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
● Physicians may not commit enough time to sufficiently learn our system.
● Customers may choose to purchase competing products and not ours.
Summary
of Risks Relating to Technology and Intellectual Property Matters
● We may be unable to protect our technology from use by third parties.
● Software errors or other defects may be discovered in our products.
Summary
of Risks Relating to Regulatory and Legal Matters
Summary
of Risks Related to Our Common Stock
Summary
of General Risk Factors
● General economic conditions could materially adversely impact us.
● We may have to repay outstanding indebtedness.
● We face currency and other risks associated with international operations.
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.
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.
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:
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.
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:
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.
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:
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.
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.
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.
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;
● 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.
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