What changed in this filing

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Item 1A. Risk Factors

2023-08-03 compared with 2022-07-22 · 65 added, 50 removed, 382 unchanged (23% of the section changed)

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Additionally, there can be no assurance that the size of the markets in which we compete will increase above existing levels or not decline, that we will be able to maintain, gain or regain market share or that we can compete effectively on the basis of price or that the number of procedures in which our products are used will increase above existing levels or not decline.

In particular, the future prospects of many of our high growth products, such as the NanoKnife system, the AngioVac system and the Auryon system, rely on continued market development and continued generation of clinical data pursuant to clinical trials conducted by us, our competitors or other third parties.

In particular, the future prospects of many of our high growth products, such as the NanoKnife system, the AngioVac system, the AlphaVac system and the Auryon system, rely on continued market development and continued generation of clinical data pursuant to clinical trials conducted by us, our competitors or other third parties.

If the results of these trials are not what we expect or fail to generate meaningful clinical data, it may adversely impact our ability to obtain product approvals.

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We believe that we have built a positive reputation based on the quality of our products, our physician-driven product development efforts, our marketing and training efforts and our presence at medical society meetings.

Any actual or perceived diminution in the quality of our products, or our failure or inability to maintain these other efforts, could damage our reputation with interventional physicians and cause our growth to be limited and our business to be harmed, which could have a material adverse effect on our business, financial condition, results of operations and/or liquidity.

Our business and prospects depend heavily on the NanoKnife system, which is currently approved for the surgical ablation of soft tissue.

If we are unable to secure expanded specific regulatory approvals for the NanoKnife system, our business and prospects may be materially harmed.

Our NanoKnife System is indicated for the surgical ablation of soft tissue.

The long-term prospects for our NanoKnife business may rely on securing expanded indications for specific disease states and treatments.

Based on our current indication, our ability to promote the NanoKnife system and provide training with respect to the use of the NanoKnife system is limited to the surgical ablation of soft tissue.

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.

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.

Any actual or perceived diminution in the quality of our products, or our failure or inability to maintain these other efforts, could damage our reputation with interventional physicians, interventional and surgical oncologists, and critical care nurses, and cause our growth to be limited and our business to be harmed, 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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Clinical trial protocols may require a large number of patients to be enrolled in the trials.

Patient enrollment is a function of many factors, including the size of the patient population for the target indication, the proximity of patients to clinical sites, the eligibility criteria for the trial, the existence of competing clinical trials and the availability of alternative or new treatments.

Patient enrollment is a function of many factors, including the size of the patient population for the target indication, the

proximity of patients to clinical sites, the eligibility criteria for the trial, the existence of competing clinical trials and the availability of alternative or new treatments.

Clinical trials may be suspended by the FDA or by a regulatory agency in another jurisdiction at any time if the FDA or the regulatory agency finds deficiencies in the conduct of these trials or it is believed that these trials expose patients to unacceptable health risks.

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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 delays in delivery of or shortages in those or other products and components (like we experienced during our 2022 and 2023 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.

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Outside of North America we rely heavily on third party distributors, either on a country-by-country basis or on a multi-country, regional basis, to market, sell and distribute our products where we do not have a direct sales and marketing presence (including, among others, China, Japan, Brazil, the Middle East and many European countries).

As such, our revenue, if any, depends on the terms of such arrangements and the distributors’ efforts.

As such, our revenue, if any,

depends on the terms of such arrangements and the distributors’ efforts.

These efforts may turn out not to be sufficient and our third-party distributors may not effectively sell our products.

International distributors accounted for approximately 72% of international revenues for the fiscal year ended May 31, 2023.

International sales grew 12% in fiscal year 2023 as we continued to develop and foster partnerships with distributors such as Healthcare 21, Cardiva and Mediplast.

If we are unable to maintain our relationships or establish direct sales capabilities on acceptable terms or at all, we may lose significant revenue or be unable to achieve our growth aspirations.

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Our products are used by physicians to treat seriously ill patients.

We are periodically subject to product liability claims, and patients or customers may in the future bring claims against us in a number of circumstances and for a number of reasons, including if our products were misused, if a component of our product fails, if our manufacture or design was flawed, if the product produced unsatisfactory results or if the instructions for use and operating manuals and disclosure of product related risks for our products were found to be inadequate.

We are periodically subject to product liability claims, and patients or customers may in the future bring claims against us in a number of circumstances and for a number of reasons,

including if our products were misused, if a component of our product fails, if our manufacture or design was flawed, if the product produced unsatisfactory results or if the instructions for use and operating manuals and disclosure of product related risks for our products were found to be inadequate.

In addition, individuals or groups seeking to represent a class may file suit against us.

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Further, such claims may require us to recall some of our products, which could result in significant costs to us.

We may be exposed to risks associated with product line divestitures as we may never realize the expected benefits and could cause operational disruptions with personnel, systems and infrastructure changes.

