What changed in this filing

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Item 1A. Risk Factors

2022-07-22 compared with 2021-07-27 · 73 added, 38 removed, 359 unchanged (24% of the section changed)

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Becton Dickinson;

Smiths Medical, a subsidiary of Smiths Group plc;

Merit Medical;

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If any of these products fail to achieve clinical acceptance or are perceived unfavorably by the market, it could severely limit our ability to drive revenue growth, which could have a material adverse effect on our business, financial condition, results of operations and/or liquidity.

See Risk Factor titled “Our business and prospects rely heavily upon our ability to successfully complete clinical trials, including our NanoKnife DIRECT Clinical study, our Auryon Pathfinder study and clinical studies for AngioVac.

See Risk Factor titled “Our business and prospects rely heavily upon our ability to successfully complete clinical trials, including, but not limited to, our NanoKnife DIRECT clinical study, our NanoKnife PRESERVE clinical study, AlphaVac APEX-AV clinical study and clinical studies for AngioVac.

We may choose to, or may be required to, suspend, repeat or terminate our clinical trials if they are not conducted in accordance with regulatory requirements, the results are negative or inconclusive or the trials are not well designed.”

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In the fourth quarter of our 2019, we received approval from the FDA to initiate our DIRECT clinical trial to study the use of the NanoKnife system for the treatment of Stage III pancreatic cancer.

If we are not able to successfully complete this trial and secure clearances or approvals for expanded indications for our NanoKnife system, including for the treatment of Stage III pancreatic cancer, or if expanded indications are significantly delayed or limited, our business and prospects may be materially harmed and we may need to delay our initiatives or even significantly curtail

operations, which could have a material adverse effect on our business, financial condition, results of operations and/or liquidity.

Our business and prospects rely heavily upon our ability to successfully complete clinical trials, including, but not limited to, our NanoKnife DIRECT clinical study, our NanoKnife PRESERVE clinical study, our Auryon Pathfinder study and clinical studies for AngioVac.

In the second quarter of our 2022, we received approval from the FDA to initiate our PRESERVE clinical trial to study the use of the NanoKnife system for the treatment of prostate cancer.

If we are not able to successfully complete these trials and secure clearances or approvals for expanded indications for our NanoKnife system, including for the treatment of Stage III pancreatic cancer or the treatment of prostate cancer, or if expanded indications are significantly delayed or limited, our business and prospects may be materially harmed and we may need to delay our initiatives or even significantly curtail operations, which could have a material adverse effect on our business, financial condition, results of operations and/or liquidity.

Our business and prospects rely heavily upon our ability to successfully complete clinical trials, including, but not limited to, our NanoKnife DIRECT clinical study, our NanoKnife PRESERVE clinical study, AlphaVac APEX-AV clinical study and clinical studies for AngioVac.

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We are dependent on single and limited source suppliers which subjects our business and results of operations to risks of supplier business interruptions.

We currently purchase significant amounts of several key products and product components from single and limited source suppliers and anticipate that we will do so for future products as well.

Any delays in delivery of or shortages in those or other products and components could interrupt and delay manufacturing of our products and result in the cancellation of orders for our products.

Any or all of these suppliers could discontinue the manufacture or supply of these products and components at any time.

We currently purchase significant amounts of several key products, raw materials and product components from single and limited source suppliers and anticipate that we will do so for future products as well.

Any delays in delivery of or shortages in those or other products and components (like we experienced during our 2022 fiscal year) could interrupt and delay manufacturing of our products, lead to backlogs and result in the cancellation of orders for our products.

Any or all of these suppliers could discontinue the manufacture or supply of these products, raw materials and/or components at any time.

Due to FDA and other business considerations, we may not be able to identify and integrate alternative sources of supply in a timely fashion or at all.

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In addition, we purchase certain products as a distributor for the manufacturer of those products.

Any constraint or interruption in the supply of finished products that we distribute could materially impact our ability to sell products, and have a material adverse effect on our business, financial condition, results of operations and/or liquidity.

Any constraint or interruption in the supply of raw materials, other product components or finished products that we distribute could materially impact our ability to sell products, and have a material adverse effect on our business, financial condition, results of operations and/or liquidity.

