UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, ~~2021~~2022

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 001-36159

STEREOTAXIS, INC.

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

delaware

94-3120386

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification Number)

~~4320 Forest Park Avenue~~710 North Tucker Boulevard, Suite ~~100~~110

St. Louis, MO ~~63108~~63101

(Address of Principal Executive Offices including Zip Code)

(314) 678-6100

(Registrant’s Telephone Number, Including Area Code)

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T “See 232.405 of this Chapter” during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐		Accelerated Filer ☐		Non-accelerated filer ☒		Smaller reporting company ☒
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

The number of outstanding shares of the registrant’s common stock on October 31, ~~2021~~2022 was ~~74,581,038~~74,844,714.

~~Table of Contents~~

STEREOTAXIS, INC.

INDEX TO FORM 10-Q

		Page

Part I Financial Information

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

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

~~Part II Other Information~~

Item 1.	Legal Proceedings	2625
Item 1A.	Risk Factors	~~26-27~~25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2725
Item 3.	Defaults upon Senior Securities	2725
Item 4.	[Reserved]	2725
Item 5.	Other Information	2725
Item 6.	Exhibits	2725
Signatures		2826

ITEM 1. FINANCIAL STATEMENTS

STEREOTAXIS, INC.

BALANCE SHEETS

	September 30, 2021			December 31, 2020
		(Unaudited)
(in thousands, except share amounts)							September 30, 2022			December 31, 2021
Assets								(Unaudited)
Current assets:
Cash and cash equivalents	$	40,243,223		$	43,939,512		$	30,938		$	38,739
Restricted cash - current		1,604,331			-			618			454
Compensating cash arrangement		251,548			250,620
Accounts receivable, net of allowance of $153,148 and $123,614 at 2021 and 2020, respectively		5,073,265			3,515,136
Accounts receivable, net of allowance of $227 and $180 at 2022 and 2021, respectively								5,077			5,406
Inventories, net		3,854,572			3,295,457			8,161			4,433
Prepaid expenses and other current assets		2,383,673			1,716,014			1,285			2,356
Total current assets		53,410,612			52,716,739			46,079			51,388
Property and equipment, net		1,153,231			195,129			3,409			2,632
Restricted cash		700,000			-			875			952
Operating lease right-of-use assets		6,403,035			2,235,442			5,479			5,735
Other assets		253,416			308,515
Prepaid and other non-current assets								233			278
Total assets	$	61,920,294		$	55,455,825		$	56,075		$	60,985

Liabilities and stockholders’ equity
Current liabilities:
Short-term debt	$	-		$	1,185,058
Accounts payable		3,937,228			1,608,636		$	3,941		$	4,189
Accrued liabilities		2,562,390			3,209,235			3,211			2,528
Deferred revenue		6,688,239			5,282,770			8,043			6,277
Current portion of operating lease liabilities		654,611			2,287,487			359			268
Total current liabilities		13,842,468			13,573,186			15,554			13,262
Long-term debt		-			973,252
Long-term deferred revenue		1,793,298			548,915			1,416			2,238
Operating lease liabilities		5,911,757			-			5,586			5,842
Other liabilities		215,861			131,231			168			219
Total liabilities		21,763,384			15,226,584			22,724			21,561

Series A - Convertible preferred stock:
Convertible preferred stock, Series A, par value $0.001; 22,387 and 22,513 shares outstanding at 2021 and 2020, respectively		5,583,768			5,605,323
Convertible preferred stock, Series A, par value $0.001; 22,386 and 22,387 shares outstanding at 2022 and 2021, respectively								5,584			5,584

Stockholders’ equity:
Convertible preferred stock, Series B, par value $0.001; 10,000,000 shares authorized, 5,610,121 shares outstanding at 2021 and 2020		5,610			5,610
Convertible preferred stock, Series B, par value $0.001; 10,000,000 shares authorized, 5,610,121 shares outstanding at 2022 and 2021								6			6

Common stock, par value $0.001; 300,000,000 shares authorized,74,579,198 and 73,694,203 shares issued at 2021 and 2020, respectively		74,579			73,694
Common stock, par value $0.001; 300,000,000 shares authorized, 74,832,278 and 74,618,240 shares issued at 2022 and 2021, respectively								75			75
Additional paid in capital		530,019,539			522,709,846			540,706			532,641
Treasury stock, 4,015 shares at 2021 and 2020		(205,999	)		(205,999	)
Treasury stock, 4,015 shares at 2022 and 2021								(206	)		(206	)
Accumulated deficit		(495,320,587	)		(487,959,233	)		(512,814	)		(498,676	)
Total stockholders’ equity		34,573,142			34,623,918			27,767			33,840
Total liabilities and stockholders’ equity	$	61,920,294		$	55,455,825		$	56,075		$	60,985

See accompanying notes.

STEREOTAXIS, INC.

STATEMENTS OF OPERATIONS

(Unaudited)

	2021			2020			2021			2020
	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
(in thousands, except share and per share amounts)													2022			2021			2022			2021
Revenue:
Systems	$	3,541,360		$	2,953,005		$	8,830,052		$	2,965,774		$	2,413		$	3,541		$	4,649		$	8,829
Disposables, service and accessories		5,318,562			5,504,048			17,210,790			16,099,915			5,244			5,319			16,197			17,211
Sublease		246,530			246,530			739,590			739,590			-			246			-			740
Total revenue		9,106,452			8,703,583			26,780,432			19,805,279			7,657			9,106			20,846			26,780

Cost of revenue:
Systems		3,374,857			3,031,440			6,199,980			3,253,976			2,016			3,375			3,817			6,200
Disposables, service and accessories		750,507			747,285			2,558,414			2,068,085			1,074			751			2,868			2,558
Sublease		246,530			246,530			739,590			739,590			-			246			-			740
Total cost of revenue		4,371,894			4,025,255			9,497,984			6,061,651			3,090			4,372			6,685			9,498

Gross margin		4,734,558			4,678,328			17,282,448			13,743,628			4,567			4,734			14,161			17,282

Operating expenses:
Research and development		2,499,789			1,952,641			7,583,908			6,038,753			2,818			2,500			8,158			7,584
Sales and marketing		2,910,134			2,822,680			8,902,100			8,279,853			3,111			2,910			9,337			8,902
General and administrative		3,944,452			1,466,046			10,335,100			4,962,227			3,690			3,944			10,986			10,335
Total operating expenses		9,354,375			6,241,367			26,821,108			19,280,833			9,619			9,354			28,481			26,821
Operating loss		(4,619,817	)		(1,563,039	)		(9,538,660	)		(5,537,205	)		(5,052	)		(4,620	)		(14,320	)		(9,539	)

Interest (expense) income, net		1,258			(9,933	)		(5,585	)		71,596
Interest income (expense), net														135			1			182			(5	)
Gain on extinguishment of debt		-			-			2,182,891			-			-			-			-			2,183
Net loss	$	(4,618,559	)	$	(1,572,972	)	$	(7,361,354	)	$	(5,465,609	)	$	(4,917	)	$	(4,619	)	$	(14,138	)	$	(7,361	)

Cumulative dividend on Series A convertible preferred stock		(338,718	)		(343,101	)		(1,006,466	)		(1,028,950	)
Loss attributable to common stockholders	$	(4,957,277	)	$	(1,916,073	)	$	(8,367,820	)	$	(6,494,559	)
Cumulative dividend on convertible preferred stock														(339	)		(338	)		(1,005	)		(1,007	)
Net loss attributable to common stockholders													$	(5,256	)	$	(4,957	)	$	(15,143	)	$	(8,368	)

Net loss per share attributable to common stockholders:
Basic	$	(0.07	)	$	(0.03	)	$	(0.11	)	$	(0.09	)	$	(0.07	)	$	(0.07	)	$	(0.20	)	$	(0.11	)
Diluted	$	(0.07	)	$	(0.03	)	$	(0.11	)	$	(0.09	)	$	(0.07	)	$	(0.07	)	$	(0.20	)	$	(0.11	)

Weighted average number of common shares and equivalents:
Basic		75,700,389			74,488,771			75,476,381			72,004,956			76,100,007			75,700,389			75,977,920			75,476,381
Diluted		75,700,389			74,488,771			75,476,381			72,004,956			76,100,007			75,700,389			75,977,920			75,476,381

See accompanying notes.

STEREOTAXIS, INC

STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

(Unaudited)

~~Three Months Ended September 30, 2020~~

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

Shares Amount Shares Amount Shares Amount Capital Stock Deficit (Deficit)
Balance at June 30, 2020 22,813 $ 5,682,141 5,610,121 $ 5,610 73,030,824 $ 73,031 $ 521,013,702 $ (205,999 ) $ (485,205,411 ) $ 35,680,933
Issuance of common stock - - 40,953 41 46,508 46,549
Issuance of common stock and warrants - - 40,953 41 46,508 46,549
Share-based compensation 30,750 31 755,682 755,713
Components of net loss (1,572,972 ) (1,572,972 )
Employee stock purchase plan 6,154 6 26,087 26,093
Preferred stock conversion (300 ) (76,818 ) - - 569,525 569 76,249 - - 76,818
Balance at September 30, 2020 22,513 $ 5,605,323 5,610,121 $ 5,610 73,678,206 $ 73,678 $ 521,918,228 $ (205,999 ) $ (486,778,383 ) $ 35,013,134
Three Months Ended September 30, 2021

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

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

Shares Amount Shares Amount Shares Amount Amount Amount Amount Amount
Balance at June 30, 2021 22,407 $ 5,578,181 5,610,121 $ 5,610 74,428,865 $ 74,429 $ 527,294,470 $ (205,999 ) $ (490,702,028 ) $ 36,466,482 22,407 $ 5,578 5,610,121 $ 6 74,428,865 $ 74 $ 527,294 $ (206 ) $ (490,702 ) $    36,466
Issuance of common stock 54,146 54 106,648 106,702 54,146 1 107 108
Share-based compensation - - 53,454 53 2,597,012 2,597,065 53,454 2,597 2,597
Components of net loss (4,618,559 ) (4,618,559 ) - - (4,619 ) (4,619 )
Employee stock purchase plan 2,952 3 27,036 27,039 2,952 27 27
Preferred stock conversion (20 ) 5,587 - - 39,781 40 (5,627 ) - - (5,587 ) (20 ) 6 39,781 (6 ) (6 )
Balance at September 30, 2021 22,387 $ 5,583,768 5,610,121 $ 5,610 74,579,198 $ 74,579 $ 530,019,539 $ (205,999 ) $ (495,320,587 ) $ 34,573,142 22,387 $ 5,584 5,610,121 $ 6 74,579,198 $ 75 $ 530,019 $ (206 ) $ (495,321 ) $ 34,573

Three Months Ended September 30, 2022
(in thousands, except share amounts) Convertible Preferred Stock Series A (Mezzanine) Convertible Preferred Stock Series B Common Stock Additional Paid-In Capital Treasury Stock Accumulated Deficit Total
Stockholders’
Equity
(Deficit)
Shares Amount Shares Amount Shares Amount Amount Amount Amount Amount

Balance at June 30, 2022 22,386 $ 5,584 5,610,121 $ 6 74,686,056 $ 75 $ 537,963 $ (206 ) $ (507,897 ) $   29,941
Issuance of common stock 31,437 22 22
Share-based compensation 100,027 2,695 2,695
Components of net loss - - - (4,917 ) (4,917 )
Employee stock purchase plan 14,758 26 26
Balance at September 30, 2022 22,386 $ 5,584 5,610,121 $ 6 74,832,278 $ 75 $ 540,706 $ (206 ) $ (512,814 ) $ 27,767
See accompanying notes.