On June 8, 2023, the Company entered into an asset purchase agreement (the "Asset Purchase Agreement") with Merit Medical Systems, Inc.

pursuant to which Merit acquired the dialysis product portfolio and BioSentry tract sealant system biopsy businesses for $100.0 million in cash.

The Company and Merit entered into various agreements to facilitate the transition to Merit, including a Transactions Services Agreement and Contract Manufacturing Agreement.

This divestiture along with potential future divestitures of certain product lines will allow us to transform ourselves into a high growth, highly profitable, medical technology company.

If we are unable to achieve our growth and profitability objectives due to competition, lack of acceptance of our products, failure to generate favorable clinical data or gain regulatory approvals, or other risks as described in this section, or due to other events, we will not be successful in transforming our business and may not see the appropriate market valuation.

The divestiture of product lines will impact revenue, earnings and cash flows, which over time we expect to replace by investing in higher margin revenue streams.

There is a risk that we will be unable to replace the revenue, earnings and cash flow that these product lines generated, or that the cost of such will be higher than expected.

If we are unable to achieve our profit and growth objectives, such failure will be exacerbated by the loss of revenue, earnings and cash flow generated by our divested product lines and could materially impact our financial position and results of operations, resulting in a decline in our stock price.

The sale of product lines could require us to restructure significant personnel, systems and infrastructure.

In some instances, we may enter into short term transition service arrangements, under which the parties perform certain services for each other pending establishment of new processes and systems.

Although these transitions are thoroughly planned, it is not unlikely in a transaction of this complexity that disruptions could occur.

If disruptions to our financial controls, IT, administrative support, manufacturing or regulatory processes occur, and if such disruptions prove to be more severe than our planning anticipated, this could have a material adverse effect on our business.

International and national economic and industry conditions constantly change, and could materially and adversely affect our business, financial condition and results of operations.

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In addition, political and social turmoil may put further pressure on economic conditions in the United States and abroad.

The global economy has been periodically impacted by the effects of global economic downturns (such as recently related to COVID-19).

The global economy has been periodically impacted by the effects of global economic downturns (such as those recently related to COVID-19).

There can be no assurance that there will not be further such events or deterioration in the global economy.

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• economic instability and inflation, recession or interest rate fluctuations.

In addition, the United Kingdom’s (“UK”) departure from the European Union (“EU”) (commonly known as “Brexit”) has created uncertainties affecting business operations in the UK, the EU and a number of other countries, including with respect to compliance with the regulatory regimes regarding the labeling and registration of the products we sell in these markets.

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.

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We do not have written employment agreements with our executive officers, other than the CEO.

Our ability to maintain and expand our business may be impaired if we are unable to retain our current key personnel or hire or retain other qualified personnel in the future, including personnel for our manufacturing facilities.

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

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.

We have experienced labor shortages in fiscal years 2022 and 2023 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 and revenue 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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Management will need to maintain existing customers and attract new customers, recruit, retain and effectively manage employees, as well as expand operations and integrate customer support and financial control systems.

If integration-related expenses and capital expenditure requirements are greater than anticipated or if we are unable to manage our growth profitably, our financial results and the market price of our common stock may decline.

If integration-related expenses and capital expenditure

requirements are greater than anticipated or if we are unable to manage our growth profitably, our financial results and the market price of our common stock may decline.

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 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.

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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.

Inflationary pressure and unfavorable economic conditions could negatively affect our operations and business.

A significant deterioration in economic conditions, including economic slowdowns or recessions, increased unemployment levels, inflationary pressures or disruptions to credit and capital markets, could lead to decreased consumer confidence and spending and availability of credit.

For example, in 2022 and continuing into 2023, the United States and other certain foreign countries have experienced a rapid increase in inflation levels.

Such heightened inflationary levels may negatively impact demand for our products and increase our costs.

Additionally, we finance a portion of our portfolio with unhedged floating- rate debt from our Credit Agreement.

The rapid increase in inflation during fiscal year 2023 led to a rapid increase in market interest rates, which materially increased the interest rate on our floating rate debt.

In addition, if rates continue to increase, we may incur significant additional expense and adversely impact our ability to achieve our other strategic goals and business plans.

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 Statements of Operations (see Note 18).

The impairment charge is recorded in "Acquisition, restructuring and other items, net", on the Consolidated Statements of Operations (see Note 19, "Acquisition, restructuring and other items, net" set forth in the Notes in the consolidated financial statements included in this Annual Report on Form 10-K).

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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If an intangible asset is considered to be impaired, the amount of the impairment will equal the excess of the carrying value over the fair value of the asset.

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

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.

Goodwill and other intangible assets that have indefinite useful lives are not amortized, but rather, are tested for impairment annually or more frequently if impairment indicators arise.

Prior to the first quarter of fiscal year 2023, the Company managed its operations as one reporting unit.

At the beginning of the first quarter of fiscal year 2023, the Company began to manage its operations as two operating segments and two reporting units, namely Med Tech and Med Device (see Note 18 "Segment and Geographic Information" set forth in the Notes to our consolidated financial statements included in this Annual Report on Form 10-K).