We are heavily dependent on third-party distributors to generate a substantial portion of our international revenues and are at the risk of these distributors also selling for our competitors, failing to be financially viable and failing to effectively distribute our products in compliance with applicable laws.

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Even when we develop a promising new product, we may find limited demand for the product unless reimbursement approval is obtained from private and governmental third-party payors.

Changes in healthcare systems in the United States or elsewhere in a manner that significantly reduces

reimbursement for procedures using our medical devices or denies coverage for these procedures, or adverse decisions relating to our products by administrators of these systems in coverage or reimbursement issues, would have an adverse impact on the acceptance of our products and the prices which our customers are willing to pay for them.

Changes in healthcare systems in the United States or elsewhere in a manner that significantly reduces reimbursement for procedures using our medical devices or denies coverage for these procedures, or adverse decisions relating to our products by administrators of these systems in coverage or reimbursement issues, would have an adverse impact on the acceptance of our products and the prices which our customers are willing to pay for them.

If a product liability claim is brought against us or our product liability insurance coverage is inadequate, our business could be harmed.

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Our business, financial condition and results of operation are affected by many changing economic, industry and other conditions beyond our control.

Actual or potential changes in international, national, regional and local economic, business and financial conditions, including recession, inflation and trade protection measures, creditworthiness of our customers, may negatively affect consumer preferences, perceptions, spending patterns or demographic trends, any of which could adversely affect our business, financial condition, results of operations and/or liquidity.

Actual or potential changes in international, national, regional and local economic, business and financial conditions, including recession, high inflation and trade protection measures, creditworthiness of our customers, may negatively affect consumer preferences, perceptions, spending patterns or demographic trends, any of which could adversely affect our business, financial condition, results of operations and/or liquidity.

We are subject to macro-economic fluctuations in the U.S.

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These economic conditions make it more difficult for us to accurately forecast and plan our future business activities.

Volatility in the cost of raw materials, components, freight and energy increases the costs of producing and distributing our products.

New laws or regulations adopted in response to climate change could also increase energy and transportation costs, as well as the costs of certain raw materials and components.

Increases in oil prices may increase our packaging and transportation costs.

Recently, the costs of labor, raw materials, transportation, construction, services, and energy necessary for the production and distribution of our products have increased significantly.

While we have implemented cost containment measures, selective price increases and taken other actions to offset these inflationary pressures in our supply chain, we may not be able to completely offset all the increases in our operational costs, any of which could adversely affect our business, financial condition, results of operations and/or liquidity.

Sales outside the U.S.

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While we have taken proactive steps to mitigate possible disruption to our operations, we could face increased costs, volatility in exchange rates, market instability and other risks, depending on the effects of existing and future agreements between the UK and EU regarding Brexit and the future EU/UK trading relationship.

Russia’s invasion and military attacks on Ukraine have triggered significant sanctions from U.S.

and European leaders.

These events may escalate and have created increasingly volatile global economic conditions.

Resulting changes in U.S.

trade policy could trigger retaliatory actions by Russia, its allies and other affected countries, including China, resulting in a “trade war.” A trade war could result in increased costs for raw materials we use in our manufacturing and could result in Russia and other foreign governments imposing tariffs on products that we export outside the U.S.

or otherwise limiting our ability to sell our products abroad.

These increased costs could have a material adverse effect on our business, financial condition and results of operations.

Furthermore, if the conflict between Russia and Ukraine continues for a long period of time, or if other countries, including the U.S., become further involved in the conflict, we could face material adverse effects on our business, financial condition, results of operations and/or liquidity.

Our business could be harmed if we cannot hire or retain qualified personnel.

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If we are not able to hire and retain personnel in our manufacturing facilities, we may not meet our production demand.

In addition, our sales force is highly talented and there is competition in the sales industry which could have an adverse effect on our business if there is significant turnover.

We experienced labor shortages in fiscal year 2022 that significantly contributed to the backlog.

In addition, our sales force is highly talented and we face intense competition in our industry for sales personnel which could have an adverse effect on our business if there is significant turnover.

