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STEREOTAXIS, INC. filed this Form S-1/A on 06/17/2004
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as well as expenditures made pursuant to our strategic alliance agreements. Our research and development expenditures under these alliance agreements are primarily to cover the costs of integrating our system with Philips and J&J, and for co-developing a line of electrophysiology catheters with J&J. As these are non-recurring expenses, we do not expect that the rate of our expenditures pursuant to these agreements will materially increase in the future. All research and development costs are expensed as incurred. Our research and development efforts are periodically subject to significant non-recurring costs and fees that can cause significant variability in our quarterly research and development expenses. Our research and development expenditures have increased substantially from their 2003 levels as we improve our existing systems and introduce new systems and accessories capabilities, enhance clinical applications, develop new products and integrate our system with Philips and J&J pursuant to our alliances with them. We do not expect these expenditures to increase materially from their current levels in the near term.
General and Administrative Expenses

       General and administrative expenses consist primarily of salaries and related expenses for certain members of senior management and other personnel engaged in accounting, regulatory and clinical affairs, quality assurance and other administrative functions, legal fees, insurance and other general corporate expenses, as well as certain expenses associated with collecting and analyzing the results of clinical trials and submitting these results to the FDA. We expect general and administrative expenses to increase in the future to support our expanding organization and public company reporting and compliance activities.

Sales and Marketing

       Sales and marketing expenses consist primarily of salaries and related expenses for personnel engaged in product sales and promotional efforts. We expect that our sales and marketing expenses will increase in the future to support our operating plan.

       We anticipate generating sales directly, through our own sales force, and indirectly, through co-marketing arrangements with our strategic imaging partners and through certain selected distribution agreements. Under our alliance agreements with Siemens and Philips, we are coordinating our respective sales efforts to co-place systems integrated with their imaging systems at leading hospital sites in the U.S. and Europe. In addition, under our alliance with Philips, we will receive co-placement fees for initial shipments of our integrated systems. Under our alliance with J&J, J&J will distribute our co-developed electrophysiology ablation and mapping catheters. We anticipate selectively using distributors to facilitate system sales outside the U.S. and have signed an exclusive distribution agreement covering Italy and part of Switzerland. In addition, under our collaboration with Siemens, we have agreed to grant Siemens the right to sell and distribute our system in Japan.

Critical Accounting Policies

       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 accounting principles generally accepted in the U.S. 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. While our significant accounting policies are described in more detail in the notes to our financial statements included in this prospectus, we believe the following accounting policies are critical to the judgments and estimates we use in preparing our financial statements.


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