The annual goodwill impairment review performed in April 2023 and 2022 indicated no goodwill impairments.

As of May 31, 2023, the Company concluded that the sale of the dialysis product portfolio and BioSentry tract sealant system biopsy businesses to Merit Medical Systems, Inc.

was a triggering event for the Med Device report unit.

The Company utilized the income approach to determine the fair value of the remaining Med Device reporting unit.

Based on the results of this evaluation, the Company recorded a goodwill impairment charge of $14.5 million for the year ended May 31, 2023 to write down the carrying value of the Med Device reporting unit to fair value.

If actual results differ from the assumptions and estimates used in the goodwill and intangible asset calculations, we could incur future impairment or amortization charges, which could negatively impact our financial condition and results of operations.

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Future ownership changes within the meaning of IRC Section 382 may also subject our tax loss carryforwards to annual limitations which would restrict our ability to use them to offset our taxable income in periods following the ownership changes.

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

See Note 10, "Income Taxes" set forth in our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2023 for a further discussion of our tax loss carryovers.

A cyber-attack or other breach of our, our distributors, 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, destruction, losses of data privacy, or other significant disruptions.

Our supply chain partners face similar risks.

Our distributors and 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 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.

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

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

Although the impact of COVID-19 and the resulting measures decreased during 2023, they have the potential to continue to negatively impact our business, results of operations and financial condition in the 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.

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(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;

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.

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

We experienced a similar impact to procedure volumes with the resurgence of COVID-19 in fiscal year 2022 which continued through fiscal year 2023.

For example in fiscal year 2021, U.S.

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We operate in many parts of the world, and our operations are affected by complex state, federal and international laws relating to healthcare, environmental protection, antitrust, anti-corruption, anti-bribery, fraud and abuse, export control, tax, employment and laws regarding privacy, personally identifiable information and protected health information, including, for example, the Food, Drug and Cosmetic Act (“FDCA”), various FDA and international regulations relating to, among other things, the development, quality assurance, manufacturing, importation, distribution, marketing and sale of, and billing for, our products, the federal Anti-Kickback Statute and Federal False Claims Act (Note 17), the U.S.

Foreign Corrupt Practices Act (“FCPA”) and similar anti-bribery laws in international jurisdictions, including the UK Anti-Bribery Act, the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), General Data Protection Regulation (“GDPR”), domestic and foreign data protection, data security and privacy laws, laws related to the collection, storage, use and disclosure of personal data and laws and regulations relating to sanctions and money laundering.

foreign data protection, data security and privacy laws, laws related to the collection, storage, use and disclosure of personal data and laws and regulations relating to sanctions and money laundering.

The failure to comply with these laws and regulatory standards, allegations of such non-compliance or the discovery of previously unknown problems with a product or manufacturer:

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The FDA’s 510(k) clearance procedure, also known as “premarket notification,” is the process we have used for our current products.

This process usually takes from four to twelve months from the date the premarket notification is submitted to the FDA, but may take significantly longer.

This process usually takes from four to twelve months from the date the premarket

notification is submitted to the FDA, but may take significantly longer.

Even after a device receives regulatory approval it remains subject to significant regulatory and quality requirements, such as manufacturing, recordkeeping, renewal, recertification or reporting and other post market approval requirements, which may include clinical, laboratory or other studies.

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We may be subject to fines, penalties, injunctions or costly investigations if we are determined to be promoting the use of our products for unapproved or “off-label” uses.

If we are incorrect in our belief that our promotional materials and training methods regarding physicians are conducted in compliance with regulations of the FDA and other applicable regulations, and the FDA determines that our promotional materials or training constitutes promotion of an unapproved use, the FDA could request that we modify our training or promotional materials or subject us to regulatory enforcement actions, including the issuance of a warning letter, injunction, seizure, civil fine and criminal penalties.

If we are incorrect in our belief that our promotional materials and training methods regarding the use of our products are conducted in compliance with regulations of the FDA and other applicable regulations, and the FDA determines that our promotional materials or training constitutes promotion of an unapproved use, the FDA could request that we modify our training or promotional materials or subject us to regulatory enforcement actions, including the issuance of a warning letter, injunction, seizure, civil fine and criminal penalties.

It is also possible that other federal, state or foreign enforcement authorities might take action if they consider promotional or training materials to constitute promotion of an unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement.

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Identifying third-party patent rights can be particularly difficult because, in general, patent applications can be maintained in secrecy for at least 18 months after their earliest priority date, and publication of discoveries in the scientific or patent literature often lag behind actual discoveries.

Some companies in the medical device industry have used intellectual property infringement litigation to gain a competitive advantage.

Some companies in the medical device industry have used intellectual property infringement litigation to

gain a competitive advantage.

If a competitor were to challenge our patents, licenses or other intellectual property rights, or assert that our products infringe its patent or other intellectual property rights, we could incur substantial litigation costs, be forced to make expensive changes to our product design, pay royalties or other fees to license rights in order to continue manufacturing and selling our products, or pay substantial damages.

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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