5

STEREOTAXIS, INC
STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
(Unaudited)
~~Nine Months Ended September 30, 2020~~
Convertible Preferred Stock Series A (Mezzanine) Convertible Preferred Stock Series B Common Stock Additional Paid-In Treasury Accumulated
Total
Stockholders’ Equity

Shares Amount Shares Amount Shares Amount Capital Stock Deficit (Deficit)
Balance at December 31, 2019 23,110 $ 5,758,190 5,610,121 $ 5,610 68,529,623 $ 68,530 $ 504,211,040 $ (205,999 ) $ (481,312,774 ) $ 22,766,407
Issuance of common stock and warrants 3,856,045 3,856 15,051,062 15,054,918
Share-based compensation 147,739 148 2,413,286 2,413,434
Components of net loss (5,465,609 ) (5,465,609 )
Employee stock purchase plan 23,989 24 91,093 91,117
Preferred stock conversion (597 ) (152,867 ) - - 1,120,810 1,120 151,747 - - 152,867
Balance at September 30, 2020 22,513 $ 5,605,323 5,610,121 $ 5,610 73,678,206 $ 73,678 $ 521,918,228 $ (205,999 ) $ (486,778,383 ) $ 35,013,134
Nine Months Ended September 30, 2021

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

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

Shares Amount Shares Amount Shares Amount Amount Amount Amount Amount
Balance at December 31, 2020 22,513 $ 5,605,323 5,610,121 $ 5,610 73,694,203 $ 73,694 $ 522,709,846 $ (205,999 ) $ (487,959,233 ) $ 34,623,918 22,513 $ 5,605 5,610,121 $ 6 73,694,203 $ 74 $ 522,710 $ (206 ) $ (487,960 ) $      34,624
Issuance of common stock 298,730 300 446,088 446,388 298,730 1 446 447
Share-based compensation 325,954 325 6,753,015 6,753,340 325,954 6,753 6,753
Components of net loss (7,361,354 ) (7,361,354 ) - - (7,361 ) (7,361 )
Employee stock purchase plan 14,159 14 89,281 89,295 14,159 89 89
Preferred stock conversion (126 ) (21,555 ) - - 246,152 246 21,309 - - 21,555 (126 ) (21 ) 246,152 21 21
Balance at September 30, 2021 22,387 $ 5,583,768 5,610,121 $ 5,610 74,579,198 $ 74,579 $ 530,019,539 $ (205,999 ) $ (495,320,587 ) $ 34,573,142 22,387 $ 5,584 5,610,121 $ 6 74,579,198 $ 75 $ 530,019 $ (206 ) $ (495,321 ) $ 34,573
Nine Months Ended September 30, 2022
(in thousands, except share amounts) Convertible Preferred Stock Series A (Mezzanine) Convertible Preferred Stock Series B Common Stock Additional Paid-In Capital Treasury Stock Accumulated Deficit
Total
Stockholders’
Equity
(Deficit)

Shares Amount Shares Amount Shares Amount Amount Amount Amount Amount

Balance at December 31, 2021 22,387 $ 5,584 5,610,121 $ 6 74,618,240 $ 75 $ 532,641 $ (206 ) $ (498,676 ) $    33,840
Issuance of common stock 71,960 67 67
Share-based compensation 110,726 7,906 7,906
Components of net loss - - - (14,138 ) (14,138 )
Employee stock purchase plan 29,327 92 92
Preferred stock conversion (1 ) 2,025 -
Balance at September 30, 2022 22,386 $ 5,584 5,610,121 $ 6 74,832,278 $ 75 $ 540,706 $ (206 ) $ (512,814 ) $ 27,767

See accompanying notes.
6

STEREOTAXIS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)

2021 2020
Nine Months Ended September 30,
2021 2020
Cash flows from operating activities
Net loss $ (7,361,354 ) $ (5,465,609 )
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation 79,547 86,482
Non-cash lease expense 1,898,457 1,756,758
Share-based compensation 6,753,340 2,413,434
Gain on debt extinguishment (2,182,891 ) -
Non-cash interest 24,581 -
Changes in operating assets and liabilities:
Accounts receivable (1,558,129 ) (80,145 )
Inventories (559,115 ) (998,521 )
Prepaid expenses and other current assets (667,659 ) (303,870 )
Compensating cash arrangement (928 ) (250,295 )
Other assets 55,099 (38,566 )
Accounts payable 2,328,592 (530,516 )
Accrued liabilities (646,845 ) 235,026
Deferred revenue 2,649,852 1,112,558
Operating lease liability (1,787,169 ) (1,756,471 )
Other liabilities 84,630 -
Net cash used in operating activities (889,992 ) (3,819,735 )
Cash flows from investing activities
Purchase of property and equipment (1,037,649 ) (70,896 )
Net cash used in investing activities (1,037,649 ) (70,896 )
Cash flows from financing activities
Proceeds from Paycheck Protection Program loan - 2,158,310
Proceeds from issuance of stock, net of issuance costs 535,683 15,146,035
Net cash provided by financing activities 535,683 17,304,345
Net (decrease) increase in cash and cash equivalents (1,391,958 ) 13,413,714
Cash and cash equivalents at beginning of period 43,939,512 30,182,115
Cash and cash equivalents at end of period $ 42,547,554 $ 43,595,829

Reconciliation of cash, cash equivalents, and restricted cash to balance sheet as of September 30^th:
Cash and cash equivalents $ 40,243,223 $ 43,595,829
Restricted cash - current 1,604,331 -
Restricted cash 700,000 -
Total cash, cash equivalents, and restricted cash $ 42,547,554 $ 43,595,829

Nine Months Ended September 30,
(in thousands) 2022 2021
Cash flows from operating activities
Net loss $ (14,138 ) $ (7,361 )
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation 298 80
Non-cash lease (expense) 90 111
Share-based compensation 7,906 6,753
Gain on debt extinguishment - (2,183 )
Non-cash interest - 24
Changes in operating assets and liabilities:
Accounts receivable 329 (1,558 )
Inventories (3,280 ) (559 )
Prepaid expenses and other current assets 1,071 (668 )
Compensating cash arrangement - (1 )
Other assets 45 55
Accounts payable 687 1,492
Accrued liabilities (19 ) (647 )
Deferred revenue 1,199 2,650
Other liabilities (51 ) 85
Net cash used in operating activities (5,863 ) (1,727 )
Cash flows from investing activities
Purchase of property and equipment (2,009 ) (201 )
Net cash used in investing activities (2,009 ) (201 )
Cash flows from financing activities
Proceeds from issuance of stock, net of issuance costs 159 536
Net cash provided by financing activities 159 536
Net decrease in cash, cash equivalents, and restricted cash (7,713 ) (1,392 )
Cash, cash equivalents, and restricted cash at beginning of period 40,144 43,940
Cash, cash equivalents, and restricted cash at end of period $ 32,431 $ 42,548

Supplemental disclosure of cash flow information:
Purchase of property and equipment included in accounts payable $ 163 $ 830

Reconciliation of cash, cash equivalents, and restricted cash to balance sheet as of September 30th:
Cash and cash equivalents $ 30,938 $ 40,243
Restricted cash - current 618 1,605
Restricted cash 875 700
Total cash, cash equivalents, and restricted cash $ 32,431 $ 42,548

See accompanying notes.

7
STEREOTAXIS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

Notes to Financial Statements

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

1. Description of Business

Stereotaxis ~~designs, manufactures~~is a pioneer and ~~markets~~global leader in surgical robotics for minimally invasive endovascular intervention. We design, manufacture and market robotic systems, instruments and information systems for the interventional laboratory. Our proprietary robotic technology, Robotic Magnetic Navigation, fundamentally transforms endovascular interventions using precise computer-controlled magnetic fields to directly control the tip of flexible interventional catheters or devices. Direct control of the tip of an ~~advanced robotic magnetic navigation system~~interventional device, in contrast to all manual hand-held devices that are controlled from their handle, can improve the precision, stability, reach and safety of these devices during procedures.
Our primary clinical focus has been electrophysiology, specifically cardiac ablation procedures for ~~use in a hospital’s interventional surgical suite, or “interventional lab”, that we believe revolutionizes~~ the treatment of arrhythmias. Cardiac ablation has become a well-accepted therapy for arrhythmias and a multi-billion-dollar medical device market with expectations for substantial long-term growth. We have shared our aspiration and a product strategy to expand the clinical focus of our technology to several additional endovascular indications including coronary, neuro, and peripheral interventions.
There is substantial real-world evidence and clinical literature for Robotic Magnetic Navigation in electrophysiology. Hundreds of electrophysiologists at over one hundred hospitals globally have treated over 100,000 arrhythmia patients with our robotic technology. Clinical use of our technology has been documented in over 400 clinical publications. Robotic Magnetic Navigation is designed to enable physicians to complete more complex interventional procedures with greater success and safety by ~~enabling enhanced safety, efficiency,~~providing image-guided delivery of catheters through the blood vessels and ~~efficacy for catheter-based,~~chambers of the heart to treatment sites. This is achieved using externally applied computer-controlled magnetic fields that govern the motion of the working tip of the catheter, resulting in improved navigation. The more flexible atraumatic design of catheters driven using magnetic fields may reduce the risk of patient harm and other adverse events. Performing the procedure from a control cockpit enables physicians to complete procedures in a safe location protected from x-ray exposure, with greater ergonomics, and improved efficiency. We believe these benefits can be applicable in other endovascular indications where navigation through complex vasculature is often challenging or ~~interventional, procedures.~~ unsuccessful and generates significant x-ray exposure.
Our primary products include the Genesis RMN ~~System, the~~ ~~Niobe~~System, the Odyssey Solution, and other related devices. We also offer to our customers the Stereotaxis Imaging Model S x-ray ~~System.~~System and other accessory devices.

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

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

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

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

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

Basis of Presentation

The accompanying unaudited financial statements of Stereotaxis, Inc. have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q. Accordingly, they do not include all the disclosures required by GAAP for complete financial statements. In the opinion of management, they include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented. Operating results for the nine-month period ended September 30, ~~2021~~2022, are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2021~~2022, or for future operating periods.

These interim financial statements and the related notes should be read in conjunction with the annual financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, as filed with the Securities and Exchange Commission (SEC) on March ~~12, 2021.~~10, 2022.

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Certain prior year amounts have been reclassified to conform to the 2022 presentation.
Risks and Uncertainties

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

As a result of the COVID-19 outbreak, we have experienced business disruptions, including travel restrictions on us and our third-party distributors, which have negatively affected our complex sales, marketing, installation, distribution and service network relating to our products and services. The COVID-19 pandemic may continue to negatively affect demand for both our systems and our disposable products by limiting the ability of our sales personnel to maintain their customary contacts with customers as governmental authorities institute ~~new or continuing~~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 Quarterly Report on Form 10-Q, we believe our manufacturing operations and supply chains have been manageably ~~interrupted,~~impacted, but we cannot guarantee that they will not be ~~interrupted~~impacted 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. 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 to 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.

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

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

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

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Cash and Cash Equivalents

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

Restricted Cash

Restricted cash primarily consists of cash that the Company is obligated to maintain in accordance with contractual obligations. The Company’s restricted cash was $~~2.3~~1.5 million atand $1.4 million as of September 30, ~~2021.~~ ~~NaN~~ ~~cash was restricted at~~2022 and December 31, ~~2020.~~2021, respectively.

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

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

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

The Company’s financial assets consist of restricted cash and cash equivalents invested in money market funds which totaled $~~2.3~~1.5 million and $1.4 million as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The financial assets consisting of cash equivalents invested in money market funds are classified as Level 2 ~~as described above~~ and total interest income recorded for these investments was ~~insignificant for~~less than $0.2 million during the nine months ended September 30, 2022 and insignificant during the year ended December 31, 2021. As of September 30, 2022 and December 31, 2021, the Company did not have any financial liabilities valued at fair value on a recurring basis. ~~As of September 30, 2020, the Company did not have any financial assets or liabilities valued at fair value on a recurring basis.~~

Revenue and Costs of Revenue

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

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

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

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

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

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

Systems:

Contracts related to the sale of systems typically contain separate obligations for the delivery of system(s), installation and an implied obligation to provide software enhancements if and when available for one year following installation. Revenue is recognized when the Company transfers control to the customer, which is generally at the point when acceptance occurs that indicates customer acknowledgment of delivery or installation, depending on the terms of the arrangement. Revenue from the implied obligation to deliver software enhancements if and when available is recognized ratably over the first year following installation of the system as the customer receives the right to software enhancements throughout the period and is included in Other Recurring Revenue. The Company’s system contracts do not provide a right of return. Systems are generally covered by a one-year assurance type warranty; warranty costs were $~~0.2~~0.1 million and ~~less than~~ $~~0.1~~0.2 million for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Revenue from system delivery and installation represented 3322% and ~~less than~~ 1533% of revenue for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively.
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Disposables:

Revenue from sales of disposable products is recognized when control is transferred to the customers, which generally occurs at the time of shipment, but can also occur at the time of delivery depending on the customer arrangement. Disposable products are covered by an assurance type warranty that provides for the return of defective products. Warranty costs were not material for the nine months ended September 30, ~~2021~~2022 and ~~2020.~~2021. Disposable revenue represented 2329% and 2723% of revenue for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively.
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Royalty:

The Company is entitled to royalty payments from Biosense Webster, payable quarterly based on net revenues from sales of the co-developed catheters. Royalty revenue from the co-developed catheters represented 78% and 87% of revenue for the ~~nine-month periods~~nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

Other Recurring Revenue:

Other recurring revenue includes revenue from product maintenance plans, other post warranty maintenance, and the implied obligation to provide software enhancements if and when available for a specified period, typically one year following installation of our systems. Revenue from services and software enhancements is deferred and amortized over the service or update period, which is typically one year. Revenue related to services performed on a time-and-materials basis is recognized when performed. Other recurring revenue represented 3441% and 4634% of revenue for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

Sublease Revenue:

A portion of our former principal executive office iswas subleased to a third party through 2021. The sublease ended December 31, 2021. In accordance with Accounting Standards Update (ASU) 2016-02, “Leases” (Topic 842), the Company ~~records~~recorded sublease income as revenue. Sublease revenue represented 3% 3~~and~~ 4%% of revenue for the nine months ended September 30, ~~2021 and 2020, respectively.~~2021.
The following table summarizes the Company’s revenue for systems, disposables, service and accessories and sublease for the nine months ended September 30, 2022 and 2021 (in thousands):
Schedule of Revenue Disaggregated by Type
2022 2021 2022 2021

Three Months Ended
September 30

Nine Months Ended
September 30,
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020 2022 2021 2022 2021
Systems $ 3,541,360 $ 2,953,005 $ 8,830,052 $ 2,965,774 $ 2,413 $ 3,541 $ 4,649 $ 8,829
Disposables, service and accessories 5,318,562 5,504,048 17,210,790 16,099,915 5,244 5,319 16,197 17,211
Sublease 246,530 246,530 739,590 739,590 - 246 - 740
Total revenue $ 9,106,452 $ 8,703,583 $ 26,780,432 $ 19,805,279 $ 7,657 $ 9,106 $ 20,846 $ 26,780

Transaction price allocated to remaining performance obligations relates to amounts allocated to products and services for which the revenue has not yet been recognized. A significant portion of this amount relates to the Company’s systems contracts and obligations that will be recognized as revenue in future periods. These obligations are generally satisfied within two years after contract inception but may occasionally extend longer. Transaction price representing revenue to be earned on remaining performance obligations on system contracts was approximately $~~6.5~~13.9 million as of September 30, ~~2021.~~2022. Performance obligations arising from contracts for disposables, royalty and service are generally expected to be satisfied within one year after entering into the contract.

The following ~~information~~table summarizes the Company’s contract assets and ~~liabilities:~~liabilities (in thousands):
Summary of Contract Assets and Liabilities
September 30, 2021 December 31, 2020 September 30, 2022 December 31, 2021
Contract Assets - unbilled receivables $ 444,277 $ 284,415 $ 351 $ 178

Customer deposits $ 1,400,000 $ - $ 1,813 $ 925
Product shipped, revenue deferred 1,348,458 645,200 1,644 1,794
Deferred service and license fees 5,733,079 5,186,485 6,002 5,796
Total deferred revenue $ 8,481,537 $ 5,831,685 $ 9,459 $ 8,515
Less: Long-term deferred revenue (1,793,298 ) (548,915 ) (1,416 ) (2,238 )
Total current deferred revenue $ 6,688,239 $ 5,282,770 $ 8,043 $ 6,277
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The Company invoices its customers based on the billing schedules in its sales arrangements. Contract assets primarily represent the difference between the revenue that was earned but not billed on service contracts and revenue from system contracts that was recognized based on the relative selling price of the related satisfied performance obligations and the contractual billing terms in the arrangements. Customer deposits primarily relate to future system sales but can also include deposits on disposable sales. Deferred revenue is primarily related to service contracts, for which the service fees are billed up-front, generally quarterly or annually, and for amounts billed in advance for system contracts for which some performance obligations remain outstanding. For service contracts, the associated deferred revenue is generally recognized ratably over the service period. For system contracts, the associated deferred revenue is recognized when the remaining performance obligations are satisfied. The Company did not have any impairment losses on its contract assets for the periods presented.

Revenue recognized for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, that was included in the deferred revenue balance at the beginning of each reporting period was $~~4.8~~5.6 million and $~~4.7~~4.8 million, respectively.

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

The Company has determined that sales incentive programs for the Company’s sales team meet the requirements to be capitalized as the Company expects to generate future economic benefits from the related revenue generating contracts after the initial capital sales transaction. The costs capitalized as contract acquisition costs included in prepaid expenses and other assets, in the Company’s balance sheet was $0.2 ~~million and $0.3~~ million as of September 30, ~~2021~~2022 and December 31, ~~2020, respectively.~~2021. The Company did not incur any impairment losses during any of the periods presented.

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

~~Share-Based~~Stock-Based Compensation

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

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

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

Shares purchased by employees under the 2009 and 2022 Employee Stock Purchase ~~Plan~~Plans are considered to be non-compensatory.

Net Earnings (Loss) per Common Share

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

The following table sets forth the computation of basic and diluted ~~EPS:~~EPS (in thousands except for share and per share amounts):
Schedule of Computation of Basic and Diluted Earnings Per Share
2021 2020 2021 2020 2022 2021 2022 2021

Three Months Ended September 30,

Nine Months Ended September 30,
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020 2022 2021 2022 2021
Net loss $ (4,618,559 ) $ (1,572,972 ) $ (7,361,354 ) $ (5,465,609 ) $ (4,917 ) $ (4,619 ) $ (14,138 ) $ (7,361 )
Cumulative dividend on Series A Convertible Preferred Stock (338,718 ) (343,101 ) (1,006,466 ) (1,028,950 )
Cumulative dividend on convertible preferred stock (339 ) (338 ) (1,005 ) (1,007 )
Net loss attributable to common stockholders $ (4,957,277 ) $ (1,916,073 ) $ (8,367,820 ) $ (6,494,559 ) $ (5,256 ) $ (4,957 ) $ (15,143 ) $ (8,368 )

Weighted average number of common shares and equivalents: 75,700,389 74,488,771 75,476,381 72,004,956 76,100,007 75,700,389 75,977,920 75,476,381
Basic EPS $ (0.07 ) $ (0.03 ) $ (0.11 ) $ (0.09 ) $ (0.07 ) $ (0.07 ) $ (0.20 ) $ (0.11 )
Diluted EPS $ (0.07 ) $ (0.03 ) $ (0.11 ) $ (0.09 ) $ (0.07 ) $ (0.07 ) $ (0.20 ) $ (0.11 )

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

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As of September 30, ~~2021,~~2022, the Company had ~~2,842,490~~3,239,133 shares of common stock issuable upon the exercise of outstanding options and stock appreciation rights at a weighted average exercise price of $~~4.10~~4.29 per share, ~~44,785,320~~46,849,717 shares of our common stock issuable upon conversion of our Series A Convertible Preferred Stock, 5,610,121 shares of our common stock issuable upon conversion of our Series B Convertible Preferred Stock and ~~1,164,723~~1,208,739 shares of unvested restricted share units. The Company had no unearned restricted shares outstanding ~~and all warrants were expired~~ as of September 30, ~~2021.~~2022.

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

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

3. Inventories

Inventories consist of the ~~following:~~following (in thousands):
Schedule of Inventories
September 30, 2021 December 31, 2020 September 30, 2022 December 31, 2021
Raw materials $ 3,265,351 $ 2,950,912 $ 6,831 $ 3,642
Work in process 847,847 433,026 384 133
Finished goods 2,170,998 2,987,039 2,825 2,823
Reserve for excess and obsolescence (2,429,624 ) (3,075,520 ) (1,879 ) (2,165 )
Total inventory $ 3,854,572 $ 3,295,457 $ 8,161 $ 4,433

The reserve for excess and obsolescence primarily includes Niobe Systems and related raw materials and spare parts.

4. Prepaid Expenses and Other Assets

Prepaid expenses and other assets consist of the ~~following:~~following (in thousands):
Schedule of Prepaid Expenses and Other Assets
September 30, 2021 December 31, 2020 September 30, 2022 December 31, 2021
Prepaid expenses $ 1,154,731 $ 754,062 $ 599 $ 1,012
Prepaid commissions 212,317 271,174 213 229
Deposits 1,167,013 855,970 640 1,276
Other assets 103,028 143,323 66 117
Total prepaid expenses and other assets 2,637,089 2,024,529 1,518 2,634
Less: Noncurrent prepaid expenses and other assets (253,416 ) (308,515 ) (233 ) (278 )
Total current prepaid expenses and other assets $ 2,383,673 $ 1,716,014 $ 1,285 $ 2,356

5. Property and Equipment

Property and Equipment consist of the ~~following:~~following (in thousands):
Schedule of Property and Equipment
September 30, 2021 December 31, 2020 September 30, 2022 December 31, 2021
Equipment $ 4,940,877 $ 6,488,984 $ 3,770 $ 3,670
Leasehold improvements 2,299,550 2,338,441 2,507 17
Construction in process 1,037,649 - 478 2,156
8,278,076 8,827,425
Gross property and equipment 6,755 5,843
Less: Accumulated depreciation (7,124,845 ) (8,632,296 ) (3,346 ) (3,211 )
Net property and equipment $ 1,153,231 $ 195,129 $ 3,409 $ 2,632
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The ~~company retired~~Company had approximately $~~1.6~~1.0 million of ~~fully depreciated assets~~property and equipment additions during the nine months ended September 30, ~~2021.~~2022 associated with the buildout of the new leased space in St. Louis, Missouri.

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6. Leases

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. The Company accounts for leases in accordance with Accounting Standards Update No. 2016-02 “Leases” (Topic 842) and all subsequent ASUs that modified Topic 842 (“ASC 842”). The Company determines if an arrangement contains a lease at inception.

The Company leases its facilities under operating leases. In accordance with ASC 842, operating lease agreements are recognized on the balance sheet as a right-of-use (“ROU”) asset and a corresponding lease liability. These leases generally do not have significant rent escalation holidays, concessions, leasehold improvement incentives, or other build-out clauses. Further, the leases do not contain contingent rent provisions. Many of our leases include both lease ~~(i.e., fixed payments including rent, taxes, and insurance costs)~~ and non-lease components ~~(i.e., common-area or other maintenance costs)~~ which are accounted for as a single lease component as we have elected the practical expedient to group lease and non-lease components for all leases. A portion of our ~~existing~~former principal executive office iswas subleased to a third party through 2021. The sublease ~~does~~did not have significant rent escalation holidays, concessions, leasehold improvement incentives, or other build-out clauses. In addition, the sublease ~~does~~did not contain contingent rent provisions nor ~~are~~were there options to extend or terminate the sublease. The sublease ended December 31, 2021.

The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. The Company elected not to include short-term leases (i.e. leases with initial terms of twelve months or less) on the balance sheet.

On March 1, 2021, the Company entered into an office lease agreement (the “Lease”) with Globe Building Company (the “Landlord”), under which the Company ~~will lease~~leases executive office space and manufacturing facilities of approximately 43,100 square feet of rentable space located at 710 N. Tucker Boulevard, St. Louis, Missouri (the “Premises”) that ~~will serve~~serves as the Company’s new principal executive and administrative offices and manufacturing facility. Lease payments ~~commence at the later of~~ commenced on January 1, 2022, ~~or the date on which the Company has received an occupancy permit,~~ and the lease has a term of ten years, with two renewal options of five years each. The minimum annual rent under the terms of the Lease ranges from approximately $0.8 million in 2022 to $1.0 million in 2031. ~~Upon receipt of an occupancy permit, the Company will relocate its current St. Louis, Missouri operations to the Premises in the new building.~~
The Company gained access to the Premises in the third quarter 2021 to begin constructing leasehold improvements. In accordance with ASC 842, the Company recorded a ROU asset and lease liability. The initial recognition of the ROU asset and lease liability was $5.9 million. In the fourth quarter of 2021, the Company received an occupancy permit and relocated its operations to the new leased space.

The calculated amounts of the ROU assets and lease liabilities are impacted by the length of the lease term and the discount rate used to calculate the present value of the minimum lease payments. ASC 842 requires the use of the discount rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception. As of September 30, ~~2021,~~2022, the weighted average discount rate for operating leases was ~~9.0~~9% and the weighted average remaining lease term for operating lease term is ~~9.65~~9.24 years.

The following table represents lease costs and other lease ~~information.~~information (in thousands):
Schedule of Lease Costs and Other Lease Information
2021 2020 2021 2020

Three Months Ended September 30

Nine Months Ended September 30
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020 2022 2021 2022 2021
Operating lease cost $ 733,033 $ 585,588 $ 1,898,457 $ 1,756,758 $ 227 $ 733 $ 678 $ 1,898
Short-term lease cost 13,853 19,084 44,557 53,858 4 14 24 45
Sublease income (246,530 ) (246,530 ) (739,590 ) (739,590 ) - (246 ) - (740 )
Total net lease cost $ 500,356 $ 358,142 $ 1,203,424 $ 1,071,026 $ 231 $ 501 $ 702 $ 1,203

Cash paid within operating cash flows $ 623,594 $ 634,918 $ 1,793,884 $ 1,860,165 $ 232 $ 624 $ 886 $ 1,794

Variable lease costs consist primarily of taxes, insurance, and common area or other maintenance costs for our leased facilities and equipment which are paid based on actual costs incurred.

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Future minimum payments for operating leases with initial or remaining terms of one year or more as of September 30, ~~2021, excluding sublease income,~~2022 were as ~~follows:~~follows (in thousands):
Schedule of Future Minimum Operating Lease Payments
September 30, 2021 September 30, 2022
2021 $ 595,665
2022 801,183 $ 214
2023 870,782 877
2024 891,596 898
2025 912,410 919
2026 and thereafter 5,919,096
2026 935
2027 and thereafter 4,986
Total lease payments $ 9,990,732 $ 8,829
Less: Interest (3,424,364 ) (2,884 )
Present value of lease liabilities $ 6,566,368 $ 5,945
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~~The remaining undiscounted future cash flows to be received under the sublease are $0.3~~ ~~million in 2021.~~
7. Accrued Liabilities

Accrued liabilities consist of the ~~following:~~following (in thousands):
Schedule of Accrued Liabilities
September 30, 2021 December 31, 2020 September 30, 2022 December 31, 2021
Accrued salaries, bonus, and benefits $ 1,399,703 $ 2,044,826 $ 1,492 $ 1,516
Accrued licenses and maintenance fees 483,879 483,879 484 484
Accrued warranties 267,647 157,615 166 242
Accrued taxes 195,529 172,744 269 177
Accrued professional services 121,305 138,359
Accrued investigational sites 92 123
Accrued lease deposit payable 5 124
Deferred contract obligation 738 -
Other 310,188 343,043 133 81
Total accrued liabilities 2,778,251 3,340,466 3,379 2,747
Less: Long term accrued liabilities (215,861 ) (131,231 ) (168 ) (219 )
Total current accrued liabilities $ 2,562,390 $ 3,209,235 $ 3,211 $ 2,528
Certain prior year amounts have been reclassified to conform to the 2022 presentation.

