UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2020
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 001-36159
STEREOTAXIS, INC.
(Exact name of the Registrant as Specified in its Charter)
DELAWARE
(State or Other Jurisdiction of
Incorporation or Organization)
94-3120386
(I.R.S. Employer
Identification Number)
4320 Forest Park Avenue, Suite 100
St. Louis, MO 63108
(Address of Principal Executive Offices including Zip Code)
(314) 678-6100
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.001 per share
Trading Symbol(s)
STXS
Name of each exchange on which registered
NYSE American
Securities registered pursuant to Section 12(g) of the Act: None
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 of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T “See 232.405 of this Chapter” during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or
an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Emerging growth company ☐
Accelerated filer ☐
Non-accelerated filer ☒
Smaller reporting company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report. ☐
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’s most
recently completed second fiscal quarter (based on the closing sales prices on the NYSE American on June 30, 2020) was approximately $233.9 million.
The number of outstanding shares of the registrant’s common stock on February 28, 2021 was 73,758,714.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the registrant’s 2021 Annual Meeting of Shareholders are incorporated by reference in Part III, Items 10, 11, 12, 13 and
14.
STEREOTAXIS, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
STEREOTAXIS, INC.
INDEX TO FORM 10-K
Business
Part I
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosure
Properties
Legal Proceedings
Selected Financial Data
Part II
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Person Transactions and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
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ITEM 1.
BUSINESS
PART I
In this report, “Stereotaxis”, the “Company”, “Registrant”, “we”, “us”, and “our” refer to Stereotaxis, Inc. and its wholly owned subsidiaries. Genesis
RMN®, Epoch®, Niobe®, Odyssey®, Odyssey Cinema™, Vdrive®, Vdrive Duo™, V-CAS™, V-Loop™, V-Sono™, QuikCAS™ and Cardiodrive® are
trademarks of Stereotaxis, Inc. All other trademarks that appear in this report are the property of their respective owners.
FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K, including the sections entitled “Business” and “Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” contains forward-looking statements. These statements relate to, among other things:
● our business, operating, sales and marketing, and regulatory strategies;
● our value proposition;
● the impact of the recent coronavirus (“COVID-19”) pandemic and our responses to it;
● our overall liquidity and 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 industry generally, and overall economic conditions;
● 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 factors that
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 by
terminology 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-looking
statements 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 general economic
and business conditions and the risks and other factors set forth in “Item 1A—Risk Factors” and elsewhere in this annual report on Form 10-K.
Our actual results may be materially different from what we expect. We undertake no duty to update these forward-looking statements after the date of
this annual report, even though our situation may change in the future. We qualify all of our forward-looking statements by these cautionary statements.
OVERVIEW
Stereotaxis designs, manufactures and markets an advanced robotic magnetic navigation system for use in a hospital’s interventional surgical suite, or
“interventional lab”, that we believe revolutionizes the treatment of arrhythmias by enabling enhanced safety, efficiency, and efficacy for catheter-based, or
interventional, procedures. Our primary products include the Genesis RMN System, the Odyssey Solution, and related devices. We also offer to our
customers the Stereotaxis Imaging Model S x-ray System.
3
The Genesis RMN System is designed to enable physicians to complete more complex interventional procedures by providing image-guided delivery
of catheters through the blood vessels and chambers of the heart to treatment sites. This is achieved using externally applied magnetic fields that govern the
motion of the working tip of the catheter, resulting in improved navigation, efficient procedures, and reduced x-ray exposure.
In addition to the robotic magnetic navigation systems and their components, Stereotaxis also has developed the Odyssey Solution, which consolidates
lab information enabling physicians to focus on the patient for optimal procedure efficiency. The system also features a remote viewing and recording
capability called Odyssey Cinema, which is an innovative solution that delivers synchronized content for optimized workflow, advanced care, and improved
productivity. This tool includes an archiving capability that allows clinicians to store and replay entire procedures or segments of procedures. This
information can be accessed from locations throughout the hospital local area network and over the global Odyssey Network providing physicians with a
tool for clinical collaboration, remote consultation, and training.
We promote our full suite of products in a typical hospital implementation, subject to regulatory approvals or clearances. This implementation
requires a hospital to agree to an upfront capital payment and recurring payments. The upfront capital payment typically includes equipment and
installation charges. The recurring payments typically include disposable costs for each procedure, equipment service costs beyond the warranty period,
and ongoing software updates. In hospitals where our full suite of products has not been implemented, equipment upgrade or expansion can be
implemented upon purchasing of the necessary upgrade or expansion.
We have received regulatory clearance, licensing and/or CE Mark approvals necessary for us to market the Genesis RMN System in the U.S. and
Europe, and we are in the process of obtaining necessary registrations for extending our markets in other countries. Our prior generation robotic magnetic
navigation system, the Niobe System, and the Odyssey Solution, Cardiodrive, and various disposable interventional devices have received regulatory
clearance in the U.S., Europe, Canada, China, Japan and various other countries. We have received the regulatory clearance, licensing and/or CE Mark
approvals that allow us to market the Vdrive and Vdrive Duo Systems with the V-CAS, V-Loop and V-Sono devices in the U.S., Canada and Europe.
Stereotaxis Imaging Model S x-ray System is CE marked and cleared by the FDA.
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 a
description of the regulatory clearance, licensing, and/or approvals we currently have or are pursuing.
As of December 31, 2020, we had approximately $6.9 million of backlog, consisting of outstanding purchase orders and other commitments for these
systems. Of the December 31, 2020 backlog, we expect approximately 93% to be recognized as revenue over the course of 2021. We had backlog of
approximately $1.1 million as of December 31, 2019. There can be no assurance that we will recognize such revenue in any particular period or at all
because some of our purchase orders and other commitments are subject to contingencies that are outside our control. These orders and commitments may
be revised, modified or canceled, either by their express terms, as a result of negotiations or by project changes or delays. In addition, the sales cycle for the
robotic magnetic navigation system is lengthy and generally involves construction or renovation activities at customer sites. Consequently, revenues and/or
orders resulting from sales of our robotic magnetic navigation system can vary significantly from one reporting period to the next.
We have strategic relationships with technology leaders and innovators in the global interventional market. Through these strategic relationships we
provide compatibility between our robotic magnetic navigation system and digital imaging and 3D catheter location sensing technology, as well as
disposable interventional devices. The maintenance of these strategic relationships, or the establishment of equivalent alternatives, is critical to our
commercialization efforts. There are no guarantees that any existing strategic relationships will continue and efforts are ongoing to ensure the availability
of integrated next generation systems and/or equivalent alternatives. We cannot provide assurance as to the timeline of the ongoing availability of such
compatible systems or our ability to obtain equivalent alternatives on competitive terms or at all.
We were incorporated in Delaware in June, 1990 as Stereotaxis, Inc. Our principal executive offices are located at 4320 Forest Park Avenue, Suite
100, St. Louis, Missouri 63108, and our telephone number is (314) 678-6100.
THE STEREOTAXIS VALUE PROPOSITION
Although great strides have been made in manual device technology and in related manual interventional techniques, significant challenges remain
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 information systems used
by physicians in the interventional lab as well as a significant amount of training and experience required to ensure proficiency. As a result, many complex
cases in electrophysiology are treated with palliative drug therapy, and many complex procedures in interventional cardiology are still referred to as highly
invasive bypass surgeries.
Our systems address the current challenges in the interventional lab by providing precise computerized control of the working tip of the interventional
instrument and by integrating this control with the visualization technology and information systems used during electrophysiology and interventional
cardiology procedures, on a cost-justified basis.
4
We believe that our systems will:
● Improve patient outcomes by optimizing therapy. Difficulty in controlling the working tip of disposable interventional devices can lead to sub-
optimal results in many procedures. Conversely, the precise control of multiple complex diagnostic and therapeutic devices by a single physician
can lead to better outcomes for the patient. Precise instrument control is necessary for treating a number of cardiac conditions. To treat
arrhythmias, precise placement of an ablation catheter against a beating inner heart wall is necessary. Maintaining this precision and contact can be
very challenging, especially in the most complex procedures, such as those for the treatment of ventricular tachycardia. For coronary artery
disease, precise and correct navigation and placement of expensive stents also have a significant impact on procedure costs and outcomes. We
believe our robotic technology can enhance procedure results by improving navigation of disposable interventional devices 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 ventricular tachycardia,
atrial fibrillation, congenital heart diseases, and critical limb ischemia due to chronic total occlusions of peripheral arteries, is highly problematic
using conventional wire and/or catheter-based techniques. Additionally, many patients with multi-vessel disease and certain complex arrhythmias,
such as ventricular tachycardia and atrial fibrillation are often referred to other more invasive or less curative therapies because of the difficulty in
precisely and safely controlling the working tip of disposable interventional devices used to treat these complex cases interventionally. Because
our robotic technology provides precise, computerized control of the working tip of disposable interventional devices, we believe that it will
potentially enable difficult ventricular tachycardia, atrial fibrillation, and congenital heart diseases to be treated interventionally on a much broader
scale than today.
● Enhance patient and physician safety. The clinical value of our robotic magnetic navigation system has been demonstrated in over 400
publications and in more than 100,000 procedures. A systematic review of all peer-reviewed publications on our technology observed that robotic
magnetic navigation reduced major complication rates by 72%, minor complications by 39% and patient radiation duration by 36% in comparison
to traditional manual intervention. These safety benefits to patients are complemented by improved occupational safety for the physicians and
nursing staff who are performing the procedures. Healthcare professionals face long term orthopedic and exposure risks which are mitigated by
our robotic technology. 49% of professionals performing manual procedures suffer from orthopedic injury. 85% of brain tumors in interventional
physicians present on the left side of the brain which is the side typically exposed to radiation when performing a manual procedure. Our robotic
technology improves physician safety and reduces physician fatigue by enabling them to conduct procedures remotely from an adjacent control
room, which reduces their exposure to harmful radiation, and the orthopedic burden of wearing lead.
● Improve clinical workflow and information management. Complex ablation procedures involve several sources of information, which
conventionally 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 sensing systems providing the
3-D location of a catheter tip, pre-operative map of the electrical activity of the heart, real time recording of electrical activity of the heart, and
temperature feedback from an ablation catheter. The Odyssey Solution improves clinical workflow and information management efficiency by
integrating and synchronizing the multiple sources of diagnostic and imaging information found in the 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. Conventional interventional
procedure times currently range from several minutes to many hours as physicians often engage in repetitive, “trial and error” maneuvers due to
difficulties with manually controlling the working tip of disposable interventional devices. By reducing both navigation time and the time needed
to carry out therapy at the target site, we believe that our robotic technology can reduce procedure times compared to manual procedures,
especially in the most complex procedures such as the treatment of ventricular tachycardia. We believe the robotic magnetic navigation system can
also reduce the variability in procedure times compared to manual methods. Greater standardization of procedure times allows for more efficient
scheduling of interventional cases including staff requirements. We also believe that additional cost savings from robotics can result from
decreased use of multiple catheters, high-end deflectable sheaths, and contrast media in procedures 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 safely and
effectively carry out manual interventional procedures typically takes years, over and above the training required to become a specialist in
cardiology. This has led to a shortage of physicians who are skilled in performing more complex procedures. We believe that our robotic
technology can allow procedures that previously required the highest levels of manual dexterity and skill to be performed effectively by a broader
range of interventional physicians, with more standardized outcomes. In addition, interventional physicians can learn to use robotic systems in a
relatively short period of time. The robotic magnetic navigation system can also be programmed to carry out sequences of complex navigation
automatically further enhancing ease of use. We believe the Odyssey Solution can allow advanced training online thereby accelerating learning.
● Help hospitals recruit physicians and attract patients. Due to the clinical benefits of our products, we believe hospitals will realize significant
operational benefits when recruiting physicians to work in a safer procedure environment, while attracting patients who desire to have safer
procedures that lead to better long term outcomes.
5
PRODUCTS
Robotic Magnetic Navigation
Our proprietary robotic magnetic navigation systems (RMN) include the Genesis RMN and the prior generation Niobe Systems. These systems are
designed to enable physicians to complete more complex interventional procedures by providing image-guided delivery of catheters and guidewires
through the blood vessels and chambers of the heart to treatment sites. This is achieved using externally applied magnetic fields that govern the motion of
the working tip of the catheter or guidewire, resulting in improved navigation, efficient procedures and reduced x-ray exposure. Our systems provide
physicians with precise remote digital instrument control in combination with sophisticated image integration. It can be operated either from an adjacent
room and outside the x-ray fluoroscopy field or beside the patient table, as in traditional interventional procedures. The RMN system allows the operator to
navigate disposable interventional devices to the treatment site through complex paths in the blood vessels and chambers of the heart to deliver treatment
by using computer controlled, externally applied magnetic fields to directly govern the motion of the working tip of these devices, each of which has a
magnetically sensitive tip that predictably responds to magnetic fields generated by our system. Because the working tip of the disposable interventional
device is directly controlled by these external magnetic fields, the physician 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 in the blood vessels or chambers of the heart. This results in highly precise digital control of the
working tip of the disposable interventional device while still giving the physician the option to manually advance the device.
Through our arrangements with fluoroscopy system manufacturers and providers of catheters and electrophysiology mapping systems, we provide
compatibility between the robotic magnetic navigation system and the visualization and information systems used during electrophysiology procedures in
order to provide the physician with a comprehensive information and instrument control system. In addition, we have integrated the robotic magnetic
navigation system with 3D catheter location sensing technology to provide accurate real-time information as to the 3D location of the working tip of the
instrument.
The components of the robotic magnetic navigation system are identified and described below:
Robotic Magnetic Navigation System. Our robotic magnetic navigation systems utilize two permanent magnets mounted on articulating and pivoting
arms with one magnet on either side of the patient table. These magnets generate magnetic navigation fields that are less than the strength of fields typically
generated by MRI equipment and therefore require significantly less shielding, and cause significantly less interference, than MRI equipment. The robotic
magnetic navigation 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, the Cardiodrive
Automated Catheter Advancement System (“Cardiodrive”) in conjunction with the QuikCAS automated catheter advancement system is used to remotely
advance and retract the electrophysiology catheter in the patient’s heart while the robotic magnetic navigation system magnets precisely steer the working
tip of the device.
Odyssey® Solution
The Odyssey Solution offers a fully integrated, real-time information solution to manage, control, record and share procedures across networks or
around the world. We believe that the Odyssey Solution enhances the physician workflow in interventional labs through a consolidated user interface of
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 and
keyboard, the Odyssey Solution allows the user to command multiple systems in the lab from a single point of control. In addition, the Odyssey Solution
acquires a real-time, remote view of the lab, capturing synchronized procedure data for review of important events during cases. The Odyssey Solution
enables physicians to access recorded cases and create snapshots following procedures for enhanced clinical reporting, auditing and presentation. The
Odyssey Solution enables physicians to establish a comprehensive master archive of procedures performed in the lab providing an excellent tool for
training new staff on the standard practices. The Odyssey Solution further enables procedures to be observed remotely around the world with high speed
Internet access over a hospital VPN, even wirelessly using a standard laptop or Windows tablet computer.
Stereotaxis Imaging Model S X-ray System
Developed in collaboration with Omega Medical Imaging, and designed to be specifically available with RMN Systems, the Stereotaxis Imaging
Model S provides an integrated complete solution for a robotic interventional operating room. It is a single-plane, full-power x-ray system and includes the
c-arm, powered table, motorized boom, and large high-definition monitors. Stereotaxis Imaging Model S incorporates modern fluoroscopy technology to
support high quality imaging while minimizing radiation exposure for patients and physicians. The combination of RMN Systems with Stereotaxis Imaging
Model S is designed to reduce the cost of acquisition, the ongoing cost of ownership, and the complexity of installation of a robotic electrophysiology
practice.
6
Disposables and Other Accessories
Our robotic magnetic navigation systems are 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 proprietary electrophysiology
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 Catheters co-
developed by Biosense Webster and Stereotaxis, as described below, with sales of such magnetically-enabled catheters generating royalty payable
from Biosense Webster to Stereotaxis.
Revenue from sales of disposable products is recognized when control is transferred to the customers, which generally occurs at the time of shipment,
but can also occur at the time of delivery depending on the customer arrangement. Disposable products are covered by an assurance type warranty that
provides for the return of defective products. Warranty costs were not material for the periods presented.
We also manufacture and market various disposable (the V-Loop, V-Sono, and V-CAS) components which can be manipulated by our Vdrive™
Robotic Navigation System a complimentary product that provides navigation and stability for diagnostic and therapeutic devices designed to improve
interventional procedures. In addition we also market and distribute other disposable and related devices that can be use with our robotic magnetic
navigation systems.
Other Recurring Revenue
Other recurring revenue includes revenue from product maintenance plans, other post warranty maintenance, and the implied obligation to provide
software enhancements if and when available for a specified period, typically one year following installation of our systems. Revenue from services and
software enhancements is deferred and amortized over the service or update period, which is typically one year. Revenue related to services performed on a
time-and-materials basis is recognized when performed.
Regulatory Approval
We have received regulatory clearance, licensing and/or CE Mark approvals necessary for us to market the Genesis RMN System in the U.S. and
Europe, and we are in the process of obtaining necessary registrations for extending our markets in other countries.
We have received regulatory clearance, licensing and/or CE Mark approvals necessary for us to market the Niobe System, Cardiodrive, and various
disposable devices in the U.S., Canada, Europe, China, Japan, and various other countries.
We have received regulatory clearance, licensing and/or CE Mark approvals necessary for us to market the Vdrive and Vdrive Duo Systems with the
V-CAS, V-Loop and V-Sono devices in the U.S., Canada and Europe.
Biosense Webster has received FDA approval, and CE Mark for the CARTO® RMT navigation system for use with the Niobe System, the 4mm
CELSIUS® RMT Diagnostic/Ablation Steerable Tip Catheter, the 4mm NAVISTAR® RMT Diagnostic/Ablation Steerable Tip Catheter, the 8mm Navistar
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 Webster also
received China CFDA approval and Japan PMDA approval for the CARTO® RMT navigation system for use with the Niobe System, and the 3.5mm
NAVISTAR® RMT THERMOCOOL® Irrigated Tip Catheter. Our strategic relationship with Biosense Webster provides for co-development of catheters
that can be navigated with our system, both with and without Biosense Webster’s 3D catheter location sensing technology. In addition, we can utilize
technology 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 CUSTOMERS
No single customer accounted for more than 10% of total revenue for the year ended December 31, 2020. Revenue from Biosense Webster Inc.,
related to royalties, accounted for $2.8 million, or 10%, of total net revenue for the year ended December 31, 2019. No other single customer accounted for
more than 10% of total revenue for the year ended December 31, 2019. Revenue from customers in Finland accounted for $2.7 million, or 10%, of total
revenue for the year ended December 31, 2020. No other single country, other than the U.S., accounted for more than 10% of total revenue for the years
ended December 31, 2020 and 2019.
CLINICAL APPLICATIONS
We have focused our clinical and commercial efforts on applications of our products primarily in electrophysiology procedures for the treatment of
arrhythmias and secondarily in complex interventional cardiology procedures for the treatment of coronary artery disease. Our system potentially has broad
applicability in other areas, such as structural heart repair, interventional neurosurgery, interventional neuroradiology, peripheral vascular, renal
denervation, pulmonology, urology, gynecology and gastrointestinal medicine, and some of our patents may be applicable in these areas as well.
7
Electrophysiology
The rhythmic beating of the heart results from the transmission of electrical impulses. When these electrical impulses are mistimed or uncoordinated,
the heart fails to function properly, resulting in symptoms that can range from fatigue to stroke or death. Over 5.0 million people in the U.S. currently suffer
from the resulting abnormal heart rhythms, which are known as arrhythmias. The prevalence of arrhythmias is expected to continue to rise as the
population ages and life expectancy continues to increase. These conditions are a major physical and economic burden and are associated with stroke, heart
failure, and adverse symptoms causing patients to be very motivated to seek treatment. The combination of symptoms, prevalence and comorbidities make
arrhythmias a major economic factor in healthcare. We believe payors are very interested in therapies that may reduce the financial impact of these
diseases.
Drug therapies for arrhythmias often fail to adequately control the arrhythmia and may have significant side effects. Consequently, physicians have
increasingly sought more permanent, non-pharmacological, solutions for arrhythmias. The most common interventional treatment for arrhythmias, and in
particular tachyarrhythmias, where the patient’s heart rate is too high or irregular, is an ablation procedure in which the diseased tissue giving rise to the
arrhythmia is isolated or destroyed. Prior to performing an electrophysiology ablation, a physician typically performs a diagnostic procedure in which the
electrical signal patterns of the heart wall are “mapped” to identify the heart tissue generating the aberrant electrical signals. Following the mapping
procedure, the physician may then use an ablation catheter to eliminate the aberrant signal or signal path, restoring the heart to its normal rhythm. In cases
where an ablation is anticipated, physicians will choose an ablation catheter and perform both the mapping and ablation with the same catheter. In February
2009 the FDA approved the Biosense Webster NAVISTAR® THERMOCOOL® irrigated catheter to be labeled for the treatment of atrial fibrillation. This
is the first device approved by the FDA to be labeled for the interventional treatment of this arrhythmia.
We believe more than 5,000 interventional labs around the world are currently capable of conducting electrophysiology procedures. Nearly one
million electrophysiology procedures are performed annually worldwide, and the procedure growth rate is approximately 10% annually.
We believe that our robotic system is particularly well-suited for those electrophysiology procedures which are time consuming or which can only be
performed by highly experienced physicians. These procedures include:
● Ventricular Tachycardia. Ventricular tachycardia is a malignant, potentially lethal arrhythmia that is extremely difficult and time consuming to
treat. The magnetic catheter has been characterized as the ideal tool for this application. These arrhythmias can often be modified or interrupted by
the pressure of a conventional catheter making it very difficult to identify the appropriate location for the ablation, 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, reduce the 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 arrhythmia characterized by
rapid, disorganized contractions of the heart’s upper chambers, the atria, which lead to ineffective heart pumping and blood flow and can be a
major risk factor for stroke. This chaotic electrical activity of the top chambers of the heart is estimated to be present in three million people in the
United States and over seven million people worldwide. The number of potential patients for manual catheter-based procedures for atrial
fibrillation has been limited because the procedures are extremely complex and are performed by only the most highly skilled electrophysiologists.
They also typically have much longer procedure times than general ablation cases and the success rates have been lower and more variable. We
believe that our system can allow these procedures to be performed by a broader range of electrophysiologists and, by automating some of the
more complex catheter maneuvers, can standardize and reduce procedure times and significantly improve outcomes.
● General Mapping and Ablations. For the more routine mapping and ablation procedures, our system offers the unique benefit of precise catheter
movement and consistent heart wall contact. Additionally, the system can control the procedure and direct catheter movement from 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 disposable
interventional devices from a control room outside the x-ray field. Additionally, we believe that our system allows for more predictable and efficient
navigation of these devices to the treatment site, and enables catheter contact to be consistently maintained to efficiently apply energy on the wall of the
beating heart. We also believe that our system will significantly lower the skill barriers required for physicians to perform complex electrophysiology
procedures and, additionally, improve interventional lab efficiency and reduce disposable interventional device utilization.
Interventional Cardiology
More than half a million people die annually from coronary artery disease, a condition in which the formation of plaque in the coronary arteries
obstructs 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 year over
one million patients undergo interventional procedures in an attempt to open blocked vessels and another one half million patients undergo open heart
surgery to bypass blocked coronary arteries.
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Blockages within a coronary artery, often called lesions, are categorized by degree of obstruction as partial occlusions, non-chronic total occlusions
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 time consuming to
open with manual interventional techniques.
We believe approximately 11,000 interventional labs worldwide are currently capable of conducting interventional cardiology. Over 4 million
interventional cardiology procedures are performed annually in the U.S. alone. We estimate that approximately 10-15% of these interventional cardiology
procedures currently being performed are complex and therefore require longer procedure times and may have sub-optimal outcomes. We believe that our
system can substantially benefit this subset of complex interventional cardiology procedures.
Interventional Neuroradiology, Neurosurgery and Other Interventional Applications
Physicians used a predecessor to our Niobe System to conduct a number of procedures for the treatment of brain aneurysms, a condition in which a
portion of a blood vessel wall balloons and which can result in debilitating or fatal bleeding and strokes. We believe the robotic magnetic navigation system
also has a range of potential applications in minimally invasive neurosurgery, including biopsies and the treatment of tumors, treatment of vascular
malformations and fetal interventions.
STRATEGIC RELATIONSHIPS
We have entered into business arrangements with technology leaders in the global interventional market, including manufacturers of fluoroscopy
systems, ablation catheters, and electrophysiology mapping systems, that we believe aid us in commercializing our robotic magnetic navigation system.
These arrangements are important to us as they provide for the integration of our system with digital imaging and 3D catheter location sensing technology,
as well as catheters compatible with our system.