If we are unable to manage our growth profitably, our business, financial results and stock price could suffer.

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In recent years we have begun to implement operational excellence initiatives which include a number of restructuring, realignment and cost reduction initiatives.

We may not realize the benefits of these initiatives to the extent or on the timing we anticipated and the ongoing difficulties in implementing these measures may be greater than anticipated, which could cause us to incur additional costs or result in business disruptions.

In addition, if these measures are not successful or sustainable, we may undertake additional realignment and cost reduction efforts, which could result in significant additional charges and adversely impact our ability to achieve our other strategic goals and business plans.

We may not realize the benefits of these initiatives to the extent or on the timing we anticipated and the ongoing difficulties in implementing these measures may be greater than anticipated and/or offset by inflationary pressures, which could cause us to incur additional costs or result in business disruptions like the backlogs we experienced in fiscal year 2022.

In addition, if these measures are not successful or sustainable, we may undertake additional realignment and cost reduction efforts, which could result in significant additional expenses and adversely impact our ability to achieve our other strategic goals and business plans.

We may fail to attract additional capital necessary to expand our business or may incur additional indebtedness which, together with our current indebtedness levels, could impose operating and financial restrictions on us as a result of debt service obligations which could significantly limit our ability to execute our business strategy or curtail our growth.

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In addition, we may require financing to fund any significant acquisitions we may seek to make.

Disruptions in the capital markets have previously resulted, and could again result, in volatility, decreased liquidity, and widening of credit spreads, which could make needed financing either unavailable or available on terms unsatisfactory to us which could result in significant stockholder dilution.

Disruptions in the capital markets and increases in the cost of capital have previously resulted, and could again result, in volatility, decreased liquidity, and widening of credit spreads, which could make needed financing either unavailable or available on terms unsatisfactory to us which could result in significant stockholder dilution.

We may incur additional indebtedness or draw additional amounts on our existing credit facilities in the future subject to limitations contained in the agreements governing our debt.

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Our failure to generate sufficient operating cash flow to pay our potential debts or to successfully undertake any of these actions could have a material adverse effect on us.

Uncertainty relating to the LIBOR calculation method and potential phasing out of LIBOR after 2021 may adversely affect the interest rates under our Credit Agreement.

Certain of the interest rates applicable to our Credit Agreement, are LIBOR-based.

On July 27, 2017, the U.K.

Financial Conduct Authority (the “FCA”) announced that it will no longer persuade or compel banks to submit rates for the calculation of LIBOR rates after 2021.

Actions by the FCA, other regulators or law enforcement agencies may result in changes to the method by which LIBOR is calculated.

At this time, it is not possible to predict the effect of any such changes or any other reforms to LIBOR that may be enacted in the UK or elsewhere.

Uncertainty as to the nature of such potential changes may adversely affect the trading market for LIBOR-based securities, including the floating rates applicable to our Credit Agreement.

It is possible that the changes in how LIBOR is calculated, changes in the trading market for LIBOR-based securities or actions of the FCA and other government entities may cause unexpected increases in LIBOR rates or a breakdown in the LIBOR systems.

If these issues arise, we could experience increased interest rates or uncertainty with respect to the calculation of interest on our Credit Agreement, which could adversely affect our business, financial condition, results of operations and/or liquidity.

Our goodwill, intangible assets and fixed assets are subject to potential impairment;

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This resulted in an impairment charge of $14.0 million.

The impairment charge is recorded in "Acquisition, restructuring and other items, net", on the Consolidated Statement of Operations (see Note 19).

The impairment charge is recorded in "Acquisition, restructuring and other items, net", on the Consolidated Statements of Operations (see Note 18).

Most of our intangible and fixed assets have finite useful lives and are amortized or depreciated over their useful lives on either a straight-line basis or over the expected period of benefit or as revenues are earned from the sales of the related products.

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Goodwill is required to be tested for impairment at least annually.

We review our single reporting unit for potential goodwill impairment in the third fiscal quarter of each year as part of our annual goodwill impairment testing, and more often if an event or circumstance occurs making it likely that impairment exists.

