197929, 333-213052 and 333-219860) of Stereotaxis, Inc. pertaining to the Stereotaxis, Inc.2012 Stock Incentive Plan (3)Registration Statement (Form S-1 No. 333-214255) of Stereotaxis, Inc. pertaining to the registration of 86,065,014 of shares of commonstock of Stereotaxis, Inc.of our report dated March 20, 2018, with respect to the financial statements and schedule of Stereotaxis, Inc., included in this Annual Report (Form10-K) for the year ended December 31, 2017. /s/ Ernst & Young LLPSt. Louis, MissouriMarch 20, 2018Exhibit 31.1Certification of Principal Executive OfficerI, David L. Fischel, certify that: 1.I have reviewed this annual report on Form 10-K of Stereotaxis, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periodcovered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and 15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known tous by others within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions aboutthe effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’smost recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or isreasonably likely to materially affect, the registrant’s internal control over financial reporting. 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalentfunctions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting. Date: March 20, 2018 /s/ David L. Fischel David L. Fischel Chief Executive Officer Stereotaxis, Inc. (Principal Executive Officer)Exhibit 31.2Certification of Principal Financial OfficerI, Martin C. Stammer, certify that: 1.I have reviewed this annual report on Form 10-K of Stereotaxis, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periodcovered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and 15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known tous by others within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions aboutthe effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’smost recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or isreasonably likely to materially affect, the registrant’s internal control over financial reporting. 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalentfunctions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’sinternal control over financial reporting. Date: March 20, 2018 /s/ Martin C. Stammer Martin C. Stammer Chief Financial Officer Stereotaxis, Inc. (Principal Financial Officer)Exhibit 32.1CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the annual report of Stereotaxis, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2017 as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), I, David L. Fischel, Chief Executive Officer of the Company, certify, pursuantto Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Actof 2002, that to the best of my knowledge:(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. Date: March 20, 2018 /s/ David L. Fischel David L. Fischel Chief Executive Officer Stereotaxis, Inc. Exhibit 32.2CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the annual report of Stereotaxis, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2017 as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), I, Martin C. Stammer, Chief Financial Officer of the Company, certify, pursuantto Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Actof 2002, that to the best of my knowledge:(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. Date: March 20, 2018 /s/ Martin C. Stammer Martin C. Stammer Chief Financial Officer Stereotaxis, Inc.

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