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
Risks
Related to Our Business and Business Operations
● Physicians may not commit enough time to sufficiently learn our system.
● Customers may choose to purchase competing products and not ours.
Risks
Related to our Recently Completed Acquisition of APT
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.
Risks
Relating to Regulatory and Legal Matters
Risks
Related to Our Common Stock
Risks
Related to the February 2021 CEO Performance Stock Unit Grant
Summary
of General Risk Factors
● General economic conditions could materially adversely impact us.
● 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; or
● respond to competitive pressures.
Our
failure to do any of these things could result in lower revenue and adversely affect our financial condition and results of operations,
and we may have to curtail or cease operations.
Macroeconomic
and geopolitical factors, as well as pandemics, epidemics or outbreaks of infectious disease could have an adverse effect our supply
chain, our hospital customers buying patterns, and our ability to raise capital and could otherwise disrupt our normal business operations.
Future
results of operations could be materially adversely impacted by macroeconomic and geopolitical factors. The Company continues to experience
difficulties with periodic worldwide supply chain disruptions, including shortages and inflationary pressures, tariffs and other trade
regulations that are or may be imposed, and logistics delays which make it difficult for us to source parts and ship our products. We
have generally been able to conduct normal business activities albeit in a more deliberate manner than prior to the pandemic, including
taking action to increase inventory levels and engaging in discussions with our vendors on contractual obligations, but we cannot guarantee
that they will not be impacted more severely in the future. Our suppliers and contract manufacturers have experienced, and may continue
to experience, similar difficulties. If our manufacturing operations or supply chains are materially interrupted, it may not be possible
for us to timely manufacture or service our products at required levels, or at all. Changes in economic conditions and supply chain constraints
could lead to higher inflation than previously experienced or expected, which could, in turn, lead to an increase in costs. We may be
unable to raise the prices of our products sufficiently to keep up with the rate of inflation. A material reduction or interruption in
any of our manufacturing processes or a substantial increase in costs would have a material adverse effect on our business, operating
results, and financial condition.
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.
Hospitals continue to experience challenges with staffing and cost pressures as supply chain constraints and inflation drive up operating
costs. 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. Our hospital customers have also experienced challenges in
sourcing supplies, such as catheters, needed to perform procedures. Such shortages have, and may continue to, put pressure on procedures
and our disposable revenue.
Any
disruption to the capital markets could negatively impact our ability to raise capital. If the capital markets are disrupted for an extended
period and we need to raise additional capital, such capital may not be available on acceptable terms, or at all. 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 system installations, service contracts and disposable products.
Pandemics
may negatively affect demand for both our systems and our disposable products in the future. For example, during the COVID-19 pandemic,
we had negative demand for our products, and generally experienced other business disruptions, such as travel restrictions on us and
our third-party distributors. All of this negatively affected our complex sales, marketing, installation, distribution and service network
relating to our products and services, and that may occur again in the future if we experience another pandemic or a significant resurgence
of COVID-19. We also experienced reductions in demand for our disposable products as our healthcare customers (physicians and hospitals)
re-prioritized the treatment of patients and diverted resources away from non-pandemic related areas, leading to the performance of fewer
procedures in which our disposable products are used. Significant decreases to our capital or recurring revenues could have a material
adverse effect on our business, operating results, and financial condition. While we cannot reliably anticipate whether there will be
new or periodic resurgences of pandemic-related issues, or the impact or the severity of any such pandemics or resurgences, we believe
that any such instances could cause periodic disruptions to our manufacturing operations, supply chains, procedures volumes, service
activities, and capital system orders and placements, any of which could have a material adverse effect on our business, financial condition,
results of operations, or cash flows. The impact has varied widely over time by individual geography.
We
may not be able to fund our business operations in the same manner as we have done historically 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 2024 operating expenses will exceed its
2024 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 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 systems. The robotic
magnetic navigation system is a novel device, and hospitals and physicians are traditionally cautious in adopting 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.
While we have partnered with fluoroscopy manufacturers to reduce the cost of acquisition, the ongoing cost of ownership, and the complexity
of installation of a robotic electrophysiology practice, this strategy may not be successful. If hospitals do not widely adopt our systems
or partnered products or if they decide that our systems 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,
liquidity position, 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 or other products. We cannot assure you that
we will recognize revenue in any 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. 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 most of our products have been delivered less than one year after 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, as noted above, the global macroeconomic and
geopolitical factors have caused, and may continue to cause, our customers to 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 fund company operations
going forward.