8. Debt and Credit Facilities
~~The Company had a working capital line of credit with its primary lender, Silicon Valley Bank, that matured on June 30, 2020 and was not renewed.~~

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the United States. Among the provisions contained in the CARES Act was the creation of the Paycheck Protection Program that provides for Small Business Administration (“SBA”) Section 7(a) loans for qualified small businesses. In general, the loan could be forgiven as long as the funds were used for payroll related expenses as well as rent and utilities paid during the twenty-four-week period from the date of the loan and as long as certain headcount and salary/wage levels were maintained. On April 10, 2020, the Company was informed by its lender, Midwest BankCentre (the “Bank”), that the Bank received approval from the SBA to fund the Company’s request for a loan under the SBA’s Paycheck Protection Program (“PPP Loan”). Per the terms of the PPP Loan, the Company received total proceeds of approximately $2.2million from the Bank on April 20, 2020. In accordance with the loan forgiveness requirements of the CARES Act, the Company used the full proceeds from the PPP Loan primarily for payroll costs, rent and utilities. In March 2021, the Company applied for loan forgiveness and in June 2021 full loan forgiveness was granted by the SBA. The Company recognized a net gain from debt extinguishment of approximately $2.2million.
In accordance with general accounting principles for fair value measurement, the Company’s debt was measured at fair value (Level 2), which approximated the carrying value of the debt as of December 31, 2020.

9. Convertible Preferred Stock and Stockholders’ Equity

The holders of common stock are entitled to one vote for each share held and to receive dividends ~~whenever funds are legally available~~when and ~~when~~as declared by the Board of Directors out of funds legally available for dividends, subject to the prior rights or preferences applicable to any preferred stock as may then be outstanding. The Company’s Series B Convertible Preferred Stock (the “Series B Preferred Stock”) is entitled to dividends equal to and in the same form as dividends actually paid on shares of common stock when, as and if such dividends are paid on shares of common stock. Until all shares of the Company’s Series A Convertible Preferred Stock (the “Series A Preferred Stock”) have been converted or redeemed, no dividends may be paid on the common stock or the Series B Preferred Stock without the express written consent of the holders of ~~all classes~~a majority of the outstanding shares of Series A Preferred Stock. In the event that dividends or other distributions of assets are made or paid by the Company to the holders of the common stock ~~having priority rights as dividends.~~or the holders of shares of the Series B Preferred Stock, the holders of shares of the Series A Preferred Stock are entitled to participate in such dividend or distribution on an as-converted basis. ~~NaN~~No dividends have been declared or paid as of September 30, ~~2021.~~
~~2020 Equity Financing~~
~~On May 25, 2020,~~2022, and the Company ~~entered into a Securities Purchase Agreement with certain accredited investors, whereby it,~~does not presently intend to pay any cash dividends in ~~a direct registered offering, agreed to issue and sell to~~ the ~~investors an aggregate of~~ ~~3,658,537~~ ~~shares of the Company’s common stock, $0.001~~ ~~par value per share, at a price of $4.10~~ ~~per share. The Company received net proceeds of approximately $15.0~~ ~~million, after offering expenses.~~foreseeable future.

Series B Convertible Preferred Stock

On August 7, 2019, the Company entered into a Securities Purchase Agreement with certain institutional and other accredited investors, whereby it, as part of a private placement, agreed to issue and sell to the investors 5,610,121 shares of the Company’s Series B Convertible Preferred Stock (the “Series B Preferred Stock”), $0.001 par value per share which are convertible into shares of the Company’s common stock, at a price of $2.05 per share. The Series B Preferred Stock, which is a common stock equivalent but non-voting and with a blocker on conversion if the holder would exceed a specified threshold of voting security ownership, is convertible into common stock on a one-for-one basis, subject to adjustment for events such as stock splits, combinations and the like as provided in the Purchase Agreement. The Series B ~~Convertible~~ Preferred Stock is reported in the stockholders’ equity section of the Company’s balance sheet.

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Series A Convertible Preferred Stock and Warrants

In September 2016, the Company issued (i) 24,000 shares of Series A Convertible Preferred Stock (the “Series A Preferred Stock”), par value $0.001 per share, with a stated value of $1,000 per share, ~~(the “Series A Preferred Stock”),~~ which are convertible into shares of the Company’s common stock at an initial conversion rate of $0.65 per share, subject to adjustment for events such as stock splits, combinations and the like as provided in the certificate of designations covering such Series A Preferred Stock, and (ii) ~~warrants~~(the SPA Warrants) to purchase an aggregate of 36,923,078 shares of common stock. The shares of Series A Preferred Stock are entitled to vote on an as-converted basis with the common stock, subject to specified beneficial ownership issuance limitations. The Series A Preferred Stock bear dividends at a rate of six percent (6%) per annum, which are cumulative and accrue daily from the date of issuance on the $1,000 stated value. Such dividends will not be paid in cash except in connection with any liquidation, dissolution or winding up of the Company or any redemption of the Series A Preferred Stock. Each holder of convertible preferred shares has the right to require us to redeem such holder’s shares of Series A Preferred Stock upon the occurrence of specified events, which include certain business combinations, the sale of all or substantially all of the Company’s assets, or the sale of more than 50% of the outstanding shares of the Company’s common stock. In addition, the Company has the right to redeem the Series A Preferred Stock in the event of a defined change of control. The Series A Preferred Stock ranks senior to our common stock as to distributions and payments upon the liquidation, dissolution, and winding up of the Company. Since the Series A Preferred Stock are subject to conditions for redemption that are outside the Company’s control, the Series A Preferred Stock are presently reported in the mezzanine section of the balance sheet.

The SPA Warrants were modified on February 28, 2018 to allow for a reduction in the exercise price from $0.70 per share to $0.28 per share for a period between March 1, 2018 and March 5, 2018 and to modify certain beneficial ownership limitations and to eliminate certain redemption rights, resulting in, among other things, the exercise of a substantial number of the SPA Warrants for cash. The remaining ~~warrants issued in conjunction with the Series A Preferred Stock (the “SPA Warrants”)~~unexercised 15,385 Warrants expired on September 29, 2021.

2021 CEO Performance Award Unit Grant

On February 23, 2021, the Company`s Board of Directors, upon recommendation of the Compensation Committee, approved the grant of the CEO Performance Award to the Company’s Chief Executive Officer. The CEO Performance award is a 10-year performance award of up to 13,000,000 shares, tied to the achievement of market capitalization milestones and subject to minimum service requirements.

As detailed in the table below, the CEO Performance Award consists of ten vesting tranches. The first market capitalization milestone is $1.0 billion, and each of the remaining nine market capitalization milestones are in additional $500 million increments, up to $5.5 billion.
Summary of Performance Award And Market Capitalization Milestones
Tranche #
No. of Shares
Subject to PSU
Market Capitalization
Milestones⁽¹⁾
1 1,000,000 $ 1,000,000,000
2 1,500,000 $ 1,500,000,000
3 1,500,000 $ 2,000,000,000
4 2,000,000 $ 2,500,000,000
5 1,000,000 $ 3,000,000,000
6 1,000,000 $ 3,500,000,000
7 1,000,000 $ 4,000,000,000
8 2,000,000 $ 4,500,000,000
9 1,000,000 $ 5,000,000,000
10 1,000,000 $ 5,500,000,000
Total: 13,000,000

Each tranche represents a portion of the PSUs covering the number of shares outlined in the table above. Each tranche vests upon (i) satisfaction of the market capitalization milestones and (ii) continued employment as CEO of the Company from the grant date through December 31, 2030. Absent an earlier termination, the PSUs will expire on December 31, 2030. If our CEO ceases employment as CEO of the Company for any reason including death, disability, termination for cause or without cause (as defined in the award agreement), or if he voluntary terminates after service as CEO for at least five years, the remaining service period will be waived and he will retain any PSUs that have vested through the date of ~~termination.~~termination.

The Company received Shareholder approval at its annual meeting on May 20, 2021 for shares to be issued under the award.

The market capitalization requirement is considered a market condition under FASB Accounting Standards Codification Topic 718 “Compensation – Stock Compensation” and is estimated on the grant date using Monte Carlo simulations. Recognition of stock-based compensation expense of all the tranches commenced on February 23, 2021, the date of grant, as the probability of meeting the ten market capitalization milestones is not considered in determining the timing of expense recognition. The expense will be recognized on an accelerated basis through 2030. Key assumptions for estimating the performance-based awards fair value at the date of grant included share price on grant date, volatility of the Company’s common stock price, risk free interest rate, and grant term.

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Total stock-based compensation recorded as operating expense for the CEO Performance Award was $5.3 million and $4.3 million for the nine-month period ended September 30, ~~2021.~~2022 and 2021, respectively. As of September 30, 2022 and 2021, the Company had approximately $45.9 million and $53.1 million, respectively, of total unrecognized stock-based compensation expense remaining under the CEO Performance Award assuming the grantee’s continued employment as CEO of the Company, or in a similar capacity, through 2030. As of September 30, 2022, none of the performance milestones established by the 2021 CEO Incentive Program have been achieved, and no awards have been earned.

~~2012~~ Stock Award ~~Plan~~Plans

The Company has various stock plans that permit the Company to provide incentives to employees and directors of the Company in the form of equity compensation. In ~~July 2012,~~February 2022, the Compensation Committee of the Board of Directors adopted the ~~2012~~2022 Stock Incentive Plan (the “Plan”) which was subsequently approved by the Company’s shareholders. This plan replaced the ~~2002~~2012 Stock Incentive Plan which expired on ~~March 25, 2012~~May 19, 2022.

On May 20, 2021, the shareholders approved an amendment to the Plan, which was previously approved and adopted by the Compensation Committee of the Board of Directors of the Company. Under the amendment on May 20, 2021, the number of shares authorized for issuance under the Plan was increased by four million shares. At September 30, ~~2021,~~2022, the Company had ~~4,918,872~~4,007,952 remaining shares of the Company’s common stock to provide for current and future grants under its various equity plans.

At September 30, ~~2021,~~2022, the total compensation cost related to options, stock appreciation rights, and non-vested stock granted to employees and non-employees under the Company’s stock award plans but not yet recognized was approximately $~~5.8~~5.6 million, excluding compensation not yet recognized related to the CEO Performance Award discussed above. This cost will be amortized over a period of up to four years over the underlying estimated service periods and will be adjusted for subsequent changes in actual forfeitures and anticipated vesting periods.

A summary of the option and stock appreciation rights activity for the nine-month period ended September 30, ~~2021~~2022 is as follows:
Summary of Option and Stock Appreciation Rights Activity
Number of Options/SARs Range of Exercise Price Weighted Average Exercise Price per Share Number of Options/SARs Range of Exercise Price Weighted Average Exercise Price per Share
Outstanding, December 31, 2020 2,456,979 $0.74 - $35.20 $ 2.90
Outstanding, December 31, 2021 2,818,012 $0.74 - $9.87 $ 4.10
Granted 894,000 $6.96 - $9.87 $ 7.16 766,500 $2.09 - $5.21 $ 4.78
Exercised (325,111 ) $0.74 - $4.52 $ 1.98 (111,791 ) $0.74 - $4.52 $ 1.44
Forfeited (183,378 ) $0.74 - $35.20 $ 6.69 (233,588 ) $0.74 - $7.70 $ 5.03
Outstanding, September 30, 2021 2,842,490 $0.74 - $9.87 $ 4.10
Outstanding, September 30, 2022 3,239,133 $0.74 - $9.87 $ 4.29

A summary of the restricted stock unit activity for the nine-month period ended September 30, ~~2021~~2022 is as follows:
Summary of Restricted Stock Unit Activity
Number of Restricted Stock Units Weighted Average Grant Date Fair Value per Unit
Outstanding, December 31, 2020 1,112,473 $ 2.46
Granted 378,204 $ 7.18
Vested (325,954 ) $ 3.97
Forfeited - $ -
Outstanding, September 30, 2021 1,164,723 $ 3.57
Number of Restricted Stock Units Weighted Average Grant Date Fair Value per Unit
Outstanding, December 31, 2021 1,164,723 $ 3.57
Granted 154,742 $ 7.68
Vested (110,726 ) $ 2.27
Outstanding, September 30, 2022 1,208,739 $ 4.21
10. Fair Value Measurements

The Company measures certain financial assets and liabilities at fair value on a recurring basis, including certain cash equivalents. Generally accepted accounting principles for fair value measurement established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (“Level 1”) and the lowest priority to unobservable inputs (“Level 3”). The three levels of the fair value hierarchy are described below:

Level 1: Values are based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Values are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or other model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3: Values are generated from model-based techniques that use significant assumptions not observable in the market.

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The following table sets forth the Company’s assets measured at fair value on a recurring basis by level within the fair value hierarchy. As required by the Fair Value Measurements and Disclosures topic of the Accounting Standards Codification, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
Schedule of Assets Measured at Fair Value on a Recurring Basis by Level Within Fair Value Hierarchy
Fair Value Measurement Using
Total Quoted Prices in
Active Markets
for Identical
Instruments
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Assets at September 30, 2021:
Cash invested in money market accounts $ 2,304,331 $ — $ 2,304,331 $ —
Total assets at fair value $ 2,304,331 $ — $ 2,304,331 $ —
Assets at December 31, 2020:
Cash invested in money market accounts $ 1,429,331 $ — $ 1,429,331 $ —
Total assets at fair value $ 1,429,331 $ — $ 1,429,331 $ —
Fair Value Measurement Using
(in thousands) Total Quoted Prices in
Active Markets
for Identical
Instruments
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Assets at September 30, 2022:
Cash invested in money market accounts $ 1,493 $ — $ 1,493 $ —
Total assets at fair value $ 1,493 $ — $ 1,493 $ —
Assets at December 31, 2021:
Cash invested in money market accounts $ 1,406 $ — $ 1,406 $ —
Total assets at fair value $ 1,406 $       — $ 1,406 $      —

The Company did not have any financial liabilities valued at fair value on a recurring basis as of September 30, ~~2021~~2022 or December 31, ~~2020.~~2021.

Level 1

The Company does not have any financial assets or liabilities classified as Level 1.

Level 2

The Company’s financial assets consist of restricted cash and cash equivalents invested in money market funds in the amount of $~~2,304,331~~1.5 million and $~~1,429,331~~1.4 million at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. These assets are classified as Level 2, as described above, and total interest income recorded for these investments was ~~insignificant~~less than $0.2 million during the nine months ended September 30, ~~2021~~2022 and insignificant during the year ended December 31, ~~2020.~~2021, respectively.

Level 3

The Company does not have any financial assets or liabilities classified as Level 3.

11. Product Warranty Provisions

The Company’s standard policy is to warrant all capital systems against defects in material or workmanship for one year following installation. The Company’s estimate of costs to service the warranty obligations is based on historical experience and current product performance trends. A regular review of warranty obligations is performed to determine the adequacy of the reserve and adjustments are made to the estimated warranty liability as appropriate.

Accrued warranty, which is included in other accrued liabilities, consists of the ~~following:~~following (in thousands):
Schedule of Accrued Warranty
September 30, 2021 December 31, 2020 September 30, 2022 December 31, 2021
Warranty accrual, beginning of the fiscal period $ 157,615 $ 141,697 $ 242 $ 158
Accrual adjustment for product warranty 193,697 49,974 95 199
Payments made (83,665 ) (34,056 ) (171 ) (115 )
Warranty accrual, end of the fiscal period $ 267,647 $ 157,615 $ 166 $ 242

12. Commitments and Contingencies

The Company at times becomes a party to claims in the ordinary course of business. Management believes that the ultimate resolution of pending or threatened proceedings will not have a material effect on the financial position, results of operations or liquidity of the Company.

In ~~February 2021, the Company entered into letters of credit to support commitments totaling approximately $1.3~~ ~~million. The letters of credit are valid through 2022. In~~ April 2021, the Company entered into a letter of credit pursuant to the Lease agreement totaling approximately $1.8 million to be delivered in four equal installments of which the first was delivered in April 2021, ~~and~~ the second was delivered in July 2021, ~~for approximately $0.4~~ ~~million each.~~the third was delivered in October 2021, and the fourth was delivered in January 2022. The amount available under this letter of credit will automatically reduce by one fortieth at the end of each month during the lease term.
~~As discussed further in Part II, Item 1, in response to an April 29, 2021 punitive class action complaint, in August 2021, the Company agreed to pay $675,000~~ to plaintiff’s counsel for attorneys’ fees and expenses in full satisfaction of the claims in the matter. The Chancery Court has not been asked to review, and will pass no judgment on, the payment of the attorneys’ fees and expenses or their reasonableness.

13. Subsequent Events

None.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our financial statements and notes thereto included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. Operating results are not necessarily indicative of results that may occur in future periods.

This report includes various forward-looking statements that are subject to risks and uncertainties, many of which are beyond our control. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in “Part II - Item 1A. Risk Factors” included in this Quarterly Report on Form 10-Q and in Part I, Item 1A, “Risk Factors,” included in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. Forward-looking statements discuss matters that are not historical facts. Forward-looking statements include, but are not limited to, discussions regarding our operating strategy, sales and marketing strategy, regulatory strategy, industry, economic conditions, financial condition, liquidity, capital resources, results of operations, and the impact of the recent coronavirus (“COVID-19”) pandemic and our response to it. Such statements include, but are not limited to, statements preceded by, followed by, or that otherwise include the words “believe”, “expects”, “anticipates”, “intends”, “estimates”, “projects”, “can”, “could”, “may”, “would”, or similar expressions. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You should not unduly rely on these forward-looking statements, which speak only as of the date on which they are made. They give our expectations regarding the future but are not guarantees. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.

Overview

Stereotaxis ~~designs, manufactures~~is a pioneer and ~~markets~~global leader in surgical robotics for minimally invasive endovascular intervention. We design, manufacture and market robotic systems, instruments and information systems for the interventional laboratory. Our proprietary robotic technology, Robotic Magnetic Navigation, fundamentally transforms endovascular interventions using precise computer-controlled magnetic fields to directly control the tip of flexible interventional catheters or devices. Direct control of the tip of an ~~advanced robotic magnetic navigation system~~interventional device, in contrast to all manual hand-held devices that are controlled from their handle, can improve the precision, stability, reach and safety of these devices during procedures.
Our primary clinical focus has been electrophysiology, specifically cardiac ablation procedures for ~~use in a hospital’s interventional surgical suite, or “interventional lab”, that we believe revolutionizes~~ the treatment of arrhythmias. Cardiac ablation has become a well-accepted therapy for arrhythmias and a multi-billion-dollar medical device market with expectations for substantial long-term growth. We have shared our aspiration and a product strategy to expand the clinical focus of our technology to several additional endovascular indications including coronary, neuro, and peripheral interventions.
There is substantial real-world evidence and clinical literature for Robotic Magnetic Navigation in electrophysiology. Hundreds of electrophysiologists at over one hundred hospitals globally have treated over 100,000 arrhythmia patients with our robotic technology. Clinical use of our technology has been documented in over 400 clinical publications. Robotic Magnetic Navigation is designed to enable physicians to complete more complex interventional procedures with greater success and safety by ~~enabling enhanced safety, efficiency,~~providing image-guided delivery of catheters through the blood vessels and ~~efficacy for catheter-based,~~chambers of the heart to treatment sites. This is achieved using externally applied computer-controlled magnetic fields that govern the motion of the working tip of the catheter, resulting in improved navigation. The more flexible atraumatic design of catheters driven using magnetic fields may reduce the risk of patient harm and other adverse events. Performing the procedure from a control cockpit enables physicians to complete procedures in a safe location protected from x-ray exposure, with greater ergonomics, and improved efficiency. We believe these benefits can be applicable in other endovascular indications where navigation through complex vasculature is often challenging or ~~interventional, procedures.~~ unsuccessful and generates significant x-ray exposure.
Our primary products include the Genesis RMN System, the ~~Niobe~~Odyssey ~~System, the~~ ~~Odyssey~~ Solution, and other related devices. We also offer to our customers the Stereotaxis Imaging Model S x-ray ~~System.~~System and other accessory devices.

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

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

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

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We have received regulatory ~~clearance, licensing and/or CE Mark~~clearances and registration approvals necessary for us to market the Genesis RMN System in the U.S. and Europe, and we are in the process of obtaining necessary registrations for extending our markets in other countries. ~~The~~Our prior generation robotic magnetic navigation system, the NiobeSystem, and the Odyssey Solution, Cardiodrive, and various disposable interventional devices have received regulatory clearance in the U.S., Europe, Canada, China, Japan and various other countries. We have received the regulatory clearance, licensing and/or CE Mark approvals that allow us to market the Vdrive and Vdrive Duo Systems with the V-CAS, V-Loop and V-Sonodevices in the U.S., Canada and Europe. Stereotaxis Imaging Model S x-ray System is CE marked and ~~FDA cleared.~~cleared by the FDA.

We have strategic relationships with technology leaders ~~and innovators~~ in the global interventional market. Through these strategic relationships we provide compatibility between our robotic magnetic navigation system and digital imaging and 3D catheter location sensing technology, as well as disposable interventional devices. The maintenance of these strategic relationships, or the establishment of equivalent alternatives, is critical to our commercialization efforts. There are no guarantees that any existing strategic relationships will continue, and efforts are ongoing to ensure the availability of integrated ~~next generation~~ systems and devices 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.

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COVID-19 Pandemic

~~During~~The impact of the ~~first quarter of~~COVID-19 pandemic has varied widely over time by individual geography. In 2021, ~~periodic~~ resurgences of COVID-19 and the delayed rollout of vaccines in some geographies continued to impact our procedure volumes. Overall, procedure volumes improved slightly compared to the fourth quarter 2020 and were approximately 5% higher than the first quarter of 2020. While procedures in the Asia Pacific region had recovered to pre-pandemic levels, procedures in other geographies remained impacted with total procedures approximately 15% below those seen in the first quarter of 2019.
~~During the second quarter of 2021,~~ as the rollout of vaccines continued in the US and were varied in other geographies, overall procedure volumes for the second quarter 2021 remained fairly consistent with the first quarter of 2021 and were nearly 40% higher than the second quarter of 2020.
~~During the third quarter of 2021, a resurgence of COVID and~~well as hospital staffing shortages depressed procedure ~~volumes. Overall~~volumes at various times throughout the year. After such resurgences procedure volumes ~~fell~~would generally stabilize or recover. Similarly, in 2022, procedure volumes continue to be challenged by ~~approximately 9% as compared to the third quarter~~periodic resurgences of ~~2020.~~COVID-19, ongoing hospital staffing issues and other factors.

~~While travel restrictions~~We have experienced challenges and disruptions due to the pandemic such as worldwide supply chain ~~concerns remain in some areas,~~disruptions, including shortages and inflationary pressures, and logistics delays which makes it difficult for us to source parts and ship our products. Our customers have also experienced similar supply chain issues as well as labor shortages, both of which have contributed to delayed hospital construction project timelines. To-date, we ~~are~~have been generally able to conduct normal business activities albeit in a more deliberate manner than prior to the ~~pandemic.~~pandemic, including taking action to increase inventory levels, but we cannot guarantee that they will not be impacted more severely in the future.

~~Ongoing~~
~~Even with the rollout of effective vaccines, we do not expect all markets to recover at the same pace.~~ The ongoing impact that the pandemic will have on our business will likely continue to vary by individual geography based on the extent of the outbreak in each area, the timing of vaccine distribution, specific governmental restrictions and the availability of testing capabilities, personal protective equipment, and hospital facilities, as well as decisions by our vendors, suppliers, customers and, ultimately, patients in response to the pandemic, none of which we are able to currently and accurately predict. While we cannot reliably estimate the depth or length of the impact, we continue to anticipate significant, periodic disruptions to our procedures volumes, service activities and system placements in ~~2021.~~2022. In addition, we would expect that capital system orders will continue to experience some delay.

Capital markets and worldwide economies ~~have also been~~continue to be significantly impacted by the COVID-19 pandemic, and the outlook for ~~2021~~2022 depends on future developments, including but not limited to: the length and severity of ~~the outbreak~~ongoing outbreaks (including further new ~~strains,~~variants beyond Delta and Omicron, which may be more contagious, more severe or less responsive to treatment or vaccines), the effectiveness of containment actions, and the timing of vaccinations and achievement of herd immunity. The impact on local and/or global economies is uncertain, including ongoing risk of recession. Such economic disruptions, including a recession, could have a material adverse effect on our long-term business as hospitals ~~curtail~~continue to monitor and ~~reduce~~adjust capital and overall spending or redirect such spending to treatments related directly to the pandemic. To date, ~~we have managed disruptions to~~ our manufacturing operations and supply chains have been manageably impacted, but we cannot guarantee that such will not be ~~interrupted~~impacted further 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 could have a material adverse effect on our business, operating results, and financial condition. Further, the COVID-19 pandemic and local actions, such as “shelter-in-place” orders and restrictions on our ability to travel and access our customers or temporary closures of our facilities or the facilities of our suppliers and their contract manufacturers, could also significantly impact our sales and our ability to ship our products and supply our customers. Any of these events could negatively impact the number of procedures performed and the number of system placements and have a material adverse effect on our business, financial condition, results of operations, or cash flows.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures. We review our estimates and judgments on an on-going basis. We base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. We believe the following accounting policies are critical to the judgments and estimates we use in preparing our financial statements. For a complete listing of our critical accounting policies, please refer to our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Revenue Recognition

We generate revenue from the initial capital sales of systems as well as recurring revenue from the sale of our proprietary disposable devices, from royalties paid to the Company on the sale by Biosense Webster of co-developed catheters, and from ongoing software enhancements and service contracts.
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In accordance with Accounting Standards Codification Topic 606 (“ASC 606”), “Revenue from Contracts with Customers,” we account for a contract with a customer when there is a legally enforceable contract between the Company and the customer, the rights of the parties are identified, the contract has commercial substance, and collectability of the contract consideration is probable. We record our revenue based on consideration specified in the contract with each customer, net of any taxes collected from customers that are remitted to government authorities.
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For contracts containing multiple products and services the Company accounts for individual products and services as separate performance obligations if they are distinct, which is if a product or service is separately identifiable from other items in the bundled package, and if a customer can benefit from it on its own or with other resources that are readily available to the customer. The Company recognizes revenues as the performance obligations are satisfied by transferring control of the product or service to a customer.

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

Systems:

Contracts related to the sale of systems typically contain separate obligations for the delivery of system(s), installation and an implied obligation to provide software enhancements if and when available for one year following installation. Revenue is recognized when the Company transfers control to the customer, which is generally at the point when acceptance occurs that indicates customer acknowledgment of delivery or installation, depending on the terms of the arrangement. Revenue from the implied obligation to deliver software enhancements if and when available is recognized ratably over the first year following installation of the system as the customer receives the right to software enhancements throughout the period and is included in Other Recurring Revenue. The Company’s system contracts do not provide a right of return. Systems are generally covered by a one-year assurance type warranty; warranty costs were ~~$0.2~~$0.1 million and ~~less than $0.1~~$0.2 million for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

Disposables:

Revenue from sales of disposable products is recognized when control is transferred to the customers, which generally occurs at the time of shipment, but can also occur at the time of delivery depending on the customer arrangement. Disposable products are covered by an assurance type warranty that provides for the return of defective products. Warranty costs were not material for the nine months ended September 30, ~~2021~~2022 and ~~2020.~~2021.

Royalty:

The Company is entitled to royalty payments from Biosense Webster, payable quarterly based on net revenues from sales of the co-developed catheters.

Other Recurring Revenue:

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

Sublease Revenue:

A portion of our former principal executive office iswas subleased to a third party through 2021. In accordance with Accounting Standards Update (ASU) 2016-02, “Leases” (Topic 842), the Company ~~records~~recorded sublease income as revenue.

The Company invoices its customers based on the billing schedules in its sales arrangements. Contract assets primarily represent the difference between the revenue that was recognized based on the relative selling price of the related performance obligations and the contractual billing terms in the arrangements. Customer deposits primarily relate to future system sales but can also include deposits on disposable sales. Deferred revenue is primarily related to service contracts, for which the service fees are billed up-front, generally quarterly or annually, and for amounts billed in advance for system contracts for which some performance obligations remain outstanding. For service contracts, the associated deferred revenue is generally recognized ratably over the service period. For system contracts, the associated deferred revenue is recognized when the remaining performance obligations are satisfied. See Note 2 for additional detail on deferred revenue. The Company did not have any impairment losses on its contract assets for the periods presented.

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

The Company has determined that sales incentive programs for the Company’s sales team meet the requirements to be capitalized as the Company expects to generate future economic benefits from the related revenue generating contracts after the initial capital sales transaction. The costs capitalized as contract acquisition costs included in prepaid expenses and other assets in the Company’s balance sheets were $0.2 million ~~and $0.3 million~~ as of September 30, ~~2021~~2022 and December 31, ~~2020, respectively.~~2021. The Company did not incur any impairment losses during any of the periods presented.

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Leases

The Company accounts for leases in accordance with ASU No. 2016-02 “Leases” (Topic 842) and all subsequent ASUs that modified Topic 842. A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. The Company determines if a contract contains a lease at inception. For contracts where the Company is the lessee, operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liability on the Company’s balance sheet. The Company currently does not have any finance leases.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. ROU assets also include any initial direct costs incurred and any lease payments made at or before the lease commencement date, less lease incentives received. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the lease liabilities as the Company’s leases generally do not provide an implicit rate. Lease terms may include options to extend or terminate when the Company is reasonably certain that the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term.

The Company also has lease arrangements with lease and non-lease components. The Company elected the practical expedient not to separate non-lease components from lease components for the Company’s operating leases. Additionally, the Company applies the short-term lease measurement and recognition exemption in which right of use assets and lease liabilities are not recognized for leases less than twelve months.

As disclosed in Note 9,6, on March 1, 2021, the Company entered into an office lease agreement (the “Lease”) with Globe Building Company (the “Landlord”), under which the Company ~~will lease~~is leasing executive office space and manufacturing facilities of approximately 43,100 square feet of rentable space located at 710 N. Tucker Boulevard, St. Louis, Missouri (the “Premises”) that ~~will serve~~serves as the Company’s new principal executive and administrative offices and manufacturing facility. Lease payments ~~commence at the later of~~commenced on January 1, 2022 ~~or the date on which the Company has received an occupancy permit,~~ and the lease has a term of ten years, with two renewal options of five years each. The minimum annual rent under the terms of the Lease ranges from approximately $0.8 million in 2022 to $1.0 million in 2031. ~~Upon receipt of an occupancy permit, the Company will relocate its current St. Louis, Missouri operations to the Premises in the new building.~~

The Company gained access to the Premises in the third quarter 2021 to begin constructing leasehold improvements. In accordance with ASC 842, the Company recorded a ROU asset and lease liability. The initial recognition of the ROU asset and lease liability was $5.9 million. In the fourth quarter of 2021, the Company received an occupancy permit and relocated its operations to the new leased space.

Cost of Contracts

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

Share-Based Compensation

The Company accounts for its grants of stock options, stock appreciation rights, restricted shares, ~~and~~ restricted stock units and for its employee stock purchase plan in accordance with the provisions of general accounting principles for share-based payments. These accounting principles require the determination of the fair value of the share-based compensation at the grant date and the recognition of the related expense over the period in which the share-based compensation vests.
For time-based awards, the Company utilizes the Black-Scholes valuation model to determine the fair value of stock options and stock appreciation rights at the date of grant. The resulting compensation expense is recognized over the requisite service period, which is generally four years. Restricted shares and units granted to employees are valued at the fair market value at the date of grant. The Company amortizes the fair market value to expense over the service period. If the shares are subject to performance objectives, the resulting compensation expense is amortized over the anticipated vesting period and is subject to adjustment based on the actual achievement of objectives.

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

Shares purchased by employees under the 2009 and 2022 Employee Stock Purchase ~~Plan~~Plans are considered to be non-compensatory.
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Results of Operations

Comparison of the Three Months Ended September 30, ~~2021~~2022 and ~~2020~~2021

Revenue. Revenue ~~increased~~decreased from ~~$8.7 million for the three months ended September 30, 2020, to~~ $9.1 million for the three months ended September 30, 2021, ~~an increase~~to $7.7 million for the three months ended September 30, 2022, a decrease of 5%16%. Revenue from the sales of systems ~~increased~~decreased to $2.4 million for the three months ended September 30, 2022, from $3.5 million for the three months ended September 30, 2021, ~~from $3.0 million for the three months ended September 30, 2020. This increase is~~ due to ~~increased system sales~~changes in product mix in the current year period. Revenue from sales of disposable interventional devices, service, and accessories ~~decreased to~~was approximately $5.3 million for the three months ended September 30, ~~2021, from $5.5 million for the three months ended September 30, 2020, a decrease of approximately 3%, driven by lower procedures~~2022 and ~~service revenue during the current year period.~~2021. The Company recognized $0.2 million of sublease revenue for ~~both~~ the three-month ~~periods~~period ended September 30, ~~2021 and 2020.~~2021. The sublease ended December 31, 2021.

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Cost of Revenue. Cost of revenue ~~increased~~decreased from ~~$4.0 million for the three months ended September 30, 2020, to~~ $4.4 million for the three months ended September 30, 2021, ~~an increase~~to $3.1 million for the three months ended September 30, 2022, a decrease of approximately 9%29%. As a percentage of our total revenue, overall gross margin ~~decreased~~increased to ~~52%~~60% for the three months ended September 30, ~~2021,~~2022, from ~~54%~~ 52% for the three months ended September 30, ~~2020, primarily due to changes in product mix.~~2021. Cost of revenue for systems sold ~~increased~~decreased to $2.0 million for the three months ended September 30, 2022, from $3.4 million for the three months ended September 30, 2021, ~~from $3.0 million for the three months ended September 30, 2020,~~ driven by ~~increased system sales volumes~~changes in product mix in the current year period. Gross margin for systems was ~~less than negative $0.1~~$0.4 million for the three months ended September 30, ~~2020,~~2022, compared to ~~positive~~ $0.2 million for the three months ended September 30, 2021. Cost of revenue for disposables, service, and accessories ~~remained consistent~~increased to $1.1 million for the ~~three-month periods~~three months ended September 30, 2022, from $0.8 million for the three months ended September 30, 2021, driven by increased costs incurred under service contracts and ~~2020.~~changes in excess and obsolescence reserves. Gross margin for disposables, service, and accessories was 80% for the three months ended September 30,2022 compared to 86% for the ~~three-month periods~~three months ended September 30, ~~2021 and 2020.~~2021. Cost of sublease revenue was $0.2 million for ~~both~~ the ~~three-month periods~~three months ended September 30, ~~2021 and 2020.~~2021. The sublease ended December 31, 2021.

Research and Development Expenses. Research and development expenses increased from ~~$2.0 million for the three months ended September 30, 2020, to~~ $2.5 million for the three months ended September 30, 2021, to $2.8 million for the three months ended September 30, 2022, an increase of approximately ~~28%~~13%. This increase was primarily driven by project timing and measured hiring in the current year period.
Sales and Marketing Expenses. Sales and marketing expenses increased from $2.9 million for the three months ended September 30, 2021, to $3.1 million for the three months ended September 30, 2022, an increase of approximately 7% primarily due to higher headcount costs.
General and Administrative Expenses. General and administrative expenses include finance, information systems, legal, and general management. General and administrative expenses decreased from $3.9 million for the three months ended September 30, 2021, to $3.7 million for the three months ended September 30, 2022, a decrease of approximately 6%. This decrease was primarily driven by reduced professional service fees in the current year period.
Interest Income (Expense). Net interest income was approximately $0.1 million for the three months ended September 30, 2022, compared to less than $0.1 million for the three months ended September 30, 2021.
Comparison of the Nine Months Ended September 30, 2022 and 2021
Revenue. Revenue decreased from $26.8 million for the nine months ended September 30, 2021, to $20.8 million for the nine months ended September 30, 2022, a decrease of approximately 22%. Revenue from the sales of systems decreased to $4.6 million for the nine months ended September 30, 2022, from $8.8 million for the nine months ended September 30, 2021, due to decreased system sales volumes and changes in product mix in the current year period. Revenue from sales of disposable interventional devices, service, and accessories decreased to $16.2 million for the nine months ended September 30, 2022, from $17.2 million for the nine months ended September 30, 2021, a decrease of approximately 6%, primarily driven by timing of service contract revenue, lower procedure volumes, and the strengthening of the US dollar during the current year period. Sublease revenue was $0.7 million for the nine-month period ended September 30, 2021. The sublease ended December 31, 2021.
Cost of Revenue. Cost of revenue decreased from $9.5 million for the nine months ended September 30, 2021, to $6.7 million for the nine months ended September 30, 2022, a decrease of approximately 30%. As a percentage of our total revenue, overall gross margin increased to 68% for the nine months ended September 30, 2022, from 65% for the nine months ended September 30, 2021, primarily due to changes in product mix. Cost of revenue for systems sold decreased from $6.2 million for the nine months ended September 30, 2021, to $3.8 million for the nine months ended September 30, 2022, driven by decreased system sales volumes and changes in product mix in the current year period. Gross margin for systems decreased from $2.6 million for the nine months ended September 30, 2021, to $0.8 million for the nine months ended September 30, 2022. Cost of revenue for disposables, service, and accessories increased to $2.9 million for the nine months ended September 30, 2022, from $2.6 million for the nine months ended September 30, 2021, driven by higher expenses incurred under service contracts. Gross margin for disposables, service and accessories was 82% for the nine months ended September 30, 2022, compared to 85% for the nine months ended September 30, 2021. Cost of sublease revenue was $0.7 million for the nine months ended September 30, 2021. The sublease ended December 31, 2021.
Research and Development Expenses. Research and development expenses increased from $7.6 million for the nine months ended September 30, 2021, to $8.2 million for the nine months ended September 30, 2022, an increase of approximately 8%. This increase was primarily due to higher project spending and measured hiring in the current year period.

Sales and Marketing Expenses. Sales and marketing expenses increased from $2.8 million for the three months ended September 30, 2020 to $2.9 million for the three months ended September 30. 2021, an increase of approximately 3%. The increase was primarily due to increased sales and marketing activities as normal activities resume following the height of the pandemic.
~~General and Administrative Expenses.~~ General and administrative expenses include finance, information systems, legal, and general management. General and administrative expenses increased from $1.5 million for the three months ended September 30, 2020, to $3.9 million for the three months ended September 30, 2021, an increase of approximately 169%. This increase was primarily driven by higher stock-based compensation expense for the previously announced CEO Performance Award and higher professional service fees in the current year period.
~~Interest Income (Expense)~~~~. Net interest income was less than $0.1 million for the three months ended September 30, 2021, and net interest expense was less than $0.1 million for the three months ended September 30, 2020.~~
~~Comparison of the Nine Months Ended~~ ~~September~~ ~~30, 2021 and 2020~~
~~Revenue~~. Revenue increased from $19.8 million for the nine months ended September 30, 2020 to $26.8 million for the nine months ended September 30, 2021, an increase of approximately 35%. Revenue from the sales of systems increased to $8.8 million for the nine months ended September 30, 2021 from $3.0 million for the nine months ended September 30, 2020. This increase is due to increased system sales in the current year period. Revenue from sales of disposable interventional devices, service and accessories increased to $17.2 million for the nine months ended September 30, 2021 from $16.1 million for the nine months ended September 30, 2020, an increase of approximately 7%, driven by higher procedure volumes as the Company recovers from the COVID pandemic. Sublease revenue was $0.7 million for both the nine-month periods ended September 30, 2021 and September 30, 2020.
~~Cost of Revenue.~~ Cost of revenue increased from $6.1 million for the nine months ended September 30, 2020 to $9.5 million for the nine months ended September 30, 2021, an increase of approximately 57%. As a percentage of our total revenue, overall gross margin decreased to 65% for the nine months ended September 30, 2021 from 69% for the nine months ended September 30, 2020, primarily due to changes in product mix. Cost of revenue for systems sold increased from $3.3 million for the nine months ended September 30, 2020 to $6.2 million for the nine months ended September 30, 2021, driven by increased system sales volumes offset by reductions to excess and obsolescence reserves in the current year period. Gross margin for systems increased from negative $0.3 million for the nine months ended September 30, 2020 to positive $2.6 million for the nine months ended September 30, 2021. Cost of revenue for disposables, service, and accessories increased to $2.6 million for the nine months ended September 30, 2021 from $2.1 million for the nine months ended September 30, 2020, primarily due to increased disposable sales volumes and higher expenses incurred under service contracts in the current year period. Gross margin for disposables, service and accessories was 85% for the nine months ended September 30, 2021 compared to 87% for the nine months ended September 30, 2020. Cost of sublease revenue was $0.7 million for both the nine-month periods ended September 30, 2021 and September 30, 2020.
~~Research and Development Expenses~~. Research and development expenses increased from $6.0 million for the nine months ended September 30, 2020 to $7.6 million for the nine months ended September 30, 2021, an increase of approximately 26%. This increase was primarily due to higher project spending and measured hiring in the current year period.
~~Sales and Marketing Expenses~~~~. Sales and marketing expenses increased from $8.3 million for the nine months ended September 30, 2020 to~~ $8.9 million for the nine months ended September 30, 2021, to $9.3 million for the nine months ended September 30, 2022, an increase of approximately 8%5%. This increase was primarily due to ~~increased sales~~higher travel and ~~marketing activities as normal activities resume following~~compensation expenses in the ~~height of the pandemic as well as higher compensation related costs.~~current year period.
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General and Administrative Expenses. General and administrative expenses include finance, information systems, legal, and general management. General and administrative expenses increased to $11.0 million for the nine months ended September 30, 2022, from $10.3 million for the nine months ended September 30, 2021, ~~from $5.0 million for the nine months ended September 30, 2020,~~ an increase of approximately ~~108%~~6%. This increase was primarily driven by higher stock-based compensation expense for the previously announced CEO Performance Award ~~and the appreciating stock price as well as higher~~partially offset by lower professional service fees in the current year period.

Interest Income (Expense). Net interest income was approximately $0.2 million for the nine months ended September 30, 2022, and net interest expense was less than $0.1 million for the nine months ended September 30, ~~2021, and net interest income was approximately $0.1 million for the nine months ended September 30, 2020.~~2021.

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Liquidity and Capital Resources

Liquidity refers to the liquid financial assets available to fund our business operations and pay for near-term obligations. These liquid financial assets consist of cash and cash equivalents. We are continuously and critically reviewing our liquidity and anticipated capital requirements in light of the significant uncertainty created by the COVID-19 ~~pandemic.~~pandemic, the increasing recession risk, and macroeconomic headwinds.

At September 30, ~~2021~~2022 we had ~~$42.8~~$32.4 million of cash and cash equivalents, inclusive of restricted ~~cash and the compensating cash arrangement.~~cash. We had working capital of ~~$39.6~~$30.5 million as of September 30, ~~2021,~~2022, compared to ~~$39.1~~$38.1 million as of December 31, ~~2020.~~2021.

The following table summarizes our cash flow by operating, investing and financing activities for the nine months ended September 30, ~~2021~~2022 and ~~2020~~2021 (in thousands):
Nine Months Ended September 30, Nine Months Ended September 30,
2021 2020 2022 2021
Cash flow used in operating activities $ (890 ) $ (3,820 ) $ (5,863 ) $ (1,727 )
Cash flow used in investing activities (1,038 ) (71 ) (2,009 ) (201 )
Cash flow provided by financing activities 536 17,304 159 536

Net cash used in operating activities. We used approximately ~~$0.9~~$5.9 million and ~~$3.8~~$1.7 million of cash for operating activities during the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The ~~decrease~~increase in cash used in operating activities was driven by ~~lower working capital requirements~~the increase in ~~the current year period.~~operating loss.

Net cash used in investing activities. We used approximately ~~$1.0 million and less than $0.1~~$2.0 million of cash during the nine months ended September 30, ~~2021~~2022, for the purchase of equipment, construction and ~~2020, respectively,~~design costs associated with our new facility. We used approximately $0.2 million of cash during the nine months ended September 30, 2021 for the purchase of equipment and design costs associated with our new facility.

Net cash provided by financing activities. We generated ~~$0.5~~approximately $0.2 million and ~~$17.3~~$0.5 million of cash from financing activities during the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The cash generated in ~~the current year period~~both periods was driven by the proceeds from issuance of stock, net of issuance costs. The cash generated in the prior year period was driven by the net proceeds of $15.0 million received from the May 2020 Securities Purchase Agreement and $2.2 million of net proceeds received from the Paycheck Protection Program loan.

Capital Resources

As of September 30, ~~2021,~~2022, the Company did not have any debt.
~~Revolving Line of Credit~~
~~The Company had a working capital line of credit with its primary lender, Silicon Valley Bank that matured on June 30, 2020 and was not renewed.~~

Paycheck Protection Program

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the United States. Among the provisions contained in the CARES Act was the creation of the Paycheck Protection Program that provides for Small Business Administration (“SBA”) Section 7(a) loans for qualified small businesses. In general, the loan could be forgiven as long as the funds were used for payroll related expenses as well as rent and utilities paid during the twenty-four-week period from the date of the loan and as long as certain headcount and salary/wage levels were maintained. On April 10, 2020, the Company was informed by its lender, Midwest BankCentre (the “Bank”), that the Bank received approval from the SBA to fund the Company’s request for a loan under the SBA’s Paycheck Protection Program (“PPP Loan”). Per the terms of the PPP Loan, the Company received total proceeds of approximately $2.2 million from the Bank on April 20, 2020. In accordance with the loan forgiveness requirements of the CARES Act, the Company used the full proceeds from the PPP Loan primarily for payroll costs, rent and utilities. In March 2021, the Company applied for loan forgiveness and in June 2021, full loan forgiveness was granted by the SBA. The Company recognized a net gain from debt extinguishment of approximately $2.2 ~~million.~~
~~Common Stock~~
The holders of common stock are entitled to one vote for each share held and to receive dividends whenever funds are legally available and when declared by the Board of Directors subject to the rights of holders of all classes of stock having priority rights as dividends. No dividends have been declared or paid as of September 30, 2021.
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~~2020 Equity Financing~~
On May 25, 2020, the Company entered into a Securities Purchase Agreement with certain accredited investors, whereby it, in a direct registered offering, agreed to issue and sell to the investors an aggregate of 3,658,537 shares of the Company’s common stock, $0.001 par value per share, at a price of $4.10 per share. The Company received net proceeds of approximately $15.0 million ~~after offering expenses.~~
~~Series B Convertible Preferred Stock~~
On August 7, 2019, the Company entered into a Securities Purchase Agreement with certain institutional and other accredited investors, whereby it, as part of the private placement, agreed to issue and sell to the investors 5,610,121 shares of the Company’s Series B Convertible Preferred Stock, $0.001 par value per share which are convertible into shares of the Company’s Common Stock, at a price of $2.05 per share. The Series B Preferred Stock, which is a common stock equivalent but non-voting and with a blocker on conversion if the holder would exceed a specified threshold of voting security ownership, is convertible into common stock on a one-for-one basis, subject to adjustment for events such as stock splits, combinations and the like as provided in the Purchase Agreement. The Series B Convertible Preferred Stock is reported in the stockholders’ equity section of the balance sheet.
~~Series A Convertible Preferred Stock and Warrants~~
In September 2016, the Company issued (i) 24,000 shares of Series A Convertible Preferred Stock, par value $0.001 per share, with a stated value of $1,000 per share (the “Series A Preferred Stock”), which are convertible into shares of the Company’s common stock at an initial conversion rate of $0.65 per share, subject to adjustment for events such as stock splits, combinations and the like as provided in the certificate of designations covering such Series A Preferred Stock, and (ii) warrants to purchase an aggregate of 36,923,078 shares of common stock. The shares of Series A Preferred Stock are entitled to vote on an as-converted basis with the common stock, subject to specified beneficial ownership issuance limitations. The Series A Preferred Stock bear dividends at a rate of six percent (6%) per annum, which are cumulative and accrue daily from the date of issuance on the $1,000 stated value. Such dividends will not be paid in cash except in connection with any liquidation, dissolution or winding up of the Company or any redemption of the Series A Preferred Stock. Each holder of convertible preferred shares has the right to require us to redeem such holder’s shares of Series A Preferred Stock upon the occurrence of specified events, which include certain business combinations, the sale of all or substantially all of the Company’s assets, or the sale of more than 50% of the outstanding shares of the Company’s common stock. In addition, the Company has the right to redeem the Series A Preferred Stock in the event of a defined change of control. The Series A Preferred Stock ranks senior to our common stock as to distributions and payments upon the liquidation, dissolution, and winding up of the Company. Since the Series A Preferred Stock are subject to conditions for redemption that are outside the Company’s control, the Series A Preferred Stock are presently reported in the mezzanine section of the balance sheet.
~~The remaining warrants issued in conjunction with the Series A Preferred Stock (the “SPA Warrants”) expired on September 29, 2021.~~forgiveness.

Off-Balance Sheet Arrangements

We do not currently have, nor have we ever had, any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. As a result, we are not materially exposed to any financing, liquidity, market, or credit risk that could have arisen if we had engaged in these relationships.
ITEM 3. [RESERVED]

None.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures: The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective.

Changes In Internal Control Over Financial Reporting: The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of the Company’s internal control over financial reporting to determine whether any changes occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Based on that evaluation, there has been no such change during the period covered by this report.

25 24
PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is involved from time to time in various lawsuits and claims arising in the normal course of business. Although the outcomes of these lawsuits and claims are uncertain, the Company does not believe any of them will have a material adverse effect on its business, financial condition or results of operations.None.
As previously disclosed, on April 29, 2021, a putative class action complaint was filed in Delaware Chancery Court by Richard Barre, a purported shareholder, against Stereotaxis, Inc. (the “Company”) and its current directors, as defendants (the “Action”). The complaint alleged breaches of fiduciary duty against the defendants based on alleged disclosure deficiencies in the definitive proxy statement (the “Proxy Statement”) filed by the Company on April 9, 2021 relative to the vote at the Company’s 2021 Annual Meeting of Stockholders that was to be held on May 20, 2021 (the “2021 Stockholder Meeting”) seeking stockholder approval of issuance of shares under the Performance Share Unit Award (the “CEO Performance Award”) granted to David L. Fischel, the Company’s chief executive officer. The complaint sought various remedies, including a preliminary injunction seeking to enjoin the vote at the 2021 Stockholder Meeting to approve the issuance of shares for the CEO Performance Award.
Although the Company believed that the claims were wholly without merit and that no further disclosure was required to supplement the Proxy Statement under applicable law, as previously disclosed, the Company filed a supplement to the Proxy Statement on May 10, 2021 (the “Proxy Supplement”) addressing the alleged disclosure claims in order to eliminate the burden, expense, and uncertainties inherent in such litigation, and without admitting any liability or wrongdoing. On May 12, 2021, the plaintiff withdrew the motion for a preliminary injunction and voluntarily dismissed the Action, reserving the right to apply for an award of attorneys’ fees and reimbursement of expenses.
On May 21, 2021, the Chancery Court approved a stipulation under which the plaintiff voluntarily dismissed the Action with prejudice as to itself only, but without prejudice as to any other putative class member. The Chancery Court retained jurisdiction solely for the purpose of adjudicating the anticipated application of plaintiff’s counsel for an award of attorneys’ fees and reimbursement of expenses in connection with the supplemental disclosures included in the Proxy Supplement.
The Company subsequently agreed to pay $675,000 to plaintiff’s counsel for attorneys’ fees and expenses in full satisfaction of the claim for attorneys’ fees and expenses in the Action. The Chancery Court has not been asked to review, and will pass no judgment on, the payment of the attorneys’ fees and expenses or their reasonableness.

ITEM 1A. RISK FACTORS

The following risk factor is provided to update the risk factors previously disclosed under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.None.
~~Risks Related to the February 2021 CEO Performance Stock Unit Grant~~
~~We will incur significant additional stock-based compensation expense over the term of the CEO Performance Award regardless of whether or not any of the milestones are achieved.~~
As described in Note 9 of the accompanying notes to the consolidated financial statements in Part I, Item 1 of this Form 10-Q, on February 23, 2021, the Company`s Board of Directors, upon recommendation of the Compensation Committee, approved the grant of the Performance Share Unit Award (“CEO Performance Award”) pursuant to the CEO Performance Share Unit Award Agreement (the “PSU Agreement”), to David L. Fischel, the Company’s Chief Executive Officer. Under the terms of the PSU Agreement, we will incur significant additional stock-based compensation expense over the term of the award regardless of whether or not any of the milestones are achieved as the probability of meeting the ten market capitalization milestones is not considered in determining the timing of expense recognition. The expense will be recognized on an accelerated basis through 2030. Total stock-based compensation recorded as operating expense for the CEO Performance Award was $4.3 million for the nine months ended September 30, 2021. As of September 30, 2021, the Company had approximately $53.1 million of total unrecognized stock-based compensation expense remaining under the CEO Performance Award if Mr. Fischel continues to serve as CEO, or in a similar capacity, through 2030. This additional stock-based compensation expense, incurred regardless of whether or not any milestones are achieved, increases the difficulty for the Company to achieve a profitable position as measured by generally accepted accounting principles.
~~Our stockholders may experience substantial dilution upon payout of shares under the CEO Performance Award.~~
If Mr. Fischel achieves all the milestones specified in the CEO Performance Award, by increasing the Company’s market capitalization to $5.5 billion for the specified period, he will receive 13,000,000 shares of common stock subject to the vesting requirements in the agreement. If (i) all 13,000,000 shares of common stock subject to the PSU Agreement were to become fully vested, outstanding and held by Mr. Fischel; (ii) all other shares of common stock and stock units held by Mr. Fischel were fully vested and were outstanding; (iii) estimated dilution as a result of potential exercises or conversions from existing grants to employees and non-employee directors and the outstanding convertible warrants and preferred stock were to be considered; and (iv) there were no other dilutive events of any kind, Mr. Fischel would beneficially own approximately 10% of the outstanding shares of Stereotaxis common stock after the dilutive events described above and without considering the impact of any other potential future dilutive events or the potential sale of stock required to pay taxes upon the vesting of the restricted stock units.
26
~~Certain provisions in the PSU Agreement may discourage a change in control of the Company even if such a transaction would otherwise be beneficial to our stockholders.~~
Under the terms of the CEO Performance Award, in the event of a change in control of the Company, the market capitalization formula will be modified to equal the total amount of consideration paid to all equity holders of the Company, with the number of shares to be issued pursuant to the CEO Performance Grant giving effect to such valuation. For all valuations above $1.0 billion in connection with a change in control, partial credit for the next following tranche shall be allocated pro rata based on the market capitalization in such change in control. Any vested shares upon such a change in control will vest and be paid at the time of the consummation of the change in control, and the service component of the CEO Performance Award will otherwise be disregarded. These terms may discourage potential business partners from pursuing a merger or acquisition, even if the merger or acquisition would be viewed favorably by, or be beneficial to, our other stockholders.
~~We are highly dependent on the services of Mr. Fischel, and our compensation package, including the CEO Performance Award, may fail to retain him.~~
Since assuming the role of CEO in February 2017, Mr. Fischel has revitalized the Company’s commercial capabilities, strengthened its financial position, and led the development of a robust innovation strategy, and stockholders have benefited substantially, with Stereotaxis’ stock appreciating approximately 10-fold. However, between February 2017 and December 2020, Mr. Fischel served as CEO without drawing a salary or any other form of cash or equity compensation for his work as CEO, and currently his only compensation is an annual salary of $60,000, which is substantially below market. While the Board believes that the CEO Performance Award provides substantial future benefit to all its stockholders and incentivizes Mr. Fischel to serve as CEO for the long term, there is no assurance that Mr. Fischel will continue as CEO.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. [RESERVED]

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS
Number Description
3.1 Restated Articles of Incorporation of the Registrant, incorporated by reference to Exhibit 3.1 of the Registrant’s Form 10-Q (File No. 000-50884) for the fiscal quarter ended September 30, 2004.
3.2 Certificate of Amendment to Amended and Restated Certificate of Incorporation, incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K (File No. 000-50884) filed on July 10, 2012.
3.3 Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock, incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (File No. 001-36159) filed on September 30, 2016.
3.4 Certificate of Designations, Preferences and Rights of Series B Convertible Preferred Stock, incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (File No. 001-36159) filed on August 8, 2019.
3.5 Restated Bylaws of the Registrant, incorporated by reference to Exhibit 3.2 of the Registrant’s Form 10-Q (File No. 000-50884) for the fiscal quarter ended September 30, 2004.
~~10.1~~ ~~Summary of Non-Employee Director Compensation Program effective July 1, 2021, filed herewith.~~
31.1 Rule 13a-14(a)/15d-14(a) Certification (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, executed by Chief Executive Officer).

31.2 Rule 13a-14(a)/15d-14(a) Certification (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, executed by Chief Financial Officer).

32.1 Section 1350 Certification (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Chief Executive Officer).

32.2 Section 1350 Certification (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Chief Financial Officer).

101.INS Inline XBRL Instance Document.

101.SCH Inline XBRL Taxonomy Extension Schema Document.

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

27 25

STEREOTAXIS, INC.
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

STEREOTAXIS, INC. (Registrant)

Date: November ~~12, 2021~~14, 2022 By: /s/ David L. Fischel

David L. Fischel
Chief Executive Officer

Date: November ~~12, 2021~~14, 2022 By: /s/ Kimberly R. Peery

Kimberly R. Peery
Chief Financial Officer

28 26

	Shares			Amount			Shares		Amount		Shares		Amount		Capital		Stock			Deficit			(Deficit)
	Convertible Preferred Stock Series A (Mezzanine)						Convertible Preferred Stock Series B				Common Stock				Additional Paid-In		Treasury			Accumulated			Total Stockholders’ Equity
	Shares			Amount			Shares		Amount		Shares		Amount		Capital		Stock			Deficit			(Deficit)
Balance at June 30, 2020		22,813		$	5,682,141			5,610,121	$	5,610		73,030,824	$	73,031	$	521,013,702	$	(205,999	)	$	(485,205,411	)	$	35,680,933
Issuance of common stock								-		-		40,953		41		46,508								46,549
Issuance of common stock and warrants								-		-		40,953		41		46,508								46,549
Share-based compensation												30,750		31		755,682								755,713
Components of net loss																					(1,572,972	)		(1,572,972	)
Employee stock purchase plan												6,154		6		26,087								26,093
Preferred stock conversion		(300	)		(76,818	)		-		-		569,525		569		76,249		-			-			76,818
Balance at September 30, 2020		22,513		$	5,605,323			5,610,121	$	5,610		73,678,206	$	73,678	$	521,918,228	$	(205,999	)	$	(486,778,383	)	$	35,013,134

	Convertible Preferred Stock Series A (Mezzanine)					Convertible Preferred Stock Series B				Common Stock				Additional Paid-In			Treasury			Accumulated			Total Stockholders’ Equity
	Shares			Amount		Shares		Amount		Shares		Amount		Capital			Stock			Deficit			(Deficit)
(in thousands, except share amounts)																										Convertible Preferred Stock Series A (Mezzanine)					Convertible Preferred Stock Series B				Common Stock				Additional Paid-In Capital			Treasury Stock			Accumulated Deficit			Total Stockholders’ Equity (Deficit)
																										Shares			Amount		Shares		Amount		Shares		Amount		Amount			Amount			Amount			Amount
Balance at June 30, 2021		22,407		$	5,578,181		5,610,121	$	5,610		74,428,865	$	74,429	$	527,294,470		$	(205,999	)	$	(490,702,028	)	$	36,466,482			22,407		$	5,578		5,610,121	$	6		74,428,865	$	74	$	527,294		$	(206	)	$	(490,702	)	$	36,466
Issuance of common stock											54,146		54		106,648									106,702												54,146		1		107									108
Share-based compensation							-		-		53,454		53		2,597,012									2,597,065												53,454				2,597									2,597
Components of net loss																					(4,618,559	)		(4,618,559	)									-									-			(4,619	)		(4,619	)
Employee stock purchase plan											2,952		3		27,036									27,039												2,952				27									27
Preferred stock conversion		(20	)		5,587		-		-		39,781		40		(5,627	)		-			-			(5,587	)		(20	)		6						39,781				(6	)								(6	)
Balance at September 30, 2021		22,387		$	5,583,768		5,610,121	$	5,610		74,579,198	$	74,579	$	530,019,539		$	(205,999	)	$	(495,320,587	)	$	34,573,142			22,387		$	5,584		5,610,121	$	6		74,579,198	$	75	$	530,019		$	(206	)	$	(495,321	)	$	34,573

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

Balance at June 30, 2022		22,386	$	5,584		5,610,121	$	6		74,686,056	$	75	$	537,963	$	(206	)	$	(507,897	)	$	29,941
Issuance of common stock										31,437				22								22
Share-based compensation										100,027				2,695								2,695
Components of net loss				-				-								-			(4,917	)		(4,917	)
Employee stock purchase plan										14,758				26								26
Balance at September 30, 2022		22,386	$	5,584		5,610,121	$	6		74,832,278	$	75	$	540,706	$	(206	)	$	(512,814	)	$	27,767


	Nine Months Ended September 30,
(in thousands)	2022			2021
Cash flows from operating activities
Net loss	$	(14,138	)	$	(7,361	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation		298			80
Non-cash lease (expense)		90			111
Share-based compensation		7,906			6,753
Gain on debt extinguishment		-			(2,183	)
Non-cash interest		-			24
Changes in operating assets and liabilities:
Accounts receivable		329			(1,558	)
Inventories		(3,280	)		(559	)
Prepaid expenses and other current assets		1,071			(668	)
Compensating cash arrangement		-			(1	)
Other assets		45			55
Accounts payable		687			1,492
Accrued liabilities		(19	)		(647	)
Deferred revenue		1,199			2,650
Other liabilities		(51	)		85
Net cash used in operating activities		(5,863	)		(1,727	)
Cash flows from investing activities
Purchase of property and equipment		(2,009	)		(201	)
Net cash used in investing activities		(2,009	)		(201	)
Cash flows from financing activities
Proceeds from issuance of stock, net of issuance costs		159			536
Net cash provided by financing activities		159			536
Net decrease in cash, cash equivalents, and restricted cash		(7,713	)		(1,392	)
Cash, cash equivalents, and restricted cash at beginning of period		40,144			43,940
Cash, cash equivalents, and restricted cash at end of period	$	32,431		$	42,548

Supplemental disclosure of cash flow information:
Purchase of property and equipment included in accounts payable	$	163		$	830

Reconciliation of cash, cash equivalents, and restricted cash to balance sheet as of September 30th:
Cash and cash equivalents	$	30,938		$	40,243
Restricted cash - current		618			1,605
Restricted cash		875			700
Total cash, cash equivalents, and restricted cash	$	32,431		$	42,548

Tranche #	No. of Shares Subject to PSU		Market Capitalization Milestones⁽¹⁾
1		1,000,000	$	1,000,000,000
2		1,500,000	$	1,500,000,000
3		1,500,000	$	2,000,000,000
4		2,000,000	$	2,500,000,000
5		1,000,000	$	3,000,000,000
6		1,000,000	$	3,500,000,000
7		1,000,000	$	4,000,000,000
8		2,000,000	$	4,500,000,000
9		1,000,000	$	5,000,000,000
10		1,000,000	$	5,500,000,000
Total:		13,000,000

	Number of Options/SARs			Range of Exercise Price		Weighted Average Exercise Price per Share		Number of Options/SARs			Range of Exercise Price		Weighted Average Exercise Price per Share
Outstanding, December 31, 2020		2,456,979			$0.74 - $35.20	$	2.90
Outstanding, December 31, 2021									2,818,012			$0.74 - $9.87	$	4.10
Granted		894,000			$6.96 - $9.87	$	7.16		766,500			$2.09 - $5.21	$	4.78
Exercised		(325,111	)		$0.74 - $4.52	$	1.98		(111,791	)		$0.74 - $4.52	$	1.44
Forfeited		(183,378	)		$0.74 - $35.20	$	6.69		(233,588	)		$0.74 - $7.70	$	5.03
Outstanding, September 30, 2021		2,842,490			$0.74 - $9.87	$	4.10
Outstanding, September 30, 2022									3,239,133			$0.74 - $9.87	$	4.29

	Number of Restricted Stock Units			Weighted Average Grant Date Fair Value per Unit
Outstanding, December 31, 2020		1,112,473		$	2.46
Granted		378,204		$	7.18
Vested		(325,954	)	$	3.97
Forfeited		-		$	-
Outstanding, September 30, 2021		1,164,723		$	3.57

Level 1:		Values are based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2:		Values are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or other model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3:		Values are generated from model-based techniques that use significant assumptions not observable in the market.

	Fair Value Measurement Using
	Total		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets at September 30, 2021:
Cash invested in money market accounts	$	2,304,331	$	—	$	2,304,331	$	—
Total assets at fair value	$	2,304,331	$	—	$	2,304,331	$	—
Assets at December 31, 2020:
Cash invested in money market accounts	$	1,429,331	$	—	$	1,429,331	$	—
Total assets at fair value	$	1,429,331	$	—	$	1,429,331	$	—

Number		Description

3.1		Restated Articles of Incorporation of the Registrant, incorporated by reference to Exhibit 3.1 of the Registrant’s Form 10-Q (File No. 000-50884) for the fiscal quarter ended September 30, 2004.

3.2		Certificate of Amendment to Amended and Restated Certificate of Incorporation, incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K (File No. 000-50884) filed on July 10, 2012.

3.3		Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock, incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (File No. 001-36159) filed on September 30, 2016.

3.4		Certificate of Designations, Preferences and Rights of Series B Convertible Preferred Stock, incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (File No. 001-36159) filed on August 8, 2019.

3.5		Restated Bylaws of the Registrant, incorporated by reference to Exhibit 3.2 of the Registrant’s Form 10-Q (File No. 000-50884) for the fiscal quarter ended September 30, 2004.

~~10.1~~		~~Summary of Non-Employee Director Compensation Program effective July 1, 2021, filed herewith.~~

31.1		Rule 13a-14(a)/15d-14(a) Certification (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, executed by Chief Executive Officer).

31.2		Rule 13a-14(a)/15d-14(a) Certification (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, executed by Chief Financial Officer).

32.1		Section 1350 Certification (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Chief Executive Officer).

32.2		Section 1350 Certification (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Chief Financial Officer).

101.INS		Inline XBRL Instance Document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document.

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

	STEREOTAXIS, INC. (Registrant)

Date: November ~~12, 2021~~14, 2022	By:	/s/ David L. Fischel
		David L. Fischel Chief Executive Officer

Date: November ~~12, 2021~~14, 2022	By:	/s/ Kimberly R. Peery
		Kimberly R. Peery Chief Financial Officer