Imaging
We have successfully integrated our robotic magnetic navigation system with digital fluoroscopy systems to provide advanced interventional lab
visualization and instrument control through user-friendly computerized interfaces. The maintenance of these arrangements, or the establishment of
equivalent alternatives, is critical to our commercialization efforts. There are no guarantees that any existing strategic relationships will continue and efforts
are ongoing to ensure the availability of integrated next generation systems and/or equivalent alternatives. We cannot provide assurance as to the timeline
of the ongoing availability of such compatible systems or our ability to obtain equivalent alternatives on competitive terms or at all.
Disposables Devices
We have entered into strategic relationships and successfully integrated with diagnostic mapping technologies to provide a robust open ecosystem
where physicians and patients benefit from the broad integration of procedure data.
With Biosense Webster, we have jointly developed associated location and non-location sensing electrophysiology mapping and ablation catheters
that are navigable with our robotic magnetic navigation system. We believe that these products provide physicians with the elements required for effective
complex electrophysiology procedures: highly accurate information as to the exact location of the catheter in the body and highly precise control 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 resources
required for their development. We are entitled to royalty payments from Biosense Webster, payable quarterly based on net revenues from sales of the co-
developed catheters. Royalty revenue from the co-developed catheters represented 8% and 10% of revenue for the years ended December 31, 2020 and
2019, respectively.
Biosense Webster’s distribution rights for co-developed catheters are nonexclusive until December 31, 2022. Upon the expiration or termination of the
agreement, other than due to a change of control of Stereotaxis, the agreement provides for a continuation of supply by Biosense Webster of the co-
developed catheters to us or our customers for three years. The agreement provides an opportunity to expand the product offering covered by the agreement
to include a next generation irrigated magnetic catheter, subject to mutually agreeable terms including exclusive distribution rights.
Under the agreements with Biosense Webster, we granted Biosense Webster certain notice and discussion rights for product development activities we
undertake relating to localization of magnetically enabled interventional disposable devices in fields outside of electrophysiology and mapping.
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Either party may terminate this agreement in certain specified “change of control” situations, although the termination would not be effective until one
year after the change of control and then would be subject to a wind-down period during which Biosense Webster would continue to supply co-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 a competitive product
after a change of control, if earlier than three years). If either party terminates the agreement under this provision, we must pay a termination 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 a change of control of
Stereotaxis occurs after Biosense Webster has received approval from the U.S. FDA for atrial fibrillation indication for the NAVISTAR® RMT
THERMOCOOL® catheter, we would be required to pay an additional $10 million fee to Biosense Webster, and termination of the agreement by either
party would not be effective until two years after the change of control. We also agreed to notify Biosense Webster if we reasonably believe that we are
engaged in substantive discussions with respect to the sale of the Company or substantially all of our assets.
Additionally, we have entered into a broad strategic collaboration with Osypka AG. This collaboration includes the development of a next-generation
magnetic ablation catheter to be navigated using Stereotaxis’ robotic technology. Stereotaxis is funding the development and will be the sole owner of the
catheter.
The maintenance of these arrangements, or the establishment of equivalent alternatives, is critical to our commercialization efforts. There are no
guarantees that any existing strategic relationships or collaborations will continue.
RESEARCH AND DEVELOPMENT
We have assembled an experienced group of engineers and physicists with recognized expertise in magnetics, software, control algorithms,
mechanics, electronics, systems integration and disposable interventional device design.
Our research and development efforts are focused in the following areas:
● development and enhancement of Robotic Magnetic Navigation Systems;
● designing new proprietary disposable interventional devices for use in Electrophysiology and other clinical specialties with our robotic systems;
and
● software and other engineering efforts to enhance imaging integrations, user interface, automated navigation, and operating room connectivity.
Our research and development team collaborates with strategic third parties to integrate our robotic magnetic navigation system’s open architecture
platform with key imaging, location sensing and information systems in the interventional lab. We have also collaborated with a number of highly regarded
interventional physicians in key clinical areas and have entered into agreements with a number of universities and teaching hospitals, which serve to
increase our access to world class physicians and to expand our name recognition in the medical community.
CUSTOMER SERVICE AND SUPPORT
We provide worldwide maintenance and support services to our customers for our integrated products directly or with the assistance of outsourced
product and service representatives. By utilizing these relationships, we provide direct, on-site technical support activities, including call center, customer
support engineers and service parts logistics and delivery. In certain situations, we use these third parties as a single point of contact for the customer,
allowing 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 days a
week. We employ service and support engineers with networking and medical equipment expertise, and outsource a portion of our installation and support
services. We offer different levels of support to our customers, including basic hardware and software maintenance, extended product maintenance, 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.
MANUFACTURING
Robotic Magnetic Navigation Systems and Odyssey Solution
Our manufacturing strategy for our Robotic Magnetic Navigation Systems and Odyssey Solution is to sub-contract the manufacture of major
subassemblies of our systems to maximize manufacturing flexibility and lower fixed costs. We maintain quality control for all of our systems by
completing final system assembly and inspection in-house.
We purchase both custom and off-the-shelf components from a large number of suppliers and subject them to quality specifications and processes.
Some of the components necessary for the assembly of our products are currently provided to us by sole-sourced suppliers (the only recognized supply
source available to us) or single-sourced suppliers (the only approved supply source for us among other sources). We purchase the majority of our
components and major assemblies through purchase orders rather than long-term supply agreements and generally do not maintain large volumes of
finished goods.
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Disposable Interventional Devices
Our manufacturing strategy for disposable interventional devices is to outsource their manufacture through subcontracting and to expand partnerships
for other interventional devices. We work closely with our contract manufacturers and have strong relationships with component suppliers. We have
entered into manufacturing agreements to provide high volume capability for devices other than catheters.
Software
The software components of the robotic magnetic navigation system and Odyssey Solution, including control and application software, are developed
both internally and with integrated modules we purchase or license. We perform final testing of software products in-house prior to their commercial
release.
General
Our manufacturing facility operates under processes that meet the FDA’s requirements under the Quality System Regulation (QSR). Our ISO registrar
and European notified British Standard Institution (BSI) has audited our facility annually since 2001 and found the facility to be in compliance with
relevant requirements. The most recent ISO 13485 and MDSAP Certificate of Registration were issued in 2019 and 2020, respectively and are valid
through September 2022.
SALES AND MARKETING
We 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 with them.
Our sales and marketing efforts include two important elements: (1) selling robotic magnetic systems, Odyssey Solutions, and Vdrive systems directly
and through distributors; and (2) leveraging our installed base of systems to drive recurring sales of disposable interventional devices, software and service.
REIMBURSEMENT
We believe that substantially all of the procedures, whether commercial or in clinical trials, conducted in the U.S. with the Niobe System have been
reimbursed to date. We expect that third-party payors will reimburse, under existing billing codes, procedures in which compatible ablation catheters are
used. We expect healthcare facilities in the U.S. to bill various third-party payors, such as Medicare, Medicaid, other government programs and private
insurers, for services performed with our products. We believe that procedures performed using our products, or targeted for use by products that do not yet
have regulatory clearance or approval, are generally already reimbursable under government programs and most private plans. Accordingly, we believe
providers in the U.S. will generally not be required to obtain new billing authorizations or codes in order to be compensated for performing medically
necessary procedures using our products on insured patients. We cannot guarantee that reimbursement policies of third-party payors will not change in the
future with respect to some or all of the procedures using the robotic magnetic navigation system.
In countries outside the United States, reimbursement is obtained from various sources, including governmental authorities, private health insurance
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 Europe, we believe that substantially all of the procedures, whether commercial or in clinical
trials, conducted with the Niobe System have been reimbursed to date. In Japan, the Ministry of Health, Labor and Welfare (MHLW) has classified the
Niobe System as a C2 medical device (the highest reimbursement category), and has established a “technical fee” of Japanese Yen 50,000 per procedure. In
other foreign countries, we may need to seek international reimbursement approvals, 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 PROPERTY
The proprietary nature of, and protection for, our products, processes and know-how are important to our business. We seek patent protection in the
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 and our 3D integration technology. As of December 31, 2020, we had 65
issued U.S. patents, 1 co-owned U.S. patent, and no licensed-in U.S. patents. In addition, we had 2 pending U.S. patent applications. As of December 31,
2020, we had 23 issued foreign patents and 5 pending foreign patent applications. The key patents that protect our Niobe and Genesis RMN Systems extend
until 2022 and beyond.
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We also have a number of invention disclosures under consideration and several applications that are being prepared for filing. We cannot be certain
that any patents will be issued 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 the future will provide us with protection.
It would be technically difficult and costly to reverse engineer our robotic magnetic navigation system, which contains numerous complex algorithms
that control our disposable devices inside the magnetic fields generated by the robotic magnetic navigation system. We further believe that our patent
portfolio is broad enough in scope to enable 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 robotic magnetic navigation system. We can also utilize security keys, such as embedded smart chips or associated software that
could allow our system to recognize specific disposable 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 in connection
with the development of the robotic magnetic navigation 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 be
installed in a standard interventional lab. Our Odyssey Solution contains numerous complex algorithms and proprietary software and hardware
configurations, 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 and install 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 with our
employees, consultants, contractors, advisers and other third parties. However, we believe that these measures afford only limited protection.
COMPETITION
The markets for medical devices are intensely competitive and are characterized by rapid technological advances, frequent new product introductions,
evolving industry standards and price erosion.
In electrophysiology we consider the primary competition to our robotic magnetic navigation system to be traditional catheter-based
electrophysiology ablation approaches including RF (radiofrequency) ablation and non-RF therapies. To our knowledge, we are the only company that has
commercialized remote, digital and direct control of the working tip of catheters for use in RF ablation procedures. Our success depends in part on
convincing hospitals and physicians to convert traditional interventional procedures to procedures using our robotic magnetic navigation system.
We face competition from companies that are developing and marketing new products for use in electrophysiology. These products include next
generation mapping systems and RF ablation devices with which our robotic magnetic navigation system is not currently compatible, as well as non-RF
ablation devices including single-shot cryoablation devices and other new products for use in other interventional therapies. Some of these products are
marketed by companies that may have an established presence in the field of electrophysiology, including major imaging, capital equipment and
disposables companies that are currently selling products in the interventional lab. In addition, we face competition from companies that currently market
or are developing drugs, gene or cellular therapies to treat the conditions for which our products are intended.
We also face competition from companies that are developing robotic technologies for electrophysiology and non-electrophysiology interventional
procedures. We are aware of three companies that commercialized endovascular catheter navigation systems which have been cleared by the FDA for
electrophysiology procedures as well as two companies with electromagnetic catheter navigation systems that received CE Mark approval in Europe. None
of these companies seem to be active with any current commercial activities. Outside of electrophysiology, there are at least two companies that have
commercialized robotic systems for guidewire manipulation and can be viewed as potential competitors as we look to address additional clinical
applications.
We face direct competition to certain products in our Odyssey Solution. These competitors include established 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 and
effective sales, support, training and service. The length of time required for products to be developed and to receive regulatory and reimbursement
approval is also an important competitive factor. See “Item 1A—Risk Factors” for a discussion of other competitive risks facing our business.
GOVERNMENT REGULATION
Our 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. FDA
regulates the development, testing, manufacturing, labeling, storage, recordkeeping, promotion, marketing, distribution and service of medical devices in
the U.S. to ensure that medical products distributed domestically are safe and effective for their intended uses. In addition, the FDA regulates the export of
medical devices manufactured in the U.S. to international markets and the importation of medical devices manufactured abroad.
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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 similar to those of the
FDA or other U.S. regulations. In addition, our products must meet the requirements of a large and growing body of international standards which govern
the design, manufacture, materials content and sourcing, testing, certification, packaging, installation, use and disposal of our products. 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 composition standards such as the Reduction of
Hazardous Substances (“RoHS”) and Waste Electrical and Electronic Equipment (“WEEE”) Directives.
U.S. Food and Drug Administration
Unless an exemption applies, each medical device we wish to commercially market in the United States will require 510(k) clearance, de novo
approval, or pre-market approval from the FDA. The FDA classifies medical devices into one of three classes. Devices deemed to pose lower risks are
placed in either Class I or II, which requires the manufacturer to submit to the FDA a pre-market notification requesting permission to commercially
distribute the device, known as 510(k) clearance. Some low risk devices are exempted from this requirement. Devices deemed by the FDA to pose the
greatest risks, such as life-sustaining, or life-supporting, or devices deemed not substantially equivalent to a previously cleared 510(k) device, are placed 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 magnetic navigation 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 device
exemption, or IDE, is assembled and submitted to the FDA. The FDA reviews and must approve the IDE before the study can begin. In addition, the study
must be approved by an Institutional Review Board covering each clinical site involved in the study. When all approvals are obtained, we initiate a clinical
study to evaluate the device. Following completion of the study, we collect, analyze and present the data in an appropriate submission to the FDA (i.e. in
support of a 510(k), de novo, or PMA).
When a 510(k) clearance is required, we must submit a pre-market notification demonstrating that our proposed device is substantially equivalent to a
previously cleared and legally marketed 510(k) device, de novo approved device, or a device that was in commercial distribution before May 28, 1976, for
which the FDA has not yet called for the submission of pre-market approval applications. To establish substantial equivalence, the applicant must show that
the new device has the same intended use as the predicate device, and it either has the same technological characteristics or has been shown to be equally
safe and effective and does not raise different questions of safety and effectiveness as compared to the predicate device. The FDA may require further
information, including clinical trial results or product test data, to make a determination regarding substantial 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. The de
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 either the
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’s satisfaction. The
PMA process is much more costly, lengthy and uncertain than the 510(k) clearance process, and it generally takes from one to three years, 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 product we 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 that would
constitute a significant change in its intended use, will require a new clearance. Modification to a PMA approved device or its labeling may require 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 require that manufacturers report to the FDA if their device may have caused or contributed to a death
or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur; and
● Reports of Corrections and Removals regulation, which requires manufacturers to report recalls and field actions to the FDA if initiated to reduce
a risk to health posed by the device or to remedy a violation of the FD&C Act.
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The FDA has broad post-market and regulatory enforcement powers. We are subject to unannounced inspections by the FDA to determine our
compliance with the QSR and other regulations. If we fail to comply with the QSR or other regulatory requirements, we may receive a warning or untitled
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 to require us to repair,
replace or refund the cost of any medical device that we have manufactured or distributed if there is a reasonable probability that the device would cause
serious, adverse health consequences or death.
International Regulation
In order for us to market our products in other countries, we must obtain regulatory approvals and comply with extensive safety and quality
regulations in other countries. These regulations, including the requirements for approvals or clearance and the time required for regulatory review, vary
from country to country and can involve additional product testing and additional administrative review periods. The time required to obtain approval in
other countries may differ from that required to obtain FDA clearance or approval.
The primary regulatory environment in Europe is that of the European Union, which encompasses most of the major countries in Europe. The
European Union, along with other member countries of the European Economic Area, or EEA, requires that manufacturers of medical products obtain the
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 of adherence to
quality assurance standards and compliance with applicable directives. In order to obtain the right to affix the CE Mark to products, a manufacturer must
obtain certification that its processes meet certain quality standards. Compliance with the Medical Device Directive, as certified by a recognized European
Notified Body, permits the medical device manufacturer to affix the CE Mark on its products and commercially distribute those products throughout the
EEA. We are subject to annual surveillance audits and periodic re-certification audits in order to maintain our CE Mark permissions.
To be sold in Japan, most medical devices must undergo thorough safety examinations and demonstrate medical efficacy before they receive
regulatory (“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 clearance prior 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 we
currently have or are pursuing.
Anti-Kickback and False Claims Laws
We 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 providing remuneration,
directly or indirectly, in exchange for or to induce either the referral of an individual, or furnishing or arranging for a good or service, for which payment
may be made under a federal healthcare program such as the Medicare and Medicaid programs. The definition of “remuneration” has been broadly
interpreted to include anything of value, including for example, gifts, discounts, the furnishing of supplies or equipment, credit arrangements, payments of
cash and waivers of payments, and providing anything of value at less than fair market value. Penalties for violations include criminal penalties and civil
sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other federal healthcare programs. Federal false claims laws
prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or
causing to be made, a false statement to have a false claim paid. Recently, several healthcare companies have been prosecuted under these laws for
allegedly providing free product to customers with the expectation that the customers would bill federal 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 these state
prohibitions apply to healthcare items or services reimbursed by any source, not only the Medicare and Medicaid programs.
Transparency Laws
Under the Physician Payments Sunshine Act, or the Sunshine Act, which was enacted by Congress as part of the Patient Protection and Affordable
Care Act, we are required to track and report to the federal government on an annual basis, subject to certain exceptions, all payments and other transfers of
value to U.S. physicians and teaching hospitals, as well as ownership interests held by physicians. Such data are made available by the government on a
publicly searchable website. In addition, we are subject to similar state laws related to the tracking and reporting of certain payments and other transfers of
value to healthcare professionals.
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HIPAA and Other Privacy Laws
We are subject to laws and regulations protecting the privacy and integrity of patient medical information, including the Health Insurance Portability
and Accountability Act of 1996, or HIPAA, which imposes certain requirements relating to the privacy, security and transmission of individually
identifiable health information, and the applicable Privacy and Security Standards of HITECH, the Health Information Technology for Economic and
Clinical Health Act. HIPAA also prohibits executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare
matters.
In addition to federal regulations issued under HIPAA, some states and foreign countries have enacted privacy and security statutes or regulations that,
in some cases, are more stringent than those issued under HIPAA. For example, the General Data Protection Regulation (the “GDPR”), which is in effect
across the European Economic Area (the “EEA”), imposes several stringent requirements for controllers and processors of personal data and increased our
obligations, for example, by imposing higher standards when obtaining consent from individuals to process their personal data, requiring more robust
disclosures to individuals, strengthening individual data rights, shortening timelines for data breach notifications, limiting retention periods and secondary
use of information, increasing requirements pertaining to health data as well as pseudonymised data, and imposing additional obligations when we contract
third-party processors in connection with the processing of personal data. The GDPR provides that EU member states may make their own further laws and
regulations limiting the processing of genetic, biometric, or health data. Failure to comply with the requirements of the GDPR and the applicable national
data protection laws of the EU member states may result in fines of up to 4% of the total worldwide annual turnover of the preceding financial year and
other administrative penalties.
In addition, California recently passed the California Consumer Privacy Act (the “CCPA”), which is considered by many to be the most far-reaching
data privacy law introduced in the US to date and which introduces new compliance burdens on many organizations doing business in California who
collect Personal Information about California residents. The CCPA’s definition of Personal Information is very broad and specifically includes biometric
information. The CCPA took effect in 2020 and will allow for significant fines by the state attorney general, as well as a private right of action from
individuals in relation to certain security breaches. The enactment of the CCPA is prompting a wave of similar legislative developments in other US states
and creating the potential for a patchwork of overlapping but different state laws. Additionally, a new California ballot initiative, the California Privacy
Rights Act (the “CPRA”) recently passed in California. The CPRA will impose additional data protection obligations on companies doing business in
California. The majority of the provisions will go into effect on January 1, 2023, and additional compliance investment and potential business process
changes may be required.
As a result of any of the foregoing, it may be necessary to modify our operations and procedures to comply with the more stringent state and foreign
laws, which may entail significant and costly changes for us.
Certificate of Need Laws
In 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 items or
various types of advanced medical equipment, such as our robotic magnetic navigation system. Many of the states in which we sell robotic magnetic
navigation systems have laws that require institutions located in those states to obtain a certificate of need in connection with the purchase of our system,
and some of our purchase orders are conditioned upon our customer’s receipt of necessary certificate of need approval.
Human Capital
Given the highly competitive nature of the medical device industry, the future success of our company depends on our ability to attract, retain, and
further develop top talent. We value the diversity of each of our employees and the contributions they make in helping us achieve our mission to discover,
develop and deliver robotic systems, instruments, and information solutions for the interventional laboratory. We are committed to attracting, developing,
and retaining the best talent reflecting a diversity of ideas, backgrounds, and perspectives.
As of December 31, 2020, we had 120 employees, 35 of whom were engaged directly in research and development, 52 in sales and marketing
activities, 16 in manufacturing and service, and 17 in general administrative activities including finance, information systems, legal and general
management. A significant majority of our employees are not covered by a collective bargaining agreement, and we consider our relationship with our
employees to be positive. We also engage the services of independent contractors and consultants as needed for special or temporary projects or specific
expertise.
As of December 31, 2020, our employees were based in 9 different countries around the world. Our global workforce consists of diverse, highly skilled
talent at all levels.
Diversity, Equity & Inclusion
Diversity, equity and inclusion are integral parts of our culture. We strongly believe in a diverse workplace where all employees can thrive in an
inclusive environment free from discrimination, harassment, bias and prejudice. We strive to foster a culture where mutual respect, inclusive behavior, and
dignity are core to our individual expectations.
Our employees represent a broad range of backgrounds and bring a wide array of perspectives and experiences that have helped us achieve our global
leadership in innovative robotic technologies designed to enhance the treatment of arrhythmias and perform endovascular procedures.
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Health, Safety, and Wellness
Employee safety and well-being is of utmost importance to us and was of particular focus in 2020 due to the COVID-19 pandemic. In response to the
pandemic, we implemented significant changes that we determined were in the best interest of our employees, as well as the communities in which we
operate, in compliance with government regulations. This included having a significant portion of our employee base work from home, while implementing
additional safety measures for operation-critical development and manufacturing employees that worked on-site. In addition, despite the challenges and
disruptions inflicted by COVID-19, we continued to support patients and physicians that rely on our technology, while protecting our sales and service
employees, with the broad deployment of TeleRobotic support, leveraging proprietary connectivity technology to enable remote clinical and technical
support of robotic electrophysiology practices.
Compensation and Benefits
We strive to provide our employees with what we believe is a very competitive and comprehensive total rewards package of compensation, benefits
and services. In addition to base compensation, these packages, which vary by country and region, can include annual bonuses, sales commissions, 401(k)
and/or pension plans, healthcare and insurance benefits for employees and family members, health savings and flexible spending accounts, paid time off,
family leave, and flexible work schedules. In addition, we offer employees the benefit of equity ownership in the company through stock option grants
and/or restricted stock units. Eligible employees have the opportunity to participate in an employee stock purchase plan, which offers the opportunity to
purchase our common stock at a discount of 5%.
Training and Development
We recognize the importance of furthering education and development of our employees through the various stages of their careers. We are dedicated
to promoting individual, leader, team, and organizational development through a number of tools and services. We offer a variety of professional
development courses for our employees and support employee continuing education. In addition, our employees are required to complete compliance
training applicable to our industry. We also have an annual global performance review process for reviewing all employees’ performance and pay.
Availability of Information
We 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 soon as
reasonably practicable after they are filed with the SEC. 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 Officers
See Part III – Item 10 for information about our Executive Officers.
ITEM 1A. RISK FACTORS
The following uncertainties and factors, among others, could affect future performance and cause actual results to differ materially from those
expressed or implied by forward looking statements.
RISK FACTORS SUMMARY
Summary of Risks Related to Our Business and Busines Operations
● We may not generate cash from operations or be able to raise the necessary capital to continue operations.
● A pandemic, epidemic or outbreak of infectious disease could have an adverse effect our business, operating results or financial condition.
● 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.
● Hospital decision-makers may not purchase our Robotic Magnetic Navigation Systems or related products or may think that such systems and
products are too expensive.
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● 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 future sales
growth.
● We will likely experience long and variable sales and installation cycles, which could result in substantial fluctuations in our quarterly results of
operations.
● Physicians may not use our products if they do not believe they are safe, efficient and effective.
● Our collaborations with fluoroscopy system manufacturers and providers of catheters and electrophysiology mapping systems or other parties may
fail, or we may not be able to enter into additional collaborations in the future.
● The complexity associated with selling, marketing, and distributing products could impair our ability to increase revenue.
● Our marketing strategy is dependent on collaboration with physician “thought leaders.”
● Physicians may not commit enough time to sufficiently learn our system.
● Customers may choose to purchase competing products and not ours.
● If 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.
● The use of our products could result in product liability claims that could be expensive, divert management’s attention, and harm our reputation
and business.
● We have incurred substantial losses in the past and may not be profitable in the future.
● Our reliance on contract manufacturers and on suppliers, and in some cases, a single supplier, could harm our ability to meet demand for our
products in a timely manner or within budget.
● Risks associated with international manufacturing and trade could negatively impact the availability and cost of our products because materials
used to manufacture our magnets, one of our key system components, are sourced from overseas.
● We may encounter problems at our manufacturing facilities or those of our subcontractors or otherwise experience manufacturing delays that
could result in lost revenue.
● 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 our
products will be harmed.
Summary of Risks Relating to Technology and Intellectual Property Matters
● The rate of technological innovation of our products might not keep pace with the rest of the market.
● Security breaches and other disruptions to our information technology infrastructure could interfere with our operations, compromise confidential
information, and expose us to liability which could materially adversely impact our business and reputation.
● We may be unable to protect our technology from use by third parties.
● Third parties may assert that we are infringing their intellectual property rights.
● Expensive intellectual property litigation is frequent in the medical device industry.
● We may not be able to maintain all the licenses or rights from third parties necessary for the development, manufacture, or marketing of new and
existing products.
● Our products and related technologies can be applied in different medical applications, and we may fail to focus on the most profitable areas.
● We may be subject to damages resulting from claims that our employees or we have wrongfully used or disclosed alleged trade secrets of their
former employers.