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 compatible products. The maintenance of these collaborations, or the establishment
of equivalent alternatives, is critical to our commercialization efforts.
In
the past, we have experienced disruptions and changes in our strategic relationships. There are no guarantees that any existing strategic
relationships will continue and efforts are ongoing to ensure the availability of compatible 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:
For
example, supply chain disruptions have led to vendor discussions regarding contractual performance which we intend to resolve through
continued negotiations but have required us to assert performance issues under our vendor agreements. We may not be successful in our
claims, and even if we are successful, we may continue to experience supply disruptions. Our collaborators range from small and midsized
organizations which may have limited resources to 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. For example,
our agreement with Biosense Webster expired by its terms on December 31, 2022. While the agreement provides for a continuation of supply
by Biosense Webster of the co-developed catheters to us or our customers for three years following the termination, we no longer receive
royalty payments from Biosense Webster. Although we are in the process of establishing alternative catheter supply arrangements, including
the development of a fully owned magnetically enabled ablation catheter, we cannot guarantee that those arrangements will be successful.
Failure to establish alternatives may reduce the likelihood that physician users will continue to use our technology which will have
a negative impact on our future revenue, cash flow and operations. Even if we are successful in establishing one or more alternatives,
we cannot guarantee that those arrangements will replace the royalty revenue stream previously received from the sale of the Biosense
Webster catheter.
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.
For
physicians to learn to use the robotic magnetic navigation system, they must attend structured training sessions 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 enough 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 four 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 in catheter robotics 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
have obtained the CE marking for us to market the Stereotaxis MAGiC catheter, a robotically-navigated magnetic ablation catheter, designed
to perform minimally invasive cardiac ablation procedures, in Europe and are pursuing regulatory approval in the U.S. and various other
global geographies. We are aware of two other companies that also produce and sell magnetically enabled catheters. Approval processes
can be lengthy and uncertain, submissions may require revised or additional non-clinical and clinical data, and regulatory applications
could be denied.
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 will
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, including incurring an accumulated deficit of $561.7 million as of December 31,
2024, and we expect to incur losses into the future as we continue the commercialization of our products. 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
rely on other parties to manufacture, and in some cases to service, magnetically compatible x-ray systems, catheter sensing technology,
and a number of disposable interventional devices for use with our robotic magnetic navigation system. If these parties cannot or do
not manufacture sufficient quantities to meet customer demand, or if their manufacturing processes are disrupted, or if they are not
able to service or warrant their products, 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 sought to prohibit the U.S. government from contracting with companies who
use the products or services of certain Chinese companies.
While
we believe that these regulations do not 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 Trump administrations has implemented, or is considering
the imposition of, tariffs on certain foreign goods, including on our products that emanate from China as described above and we cannot
predict the implementation or effects of any such tariffs or proposed tariffs, or any 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 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 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 workforce. 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
Related to our Recently Completed Acquisition of APT
We
may be unable to successfully integrate APT into our business and may fail to realize any or all of the anticipated benefits of the acquisition,
or those benefits may take longer to realize than expected.
Prior
to the completion of our acquisition of APT, both companies previously operated independently and manufactured different products. The
success of the acquisition will depend, in part, on our ability to (i) successfully integrate APT’s businesses into Stereotaxis,
(ii) successfully manufacture, commercialize, develop and sell APT’s catheters and related products, and (iii) realize the anticipated
benefits, including synergies, cost savings, innovation opportunities and operational efficiencies, from the acquisition, all in a manner
that does not materially disrupt existing customer, supplier and employee relations. If we are unable to achieve these objectives within
the anticipated time frame, or at all, the anticipated benefits may not be realized fully or at all, or may take longer to realize than
expected, and the value of our common stock may decline.
The
integration of APT into our business may result in material challenges, including, without limitation:
● the diversion of management’s attention from ongoing business concerns;
● managing a more complex combined business;
● coordinating geographically separate locations;
Many
of these factors are outside of our control, and any one of them could result in delays, increased costs, decreases in the amount of
expected cost savings or synergies and diversion of management’s time and energy, which could materially affect our financial position,
results of operations and cash flows.
Our
future results may be adversely impacted if we do not effectively manage APT’s catheter manufacturing business following the completion
of the acquisition.