The annual goodwill impairment review performed in December 2020 indicated no goodwill impairments.

We historically reviewed our single reporting unit for potential goodwill impairment in the third fiscal quarter of each year as part of our annual goodwill impairment testing, and more often if an event or circumstance occurred making it likely that impairment exists.

In the fourth quarter of fiscal year 2022, the Company changed its annual impairment assessment date from December 31 to April 30 to more closely align the impairment assessment date with the Company's long term planning and forecasting process.

The annual goodwill impairment review performed in December 2021 and April 2022 indicated no goodwill impairments.

In fiscal year 2020, we recorded a goodwill impairment loss of $158.6 million.

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See Note 9 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2022 for a further discussion of our tax loss carryovers.

A cyber-attack or other breach of our information technology systems could have a material adverse effect on our business, financial condition and/or results of operations.

A cyber-attack or other breach of our or our supply chain partners' information technology systems could have a material adverse effect on our business, financial condition and/or results of operations.

We rely on information technology systems to process, transmit, and store electronic information in our day-to-day operations.

Similar to other large multi-national companies, the size and complexity of our information technology systems makes them vulnerable to cyber-attacks, malicious intrusions, breakdowns, destructions, losses of data privacy, or other significant disruptions.

Similar to other large multi-national companies, the size and complexity of our information technology systems makes them vulnerable to cyber-attacks, malicious intrusions, breakdowns, destruction, losses of data privacy, or other significant disruptions.

Our supply chain partners face similar risks.

Our information systems require an ongoing commitment of resources to maintain, protect, and enhance existing systems and develop new systems to keep pace with continuing changes in information processing technology, evolving systems and regulatory standards, the increasing need to protect patient and customer information, and changing customer patterns.

In addition, third parties may attempt to hack into our products to obtain data relating to patients with our products or our proprietary information.

Any failure by us to maintain or protect our information technology systems and data integrity, including from cyber-attacks, ransomware, intrusions or other breaches, could result in the unauthorized access to patient data and personally identifiable information, theft of intellectual property, misappropriation of assets, or otherwise compromise our confidential or proprietary information and disrupt our operations.

Any of these events, in turn, may cause us to lose existing customers, have difficulty preventing, detecting, and controlling fraud, have disputes with customers, physicians, and other health care professionals, be subject to legal claims and liability, have regulatory sanctions or penalties imposed, have increases in operating expenses, incur expenses or lose revenues as a result of a data privacy breach or theft of intellectual property, or suffer other adverse consequences, any of which could have a material adverse effect on our business, financial condition and/or results of operations.

In addition, third parties may attempt to gain access into our systems or products or those of our supply chain partners to obtain data relating to patients or our proprietary information.

Any failure by us or our supply chain partners to maintain or protect information technology systems and data integrity, including from cyber-attacks, ransomware, intrusions or other breaches, could result in the unauthorized access to supply chain partners or vendors and personally identifiable information, theft of intellectual property, misappropriation of assets, or otherwise compromise confidential or proprietary information and disrupt operations of our Company or our supply chain partners.

Any of these events, in turn, may cause us to lose existing customers, have difficulty preventing, detecting, and controlling fraud, have disputes with customers, our supply chain partners, physicians, and other health care professionals, be subject to legal claims and liability, have regulatory sanctions or penalties imposed, have increases in operating expenses, incur expenses or lose revenues as a result of a data privacy breach or theft of intellectual property, or suffer other adverse consequences, any of which could have a material adverse effect on our business, financial condition and/or results of operations.

Any disaster at our manufacturing facilities or those of our suppliers could disrupt our ability to manufacture our products for a substantial amount of time.

We conduct our manufacturing and assembly at facilities in Queensbury, New York and Glens Falls, New York.

We conduct manufacturing and assembly at facilities in Queensbury, New York, Glens Falls, New York, and other third parties in Costa Rica, Latvia, and other locations.

It would be difficult, expensive and time-consuming to transfer resources from one facility to the other and/or replace or repair these facilities or manufacturing equipment if they were significantly affected by a disaster.