● Software errors or other defects may be discovered in our products.
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Summary of Risks Relating to Regulatory and Legal Matters
● If we or the parties in our strategic collaborations fail to obtain or maintain necessary FDA clearances or approvals for our medical device
products, or if such clearances or approvals are delayed, we will be unable to continue to commercially distribute and market our products.
● If our strategic collaborations elect not to or we fail to obtain regulatory approvals in other countries for products under development, we will not
be able to commercialize these products in those countries.
● We 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.
● Our suppliers, subcontractors, or we may fail to comply with the FDA quality system regulation or other quality standards.
● If we fail to comply with health care regulations, we could face substantial penalties and our business, operations and financial condition could be
adversely affected.
● Healthcare policy changes, including the potential repeal or amendment of any existing legislation, may have a material adverse effect on us.
● The application of state certificate of need regulations and compliance by our customers with federal and state licensing or other international
requirements could substantially limit our ability to sell our products and grow our business.
● Hospitals or physicians may be unable to obtain reimbursement from third-party payors for procedures using our products, or reimbursement for
procedures may be insufficient to recoup the costs of purchasing our products.
● Our costs could substantially increase if we receive a significant number of warranty claims or have other significant, uninsured liabilities.
Summary of Risks Related to Our Common Stock
● Our principal stockholders continue to own a large percentage of our voting stock, and they have the ability to substantially influence matters
requiring stockholder approval.
● Future issuances of our securities could dilute current stockholders’ ownership.
● We have never paid dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future.
● Our certificate of incorporation and bylaws, Delaware law, and one of our collaboration agreements contain provisions that could discourage a
takeover.
● Evolving regulation of corporate governance and public disclosure may result in additional expenses and continuing uncertainty.
● Our future operating results may be below securities analysts’ or investors’ expectations, which could cause our stock price to decline.
● We expect that the price of our common stock could fluctuate substantially, possibly resulting in class action securities litigation.
● If we fail to continue to meet all applicable NYSE American Market requirements and the NYSE American determines to delist our common
stock, the delisting could adversely affect the market liquidity of our common stock, which would impair the value of your investment and
ultimately harm our business by limiting our access to equity markets for capital raising.
Summary of General Risk Factors
● General economic conditions could materially adversely impact us.
● We may lose key personnel or fail to attract and retain replacement or additional personnel.
● We may have to repay outstanding indebtedness.
● We face currency and other risks associated with international operations.
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Risks Related to Our Business and Business Operations
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 that we
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, among other
things:
● maintain customer and vendor relationships;
● hire, train and retain employees;
● maintain or expand our operations;
● enhance our existing products or develop new ones;
● respond to competitive pressures; or
● service our debt obligations and meet our financial covenants.
Our failure to do any of these things could result in lower revenue and adversely affect our financial condition and results of operations, and we may
have to curtail or cease operations.
A pandemic, epidemic or outbreak of infectious disease could have an adverse effect our business, operating results or financial condition.
The novel coronavirus COVID-19 (“COVID-19”) pandemic has resulted, and is likely to continue to result, in significant disruptions to the economy,
as well as business and capital markets around the world. The full extent of the impact of the COVID-19 pandemic on our business, results of operations
and financial condition will depend on numerous evolving factors that we may not be able to accurately predict.
As a result of the COVID-19 outbreak, we have experienced business disruptions, including travel restrictions on us and our third-party distributors,
which have negatively affected our complex sales, marketing, installation, distribution and service network relating to our products and services. The
COVID-19 pandemic may continue to negatively affect demand for both our systems and our disposable products by limiting the ability of our sales
personnel to maintain their customary contacts with customers as governmental authorities institute prolonged quarantines, travel restrictions, and shelter-
in-place orders, or as our customers impose limitations on contacts and in-person meetings that go beyond those imposed by governmental authorities.
In addition, many of our hospital customers, for whom the purchase of our system involves a significant capital purchase which may be part of a
larger construction project at the customer site (typically the construction of a new building), may themselves be under economic pressures. This may cause
delays or cancellations of current purchase orders and other commitments, and may exacerbate the long and variable sales and installation cycles for our
robotic magnetic navigation systems. We may also experience significant reductions in demand for our disposable products as our healthcare customers
(physicians and hospitals) continue to re-prioritize the treatment of patients and divert resources away from non-coronavirus areas, which we anticipate will
lead to the performance of fewer procedures in which our disposable products are used. In addition, patients may consider foregoing or deferring
procedures utilizing our products, even if physicians and hospitals are willing to perform them, which could also reduce demand for, and sales of, our
disposable products.
As of the date of the filing of this Annual Report on Form 10-K, we believe our manufacturing operations and supply chains have been minimally
interrupted, but we cannot guarantee that they will not be interrupted more severely in the future. If our manufacturing operations or supply chains are
materially interrupted, it may not be possible for us to timely manufacture relevant products at required levels, or at all. A material reduction or interruption
to any of our manufacturing processes would have a material adverse effect on our business, operating results, and financial condition.
As governmental authorities around the world continue to institute prolonged mandatory closures, social distancing protocols and shelter-in-place
orders, or as private parties on whom we rely to operate our business put in place their own protocols that go beyond those instituted by relevant
governmental authorities, our ability to adequately staff and maintain our operations or further our product development could be negatively impacted.
Any disruption to the capital markets could negatively impact our ability to raise capital. If the capital markets are disrupted for an extended period of
time and we need to raise additional capital, such capital may not be available on acceptable terms, or at all. Continued disruptions to the capital markets
and other financing sources could also negatively impact our hospital customers’ ability to raise capital or otherwise obtain financing to fund their
operations and capital projects. Such could result in delayed spending on current projects, a longer sales cycle for new projects where a large capital
commitment is required, and decreased demand for our disposable products as well as an increased risk of customer defaults or delays in payments for our
systems installation, service contracts and disposable products.
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We continue to evaluate and, where appropriate, take actions to reduce costs and spending across our organization. We will continue to actively
monitor the situation and may take further actions that alter our business operations that may be required by federal, state, or local governmental authorities
that may be implemented by our vendors, supplier or customers, or that we determine are in the best interests of our employees, customers, suppliers and
stockholders.
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 2021 operating expenses will exceed its 2021 gross
margin. The Company expects to continue to incur operating losses and negative cash flows until revenues reach a level sufficient to support ongoing
operations or expense reductions are in place. The Company’s liquidity needs will be largely determined by the success of clinical adoption within the
installed base of our robotic magnetic navigation system as well as by new placements of capital systems. The Company’s plans for improving the liquidity
conditions primarily 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 may impair our
ability to obtain new customers or hire and retain employees, any of which could force us to substantially revise our business plan or cease operations,
which may reduce or negate the value of your investment.
Hospital decision-makers may not purchase our Robotic Magnetic Navigation Systems or related products or may think that such systems and
products are too expensive.
To achieve and grow sales, hospitals must purchase our products, and in particular, our robotic magnetic navigation system. The robotic magnetic
navigation 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 or installation decision for the robotic magnetic navigation system based on the disposable interventional devices that have
received regulatory clearance or approval. Moreover, the robotic magnetic navigation system is an expensive piece of capital equipment, representing a
significant portion of the cost of a new or replacement interventional lab. Although priced significantly below a robotic magnetic navigation system, the
Odyssey Solution is still an expensive product. If hospitals 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 many systems 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 future
sales growth.
Our backlog, which consists of purchase orders and other commitments, is considered by some investors to be a significant indicator of future
performance. Consequently, negative changes to this backlog or its failure to grow commensurate with expectations could negatively impact our future
operating results or our share price. Our backlog includes those outstanding purchase orders and other commitments that management believes will result
in recognition of revenue upon delivery or installation of our systems. We cannot assure you that we will recognize revenue in any particular period or at all
because some of our purchase orders and other commitments are subject to contingencies that are outside our control. In addition, these orders 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 which are outside of
our control. Although the actual installation of our robotic magnetic navigation system requires only a few weeks, and can be accomplished by either our
staff or by subcontractors, successful installation of our system can be subjected to delays related to the overall construction or renovation process. If we
experience any failures or delays in completing the installation of these systems, our reputation would suffer and we may not be able to sell additional
systems. We have experienced situations in which our purchase orders and other commitments did not result in recognizing revenue from placement 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 a result of subsequent
project review by the institution or the departure from the institution of physicians or physician groups who have expressed an interest in purchasing our
products.
Decreases in our backlog have occurred in the past and could occur in the future, causing delays in revenue recognition or even removal of orders and
other commitments from our backlog. Such events would have a negative effect on our revenue and results of operations.
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We will likely experience long and variable sales and installation cycles, which could result in substantial fluctuations in our quarterly results of
operations.
We anticipate that our robotic magnetic navigation system will continue to have a lengthy sales cycle because it consists of a relatively expensive
piece of capital equipment, the purchase of which requires the approval of senior management at hospitals, inclusion in the hospitals’ interventional lab
budget process for capital expenditures, and, in some instances, a certificate of need from the state or other regulatory approval. In addition, historically the
majority of our products have been delivered less than one year after the receipt of a purchase order from a hospital, with the timing being dependent on the
construction cycle for the new or replacement interventional suite in which the equipment will be installed. In some cases, 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 purchase 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 our historical 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 future quarters our operating results could fall below the expectations of securities analysts or investors, in which
event our stock price would likely decrease.
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 our products provide a safe, effective and preferable alternative to
interventional methods in general use today. If longer-term patient studies or clinical experience indicate that treatment with 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 subject to significant liability. Further,
unsatisfactory patient outcomes or patient injury could cause negative publicity for our products, particularly in the early phases of product introduction. In
addition, physicians may be slow to adopt our products if they perceive liability risks arising from the use of these new products. It is also possible that as
our products become more widely used, latent defects could be identified, creating negative publicity and liability problems for us and adversely affecting
demand for our products. If physicians do not use our products, we likely will not become profitable or generate sufficient cash to continue as a going
concern.
Our collaborations with fluoroscopy system manufacturers and providers of catheters and electrophysiology mapping systems 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 fluoroscopy system manufacturers and providers of catheters and electrophysiology
mapping systems and other parties to make our instrument control technology compatible with their respective imaging products or disposable
interventional devices and to co-develop additional disposable interventional devices for use with our products. A significant portion of our revenue from
system sales is derived from these integrated products. The maintenance of these collaborations, or the establishment of equivalent alternatives, is critical to
our commercialization efforts.
There are no guarantees that any existing strategic relationships will continue and efforts are ongoing to ensure the availability of integrated next
generation systems and/or equivalent alternatives. We cannot provide assurance as to the timeline of the ongoing availability of such compatible systems or
our ability to obtain equivalent alternatives on competitive terms or at all.
Our product commercialization plans could be disrupted, leading to lower than expected revenue and a material and adverse impact on our results 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 disposable interventional
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 robotic magnetic navigation 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 in
commercializing our products. Accordingly, our collaborators may not devote adequate resources to our products, or may experience financial difficulties,
change their business strategy or undergo a business combination that may affect their willingness or ability to fulfill their obligations to us.
The failure of one or more of our collaborations could have a material adverse effect on our financial condition, results of operations and cash flow. In
addition, if we are unable to enter into additional collaborations in the future, or if these collaborations fail, our ability to develop and commercialize
products could be impacted negatively and our revenue could be adversely affected.
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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 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. If we are
unable to effectively utilize our existing sales force or increase our existing sales force in the foreseeable future, we may be unable to generate the revenue
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 our products; 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 and
profitability would be adversely affected.
Our 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, and
collaboration from highly regarded physicians at leading commercial and research hospitals, particularly in the U.S. and Europe. If we are unable to gain
and/or maintain such support, training services, and collaboration or if the reputation or standing of these physicians is impaired or otherwise adversely
affected, our ability to market our products and, as a result, our financial condition, results of operations and cash flow could be materially and adversely
affected.
Physicians may not commit enough time to sufficiently learn our system.
In order for physicians to learn to use the robotic magnetic navigation system, they must attend structured training sessions in order to familiarize
themselves with a sophisticated user interface and they must be committed to learning the technology. Further, physicians must utilize the technology on a
regular basis to ensure they maintain the skill set necessary to use the interface. Continued market acceptance could be delayed by lack of physician
willingness to attend training sessions, by the time required to complete this training, or by state or institutional restrictions on our ability to provide
training. An inability to train a sufficient number of physicians to generate adequate demand for our products could have a material adverse impact on our
financial condition 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 long
history of use and do not require the purchase of an additional expensive piece of capital equipment. In addition, many of the medical conditions that can be
treated using our products can also be treated with pharmaceuticals or other medical devices and procedures. Many of these alternative treatments are also
widely accepted in the medical community and have a long history of use.
We also face competition from companies that are developing robotic technologies for electrophysiology and non-electrophysiology interventional
procedures. We are aware of three companies that commercialized endovascular catheter navigation systems which have been cleared by the FDA for
electrophysiology procedures as well as two companies with electromagnetic catheter navigation systems that received CE Mark approval in Europe. None
of these companies seem to be active with any current commercial activities. Outside of electrophysiology, there are at least two companies that have
commercialized robotic systems for guidewire manipulation and can be viewed as potential competitors as we look to address additional clinical
applications.
We face competition from companies that are developing drugs, gene or cellular therapies or other medical devices or procedures to treat the
conditions for which our products are intended. The medical device and pharmaceutical industries make significant investments in research and
development, and innovation is rapid and continuous. Other companies in the medical device industry continue to develop new devices and technologies
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 could render
our products obsolete or unmarketable. In addition, the presence of other competitors may cause potential customers to delay their purchasing decisions,
resulting in a longer than expected sales cycle, even if they do not choose our competitors’ products. We cannot be certain that physicians will use our
products to replace or supplement established treatments or that our products will be competitive with current or future products and technologies.
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 competitors could enter the
market. We cannot assure you that we will be able to compete successfully against existing or new competitors. Our revenue would be reduced or
eliminated if our competitors develop and market products that are more effective and less expensive than our products.
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If 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 robotic magnetic navigation 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 our system interferes with such equipment, we may be required to install additional shielding, which may be expensive and which may not
solve the problem. If magnetic interference becomes a significant issue at targeted institutions, it would increase our installation costs at those institutions
and could limit the number of hospitals that would be willing to purchase and install our systems, either of which would adversely affect our financial
condition, 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 reputation
and business.
Our business exposes us to significant risks of product liability claims. The medical device industry has historically been litigious, and we could face
product liability claims if the use of our products were to cause injury or death. The coverage limits of our product liability insurance policies may not be
adequate to cover future claims, and we may be unable to maintain product liability insurance in the future at satisfactory rates or adequate amounts. A
product liability claim, regardless of its merit or eventual outcome, could divert management’s attention, and result in significant legal defense costs,
significant harm to our reputation and a decline in revenue.
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 the future as we continue the commercialization of our
products. We are still in the process of realizing the full potential of the commercialization of our technology, and will need to continue to make
improvements to that technology. Moreover, the extent of our future losses and the timing of profitability are highly uncertain. Although we have achieved
operating profitability during certain quarters, we may not achieve profitable operations on an annual basis, and if we achieve profitable operations, we
may not sustain or increase profitability on a quarterly or annual basis. If we require more time than we expect to generate significant revenue and achieve
annual profitability, or if we are unable to sustain profitability once achieved, we may not be able to continue our operations. Our failure to achieve annual
profitability or sustain profitability on an annual or quarterly basis could negatively impact the market price of our common stock. Furthermore, even if we
achieve significant revenue, we may choose to pursue a strategy of increasing market penetration and presence or expand or accelerate new product
development or clinical research activities at the expense of profitability.
Our reliance on contract manufacturers and on suppliers, and in some cases, a single supplier, could harm our ability to meet demand for our
products 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 our
electrophysiology catheter advancement device and other disposable devices. We also depend on various third party suppliers for the magnets we use in our
robotic magnetic navigation system and certain components of our Odyssey Solution. In addition, some of the components necessary for the assembly of
our products are currently provided to us by a single supplier, including the magnets for our robotic magnetic navigation system and certain components of
our Odyssey Solution, and we generally do not maintain large volumes of inventory. Our reliance on these third parties involves a number 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 of our
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 timely manner
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 and
assemble fully configured systems based on sales forecasts. If orders do not match forecasts, we, as well as our contract manufacturers, may have excess or
inadequate 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, we may
not be able to identify alternate sources in a timely fashion. Any transition to alternate manufacturers or suppliers would likely result in operational
problems and increased expenses and could delay the shipment of or limit our ability to provide our products. We cannot assure you that we would be able
to enter into agreements with new manufacturers or suppliers on commercially reasonable terms or at all. Additionally, obtaining components from a new
supplier may require a new or supplemental filing with applicable regulatory authorities and clearance or approval of the filing before 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 robotic magnetic
navigation system. If these parties cannot manufacture sufficient quantities of disposable interventional devices to meet customer demand, or if their
manufacturing processes are disrupted, our revenue and profitability would be adversely affected.
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Risks associated with international manufacturing and trade could negatively impact the availability and cost of our products because materials
used to manufacture our magnets, one of our key system components, are sourced from overseas.
We purchase the permanent magnets for our robotic magnetic system from a manufacturer that uses material produced in Japan, and we anticipate that
a certain amount of the production work for these magnets will be performed for this manufacturer in China. Given the complex relationships between
China and the U.S., political, diplomatic, military, or other events could result in business disruptions, including increased regulatory enforcement against
companies, tariffs, trade embargoes, and export restrictions relating to this production work. For example, in 2020, the U.S. government amended the Entity
List rules to expand the requirement to obtain a license prior to the export of certain technologies. In addition, in 2020, a new U.S. regulation seeks to
prohibit the U.S. government from contracting with companies who use the products or services of certain Chinese companies. While we believe do not
that these regulations materially impact our business at this time, we cannot predict the impact that additional regulatory changes may have on our business
in the future, which could adversely affect our business operations in China, or may otherwise limit our ability to offer our products and services in China
and other parts of the world. In addition, our subcontractor may purchase magnets for our disposable interventional devices directly from a manufacturer in
Japan. The relationships with these manufacturers and suppliers are generally on a purchase order basis and do not provide a contractual obligation to
provide adequate supply or acceptable pricing on a long-term basis. These vendors could discontinue sourcing or supplying these magnets at any time. If
any of our significant vendors were to discontinue their relationship with us or with our subcontractor, or if the factories were to suffer a disruption in their
production, we may be unable to replace the vendors in a timely manner, which could result in short-term disruption to our supply of magnets as we
transition our orders to new vendors or factories which could, in turn, cause a significant increase in price or a disruption of imports, including the
imposition of import restrictions, could adversely affect our business, financial condition and results of operations. The flow of components from our
vendors could also be adversely affected by financial or political instability or travel restrictions or bans in any of the countries in which the goods we
purchase are manufactured, if the instability or restriction affects the production or export of product components from those countries. Trade restrictions in
the form of tariffs or quotas, or both, could also affect the importation of those product components and could increase the cost and reduce the supply of
products available to us. For example, the previous administration implemented, or was considering the imposition of, tariffs on certain foreign goods, and
we cannot predict the ongoing status of tariffs or any further potential legislation or actions taken by the U.S. federal government that restrict trade, such as
additional tariffs, trade barriers, and other protectionist or retaliatory measures taken by governments in Europe, Asia, and other countries, could adversely
impact our ability to sell products and services, which could increase the cost of our products and the components and raw materials that go into making
them. Countries may also adopt other protectionist measures that could limit our ability to offer our products and services. In addition, decreases in the
value of the U.S. dollar against foreign currencies, or significant price increase from these suppliers, 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 that
could result in lost revenue.
We subcontract all or part of the manufacture and assembly of components of our products and devices. The products we design may not satisfy all of
the performance requirements of our customers and we may need to improve or modify the design or ask our subcontractors to modify their production
process in order to do so. In addition we, or our subcontractors, may experience quality problems, substantial costs and unexpected delays related to efforts
to upgrade and expand manufacturing, assembly and testing capabilities. If we incur delays due to quality problems or other unexpected events, our
revenue may be impacted.
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 our
products will be harmed.
Our business plan contemplates a period of substantial growth and business activity. This growth and activity will likely result in new and increased
responsibilities for management personnel and place significant strain upon our operating and financial systems and resources. To accommodate our growth
and compete effectively, we will be required to improve our information systems, create additional procedures and controls and expand, train, motivate and
manage our work force. We cannot be certain that our personnel, systems, procedures, and controls will be adequate to support our future operations. Any
failure to effectively manage our growth could impede our ability to successfully develop, market, and sell our products.
Risks Relating to Technology and Intellectual Property Matters
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 other products
and technologies are developed that compete with, or may compete with, our products, it could be difficult for us to maintain our advantages associated
with being an early developer of this technology. Likewise, the innovation and development cycle of competitors may impact our research and
development efforts and ultimately, commercial adoption of viable research and development efforts. In addition, connectivity with other devices in the
electrophysiology lab is a key driver of value. If the Company is not able to continue to commit sufficient resources to ensure that its products are
compatible with other products within the electrophysiology lab, this could have a negative impact on revenue.
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Security breaches and other disruptions to our information technology infrastructure could interfere with our operations, compromise
confidential 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; compromise information
belonging to us, our employees, customers, and suppliers; and expose us to liability which could adversely impact our business and reputation. In the
ordinary course of business, we rely on information technology networks and systems, some of which are managed by third parties, to process, transmit,
and store electronic information, and to manage or support a variety of business processes and activities. Additionally, we collect and store certain data,
including proprietary business information and customer and employee data, and may have access to confidential or personal information in certain of our
businesses that is subject to privacy and security laws, regulations, and customer-imposed controls. Despite our cyber security measures (including
employee and third-party training, use of user names and passwords for access to information technology systems, monitoring of networks and systems,
and maintenance of backup and protective systems) 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 or utility failures, systems failures, natural disasters, or other catastrophic events. We have programs in place
to detect, contain, and respond to data security incidents, and we continually make improvements to our networks and systems in order to minimize or
eliminate vulnerabilities. However, because the techniques used to exploit systems change frequently and can be difficult to detect, we may not be able to
prevent these intrusions or mitigate them when and if they occur. Additionally, we rely on some information technology networks and systems managed by
third parties, and we rely on these third parties to deploy appropriate measures to protect their systems and networks. Vulnerabilities in their systems could
compromise the security of our own infrastructure. Any such events could result in legal claims or proceedings, liability or penalties under privacy laws,
disruption in operations, and damage to our reputation, which could materially adversely affect our business. While we have experienced, and expect to
continue to experience, these types of threats to our information technology networks and infrastructure, to date none of 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 our
products and on successfully defending these rights against third party challenges. The patent positions of medical device companies, including ours, can
be highly uncertain and involve complex and evolving legal and factual questions. We cannot assure you that we will obtain the patent protection we seek,
that any protection we do obtain will be found valid and enforceable if challenged or that it will confer any significant commercial advantage. U.S. patents
and patent applications may also be subject to interference proceedings and U.S. patents may be subject to re-examination proceedings in the U.S. Patent
and Trademark Office, and foreign patents may be subject to opposition or comparable proceedings in the corresponding foreign patent office, which
proceedings could result in either loss of the patent, 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 provide any protection against competitors. Our pending patent applications, those we may file in the future, or those we may
license from third parties may not result 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 our intellectual
property. Outside the U.S., we rely on third-party payment services for the payment of foreign patent annuities and other fees. Non-payment or delay in
payment of such fees, whether intentional or unintentional, may result in loss of patents or patent rights important to our business. Many countries,
including certain countries in Europe, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties (for
example, the patent owner has failed to “work” the invention in that country, or the third party has patented improvements). In addition, many countries
limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies,
which could materially diminish the value of the patent. We also cannot assure you that we will be able to develop additional patentable technologies. If we
fail to obtain adequate patent protection for our technology, or if any protection we obtain becomes limited or 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 possibly
inadequate protection of our rights. As a result, third parties may be able to use our unpatented technology, and our ability to compete in the market would
be reduced. In addition, employees, consultants and others who participate in developing our products or in commercial relationships with us may 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 and products
without infringing any of our patent or other intellectual property rights, or may design around our proprietary technologies. Our competitors may 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 in the field of medical
products and procedures.
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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 our
products, including those that we have developed in conjunction with third parties, infringes existing patents. We may also be liable for patent infringement
by third parties whose products we use or combine with our own and for which we have no right to indemnification. In addition, because patent
applications are maintained under conditions of confidentiality and can take many years to issue, there may be applications now pending of which we are
unaware and which may later result in issued patents that our products infringe. Determining whether a product infringes a patent involves complex legal
and factual issues and may not become clear until finally determined by a court in litigation. Our competitors may assert that our products infringe patents
held by them. Moreover, as the number of competitors in our market grows the possibility of a patent infringement claim against us increases. If we were
unsuccessful in obtaining a license or redesigning our products, we could be subject to litigation. If we lose in this kind of litigation, a court could require
us to pay substantial damages or prohibit us from using technologies essential to our products covered by third-party patents. An inability to use
technologies essential to our products would have a material adverse effect on our financial condition, results of operations and 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 be expensive 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 a material 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 and
existing products.
As we develop additional products and improve or maintain existing products, we may find it advisable or necessary to seek licenses or otherwise
make payments in exchange for rights from third parties who hold patents covering certain technology. If we cannot obtain or maintain the desired licenses
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 new directions and
markets would be adversely affected.
Our products and related technologies can be applied in different medical applications, and we may fail to focus on the most profitable areas.
The robotic magnetic navigation 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. However, we have limited financial and managerial resources and, therefore, may be
required to focus on products in selected industries and sites and to forego efforts with regard to other products and industries. Our decisions may not
produce viable commercial products and may divert our resources from more profitable market opportunities. Moreover, we may devote resources to
developing products in these additional areas but may be unable to justify the value proposition or otherwise develop a commercial market for products we
develop in these areas, if any. In that case, the return on investment in these additional 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 their
former employers.
Many of our employees were previously employed at hospitals, universities or other medical device companies, including our competitors or potential
competitors. We could, in the future, be subject to claims that these employees or we have used or disclosed trade secrets or other proprietary information
of their former employers. Litigation may be necessary to defend against these claims. If we fail in defending such claims, in addition to paying monetary
damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against these claims, litigation could result
in substantial costs and be a distraction to management. Incurring such costs could have a material adverse effect on our financial condition, results of
operations and cash flow.
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, especially
when first introduced. Because our products are designed to be used to perform complex interventional procedures, we expect that physicians and hospitals
will have an increased sensitivity to the potential for software defects. We cannot assure you that our software or other components will not experience
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;
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● damage to our reputation;
● additional regulatory filings;
● product recalls;
● increased service or warranty costs; and/or
● product liability claims relating to the software defects.
Risks Related to Regulatory and Legal Matters
If we or the parties in our strategic collaborations fail to obtain or maintain necessary FDA clearances or approvals for our medical device
products, 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 medical
device 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 more costly, 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 significantly on revenue from new
disposable interventional devices, some of which may not achieve FDA clearance or approval. We cannot assure you that any of our devices will not be
required to undergo the lengthier and more burdensome PMA process. We cannot commercially market any disposable interventional devices in the U.S.
until the necessary clearances or approvals from the FDA have been received. In addition, we are working with third parties to co-develop disposable
products. In some cases, these companies are responsible for obtaining appropriate regulatory clearance or approval to market these disposable devices. If
these clearances or approvals are not received or are substantially delayed or if we are not able to offer a sufficient array of approved disposable
interventional devices, we may not be able to successfully market our system to as many institutions as we currently expect, 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 and
significant costs for us and consume management’s time and other resources. The FDA could ask us to supplement our submissions, collect non-clinical
data, conduct clinical trials or engage in other time-consuming actions, or it could simply deny our applications. In addition, even if we obtain a 510(k)
clearance, de novo approvals, or PMA or PMA supplement approval, the clearance or approval could be revoked or other restrictions imposed if post-
market data demonstrates safety issues or lack of effectiveness. We cannot predict with certainty how, or when, the FDA will act on our marketing
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 will not
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 numerous and
varying regulatory requirements of other countries regarding safety and efficacy. Approval procedures vary among countries and can involve additional
product testing and additional administrative review periods. The time required to obtain approval in other countries might differ from that required to
obtain FDA approval. The regulatory approval process in other countries may include all of the risks detailed above regarding FDA approval in the U.S.
Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country
may negatively impact the regulatory process in others. Failure to obtain regulatory approval in other countries or any delay or setback in obtaining such
approval could have the same adverse effects described above regarding FDA approval in the U.S. In addition, we may rely on our distributors and
strategic collaborations, in some instances, to assist us in this regulatory approval process in countries outside the U.S. and Europe, for example, in Japan.
We 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’s Quality
System Regulation, or QSR, requirements, labeling and promotional requirements and medical device adverse event and other reporting requirements. Any
failure to comply with continuing regulation by the FDA or other authorities could result in enforcement action that may include suspension or withdrawal
of regulatory approvals, recalling products, ceasing product manufacture and/or marketing, seizure and detention of products, paying significant fines and
penalties, criminal prosecution and similar actions that could limit product sales, delay product shipment and harm our profitability. Congress could amend
the FD&C Act, and the FDA could modify its regulations promulgated under this law or its policies in a way to make ongoing regulatory compliance more
burdensome and difficult.
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Additionally, any modification to a FDA 510(k) cleared or de novo-approved device that could significantly affect its safety or effectiveness, or that
would constitute a major change in its intended use, requires a new 510(k) clearance. Modifications to a PMA approved device or its labeling may require
either a new PMA or PMA supplement approval, which could be a costly and lengthy process. In addition, if we are unable to obtain approval for key
applications, we may face product market adoption barriers that we cannot overcome. In the future, we may modify our products after they have received
clearance or approval, and we may determine that new clearance or approval is unnecessary. We cannot assure you that the FDA would agree with 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 we determined to not
require clearance or approval in the first instance, we could be subject to enforcement sanctions and we also may be required to cease marketing or recall
the modified product until we obtain FDA clearance or approval which could also limit product sales, delay product shipment and harm 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 similar to those of the
FDA or other U.S. regulations. In addition, in many countries the national health or social security organizations require our products to be qualified before
procedures performed using our products become eligible for reimbursement. Failure to receive, or delays in the receipt of, relevant foreign qualifications
could have a material adverse effect on our business, financial condition and results of operations. Due to the movement toward harmonization of standards
in Europe, we expect a changing regulatory environment characterized by a shift from a country-by-country regulatory system to a Europe-wide single
regulatory system. We cannot predict the timing of this harmonization and its effect on us. Adapting our business to changing regulatory systems could
have a material adverse effect on our business, financial condition, and results of operations. If we fail to comply with applicable foreign regulatory
requirements, we may be subject to fines, suspension, or withdrawal of regulatory 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 foreign
countries. 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 reputation in
the market. From time to time, we may face audits or investigations by one or more government agencies, compliance with which could be costly and time-
consuming, and could divert our management and key personnel from our business operations. An adverse outcome under any such investigation or audit
could subject us to fines or other penalties, which could adversely affect our business and financial results.
Our 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 you that we
or our suppliers or subcontractors would pass such an inspection. The European Union recently adopted new EN ISO 13485:2016 standards, and we have
been certified to these standards. If we or our suppliers or subcontractors fail to comply with the FDA regulation or EN ISO 13485:2016 standards, we or
they may be required to cease all or part of our operations for some period of time until we or they can 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 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/or criminal prosecution. We cannot be certain that
our facilities or those of our suppliers or subcontractors will comply with the FDA or EN ISO 13485:2016 standards in future audits by regulatory
authorities. Failure to pass such an inspection could force a shutdown of manufacturing operations, 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 and quality standards and will not encounter any manufacturing difficulties.
Any failure to comply with the FDA’s QSR or EN ISO 13485:2016, by us or our suppliers, could significantly harm our available inventory and product
sales. Further, any failure to comply with FDA’s QSR, by us or our suppliers, could result in the FDA refusing requests for and/or delays in 510(k)
clearance, de novo approval, or PMA approval of new products.
If we fail to comply with health care regulations, we could face substantial penalties and our business, operations and financial condition could be
adversely 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 laws and
regulations apply to our business. We are subject to health care fraud and patient privacy regulation by the federal government, the states in which we
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 providing
remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service or the purchasing or ordering of a good or
service, for which payment may be made under federal health care programs such as the Medicare and Medicaid programs;
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● 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 like us 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 any health care
benefit program or making false statements relating to health care matters and which also imposes certain requirements relating to the privacy,
security and transmission of individually identifiable health information; and the applicable Privacy and Security Standards of HITECH, the
Health Information Technology for Economic and Clinical Health Act, which is Title XIII of the American Recovery and Reinvestment 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 services
reimbursed by any third-party payor, including commercial insurers, and state laws governing the privacy of health information in certain
circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance
efforts, including the California Consumer Privacy Act, or CCPA, which is introduces new and far-reaching law data privacy compliance burdens
on many organizations doing business in California who collect personal information about California residents;
● the General Data Protection Regulation, or GDPR, which imposes requirements for controllers and processors of personal data and is in effect
across the European Economic Area, or EEA, such as imposing higher standards when obtaining consent from individuals to process their
personal data, requiring more robust disclosures to individuals, strengthening individual data rights, shortening timelines for data breach
notifications, limiting retention periods and secondary use of information, increasing requirements pertaining to health data as well as
pseudonymised data, and imposing additional obligations when we contract third-party processors in connection with the processing of personal
data;
● federal self-referral laws, such as the Stark Anti-Referral Law, which prohibits a physician from making a referral to a provider of certain health
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 or transfers
of value to physicians and teaching hospitals, as well as investment interests held by physicians and their immediate family members; and
● regulations pertaining to receipt of CE mark for our products marketed outside of the United States and submission to periodic regulatory audits 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 state
government 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 being
found 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 achieve compliance with
applicable federal and state privacy, security, and electronic transaction laws, we may be required to modify our operations with respect to the handling of
patient information. Implementing these modifications may prove costly. At this time, we are not able to determine the full consequences to us, including
the total cost of compliance, of these various federal and state laws.
Healthcare policy changes, including the potential repeal or amendment of any existing legislation, may have a material 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 federal administration,
members of Congress, state governments, regulators and third-party payors to control these costs and, more generally, to reform the U.S. healthcare system.
Decisions by both the federal and state governments on funding priorities for various healthcare programs impact the finances of our customers on an
ongoing and recurring basis. Such decisions may impact purchasing decisions of a customer.
Changes to, or repeal of, the 2010 Patient Protection and Affordable Care Act (PPACA), which different administrations and certain members of
Congress have affirmatively indicated that they will pursue, could materially and adversely affect our business and financial position, and results of
operations. Even if the PPACA is not amended or repealed, the administration could propose changes impacting implementation of the PPACA, which
could materially and adversely affect our financial position or operations. However, we cannot currently predict the content, timing or impact that any such
future legislation will have on our business.
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The application of state certificate of need regulations and compliance by our customers with federal and state licensing or other international
requirements 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 capital
items such as our products. In many cases, a limited number of these certificates are available. As a result of this limited availability, hospitals and other
health care providers may be unable to obtain a certificate of need for the purchase of our systems. Further, the sales and installation cycle of our robotic
magnetic navigation systems may be longer in certificate of need states due to the time it takes our customers to obtain the required approvals. In addition,
our customers must meet various federal and state regulatory and/or accreditation requirements in order to receive payments from government-sponsored
health care programs such as Medicare and Medicaid, receive full reimbursement from third party payors, and maintain their customers. Our international
customers may be required to meet similar or other requirements. Any lapse by our customers in maintaining appropriate licensure, certification or
accreditation, or the failure of our customers to satisfy the other necessary requirements under government-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 our products, or reimbursement 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 and private
insurance plans, for procedures performed with our products, including the costs of the disposable interventional devices used in these procedures. If, in the
future, our disposable interventional devices do not fall within U.S. reimbursement categories and our procedures are not reimbursed, or if the
reimbursement is insufficient to cover the costs of purchasing our system and related disposable interventional devices, the adoption of our systems and
products would be significantly slowed or halted, and we may be unable to generate sufficient sales to support our business. Our success in international
markets also depends upon the eligibility of our products for reimbursement through government-sponsored health care payment systems and third-party
payors. In both the U.S. and foreign markets, health care cost-containment efforts are prevalent and are expected to continue. These efforts could reduce
levels of reimbursement available for procedures involving our products and, therefore, reduce overall demand for our products as well. A failure to
generate sufficient sales could have a material adverse impact on our financial condition, results of operations and cash flow.
Our costs could substantially increase if we receive a significant number of warranty claims or have other significant, uninsured liabilities.
We generally warrant each of our products against defects in materials and workmanship for a period of 12 months following the installation of our
system. If product returns or warranty claims increase, we could incur unanticipated additional expenditures for parts and service. In addition, our
reputation and goodwill in the interventional lab market could be damaged. Unforeseen warranty exposure in excess of our established reserves for
liabilities associated with product warranties could materially and adversely affect our financial condition, results of operations and cash flow.
Moreover, for certain risks, we do not maintain insurance coverage because of cost and/or availability. In addition, in the future, we may not continue
to maintain certain existing insurance coverage or adequate levels of coverage. Premiums for many types of insurance have increased significantly in recent
years and, depending on market conditions and our circumstances, in the future, certain types of insurance, such as directors’ and officers’ insurance, may
not be available on acceptable terms or at all. Because we retain some portion of our insurable risks and, in some cases, we are entirely self-insured,
unforeseen or catastrophic losses in excess of insurance coverage could require us to pay substantial amounts, which may have a material adverse impact
on our business, financial condition, results of operations, or cash flows.
Risks Related to Our Common Stock
Our principal stockholders continue to own a large percentage of our voting stock, and they have the ability to substantially influence matters
requiring stockholder approval.
Certain of our directors and individuals or entities affiliated with them as well as other principal stockholders beneficially own or control a substantial
percentage of the outstanding shares of our common stock. Accordingly, these stockholders acting as a group, will have substantial influence over the
outcome of corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all
of our assets or any other significant corporate transaction. These stockholders may also delay or prevent a change of control, even if such a change of
control would benefit our other stockholders. This significant concentration of stock ownership may adversely affect the trading price of our common stock
due to investors’ perception that conflicts of interest may exist or arise.
Future issuances of our securities could dilute current stockholders’ ownership.
As of December 31, 2020, we had 5.6 million shares of our common stock issuable upon conversion of our Series B Convertible Preferred Stock and
43.5 million shares of our common stock issuable upon conversion of our Series A Convertible Preferred Stock. Our Series A Convertible Preferred Stock
bears 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 stated value. Such
dividends will not be paid in cash, except in connection with any liquidation, dissolution or winding up of the Company or any redemption of the Series A
Convertible Preferred Stock. Instead, the value of the accrued dividends is added to the liquidation preference of the Series A Convertible Preferred Stock
and will increase the number of shares of common stock issuable upon conversion, which will dilute the ownership of our common stockholders.
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In addition, a significant number of shares of our common stock are subject to warrants, stock options and stock appreciation rights, and we may
request the ability to issue additional such securities. We may also decide to raise additional funds through public or private debt or equity financing to fund
our operations. While we cannot predict the effect, if any, that future exercises of warrants or future sales of debt, our common stock, other equity 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 the exercise of warrants, stock
options, stock appreciation rights or the conversion of any convertible securities outstanding now or in the future, including the Series A and Series B
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 Stock 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 may be made to
holders of common stock unless and until the holders of the Series A Convertible Preferred Shares have received the stated value of $1,000 per share plus
any accrued and unpaid dividends. Until all Series A Convertible Preferred Shares have been converted or redeemed, no dividends may be paid on the
common stock without the express written consent of the holders of a majority of the outstanding Series A Convertible Preferred Shares. In the event that
dividends or other distributions of assets are made or paid by the Company to the holders of the common stock, the holders of Series A Convertible
Preferred Shares are 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 common 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 common stock to date and we currently intend to retain our future earnings to fund the
development and growth of our business. 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 a
takeover.
Our certificate of incorporation and bylaws and Delaware law contain provisions that might enable our management to resist a takeover. These
provisions 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 negatively affect our
share price as described above under “Business-Strategic Relationships”.
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 SEC regulations such as the Dodd-Frank
Wall Street Reform and Consumer Protection Act have in the past created uncertainty for public companies. We continue to evaluate and monitor
developments with respect to new and proposed rules and cannot predict or estimate the amount of the additional compliance costs we may incur or the
timing of such costs. These new or changed laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of
specificity, and as a result, their application in practice may evolve over time as new guidance is provided by courts and regulatory and governing bodies.
This could result in uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
Maintaining appropriate standards of corporate governance and public disclosure may result in increased general and administrative expense and a
diversion of management time and attention from revenue-generating activities to compliance activities. In addition, if we fail to comply with new or
changed laws, regulations and standards, regulatory authorities may initiate legal proceedings against us and our business and reputation may be harmed.
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Our 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 or
grow at the rate expected by securities analysts or investors. In addition, our costs may be higher than we, securities analysts, or investors expect. If we fail
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 price to
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 and
electrophysiology mapping systems;
● our ability to develop, introduce and market integrated next generation systems and/or alternatives to our current strategic relationships with
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 operating results
may be below the expectations of securities analysts or investors. If this occurs the price of our common stock will likely decline.
We expect that the price of our common stock could fluctuate substantially, possibly resulting in class action securities litigation.
While our common stock is traded on the NYSE American Market, trading volume may be limited or sporadic. The market price of our common
stock has experienced, and may continue to experience, substantial volatility. During 2020, our common stock traded between $1.70 and $5.58 per share,
on trading volume ranging from approximately 51,300 to 5.6 million shares per day. The market price of our common stock will be affected by a number of
factors, 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 our common
stock. As with the stock of many other public companies, the market price of our common stock has been particularly volatile during the recent period of
upheaval in the capital markets and world economy. This excessive volatility may continue for an extended period of time following the filing date of this
report. Furthermore, the stock prices of many companies in the medical device industry have experienced wide fluctuations that have often been unrelated
to the operating performance of these companies. Volatility in the price of our common stock on the NYSE American Market may depress the trading price
of our common stock, which could, among other things, allow a potential acquirer of the Company to purchase a significant amount of our common stock
at low prices. In addition, the volatility of our stock price could lead to class action securities litigation being filed against us, which could result in
substantial costs and a diversion of our management resources, which could significantly harm our business.
If we fail to continue to meet all applicable NYSE American Market requirements and the NYSE American determines to delist our common
stock, the delisting could adversely affect the market liquidity of our common stock, which would impair the value of your investment and
ultimately harm our business by limiting our access to equity markets for capital raising.
Our common stock is currently listed on the NYSE American Market. We currently meet the continued listing standards of NYSE American.
However, we cannot guarantee that we will be able to continue to comply with the required standards in order to maintain a listing of our common stock on
the NYSE American. If we fail to continue to meet all applicable NYSE American requirements in the future and the NYSE American determines to delist
our common stock, the delisting could adversely affect the market liquidity of our common stock, which would adversely affect our ability to obtain
financing for the continuation of our operations, as a result, harming our business. This delisting could also impair the value of your investment.
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General Risk Factors
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. Uncertainty about
current global economic conditions and future global economic conditions may cause customers to delay purchasing or installation decisions or cancel
existing orders. The robotic magnetic navigation systems and Odyssey Solution are typically purchased as part of a larger overall capital project and an
economic downturn or the lack of a robust recovery might make it more difficult for our customers, including distributors, to obtain adequate financing to
support the project or to obtain requisite approvals. Any delay in purchasing decisions or cancellation of purchasing commitments may result in a decrease
in our revenues. A credit crisis could further affect our business if key suppliers are unable to obtain financing to manufacture our products or become
insolvent and we are unable to manufacture product to meet customer demand. If the United States and global economy becomes sluggish or deteriorates
for a longer period than we anticipate, we may experience a material negative decrease on the demand for our products which may, in turn, have a material
adverse effect on our revenue, profitability, financial condition, ability to raise additional capital and the market price of our stock.
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 qualified
personnel will be critical to our success, and competition for qualified personnel is intense. We may not be able to attract and retain personnel on acceptable
terms given the competition for qualified personnel among technology and healthcare companies and universities. The loss of personnel or our inability to
attract and retain other qualified personnel could harm our business and our ability to compete. In addition, the loss of members of our scientific staff may
significantly delay or prevent product development and other business objectives. A loss of key sales personnel could result in a reduction of revenue. In
addition, if we outsource certain employee functions that were formerly handled in-house, our personnel costs could increase.
We may have to repay outstanding indebtedness.
We borrowed approximately $2.2 million through the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act
(“CARES Act”), and our current borrowing agreement with our lender is not accompanied by any loan covenants. Although the Company believes it has
met the guidelines for the loan to be forgiven, there can be no assurance that the Small Business Association will grant such forgiveness. To the extent it is
not forgiven, the Company would be required to repay that portion of the loan beginning in August 2021 with a final installment in April 2022.
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 to numerous
risks associated with international operations, which could adversely affect our results of operations and financial condition, including the following:
● 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;
● travel restrictions or bans;
● economic and political instability; and
● shipping delays.
In addition, contracts may be difficult to enforce and receivables may be difficult to collect through a foreign country’s legal system.
ITEM 1B. UNRESOLVED STAFF COMMENTS
We have not received any written comments regarding our periodic or current reports from the staff of the SEC that were issued 180 days or more
preceding the end of our 2020 fiscal year and that remain unresolved.
ITEM 2.
PROPERTIES
Our primary company facilities are located in St. Louis, Missouri where we currently lease approximately 52,000 square feet of office space and
12,000 square feet of demonstration and assembly space under a lease agreement through December 31, 2021.
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In August 2016, the Company entered into an agreement to sublease approximately 11,000 square feet of office space immediately and an additional
16,000 square feet of office space beginning in January of 2017, with the term of the sublease ending on December 31, 2018. The term of the sublease was
subsequently extended through December 31, 2021.
We lease approximately 2,200 square feet of office space in Maple Grove, Minnesota, under a lease agreement through October 30, 2021, and have
leased office space in Amsterdam, The Netherlands through August 31, 2021. In addition, we lease an office space in Beijing, China under a lease
agreement through November 29, 2023.
ITEM 3.
LEGAL PROCEEDINGS
We are involved from time to time in various lawsuits and claims arising in the normal course of business. Although the outcomes of these lawsuits
and claims are uncertain, we do not believe any of them will have a material adverse effect on our business, financial condition or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
PRICE RANGE OF COMMON STOCK
Our common stock began trading on the NASDAQ Global Market under the symbol “STXS” on August 12, 2004 and was transferred to the
NASDAQ Capital Market effective August 19, 2013. On August 4, 2016 our common stock was transferred to the OTCQX® Best Market and on
September 6, 2019 our common stock was transferred to the NYSE American Market.
As of February 28, 2021, there were approximately 447 stockholders of record of our common stock, although we believe that there is a significantly
larger number of beneficial owners of our common stock.
ITEM 6.
SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our financial statements and notes thereto included in this report on Form 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. Our actual
results could differ materially from those anticipated in these forward looking statements as a result of various factors, including those set forth in Item 1A.
“Risk Factors.” Forward-looking statements discuss matters that are not historical facts. Forward-looking statements include, but are not limited to,
discussions regarding our operating strategy, sales and marketing strategy, regulatory strategy, our industry generally, overall economic conditions, our
financial condition, liquidity and capital resources, our results of operations, and the impact of the recent coronavirus (“COVID-19”) pandemic and our
responses to it. 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 in the Private Securities Litigation Reform Act of 1995. You should not
unduly rely on these forward-looking statements, which speak only as of the date on which they were made. They give our expectations regarding the future
but are not guarantees. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information,
future events or otherwise, unless required by law.
Overview
Stereotaxis designs, manufactures and markets an advanced robotic magnetic navigation system for use in a hospital’s interventional surgical suite, or
“interventional lab”, that we believe revolutionizes the treatment of arrhythmias by enabling enhanced safety, efficiency, and efficacy for catheter-based, or
interventional, procedures. Our primary products include the Genesis RMN System, the Odyssey Solution, and related devices. We also offer to our
customers the Stereotaxis Imaging Model S x-ray System.
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The Genesis RMN System is designed to enable physicians to complete more complex interventional procedures by providing image-guided delivery
of catheters through the blood vessels and chambers of the heart to treatment sites. This is achieved using externally applied magnetic fields that govern the
motion of the working tip of the catheter, resulting in improved navigation, efficient procedures, and reduced x-ray exposure.
In addition to the robotic magnetic navigation systems and their components, Stereotaxis also has developed the Odyssey Solution, which consolidates
lab information enabling physicians to focus on the patient for optimal procedure efficiency. The system also features a remote viewing and recording
capability called Odyssey Cinema, which is an innovative solution that delivers synchronized content for optimized workflow, advanced care, and improved
productivity. This tool includes an archiving capability that allows clinicians to store and replay entire procedures or segments of procedures. This
information can be accessed from locations throughout the hospital local area network and over the global Odyssey Network providing physicians with a
tool for clinical collaboration, remote consultation, and training.
We promote our full suite of products in a typical hospital implementation, subject to regulatory approvals or clearances. This implementation
requires a hospital to agree to an upfront capital payment and recurring payments. The upfront capital payment typically includes equipment and
installation charges. The recurring payments typically include disposable costs for each procedure, equipment service costs beyond the warranty period,
and ongoing software updates. In hospitals where our full suite of products has not been implemented, equipment upgrade or expansion can be
implemented upon purchasing of the necessary upgrade or expansion.
We have received regulatory clearance, licensing and/or CE Mark approvals necessary for us to market the Genesis RMN System in the U.S. and
Europe, and we are in the process of obtaining necessary registrations for extending our markets in other countries. Our prior generation robotic magnetic
navigation system, the Niobe System, and the Odyssey Solution, Cardiodrive, and various disposable interventional devices have received regulatory
clearance in the U.S., Europe, Canada, China, Japan and various other countries. We have received the regulatory clearance, licensing and/or CE Mark
approvals that allow us to market the Vdrive and Vdrive Duo Systems with the V-CAS, V-Loop and V-Sono devices in the U.S., Canada and Europe.
Stereotaxis Imaging Model S x-ray System is CE marked and cleared by the FDA.
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 a
description of the regulatory clearance, licensing, and/or approvals we currently have or are pursuing.
As of December 31, 2020, we had approximately $6.9 million of backlog, consisting of outstanding purchase orders and other commitments for these
systems. Of the December 31, 2020 backlog, we expect approximately 93% to be recognized as revenue over the course of 2021. We had backlog of
approximately $1.1 million as of December 31, 2019. There can be no assurance that we will recognize such revenue in any particular period or at all
because some of our purchase orders and other commitments are subject to contingencies that are outside our control. These orders and commitments may
be revised, modified or canceled, either by their express terms, as a result of negotiations or by project changes or delays. In addition, the sales cycle for the
robotic magnetic navigation system is lengthy and generally involves construction or renovation activities at customer sites. Consequently, revenues and/or
orders resulting from sales of our robotic magnetic navigation system can vary significantly from one reporting period to the next.
We have strategic relationships with technology leaders in the global interventional market. Through these strategic relationships we provide
compatibility between our robotic magnetic navigation system and digital imaging and 3D catheter location sensing technology, as well as disposable
interventional devices. The maintenance of these strategic relationships, or the establishment of equivalent alternatives, is critical to our commercialization
efforts. There are no guarantees that any existing strategic relationships will continue and efforts are ongoing to ensure the availability of integrated next
generation systems and/or equivalent alternatives. We cannot provide assurance as to the timeline of the ongoing availability of such compatible systems or
our ability to obtain equivalent alternatives on competitive terms or at all.
COVID-19 Pandemic
Prior to the spread of COVID-19, we experienced procedure trends consistent with the fourth quarter of 2019. We also saw strength in new capital
orders. Beginning in January 2020, we saw a substantial reduction in robotic procedures in Asia Pacific, especially in China. By the height of the pandemic
in that region, weekly procedures decreased to approximately 40% of the average rate experienced in the fourth quarter. As the COVID-19 pandemic
subsided in China in March 2020, procedure volume began to recover and, by the end of the first quarter of 2020, we were seeing weekly procedures in the
Asia Pacific region approach 70% of the fourth quarter average rates. Procedure disruption in other geographies was not significant until the middle of
March 2020, when the worldwide impact of COVID-19 intensified. By the end of March, procedures in the U.S and Europe, which represent the majority
of our procedures, declined to approximately 70% of the weekly procedure rate experienced in the fourth quarter of 2019.
As the pandemic spread throughout the first quarter of 2020, various local restrictions on travel, mandatory closures, social distancing protocols and
shelter-in-place orders negatively impacted our ability to complete installation and service activities, which resulted in declines in system and service
revenue in the first quarter.
Our supply-chain also experienced some impact as some suppliers struggled to source sub-components in February when most factories in China were
seemingly closed. These issues were mostly alleviated by the end of the first quarter with the opening of the Chinese economy. During the first quarter, we
also took proactive actions to reduce the risk that a prolonged future reduction in Chinese manufacturing might have on us.
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During the early portion of the second quarter, weekly procedures in the United States and Europe continued to decline, reaching approximately 40%
of fourth quarter 2019 levels by the middle of April. In May, with the reopening of various regions, procedures in both geographies began to recover and by
the end of June, procedures were approximating the level seen before the pandemic. During the second quarter of 2020, weekly procedure rates in Asia
Pacific continued to improve, eventually reaching the pre-pandemic weekly procedure rate.
During the third quarter of 2020, weekly procedures continued to recover and approached the levels seen before the pandemic.
During the fourth quarter of 2020, periodic resurgence of COVID-19 caused hospitals and patients in some areas to again postpone procedures.
Overall, weekly procedures during the fourth quarter remained generally consistent with the recovery seen in the third quarter.
Ongoing
Even with the anticipated rollout of an effective vaccine, we do not expect all markets to recover at the same pace. The impact that the pandemic will
have on our business will likely continue to vary by individual geography based on the extent of the outbreak in each area, the timing of the vaccine
distribution, specific governmental restrictions and the availability of testing capabilities, personal protective equipment, and hospital facilities, as well as
decisions by our vendors, suppliers, customers and, ultimately, patients in response to the pandemic, none of which we are able to currently and accurately
predict. While we cannot reliably estimate the depth or length of the impact, we continue to anticipate significant, periodic disruptions to our procedures
volumes, service activities and system placements into 2021. In addition, we would expect that additional capital system orders will also experience some
delay.
Capital markets and worldwide economies have also been significantly impacted by the COVID-19 pandemic, and it is possible that it could cause a
local and/or global economic recession. Such economic recession could have a material adverse effect on our long-term business as hospitals curtail and
reduce capital and overall spending or redirect such spending to treatments related directly to the pandemic. To-date, our manufacturing operations and
supply chains have been minimally interrupted, but we cannot guarantee that such will not be interrupted further in the future. If our manufacturing
operations or supply chains are interrupted, it may not be possible for us to timely manufacture relevant products at required levels, or at all. A material
reduction or interruption to any of our manufacturing processes could have a material adverse effect on our business, operating results, and financial
condition. Further, the COVID-19 pandemic and local actions, such as “shelter-in-place” orders and restrictions on our ability to travel and access our
customers or temporary closures of our facilities or the facilities of our suppliers and their contract manufacturers, could also significantly impact our sales
and our ability to ship our products and supply our customers. Any of these events could negatively impact the number of procedures performed and the
number of system placements and have a material adverse effect on our business, financial condition, results of operations, or cash flows.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures. We review our estimates and judgments on an ongoing
basis. We base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the
circumstances. Actual results may differ from these estimates. We believe the following accounting policies are critical to the judgments and estimates we
use in preparing our financial statements.
Revenue Recognition
The Company accounts for revenue in accordance with Accounting Standards Codification Topic 606 (“ASC 606”), Revenue from Contracts with
Customers.
We generate revenue from the initial capital sales of systems as well as recurring revenue from the sale of our proprietary disposable devices, from
royalties paid to the Company on the sale by Biosense Webster of co-developed catheters, and from other recurring revenue including ongoing software
updates and service contracts.
We account for a contract with a customer when there is a legally enforceable contract between the Company and the customer, the rights of the
parties are identified, the contract has commercial substance, and collectability of the contract consideration is probable. We record our revenue based on
consideration specified in the contract with each customer, net of any taxes collected from customers that are remitted to government authorities.
For contracts containing multiple products and services the Company accounts for individual products and services as separate performance
obligations if they are distinct, which is if a product or service is separately identifiable from other items in the bundled package, and if a customer can
benefit from it on its own or with other resources that are readily available to the customer. The Company recognizes revenues as the performance
obligations are satisfied by transferring control of the product or service to a customer.
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For arrangements with multiple performance obligations, revenue is allocated to each performance obligation based on its relative standalone selling
price. Standalone selling prices are based on observable prices at which the Company separately sells the products or services. If a standalone selling price
is not directly observable, then the Company estimates the standalone selling price considering market conditions and entity-specific factors including, but
not limited to, features and functionality of the products and services and market conditions. The Company regularly reviews standalone selling prices and
updates these estimates as necessary.
Our revenue recognition policy affects the following revenue streams in our business as follows:
Systems:
Contracts related to the sale of systems typically contain separate obligations for the delivery of system(s), installation and an implied obligation to
provide software enhancements if and when available for one year following installation. Revenue is recognized when the Company transfers control
to the customer, which is generally at the point when acceptance occurs that indicates customer acknowledgment of delivery or installation,
depending on the terms of the arrangement. Revenue from the implied obligation to deliver software enhancements if and when available is
recognized ratably typically over the first year following installation of the system as the customer receives the right to software updates throughout
the period and is included in Other Recurring Revenue. The Company’s system contracts generally do not provide a right of return. Systems are
generally covered by a one-year assurance type warranty; warranty costs were less than $0.1 million for the periods presented.
Disposables:
Revenue from sales of disposable products is recognized when control is transferred to the customers, which generally occurs at the time of
shipment, but can also occur at the time of delivery depending on the customer arrangement. Disposable products are covered by an assurance type
warranty that provides for the return of defective products. Warranty costs were not material for the periods presented.
Royalty:
The Company is entitled to royalty payments from Biosense Webster, payable quarterly based on net revenues from sales of the co-developed
catheters.
Other Recurring Revenue:
Other recurring revenue includes revenue from product maintenance plans, other post warranty maintenance, and the implied obligation to provide
software enhancements if and when available for a specified period, typically one year following installation of our systems. Revenue from services
and software enhancements is deferred and amortized over the service or update period, which is typically one year. Revenue related to services
performed on a time-and-materials basis is recognized when performed.
Sublease Revenue:
A portion of our principal executive office is subleased to a third party through 2021. In accordance with Financial Accounting Standards Board
(“FASB”) Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), the Company records sublease income as revenue.
The Company invoices its customers based on the billing schedules in its sales arrangements. Contract assets primarily represent the difference
between the revenue that was recognized based on the relative selling price of the related performance obligations and the contractual billing terms in the
arrangements. Deferred revenue is primarily related to service contracts, for which the service fees are billed up-front, generally quarterly or annually, and
for amounts billed in advance for system contracts for which some performance obligations remain outstanding. For service contracts, the associated
deferred revenue is generally recognized ratably over the service period. For system contracts, the associated deferred revenue is recognized when the
remaining performance obligations are satisfied. See Note 2 to the financial statements for additional detail on deferred revenue. The Company did not
have any impairment losses on its contract assets for the periods presented.
Assets Recognized from the Costs to Obtain a Contract with a Customer
The Company has determined that sales incentive programs for the Company’s sales team meet the requirements to be capitalized as the Company
expects to generate future economic benefits from the related revenue generating contracts after the initial capital sales transaction. The costs capitalized as
contract acquisition costs included in prepaid expenses and other assets in the Company’s balance sheets were $0.3 million as of December 31, 2020 and
December 31, 2019. The Company did not incur any impairment losses during any of the periods presented.
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Leases
On January 1, 2019, the Company adopted ASU No. 2016-02 “Leases” (Topic 842) and all subsequent ASUs that modified Topic 842. A lease is
defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in
exchange for consideration. The Company determines if a contract contains a lease at inception. For contracts where the Company is the lessee, operating
leases are included in operating lease right-of-use (“ROU”) assets and operating lease liability on the Company’s balance sheet. The Company currently
does not have any finance leases.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the
lease term at commencement date. ROU assets also include any initial direct costs incurred and any lease payments made at or before the lease
commencement date, less lease incentives received. The Company uses its incremental borrowing rate based on the information available at the
commencement date in determining the lease liabilities as the Company’s leases generally do not provide an implicit rate. Lease terms may include options
to extend or terminate when the Company is reasonably certain that the option will be exercised. Lease expense is recognized on a straight-line basis over
the lease term.
The Company also has lease arrangements with lease and non-lease components. The Company elected the practical expedient not to separate non-
lease components from lease components for the Company’s operating leases. Additionally, the Company applies the short-term lease measurement and
recognition exemption in which right of use assets and lease liabilities are not recognized for leases less than twelve months.
Cost of Contracts
Costs of systems revenue include direct product costs, installation labor and other costs, estimated warranty costs, and initial training and product
maintenance costs. These costs are recorded at the time of sale. Costs of disposable revenue include direct product costs and estimated warranty costs and
are recorded at the time of sale. Cost of revenue from services and license fees are recorded when incurred. Cost of sublease revenue is recorded on a
straight-line basis.
Stock-based Compensation
Stock compensation expense, which is a non-cash charge, results from stock option and stock appreciation rights grants made to employees, and
directors at the fair value of the option granted, and from grants of restricted shares and units to employees, directors, and third-party consultants. The fair
value of options and stock appreciation rights granted was determined using the Black-Scholes valuation method which gives consideration to the
estimated value of the underlying stock at the date of grant, the exercise price of the option, the expected dividend yield and volatility of the underlying
stock, the expected life of the option and the corresponding risk-free interest rate. The fair value of the grants of restricted shares and units was determined
based on the closing price of our stock on the date of grant. Stock compensation expense for options, stock appreciation rights and for time-based restricted
share grants and units is amortized on a straight-line basis over the vesting period of the underlying issue, generally over four years except for grants to
directors which are generally earned over a period of six months. Stock compensation expense for performance-based restricted shares, if any, is amortized
on a straight-line basis over the anticipated vesting period and is subject to adjustment based on the actual achievement of objectives. Compensation
expenses related to grants to non-employees are re-measured quarterly through the vesting date. Compensation expense is recognized only for those options
expected to vest, net of actual forfeitures. Estimates of the expected life of options have been based on the average of the vesting and expiration periods,
which is the simplified method under general accounting principles for share-based payments. Estimates of volatility utilized in calculating stock-based
compensation have been prepared based on historical data. Actual experience to date has been consistent with these estimates.
The amount of compensation expense to be recorded in future periods may increase if we make additional grants of options, stock appreciation rights
or restricted shares. The amount of expense to be recorded in future periods may decrease if the requisite service periods are not completed.
Valuation of Inventory
We value our inventory at the lower of the actual cost of our inventory, as determined using the first-in, first-out (FIFO) method, or its current
estimated market value. We periodically review our physical inventory for excess, obsolete, and potentially impaired items and reserve accordingly. Our
reserve estimate for excess and obsolete is based on expected future use. Our reserve estimates have historically been consistent with our actual experience
as evidenced by actual sale or disposal of the goods. Excess manufacturing overhead costs attributable to idle facility expenses or abnormally low
production volumes are excluded from inventory and recorded as an expense in the period incurred.
Income Taxes
Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using
the enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected to be realized. We have established a valuation allowance against the entire amount of our
deferred tax assets net of liabilities because we are not able to conclude, due to our history of operating losses, that it is more likely than not that we will be
able to realize any portion of the deferred tax assets.
38
In assessing whether and to what extent deferred tax assets are realizable, we consider whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. We consider projected future taxable income and tax planning strategies in making this
assessment. Based upon the level of historical taxable losses, limitations imposed by Section 382 of the Internal Revenue Code and projections for future
losses over periods which the deferred tax assets are deductible, we determined that a 100% valuation allowance of deferred tax assets net of liabilities was
appropriate.
Results of Operations
Comparison of the Years ended December 31, 2020 and 2019
Revenue. Revenue decreased from $28.9 million for the year ended December 31, 2019, to $26.6 million for the year ended December 31, 2020, a
decrease of approximately 8%. Revenue from sales of systems increased from $2.1 million for the year ended December 31, 2019, to $3.6 million for the
year ended December 31, 2020, an increase of approximately 76%, driven by increased system sales volumes in the current year period. Revenue from
sales of disposable interventional devices, service and accessories decreased to $22.0 million for the year ended December 31, 2020, from $25.9 million for
the year ended December 31, 2019, a decrease of approximately 15%, driven by lower procedure volumes as a result of the COVID pandemic and to a
lesser extent, lower service revenue. Sublease revenue was $1.0 million for the years ended December 31, 2020 and 2019.
Cost of Revenue. Cost of revenue increased from $6.1 million for the year ended December 31, 2019, to $7.7 million for the year ended December 31,
2020, an increase of approximately 25%. As a percentage of our total revenue, overall gross margin decreased to 71% for the year ended December 31,
2020, from 79% for the year ended December 31, 2019. Cost of revenue for systems sold increased from $1.4 million for the year ended December 31,
2019, to $3.7 million for the year ended December 31, 2020 primarily due to increased system sales volumes in the current year period. Gross margin for
systems decreased from $0.7 million for the year ended December 31, 2019 to less than negative $0.1 million for the year ended December 31, 2020 due to
initial installation costs and changes in production and obsolescence reserves. Cost of revenue for disposables, service, and accessories decreased to $3.0
million for the year ended December 31, 2020 from $3.7 million for year ended December 31, 2019 driven by decreased disposable sales volumes and
lower expenses incurred under service contracts in the current year period, both as a result of the COVID pandemic. Gross margin for disposables, service
and accessories was 87% for the current year period compared to 86% for the year ended December 31, 2019, driven by product mix and lower expenses
incurred under service contracts in the current year period. Cost of sublease revenue was $1.0 million for both the years ended December 31, 2020 and
2019.
Research and Development Expense. Research and development expense decreased from $9.0 million for the year ended December 31, 2019, to $8.1
million for the year ended December 31, 2020, a decrease of approximately 10%. This decrease was due to lower Genesis RMN project spending in the
year ended December 31, 2020.
Sales and Marketing Expense. Sales and marketing expense decreased from $12.7 million for the year ended December 31, 2019 to $11.2 million for
the year ended December 31, 2020, a decrease of approximately 12%. This decrease was primarily due to reductions in travel and trade-show related
expenses in the year ended December 31, 2020, as a result of the COVID pandemic.
General and Administrative Expense. General and administrative expenses include finance, information systems, legal, and general management
expenses. General and administrative expense increased from $5.8 million for the year ended December 31, 2019 to $6.4 million for the year ended
December 31, 2020, an increase of approximately 9%. This increase was primarily driven by higher professional service fees in the current year period.
Interest Income (Expense). Interest income for the years ended December 31, 2020 and December 31, 2019 was approximately $0.1 million and $0.2
million, respectively.
Income Taxes
Realization of deferred tax assets is dependent upon future earnings, the timing and amount of which are uncertain. Accordingly, net deferred tax
assets have been fully offset by valuation allowances as of December 31, 2020, and December 31, 2019 to reflect these uncertainties. As of December 31,
2020, we had gross federal net operating loss carryforwards of approximately $111.0 million of which approximately $98.5 million will expire between
2030 and 2037 and approximately $12.5 million can be carried forward indefinitely. As of December 31, 2020, we had gross state net operating loss
carryforwards of approximately $34.2 million which will expire at various dates between 2021 and 2040 if not utilized. We may not be able to utilize all of
these loss carryforwards prior to their expiration.
Liquidity and Capital Resources
Liquidity refers to the liquid financial assets available to fund our business operations and pay for near-term obligations. These liquid financial assets
consist of cash and cash equivalents. We are continuously and critically reviewing our liquidity and anticipated capital requirements in light of the
significant uncertainty created by the COVID-19 pandemic.
39
As of December 31, 2020, our accumulated deficit was $488.0 million with cash and cash equivalents of $44.2 million, inclusive of the compensating
cash arrangement. Since inception, we have financed our operations primarily through cash generated by operations and proceeds from our debt and stock
offerings.
Capital Resources
As of December 31, 2020, our borrowing facilities were comprised of the Paycheck Protection Program debt as discussed in the following section.
Revolving Line of Credit
The Company had a working capital line of credit with its primary lender, Silicon Valley Bank that matured on June 30, 2020.
Paycheck Protection Program
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the United States. Among the provisions
contained in the CARES Act is the creation of the Paycheck Protection Program that provides for Small Business Administration (“SBA”) Section 7(a)
loans for qualified small businesses. In general, the loan can be forgiven as long as the funds are used for payroll related expenses as well as rent and
utilities paid during the twenty four week period from the date of the loan and as long as certain headcount and salary/wage levels are maintained. On April
10, 2020, the Company was informed by its lender, Midwest BankCentre (the “Bank”), that the Bank received approval from the SBA to fund the
Company’s request for a loan under the SBA’s Paycheck Protection Program (“PPP Loan”). Per the terms of the PPP Loan, the Company received total
proceeds of $2,158,310 from the Bank on April 20, 2020. In accordance with the loan forgiveness requirements of the CARES Act, the Company used the
full proceeds from the PPP Loan primarily for payroll costs, rent and utilities. The Company anticipates that the loan will be substantially forgiven. To the
extent it is not forgiven, the Company would be required to repay that portion beginning in August 2021 with a final installment in April 2022. Interest
would be assessed on the amount of the loan not forgiven at a rate of 1% per annum beginning on the date of the loan, April 20, 2020.
Common Stock
The holders of common stock are entitled one vote for each share held and to receive dividends whenever funds are legally available and when
declared by the Board of Directors subject to the prior rights of holders of all classes of stock having priority rights as dividends and certain conditions of
our agreement with our primary lender. No dividends have been declared or paid as of December 31, 2020.
2020 Equity Financing
As disclosed in Note 9, on May 25, 2020, the Company entered into a Securities Purchase Agreement with certain accredited investors, whereby it, in
a direct registered offering, agreed to issue and sell to the investors an aggregate of 3,658,537 shares of the Company’s common stock, $0.001 par value per
share, at a price of $4.10 per share. The Company received net proceeds of approximately $15.0 million, after offering expenses.
2019 Equity Financing and Series B Convertible Preferred Stock
As disclosed in Note 9, on August 7, 2019, the Company entered into a Securities Purchase Agreement with certain institutional and other accredited
investors, whereby it, in a private placement, agreed to issue and sell to the investors (i) an aggregate of 6,585,000 shares of the Company’s common stock,
$0.001 par value per share, at a price of $2.05 per share and (ii) 5,610,121 shares of the Company’s Series B Convertible Preferred Stock, $0.001 par value
per share (the “Series B Preferred Stock”), which are convertible into shares of the Company’s common stock, at a price of $2.05 per share. The Series B
Preferred Stock, which is a common stock equivalent but non-voting and with a blocker on conversion if the holder would exceed a specified threshold of
voting security ownership, is convertible into common stock on a one-for-one basis, subject to adjustment for events such as stock splits, combinations and
the like as provided in the Purchase Agreement. The Series B Preferred Stock is reported in the stockholders’ equity section of the balance sheet. The
Company received net proceeds of approximately $23.1 million, after offering expenses.
Series A Convertible Preferred Stock and Warrants
In September 2016, the Company issued (i) 24,000 shares of Series A Convertible Preferred Stock, par value $0.001 per share, with a stated value of
$1,000 per share (the “Series A Preferred Stock”), which are convertible into shares of the Company’s common stock at an initial conversion rate of $0.65
per share, subject to adjustment for events such as stock splits, combinations and the like as provided in the certificate of designations covering such Series
A Preferred Stock, and (ii) warrants to purchase an aggregate of 36,923,078 shares of common stock. The shares of Series A Preferred Stock are entitled to
vote on an as-converted basis with the common stock, subject to specified beneficial ownership issuance limitations. The Series A Preferred Stock bear
dividends at a rate of six percent (6%) per annum, which are cumulative and accrue daily from the date of issuance on the $1,000 stated value. Such
dividends will not be paid in cash except in connection with any liquidation, dissolution or winding up of the Company or any redemption of the Series A
Preferred Stock. Each holder of convertible preferred shares has the right to require us to redeem such holder’s shares of Series A Preferred Stock upon the
occurrence of specified events, which include certain business combinations, the sale of all or substantially all of the Company’s assets, or the sale of more
than 50% of the outstanding shares of the Company’s common stock. In addition, the Company has the right to redeem the Series A Preferred Stock in the
event of a defined change of control. The Series A Preferred Stock ranks senior to our common stock as to distributions and payments upon the liquidation,
dissolution, and winding up of the Company. Since the Series A Preferred Stock are subject to conditions for redemption that are outside the Company’s
control, the Series A Preferred Stock are presently reported in the mezzanine section of the balance sheet.
40
The warrants issued in conjunction with the Series A Preferred Stock (the “SPA Warrants”) have an exercise price of $0.70 per share subject to
adjustments for events such as stock splits, combinations, and the like as provided under the terms of the warrants. The warrants are exercisable through
September 29, 2021, subject to specified beneficial ownership issuance limitations.
Liquidity
The following table summarizes our cash flow by operating, investing and financing activities for years ended December 31, 2020 and 2019 (in
thousands):
Cash flow used in operating activities
Cash flow used in investing activities
Cash flow provided by financing activities
Year Ended December 31,
2020
2019
$
(3,512) $
(71)
17,340
(4,617)
(29)
24,032
Net cash used in operating activities. We used approximately $3.5 million and $4.6 million of cash in operating activities during the years ended
December 31, 2020 and 2019, respectively. The decrease in cash used in operating activities from 2019 to 2020 was driven by changes in working capital.
Net cash used in investing activities. We used less than $0.1 million of cash during the years ended December 31, 2020 and 2019 for purchases of
equipment.
Net cash provided by financing activities. We generated approximately $17.3 million of cash for the year ended December 31, 2020, compared to
approximately $24.0 million generated for the year ended December 31, 2019. The cash generated in the year ended December 31, 2020 was primarily
driven by the net proceeds of $15.0 million received from the May 2020 Securities Purchase Agreement and $2.2 million of proceeds received from the
Paycheck Protection Program loan. The cash generated in the year ended December 31, 2019 was driven by the net proceeds from the August 2019
Securities Purchase Agreement.
At December 31, 2020, we had working capital of approximately $39.1 million, compared to a working capital of approximately $26.7 million at
December 31, 2019. The increase in working capital was primarily driven by net proceeds received from the May 2020 Securities Purchase Agreement.
The Company had a working capital line of credit with its primary lender, Silicon Valley Bank that matured on June 30, 2020.
As of December 31, 2020, our borrowing facilities were comprised of the Paycheck Protection Program debt.
Off-Balance Sheet Arrangements
We do not currently have, nor have we ever had, any relationships with unconsolidated entities or financial partnerships, such as entities often referred
to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or
other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. 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 these relationships.
41
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements
Index To Financial Statements
Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm
Balance Sheets at December 31, 2020 and 2019
Statements of Operations for the years ended December 31, 2020 and 2019
Statements of Convertible Preferred Stock and Stockholders’ Equity for the years ended December 31, 2020 and 2019
Statements of Cash Flows for the years ended December 31, 2020 and 2019
Notes to the Financial Statements
Schedule II—Valuation and Qualifying Accounts
PAGE
43
44
45
46
47
48
65
All other schedules have been omitted because they are not applicable or the required information is shown in the Financial Statements or the Notes
thereto.
42
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Stereotaxis, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Stereotaxis, Inc. (the Company) as of December 31, 2020 and December 31, 2019, the related
statements of operations, convertible preferred stock and stockholders’ equity, and cash flows for each of the two years in the period ended December 31,
2020, and the related notes and the financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “financial statements”). In
our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and December 31,
2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with U.S.
generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules 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 obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required 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 obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal 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, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical
audit matter or on the accounts or disclosure to which it relates.
Systems Revenue Recognition
Description of the Matter
As discussed in Note 2 to the financial statements, the Company generates revenue from initial capital sales of systems
as well as recurring revenue from the sale of proprietary disposable devices, from royalties paid to the Company for co-
developed catheters, and revenue from ongoing software updates and service contracts. The Company’s contracts for
system sales generally have multiple performance obligations.
Auditing the timing and amount of revenue recognized for system sales required significant auditor judgment because it
involves several subjective management assumptions and estimates including the identification of performance
obligations within the contracts, the estimation of the standalone selling price of each performance obligation, the
allocation of transaction price to each performance obligation, and a determination of the timing of the satisfaction of the
performance obligation.
How We Addressed the Matter
in Our Audit
To test system revenue, our audit procedures included, among others, testing management’s identification of the
performance obligations and the allocation of the transaction price to each performance obligation by performing an
independent assessment of customer contracts and comparing our assessment to that of management. We also tested
management’s estimated standalone selling prices for its identified performance obligations based on actual prices
charged for similar products and services sold on a standalone basis, cost and margin analyses. We also tested
management’s assertion that control was transferred to the customer by inspecting documentation supporting the transfer
of control on contracts.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2002.
St. Louis, Missouri
March 12, 2021
43
STEREOTAXIS, INC.
BALANCE SHEETS
December 31, 2020
December 31, 2019
Assets
Current assets:
Cash and cash equivalents
Compensating cash arrangement
Accounts receivable, net of allowance of $123,614 and $380,212 at 2020 and 2019,
respectively
Inventories, net
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Other assets
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Short-term debt
Accounts payable
Accrued liabilities
Deferred revenue
Current portion of operating lease liabilities
Total current liabilities
Long-term debt
Long-term deferred revenue
Operating lease liabilities
Other liabilities
Total liabilities
Series A - Convertible preferred stock:
Convertible preferred stock, Series A, par value $0.001; 22,513 and 23,110 shares
outstanding at 2020 and 2019, respectively
Stockholders’ equity:
Convertible preferred stock, Series B, par value $0.001; 10,000,000 shares authorized,
5,610,121 shares outstanding at 2020 and 2019
Common stock, par value $0.001; 300,000,000 shares authorized, 73,694,203 and
68,529,623 shares issued at 2020 and 2019, respectively
Additional paid in capital
Treasury stock, 4,015 shares at 2020 and 2019
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes.
44
$
$
$
$
43,939,512 $
250,620
3,515,136
3,295,457
1,716,014
52,716,739
195,129
2,235,442
308,515
55,455,825 $
1,185,058 $
1,608,636
3,209,235
5,282,770
2,287,487
13,573,186
973,252
548,915
-
131,231
15,226,584
30,182,115
-
5,329,577
1,847,530
1,470,922
38,830,144
250,443
4,286,064
218,103
43,584,754
-
2,099,097
2,721,104
5,092,455
2,248,189
12,160,845
-
554,258
2,089,537
255,517
15,060,157
5,605,323
5,758,190
5,610
5,610
73,694
522,709,846
(205,999)
(487,959,233)
34,623,918
55,455,825 $
68,530
504,211,040
(205,999)
(481,312,774)
22,766,407
43,584,754
STEREOTAXIS, INC.
STATEMENTS OF OPERATIONS
Revenue:
Systems
Disposables, service and accessories
Sublease
Total revenue
Cost of revenue:
Systems
Disposables, service and accessories
Sublease
Total cost of revenue
Gross margin
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Operating loss
Interest income, net
Net loss
Cumulative dividend on Series A convertible preferred stock
Loss attributable to common stockholders
Net loss per share attributable to common stockholders:
Basic
Diluted
Weighted average number of common shares and equivalents:
Basic
Diluted
See accompanying notes.
45
$
$
$
$
$
Year Ended December 31,
2020
2019
3,626,284 $
22,017,631
986,120
26,630,035
3,715,416
2,962,710
986,120
7,664,246
2,066,253
25,850,174
986,123
28,902,550
1,411,423
3,738,914
986,122
6,136,459
18,965,789
22,766,091
8,136,914
11,178,325
6,364,365
25,679,604
(6,713,815)
67,356
(6,646,459) $
(1,369,421)
(8,015,880) $
9,021,403
12,733,389
5,838,158
27,592,950
(4,826,859)
235,575
(4,591,284)
(1,429,400)
(6,020,684)
(0.11) $
(0.11) $
(0.10)
(0.10)
72,746,268
72,746,268
63,051,581
63,051,581
STEREOTAXIS, INC
STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
Year Ended December 31, 2019
Convertible
Preferred Stock
Series A
(Mezzanine)
Convertible
Preferred Stock
Series B
Shares Amount Shares Amount
Shares
Common Stock
Additional
Paid-In
Amount Capital
Treasury Accumulated
Stock
Deficit
Total
Stockholders’
Equity
(Deficit)
23,900 $ 5,960,475
- $
- 59,058,297 $ 59,058 $ 478,179,574 $ (205,999) $ (476,721,490) $
1,311,143
7,778,806 7,779 13,312,405
207,212
207
1,811,877
39,648
40
80,017
5,610,121 5,610
10,626,328
(790)
(202,285)
1,445,660 1,446
200,839
13,320,184
1,812,084
(4,591,284)
(4,591,284)
80,057
10,631,938
202,285
23,110 $ 5,758,190 5,610,121 $ 5,610 68,529,623 $ 68,530 $ 504,211,040 $ (205,999) $ (481,312,774) $ 22,766,407
Year Ended December 31, 2020
Convertible
Preferred Stock
Series A
(Mezzanine)
Convertible
Preferred Stock
Series B
Shares Amount Shares Amount
Shares
Common Stock
Additional
Paid-In
Amount Capital
Treasury Accumulated
Stock
Deficit
Total
Stockholders’
Equity
(Deficit)
23,110 $ 5,758,190 5,610,121 $ 5,610 68,529,623 $ 68,530 $ 504,211,040 $ (205,999) $ (481,312,774) $ 22,766,407
3,863,314 3,863 15,057,950
147,989
149
3,169,199
(597)
(152,867)
1,120,810 1,120
151,747
32,467
32
119,910
15,061,813
3,169,348
(6,646,459)
(6,646,459)
119,942
152,867
22,513 $ 5,605,323 5,610,121 $ 5,610 73,694,203 $ 73,694 $ 522,709,846 $ (205,999) $ (487,959,233) $ 34,623,918
See accompanying notes.
46
Balance at December
31, 2018
Issuance of common
stock
Share-based
compensation
Components of net
loss
Employee stock
purchase plan
Preferred stock
issuance
Preferred stock
conversion
Balance at December
30, 2019
Balance at December
31, 2019
Issuance of common
stock
Share-based
compensation
Components of net
loss
Employee stock
purchase plan
Preferred stock
conversion
Balance at December
30, 2020
STEREOTAXIS, INC.
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2020
2019
$
(6,646,459) $
(4,591,284)
Cash flows from operating activities
Net loss
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation
Non-cash lease expense
Share-based compensation
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Compensating cash arrangement
Other assets
Accounts payable
Accrued liabilities
Deferred revenue
Operating lease liability
Other liabilities
Net cash used in operating activities
Cash flows from investing activities
Purchase of equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from Paycheck Protection Program loan
Proceeds from issuance of stock, net of issuance costs
Net cash provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosure of cash flow information:
Interest Paid
$
See accompanying notes.
47
126,211
2,340,428
3,169,348
1,814,441
(1,447,927)
(245,092)
(250,620)
(90,412)
(490,461)
488,131
184,972
(2,340,046)
(124,286)
(3,511,772)
(70,896)
(70,896)
2,158,310
15,181,755
17,340,065
13,757,397
30,182,115
43,939,512 $
122,736
2,342,344
1,330,195
(308,466)
(655,864)
(507,222)
-
(19,738)
372,737
560,482
(585,974)
(2,290,682)
(385,944)
(4,616,680)
(29,486)
(29,486)
-
24,032,209
24,032,209
19,386,043
10,796,072
30,182,115
-
-
Notes to Financial Statements
STEREOTAXIS, INC.
NOTES TO FINANCIAL STATEMENTS
In this report, “Stereotaxis”, the “Company”, “Registrant”, “we”, “us”, and “our” refer to Stereotaxis, Inc. and its wholly owned subsidiaries. Genesis
RMN®, Epoch®, Niobe®, Odyssey®, Odyssey Cinema™, Vdrive®, Vdrive Duo™, V-CAS™, V-Loop™, V-Sono™, QuikCAS™ and Cardiodrive® are
trademarks of Stereotaxis, Inc. All other trademarks that appear in this report are the property of their respective owners.
1. Description of Business
Stereotaxis designs, manufactures and markets an advanced robotic magnetic navigation system for use in a hospital’s interventional surgical suite, or
“interventional lab”, that we believe revolutionizes the treatment of arrhythmias by enabling enhanced safety, efficiency, and efficacy for catheter-based, or
interventional, procedures. Our primary products include the Genesis RMN System, the Niobe System, the Odyssey Solution, and related devices. We also
offer to our customers the Stereotaxis Imaging Model S x-ray System.
The Genesis RMN and Niobe Systems are designed to enable physicians to complete more complex interventional procedures by providing image-
guided delivery of catheters through the blood vessels and chambers of the heart to treatment sites. This is achieved using externally applied magnetic
fields that govern the motion of the working tip of the catheter, resulting in improved navigation, efficient procedures, and reduced x-ray exposure.
In addition to the robotic magnetic navigation systems and their components, Stereotaxis also has developed the Odyssey Solution, which consolidates
lab information enabling physicians to focus on the patient for optimal procedure efficiency. The system also features a remote viewing and recording
capability called Odyssey Cinema, which is an innovative solution that delivers synchronized content for optimized workflow, advanced care, and improved
productivity. This tool includes an archiving capability that allows clinicians to store and replay entire procedures or segments of procedures. This
information can be accessed from locations throughout the hospital local area network and over the global Odyssey Network providing physicians with a
tool for clinical collaboration, remote consultation, and training.
We promote our full suite of products in a typical hospital implementation, subject to regulatory approvals or clearances. This implementation
requires a hospital to agree to an upfront capital payment and recurring payments. The upfront capital payment typically includes equipment and
installation charges. The recurring payments typically include disposable costs for each procedure, equipment service costs beyond warranty period, and
ongoing software updates. In hospitals where our full suite of products has not been implemented, equipment upgrade or expansion can be implemented
upon purchasing of the necessary upgrade or expansion.
We have received regulatory clearance, licensing and/or CE Mark approvals necessary for us to market the Genesis RMN System in the U.S. and
Europe, and we are in the process of obtaining necessary registrations for extending our markets in other countries. The Niobe System, Odyssey Solution,
Cardiodrive, and various disposable interventional devices have received regulatory clearance in the U.S., Europe, Canada, China, Japan and various other
countries. We have received the regulatory clearance, licensing and/or CE Mark approvals that allow us to market the Vdrive and Vdrive Duo Systems with
the V-CAS, V-Loop and V-Sono devices in the U.S., Canada and Europe. Stereotaxis Imaging Model S is CE marked and FDA cleared.
We have strategic relationships with technology leaders and innovators in the global interventional market. Through these strategic relationships we
provide compatibility between our robotic magnetic navigation system and digital imaging and 3D catheter location sensing technology, as well as
disposable interventional devices. The maintenance of these strategic relationships, or the establishment of equivalent alternatives, is critical to our
commercialization efforts. There are no guarantees that any existing strategic relationships will continue and efforts are ongoing to ensure the availability
of integrated next generation systems and/or equivalent alternatives. We cannot provide assurance as to the timeline of the ongoing availability of such
compatible systems or our ability to obtain equivalent alternatives on competitive terms or at all.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).
48
Cash and Cash Equivalents
The Company considers all short-term investments purchased with original maturities of three months or less to be cash equivalents. The Company
places its cash with high-credit-quality financial institutions and invests primarily in money market accounts. No cash was restricted at December 31, 2020
or 2019.
Compensating Cash Arrangement
In July 2020, the Company entered into a letter of credit to support a commitment of less than $0.3 million. As a condition of the letter of credit, the
Company is required to maintain a $0.3 million compensating balance until the expiration of the letter of credit.
Accounts Receivable and Allowance for Uncollectible Accounts
Accounts receivable primarily include amounts due from hospitals and distributors for acquisition of magnetic systems, associated disposable device
sales and service contracts. Credit is granted on a limited basis, with balances due generally within 30 days of billing. The provision for bad debts is based
upon management’s assessment of historical and expected net collections considering business and economic conditions and other collection indicators.
Financial Instruments
Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and debt. The carrying value of such amounts
reported at the applicable balance sheet dates approximates fair value.
The Company measures certain financial assets and liabilities at fair value on a recurring basis. General accounting principles for fair value
measurement established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for identical assets and liabilities (“Level 1”) and the lowest priority to unobservable inputs (“Level
3”).
The Company’s financial assets consist of cash equivalents invested in money market funds. The Company had cash equivalents invested in money
market funds in the amount of $1.4 million at December 31, 2020. The financial assets consisting of cash equivalents invested in money market funds are
classified as Level 2 as described above and total interest income recorded for these investments was insignificant for the year ended December 31, 2020.
As of December 31, 2020, the Company did not have any financial liabilities valued at fair value on a recurring basis. As of December 31, 2019, the
Company did not have any financial assets or liabilities valued at fair value on a recurring basis.
Inventory
The Company values its inventory at the lower of cost, as determined using the first-in, first-out (FIFO) method, or market. The Company periodically
reviews its physical inventory and provides a reserve upon identification of potential excess or obsolete items. Excess manufacturing overhead costs
attributable to idle facility expenses or abnormally low production volumes are excluded from inventory and recorded as an expense in the period incurred.
Property and Equipment
Property and equipment consist primarily of leasehold improvements, computer, office, research and demonstration equipment, and equipment held
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 lease term,
ranging from three to ten years.
Long-Lived Assets
If facts and circumstances suggest that a long-lived asset may be impaired, the carrying value is reviewed. If this review indicates that the carrying
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 Assets
Intangible assets consist of purchased technology and intellectual property rights valued at cost on the acquisition date and amortized over their
estimated useful lives of 10-15 years. If facts and circumstances suggest that an intangible asset may be impaired, the carrying value is reviewed. If this
review indicates that the carrying 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.
49
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of income and loss during the reporting period. Actual results could differ from those estimates.
Revenue and Costs of Revenue
Revenue Recognition
The Company accounts for revenue in accordance with Accounting Standards Codification Topic 606 (“ASC 606”), Revenue from Contracts with
Customers.
We generate revenue from initial capital sales of systems as well as recurring revenue from the sale of our proprietary disposable devices, from
royalties paid to the Company on the sale by Biosense Webster of co-developed catheters, and from revenue including ongoing software updates and
service contracts.
We account for a contract with a customer when there is a legally enforceable contract between the Company and the customer, the rights of the
parties are identified, the contract has commercial substance, and collectability of the contract consideration is probable. We record our revenue based on
consideration specified in the contract with each customer, net of any taxes collected from customers that are remitted to government authorities.
For contracts containing multiple products and services the Company accounts for individual products and services as separate performance
obligations if they are distinct, which is if a product or service is separately identifiable from other items in the bundled package, and if a customer can
benefit from it on its own or with other resources that are readily available to the customer. The Company recognizes revenues as the performance
obligations are satisfied by transferring control of the product or service to a customer.
For arrangements with multiple performance obligations, revenue is allocated to each performance obligation based on its relative standalone selling
price. Standalone selling prices are based on observable prices at which the Company separately sells the products or services. If a standalone selling price
is not directly observable, then the Company estimates the standalone selling price considering market conditions and entity-specific factors including, but
not limited to, features and functionality of the products and services and market conditions. The Company regularly reviews standalone selling prices and
updates these estimates if necessary.
Our revenue recognition policy affects the following revenue streams in our business as follows:
Systems:
Contracts related to the sale of systems typically contain separate obligations for the delivery of system(s), installation and an implied obligation to
provide software enhancements if and when available for one year following installation. Revenue is recognized when the Company transfers control
to the customer, which is generally at the point when acceptance occurs that indicates customer acknowledgment of delivery or installation, depending
on the terms of the arrangement. Revenue from the implied obligation to deliver software enhancements if and when available is recognized ratably
over the first year following installation of the system as the customer receives the right to software updates throughout the period and is included in
Other Recurring Revenue. The Company’s system contracts generally do not provide a right of return. Systems are generally covered by a one-year
assurance type warranty; warranty costs were less than $0.1 million for the periods presented. Revenue from system delivery and installation
represented 14% and 7% of revenue for the years ended December 31, 2020 and 2019, respectively.
Disposables:
Revenue from sales of disposable products is recognized when control is transferred to the customers, which generally occurs at the time of shipment,
but can also occur at the time of delivery depending on the customer arrangement. Disposable products are covered by a warranty that provides for the
return of defective products. Warranty costs were not material for the periods presented. Disposable revenue represented 28% and 33% of revenue for
the years ended December 31, 2020 and 2019, respectively.
Royalty:
The Company is entitled to royalty payments from Biosense Webster, payable quarterly based on net revenues from sales of the co-developed
catheters. Royalty revenue from the co-developed catheters represented 8% and 10% of revenue for the years ended December 31, 2020 and 2019,
respectively
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Other Recurring Revenue:
Other recurring revenue includes revenue from product maintenance plans, other post warranty maintenance, and the implied obligation to provide
software enhancements if and when available for a specified period, typically one year following installation of our systems. Revenue from services
and software enhancements is deferred and amortized over the service or update period, which is typically one year. Revenue related to services
performed on a time-and-materials basis is recognized when performed. Other recurring revenue represented 46% and 47% of revenue for the years
ended December 31, 2020 and 2019, respectively.
Sublease Revenue:
The adoption of new lease accounting guidance as of January 1, 2019 requires the Company to record sublease income as revenue beginning in 2019.
Sublease revenue represented 4% and 3% of revenue for the years ended December 31, 2020 and 2019, respectively.
Systems
Disposables, service and accessories
Sublease
Total revenue
Year Ended December 31,
2020
2019
3,626,284 $
22,017,631
986,120
26,630,035 $
2,066,253
25,850,174
986,123
28,902,550
$
$
Transaction price allocated to remaining performance obligations relates to amounts allocated to products and services for which the revenue has not
yet been recognized. A significant portion of this amount relates to the Company’s systems contracts and obligations that will be recognized as revenue in
future periods. These obligations are generally satisfied within two years after contract inception but may occasionally extend longer. Transaction price
representing revenue to be earned on remaining performance obligations on system contracts was approximately $6.9 million as of December 31, 2020.
Performance obligations arising from contracts for disposables, royalty and service are generally expected to be satisfied within one year after entering into
the contract.
The following information summarizes the Company’s contract assets and liabilities:
Contract Assets - unbilled receivables
Product shipped, revenue deferred
Deferred service and license fees
Total deferred revenue
Less: Long-term deferred revenue
Total current deferred revenue
December 31, 2020
December 31, 2019
284,415 $
168,445
645,200 $
5,186,485
5,831,685 $
(548,915)
5,282,770 $
674,324
4,972,389
5,646,713
(554,258)
5,092,455
$
$
$
$
The Company invoices its customers based on the billing schedules in its sales arrangements. Contract assets primarily represent the difference
between the revenue that was earned but not billed on service contracts and revenue from system contracts that was recognized based on the relative selling
price of the related performance obligations and the contractual billing terms in the arrangements. Deferred revenue is primarily related to service contracts,
for which the service fees are billed up-front, generally quarterly or annually, and for amounts billed in advance for system contracts for which some
performance obligations remain outstanding. For service contracts, the associated deferred revenue is generally recognized ratably over the service period.
For system contracts, the associated deferred revenue is recognized when the remaining performance obligations are satisfied. The Company did not have
any impairment losses on its contract assets for the periods presented.
Revenue recognized for the years ended December 31, 2020 and 2019, that was included in the deferred revenue balance at the beginning of each
reporting period was $5.0 million and $5.6 million, respectively.
The Company has determined that sales incentive programs for the Company’s sales team meet the requirements to be capitalized as the Company
expects to generate future economic benefits from the related revenue generating contracts after the initial capital sales transaction. The costs capitalized as
contract acquisition costs included in prepaid expenses and other assets, in the Company’s balance sheet was $0.3 million as of December 31, 2020 and
December 31, 2019. The Company did not incur any impairment losses during any of the periods presented.
Costs of systems revenue include direct product costs, installation labor and other costs, estimated warranty costs, and initial training and product
maintenance costs. These costs are recorded at the time of sale. Costs of disposable revenue include direct product costs and estimated warranty costs and
are recorded at the time of sale. Cost of revenue from services and license fees are recorded when incurred.
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Research and Development Costs
Internal research and development costs are expensed in the period incurred. Amounts receivable from strategic relationships under research
reimbursement agreements are recorded as a contra-research and development expense in the period reimbursable costs are incurred. There were no
material receivables at December 31, 2020 or 2019 under these types of agreements. Advance receipts or other unearned reimbursements are included in
accrued liabilities on the accompanying balance sheet until earned.
Share-Based Compensation
The Company accounts for its grants of stock options, stock appreciation rights, restricted shares, and restricted stock units and for its employee stock
purchase plan in accordance with the provisions of general accounting principles for share-based payments. These accounting principles require the
determination of the fair value of the share-based compensation at the grant date and the recognition of the related expense over the period in which the
share-based compensation vests.
The Company utilizes the Black-Scholes valuation model to determine the fair value of stock options and stock appreciation rights at the date of grant.
The resulting compensation expense is recognized over the requisite service period, which is generally four years. Restricted shares and units granted to
employees are valued at the fair market value at the date of grant. The Company amortizes the fair market value to expense over the service period. If the
shares are subject to performance objectives, the resulting compensation expense is amortized over the anticipated vesting period and is subject to
adjustment based on the actual achievement of objectives.
Shares purchased by employees under the 2009 Employee Stock Purchase Plan are considered to be non-compensatory.
Net Earnings (Loss) per Common Share
Basic earnings (loss) per common share is computed by dividing the net earnings (loss) for the period by the weighted average number of common
shares outstanding during the period. In periods where there is net income, we apply the two-class method to calculate basic and diluted net income (loss)
per share of common stock, as our convertible preferred stock is a participating security. The two-class method is an earnings allocation formula that treats
a participating security as having rights to earnings that otherwise would have been available to common stockholders. In periods where there is a net loss,
the two-class method of computing earnings per share does not apply as our convertible preferred stock does not contractually participate in our losses. We
compute diluted net income (loss) per common share using net income (loss) as the “control number” in determining whether potential common shares are
dilutive, after giving consideration to all potentially dilutive common shares, including stock options, warrants, unvested restricted stock units outstanding
during the period and potential issuance of stock upon the conversion of our convertible preferred stock issued and outstanding during the period, except
where the effect of such securities would be antidilutive.
The Company did not include any portion of unearned restricted shares, outstanding options, stock appreciation rights, warrants or convertible
preferred stock in the calculation of diluted loss per common share because all such securities are anti-dilutive for all periods presented. The application of
the two-class method of computing earnings per share under general accounting principles for participating securities is not applicable during these periods
because those securities do not contractually participate in its losses.
As of December 31, 2020, the Company had 2,456,979 shares of common stock issuable upon the exercise of outstanding options and stock
appreciation rights at a weighted average exercise price of $2.90 per share, 15,385 shares of common stock issuable upon the exercise of outstanding
warrants at a weighted average exercise price of $0.70 per share, 43,483,062 shares of our common stock issuable upon conversion of our Series A
Convertible Preferred Stock, 5,610,121 shares of our common stock issuable upon conversion of our Series B Convertible Preferred Stock and 1,112,473
shares of unvested restricted share units. The Company had no unearned restricted shares outstanding for the period ended December 31, 2020.
Income Taxes
In accordance with general accounting principles for income taxes, a deferred income tax asset or liability is determined based on the difference
between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences
reverse. The Company provides a valuation allowance against net deferred income tax assets unless, based upon available evidence, it is more likely than
not the deferred income tax assets will be realized.
Product Warranty Provisions
The Company’s standard policy is to warrant all systems against defects in material or workmanship for one year following installation. The
Company’s estimate of costs to service the warranty obligations is based on historical experience and current product performance trends. A regular review
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 Costs
Costs related to filing and pursuing patent applications are expensed as incurred, as recoverability of such expenditures is uncertain.
52
Concentrations of Risk
The majority of the Company’s cash, cash equivalents and investments are deposited with one major financial institution in the U.S. Deposits in this
institution exceed the amount of government provided insurance on such deposits.
No single customer accounted for more than 10% of total revenue for the year ended December 31, 2020. Revenue from Biosense Webster Inc.,
related to royalties, accounted for $2.8 million, or 10%, of total net revenue for the year ended December 31, 2019. No other single customer accounted for
more than 10% of total revenue for the year ended December 31, 2019. Revenue from customers in Finland accounted for $2.7 million, or 10%, of total
revenue for the year ended December 31, 2020. No other single country, other than the U.S., accounted for more than 10% of total revenue for the years
ended December 31, 2020 and 2019.
Recently Issued Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” as part of its effort to
reduce the complexity of accounting standards. The ASU is effective for fiscal years beginning after December 15, 2020. The Company does not expect
that the adoption of this new guidance will have a material impact on the Company’s financial results.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure
Requirements for Fair Value Measurement.” The primary focus of ASU 2018-13 is to improve the effectiveness of the disclosures for fair value
measurements by requiring public entities to disclose certain new information while modifying some existing disclosure requirements. The FASB issued
this ASU as part of its broader disclosure framework project, which aims to improve the effectiveness of disclosures in the notes to the financial statements
by focusing on requirements that clearly communicate the most important information to users of the financial statements. The ASU is effective for public
companies for fiscal years beginning after December 15, 2019, and interim periods therein with early adoption permitted. The Company adopted with no
impact to the Company’s financial statements.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial
Instruments” and also issued subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04 and ASU 2019-05. The standard modifies
the measurement approach for credit losses on financial instruments, including trade receivables, from an incurred loss method to a current expected credit
loss method, otherwise known as “CECL.” The standard requires the measurement of expected credit losses to be based on relevant information, including
historical experience, current conditions and a forecast that is supportable. The standard is effective for fiscal years beginning after December 15, 2022,
including interim periods within those fiscal years; early adoption is permitted. The standard must be adopted by applying a cumulative adjustment to
retained earnings. The Company anticipates adopting the standard in the first quarter of 2023, although it does not expect a significant impact to the
Company’s financial results.
3. Inventory
Inventory consists of the following:
Raw materials
Work in process
Finished goods
Reserve for obsolescence
Total inventory
4. Prepaid Expenses and Other Current Assets
Prepaid expenses and other assets consist of the following:
Prepaid expenses
Prepaid commissions
Deposits
Other assets
Total prepaid expenses and other assets
Less: Noncurrent prepaid expenses and other assets
Total current prepaid expenses and other assets
53
December 31, 2020
December 31, 2019
2,950,912 $
433,026
2,987,039
(3,075,520)
3,295,457 $
3,063,532
515,262
2,164,187
(3,895,451)
1,847,530
December 31, 2020
December 31, 2019
754,062 $
271,174
855,970
143,323
2,024,529
(308,515)
1,716,014 $
640,252
336,594
712,179
-
1,689,025
(218,103)
1,470,922
$
$
$
$
5. Property and Equipment
Property and equipment consist of the following:
Equipment
Leasehold improvements
Less: Accumulated depreciation
Net property and equipment
6. Leases
December 31, 2020
December 31, 2019
$
$
6,488,984 $
2,338,441
8,827,425
(8,632,296)
195,129 $
6,485,873
2,338,441
8,824,314
(8,573,871)
250,443
A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of
time in exchange for consideration. On January 1, 2019, the Company adopted ASU No. 2016-02 “Leases” (Topic 842) and all subsequent ASUs that
modified Topic 842. The Company determines if an arrangement contains a lease at inception. For the Company, Accounting Standards Codification
(“ASC 842”) primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee.
The Company leases its facilities under operating leases, which were previously not recognized on the Company’s balance sheets. With the adoption
of ASC 842, operating lease agreements are required to be recognized on the balance sheet as a right-of-use (“ROU”) asset and a corresponding lease
liability. These leases do not have significant rent escalation holidays, concessions, leasehold improvement incentives, or other build-out clauses. Further,
the leases do not contain contingent rent provisions. Many of our leases include both lease (i.e., fixed payments including rent, taxes, and insurance costs)
and non-lease components (i.e., common-area or other maintenance costs) which are accounted for as a single lease component as we have elected the
practical expedient to group lease and non-lease components for all leases. A portion of our principal executive office is subleased to a third party through
2021. The sublease does not have significant rent escalation holidays, concessions, leasehold improvement incentives, or other build-out clauses. In
addition, the sublease does not contain contingent rent provisions nor are there options to extend or terminate the sublease.
The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception, the Company
considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and
lease liability. The Company elected not to include short-term leases (i.e. leases with initial terms of twelve months or less) on the balance sheet.
The calculated amounts of the ROU assets and lease liabilities are impacted by the length of the lease term and the discount rate used to calculate the
present value of the minimum lease payments. ASC 842 requires the use of the discount rate implicit in the lease whenever this rate is readily determinable.
As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception. At December 31, 2020, the weighted average
discount rate for operating leases was 9.0% and the weighted average remaining lease term for operating lease term is 1.0 year.
The following table represents lease costs and other lease information:
Operating lease cost
Short-term lease cost
Sublease income
Total net lease cost
Cash paid within operating cash flows
Year Ended
December 31,
2020
2019
2,340,428 $
66,865
(986,120)
1,421,173 $
2,342,344
77,185
(986,123)
1,433,406
2,486,309 $
2,458,606
$
$
$
The initial recognition of the right of use assets in 2019 was $6.2 million. Variable lease costs consist primarily of taxes, insurance, and common area
or other maintenance costs for our leased facilities and equipment which are paid based on actual costs incurred.
54
Future minimum payments for operating leases with initial or remaining terms of one year or more as of December 31, 2020, excluding sublease
income, were as follows:
2021
Total lease payments
Less: Interest
Present value of lease liabilities
The undiscounted future cash flows to be received under the sublease are $1.0 million in 2021.
December 31, 2020
2,382,660
2,382,660
(95,173)
2,287,487
$
7. Accrued Liabilities
Accrued liabilities consist of the following:
Accrued salaries, bonus, and benefits
Accrued licenses and maintenance fees
Accrued warranties
Accrued taxes
Accrued professional services
Other
Total accrued liabilities
Less: Long term accrued liabilities
Total current accrued liabilities
8. Debt and Credit Facilities
December 31, 2020
$
$
2,044,826 $
483,879
157,615
172,744
138,359
343,043
3,340,466
(131,231)
3,209,235 $
December 31, 2019
1,421,150
483,879
141,697
206,232
383,342
340,321
2,976,621
(255,517)
2,721,104
The Company had a working capital line of credit with its primary lender, Silicon Valley Bank that matured on June 30, 2020.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the United States. Among the provisions
contained in the CARES Act is the creation of the Paycheck Protection Program that provides for Small Business Administration (“SBA”) Section 7(a)
loans for qualified small businesses. The loan can be forgiven as long as the funds are used for payroll related expenses as well as rent and utilities paid
during the twenty four week period from the date of the loan and as long as certain headcount and wage/salary levels are maintained. On April 10, 2020,
the Company was informed by its lender, Midwest BankCentre (the “Bank”), that the Bank received approval from the SBA to fund the Company’s request
for a loan under the SBA’s Paycheck Protection Program (“PPP Loan”). Per the terms of the PPP Loan, the Company received total proceeds of $2,158,310
from the Bank on April 20, 2020. In accordance with the loan forgiveness requirements of the CARES Act, the Company used the full proceeds from the
PPP Loan primarily for payroll costs, rent and utilities. The Company anticipates that the loan will be substantially forgiven. To the extent it is not forgiven,
the Company would be required to repay that portion beginning in August 2021 with a final installment in April 2022. Interest would be assessed on the
amount of the loan not forgiven at a rate of 1% per annum beginning on the date of the loan, April 20, 2020.
In accordance with generally accepted accounting principles for fair value measurement, the Company’s debt was measured at fair value (Level 2) as
of December 31, 2020 which approximated the carrying value of the debt.
9. Convertible Preferred Stock and Stockholders’ Equity
The holders of common stock are entitled one vote for each share held and to receive dividends whenever funds are legally available and when
declared 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 of the
Revolving Credit Agreement. No dividends have been declared or paid as of December 31, 2020.
2020 Equity Financing
On May 25, 2020, the Company entered into a Securities Purchase Agreement with certain accredited investors, whereby it, in a direct registered
offering, agreed to issue and sell to the investors an aggregate of 3,658,537 shares of the Company’s common stock, $0.001 par value per share, at a price
of $4.10 per share. The Company received net proceeds of approximately $15.0 million, after offering expenses.
55
2019 Equity Financing and Series B Convertible Preferred Stock
On August 7, 2019, the Company entered into a Securities Purchase Agreement with certain institutional and other accredited investors, whereby it, in
a private placement, agreed to issue and sell to the investors (i) an aggregate of 6,585,000 shares of the Company’s common stock, $0.001 par value per
share, at a price of $2.05 per share (ii) and 5,610,121 shares of the Company’s Series B Convertible Preferred Stock, $0.001 par value per share (the “Series
B Preferred Stock”), which are convertible into shares of the Company’s common stock, at a price of $2.05 per share. The Series B Preferred Stock, which
is a common stock equivalent but non-voting and with a blocker on conversion if the holder would exceed a specified threshold of voting security
ownership, is convertible into common stock on a one-for-one basis, subject to adjustment for events such as stock splits, combinations and the like as
provided in the Purchase Agreement. The Series B Preferred Stock is reported in the stockholders’ equity section of the balance sheet.
The Company received net proceeds of approximately $23.1 million, after offering expenses.
Series A Convertible Preferred Stock and Warrants
In September 2016, the Company issued (i) 24,000 shares of Series A Convertible Preferred Stock, par value $0.001 per share, with a stated value of
$1,000 per share (the “Series A Preferred Stock”), which are convertible into shares of the Company’s common stock at an initial conversion rate of $0.65
per share, subject to adjustment for events such as stock splits, combinations and the like as provided in the certificate of designations covering such Series
A Preferred Stock, and (ii) warrants to purchase an aggregate of 36,923,078 shares of common stock. The shares of Series A Preferred Stock are entitled to
vote on an as-converted basis with the common stock, subject to specified beneficial ownership issuance limitations. The Series A Preferred Stock bear
dividends at a rate of six percent (6%) per annum, which are cumulative and accrue daily from the date of issuance on the $1,000 stated value. Such
dividends will not be paid in cash except in connection with any liquidation, dissolution or winding up of the Company or any redemption of the Series A
Preferred Stock. Each holder of convertible preferred shares has the right to require us to redeem such holder’s shares of Series A Preferred Stock upon the
occurrence of specified events, which include certain business combinations, the sale of all or substantially all of the Company’s assets, or the sale of more
than 50% of the outstanding shares of the Company’s common stock. In addition, the Company has the right to redeem the Series A Preferred Stock in the
event of a defined change of control. The Series A Preferred Stock ranks senior to our common stock as to distributions and payments upon the liquidation,
dissolution, and winding up of the Company. Since the Series A Preferred Stock are subject to conditions for redemption that are outside the Company’s
control, the Series A Preferred Stock are presently reported in the mezzanine section of the balance sheet.
The warrants issued in conjunction with the Series A Preferred Stock (the “SPA Warrants”) have an exercise price of $0.70 per share subject to
adjustments for events such as stock splits, combinations, and the like as provided under the terms of the warrants. The warrants are exercisable through
September 29, 2021, subject to specified beneficial ownership issuance limitations.
The Company has reserved shares of common stock for conversion of convertible preferred stock, exercise of warrants, and the issuance of options
granted under the Company’s stock option plan and its stock purchase plan as follows:
Warrants
Series A Convertible Preferred Stock
Series B Convertible Preferred Stock
Stock award plans
Employee Stock Purchase Plan
Stock Award Plans
December 31,
2020
December 31,
2019
15,385
45,278,096
5,610,121
2,054,941
229,136
53,187,679
46,155
46,398,904
5,610,121
3,216,028
261,603
55,532,811
The Company has various stock plans that permit the Company to provide incentives to employees and directors of the Company in the form of equity
compensation. In July 2012, the Board of Directors adopted a stock incentive plan (the 2012 Stock Incentive Plan) which was subsequently approved by
the Company’s stockholders. This plan replaced 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, restricted shares
and restricted share units to employees, directors, and consultants. Options granted under the 2012 Stock Incentive Plan expire no later than ten years 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 the option on the date
the option is granted. The vesting provisions of individual options may vary, but incentive stock options generally vest 25% on the first anniversary of each
grant and 1/48 per month over the next three years. Stock appreciation rights are rights to acquire a calculated number of shares of the Company’s common
stock upon exercise of the rights. The number of shares to be issued is calculated as the difference between the exercise 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 exercise date. Stock appreciation rights granted under the
2012 Stock Incentive Plan generally vest 25% on the first anniversary of such grant and 1/48 per month 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 of stock options and stock appreciation rights.
56
Restricted stock unit grants are time-based and generally vest over a period of four years. Options granted to non-employee directors expire no later
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 the stock subject to the option on the date the
option is granted. Annual grants to directors generally vest between one and five years following grant.
At December 31, 2020, the Company had 2,054,941 remaining shares of the Company’s common stock to provide for current and future grants under
its various equity plans.
A summary of the option and stock appreciation rights activity for the year ended December 31, 2020 is as follows:
Outstanding, December 31, 2019
Granted
Exercised
Forfeited
Outstanding, December 31, 2020
Number of
Options/SARs
1,857,599 $
917,250 $
(133,852) $
(184,018) $
2,456,979 $
Range of Exercise Price
Weighted
Average
Exercise Price
per Share
0.74 - $36.20 $
3.22 - $5.13 $
0.74 - $2.15 $
0.74 - $36.20 $
0.74 - $35.20 $
2.22
4.49
1.27
5.17
2.90
As of December 31, 2020, the weighted average remaining contractual life of the options and stock appreciation rights outstanding was 7.97 years. Of
the 2,456,979 options and stock appreciation rights that were outstanding as of December 31, 2020, 901,549 were vested and exercisable with a weighted
average exercise price of $2.21 per share and a weighted average remaining term of 6.81 years.
A summary of the options and stock appreciation rights outstanding by range of exercise price is as follows:
Year Ended December 31, 2020
Range of Exercise Prices
$0.00 - $1.00
$1.01 - $2.00
$2.01- $4.00
$4.01 - $10.00
$10.01 - $20.00
$30.01 - $40.00
Options
Outstanding
568,877
64,333
883,374
923,500
-
16,895
2,456,979
Weighted
Average
Remaining
Life
Weighted
Average
Exercise Price
0.74
1.71
2.11
4.50
-
33.65
2.90
7.17
4.74
7.93
8.87
-
0.27
7.97
$
$
$
$
$
$
$
Weighted
Number of
Options
Currently
Exercisable
Average
Exercise
Price Per
Vested
Share
373,065 $
57,642 $
398,197 $
55,750 $
- $
16,895 $
901,549 $
0.74
1.79
2.06
4.09
-
33.65
2.21
The intrinsic value of options and stock appreciation rights is calculated as the difference between the exercise price of the underlying awards and the
quoted price of the Company’s common stock for the options and stock appreciation rights that were in-the-money at December 31, 2020. The intrinsic
value of the options and stock appreciation rights outstanding at December 31, 2020 was approximately $5.9 million based on a closing share price of
$5.09 on December 31, 2020. There were 884,654 fully vested options or stock appreciation rights outstanding at December 31, 2020 with an exercise
price less than the closing stock price on December 31, 2020. During the year ended December 31, 2020 the aggregate intrinsic value of options and stock
appreciation rights exercised under the Company’s stock option plans was $0.4 million. The intrinsic value of the options and stock appreciation rights
outstanding at December 31, 2019 was approximately $6.6 million based on a closing share price of $5.29 on December 31, 2019. There were 494,137
fully vested options or stock appreciation rights outstanding at December 31, 2019 with an exercise price less than the closing stock price on December 31,
2019. During the year ended December 31, 2019 the aggregate intrinsic value of options and stock appreciation rights exercised under the Company’s stock
option plans was $0.4 million. The weighted average grant date fair value of options and stock appreciation rights granted during the year ended December
31, 2020 and 2019 was $4.49 per share and $2.12 per share, respectively.
57
A summary of the restricted stock unit activity for the year ended December 31, 2020 is as follows:
Outstanding, December 31, 2019
Granted
Vested
Forfeited
Outstanding, December 31, 2020
Number of Restricted
Stock Units
Weighted Average
Grant Date Fair
Value per Unit
840,712 $
420,000 $
(147,989) $
(250) $
1,112,473 $
1.28
4.82
2.44
0.78
2.46
The intrinsic value of restricted stock units outstanding at December 31, 2020 was $5.7 million based on a closing share price of $5.09 as of
December 31, 2020. During the year ended December 31, 2020, the aggregate intrinsic value of restricted stock units vested was $0.6 million determined at
the date of vesting.
As of December 31, 2020, the total compensation cost related to options, stock appreciation rights and non-vested stock granted to employees under
the Company’s stock award plans but not yet recognized was approximately $3.2 million. This cost will be amortized over a period of up to four years over
the underlying estimated service periods and will be adjusted for subsequent changes in actual forfeitures and anticipated vesting periods.
2009 Employee Stock Purchase Plan
In 2009, the Company adopted its 2009 Employee Stock Purchase Plan (“ESPP”). In June 2014 and again in May 2019, the Company’s stockholders
approved an amendment of the ESPP to increase the number of shares authorized for issuance under the ESPP by 250,000 shares. Eligible employees have
the opportunity to participate in a new purchase period every 3 months. Under the terms of the plan, employees can purchase up to 15% of their
compensation of the Company’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, 2020, there were 229,136 remaining shares available for issuance under the
Employee Stock Purchase Plan.
10. Fair Value Measurements
The Company measures certain financial assets and liabilities at fair value on a recurring basis, including certain cash equivalents. Generally accepted
accounting principles for fair value measurement established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair
value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (“Level 1”) and the lowest
priority to unobservable inputs (“Level 3”). The 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 instruments in in markets that
are not active, or other model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3: Values are generated from model-based techniques that use significant assumptions not observable in the market.
58
The following table sets forth the Company’s assets measured at fair value on a recurring basis by level within the fair value hierarchy. As required by
the Fair Value Measurements and Disclosures topic of the Accounting Standards Codification, assets and liabilities are classified in their entirety based on
the lowest level of input that is significant to the fair value measurement.
Fair Value Measurement Using
Significant
Other
Observable
Inputs
(Level 2)
Quoted Prices in
Active Markets
for Identical
Instruments
(Level 1)
Significant
Unobservable
Inputs
(Level 3)
Total
Assets at December 31, 2020
Cash invested in Money Market Accounts
Total assets at fair value
$
$
1,429,331
1,429,331
— $
— $
1,429,331 $
1,429,331 $
—
—
As of December 31, 2020, the Company did not have any financial liabilities valued at fair value on a recurring basis. As of December 31, 2019, the
Company did not have any financial assets or liabilities valued at fair value on a recurring basis.
Level 1
The Company does not have any financial assets or liabilities classified as Level 1.
Level 2
The Company’s financial assets consist of cash equivalents invested in money market funds in the amount of $1,429,331 at December 31, 2020. These
assets are classified as Level 2 as described above and total interest income recorded for these investments was insignificant during the year ended
December 31, 2020.
Level 3
The Company does not have any financial assets or liabilities classified as Level 3.
11. Income Taxes
The provision for income taxes consists of the following:
Deferred:
Federal
State and local
Valuation allowance
Year Ended December 31,
2020
2019
$
$
(1,172,382) $
22,240
(1,150,142)
1,150,142
— $
(827,984)
(41,740)
(869,724)
869,724
—
The provision for income taxes varies from the amount determined by applying the U.S. federal statutory rate to income before income taxes as a
result of the following:
U.S. statutory income tax rate
State and local taxes, net of federal tax benefit
Permanent differences between book and tax
State rate adjustments
Prior year return-to-provision adjustment
Valuation allowance
Effective income tax rate
Year Ended December 31,
2020
2019
21.0%
1.8%
(3.5)%
(2.2)%
0.2%
(17.3)%
—%
21.0%
1.8%
(3.3)%
(0.9)%
0.3%
(18.9)%
—%
Included in permanent differences between book and tax in the above table are the differences such as incentive stock option expenses, nondeductible
meals and entertainment and stock compensation shortfalls. The state rate adjustments are a result of changes in apportionment and various state rate law
changes.
59
The components of the deferred tax asset are as follows:
Current accruals
Operating lease liabilities
Deferred revenue
Depreciation and amortization
Deferred compensation
Net operating loss carryovers
Deferred tax assets
Valuation allowance
Net deferred tax assets before deferred tax liabilities
Operating lease right-of-use assets
Capitalized compensation costs
Net deferred tax assets
December 31,
2020
2019
1,329,681 $
536,307
9,412
952,208
874,403
25,264,611
28,966,622
(28,378,947)
587,675
(524,105)
(63,570)
— $
1,660,817
1,021,891
2,749
1,095,119
576,269
23,960,965
28,317,810
(27,228,805)
1,089,005
(1,009,721)
(79,284)
—
$
$
Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” 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. Following significant ownership changes
during 2013, the Company initiated a review of the availability of its U.S. net operating loss carryforwards. As a result of this review, it was determined
that a large portion of the Company’s net operating loss carryovers would expire unused due to the limitation under IRC Section 382. The Company
reduced the net operating loss carryover and corresponding valuation allowance as a result of these limitations as reflected in the net operating loss
carryovers in the table above. The remaining net operating loss carryforwards following the ownership change have been assigned a full valuation
allowance against all net 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 the deferred
tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods
in which those temporary differences become deductible. The Company considers projected future taxable income and tax planning strategies in making
this assessment. Based upon the level of historical taxable losses, and projections for future periods over which the deferred tax assets are deductible, the
Company determined that a 100% valuation allowance of net deferred tax assets was appropriate.
On December 21, 2020, Congress approved the Consolidated Appropriations Act, 2021 (the “Appropriations Act”), which was signed into law by the
President on December 27, 2020. The Appropriations Act funds the federal government to the end of the fiscal year and provides further COVID-19
economic relief. One of the business provisions included in the Appropriations Act is clarification of the income tax deductibility of business expenses that
were paid for with Paycheck Protection Program funds. The Company will continue to monitor for additional legislation related to COVID-19 and its
impact on our results of operations.
As of December 31, 2020, we had gross federal net operating loss carryforwards of approximately $111.0 million. The federal net operating loss
carryforwards reflect accumulated book losses reduced for the 2013 IRC Section 382 ownership change limitation of $270.8 million and approximately
$106.5 million of book/tax differences and expiration of unused carryforwards. The federal net operating loss carryforwards generated prior to the 2018 tax
year will expire between 2030 and 2037. The federal net operating loss generated during and beyond 2018 will be carried forward indefinitely as a result of
changes in the tax law following the Tax Cuts and Jobs Act. As of December 31, 2020, we had gross state net operating loss carryforward of approximately
$34.2 million which will expire at various dates between 2021 and 2040 if not utilized.
The Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. As the Company has a federal net
operating loss carryforward from the year ended December 31, 2000 forward, all tax years from 2000 forward are subject to examination. As states have
varying carryforward periods, and the Company has recently entered into additional states, the states are generally subject to examination for the previous
10 years or less.
At December 31, 2020 and 2019, the Company had less than $0.1 million in reserves for uncertain tax positions. The Company recognizes interest
accrued, if any, net of tax and penalties, related to unrecognized tax benefits as components of income tax provision as applicable. As of December 31,
2020, accrued interest and penalties were less than $0.1 million.
60
12. Net Loss per Share
The following is a reconciliation of the numerator (net loss) and the denominator (number of shares) used in the basic and diluted earnings per share
calculations:
Net loss
Cumulative dividend on Series A Convertible Preferred Stock
Net loss attributable to common stockholders
Weighted average number of common shares and equivalents:
Basic EPS
Diluted EPS
Year Ended December 31,
2020
2019
(6,646,459) $
(1,369,421)
(8,015,880) $
72,746,268
(0.11) $
(0.11) $
(4,591,284)
(1,429,400)
(6,020,684)
63,051,581
(0.10)
(0.10)
$
$
$
$
The following table sets forth the number of common shares that were excluded from the computation of diluted earnings per share because their
inclusion would have been anti-dilutive as follows:
Shares issuable upon vesting/exercise of:
Options to purchase common stock
Series A Convertible Preferred Stock and Accumulated Dividends
Series B Convertible Preferred Stock
Restricted stock units
Warrants
13. Employee Benefit Plan
December 31,
2020
2019
2,456,979
43,483,062
5,610,121
1,112,473
15,385
52,678,020
1,857,599
42,497,068
5,610,121
840,712
46,155
50,851,655
The Company offers employees the opportunity to participate in a 401(k) plan. The Company recognized expense of approximately $0.3 million and
$0.2 million for the years ended December 31, 2020 and 2019. The Company matches employee contributions up to 3% of each participating employee’s
salary.
14. Product Warranty Provisions
The Company’s standard policy is to warrant all capital systems against defects in material or workmanship for one year following installation. The
Company’s estimate of costs to service the warranty obligations is based on historical experience and current product performance trends. A regular review
of warranty obligations is performed to determine the adequacy of the reserve and adjustments are made to the estimated warranty liability as appropriate.
Accrued warranty, which is included in other accrued liabilities, consists of the following:
Warranty accrual, beginning of the fiscal period
Accrual adjustment for product warranty
Payments made
Warranty accrual, end of the fiscal period
15. Commitments and Contingencies
December 31, 2020
$
$
141,697 $
49,974
(34,056)
157,615 $
December 31, 2019
149,464
56,118
(63,885)
141,697
The Company at times becomes a party to claims in the ordinary course of business. Management believes that the ultimate resolution of pending or
threatened proceedings will not have a material effect on the financial position, results of operations or liquidity of the Company.
61
16. Segment Information
The Company considers reporting segments in accordance with general accounting principles for disclosures about segments of an enterprise and
related information. The Company’s system and disposable devices are developed and marketed to a broad base of hospitals in the United States and
internationally. The Company considers all such sales to be part of a single operating segment. Geographic revenues for the years ended December 31,
2020 and 2019 were as follows:
United States
International
Total
Year Ended December 31,
2020
2019
$
$
17,442,883 $
9,187,152
26,630,035 $
19,265,635
9,636,915
28,902,550
All of the Company’s long-lived assets are located in the United States. Revenues are attributed to countries based on the location of the customer.
17. Subsequent Events
On February 23, 2021, the Company and David L. Fischel, the President and Chief Executive Officer of the Company, entered into a Performance Share
Unit Award Agreement (the “PSU Agreement”), pursuant to which the Company granted Mr. Fischel Performance Share Units (the “PSUs”) representing
the right to receive up to an aggregate of 13,000,000 shares of common stock of the Company, subject to the terms and conditions set forth in the PSU
Agreement. The PSU Agreement is available in a Form 8-K filed with the Securities and Exchange Commission on February 24, 2021.
On March 1, 2021, the Company entered into an office lease agreement (the “Lease”) with Globe Building Company (the “Landlord”), under which the
Company will lease executive office space and manufacturing facilities of approximately 43,100 square feet of rentable space located at 710 N. Tucker
Boulevard, St. Louis, Missouri (the “Premises”) that will serve as the Company’s new principal executive and administrative offices and manufacturing
facility. The Lease for the Premises is effective at the later of January 1, 2022 or the date on which the Company has received an occupancy permit, and has
a term of ten years, with two renewal options of five years each. The minimum annual rent under the terms of the Lease ranges from approximately $0.8
million in 2022 to $1.0 million in 2031. At the Lease commencement, the Company will relocate its current St. Louis, Missouri operations to the Premises
in the new building. The Lease is available in a Form 8-K filed with the Securities and Exchange Commission on March 4, 2021.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Report on Internal Control Over Financial Reporting
As of December 31, 2020, the Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer,
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 Chief Executive Officer and
Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective.
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules
13a-15(f) and 15(d)-15(f) promulgated under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles in the United States of America. The Company’s management assessed the effectiveness of our internal control over
financial reporting as of December 31, 2020. In making the assessment, management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 Framework) in Internal Control—Integrated Framework. Based on our assessment, our management has
concluded that our internal control over financial reporting is effective as of December 31, 2020.
A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is
based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance
with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud
may occur and not be detected.
62
Based on the evaluation of internal control over financial reporting, the Chief Executive Officer and Chief Financial Officer have concluded that there
have been no changes in the Company’s internal controls over financial reporting during the period that is covered by this report that has materially affected
or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
Certain information required by Part III is omitted from this Report on Form 10-K since we intend to file our definitive Proxy Statement for our next
Annual Meeting of Stockholders, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended (the “Proxy Statement”), no later than
April 30, 2021, and certain information to be included in the Proxy Statement is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information 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 by reference to the
information set forth in the section titled “Delinquent Section 16(a) Reports” 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 the section 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 as
amended from time to time. Stockholders may request a free copy of our Code of Business Conduct and Ethics from our Chief Financial Officer as follows:
Stereotaxis, Inc.
Attn: Kimberly R. Peery
4320 Forest Park Avenue, Suite 100
St. Louis, MO 63108
314-678-6100
We intend to promptly disclose any amendments to, or waivers from, any provision of the Code of Business Conduct and Ethics by posting the
relevant material on our website (www.stereotaxis.com) in accordance with SEC rules.
The following is information with respect to our executive officers:
David L. Fischel
Chief Executive Officer and Chairman of the Board since February 2017
Director since September 2016
Mr. Fischel, 34, has served as Chief Executive Officer and Chairman of the Board since February 2017. He has served as a director of Stereotaxis since
leading the equity investment and positive strategic initiatives announced in September 2016. He has served for over ten years as Principal and portfolio
manager for medical device investments at DAFNA Capital Management, LLC. In addition to his research responsibilities, Mr. Fischel has been deeply
involved in all aspects of DAFNA Capital’s operations including legal, accounting, IT, compliance, human resources and marketing. Prior to joining
DAFNA Capital, he was a research analyst at SCP Vitalife, a healthcare venture capital fund. Mr. Fischel completed his B.S. magna cum laude in Applied
Mathematics with a minor in Accounting at the University of California at Los Angeles and received his MBA from Bar-Ilan University in Tel Aviv. He is
a Certified Public Accountant, Chartered Financial Analyst and Chartered Alternative Investment Analyst.
Kimberly R. Peery
Chief Financial Officer
Officer since October 2019
Ms. Peery, 52, was appointed as the Chief Financial Officer in October 2019. She joined the Company in 2003 and has held various positions of increasing
responsibilities including Vice President of Finance and Information Systems since November 2016 and Controller from April 2013 to November 2016.
Prior to joining the Company, she served as a controller at various private companies. Ms. Peery is a Certified Public Accountant.
63
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item regarding executive compensation is incorporated by reference to the information set forth in the section titled
“Executive Compensation” in our Proxy Statement.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The information required by this item regarding security ownership of certain beneficial owners and management is incorporated by reference to the
information set forth in the section titled “Security Ownership of Certain Beneficial Owners and Management” in our Proxy Statement. The information
required by this item regarding securities authorized for issuance under equity plans is incorporated by reference to the information set forth in the section
titled “Executive Compensation” in our Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this item regarding certain relationships and related transactions is incorporated by reference to the information set forth
in the section titled “Certain Relationships and Related Party Transactions” in our Proxy Statement. The information required by this item regarding
director independence is incorporated by reference to the information set forth in the section titled “Corporate Governance Information” in our Proxy
Statement.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item regarding principal accounting fees and services is incorporated by reference to the information set forth in the
section titled “Principal Accounting Fees and Services” in our Proxy Statement.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Annual Report on Form 10-K
PART IV
(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 the
financial 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 is set
forth in the financial statements or related notes thereto.
(3) Exhibits
See Exhibit Index appearing on page 66 herein.
64
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
Schedule of Valuation and Qualifying Accounts
Allowance for doubtful accounts and returns:
Year ended December 31, 2020
Year ended December 31, 2019
Allowance for inventories valuation:
Year ended December 31, 2020
Year ended December 31, 2019
$
$
$
$
Balance at
Beginning of
Year
Additions
Charged to
Cost and
Expenses
Deductions
Balance at the
End of Year
380,212
398,847
(29,411)
(14,535)
(227,187) $
(4,100) $
123,614
380,212
3,895,451
4,460,811
126,616
(351,925)
(946,547) $
(213,435) $
3,075,520
3,895,451
65
Number
Description
EXHIBIT INDEX
3.1a
3.1b
3.2
3.3
3.4
4.1
4.2
4.3
4.4
10.1a#
10.1b#
Restated Articles of Incorporation of the Registrant, incorporated by reference to Exhibit 3.1 of the Registrant’s Form 10-Q (File No. 000-
50884) for the fiscal quarter ended September 30, 2004.
Certificate of Amendment to Amended and Restated Certificate of Incorporation, incorporated by reference to Exhibit 3.1 of the
Registrant’s Form 8-K (File No. 000-50884) filed on July 10, 2012.
Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock, incorporated by reference to Exhibit 3.1 of the
Registrant’s Current Report on Form 8-K (File No. 001-36159) filed on September 30, 2016.
Restated Bylaws of the Registrant, incorporated by reference to Exhibit 3.2 of the Registrant’s Form 10-Q (File No. 000-50884) for the
fiscal quarter ended September 30, 2004.
Certificate of Designations, Preferences and Rights of Series B Convertible Preferred Stock, incorporated by reference to Exhibit 3.1 of the
Registrant’s Current Report on Form 8-K (File No. 001-36159) filed on August 09, 2019.
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.
Form of Warrant issued pursuant to that certain Securities Purchase Agreement, dated September 26, 2016, incorporated by reference to
Exhibit 4.1 of the Registrant’s Current Report on Form 8-K (file No. 001-36159) filed on September 28, 2016.
Form of Amended and Restated Warrant of Stereotaxis, Inc. issued pursuant to that certain Consent and Amendment, dated as of February
28, 2018, incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K (File No. 001-36159) filed on March 6,
2018.
Description of Registrant’s securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, incorporated by reference to
Exhibit 4.7 of the Registrant’s Form 10-K/A (File No. 001-36159) filed on April 9, 2021.
Amended and Restated Stereotaxis, Inc. 2012 Stock Incentive Plan, effective February 22, 2017, incorporated by reference to Exhibit 10.1
of the Registrant’s Form 10-Q (File No. 001-36159) for the fiscal quarter ended June 30, 2017.
Amended and Restated Stereotaxis, Inc. 2012 Stock Incentive Plan, effective February 9, 2016, incorporated by reference to Exhibit 10.2 of
the Registrant’s Form 10-Q (File No. 001-36159) for the fiscal quarter ended June 30, 2016.
66
10.1c#
10.1d#
10.1e#
10.1f#
10.1g#
10.2#
10.3#
10.4#
Form of Restricted Share Unit Terms of Award Under Stereotaxis, Inc. 2012 Stock Incentive Plan, March 5, 2013, incorporated by reference
to Exhibit 10.1d of the Registrant’s Form 10-K (File No. 000-50884) for the fiscal year ended December 31, 2012.
Form of Restricted Share Unit Terms of Award Under Stereotaxis, Inc. 2012 Stock Incentive Plan, Director Award, incorporated by
reference to Exhibit 10.1 of the Registrant’s Form 10-Q (File No. 001-36159) for the fiscal quarter ended March 31, 2017.
Form of Incentive Stock Option Terms of Award Under Stereotaxis, Inc. 2012 Stock Incentive Plan, incorporated by reference to Exhibit
10.1f of the Registrant’s Form 10-K (File No. 001-36159) filed on March 20, 2018 for the fiscal year ended December 31, 2017.
Form of Non-Qualified Stock Option Terms of Award Under Stereotaxis, Inc. 2012 Stock Incentive Plan, incorporated by reference to
Exhibit 10.1g of the Registrant’s Form 10-K (File No. 001-36159) filed on March 20, 2018 for the fiscal year ended December 31, 2017.
Form of Restricted Share Unit Terms of Award Under Stereotaxis, Inc. 2012 Stock Incentive Plan, incorporated by reference to Exhibit 10.2
of Registrant’s Form 10-Q (File No. 000-50884) for the fiscal quarter ended September 30, 2012.
2002 Stock Incentive Plan, as amended and restated June 10, 2009, incorporated by reference to Exhibit 10.2 of the Registrant’s Form 10-Q
(File No. 000-50884) for the fiscal quarter ended June 30, 2009.
Amended and Restated Stereotaxis, Inc. Employee Stock Purchase Plan, as adopted March 27, 2014, incorporated by reference to Exhibit
10.5 of the Registrant’s Form 10-Q (File No. 001-36159) for the fiscal quarter ended June 30, 2014.
Summary of Non-Employee Director Compensation Program effective January 1, 2017, incorporated by reference to Exhibit 10.1 of the
Registrant’s Form 10-Q (File No. 001-36159) for the fiscal quarter ended March 31, 2017.
10.5#
Executive Employment Agreement, dated December 17, 2020, by and between Stereotaxis, Inc. and David L. Fischel, incorporated by
reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (File No. 001-36159) filed on December 18, 2020.
10.6#
Performance Share Unit Award Agreement, dated February 23, 2021, by and between Stereotaxis, Inc. and David L. Fischel, incorporated
by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (File No. 001-36159) filed on February 24, 2021.
10.7a†
10.7b†
10.7c†
10.8a†
10.8b†
Collaboration Agreement dated June 8, 2001, between the Registrant and Siemens AG, Medical Solutions, 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 10.9.
Extended Collaboration Agreement dated May 27, 2003, between the Registrant and Siemens AG, Medical Solutions, 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 10.10.
Amendment to Collaboration Agreement dated May 5, 2006, between the Company and Siemens Aktiengesellschaft, Medical Solutions,
incorporated by reference to Exhibit 10.1 of the Registrant’s Form 10-Q (File No. 000-50884) for the fiscal quarter ended June 30, 2006.
Development and Supply Agreement dated May 7, 2002, 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 on May 7, 2004, as amended thereafter,
at Exhibit 10.11.
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 on May 7,
2004, as amended thereafter, at Exhibit 10.12.
67
10.8c†
Alliance Expansion Agreement, dated as of May 4, 2007, between Biosense Webster, Inc. and the Registrant, incorporated by reference to
Exhibit 10.1 of the Registrant’s Form 10-Q (File No. 000-50884) for the fiscal quarter ended June 30, 2007.
10.8d†
Second Amendment to Development Alliance and Supply Agreement, dated as of July 18, 2008, between the Registrant and Biosense
Webster, Inc., incorporated by reference to Exhibit 10.1 of the Registrant’s Form 10-Q (File No. 000-50884) for the fiscal quarter ended
September 30, 2008.
10.8e
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.
10.8f
Fourth Amendment to Development Alliance and Supply Agreement with Biosense Webster, Inc., effective May 1, 2010, incorporated by
reference to Exhibit 10.1 of the Registrant’s Form 10-Q (File No. 000-50884) for the fiscal quarter ended March 31, 2010.
10.8g
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.
10.8h†
10.8i
Sixth Amendment and Catheter and Mapping System Extension to Development Alliance and Supply Agreement with Biosense Webster,
Inc., dated January 3, 2011, effective as of December 17, 2010, incorporated by reference to Exhibit 10.13h of the Registrant’s Form 10-K
(File No. 000-50884) for the fiscal year ended December 31, 2010.
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.
10.8j
Eighth Amendment to the Development Alliance and Supply Agreement effective June 19, 2018, among the Company and Biosense
Webster, Inc., incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K (File No. 001-36159) filed on June 25, 2018.
10.9
10.10†
Form of Indemnification Agreement between the Registrant and its directors and executive officers, 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 10.14.
Letter Agreement, effective October 6, 2003, between the Registrant and Philips Medizin Systeme G.m.b.H., 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 10.16.
10.11a†
Office Lease dated November 15, 2004, between the Registrant and Cortex West Development I, LLC, incorporated by reference to Exhibit
10.39 of the Registrant’s Form 10-K (File No. 000-50884) for the fiscal year ended December 31, 2004.
10.11b
Amendment to Office Lease dated November 30, 2007, between the Registrant and Cortex West Development I, LLC, 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, 2007.
10.11c
10.11d
10.11e
10.11f
Second Amendment to Office Lease dated May 1, 2013, between Registrant and Wexford 4320 Forest Park, LLC, successor to Cortex West
Development I, LLC, incorporated by reference to Exhibit 10.17c of the Registrant’s Form 10-K (File No. 001-36159) for the fiscal year
ending December 31, 2013.
Third Amendment to Office Lease dated August 14, 2013, between Registrant and Wexford 4320 Forest Park, LLC, successor to Cortex
West Development I, LLC, incorporated by reference to Exhibit 10.17d of the Registrant’s Form 10-K (File No. 001-36159) for the fiscal
year ending December 31, 2013.
Fourth Amendment to Office Lease, effective October 1, 2015, between Registrant and Wexford 4320 Forest Park, LLC, successor to
Cortex West Development I, LLC, incorporated by reference to Exhibit 10.13e of the Registrant’s Form 10-K (File No. 001-36159) for the
fiscal year ending December 31, 2015.
Fifth Amendment to Office Lease, effective January 10, 2019, between Registrant and VTR LS 4320 FOREST PARK, LLC successor to
Cortex West Development I, LLC, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (File No. 001-
36159) filed on January 10, 2019.
68
10.11g
Office Lease dated February March 1, 2021, between the Registrant and Globe Building Company, GP, incorporated by reference to Exhibit
10.1 of the Registrant’s Current Report on Form 8-K (File No. 001-36159) filed on March 4, 2021.
10.12a
Second Amended and Restated Loan and Security Agreement, effective November 30, 2011, by and among 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 fiscal year ended December 31, 2011.
10.12b
First Loan Modification Agreement (Domestic), between the Company, Stereotaxis International, Inc. and Silicon Valley Bank, dated March
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.
10.12c
10.11d
10.12e
10.12f
10.12g
10.12h
10.12i
10.12j
10.12k
Second Amendment to the Amended and Restated Loan and Security Agreement (Domestic) dated May 1, 2012, 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 (File No. 000-50884) filed on May 2, 2012.
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 Registration Statement
on Form S-1 (File No. 000-50884) filed May 23, 2012.
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 fiscal year
ended December 31, 2012.
Fifth Loan Modification Agreement (Domestic) dated March 29, 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 (File No. 000-50884) filed on April
1, 2013.
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 (File No. 000-50884) filed
on July 1, 2013.
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 (File No. 000-50884)
filed on August 2, 2013.
Eighth Loan Modification Agreement (Domestic), dated August 30, 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 (File No. 000-50884) filed on
September 3, 2013.
Ninth Loan Modification Agreement (Domestic), dated March 28, 2014, 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 (File No. 001-36159) filed on March
31, 2014.
Tenth Loan Modification Agreement (Domestic), dated March 27, 2015, between Silicon Valley Bank, the Company, and Stereotaxis
International, 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.
10.12l
Eleventh Loan Modification Agreement (Domestic), dated May 10, 2016, between the Company, Stereotaxis International, Inc., and Silicon
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.
10.12m
10.12n
10.12o
Third Amended and Restated Loan and Security Agreement, effective November 7, 2017, among the Company, Stereotaxis International,
Inc., and Silicon Valley Bank, incorporated by reference to Exhibit 10.1 of the Registrant’s Form 10-Q (File No. 001-36159) for the fiscal
quarter ended September 30, 2017.
First Amendment to Third Amended and Restated Loan and Security Agreement, dated April 26, 2018, between Silicon Valley Bank, the
Company, and Stereotaxis International, Inc., incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (File
No. 001-36159) filed on April 30, 2018.
Second Amendment to and Reinstatement of Third Amended and Restated Loan and Security Agreement, dated June 27, 2019, between
Silicon Valley Bank, the Company, and Stereotaxis International, Inc., incorporated by reference to Exhibit 10.1 of the Registrant’s Current
Report on Form 8-K (File No. 001-36159) filed on July 1, 2019.
69
10.13
Securities Purchase Agreement, dated September 26, 2016, between the Company and certain investors named therein, incorporated by
reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (File No. 001-36159) filed on September 28, 2016.
10.14
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 on September 28, 2016.
10.15
10.16
Consent and Amendment, dated as of February 28, 2018, by and between Stereotaxis, Inc. and the holders identified on the signature pages
thereto, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8–K (File No. 001-36159) filed on March 6,
2018.
Securities Purchase Agreement dated as of August 7, 2019 by and among Stereotaxis, Inc. and the investors listed on the Schedule of Buyers
attached thereto, incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8–K (File No. 001-36159) filed on
August 8, 2019.
10.17
Registration Rights Agreement dated as of August 7, 2019 by and among Stereotaxis, Inc. and the Buyers party thereto, incorporated by
reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8–K (File No. 001-36159) filed on August 8, 2019.
10.18
Loan Agreement, dated April 20, 2020, between the Registrant and Midwest BankCentre, incorporated by reference to Exhibit 10.1 of the
Registrant’s Form 10-Q (File No. 001-36159) filed on May 11, 2020.
10.19
Securities Purchase Agreement between the Company and the Investors, dated as of May 25, 2020 incorporated by reference to Exhibit 10.1
of the Registrant’s Current Report on Form 8-K (File No. 001-36159) filed on May 25, 2020.
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.
Consent of Ernst & Young LLP.
Rule 13a-14(a)/15d-14(a) Certification (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, executed by Chief Executive Officer).
Rule 13a-14(a)/15d-14(a) Certification (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, executed by Chief Financial Officer).
Section 1350 Certification (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Chief Executive Officer).
Section 1350 Certification (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Chief Financial Officer).
23.1
31.1
31.2
32.1
32.2
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 Exchange
Commission.
Confidential treatment requested as to certain portions, which portions are omitted and filed separately with the Securities and Exchange
Commission.
70
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIGNATURES
Date: March 12, 2021
By:
/s/ David L. Fischel
David L. Fischel
Chief Executive Officer
STEREOTAXIS, INC. (Registrant)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David L. Fischel and
Kimberly R. Peery, and each of them, his true and lawful attorneys-in-fact and agents, with full Power of substitution and resubstitution, for him and in his
name, 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 and
instruments incidental thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full Power and authority to do and perform each and every act
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, hereby ratifying
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 cause to 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 the
Registrant and in the capacities and on the dates indicated.
Signature
/s/ David L. Fischel
David L. Fischel
/s/ Kimberly R. Peery
Kimberly R. Peery
/s/ David W. Benfer
David W. Benfer
/s/ Nathan Fischel
Nathan Fischel
/s/ Joe Kiani
Joe Kiani
/s/ Arun Menawat
Arun Menawat
/s/ Robert J. Messey
Robert J. Messey
/s/ Ross B. Levin
Ross B. Levin
Chairman of the Board of Directors and Chief Executive Officer
March 12, 2021
Title
Date
(principal executive officer)
Chief Financial Officer
(principal financial officer and principal accounting officer)
Director
Director
Director
Director
Director
Director
71
March 12, 2021
March 12, 2021
March 12, 2021
March 12, 2021
March 12, 2021
March 12, 2021
March 12, 2021
Exhibit 23.1
We consent to the incorporation by reference in the following Registration Statements:
Consent of Independent Registered Public Accounting Firm
(1) Registration Statement (Form S-8 No. 333-197930) of Stereotaxis, Inc. pertaining to the Stereotaxis, Inc. 2009 Employee Stock Purchase Plan
(2) Registration Statements (Form S-8 Nos. 333-197929, 333-213052, 333-219860 and 333-233847) 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 common stock of
Stereotaxis, Inc.
(4) Registration Statement (Form S-3 No. 333-233846) of Stereotaxis, Inc. pertaining to the registration of 12,195,121of shares of common stock of
Stereotaxis, Inc.
(5) Registration Statement (Form S-3 No. 333-237194) of Stereotaxis, Inc. pertaining to the registration of up to $100,000,000 of debt securities, common
stock, preferred stock, warrants, rights, or units of Stereotaxis, Inc.
of our reports dated March 12, 2021 with respect to the financial statements and schedule of Stereotaxis, Inc., included in this Annual Report (Form 10-K)
for the year ended December 31, 2020.
/s/ Ernst & Young LLP
St. Louis, Missouri
March 12, 2021
Exhibit 31.1
Certification of Principal Executive Officer
I, 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 to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects 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 (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-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 our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us 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 designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial 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 about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably 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 financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably 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’s internal
control over financial reporting.
Date: March 12, 2021
/s/ David L. Fischel
David L. Fischel
Chief Executive Officer
Stereotaxis, Inc.
(Principal Executive Officer)
Exhibit 31.2
Certification of Principal Financial Officer
I, Kimberly R. Peery, 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 to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects 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 (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-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 our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us 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 designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial 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 about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably 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 financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably 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’s internal
control over financial reporting.
Date: March 12, 2021
/s/ Kimberly R. Peery
Kimberly R. Peery
Chief Financial Officer
Stereotaxis, Inc.
(Principal Financial Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the annual report of Stereotaxis, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2020 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, David L. Fischel, Chief Executive Officer of the Company, certify, pursuant to
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 Act of
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 the Company.
Date: March 12, 2021
/s/ David L. Fischel
David L. Fischel
Chief Executive Officer
Stereotaxis, Inc.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the annual report of Stereotaxis, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2020 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Kimberly R. Peery, Chief Financial Officer of the Company, certify, pursuant to
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 Act of
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 the Company.
Date: March 12, 2021
/s/ Kimberly R. Peery
Kimberly R. Peery
Chief Financial Officer
Stereotaxis, Inc.