As
a result of the acquisition, we will be managing APT’s ongoing business of manufacturing, commercializing, development and sales
of APT’s catheters and related products and services. The manufacturing process of catheters is complex, highly technical, and
our prior experience in this field is dated. The process can be subject to periodic worldwide supply chain disruptions, including labor
shortages and inflationary pressures, and logistics delays which make it difficult for us to source parts and ship our products. We may
require a higher level of overhead than currently anticipated. Our ability to successfully manage this new aspect of our business will
depend, in part, upon management’s ability to design and implement strategic initiatives that address not only the integration
of APT into us, but also the increased scope of the combined business with its associated increased costs and complexity. There can be
no assurances that we will be successful in manufacturing catheter products or that we will realize the expected operating efficiencies,
cost savings and other benefits anticipated from the acquisition.
The
issuance of the Earnout Consideration will result in dilution to our stockholders and may adversely affect us, including the market price
of our securities.
At
the closing of the acquisition of APT on July 31, 2024, we issued 1,486,620 common shares to the selling stockholder of APT pursuant
to the share purchase agreement. In addition, the share purchase agreement requires us to issue additional earnout common shares to the
selling stockholder upon achievement of certain global and US revenue targets for APT products as well as US and Europe regulatory approvals
of certain robotically navigated catheters that APT will develop.
The
share purchase agreement obligated us to file a resale registration statement relating to the upfront stock consideration and additional
earnout shares. This prospectus is a part of that resale registration statement and covers the 1,486,620 common shares and an estimated
4,613,380 additional earnout common shares. However, the exact number of shares that may be issued under the share purchase agreement
for such milestones will be calculated based on the average of the closing per share price of Stereotaxis common stock immediately prior
to the dates such revenue performance and/or regulatory milestones are achieved, up to $24 million in total value through September 30,
2029, not to exceed 19.9% of the total number of shares of the Company’s common stock issued and outstanding immediately prior
to July 31, 2024 (the “Share Cap Limitation”). In addition, the vesting of the right to receive the earnout shares would
be accelerated in the event of a change of control of Stereotaxis, based on a probability-weighted average estimate of the potential
to achieve any remaining milestones, discounted to its net present value considering expected time when earnouts related to the milestones
would become payable through September 30, 2029
As
a result, the actual number of additional Earnout Shares we may be required to issue could be materially greater or less than our estimate,
depending whether and to what extent the future revenue milestones are met and/or regulatory approvals are obtained, as well as the actual
average closing price of our common stock calculated pursuant to a formula near the time such milestones are achieved and/or whether
a change of control occurs. If we are required to issue Earnout Shares under the Share Purchase Agreement, there could be significant
additional dilution to the Company’s stockholders. Moreover, even if we are not required to issue any Earnout Shares, the potential
for the issuance of such shares may negatively affect the trading price of our common stock in anticipation of such potential dilution.
Sales of a substantial number of shares comprising the Closing Shares or any Earnout Shares in the public market, or the perception that
such sales may occur, could adversely affect the market price of our securities.
Under
certain circumstances, we may take certain actions to achieve the milestones under the Purchase Agreement that we would not have undertaken
if we had not completed the acquisition, which may have an adverse effect on the historical business of Stereotaxis.
During
the revenue earnout periods under our Purchase Agreement, which end on September 30, 2029, we agreed to operate APT and its business
in a commercially reasonable manner as conducted prior to the closing, taken as a whole, including maintaining relationships with customers,
suppliers, independent contractors, governmental entities, and others having business dealings with it consistent with APT’s practice
prior to the closing. We agreed not to take any action during the revenue earnout periods which has as its intended purpose the diminution
of the earnout consideration.
While
we retain the sole authority to operate and control APT’s business and its operations, including without limitation, any and all
decisions relating various aspects of their and our combined business, we may nevertheless take certain actions related to the milestones
that we would not have undertaken if we had not completed the acquisition.
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, war or other military conflicts, 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 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, which may allow them to compete with us and harm our business.
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, and any defense of such assertions may be unsuccessful
and expensive, even if we are successful.
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 our current business operations.
Expensive
intellectual property litigation is frequent in the medical device industry and may cause to incur substantial expenses to defend.
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 must 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 regarding 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 and the resulting performance issues may damage our business and our reputation
in the industry in which we operate.
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;