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The COVID-19 pandemic has negatively impacted our business and operations around the world and may continue to materially and adversely impact our business, operations and financial results.

The COVID-19 pandemic has created significant disruption and uncertainty in the global economy, has negatively impacted our business, results of operations and financial condition, and we anticipate that it may continue to negatively impact our business, results of operations and financial condition for the foreseeable future.

The COVID-19 pandemic has created significant disruption and uncertainty in the global economy and has negatively impacted our business and results of operations and financial condition, most recently with the escalation of the Omicron and subsequent variants, and we anticipate that it may continue to negatively impact our business, results of operations and financial condition for the foreseeable future.

Numerous national, international, state and local jurisdictions have imposed, and others in the future may impose, a variety of government orders and restrictions for their residents to control the spread of COVID-19.

Such orders or restrictions may cause significant alteration of our operations, work stoppages, slowdowns and delays, travel restrictions and event cancellations, among other effects, thereby significantly and negatively impacting our operations.

Other disruptions or potential

disruptions include (i) restrictions on our personnel and personnel of business partners to travel and access customers for training and case support; (ii) reductions in spending by our customers;

(iii) delays in approvals by regulatory bodies; (iv) diversion of or limitations on employee resources that would otherwise be focused on the operations of our business, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people; (v) reductions in our sales team, including through layoffs, furloughs or other losses of sales representatives; (vi) additional government requirements or other incremental mitigation efforts that may further impact our or our suppliers’ capacity to manufacture our products;

Other disruptions or potential disruptions include:

(i) restrictions on our personnel and personnel of business partners to travel and access customers for training and case support; (ii) reductions in spending by our customers;

(iii) delays in clearance, approvals or certifications by regulatory bodies; (iv) diversion of or limitations on employee resources that would otherwise be focused on the operations of our business, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people; (v) reductions in our sales team, including through layoffs, furloughs or other losses of sales representatives; (vi) additional government requirements or other incremental mitigation efforts that may further impact our or our suppliers’ capacity to manufacture our products;

(vii) disruption of our research and development activities;

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In addition, elective procedures that use our products significantly decreased in number during fiscal year 2021, as health care organizations around the world prioritized the treatment of patients with COVID-19 and reduced spending in other areas.

For example, in the United States, governmental authorities have recommended, and in certain cases required, that elective, deferrable, specialty and other procedures and appointments, be suspended or canceled to avoid non-essential patient exposure to medical environments and potential infection with COVID-19 and to focus limited resources and personnel capacity toward the treatment of COVID-19 patients.

Many of these procedures that use our products have been suspended or postponed.

While certain of these procedures have resumed in certain locations, it is unclear when or if all procedures in all locations will resume.

Similarly, our clinical trials may be materially impacted by the coronavirus as hospitals prioritize treating coronavirus patients.

We experienced a similar impact to procedure volumes with the resurgence of COVID-19 in fiscal year 2022.

For example in fiscal year 2021, U.S.

governmental authorities had recommended, and in certain cases required, that elective, deferrable, specialty and other procedures and appointments, be suspended or canceled to avoid non-essential patient exposure to medical environments and potential infection with COVID-19 so that limited resources and personnel could be focused on the treatment of infected patients.

Many of these procedures that use our products were suspended or postponed at times during fiscal years 2021 and 2022.

Similarly, our clinical trials were impacted by COVID-19 as hospitals prioritized treating these patients.

It is unclear when or if other resurgences of COVID-19, or increased spread of its variants, may again cause a rise in infections and result in authorities and/or customers imposing restrictions that could adversely affect our business, financial condition, results of operations and/or liquidity.

In addition, most of the hospitals and clinics that purchase our products have instituted strict procedures at their facilities in an effort to prevent the spread of COVID-19, including restrictions on sales representatives entering these facilities.

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These challenges and restrictions will likely continue for the duration of the pandemic, which is uncertain, and may even continue beyond the pandemic.

Many areas are relaxing restrictions and resuming business operations, but a resurgence in infections or mutations of the coronavirus that causes COVID-19 could cause authorities to reinstate such restrictions or impose additional restrictions.

Many areas have relaxed restrictions from time-to-time and have resumed business operations, but a resurgence in infections or mutations of the coronavirus that causes COVID-19 could cause authorities and/or our customers to reinstate such restrictions or impose additional restrictions.

All of these factors also may cause or contribute to disruptions and delays in our logistics and supply chain.

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To the extent the COVID-19 pandemic adversely affects our business, operations and financial results, it may also have the effect of heightening other risks described herein, such as those relating to general economic conditions, demand for our products, relationships with suppliers and sales efforts.

We could be negatively impacted by Environmental, Social and Governance (ESG), climate change and other sustainability-related matters .

Governments, investors, customers, employees and other stakeholders are increasingly focusing on corporate ESG practices and disclosures, including risks associated with climate change and expectations in this area are rapidly evolving.

Shifts in weather patterns caused by climate change are expected to increase the frequency and severity of adverse weather conditions such as hurricanes, tornadoes, earthquakes, wildfires, droughts, extreme temperatures or flooding, which could cause or contribute to reduced workforce availability, increased production and distribution costs and disruptions and delays in our logistics and supply chain/operations as well as the operations of our customers.

The increasing attention to corporate ESG initiatives and ESG risks could result in reduced demand for products, reduced profits and increased investigations and litigation.

If we are unable to satisfy any new criteria by which our ESG practices may be assessed, investors may conclude that our policies and/or actions with respect to ESG matters and risks are inadequate.

If we fail or are perceived to have failed to accurately disclose our progress on such initiatives or goals, our reputation, business, financial condition and results of operations could be adversely impacted.

RISKS RELATED TO THE REGULATORY ENVIRONMENT

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Regulatory regimes in other countries similarly require approval or clearance prior to our marketing or selling products in those countries.

We rely on our distributors to obtain regulatory clearances or approvals of our products outside of the United

We rely on our distributors to obtain regulatory clearances or approvals of our products outside of the United States.

If we are unable to obtain additional clearances or approvals needed to market existing or new products in the United States or elsewhere or obtain these clearances or approvals in a timely fashion or at all, or if our existing clearances are revoked, our revenues and profitability may decline.

In general, we intend to obtain Medical Device Regulation ("MDR") approvals for our principal products sold in the European Union ("EU") ahead of expiration dates;

however for multiple reasons, including but not limited to changing business strategies, labor shortages and contract resources, administrative delays, increased costs of obtaining MDR certification, availability of necessary data and notified body capacity, certain products may not be fully compliant at the time of CE mark expiration.

The additional time and resources required to obtain MDR certification has been a significant factor in, and will likely continue to influence, our decisions whether to discontinue sales and distribution of certain products in the EU.

Complying with and obtaining regulatory approval in foreign countries, including our efforts to comply with the requirements of the MDR, have and will likely continue to lead to additional uncertainty, risk, expense and delay in commercializing products in certain foreign jurisdictions, which could have a material adverse effect on our business, financial condition and/or results of operations.

Our products may be subject to product recalls, which may harm our reputation and divert managerial and financial resources.

The FDA and similar governmental authorities in other countries have the authority to order mandatory recall of our products or order their removal from the market if there are material deficiencies or defects in design, manufacture, installation, servicing or labeling of the device, or if the governmental entity finds that our products would cause serious adverse health consequences.

A government mandated voluntary recall or field action by us could occur as a result of component failures, manufacturing errors or design defects, including labeling defects.

The FDA and similar governmental authorities in other countries have the authority to order mandatory recall of our products or order their removal from the market if there are material deficiencies or defects in design, manufacture, installation, servicing or labeling of the product, or if the governmental entity finds that our products would cause serious adverse health consequences.

A government mandated recall, voluntary recall or field action by us could occur as a result of component failures, manufacturing errors or design defects, including labeling defects.

Any recall of our products may harm our reputation with customers and divert managerial, engineering and financial resources.

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• unanticipated delays or an inability to control costs;

• general economic conditions as well as those specific to our customers and markets;

• general economic conditions, including inflationary pressure, as well as those specific to our customers and markets;

• seasonal fluctuations in revenue due to the elective nature of some procedures.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors