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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________

FORM 10-K

_________________________________



    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018

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

Commission File Number 000-51470

PICTURE 1

AtriCure, Inc.

(Exact name of registrant as specified in its charter)

_________________________________



 



 



 

Delaware

34-1940305

State or other jurisdiction of

incorporation or organization

(I.R.S. Employer

Identification Number)



 

7555 Innovation Way, Mason, OH

45040

(Address of principal executive offices)

(Zip Code)



Registrant’s telephone number including area code: (513) 755-4100



Securities Registered Pursuant to Section 12(b) of the Act:

 



 



 

Title of each class

Name of each exchange on which registered

Common Stock, $.001 Par Value Per Share

NASDAQ Global Market



Securities Registered Pursuant to Section 12(g) of the Act:

None

_________________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes       No    

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes       No    

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 (§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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    

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 definition 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 Exchange Act).    Yes      No   

The aggregate market value of the voting Common Stock held by non-affiliates of the registrant, based upon the closing sale price of the Common Stock on June 30, 2018, as reported on the NASDAQ Global Market, was $911.1  million.

As of February 22, 2019, there were 3 8 ,60 5 ,7 37 shares of Common Stock, $.001 par value per share, outstanding.

_________________________________

DOCUMENTS INCORPORATED BY REFERENCE

Items 10, 11, 12, 13 and 14 of Part III of this Form 10-K incorporate information by reference from the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K.



 

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TA BLE OF CONTENTS





 

 

 PART I

 ITEM  1.

BUSINESS

 ITEM  1A.

RISK FACTORS

12 

 ITEM  1B.

UNRESOLVED STAFF COMMENTS

31 

 ITEM  2.

PROPERTIES

31 

 ITEM  3.

LEGAL PROCEEDINGS

31 

 ITEM  4.

MINE SAFETY DISCLOSURES

31 

 PART II

32 

 ITEM  5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

32 

 ITEM  6.

SELECTED FINANCIAL DATA

33 

 ITEM  7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

34 

 ITEM  7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

42 

 ITEM  8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

43 

 ITEM  9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

69 

 ITEM  9A.

CONTROLS AND PROCEDURES

69 

 ITEM  9B.

OTHER INFORMATION

71 

 PART III

71 

 ITEM  10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

71 

 ITEM  11.

EXECUTIVE COMPENSATION

71 

 ITEM  12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

71 

 ITEM  13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

71 

 ITEM  14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

71 

 PART IV

72 

 ITEM  15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

72 

 ITEM  16.

FORM 10-K SUMMARY

73 

 SIGNATURES

74 

 

 

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PA RT I

This Form 10-K, including the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors,” contains forward-looking statements regarding our future performance. All forward-looking information is inherently uncertain and actual results may differ materially from assumptions, estimates or expectations reflected or contained in the forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this Form 10-K. Forward-looking statements address our expected future business, financial performance, financial condition and results of operations, and often contain words such as “intends,” “estimates,” “anticipates,” “hopes,” “projects,” “plans,” “expects,” “seek,” “believes,” “see,” “should,” “will,” “would,” “target,” and similar expressions and the negative versions thereof. Such statements are based only upon current expectations of AtriCure. Any forward-looking statement speaks only as of the date made. Reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to differ materially from those expressed or implied. Forward-looking statements include statements that address activities, events, circumstances or developments that AtriCure expects, believes or anticipates will or may occur in the future. Forward-looking statements are based on AtriCure’s experience and perception of current conditions, trends, expected future developments and other factors it believes are appropriate under the circumstances and are subject to numerous risks and uncertainties, many of which are beyond AtriCure’s control. With respect to the forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. These forward-looking statements speak only as of the date of this Form 10-K. We undertake no, and hereby disclaim any and all, obligation to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise unless required by law.

(Dollar and share amounts referenced in this Part I are in thousands.)

IT EM 1.  BUSINES S

Overview

We are a leading innovator in treatments for atrial fibrillation (Afib) and left atrial appendage (LAA) management. A fib affects approximately 1 % of the population in the United States. It is the most common cardiac arrhythmia, or irregular heartbeat, encountered in clinical practice and accounts for more doctor visits and hospital days than any other cardiac arrhythmia. When a patient is in A fib, abnormal electrical impulses cause the atria, or upper chambers of the heart, to fibrillate, or beat rapidly, irregularly, and in an uncoordinated fashion . As a result, blood in the atria may be in   stasis , increas ing the risk that a blood clot will form and cause a stroke or other serious complications. In patients with Afib, a significant percentage of those clots can form inside of the LAA. Symptoms of A fib may include heart palpitations, dizziness, fatigue and shortness of breath, and these symptoms may be debilitating and life threatening in some cases. Patients often progress from being in Afib intermittently to being in Afib continuously. A fib   often occurs in conjunction with other cardiovascular disease s ,   including hypertension, congestive heart failure, left ventricular dysfunction, coronary artery disease and valvular disease.

Our products are used by physicians during both open-heart and minimally invasive surgical procedures , either in conjunction with heart surgery for other conditions (“concomitant” to such a procedure), or on a standalone basis .   We have several product lines for the ablation of cardiac tissue , including our Isolator ® Synergy™ Ablation System, the first and only surgical device approved by the United States Food and Drug Administration (FDA) for the treatment of persistent and long-standing persistent forms of Afib in patients undergoing certain open concomitant procedures. We also offer a variety of minimally invasive ablation devices and access tools to facilitate less invasive cardiac and thoracic surgery. Our cryoICE ® cryosurgery product line offers a variety of cryoablation devices for use in multiple types of cardiothoracic surgery .   Our AtriClip ® LAA Exclusion System is a device specifically designed to occlude the heart’s left atrial appendage.

W e believe that we are currently the market leader in the surgical treatment of A fib . Our Isolator Synergy System is approved   by FDA for the treatment of persistent and long-standing persistent Afib concomitant to other open-heart surgical procedures. All of our other ablation devices are cleared for sale in the United States under FDA 510(k) clearances, including our other RF and cryoablation products, which are indicated for the ablation of cardiac tissue and/or the treatment of cardiac arrhythmias. In addition, certain of our cryoablation probes are cleared for managing pain by temporarily ablating peripheral nerves. Our AtriClip products are 510(k)-cleared with an indication for the occlusion of the heart’s LAA, performed under direct visualization and in conjunction with other cardiac surgical procedures. Direct visualization, in this context, requires that the surgeon is able to see the heart directly, with or without assistance from a camera, endoscope or other appropriate viewing technologies. We also offer reusable surgical instruments typically used in cardiac valve replacement or repair. Our Isolator Synergy clamps, Isolator Synergy pens, Coolrail ®  l inear pen, cryosurgery devices, certain products of the AtriClip LAA Exclusion System, COBRA Fusion ® Ablation System, Numeris TM System and the EPi-Sense ® Guided Coagulation System with VisiTrax ® technology bear the CE mark and may be commercially distributed throughout the member states of the European Union and other countries that comply with or mirror the Medical Device Directive.  We anticipate that substantially all of our revenue for the foreseeable future will relate to products we currently sell, or are in the process of developing .

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W e sell our products to medical centers through our direct sales force in the United States and i n certain international markets, such as Germany , France, the United Kingdom and the Benelux region . We also sell our products to distributors who in turn sell our products to medical centers in other international markets . Our business is primarily transacted in U.S. Dollars with the exception of transactions with our European customers, which are transacted in Euros or British Pounds .

Market Overview

A fib is the most commonly diagnosed sustained cardiac arrhythmia, and affects more than 30  million people worldwide, including more than five  million   in the United States. I t is estimated that the incidence of A fib doubles with each decade of an adult’s life. At age 40, remaining lifetime risk for A fib is 26% for men and 23% for women. A fib is an under-diagnosed condition due in large part to the fact that patients with A fib often have mild or no symptoms , and their A fib is only diagnosed when they seek treatment for an associated condition, such as a structural heart disease or stroke . We believe that increasing awareness of A fib and improved diagnostic screening will result in an increased number of patients diagnosed with A fib .   Recently, there have been several new diagnostic technologies introduced in the United States that allow for less invasive screening options, which should assist patients with more compliant and proactive identification of Afib. Also, since the prevalence of A fib increases with age, there will likely be an increase in the number of diagnosed A fib patients in the United States as the population ages. We believe that the same trends in the United States apply globally, as in many geographies the incidence of Afib is increasing as the population ages.  

A fib is a condition that doctors often find difficult to treat and, historically, there has been no widely accepted long-term cure for A fib .   This difficulty is exacerbated with more serious forms of Afib, which are typically classified as “persistent” and “long-standing persistent” Afib. Doctors typically begin treating A fib with pharmaceuticals , which are often ineffective, not well-tolerated and may be associated with serious side effects , including the risk of bleeding . Patients who cannot effectively be treated with pharmaceuticals may be candidates to undergo catheter-based ablation procedures to treat their A fib . To perform a catheter ablation, an electrophysiologist inserts a flexible catheter into the interior of the heart, typically through the femoral vein in the groin .   There are currently no catheter ablation technologies indicated for the treatment of persistent or long-standing persistent Afib . Implantable devices, such as pacemakers and defibrillators, are sometimes used to reduce the frequency and symptoms of A fib, although they are not designed to treat the underlying disease. In the past, an open-heart surgical procedure known as the “cut and sew Maze” was used to treat A fib . While the cut and sew Maze was highly eff ective, this procedure has not been widely adopted because it is technically challenging, highly invasive and involves long recovery times. Over the past two decades, technology advancements have made surgical ablation more effective, repeatable and available to cardiac surgeons around the world. Recent societal guideline changes from the Society of Thoracic Surgeons (STS) and Heart Rhythm Society (HRS) have increased the class of recommendation for concomitant surgical ablation to Class I, meaning that it is a “recommended” treatment, no longer just “reasonable”, for patients who have structural heart disease and Afib. These societal guidelines are reflective of the scientific evidence suggesting that surgical ablation is safe and effective for all structural heart patients who also have Afib.  

Of the patients undergoing open-heart surgery globally on an annual basis , we estimate that over 250,000   are potential candidates for surgical ablation using our products. Today, we estimate that approximately 25-35% of those candidates are being treated, but we believe many are not treated properly or fully. Of the population diagnosed with A fib ,   a large percentage of patients are symptomatic and do not respond to pharmacological therapy. Additionally, there is a large population of patients who have no other underlying cardiac disease but who suffer from serious forms of Afib. Many of these patients fail traditional therapies, and thus we believe could benefit from a   minimally invasive or multi-disciplinary (“hybrid”)  A fib treatment using our products.

In addition, Afib is thought to be responsible for approximately 15% to 20% of the estimated 800,000 strokes that occur annually in the United States. According to the American Heart Association, the risk of stroke is five times higher in people with Afib. Studies have also suggested that 90% of clots that cause strokes in patients who have Afib originate from within the LAA. Afib accounts for billions of dollars in hospitalization-related and office visit costs in the United States each year. Indirect costs, such as the management of Afib-related strokes, are believed to be significant. Because of the risk of stroke and the significant cost burden on the healthcare system, more and more surgeons are routinely addressing the LAA, both in patients who have Afib, but also in those who do not have Afib but may be at increased risk of developing the disease in the future. We believe that our AtriClip system is safer, more effective and easier to use than other products and techniques for occluding the LAA. Therefore, we believe that the market for the AtriClip system represents a significant growth opportunity.

Cardiothoracic surgery involving an incision through the ribcage, typically referred to as thoracotomy access, can often times result in post-operative pain and longer hospital recovery times as patients refrain from mobilizing their chest near the incision site. Most cardiothoracic surgeons will employ a multi-modal pain management protocol that includes global and local pain management techniques. Global techniques include epidural delivery of medication directly around the spinal cord, intravenous, or oral delivery of opioid and non-opioid pain medications. Local, more focused, techniques include syringe injections between vertebrates and cryo nerve block, the use of cryo-energy to temporarily ablate peripheral nerves. Cryo nerve block can be delivered using our cryoICE

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CRYO2 probe, one of the same probes used to treat cardiac arrhythmias, as well as our cryoICE cryoSPHERE™ probe, which is specifically designed for cryo nerve block. Depending on the degree of invasiveness of the cardiothoracic surgery, physicians and their nursing staff will take advantage of multiple modes of pain management. It is estimated that each year roughly 150,000 cardiothoracic procedures are performed in the United States through thoracotomy access. Hospital recovery times can vary from two to eight days depending on the procedure, operative complications associated with the procedure, pain management protocol, and other factors. In recent years, opioids have come under heavy scrutiny due to their potential for long-term dependency, overdose and possible death. The Center for Disease Control has reported over 42,000 deaths involving opioids in the United States in a single year, and both federal and local governments in the United States have proposed and implemented new regulations to curb the opioid overdose epidemic. It is also estimated that one in seven cardiothoracic surgical patients develops an unhealthy post-procedural addiction to prescription narcotics, making alternative, non-opioid pain management modalities, such as cryo nerve block, increasingly important.

The AtriCure Solution and Products

We believe the surgical and catheter-based ablation devices currently marketed by our competition are not ideal for safely, rapidly and reliably creating lesions that completely and permanently block the abnormal electrical impulses that cause A fib , particularly for patients with more chronic forms of A fib or patients who have failed single or multiple catheter ablations. Our products, including our Isolator Synergy System, enable cardi othoracic surgeons to mimic the   cut and sew Maze procedure   with a faster, less invasive and less technically challenging approach .   We have completed, and continue to invest in, clinical studies for the use of our ablation products to treat A fib . Leading cardiothoracic surgeons and electrophysiologists , including those who serve or who have served as consultants to us, have published results of initial clinical studies utilizing our Isolator Synergy System. The results of these studies have assessed efficacy, ease of use and safety endpoints .

We   offer product lines for cardiac tissue ablation , left atrial appendage management and temporary pain management.  

Product s for cardiac tissue ablation are characterized as either (1) those that heat tissue using Radio Frequency (RF) energy to create the tissue effects or (2) those that cool tissue using cryo-thermal heat transfer to create the tissue effects :

1.)

R adio Frequency Ablation Devices.   Our RF products fall into four platforms each consisting of disposable handpieces which connect to compact RF power generation sources that we generally place with our direct customers and sell to our distributors. Our RF devices primarily consist of the following products:

·

Isolator Synergy   and Isolator Synergy Access ®   Clamps.   Our Isolator Synergy System represents our primary product line and currently generates the majority of our RF ablation-related revenue. Physicians use the Isolator Synergy System and related RF devices in both open and minimally invasive procedures. All of our clamps are single-use disposables and have jaws that close in a parallel fashion. We sell multiple configurations of our Isolator Synergy clamps with the primary difference being the form of the clamping jaws. The parallel closure compresses tissue and evacuates the blood and fluids from the energy pathway in order to make the ablation more effective.

·

EPi-Sense Guided Coagulation System with VisiTrax   Technology .   The EPi-Sense Guided Coagulation System with VisiTrax technology utilizes monopolar energy for the coagulation of tissue. The Epi-Sense device is a single-use disposable which is also capable of intra-operative cardiac signal sensing and recording when connected to an external recording device.

·

Multifunctional Pen s and Linear Ablation Devices .   These devices are single-use disposable RF products that come in multiple configurations which have different contact lengths and are powered by the Isolator Synergy Ablation and Sensing Unit RF generator. The MAX and Max Linear Pen devices enable surgeons to evaluate cardiac arrhythmias, perform temporary cardiac pacing, sensing and stimulation and ablate cardiac tissue with the same device. Surgeons are able to readily toggle back and forth between these functions. The Coolrail device enables the user to make longer linear lines of ablation. Surgeons generally us e one or more of our pen and linear devices in combination with Isolator Synergy clamps.

·

COBRA Fusion Surgical Ablation System .   The COBRA Fusion Surgical Ablation System’s Versapolar technology combines bipolar temperature-controlled RF energy with monopolar energy. The COBRA Fusion devices are single-use disposable devices which incorporate a unique suction design that draws tissue in to assure stable contact and optimizes ablation performance.

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2.)

cryoICE Cryoablation System.   The cryoICE cryoablation system consists of the cryoICE BOX generator along with   a range of cryoI CE probes and is used to ablate cardiac tissue .   The single-use disposable probes come in a variety of configurations, with the primary differences being the flexibility, length and form of the distal end.

Product s for left atrial appendage management :

AtriClip System.   The AtriClip System includes an implantable device (AtriClip) coupled to a single-use disposable applier. The AtriClip is designed to occlude the left atrial appendage by mechanically clamping the appendage from the outside of the heart , eliminating blood flow between the left atrial appendage and the atrium while avoiding contact with circulating blood. We believe that the AtriClip system is potentially safer, more effective and easier to use than other   available products and techniques for permanently oc cluding the left atrial appendage. The AtriClip device comes in a variety of lengths allowing the user to select a configuration specific to the patient and in two geometries (rectangular and “V” shape). The appliers come in multiple forms tailored to specific procedural needs and with different deployment mechanisms. The AtriClip System includes various combinations of AtriClips and appliers.

Products for temporary pain management:

cryoICE Cryoablation System. The cryoICE cryoablation system for temporary pain block consists of the cryoICE Box generator along with a single-use disposable probe, the cryoICE CRYO2 probe or the cryoICE cryoSPHERE probe.  The primary differences between these cryoablation probes is the form of the distal end. This system is used to apply cryo-energy to targeted intercostal peripheral nerves in the ribcage in order to temporarily relieve pain. This technique, called cryo nerve block, is applied intra-operatively by the cardiothoracic surgeon and results in temporary pain relief for up to 90 days after the procedure. Sensation typically returns to the affected region of the chest after this period. Studies are ongoing to characterize the effects of cryo nerve block and further refine the procedure.

In addition to the above product lines we also sell enabling technologies including our Lumitip™ dissector s, the Fusion Magnetic Retriever System and a line of reusable cardiac surgery (valve) instruments . The Lumitip dissector is used by surgeons to separate tissues to provide access to key anatomical structures that are targeted for ablation. The Fusion Magnetic Retriever System allows access around key anatomical structures and facilitates positioning of the Cobra Fusion Surgical Ablation System . Cardiac surgery instruments are used during certain surgical procedures for repair or replacement of heart valves.

Current A fib Treatment Alternatives

Physicians usually begin treating A fib patients with a variety of drugs intended to prevent blood clots, control heart rate or restore the heart to normal sinus rhythm. If a patient’s A fib cannot be adequately controlled with drug therapy, doctors may perform one of several open-heart or minimally-invasive procedures that vary depending on the severity of the A fib symptoms and whether or not the patient suffers from other forms of heart disease.

Alternative treatments to open-heart and minimally invasive procedures include:

·

Drugs.   Pharmaceutical options called anti-arrhythmics are available to treat Afib. Depending on a patient’s severity of the disease and heart condition, physicians typically administer these medications in a hospital setting with continuous monitoring. If the patient goes back into a normal rhythm, the physician will often prescribe a similar anti-arrhythmic drug to try to prevent a recurrence of Afib. The effectiveness of drug therapy varies based on the patient population and the drug being prescribed, among other factors. Often, pharmaceuticals to thin the blood (anti-coagulants) are prescribed due to the increased risk of stroke for patients who also have Afib.

·

Implantable Devices.   Implantable devices, such as defibrillators and pacemakers, can be effective in reducing the symptoms of A fib episodes, but neither device is intended to treat A fib . Patients may continue to experience the adverse effects of A fib as well as some of the symptoms and complications, including dizziness, fatigue, palpitations and stroke because the A fib continues.

·

Catheter Ablation . Catheter ablation is a procedure that is typically performed by an electrophysiologist. The ablations are made from the inside of the heart using a flexible catheter. The heart is reached via a blood vessel, most commonly through the femoral vein. In proportion to the prevalence of A fib , only a small number of catheter-based A fib treatments are performed each year in the United States.

We do not promote our products specifically for Afib treatment in the United States, except for the Isolator Synergy System, which may be promoted according to its FDA-approved indication for patients with persistent and long-standing persistent Afib undergoing certain open concomitant procedures. During elective open-heart surgical procedures, such as bypass or valve surgery, cardiothoracic surgeons use our ablation systems to treat patients with a pre-existing history of A fib . Surgeons use our products to perform cardiac procedures that may vary depending on the length of time a patient has been diagnosed with A fib and whether the

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patient’s A fib is intermittent, known as paroxysmal, or more continuous (non-paroxysmal) ,   which is typically further classified as persistent, long-standing persistent or permanent . Patients who have been diagnosed with A fib for a longer duration and have non-paroxysmal forms of A fib generally receive more extensive ablation procedures than patients who have been diagnosed with A fib for a shorter duration or who have paroxysmal A fib . Additionally, during an open-heart procedure, physicians may use our AtriClip system to occlude the left atrial appendage.

For those patients with A fib who do not require a concomitant open-heart surgical procedure, surgeons have used our products for minimally invasive A fib treatment procedures. These procedures have generally been performed through minimally invasive incisions without the need to place patients on a heart-lung bypass machine. We do not currently have any products with FDA-approved indications for the standalone treatment of Afib.  

Certain physicians are combining various minimally invasive stand-alone epicardial ablation procedures (surgical ablation on the outside of the heart) with endocardial ablation and mapping techniques ( catheter ablation from the inside of the heart). These combination procedures are often referred to as “hybrid” or “multi-disciplinary” approaches, in that both surgical ablation and catheter ablations are performed. Sometimes, both procedures are performed on the same day or in the same hospital stay, where other times they are performed days or weeks apart. Patient health condition, physician preference, hospital logistics and procedural room availability influence the decision whether to perform hybrid ablations in a single or a staged setting. Physicians are reporting that they are performing these procedure s utilizing certain of our products to primarily treat patients who have non-paroxysmal forms of A fib .

Business Strategy

We are passionately focused on reducing the global Afib epidemic and healing the lives of those affected.  Our strategy is to expand the treatment options for patients who suffer from A fib   or have a high risk of stroke through the continued development of our technologies and expansion of our product offerings , global commercial expansion and clinical science investments . The key elements of our strategy include:

New Product Innovation. Our product development pipeline includes projects which extend and improv e our existing products, as well as research   and development projects for new technologies .   We plan to continue to develop new and innovative products, including those that allow us to enter new market opportunities or expand our growth in existing markets.

Invest in Clinical Science and Build Physician and Societal Relationships . We continue to invest in landmark clinical trials to validate the long-term results of procedures using our products and to support applications to regulatory agencies for expanded indications. We also make clinical research grants to support our product development efforts.

We have formed consulting relationships with cardiothoracic surgeons, cardiologists, electrophysiologists and thoracic surgeons who work with us to evaluate and develop our products. Additionally, we have formed advisory boards made up of key opinion leaders in multiple specialties to oversee our training and clinical programs. We are also building these relationships to provide insight regarding treatment trends, input on future product direction and education for providers involved in treating the disease.  

We are partnering with leading surgical and cardiology societies to increase the awareness of Afib treatment options. In the past two years, both the Society for Thoracic Surgeons and the Heart Rhythm Society have released new guidelines on the surgical treatment of Afib in both open-heart and minimally-invasive settings.

Provide Training and Education. We have recruited and trained sales and physician education professionals to effectively communicate to our customers the unique features and benefits of our technologies as they relate to their indications for use . Our highly trained professionals meet with physicians at institutions around the world to provide education and technical training on the features , benefits and safe-and-effective use of our products . With the approval of our Isolator Synergy System for the treatment of non-paroxysmal Afib, we instituted a program to train providers on the use of the Isolator Synergy System to treat persistent and long-standing persistent Afib in patients undergoing open-heart surgery. We believe this training and education program has increased awareness about the surgical treatment of Afib during open-heart procedures, and we will continue to make investments to serve our physician customers. As a result of the educational process, we believe that awareness of our technolog ies is growing and will result in the increased use of our products.

Expand Adoption of Our Minimally Invasive Products. We believe that the catalysts for expanded adoption of our minimally invasive products include procedural advancements, such as the hybrid or multi-disciplinary procedure, and the publication of peer-reviewed articles, which we believe will help validate the successful, long-term use of our products for patients with A fib . We believe that ongoing research activities, including prospective clinical trials, new procedural techniques and anticipated presentations and publications will create an increased demand for our minimally invasive products.

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Evaluate Acquisition Opportunities . We expect to continue to be opportunistic with respect to acquisitions which make strategic and financial sense.

Clinical Trials

In the United States, a significant risk device require s the prior submission of an application for an Investigational Device Exemption ( IDE) to FDA for approval before initiating a clinical trial . Clinical trials are required to support a pre-market approval ( PMA ) and are sometimes required for 510(k) clearance. Some trials require a feasibility study followed by a pivotal trial. An IDE supplement is a means of obtaining approval to initiate a pivotal trial following the conclusion of a feasibility trial. We are conducting several clinical trials to validate the long-term results of procedures using our products and to support applications to regulatory agencies for expanded indications. In addition, we also conduct various studies to gather clinical data regarding our products. Key trials and studies are:

CONVERGE. We are conducting the CONVERGE IDE clinical trial to evaluate the safety and efficacy of the EPi-Sense Guided Coagulation System with VisiTrax technology to treat symptomatic persistent Afib patients who are refractory or intolerant to at least one Class I and/or III anti-arrhythmic drug. The trial provides for enrollment of up to 153 patients at 27 domestic medical centers and three international medical centers .   Enrollment began in 2014 and was completed in August 2018. The study protocol requires patient follow-up for twelve months post procedure for the primary effectiveness endpoint assessment and long-term follow-up through five years.

ATLAS. The ATLAS study is a non-IDE randomized pilot study evaluating outcomes of patients with risk factors for developing postoperative Afib as well as risk of bleeding on oral anticoagulation. There are two types of patients subject to this study: those with a postoperative Afib diagnosis and receiving prophylactic exclusion of the left atrial appendage with the AtriClip device concomitant to cardiac surgery and those with a postoperative Afib diagnosis who are medically managed. Enrollment began in February 2016 and ended in March 2018. We are analyzing preliminary data obtained from this trial.

FROST. We are conducting a cryo nerve block study, which is a non-IDE randomized pilot study evaluating intraoperative intercostal cryoanalgesia. The study involves treatment arm patients who receive intercostal cryoanalgesia in conjunction with standard post-operative pain management and control arm patients who receive standard post-operative pain management only. The study provides for enrollment of up to 100 patients at five medical centers. Enrollment began in June 2016 and remains ongoing.  

DEEP AF Pivotal Study. The DEEP AF IDE pivotal trial evaluates the safety and efficacy of the Isolator Synergy System when used in a staged approach where a minimally invasive surgical ablation procedure is first performed and the patient undergoes the intracardiac catheter procedure approximately 90-120 days later. The trial was paused during 2016-2017 due to our work to mitigate the risk related to esophageal injury during the procedure. We are committed to patient safety, and we worked collaboratively with FDA and obtained approval to resume enrollment in the trial in 2018. We currently have FDA approval to enroll 40 patients, and we plan to seek approval of additional patients pending FDA’s review of additional data.

CEASE AF. We are also pursuing a non-IDE trial in Europe to compare staged hybrid ablation treatment (minimally invasive surgical ablation procedure is first performed and the patient undergoes the intracardiac catheter procedure approximately 91-180 days later) versus catheter ablation alone. We expect the study to have an enrollment of approximately 210 patients at twelve sites. Enrollment began in November 2015 and remains ongoing.

ICE-AFIB. The ICE-AFIB clinical trial is designed to study the safety and efficacy of the cryoICE ® system for persistent and long-standing persistent Afib treatment during concomitant on-pump cardiac surgery. The trial provides for enrollment of up to 150 patients at up to 20 sites in the United States. We received IDE approval from FDA to proceed with the ICE-AFIB trial in November 2018. Enrollment is projected to start in the first quarter of 2019 .

Sales, Marketing and Medical Education

Our global sales and marketing efforts   focus on educating physicians about our unique technologies and their technical benefits. We only promote our products for uses described in their labeling as cleared or approved by the relevant regulatory agencies . We train our sales force on the use of our products to the extent the products are cleared or approved.

Our sales team in the United States has approximately   1 40 employees supporting approximately 52   sales territories. We select our sales personnel based on their expertise, sales experience and reputation in the medical device industry , and their knowledge of cardiac surgery   procedures and technologies.

We market and sell our products in selected markets outside of the United States through a combination of independent distributors and   direct sales personnel. Our international sales team includes sales representatives focused on our direct markets , such

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as Germany , France, the United Kingdom and the Benelux region. We also maintain a network of distributors in Asia, South America and Canada , as well as certain countries in Europe, who market and sell our products . We continue to evaluate opportunities for further expansion into markets outside of the United States.

Competition

Our industry is competitive, subject to change and significantly affected by new product introductions and other activities of industry participants. Most of our competitors have greater financial and human resources than we do and have established reputations with our target customers, as well as worldwide distribution channels that are more established and developed than ours. Our primary competitor is Medtronic, plc, who provide s   similar products to ours that have been adopted by physicians for the treatment of A fib and related conditions .   Several other companies offer intracardiac catheter devices that are commonly used by electrophysiologists to treat Afib. These catheter devices are FDA-approved to treat the paroxysmal form of Afib, but they are not FDA indicated to treat persistent or long-standing persistent Afib .   AtriCure’s Isolator Synergy System is the only medical device that is FDA approved to treat  A fib in a surgical setting, and the only medical device approved to treat persistent or long-standing persistent Afib in a concomitant setting . AtriCure is monitoring other companies who are conducting clinical trials that may support FDA approval of their devices to treat persistent and long-standing persistent Afib. We believe that our products compare favorably against competing products during both open-heart and minimally invasive procedures , and that our products compare favorably to intracardiac catheter devices when used to treat non-paroxysmal forms of A fib . Further, we believe our AtriClip system is an ideal medical device indicated for oc clusion of the LAA .  

To compete effectively, we strive to demonstrate that our products are an attractive alternative to other treatments by differentiating our products on the basis of safety, efficacy, performance, ease of use, reputation, service and price. In addition, we invest heavily in training and education to ensure that our customers understand available devices, techniques, and approaches for optimal treatment. We have encountered and expect to continue to encounter potential customers who prefer products offered by our competitors.

Third-Party Reimbursement

Payment for patient care in the United States is generally made by third-party payors. These payors include private insurers and government insurance programs, such as Medicare and Medicaid. The Medicare program, the largest single payor in the United States, is a federal health benefit program administered by the Centers for Medicare and Medicaid Services (CMS) and covers certain medical care items and services for eligible beneficiaries, such as individuals over 65 years old, as well as chronically disabled individuals. Because Medicare beneficiaries comprise a large percentage of the populations for which our products are used, and private insurers may follow the coverage and payment policies for Medicare, Medicare’s coding, coverage and payment policies for cardiothoracic surgical procedures are significant to our business.

Medicare’s Part A program pays hospitals for inpatient services , such as cardiothoracic surgery, under the Inpatient Prospective Payment System , which provides a predetermined payment based on the patient’s discharge diagnoses and surgical procedure(s) . Discharge diagnoses are grouped into Medicare Severity Diagnosis Related Groupings (MS-DRG). There are several cardiac surgery MS-DRGs associated with the surgical treatment of A fib , with and without a concomitant open-heart procedure. When an ablation device and/or LAA exclusion device (LAAM)   is used during a concomitant open-heart procedure, Medicare’s hospital reimbursement is based upon the patient’s primary structural heart surgical procedure.  Therefore, any additional procedure concomitant to the primary procedure would not receive incremental hospital payment.  In contrast, sole therapy minimally invasive ablation or surgical LAAM procedures typically are reimbursed under a general cardiac surgery MS-DRG. We believe hospital reimbursement rates for sole therapy and concomitant therapy cardiac surgical ablation or LAAM are adequate to cover the cost of our products even when multiple procedures are performed .  

Physicians are reimbursed for their services separately under the Medicare Part B physician fee schedule. When performing a surgical cardiac ablation with and without a concomitant open-heart procedure, surgeons report Current Procedural Terminology ( CPT ) codes to receive a professional fee payment .   Multiple CPT codes may be reported by a physician during a procedure if multiple procedures are performed. There are category one CPT codes for both concomitant and standalone surgical Afib treatment . At this time, there are no category one CPT codes for the physician to report surgical LAAM.  However, some providers utilize unlisted CPT codes to obtain reimbursement in these situations.

In addition to the Medicare program, many private payors look to CMS policies as a guideline in setting their coverage policies and payment amounts. The current coverage policies of these private payors may differ from the Medicare program, and payment rates may be higher, lower, or the same as the Medicare program. In some cases, certain private payors adopt negative coverage policies with respect to therapies involving our products. We engage a third-party reimbursement consultant that provides support to our customers in the event of a coverage denial.

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Outside of the United States, third-party reimbursement varies widely by geography and by the type of therapy in which our devices are used. For example, e ven though a new medical device may have been approved for commercial distribution, we may find limited demand for the device until coverage and sufficient reimbursement levels have been obtained from governmental and private third-party payors. In addition, some private third-party payors require that certain procedures or the use of certain products be authorized in advance as a condition of reimbursement. In some countries, cost containment initiatives and health care reforms include initiatives like governmental reviews of reimbursement rate benchmarks, which may significantly reduce reimbursement for procedures using our medical devices or deny coverage for those procedures altogether. We are actively working to pursue market access initiatives in certain geographies, which includes applying for new reimbursement for therapies in which our devices are being used, or pursuing specific reimbursement for utilization of our devices.

Government Regulation

Our products are medical devices and are subject to regulation in the United States by FDA and other federal agencies , and by comparable authorities in other countries. All of our products marketed in the United States have been cleared by FDA pursuant to section 510(k) of the Food, Drug & Cosmetic Act (FDCA). In addition, our Isolator Synergy System has received premarket approval from FDA for the treatment of patients with persistent and long-standing persistent A fib   concomitant to another   open-heart surgical procedure such as coronary artery bypass grafting or cardiac valve replacement or repair.

FDA regulations govern nearly all of the activities that we perform, or that are performed on our behalf, to ensure that medical products distributed domestically or exported internationally are safe and effective for their intended uses. The activities that FDA regulates include the following:

·

product design, development and manufacture;

·

product safety, testing, labeling and storage;

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pre-clinical testing in animals and in the laboratory;

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clinical investigations in humans;

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premarket clearance or approval;

·

record keeping and document retention procedures;

·

advertising and promotion;

·

the import and export of products;

·

product marketing, sales and distribution;

·

post-marketing surveillance and medical device reporting, including reporting of deaths, serious injuries, device malfunctions or other adverse events; and

·

corrective actions, removals and recalls.

Unless an exemption applies, most medical device s distributed commercially in the United States require either 510(k) clearance or PMA from FDA.

510(k) Clearance Pathway.   To obtain 510(k) clearance, we must submit a notification to FDA demonstrating that our proposed device is substantially equivalent to a predicate device, i.e., a previously cleared and legally marketed 510(k) device or a device that was in commercial distribution before May 28, 1976 for which FDA has not yet called for the submission of a PMA. Any modification to a 510(k)-cleared device that would constitute a major change in its intended use, or a change in its design or manufacture that could significantly affect the safety or effectiveness of the device , requires a new 510(k) clearance or approval of a PMA. FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission in the first instance, but FDA may review any manufacturer’s decision.

Premarket Approval Pathway. A PMA must be submitted to FDA if the device cannot be cleared through the 510(k) process and is not otherwise exempt. A PMA must be supported by extensive data, including but not limited to technical, preclinical, clinical, manufacturing and labeling , to demonstrate the safety and effectiveness of the device for its intended use .  

After a PMA is submitted and FDA has determined that the application is sufficiently complete to permit a substantive review, FDA will accept the application for filing. During th e review period, FDA may request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside FDA may be convened to review and evaluate the application and provide recommendations to FDA as to the approvability of the device. In addition, FDA will conduct a preapproval inspection of the manufacturing facility to ensure compliance with quality system regulations. Any approvals we receive may be limited in scope or may be contingent upon further post-approval study commitments or other conditions. A new PMA or PMA supplement is required for significant modification to a PMA-approved device, including indicated use, manufacturing process,

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labeling and design of a device that is approved through the premarket approval process. PMA supplements often require submission of the same type of information as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and may not require as extensive clinical data or the convening of an advisory panel.

Clinical Trials. Clinical trials are required to support a PMA and are sometimes required for 510(k) clearance. Clinical trials are subject to extensive recordkeeping and reporting requirements. Our clinical trials must be conducted under the oversight of an Institutional Review Board ( IRB ) for the relevant clinical trial sites and must comply with FDA regulations, including , but not limited to , those relating to current good clinical practices. We are also required to obtain the written informed consent of patients in form and substance that complies with both FDA requirements and state and federal privacy and human subject protection regulations. Similarly, in Europe, the clinical study must be approved by a local ethics committee and, in some cases   includ ing studies with high-risk devices, by the ministry of health in the applicable country.

Educational Grants. FDA regulates manufacturers of medical devices and, in particular, the promotion of medical devices by manufacturers. FDA does not regulate the practice of medicine or the conduct or content of medical education conducted by third parties. Manufacturers may provide financial support for such third-party medical education programs in the form of educational grants intended to offset the cost of such programs. If the manufacturer controls or unduly influences the content of such programs, FDA considers those programs to be promotional activities by the manufacturer and thus subject to FDA regulation including promotional restrictions. We seek to ensure that the activities we support pursuant to our educational grants program are in accordance with FDA criteria for independent educational activities. However, we cannot provide an assurance that FDA or other government authorities would view the programs we have supported as being independent.

Pervasive and Continuing Regulation. There are numerous regulatory requirements that apply after a product is cleared or approved. These include:

·

FDA’s Quality System Regulation ( QSR ) which requires manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the manufacturing process;

·

labeling regulations and FDA prohibitions against the false or misleading promotion or the promotion of products for uncleared, unapproved or off-label use or indication;

·

requirements to obtain clearance or approval of product modifications that could significantly affect safety or efficacy or that would constitute a major change in intended use;

·

medical device reporting regulations which require that manufacturers comply with reporting requirements of FDA and report if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur;

·

post-approval restrictions or conditions, including post-approval study commitments;

·

post-market surveillance regulations which apply when necessary to protect the public health or to provide additional safety and effectiveness data for the device; and

·

requirements to issue notices of correction or removal, or conduct market withdrawals or recalls where quality or other issues arise.

Under FDA’s Medical Device Reporting regulation, we must submit a Medical Device Report ( MDR ) to FDA within 30 days whenever we receive information that reasonably suggests that one of our products may have caused or contributed to a death or serious injury, or that one of our products malfunctioned in a manner which, if the malfunction were to recur, could cause or contribute to a death or serious injury. Our products are often used to treat very ill patients in highly complex surgeries of which only a small portion of the surgery may involve our products, and it is frequently difficult to determine whether our products caused or contributed to a patient injury or death that occurred during or after the procedure. If we are able to determine that our product caused or potentially contributed to a death or serious injury in the particular case, or that a malfunction of the type reported could cause death or serious injury, we submit an MDR on the case. Other incidents, including serious injuries or deaths, which occurred during procedures utilizing our products and that are not the subject of MDRs, may occur either because we are not aware of those incidents or because our investigation determined that the incident did not involve a malfunction of an AtriCure device and/or that an AtriCure device did not cause or contribute to a serious injury or death.

In addition to FDA regulation, the advertising and promotion of medical devices are also regulated by the Federal Trade Commission and by state regulatory and enforcement authorities. Recently, some promotional activities for FDA-regulated products have been the subject of enforcement action brought under healthcare reimbursement laws and consumer protection statutes. In addition, under the Federal Lanham Act and similar state laws, competitors and others can initiate litigation relating to advertising claims.

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We have registered with FDA as a medical device manufacturer and listed our devices . FDA has broad post-market and regulatory enforcement powers. We are subject to unannounced inspections by FDA and our Notified Body and other Regulatory Authorities to determine our compliance with the QSR , the European Union’s Medical Device Directive and other regulations . Such inspections may include the manufacturing facilities of our suppliers.

Fraud, Abuse and False Claims. We are directly and indirectly subject to various federal and state laws governing our relationship with healthcare providers. In particular, the Anti-Kickback Statute is a criminal law that applies broadly and prohibits the knowing and willful payment of remuneration to induce or reward patient referrals or the generation of business involving any item or service payable by a Federal health care program .  

The Federal False Claims Act ( FCA ) imposes civil liability on any person or entity that submits, or causes the submission of, a false or fraudulent claim to the United States government . Damages under the FCA consist of the imposition of fines and penalties , and can be significant . The FCA also allows a private individual or entity with knowledge of past or present fraud against the federal government to sue on behalf of the government to recover the civil penalties and treble damages. The U.S. Department of Justice  ( DOJ ), on behalf of the government, has previously alleged that the marketing and promotional practices of pharmaceutical and medical device manufacturers that included the off-label promotion of products or the payment of prohibited kickbacks to doctors violated the FCA by causing or contributing to the submission of improper claims to federal and state healthcare programs such as Medicare and Medicaid. In certain cases, manufacturers have entered into criminal and civil settlements with the federal government under which they entered into plea agreements, paid substantial monetary amounts and entered into corporate integrity agreements that require, among other things, substantial reporting and remedial actions going forward.

The Advanced Medical Technology Association ( AdvaMed ) is one of the primary voluntary United States trade associations for medical device manufacturers. This association has established guidelines and protocols for medical device manufacturers in their relationships with healthcare professionals on matters including research and development, product training and education, grants and charitable contributions, support of third-party educational conferences and consulting arrangements. Adoption of the AdvaMed Code of Ethics for Interactions with Healthcare Professionals (the “AdvaMed Code”) by a medical device manufacturer is voluntary, and while the Office of the I nspector G eneral and other federal and state healthcare regulatory agencies encourage its adoption and may look to the AdvaMed Code, they do not view adoption of the AdvaMed Code as proof of compliance with applicable laws. We have adopted the AdvaMed Code and incorporated its principles in our standard operating procedures, sales force training programs, and relationships with medical professionals . In addition, we have conducted training sessions for employees on these principles.

Regulation Outside of the United States. Sales of medical devices outside of the United States are subject to foreign governmental regulations which vary substantially from country to country. The time required to obtain certification or approval by a foreign country may be longer or shorter than that required for FDA clearance or approval and the requirements may be different.

In the European Union, various directives and voluntary standards regulat e the design, manufacture and labeling of medical devices. Devices may only be placed on the market in the European Union if they comply with the essential requirements of a relevant directive and bear the CE mark. Manufacturers must demonstrate that their devices comply with the relevant essential requirements through a conformity assessment procedure. The method for assessing conformity varies depending on the type and class of the product, but normally involves a combination of self-assessment by the manufacturer and a third-party assessment by a notified body, an independent and neutral institution appointed by a country to conduct the conformity assessment. This third-party assessment will include a review of documentation relating to the device and may consist of an audit of the manufacturer’s quality system and specific testing of the manufacturer’s device. Successful completion of a conformity assessment procedure allows a manufacturer to issue a declaration of conformity with the requirements of the relevant directive and affix the CE mark to the device. Devices that bear the CE mark may be commercially distributed throughout the member states of the European Union and other countries that comply with or mirror the medical device directives. A notified body has granted us a certificate of compliance with the International Organization for Standardization, (ISO) 13485:20 16 Quality Management System. Compliance with this standard establishes the presumption that our quality system conforms with the essential requirements or the relevant directive . We have successfully completed the conformity assessment procedure and affix ed the CE m ark to our Isolator Synergy clamps , Isolator Synergy pens, Coolrail ® linear pen, cryosurgery devices, certain products of the AtriClip LAA Exclusion System, COBRA ® Fusion Ablation System, Numeris System and the EPi-Sense ® Guided Coagulation System with VisiTrax ® technology.

Intellectual Property

Protection of our intellectual property is a priority for our business , and we rely on a combination of patent, copyright, trademark and trade secret laws to protect our interests. Our ability to protect and use our intellectual property rights in the continued development and commercialization of our technologies and products, operate without infringing the proprietary rights of others, and prevent others from infringing our proprietary rights is important to our continued success. We will be able to protect our products and technologies from unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents, trademarks or copyrights , or are effectively maintained as trade secrets, know-how or other proprietary information.

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We hold numerous issued United States and international patents. We also have multiple pending United States and international patent applications. We seek patent protection relating to technologies and products we develop in both the United States and in selected foreign countries. While we own much of our intellectual property, including patents, patent applications, trademarks, trade secrets, know-how and proprietary information, we also license patents and related technology of importance to the commercialization of our products. To continue developing and commercializing our current and future products, we may license intellectual property from commercial or academic entities to obtain the rights to technology that is required for our research, development and commercialization activities.

All of our employees and technical consultants are required to execute confidentiality agreements in connection with their employment and consulting relationships with us. We also generally require them to agree to disclose and assign to us all inventions conceived in connection with their relationship with us. We devote significant resources to obtaining patents and other intellectual property and protecting our other proprietary information. If valid and enforceable, these patents may give us a means of blocking competitors from using infringing technology to compete directly with our products. We also have proprietary information that may not be patentable. With respect to proprietary information that is not patentable, we have chosen to rely on trade secret protection and confidentiality agreements to protect our interests.

Manufacturing

We assemble, inspect, test and package the majority of our products at our facility in Ohio , and our products are sterilized by third parties . Purchased components are generally sourced from a single supplier but alternatives to these suppliers are available. However , some products which are critical components of our RF ablation lines, such as   our   RF generators, Fusion and EPi-Sense products ,   have relatively few alternative sources of supply available.

Order quantities and lead times for components purchased from outside suppliers are based on our forecasts derived from historical demand and anticipated future demand. Lead times may vary significantly depending on the size of the order, time required to fabricate and test the components, specific supplier requirements and current market demand for the components and subassemblies. To date, we have not experienced significant delays in obtaining any of our components.

We regularly audit our suppliers for compliance with our quality system requirements, the QSR and /or applicable ISO standards. We are an FDA-registered medical device manufacturer and certified to ISO 13485:2016 .   In addition, we have successfully participated in the Medical Device Single Audit Program (MDSAP) and have been certified accordingly. The MDSAP program is recognized in Australia, Brazil, Canada, Europe, Japan and the United States.

We are subject to numerous federal, state and local laws relating to such matters as laboratory practices, the experimental use of animals, the use and disposal of hazardous or potentially hazardous substances, safe working conditions, manufacturing practices, environmental protection and fire hazard control.

Consulting Relationships

We have developed consulting relationships with scientists and physicians throughout the world to support our research and development , clinical and training and education   programs. We work closely with these thought leaders to understand unmet needs and emerging applications for the treatment of A fib .  

Our physician consulting agreements are intended to satisfy the requirements of the personal services “Safe Harbor” regulation as well as the AdvaMed and MedTech Europe Codes. As such, they provide for payment of a fair market value fee only for legitimate services rendered to us . We do not expect or require the consultant to utilize or promote our products, and consultants are required to disclose their relationship with us as appropriate, such as when publishing an article in which one of our products is discussed. Amounts paid to physicians in the United States are disclosed by us in annual reports submitted to CMS under the federal “Open Payments” law. Amounts paid to physicians in certain other countries are also disclosed by us in reports submitted to various governmental agencies in those countries, in accordance with the laws of the jurisdictions where those physicians reside or practice, or where the payments are made.

Employees

We had approximately 6 20 full-time employees as of January 31, 2019 . None of the employees were represented by a labor union or covered by a collective bargaining agreement. We have never experienced any employment-related work stoppages and consider our employee relations to be in good standing.

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Available Information

Our principal executive offices are located at 7555 Innovation Way, Mason, Ohio and our telephone number is 513-755-4100. We are subject to the reporting requirements under the Securities Exchange Act of 1934. Consequently, we are required to file reports and information with the Securities and Exchange Commission ( SEC ) including reports on the following forms: Form 10-K, Form 10-Q, Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. These reports and other information concerning us may be accessed through the SEC’s website at http://www.sec.gov. You may also find, free   of   charge, on our website at http://www.atricure.com, electronic copies of our Form 10-Ks, Form 10-Qs, Form 8-Ks, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. Such filings are placed on our website as soon as reasonably practicable after they are filed or furnished, as the case may be, with the SEC. Our charters for our Audit, Compensation , Nominating and Corporate Governance , Strategy and Compliance, Quality and Risk Committees and our Code of Conduct are available on our website. In the event that we grant a waiver under our Code of Conduct to any of our officers or directors or make any material amendments to the Code of Conduct , we will publish it on our website within four business days . Information on our website is not deemed to be a part of this Form 10-K.



IT EM 1A. RISK FACTORS  

Risks Relating To Our Business and Industry

We rely on our ablation, ablation-related and left atrial appendage management products as our primary sources of revenue. If we are not successful in selling these products our operating results will be harmed.

Our ablation and ablation-related products, along with our left atrial appendage management products, generate a large majority of our revenue. We expect that sales of these products will continue to account for a majority of our revenue for the foreseeable future and that our future revenue will depend on the increasing acceptance by the medical community of our products as a standard surgical treatment of Afib. We may not be able to maintain or increase market acceptance of our products for a number of additional reasons, including those set forth elsewhere in this “Risk Factors” section. Since we believe that physicians are using our ablation and ablation-related products largely for the surgical treatment of Afib, if physicians do not use our products to treat Afib, we would lose substantially all of our revenue.

If our products do not achieve widespread market acceptance in the United States, our operating results will be harmed , and we may not achieve or sustain profitability.

Our success will depend, in large part, on the medical community’s acceptance of our principal products in the United States, which is the largest revenue market in the world for medical devices. The U.S. medical community’s acceptance of our products will depend upon our ability to demonstrate the safety and efficacy, advantages, long-term clinical performance and cost-effectiveness of our products. In addition, acceptance of products for the treatment of Afib is dependent upon, among other factors, the level of screening for Afib general awareness and education of the medical community about the surgical treatment of Afib and the existence, effectiveness and safety of our products. Market acceptance and adoption of our products for the treatment of Afib also depends on the level of health insurer (including Medicare) reimbursement to physicians and hospitals for the use of our products.

We cannot predict whether the U.S. medical community will accept our products or, if accepted, the extent of their use. Negative publicity resulting from incidents involving our products, other products related to those we sell or products or procedures subject to our clinical trials could have a significant adverse effect on the overall acceptance of our products. If we encounter difficulties growing the market for our products in the U.S., we may not be able to increase our revenue enough to achieve or sustain profitability, and our business and operating results will be seriously harmed.

Competition from existing and new products and procedures may decrease our market share and may cause our revenue to decline, and could adversely affect our operating results

The medical device industry, including the market for the treatment of Afib, is highly competitive, subject to rapid technological change and significantly affected by new product introductions and promotional activities of its participants. There is no assurance that our products will compete effectively against drugs, catheter-based ablation, implantable devices, other ablation systems, other products or techniques to occlude the left atrial appendage, or other surgical Afib treatments, which may be more well-established among physicians and hospitals. Our products may become obsolete prior to the end of their anticipated useful lives or we may introduce new products or next-generation products prior to the end of the useful life of a prior generation, either of which may require us to dispose of existing inventory and related capital equipment and/or write off their value or accelerate their depreciation. In addition, such other products or techniques may be sold or implemented at lower prices. Due to the size of the Afib and LAA exclusion markets, and the unmet need for an Afib cure, we anticipate that new or existing competitors may develop competing products, procedures and/or clinical solutions. There are few barriers to prevent new entrants or existing competitors from developing products to compete directly with ours. Companies also compete with us to attract qualified scientific and technical personnel as well as funding. Most of our competitors and potential competitors have greater financial, manufacturing, marketing and research and development capabilities than we have and may obtain FDA approval or clearance for their products before we do. The introduction of

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new products, procedures or clinical solutions, or of our competitors obtaining FDA approvals or clearances, may result in price reductions, reduced margins, loss of market share, or may render our products obsolete, which could adversely affect our revenue and future profitability.

Worldwide economic conditions may reduce demand for procedures using our products or otherwise result in adverse implications on our business, operating results and financial condition.

General worldwide economic conditions may deteriorate due to the effects of, among other developments, general credit market crises, collateral effects on the finance and banking industries, concerns about inflation, slower economic activity which may be caused by many factors, including natural disasters or other catastrophes, decreased consumer confidence, reduced corporate profits and capital spending, adverse business conditions and liquidity concerns. We are unable to predict the extent to which current or future worldwide economic conditions may impact our business. Specifically, because many procedures using our products are elective, they can be deferred by patients. In addition, patients may not be as willing under current or future economic conditions to take time off from work or spend their money on deductibles and co-payments often required in connection with the procedures that use our products.

Beyond patient demand, any current or future deterioration in worldwide economic conditions, including in particular their effects on the credit and capital markets, may have other adverse implications for our business. For example, our customers’ ability to borrow money from their existing lenders or to obtain credit from other sources to purchase our products may be impaired, resulting in a decrease in sales. Although we maintain allowances for estimated losses resulting from the inability of our customers to make required payments, we cannot guarantee that we will accurately predict the loss rates we will experience, especially given any continuing turmoil in the worldwide economy. A significant change in the liquidity or financial condition of our customers could cause unfavorable trends in our receivable collections and additional allowances may be required, which could adversely affect our operating results. Further, given the economic and political challenges facing Eurozone countries, concerns have been raised regarding the stability and suitability of the Euro as a single currency. The failure of the Euro as a single currency could adversely affect our operating results.

Healthcare costs have risen significantly over the past decade. There have been and may continue to be proposals by legislators , regulators and third-party payors to keep, contain or reduce healthcare costs.

The continuing efforts of governments, insurance companies and other payors of healthcare costs to contain or reduce these costs, combined with closer scrutiny of such costs, could lead to patients being unable to obtain approval for payment from these third-party payors. The cost containment measures that healthcare providers are instituting both in the U.S. and internationally could harm our business. Some healthcare providers in the U.S. have adopted or are considering a managed care system in which the providers contract to provide comprehensive healthcare for a fixed cost per person. Healthcare providers may attempt to control costs by authorizing fewer elective surgical procedures or by requiring the use of the least expensive devices possible, which could adversely affect the demand for our products or the price at which we can sell our products. Some healthcare providers have sought to consolidate and create new companies with greater market power, including hospitals. As the healthcare industry consolidates, competition to provide products and services has become and will continue to become more intense. This has resulted and likely will continue to result in greater pricing pressures and the exclusion of certain suppliers from important marketing segments.

We face significant uncertainty in the industry due to government healthcare reform.

The U.S. Patient Protection and Affordable Care Act (PPACA), as amended, and other healthcare reform have a significant impact on our business. The impact of the PPACA on the healthcare industry is extensive and includes, among other things, the federal government assuming a larger role in the healthcare system, expanding healthcare coverage of United States citizens and mandating basic healthcare benefits. The PPACA impacted our business by requiring an excise tax on all U.S. medical device sales beginning in January 2013. In December 2015, the U.S. government approved the suspension of the excise tax on medical device sales beginning January 1, 2016 through December 31, 2017. Then, in January 2018, the U.S. government approved an additional suspension of the excise tax on medical device sales from January 1, 2018 to December 31, 2019. In July 2018, the House of Representatives voted to repeal the excise tax, and the bill to repeal the excise tax is awaiting a Senate vote. When in effect, the increased tax burden from the PPACA impacts our results of operations and cash flows.

It is possible that legislation will be introduced and passed by Congress repealing the PPACA in whole or in part and signed into law.   Because of the continued uncertainty about the implementation or continued effectiveness of the PPACA, including the potential for further legal challenges or repeal of that legislation, we cannot quantify or predict with any certainty the likely impact of the PPACA or its repeal on our business model, prospects, financial condition or results of operations.  

Any healthcare reforms enacted in the future may, like the PPACA, be phased in over a number of years but, if enacted, could reduce our revenue, increase our costs or require us to revise the ways in which we conduct business or put us at risk for loss of business. In addition, our results of operations, financial position and cash flows could be materially adversely affected by changes under the PPACA and changes under any federal or state legislation adopted in the future.

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We sell our products outside of the United States, and we are subject to various regulatory and other risks relating to international operations, which could harm our revenue and profitability.

Doing business outside of the United States exposes us to risks distinct from those we face in our domestic operations. For example, our operations outside of the United States are subject to different regulatory requirements in each jurisdiction where we operate or have sales. Our failure, or the failure of our distributors, to comply with current or future foreign regulatory requirements, or the assertion by foreign authorities that we or our distributors have failed to comply, could result in adverse consequences, including enforcement actions, fines and penalties, recalls, cessation of sales, civil and criminal prosecution, and the consequences could be disproportionate to the relative contribution of our international operations to our results of operations. Moreover, if political or economic conditions deteriorate in these countries, or if any of these countries are affected by a natural disaster or other catastrophe, our ability to conduct our international operations or collect on international accounts receivable could be limited and our costs could be increased, which could negatively affect our operating results. Engaging in business outside of the United States inherently involves a number of other difficulties and risks, including, but not limited to:

·

export restrictions and controls relating to technology;

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pricing pressure that we may experience internationally;

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difficulties in enforcing agreements and collecting receivables through certain foreign legal systems;

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political and economic instability;

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consequences arising from natural disasters and other similar catastrophes, such as hurricanes, tornados, earthquakes, floods and   t sunamis;

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potentially adverse tax consequences, tariffs and other trade barriers;

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the need to hire additional personnel to promote our products outside of the United States;

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international terrorism and anti-American sentiment;

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fluctuations in exchange rates for future sales denominated in foreign currency, which represent a majority of our sales outside of the United States; and

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difficulty in obtaining and enforcing intellectual property rights.

In addition, our business practices in foreign countries must comply with U.S. laws, including the Foreign Corrupt Practices Act (FCPA). We have a compliance program in place designed to reduce the likelihood of potential violations of the FCPA and other U.S. and foreign anti-bribery and anti-corruption laws. If violations were to occur, they could subject us to fines and other penalties as well as increased compliance costs.

Our exposure to each of these risks may increase our costs and require significant management attention. We cannot assure you that one or more of these factors will not harm our business.

Compliance with developing European Union medical device regulation may limit our ability to maintain sales of our products in European markets or introduce new products into European markets.

Many foreign countries which we market or may market our products have regulatory bodies and restrictions similar to those of FDA. International sales are subject to foreign government regulation, the requirements of which vary substantially from country to country.   The time required to obtain approval by a foreign country may be longer or shorter than that required for FDA clearance and the requirements may differ.   In particular, marketing of medical devices in the European Union (EU) is subject to compliance with the Medical Device Directive 93/92/EEC (MDD).   A medical device may be placed on the market within the EU only if it conforms to certain “essential requirements” and bears the CE Mark.   The most fundamental and essential requirement is that a medical device must be designed and manufactured in such a way that it will not compromise the clinical condition or safety of patients, or the safety and health of users and others.   In addition, the device must achieve the essential performance intended by the manufacturer and be designed, manufactured and packaged in a suitable manner.

Manufacturers must demonstrate that their devices conform to the relevant essential requirements through a conformity assessment procedure. The nature of the assessment depends upon the classification of the device. The classification rules are mainly based on three criteria: the length of time the device is in contact with the body, the degree of invasiveness and the extent to which the device affects the anatomy. Conformity assessment procedures for all but the lowest risk classification of device involve a notified body. Notified bodies are often private entities and are authorized or licensed to perform such assessments by government authorities. Manufacturers usually have some flexibility to select a notified body for conformity assessment procedures for a particular class of device and to reflect their circumstances, e.g., the likelihood that the manufacturer will make frequent modifications to its products. Conformity assessment procedures require an assessment of available clinical evidence, literature data for the product and post-market experience in respect of similar products already marketed. Notified bodies also may review the manufacturer’s quality systems. If satisfied that the product conforms to the relevant essential requirements, the notified body issues a certificate of conformity, which

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allows the general commercializing of a product in the EU. The product can also be subjected to local registration requirements depending on the country. We maintain CE Marking on all of our products that require such markings as well as local registrations as required.

In May 2017, the EU adopted a new Medical Device Regulation (EU) 2017/745 (MDR), which will repeal and replace the MDD with effect from May 26, 2020. The MDR clearly envisages, among other things, stricter controls of medical devices, including strengthening of the conformity assessment procedures, increased expectations with respect to clinical data for devices and pre-market regulatory review of high-risk devices. The MDR also envisages greater control over notified bodies and their standards, increased transparency, more robust device vigilance requirements and clarification of the rules for clinical investigations. Under transitional provisions, medical devices with notified body certificates issued under the MDD prior to May 26, 2020 may continue to be placed on the market for the remaining validity of the certificate, until May 27, 2024 at the latest. After the expiry of any applicable transitional period, only devices that have been CE marked under the MDR may be placed on the market in the EU. If we fail to comply with the new MDR, we may not be able to continue to sell existing products in the EU or develop new products for sale in the EU, either of which could materially harm our results of operations and financial condition.

Our quarterly financial results are likely to fluctuate significantly because our sales prospects are uncertain.

Due to current worldwide economic conditions, natural disasters and other factors discussed in this “Risk Factors” section which may impact our sales results, our quarterly operating results are difficult to predict and may fluctuate significantly from quarter to quarter or from prior year to current year periods. These fluctuations may also affect our annual operating results and may cause those results to fluctuate unexpectedly from year to year.

Surgeons may not commit enough time to sufficiently learn our products, and restrictions in our ability to train surgeons in the use of our products could reduce the market acceptance of our products and in turn could reduce our revenue or result in injuries to patients or other adverse events that could possibly lead to litigation that could harm us.

It is critical to the success of our sales efforts to ensure that there are a sufficient number of surgeons familiar with, trained on and proficient in the use of our products. In order for surgeons to learn to use our products, they must attend structured training sessions in order to familiarize themselves with the products, and they must be committed to learning the technology. Further, surgeons must utilize the technology on a regular basis to ensure they maintain the skill set necessary to use the products. Continued market acceptance could be delayed by lack of surgeon willingness to attend training sessions, by the time required to complete this training or by state or institutional restrictions on our ability to provide training.

While we train providers in the safe and effective use of our products, we do not train them to use any of our products specifically to treat Afib unless the product is FDA-approved specifically for the treatment of Afib. Our Isolator Synergy System is approved for the treatment of persistent and long-standing persistent forms of Afib concomitant to open-heart bypass graft or valve replacement surgery. The procedure using our Isolator Synergy System in this manner is known as the MAZE IV procedure. Following FDA approval, we instituted a program to train all new and existing users of the Isolator Synergy System in the MAZE IV procedure. We also make available training on the safe and effective use of our other products consistent with their FDA approved or cleared indications.  We cannot assure that we will be able to maintain a consistent level of funding for these training programs or a sufficient number of surgeons will become aware of training programs. An inability to train a sufficient number of surgeons to generate adequate demand for our products could have a material adverse impact on our financial condition.

Our marketing strategy is dependent on collaboration with physician “thought leaders”.

Our research and development efforts and our marketing strategy depend heavily on obtaining support, physician training assistance and collaboration from highly-regarded physicians at leading commercial and research hospitals, particularly in the U.S. and Europe. If we are unable to gain and/or maintain such support, training services and collaboration, or if the reputation or standing of these physicians is impaired or otherwise adversely affected, our ability to market our products and, as a result, our financial condition, results of operations and cash flow, could be materially and adversely affected.

Unless and until we obtain additional FDA approval for our products, we will not be able to promote most of them to treat Afib or to prevent stroke, and our ability to maintain and grow our business could be harmed.

Although our Isolator Synergy System received FDA approval for the treatment of some forms of Afib in certain procedures, we have not received FDA clearance or approval to promote our other products for the treatment of Afib or the prevention of stroke. See “Business—Government Regulation”. Unless and until we obtain FDA clearance or approval for the use of our products to treat Afib or prevent stroke, we, and others acting on our behalf, may not claim in the U.S. that our products are safe and effective for such uses or otherwise promote them for such uses. Similar restrictions exist outside of the U.S. There is no assurance that future clearances or approvals of our products will be granted or that current or future clearances or approvals will not be withdrawn. Failure to obtain a clearance or approval or loss of an existing clearance or approval, could hurt our ability to maintain and grow our business.

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In order to obtain additional FDA approvals to promote our products for the treatment of Afib or reduction in stroke risk, we will need to demonstrate in clinical trials that our products are safe and effective for such use. Development of sufficient and appropriate clinical protocols to demonstrate quality, safety and efficacy may be required and we may not adequately develop such protocols to support approval. We cannot assure you that any of our clinical trials will be completed in a timely manner or successfully or that the results obtained will be acceptable to FDA. We, FDA or the IRB may suspend a clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh the anticipated benefits. In addition, if the results obtained from our clinical trials, any other clinical studies, or clinical or commercial experience indicate that any of our products are not safe or effective, or not as safe or effective as other treatment options, FDA may not approve our products for the treatment of Afib or reduction in stroke risk, and the adoption of the use of our products may suffer and our business would be harmed.

Our clinical trials are typically time consuming, expensive and the outcome uncertain. Delays in patient enrollment or failure of patients to consent or continue to participate in a clinical trial may cause an increase in costs and delays in the approval and attempted commercialization of our products or result in the failure of the clinical trial. Conducting successful clinical studies may require the enrollment of large numbers of clinical sites and patients, and suitable patients may be difficult to identify and recruit. Patient enrollment in clinical trials and completion of patient participation and follow-up depends on many factors, including the size of the patient population; the nature of the trial protocol; the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects; the availability of appropriate clinical trial investigators, support staff, and proximity of patients to clinical sites; and the ability to comply with the eligibility and exclusion criteria for participation in the clinical trial and patient compliance. For example, patients may be discouraged from enrolling in our clinical trials if the trial protocol requires them to undergo extensive post-treatment procedures or follow-up to assess the safety and effectiveness of our products or if they determine that the treatments received under the trial protocols are not attractive or involve unacceptable risks or discomforts. Patients may also not participate in our clinical trials if they choose to participate in contemporaneous clinical trials of competitive products or they can obtain the treatment without participating in our trial.

We may experience unfavorable publicity relating to our business and our industry. This publicity could have a negative impact on our ability to attract and retain customers, our sales, clinical studies involving our products, our reputation and our stock price.

We may experience a negative impact on our business from newspaper articles or other media reports relating to, among other things, our compliance with FDA regulations for medical device reporting, adverse patient and clinical outcomes and concerns over disclosure of financial relationships between us and certain of our consultants who are involved with clinical studies and the publication of articles concerning our products. We believe that such publicity would potentially have a negative impact on our clinical studies, business, results of operations and financial condition or cause other adverse effects, including a decline in the price of our stock.

We may be subject to fines, penalties, injunctions and other sanctions if we are deemed to be promoting the use of our products for unapproved, or off-label, uses.

Our business and future growth depend on the continued use of our products for the treatment of Afib or prevention of stroke. Unless the products are approved or cleared by FDA specifically for the treatment of Afib or prevention of stroke, we may not make claims about the safety or effectiveness of our products for such uses.

These limitations present a material risk that FDA or other federal or state law enforcement authorities could determine that the nature and scope of our sales, marketing and/or support activities, though designed to comply with all FDA requirements, constitute the promotion of our products for an unapproved use in violation of the FDCA. We also face the risk that FDA or other governmental authorities might pursue enforcement based on past activities that we have discontinued or changed, including sales activities, arrangements with institutions and doctors, educational and training programs and other activities. Investigations concerning the promotion of unapproved uses and related issues, are typically expensive, disruptive and burdensome and generate negative publicity. If our promotional activities are found to be in violation of the law, we may face significant fines and penalties and may be required to substantially change our sales, promotion, grant and educational activities. There is also a possibility that we could be enjoined from selling some or all of our products for any unapproved use. In addition, as a result of an enforcement action against us or our executive officers, we could be excluded from participation in government healthcare programs such as Medicare and Medicaid.

We are currently under investigation by the United States Department of Justice, and any adverse finding, allegation, or exercise of enforcement or regulatory discretion by the DOJ could materially and adversely affect our business, financial condition, or results of operations.

As previously disclosed, on December 11, 2017, the Company received a Civil Investigative Demand (CID) from the U.S. Department of Justice (DOJ) stating that it is investigating the Company to determine whether the Company has violated the False Claims Act, relating to the promotion of certain medical devices related to the treatment of atrial fibrillation for off-label use and submitted or caused to be submitted false claims to certain federal and state health care programs for medically unnecessary healthcare

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services related to the treatment of Afib. The CID covers the period from January 2010 to December 2017 and requires the production of documents and answers to written interrogatories. The Company had no knowledge of the investigation prior to receipt of the CID. The Company maintains rigorous policies and procedures to promote compliance with the False Claims Act and other applicable regulatory requirements.  The Company provided the DOJ with documents and answers to the written interrogatories and is cooperating with the investigation. However, the Company cannot predict when the investigation will be resolved, the outcome of the investigation or its potential impact on the Company. While the Company believes its practices are lawful, there can be no assurance that the DOJ’s ongoing investigation or future exercise of its enforcement, regulatory, discretionary or other powers will not result in findings or alleged violations of federal laws that could lead to enforcement actions, proceedings or litigation and the imposition of damages, fines, penalties, restitution, other monetary liabilities, sanctions, settlements or changes to the Company’s business practices or operations that could have a material adverse effect on the Company’s business, financial condition or results of operations or eliminate altogether the Company’s ability to operate its business or on terms substantially similar to those on which it currently operates.

The use of products we sell may result in injuries or other adverse events that lead to product liability suits, which could be costly to our business or our customers’ businesses.

The use of products we sell may result in a variety of serious complications, including damage to the heart, internal bleeding, death or other adverse events, potentially leading to product liability claims. Serious complications are commonly encountered in connection with surgical procedures. If products we sell are defectively designed, manufactured or labeled, contain inadequate warnings, contain defective components, are misused or are associated with serious injuries or deaths, we may become subject to costly litigation by our customers or their patients. We carry product liability insurance that is limited in scope and amount and may not be adequate to fully protect us against product liability claims. We could be required to pay damages that exceed our insurance coverage. Any product liability claim, with or without merit, could result in an increase in our product insurance rates or our inability to secure coverage on reasonable terms, if at all. Even in the absence of a claim, our insurance rates may rise in the future. Any product liability claim, even a meritless or unsuccessful one, would be time-consuming and expensive to defend and could result in the diversion of our management’s attention from our business and result in adverse publicity, withdrawal of clinical trial participants, injury to our reputation and loss of revenue. Any of these events could negatively affect our financial condition.

Our intellectual property rights may not provide meaningful commercial protection for our products, which could enable third parties to use our technology or methods, or very similar technology or methods, and could reduce our ability to compete.

Our success depends significantly on our ability to protect our proprietary rights to the technologies used in our products. We rely on patent protection, as well as a combination of copyright, trade secret and trademark laws and nondisclosure, confidentiality and other contractual restrictions to protect our proprietary technology. However, these legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. Our patent applications may not issue as patents at all or in a form that will be advantageous to us. Our issued patents and those that may be issued in the future may be challenged, invalidated or circumvented, which could limit our ability to stop competitors from marketing related products. Although we have taken steps to protect our intellectual property and proprietary technology, we cannot assure you that third parties will not be able to design around our patents or, if they do infringe upon our technology, that we will be successful in or will have sufficient resources to pursue a claim of infringement against those third parties. We believe that third parties may have developed or are developing products that could infringe upon our patent rights. Any pursuit of an infringement claim by us may involve substantial expense or diversion of management attention. In addition, although we have generally entered into confidentiality agreements and intellectual property assignment agreements with our employees, consultants, investigators and advisors, such agreements may be breached, may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements. Additionally, as is common in the medical device industry, some of these individuals were previously employed at other medical equipment or biotechnology companies, including our competitors. Although no claims are currently pending against us, we may be subject to claims that these individuals or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers.

The laws of foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States. Foreign countries generally do not allow patents to cover methods for performing surgical procedures. If our intellectual property does not provide significant protection against foreign or domestic competition, our competitors could compete more directly with us, which could result in a decrease in our market share. All of these factors may harm our competitive position.

The medical device industry is characterized by extensive litigation and administrative proceedings over patent and other intellectual property rights and any litigation or claim against us may cause us to incur substantial costs, could place a significant strain on our financial resources, divert the attention of management from our business and harm our reputation.

Despite measures taken to protect our intellectual property, unauthorized parties might copy aspects of our products or obtain and use information that we regard as proprietary . Whether a product infringes a patent involves complex legal and factual issues, the

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determination of which is often uncertain. Any patent dispute, even one without merit or an unsuccessful one, would be time-consuming and expensive to defend and could result in the diversion of our management’s attention from our business and result in adverse publicity, the disruption of development and marketing efforts, injury to our reputation and loss of revenue. Litigation also puts our patent applications at risk of being rejected and our patents at risk of being invalidated or interpreted narrowly and may provoke third parties to assert claims against us. Any of these events could negatively affect our financial condition.

In the event of a patent dispute, if a third party’s patents were upheld as valid and enforceable and we were found to be infringing, or found to be inducing infringement by others, we could be prevented from selling our products unless we were able to obtain a license to use technology or ideas covered by such patent or are able to redesign our system to avoid infringement, or we may be ordered to pay substantial damages to the patent holders. A license may not be available at all or on terms acceptable to us, and we may not be able to redesign our products to avoid any infringement. Modification of our products or development of new products could require us to conduct additional clinical trials and to revise our filings with FDA and other regulatory bodies, which would be time-consuming and expensive. If we are not successful in obtaining a license or redesigning our products, we may be unable to sell our products and our business could suffer.

The increase in cost of medical malpractice premiums to physicians and hospitals or the lack of malpractice insurance coverage due to the use of our products by physicians for an off-label indication may cause certain physicians or hospitals to decide not to use our products and may damage our ability to maintain or grow the market for our products.

Insurance carriers have been raising premiums charged for medical malpractice insurance due, at least in part, to increased risks associated with off-label procedures, including higher damage awards for successful plaintiffs. Insurance carriers may continue to raise premiums or they may deny malpractice coverage for procedures performed using products such as ours on an off-label basis. If this trend continues or worsens, our revenue may fall as physicians or hospitals decide against purchasing our products due to the cost or unavailability of insurance coverage.

We have a history of net losses, and we may never become profitable.

We have incurred net losses each year since our inception, including, most recently, net losses of $21,137 in 2018, $26,892 in 2017 and $33,338 in 2016. As of December 31, 2018, we had an accumulated deficit of $247,003 .  

Our net losses have resulted principally from costs and expenses relating to sales, training and promotional efforts, research and development, clinical trials, seeking regulatory clearances and approvals and general operating expenses. We expect to continue to incur substantial expenditures and to potentially incur additional operating losses in the future as we further develop and commercialize our products. If sales of our products do not continue to grow as we anticipate, we will not be able to achieve profitability. Our expansion efforts may prove to be more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently to offset these higher expenses. Our losses have had, and are expected to continue to have, an adverse impact on our working capital, total assets and accumulated deficit.

Our capital needs after the next twelve months are uncertain, and we may need to raise additional funds in the future and such funds may not be available on acceptable terms, if at all.

We believe that our current cash, cash equivalents and investments, including additional cash generated from our public offering of common stock in October 2018 along with the cash we expect to generate or use for operations or access via our term loan and revolving line of credit will be sufficient to meet our projected capital requirements for at least the next 12 months. The October 2018 common stock offering generated $ 82,873 in net proceeds through the issuance of 2,875 shares. Our Loan and Security Agreement with Silicon Valley Bank (SVB), as amended and restated effective February 23, 2018 and as further amended December 28, 2018 (the “Loan Agreement”) , provides for a $40,000 term loan and $20,000 revolving line of credit, with an option to i ncrease the revolving line of credit by an additional $20,000. The term loan and revolving credit facility both mature in February 2023. According to the Loan Agreement, principal payments on the term loan are to be made ratably commencing eighteen months after the inception of the loan through the loan’s maturity date. If we meet certain conditions, as specified by the agreement, the commencement of term loan principal payments may be deferred by an additional six months. The term loan accrues interest at the greater of the Prime Rate plus 0.50% or 5 .00  % .   As of December 31, 2018, we had outstanding borrowings under the term loan of $40,000. Borrowing availability under the revolving credit facility is based on the lesser of $20,000 or a borrowing base calculation as defined by the Loan Agreement. The applicable borrowing rate on advances outstanding under the revolving credit facility is the greater of the Prime Rate and 4.50%. The Loan Agreement also provides for certain prepayment and early termination fees, as well as establishes a minimum liquidity covenant and includes other customary terms and conditions. As of December 31, 2018, we had no borrowings under the revolving credit facility , and we had borrowing availability of $20,000 .  

The nContact acquisition provided for contingent consideration to be paid upon attaining specified regulatory approvals and revenue milestones over the next two years. Subject to the terms and conditions of the nContact merger agreement, such contingent consideration is paid in AtriCure common stock and cash, with a requirement to make payments in AtriCure common stock first, up to

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a specified maximum number of shares. Over the next twelve months, we do not expect our cash requirements to include significant payments of contingent consideration based on terms of the acquisition agreement and related milestones. Significant changes to the estimated consideration to be paid could result in a substantial increase in liabilities for contingent consideration and our accumulated deficit and reduce our net income or increase our net loss for the year in which the changes occur, which could contribute to difficulty in raising additional funds. The issuance of our stock to nContact shareholders to settle contingent consideration obligations would dilute the holdings of our existing stockholders.

We believe we have adhered to the nContact contract provisions that provide for contingent consideration if the conditions described above are met. nContact representatives have dispute d, and in the future may dispute our adherence to the contract and pursue a claim for non-adherence which could involve complex legal and factual issues, the determination of which is often uncertain. Any such claim, even one without merit or an unsuccessful one, would be time-consuming and expensive to defend and could result in the diversion of our management’s attention from our business , adverse publicity, the disruption of development and marketing efforts, injury to our reputation and adversely impact our financial condition .

If we need to raise additional funds for any reason, we cannot be certain that such funds will be available to us on acceptable terms, if at all. Furthermore, if we issue equity securities to raise additional funds, our existing stockholders will experience dilution, and if we issue equity or debt securities, such securities may have rights, preferences and privileges senior to those of our existing stockholders. In addition, if we raise additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish potentially valuable rights to our future products or proprietary technologies or grant licenses on terms that are not favorable to us. If we cannot raise funds on acceptable terms, we may not be able to expand our operations, develop new products, take advantage of future opportunities or respond to competitive pressures or unanticipated customer requirements.

We may be unable to comply with the covenants of our Loan Agreement.

Our Loan Agreement with SVB contains a minimum liquidity covenant and other customary terms and conditions. The occurrence of an event of default could result in an increase t o the applicable interest rate by 3.0%, an acceleration of all obligations, an obligation to repay all obligations in full and a right by SVB to exercise all remedies available to them. If we are unable to pay those amounts, SVB could proceed against the collateral granted to it pursuant to the Loan Agreement, and we may in turn lose access to our current source of borrowing availability.

Our federal tax net operating loss (NOL) and general business credit carryforwards generated or acquired may expire or will be limited because we experienced an ownership change of more than 50 percent, which could result in greater future income tax expense and adversely impact future cash flows.

On June 30, 2001, we experienced an ownership change as defined by Section 382 of the Internal Revenue Code of 1986. Section 382 imposes limitations (Section 382 limitation) on a company’s ability to use net operating loss and general business credit carryforwards if a company experiences a more-than-50-percent ownership change over a three-year testing period. Additionally, in connection with acquisitions, additional acquired NOLs are also subject to Section 382 limitation. The Section 382 limitations could limit the availability of our net operating loss and general business credit carryforwards to offset any future taxable income, which may increase our future income tax expense and adversely impact future cash flows. Net operating losses generated prior to 2018 are also subject to expiration under current IRS regulations. We have total federal income tax net operating loss and research and development credit carryforwards that, if not used to reduce our taxable income, will begin to expire in 2021. We have generated or acquired available net operating loss and research and development credit carryforwards of $239,162 and $6,154 .  

If our goodwill or other intangible assets become impaired, it could materially reduce the value of our assets and reduce our net income or increase our net loss for the year in which the impairment occurs.

As of December 31, 2018, we had $105,257 in goodwill related to acquisitions, which represents the purchase price we paid in excess of the fair value of the net assets we acquired. The Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) 350, “Goodwill and Other Intangible Assets” requires that goodwill be tested for impairment at least annually (absent any impairment indicators). The testing includes comparing the fair value of each reporting unit with its carrying value. We estimate fair value using several valuation methods, including discounted cash flows, market multiples and market capitalization. Impairment adjustments, if any, are required to be recognized as operating expenses. We may have future impairment adjustments to our recorded goodwill. Any finding that the value of our goodwill has been impaired would require us to record an impairment charge which could materially reduce the value of our assets and reduce our net income or increase our net loss for the year in which the impairment charge occurs and increase our accumulated deficit.

In Process Research and Development (IPR&D) valued at $44,021 was recorded as an intangible asset in connection with the nContact acquisition. If we do not obtain the regulatory approvals that would confirm the technological feasibility of the IPR&D project, or if the IPR&D project is abandoned for any other reason, we would have an impairment adjustment of this asset that would require us to write it off. Additionally, and similar to goodwill, if the IPR&D asset is deemed to be impaired (as a result of the

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estimated fair value being less than carrying value), we would be required to write off the impaired portion of the IPR&D asset. This would materially reduce the value of our assets and reduce our net income or increase our net loss for the year in which the write off occurs and increase our accumulated deficit.

An inability to forecast future revenue or estimate life cycles of products may result in inventory-related charges that would negatively affect our gross margins and results of operations.

To mitigate the risk of supply interruptions, we may choose to maintain additional inventory of our products or component parts. Managing our inventory levels is important to our cash position and results of operations and is challenging in the current economic environment. As we grow and expand our product offerings, managing our inventory levels becomes more difficult, particularly as we expand into new product areas and bring product enhancements to market. While we rely on our personnel and information technology systems for inventory management to effectively manage accounting and financial functions, our personnel and information technology systems may fail to adequately perform these functions or may experience an interruption. An excessive amount of inventory reduces our cash available for operations and may result in excess or obsolete materials. Conversely, inadequate inventory levels may make it difficult for us to meet customer product demand, resulting in decreased revenue. An inability to forecast future revenue or estimated life cycles of products may result in inventory-related charges that would negatively affect our gross margins and results of operations and increase our accumulated deficit, any of which could contribute to difficulty in raising additional funds.

We rely upon single and limited source third-party suppliers and third-party logistics providers, making us vulnerable to supply problems and price fluctuations which could harm our business.

We rely on single and limited source third-party vendors for the manufacture and sterilization of components used in our products. For example, we rely on one vendor to manufacture several of our RF generators, as well as separate vendors to manufacture our COBRA Fusion Surgical Ablation Systems, EPi-Sense Guided Coagulation System with VisiTrax technology, and nContact RF generator . It would be a time consuming and lengthy process to secure these products from an alternative supplier. In addition, in some cases there are relatively few alternative sources of supply for certain other components that are critical to our products. We also rely on a third party to handle our warehousing and logistics functions for European and Middle Eastern markets on our behalf.

Our reliance on outside manufacturers, sterilizers and suppliers also subjects us to risks that could harm our business, including:

·

we may not be able to obtain adequate supply in a timely manner or on commercially reasonable terms;

·

we may have difficulty timely locating and qualifying alternative suppliers;

·

switching components may require product redesign and new submissions to FDA which could significantly delay production or, if FDA refuses to approve the changes, completely eliminate our ability to manufacture or sell our products;

·

our suppliers manufacture products for a range of customers, and fluctuations in demand for the products those suppliers manufacture for others may affect their ability to deliver components to us in a timely manner; and

·

our suppliers may encounter financial hardships unrelated to our demand for components, which could inhibit their ability to fulfill our orders and meet our requirements.

Identifying and qualifying additional or replacement suppliers for any of the components used in our products or a replacement warehousing and logistics provider, if required, may not be accomplished quickly and could involve significant additional costs. Any interruption or delay in the supply of components, materials or warehousing and logistics, or our inability to obtain components or materials from alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers and cause them to cancel orders or switch to competitive products and could therefore have a material adverse effect on our business, financial condition and results of operations.

If we or our third-party vendors fail to comply with extensive FDA regulations relating to the manufacturing of our products or any component part, we may be subject to fines, injunctions and penalties, and our ability to commercially distribute and sell our products may be hurt.

Our manufacturing facility and the manufacturing facility of any of our third-party component manufacturers, critical suppliers or third-party sterilization facility are required to comply with FDA’s Quality System Regulation (QSR) which sets forth minimum standards for the procedures, execution and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage and shipping of the products we sell. FDA may evaluate our compliance with the QSR, among other ways, through periodic announced or unannounced inspections which could disrupt our operations and interrupt our manufacturing. If in conducting an inspection of our manufacturing facility or the manufacturing facility of any of our third-party component manufacturers, critical suppliers or third-party sterilization facility, an FDA investigator observes conditions or practices believed to violate the QSR, the investigator may document their observations on a Form FDA-483 that is issued at the conclusion of the

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inspection. A manufacturer that receives an FDA-483 may respond in writing and explain any corrective actions taken in response to the inspectional observations. FDA will typically review the facility’s written response and may re-inspect to determine the facility’s compliance with the QSR and other applicable regulatory requirements. Failure to take adequate and timely corrective actions to remedy objectionable conditions listed on an FDA-483 could result in FDA taking administrative or enforcement actions. Among these may be FDA’s issuance of a Warning Letter to a manufacturer, which informs the manufacturer that FDA considers the observed violations to be of “regulatory significance” that, if not corrected, could result in further enforcement action. FDA enforcement actions, which include seizure, injunction and criminal prosecution, could result in total or partial suspension of a facility’s production and/or distribution, product recalls, fines, suspension of FDA’s review of product applications and FDA’s issuance of adverse publicity. Thus, an adverse inspection could force a shutdown of our manufacturing operations or a recall of our products. Adverse inspections could also delay FDA approval of our products and could have an adverse effect on our production, sales and financial condition.

We and any of our third-party vendors may also encounter other problems during manufacturing including failure to follow specific protocols and procedures, equipment malfunction and environmental factors, any of which could delay or impede our ability to meet demand. The manufacture of our product also subjects us to risks that could harm our business, including problems relating to the sterilization of our products or facilities and errors in manufacturing components that could negatively affect the efficacy or safety of our products or cause delays in shipment of our products. Any interruption or delay in the manufacture of the product or any of its components could impair our ability to meet the demand of our customers and cause them to cancel orders or switch to competitive products and could, therefore, have a material adverse effect on our business, financial condition and results of operations.

If we fail to comply with the extensive FDA regulations relating to our business, we may be subject to fines, injunctions and penalties, and our ability to commercially distribute and promote our products may be hurt.

Our products are classified by FDA as medical devices and, as such, are subject to extensive regulation in the United States by FDA and numerous other federal, state and foreign governmental authorities. FDA regulations, guidance, notices and other issuances specific to medical devices are broad and regulate numerous aspects of our business.

Compliance with FDA, state and other regulations can be complex, expensive and time-consuming. FDA and other authorities have broad enforcement powers. Furthermore, changes in the applicable governmental regulations could prevent further commercialization of our products and technologies and could materially harm our business.

If a serious failure to comply with applicable regulatory requirements was determined, it could result in enforcement action by FDA or other state or federal agencies, including the DOJ, which may include any of the following sanctions, among others:

·

warning letters, fines, injunctions, consent decrees and civil penalties;

·

repair , replacement, refunds, recall or seizure of our products;

·

operating restrictions, partial suspension or total shutdown of production;

·

suspension or termination of our clinical trials;

·

refusing or delaying our pending requests for 510(k) clearance or PMAs, new intended uses or modifications to existing products;

·

withdrawing 510(k) clearance or PMAs that have already been granted; and

·

criminal prosecution.

If any of these events were to occur, we could lose customers and our production, product sales, business, results of operations and financial condition would be harmed.

We are also subject to medical device reporting regulations that require us to file reports with FDA if our products may have caused or contributed to a death or serious injury or, in the event of product malfunction, that if such malfunction were to recur, would likely cause or contribute to a death or serious injury. There have been incidents, including patient deaths, which have occurred during or following procedures using our products that we have not, and believe were not required to be, reported to FDA because we determined that our products did not cause or contribute to the outcomes in these incidents. If FDA disagrees with us, however, and determines that we should have submitted reports for these adverse events, we could be subject to significant regulatory fines or other penalties. In addition, the number of medical device reports we make, or the magnitude of the problems reported, could cause us or FDA to terminate or modify our clinical trials or recall or cease the sale of our products, and could hurt commercial acceptance of our products and harm our reputation with customers.

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Modifications to our products may require new clearances or approvals or may require us to cease promoting or to recall the modified products until such clearances or approvals are obtained and FDA may not agree with our conclusions regarding whether new clearances or approvals were required.

Any modification to a 510(k)-cleared device that would constitute a change in its intended use, design or manufacture could require a new or supplemental 510(k) clearance or, possibly, submission and FDA approval of a PMA. FDA requires every medical device company to make the determination as to whether a 510(k) must be filed, but FDA may review any medical device company’s decision. We have made modifications to our products and concluded that such modifications did not require us to submit a 510(k). FDA may not agree with our decisions regarding whether submissions were required.

If FDA were to disagree with us and require us to submit a 510(k), PMA or a PMA supplement for then-existing modifications, we could be required to cease promoting or to recall the modified product until we obtain clearance or approval. In addition, we could be subject to significant regulatory fines or other penalties. Furthermore, our products could be subject to recall if FDA determines, for any reason, that our products are not safe or effective or that appropriate regulatory submissions were not made. Delays in receipt or failure to receive clearances or approvals, the loss of previously received clearances or approvals or the failure to comply with existing or future regulatory requirements could reduce our sales, profitability and future growth prospects.

We spend considerable time and money complying with federal, state and foreign regulations in addition to FDA regulations, and, if we are unable to fully comply with such regulations, we could face substantial penalties.

We are subject to extensive regulation by the federal government and foreign countries in which we conduct business. The laws that affect our ability to operate our business in addition to the FDCA and FDA regulations include, but are not limited to, the following:

·

state consumer protection, fraud and business practice laws;

·

the Federal Anti-Kickback Statute, which prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce either the referral of an individual, or furnishing or arranging for a good or service, for which payment may be made under federal healthcare programs such as the Medicare and Medicaid Programs;

·

the Federal False Claims Act, which prohibits submitting a false claim or causing of the submission of a false claim to the government ;  

·

Medicare laws and regulations that prescribe the requirements for coverage and payment, including the amount of such payment, and laws prohibiting false claims for reimbursement under Medicare and Medicaid;

·

state laws that prohibit the practice of medicine by non-doctors and by doctors not licensed in a particular state, and fee- splitting arrangements between doctors and non-doctors, as well as state law equivalents to the Anti-Kickback Statute and the Stark Law, which may not be limited to government-reimbursed items;

·

federal and state healthcare fraud and abuse laws or laws protecting the privacy of patient medical information, including the Health Insurance Portability and Accountability Act (HIPAA) which protects medical records and other personal health information by limiting their use and disclosure, giving individuals the right to access, amend and seek accounting reasonably necessary to accomplish the intended purpose;

·

laws and regulations with respect to the collection, use, disclosure, transfer, and storage of personal data that we may collect from our employees, consultants or in conjunction with clinical trials such as the General Data Protection Regulation in the European Union;

·

the Federal Trade Commission Act and similar laws regulating advertising and consumer protection; and

·

similar and other regulations outside the United States.

Healthcare fraud and abuse regulations are complex, and even minor, inadvertent irregularities can potentially give rise to claims that a law has been violated. Any violations of these laws could result in a material adverse effect on our business, financial condition and results of operations. For example, if we were found to be in violation of the Federal False Claims Act, we would likely face significant fines and penalties and would likely be required to change substantially our sales, promotion, grant and educational activities. There is also a possibility that we could face an injunction that would prohibit in whole or in part our current business activities, and, as a result of enforcement actions against us or our senior officers, we could be excluded from participation in government healthcare programs such as Medicare and Medicaid. If there is a change in law, regulation or administrative or judicial interpretations, we may have to change our business practices or our existing business practices could be challenged as unlawful, which could have a material adverse effect on our business, financial condition and results of operations.

Our manufacturing operations and research and development activities involve the use of biological materials and hazardous substances and are subject to a variety of federal, state and local environmental laws and regulations relating to the storage, use, discharge, disposal, remediation of and human exposure to hazardous substances. Our research and development and manufacturing

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operations may produce biological waste materials, such as animal tissues and certain chemical waste. These operations are permitted by regulatory authorities, and the resultant waste materials are disposed of in compliance with environmental laws and regulations. Compliance with these laws and regulations may be expensive, and non-compliance could result in substantial liabilities. In addition, we cannot completely eliminate the risk of accidental contamination or injury to third parties from the use, storage, handling or disposal of these materials. In the event of contamination or injury, we could be held liable for any resulting damages, and any liability could exceed any applicable insurance coverage we may have. Our manufacturing operations may result in the release, discharge, emission or disposal of hazardous substances that could cause us to incur substantial liabilities, including costs for investigation and remediation.

If our past or present operations are found to be in violation of any of the laws described above or the other governmental regulations to which we, our distributors or our customers are subject, we may be subject to the applicable penalty associated with the violation, including civil and criminal penalties, damages, fines, exclusion from Medicare, Medicaid and other government programs and the curtailment or restructuring of our operations. If we are required to obtain permits or licensure under these laws that we do not already possess, we may become subject to substantial additional regulation or incur significant expense. Any penalties, damages, fines, curtailment or restructuring of our operations would adversely affect our ability to operate our business and our financial results. The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully or clearly interpreted by the regulatory authorities or the courts, and their provisions are subject to a variety of interpretations and additional legal or regulatory change. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management’s attention from the operation of our business and damage our reputation.

We have traditionally had limited clinical data regarding the safety and efficacy of our products. Any data that is generated may not be positive or consistent, which would affect the rate at which our products are adopted by the medical community .  

Important factors upon which the efficacy of our products will be measured include data on the number of patients that experience Afib or stroke following treatment with our products and the number of patients that have serious complications resulting from ablations or LAA occlusion using our products. While we believe we are now well-positioned to provide sufficient data regarding the safety and efficacy of our products, such data could identify unexpected safety issues. We cannot provide any assurance that the data collected during our clinical trials will be compelling to the medical community because it may not be scientifically meaningful and may not demonstrate that procedures utilizing our products are an attractive option when compared against data from alternative procedures and products. Negative data would affect the use of our products and harm our business and prospects.

Adverse changes in payors’ policies toward coverage and reimbursement for surgical procedures would harm our ability to promote and sell our products.

Third-party payors are increasingly exerting pressure on medical device companies to reduce their prices. Even to the extent that the use of our products is reimbursed by private payors and governmental payors, adverse changes in payors’ policies toward coverage and reimbursement for surgical procedures would also harm our ability to promote and sell our products. Payors continue to review their policies and can, without notice, deny coverage for treatments that include the use of our products. Because each third-party payor individually approves coverage and reimbursement, obtaining these approvals may be time-consuming and costly. In addition, third-party payors may require us to provide scientific and clinical support for the use of our products. Adverse changes in coverage and reimbursement for surgical procedures could harm our business and reduce our revenue.

FDA does not regulate the practice of medicine. Physicians may use our products in circumstances where they deem it medically appropriate, such as for the treatment of A fib or the reduction in stroke risk , even though FDA may not have approved or cleared our products to be marketed specifically for th ose indication s . Some payors may deem the use of our products for indications not specifically approved or cleared by FDA to be experimental and, as such, may deny coverage or payment. Often, these denials can be overcome through an appeals process, but there is no guarantee of success in these cases.

If coverage and adequate levels of reimbursement from governmental and third-party payors outside of the United States are not obtained and maintained, sales of our products outside of the United States may decrease, and we may fail to achieve or maintain significant sales outside of the United States.

Our revenue generated from sales outside of the United States is also dependent upon the availability of coverage and reimbursement within prevailing foreign healthcare payment systems. Foreign healthcare payors generally do not provide the same level of reimbursement for sole-therapy minimally invasive procedures utilizing ablation devices and related products as payors in the United States. In addition, healthcare cost containment efforts similar to those we face in the United States are prevalent in many of the other countries in which we sell our products, and these efforts are expected to continue. To the extent that the use of ablation devices such as our Isolator Synergy System has historically received reimbursement under a foreign healthcare payment system, such reimbursement, if any, has typically been significantly less than the reimbursement provided in the United States. If coverage and adequate levels of reimbursement from governmental and third-party payors outside of the United States are not obtained and

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maintained, sales of our products outside of the United States may decrease, and we may fail to achieve or maintain significant sales outside of the United States.

Fluctuations in foreign currency exchange rates could result in declines in our reported sales and results of operations.  

Because some of our international sales are denominated in local currencies and not in U.S. Dollars, our reported sales and earnings are subject to fluctuations in foreign currency exchange rates, primarily the Euro and British Pound. We translate results of transactions denominated in local currencies into U.S. Dollars using market conversion rates applicable to the period in which the transaction is reported. As a result, changes in exchange rates during a period can unpredictably and adversely affect our consolidated operating results and our asset and liability balances, even if the underlying value of the item in its original currency has not changed. At present, we do not hedge our exposure to foreign currency fluctuations. As a result, sales and expenses occurring in the future that are denominated in foreign currencies may be translated into U.S. Dollars at less favorable rates, resulting in reduced revenues and earnings.

Our manufacturing operations are primarily conducted at a single location, and any disruption at our manufacturing facility could increase our expenses and decrease our revenue.

Our manufacturing operations are conducted at a single location in Ohio. While we take precautions at this location, we do not maintain a backup manufacturing facility, making us dependent on our current facility for the continued operation of our business. A natural or other disaster could damage or destroy our manufacturing equipment and cause substantial delays in our manufacturing operations, which could lead to additional expense and decreased revenue due to lack of supply. The insurance we maintain may not be adequate to cover our losses in any particular case. With or without insurance, damage to our facility or our other property due to a natural disaster or casualty event could have a material adverse effect on our business, financial condition and results of operations.

We rely on independent distributors to market and sell our products in certain markets outside of the United States, and a failure of our independent distributors to successfully market our products or any disruption in their ability to do so may adversely impact our sales.

We depend on third-party distributors to sell our products in certain markets outside of the United States, and if these distributors do not perform, we may be unable to maintain or increase our level of international revenue. We intend to continue to grow our business outside of the United States, and to do so, we will need to attract additional distributors or hire direct sales personnel to expand the territories in which we sell our products. Independent distributors may terminate their relationship with us or devote insufficient sales efforts to our products. We are not able to control our independent distributors, and they may not be successful in implementing our marketing plans. In addition, many of our independent distributors outside of the United States initially obtain and maintain foreign regulatory approval for sale of our products in their respective countries. Our failure to maintain our relationships with our independent distributors outside of the United States, or our failure to recruit and retain additional skilled independent distributors in these locations, could have an adverse effect on our operations. Turnover among our independent distributors, even if replaced, may adversely affect our short-term financial results while we transition to new independent distributors or direct sales personnel. The ability of these third-party distributors to market and sell our products could also be adversely affected by unexpected events, including, but not limited to, power failures, nuclear events, natural or other disasters and war or terrorist activities. In addition, in light of the worldwide economic crisis, the ability of our distributors to borrow money from their existing lenders or to obtain credit from other sources to purchase our products may be impaired or our distributors could experience a significant change in their liquidity or financial condition, all of which could impair their ability to distribute our products and eventually lead to distributor turnover, and may adversely impact our sales.

If we fail to properly manage our anticipated growth, our business could suffer.  

We may experience periods of rapid growth and expansion, which could place a significant strain on our personnel, information technology systems and other resources. In particular, the increase in our direct sales force requires significant management and other supporting resources. Any failure by us to manage our growth effectively could have an adverse effect on our ability to achieve our development and commercialization goals.

To achieve our revenue goals, we must successfully increase production output as required by customer demand. In the future, we may experience difficulties in increasing production, including problems with production yields and quality control, component supply and shortages of qualified personnel. These problems could result in delays in product availability and increases in expenses. Any such delay or increased expense could adversely affect our ability to generate revenues.

Future growth will also impose significant added responsibilities on management, including the need to identify, recruit, train and integrate additional employees. In addition, rapid and significant growth will place a strain on our administrative and operational infrastructure. In order to manage our operations and growth, we will need to continue to improve our operational and management controls, reporting and information technology systems and financial internal control procedures. If we are unable to manage our growth effectively, it may be difficult for us to execute our business strategy and our operating results and business could suffer.

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We depend on our officers and other skilled and experienced personnel to operate our business effectively. If we are not able to retain our current employees or recruit additional qualified personnel, our business will suffer and our future revenue and profitability will be impaired.

We are highly dependent on the skills and experience of our President and Chief Executive Officer, Michael H. Carrel, and certain other officers and key employees. We do not have any insurance in the event of the death or disability of key personnel. Our officers and key employees, with the exception of our President and Chief Executive Officer, do not have employment agreements, and they may terminate their employment and work elsewhere without notice and without cause or good reason. Currently we have non-compete agreements with our officers and other employees. Due to the specialized knowledge of each of our officers with respect to our products and our operations and the limited pool of people with relevant experience in the medical device field, the loss of service of one or more of these individuals could significantly affect our ability to operate and manage our business. The announcement of the loss of one or more of our key personnel could negatively affect our stock price.

We depend on our scientific and technical personnel for successful product development and innovation, which are critical to the success of our business. In addition, to succeed in the implementation of our business strategy, our management team must rapidly execute our sales strategy, obtain expanded FDA clearances and approvals, achieve market acceptance for our products and further develop products, while managing anticipated growth by implementing effective planning, manufacturing and operating processes. Managing this growth will require us to attract and retain additional management and technical personnel. We rely primarily on direct sales employees to sell our products in the United States and failure to adequately train them in the use and benefits of our products will prevent us from achieving our market share and revenue growth goals. We have key relationships with physicians that involve procedure, product, market and clinical development. If any of these physicians end their relationship with us, our business could be negatively impacted. We cannot assure you that we will be able to attract and retain the personnel and physician relationships necessary to grow and expand our business and operations. If we fail to identify, attract, retain and motivate these highly skilled personnel and physicians, we may be unable to continue our development and sales activities.

Our business growth strategy involves the potential for significant acquisitions, which involve risks and difficulties in integrating potential acquisitions and may adversely affect our business, results of operations and financial condition.

All acquisitions involve inherent uncertainties, which may include, among other things, our ability to:

·

successfully identify targets for acquisition;

·

negotiate reasonable terms;

·

properly perform due diligence and determine significant risks associated with a particular acquisition;

·

properly evaluate target company management capabilities; and

·

successfully transition and integrate the acquired company into our business and achieve the desired performance.

We may acquire businesses with unknown liabilities, contingent liabilities or internal control deficiencies. We have plans and procedures in place to conduct reviews of potential acquisition candidates for compliance with applicable regulations and laws prior to acquisition. Despite these efforts, realization of any of these liabilities or deficiencies may increase our expenses, adversely affect our financial position through the initiation, pendency or outcome of litigation or otherwise, or cause us to fail to meet our public financial reporting obligations.

We have consummated two significant acquisitions since 2013 and in the future may continue to invest a substantial amount of capital in acquisitions. We continue to evaluate potential acquisition opportunities to support, strengthen and grow our business. There can be no assurance that we will be able to locate suitable acquisition candidates, acquire possible acquisition candidates, acquire such candidates on commercially reasonable terms, or integrate acquired businesses successfully in the future. In addition, any governmental review or investigation of our proposed acquisitions, such as by the Federal Trade Commission, may impede, limit or prevent us from proceeding with an acquisition. Future acquisitions may require us to incur additional debt and contingent liabilities, which may adversely affect our business, results of operations and financial condition. The process of integrating acquired businesses into our existing operations may result in operating, contract and supply chain difficulties, such as the failure to retain customers or management personnel. Such difficulties may divert significant financial, operational and managerial resources from our existing operations and make it more difficult to achieve our operating and strategic objectives.

Disruptions of critical information systems or material breaches in the security of our systems could harm our business, customer relations and financial condition.

In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our customers, suppliers and business partners, and personally identifiable information of our customers and employees in our data centers and on our networks. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. Despite our security measures, our information technology and

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infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disrupt our operations and the services we provide to customers, and damage our reputation and cause a loss of confidence in our products and services, which could adversely affect our business, operating margins, revenues and competitive position.

We also rely in part on information technology to store information, interface with customers, maintain financial accuracy, secure our data and accurately produce our financial statements. If our information technology systems do not effectively and securely collect, store, process and report relevant data for the operation of our business, whether due to equipment malfunction or constraints, software deficiencies, human error or cyber incident, our ability to effectively plan, forecast and execute our business plan and comply with applicable laws and regulations would be materially impaired. Any such impairment could have a material adverse effect on our results of operations, financial condition and the timeliness with which we report our operating results.

We are subject to credit risk from our accounts receivable related to our sales, which include sales to countries outside the United States that may experience economic turmoil.

The majority of our accounts receivable arise from sales in the United States. However, we also have significant receivable balances from customers within the European Union and Asia. Our accounts receivable in the United States are primarily due from public and private hospitals. Our accounts receivable outside the United States are primarily due from public and private hospitals and from independent distributors. Our historical write-offs of accounts receivable have not been significant. We monitor the financial performance and credit worthiness of our customers so that we can properly assess and respond to changes in their credit profile. Our independent distributors operate in certain countries where economic conditions continue to present challenges to their businesses, and, thus, could place the amounts due to us at risk. These distributors are owed amounts from public hospitals that are funded by their governments. Adverse financial conditions in these countries may negatively affect the length of time that it will take us to collect associated accounts receivable or impact the likelihood of ultimate collection.

The results of the United Kingdom’s referendum on withdrawal from the European Union may have a negative effect on global economic conditions, financial markets and our business.

In June 2016, a majority of voters in the United Kingdom elected to withdraw from the European Union, or the EU, in a national referendum, commonly referred to as Brexit. In March 2017, the United Kingdom formally notified the EU of its intention to withdraw pursuant to Article 50 of the Lisbon Treaty. The withdrawal of the United Kingdom from the EU will take effect either on the effective date of the withdrawal agreement or, in the absence of agreement, on March 29, 2019. The referendum has created significant uncertainty about the future relationship between the United Kingdom and the EU, including with respect to the laws and regulations that will apply as the United Kingdom determines which EU laws to replace or replicate in the event of a withdrawal. From a regulatory perspective, the United Kingdom’s withdrawal could give rise to significant complexity and risks. Since the medical device regulatory framework in the United Kingdom is derived from the EU Medical Devices Directive, the United Kingdom’s withdrawal could materially impact the continued marketing of EU medical devices in the United Kingdom. Further, the withdrawal may also significantly delay the transport of our products into the United Kingdom, which could adversely impact our sales.

Because of the continued uncertainty about the effects, implementation, or potential repeal of Brexit, we cannot quantify or predict with any certainty the likely impact of Brexit or related legislation on our business model, prospects, financial condition or results of operations. In addition, these developments, or the perception that any of them could occur, have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets.

Our effective income tax rate may fluctuate, which may adversely affect our operations, earnings and earnings per share.

Our effective income tax rate is influenced by our projected profitability in the various taxing jurisdictions in which we operate. The global nature of our business increases our tax risks. In addition, revenue authorities in many of the jurisdictions in which we operate are known to have become more active in their tax collection activities. Changes in the distribution of profits and losses among taxing jurisdictions may have a significant impact on our effective income tax rate, which in turn could have an adverse effect on our net income and earnings per share. The application of tax laws in various taxing jurisdictions, including the United States, is subject to interpretation, and tax authorities in various jurisdictions may have diverging and sometimes conflicting interpretations of the application of tax laws. Changes in tax laws or tax rulings, in the United States or other tax jurisdictions in which we operate, could materially impact our effective tax rate.

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Factors that may affect our effective income tax rate include, but are not limited to:

·

the requirement to exclude from our quarterly worldwide effective income tax calculations losses in jurisdictions where no income tax benefit can be recognized;

·

actual and projected full year pre-tax income, including differences between actual and anticipated income before taxes in various jurisdictions;

·

changes in tax laws, or in the interpretation or application of tax laws, in various taxing jurisdictions;

·

changes in the relative mix and staffing levels in various tax jurisdictions;

·

audits or other challenges by taxing authorities; and

·

the establishment of valuation allowances against a portion or all of certain deferred income tax assets if we determined that it is more likely than not that future income tax benefits will not be realized.

These changes may cause fluctuations in our effective income tax rate that could adversely affect our results of operations and cause fluctuations in our earnings and earnings per share.

Governmental authorities may question our intercompany transfer pricing policies or change their laws in a manner that could increase our effective tax rate or otherwise harm our business.

As a U.S. company doing business in international markets through subsidiaries, we are subject to foreign tax and intercompany pricing laws, including those relating to the flow of funds between the parent and subsidiaries. Tax authorities in the United States and in foreign markets closely monitor our corporate structure and how we account for intercompany fund transfers. If tax authorities challenge our corporate structure, transfer pricing mechanisms or intercompany transfers, our operations may be negatively impacted and our effective tax rate may increase. Tax rates vary from country to country and if regulators determine that our profits in one jurisdiction should be increased, we might not be able to fully utilize all foreign tax credits that are generated, which would increase our effective tax rate. Additionally, the Organization for Economic Cooperation and Development, or OECD, has issued certain proposed guidelines regarding base erosion and profit sharing. Once these guidelines are formally adopted by the OECD, it is possible that separate taxing jurisdictions may also adopt some form of these guidelines. In such case, we may need to change our approach to intercompany transfer pricing in order to maintain compliance under the new rules. Our effective tax rate may increase or decrease depending on the current location of global operations at the time of the change. Finally, we might not always be in compliance with all applicable customs, exchange control, Value Added Tax and transfer pricing laws despite our efforts to be aware of and to comply with such laws. In such case, we may need to adjust our operating procedures and our business could be adversely affected.

Due to the global nature of our business, we may be exposed to liabilities under the Foreign Corrupt Practices Act and various other anti -corruption laws, and any allegation or determination that we violated these laws could have a material adverse effect on our business.

We are required to comply with the FCPA, UK Bribery Act of 2010 and other U.S. and foreign anti-corruption laws, which prohibit companies from engaging in bribery including corruptly or improperly offering, promising, or providing money or anything else of value to foreign officials and certain other recipients. In addition, the FCPA imposes certain books, records and accounting control obligations on public companies and other issuers. We operate in parts of the world in which corruption can be common and compliance with anti-bribery laws may conflict with local customs and practices. Our global operations face the risk of unauthorized payments or offers being made by employees, consultants, sales agents and other business partners outside of our control or without our authorization. It is our policy to implement safeguards (including mandatory training) to prohibit these practices by our employees and business partners with respect to our operations. However, irrespective of these safeguards, or as a result of monitoring compliance with such safeguards, it is possible that we or certain other parties may discover or receive information at some point that certain employees, consultants, sales agents, or other business partners may have engaged in corrupt conduct for which we might be held responsible. Violations of the FCPA or other foreign anti-corruption laws may result in restatements of, or irregularities in, our financial statements as well as severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In some cases, companies that violate the FCPA may be debarred by the U.S. government and/or lose their U.S. export privileges. Changes in anti-corruption laws or enforcement priorities could also result in increased compliance requirements and related costs which could adversely affect our business, financial condition and results of operations. In addition, the U.S. or other governments may seek to hold us liable for successor liability FCPA violations or violations of other anti-corruption laws committed by companies in which we invest or that we acquired or will acquire.

The impact of restrictive trade policies in the United States and the potential corresponding actions by other countries could adversely affect our financial performance.

The U.S. federal government has recently implemented tariffs on certain products imported into the United States from China, and the Chinese government has responded with retaliatory tariffs on certain products, including medical devices, exported from the United States to China. We cannot predict whether the United States will implement additional trade restrictions with respect to China

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(In Thousands, Except Per Share Amounts)

 

or other countries and how such countries may respond to such trade restrictions. If these tariffs continue or are expanded, they may make it more difficult to sell our products in China or other markets outside of the United States. Restrictive trade policies may also harm the United States and global economies generally, which would adversely affect our business in a variety of ways, including reducing the market for our products, causing a downturn in the trading price of our common stock, and restricting access to credit if we seek it for future growth.

Our insurance may not cover all of our indemnification obligations and other liabilities associated with our operations.

We maintain insurance designed to provide coverage for ordinary risks associated with our operations and our ordinary indemnification obligations, which we believe to be customary for our industry. The coverage provided by such insurance may not be adequate for all claims we may make or may be contested by our insurance carriers. If our insurance is not adequate or available to pay liabilities associated with our operations, or if we are unable to purchase adequate insurance at reasonable rates in the future, our business, financial condition, results of operations or cash flows may be materially adversely impacted.

Risks Relating To Our Common Stock

The price and trading volume of our common stock may experience extreme fluctuations and our stockholders could lose some or all of their investment.

Because we operate within the medical device segment of the healthcare industry, our stock price is likely to be volatile. The market price of our common stock may have and has had a history of substantial fluctuation due to a variety of factors, including, but not limited to:

·

variations in our quarterly financial and operating results;

·

physician and patient acceptance of the surgical treatment of Afib or exclusion of the LAA using our products;

·

adverse regulatory developments with respect to our products, such as recalls, new regulatory requirements, changes in regulatory requirements or guidance and timing of regulatory clearances and approvals for new products;

·

coverage and reimbursement determinations for our products and the related procedures;

·

the timing of orders received;

·

delays or interruptions in manufacturing or shipping of our products;

·

pricing of our products;

·

clinical trial results;

·

media reports, publications or announcements about products or new innovations that could compete with our products or about the medical device product segment in general;

·

investigations, claims or allegations by regulatory agencies, such as the Department of Justice and Financial Industry Regulatory Authority;

·

market conditions or trends related to the medical device and healthcare industries or the market in general;

·

additions to or departures of our key personnel;

·

disputes , litigation or other developments relating to proprietary rights, including patents, and our ability to obtain patent protection for our technologies;

·

changes in financial estimates, investors’ perceptions or recommendations by securities analysts;

·

failure to achieve or maintain an effective healthcare compliance environment;

·

changes in accounting principles; and

·

failure to achieve and maintain an effective internal control environment.

These factors, some of which are not within our control, may cause the price of our stock to fluctuate substantially. We believe the quarterly and annual comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.

The market prices of the securities of medical device companies, particularly companies like ours without consistent revenue and earnings, have been highly volatile and are likely to remain highly volatile in the future. This volatility has often been unrelated to the operating performance of these particular companies. In the past, companies that experience volatility in the market price of their securities have often faced securities class action litigation. Whether or not meritorious, litigation brought against us could result in substantial costs, divert our management’s attention and resources and harm our ability to grow our business.

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(In Thousands, Except Per Share Amounts)

 

We may be obligated to issue additional shares of our common stock to the former stockholders of nContact as a result of our satisfaction of certain milestones set forth in the merger agreement with nContact and the other parties thereto, resulting in stock ownership dilution.

Under the terms of the merger agreement with nContact and the other parties thereto, we agreed to issue additional shares of our common stock, or make payments in cash, to the former stockholders of nContact as contingent consideration upon our satisfaction of milestones described in the merger agreement. The merger agreement limits the total number of shares of AtriCure common stock issued in connection with the acquisition to 5,660, of which 3,757 shares were issued at the closing of the nContact acquisition on October 13, 2015 and 232 shares were issued and delivered to the former shareholders of nContact on September 20, 2018 for satisfaction of the trial enrollment milestone. Issuing additional shares of our common stock to the former stockholders of nContact in satisfaction of contingent consideration dilutes the ownership interests of holders of our common stock on the dates of such issuances. If we are unable to realize the strategic, operational and financial benefits anticipated from our acquisition of nContact, our stockholders may experience dilution of their ownership interests in our company upon any such future issuances of shares of our common stock without receiving any commensurate benefit.

The sale of material amounts of common stock could encourage short sales by third parties and depress the price of our common stock. As a result, our stockholders may lose all or part of their investment.

The downward pressure on our stock price caused by the sale of a significant number of shares of our common stock or the perception that such sales could occur by any of our significant stockholders could cause our stock price to decline, thus allowing short sellers of our stock an opportunity to take advantage of any decrease in the value of our stock. The presence of short sellers in our common stock may further depress the price of our common stock. Some of our directors and executive officers have in the past and may in the future enter into Rule 10b5-1 trading plans pursuant to which they may sell shares of our stock from time to time in the future. Actual or potential sales by these insiders, including those under a pre-arranged Rule 10b5-1 trading plan, could be interpreted by the market as an indication that the insider has lost confidence in our stock and adversely impact the market price of our stock.

Sales of common stock by us in a capital raising transaction may dilute stockholder ownership of common stock and cause a decline in the market price of our common stock.

We may need to raise capital in the future to fund our operations or new initiatives or reduce or pay in full our indebtedness. If we raise funds by issuing equity securities, our stock price may decline and our existing stockholders may experience significant dilution. Furthermore, we may enter into capital raising transactions at prices that represent a substantial discount to market price. A negative reaction by investors and securities analysts to any sale of our equity securities could result in a decline in the trading price of our common stock.

Anti -takeover provisions in our amended and restated certificate of incorporation and amended and restated bylaws and under Delaware law could inhibit a change in control or a change in management that stockholders consider favorable.

Provisions in our certificate of incorporation and bylaws could delay or prevent a change of control or change in management that would provide a premium to the market price of common stock. These provisions include those:

·

authorizing the issuance without further approval of “blank check” preferred stock that could be issued by our board of directors to increase the number of outstanding shares and thwart a takeover attempt;

·

prohibiting cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates;

·

limiting the ability of stockholders to call special meetings of stockholders;

·

prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of stockholders; and

·

establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.

In addition , Section 203 of the Delaware General Corporation Law limits business combination transactions with 15% stockholders that have not been approved by our board of directors. These provisions and others could make it difficult for a third party to acquire us, or for members of our board of directors to be replaced, even if doing so would be beneficial to our stockholders. Because our board of directors is responsible for appointing the members of our management team, these provisions could, in turn, affect any attempt to replace the current management team. If a change of control or change in management is delayed or prevented, stockholders may lose an opportunity to realize a premium on shares of common stock or the market price of our common stock could decline.

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(In Thousands, Except Per Share Amounts)

 

We do not expect to pay dividends in the foreseeable future. As a result, stockholders must rely on stock appreciation for any return on investment.

We do not anticipate paying cash dividends on our common stock in the foreseeable future. Any payment of cash dividends will also depend on our financial condition, results of operations, capital requirements and other factors and will be at the discretion of our board of directors. Accordingly, stockholders will have to rely on capital appreciation, if any, to earn a return on investment in our common stock. Furthermore, pursuant to our credit facility, we are currently subject to restrictions on our ability to pay dividends and we may in the future become subject to other contractual restrictions on, or prohibitions against, the payment of dividends.

Securities analysts may not continue, or additional securities analysts may not initiate, coverage for our common stock or may issue negative reports. This may have a negative impact on the market price of our common stock.

Several securities analysts provide research coverage of our common stock. Some analysts have already published statements that do not portray our technology, products or procedures using our products in a positive light and others may do so in the future. If we are unable to educate those who publicize such reports about the benefits we believe our business provides, or if one or more of the analysts who elects to cover us downgrades our stock, our stock price would likely decline rapidly. If one or more of these analysts ceases coverage of our company, we could lose visibility in the market, which in turn could cause our stock price to decline. The trading market for our common stock may be affected in part by the research and reports that industry or financial analysts publish about us or our business. If sufficient securities analysts do not cover our common stock, the lack of research coverage may adversely affect the market price of our common stock. It may be difficult for companies such as ours, with smaller market capitalizations, to attract and maintain sufficient independent financial analysts that will cover our common stock. This could have a negative effect on the market price of our stock.

We may fail to meet our publicly announced guidance or other expectations about our business and future operating results, which could cause a decline in our stock price.

We provide financial guidance about our business and future operating results. In developing this guidance, our management makes certain assumptions and judgments about our future operating performance, including projected hiring of sales professionals, continued increase of our market share, and continued stability of the macro-economic environment in our key markets. Furthermore, analysts and investors may develop and publish their own projections of our business, which may form a consensus about our future performance. Our business results may vary significantly from such guidance or that consensus due to a number of factors, many of which are outside of our control, and which could adversely affect our operations and operating results. Furthermore, if we make downward revisions of our previously announced guidance, or if our publicly announced guidance of future operating results fails to meet expectations of securities analysts, investors, or other interested parties, the market price of our common stock could decline.

The requirements of being a public company may strain our resources and distract management.

As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (Exchange Act), and the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act). We are also subject to certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Dodd-Frank Act requires the SEC to adopt certain rules and regulations relating to our public disclosures, corporate governance and executive compensation, among other things, and such rules and regulations require significant attention from management. Compliance with all of these laws, rules and regulations may from time to time divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting and management is required to evaluate the effectiveness of our internal control over financial reporting as of the end of each fiscal year. In order to maintain the effectiveness of our disclosure controls and procedures and internal control over financial reporting, significant resources and management oversight is required. If we are not successful in maintaining effective internal control over financial reporting, there could be inaccuracies or omissions in the consolidated financial information we are required to file with the Securities and Exchange Commission. Additionally, even if there are no inaccuracies or omissions, we will be required to publicly disclose the conclusion of our management that our internal control over financial reporting or disclosure controls and procedures are not effective. These events could cause investors to lose confidence in our reported financial information, adversely impact our stock price, result in increased costs to remediate any deficiencies, or attract regulatory scrutiny or lawsuits that could be costly to resolve and distract management’s attention.

The SEC has adopted rules regarding the disclosure of the use of conflict minerals (commonly referred to as tantalum, tin, tungsten and gold) which are mined from the Democratic Republic of the Congo (DRC) and neighboring countries. Under the rules, we are required to disclose the procedures we employ to determine the sourcing of such minerals and metals produced from those minerals. The requirements require due diligence efforts and could affect the sourcing of components used in our products. If the conflict minerals included in our products are found to be sourced from the DRC or surrounding countries, we may take actions to

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

 

change materials or product designs to reduce the possibility that our purchase of conflict minerals may fund armed groups in the region. These actions could add engineering and other costs to the manufacture of our products. We expect to continue to incur costs in the investigation of the origin of the conflict minerals used in our products and in the reporting of the findings of our investigation. Our reputation may suffer if we have included conflict minerals in our products that are found to have funded armed groups in the DRC region.



IT EM 1B.  UNRESOLVED STAFF COMMENTS  

None.



IT EM 2.  PROPERTIES  

The Company maintains its headquarters in Mason, Ohio in a leased facility totaling approximately 92,000 square feet. The facility contains the Company’s administrative, regulatory, engineering, product development, distribution and manufacturing functions. The monthly rent for this space is $120. The initial lease term expires in September 2030. The Company also maintains the following locations:

·

Mason, Ohio – This location is primarily used for distribution activities. The facility is approximately 37,500 square feet with monthly rent of $18 for the first year of the lease term and $20 thereafter. The lease will expire in May 2022.

·

Minneapolis, Minnesota – This location includes both administrative and product development space. The office is approximately 27,500 square feet with monthly rent of $31. The lease will expire in October 2022.

·

San Ramon, California – This location is primarily used for product development and research and development activities and is approximately 3,800 square feet with monthly rent of $8. The lease will expire in December 2019.

·

Amsterdam, Netherlands – This location is primarily for the administration of our European subsidiaries and is approximately 9,000 square feet. The monthly rent for this space is $21, and the lease will expire in January 2021.

·

Hong Kong – This location is for the administration of business throughout Asia. Monthly rent under this lease, which expires in December 2019, is approximately $6.

·

Beijing, China – This location is for the administration of business in China. Monthly rent under this lease, which expires in July 2019, is approximately $3.

The Company believes that its existing facilities are adequate to meet its immediate needs and that suitable additional space will be available in the future on commercially reasonable terms as needed.



IT EM 3.  LEGAL PROCEEDINGS  

The Company is not party to any material pending or threatened litigation. We may from time to time become a party to additional legal proceedings that arise in the ordinary course of business. See Note 10 – Commitments and Contingencies to our Consolidated Financial Statements.  



IT EM 4.  MINE SAFETY DISCLOSURES

Not applicable.

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PA RT II



I TEM 5.   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES  

Common Stock Market Price

Our common stock is traded on the NASDAQ Global Market under the symbol “ATRC” .   As of February 2 2 , 2019, the closing price of our common stock on the NASDAQ Global Market was $ 33 . 2 0 per share, and the number of stockholders of record was 8 1 .

Performance Graph

The following graph compares the cumulative total stockholder return on our common stock with the cumulative total return of the NASDAQ Composite and the NASDAQ Medical Equipment Index for the period beginning on January 1, 2014 and ending on December 31, 2018.

PICTURE 2

*    This graph assumes that $100.00 was invested on December 31, 2013 in our common stock, the NASDAQ Composite Index and the NASDAQ Medical Equipment Index, and that all dividends are reinvested. No dividends have been declared or paid on our common stock. Stock performance shown in the above chart for our common stock is historical and should not be considered indicative of future price performance.







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

12/31/2014

 

12/31/2015

 

12/31/2016

 

12/31/2017

 

12/31/2018

AtriCure, Inc.  

 

$

100.00 

 

$

106.85 

 

$

120.13 

 

$

97.64 

 

$

163.81 

NASDAQ Composite

 

$

100.00 

 

$

114.62 

 

$

122.81 

 

$

172.11 

 

$

165.84 

NASDAQ Medical Equipment

 

$

100.00 

 

$

117.22 

 

$

131.48 

 

$

195.37 

 

$

221.45 

 









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(In Thousands, Except Per Share Amounts)

 

IT EM 6.  SELECTED FINANCIAL DATA

The following table reflects selected financial data derived from our Consolidated Financial Statements for each of the last five years. The operating results data for the years ended December 31, 2018, 2017 and 2016 and the financial position data as of December 31, 2018 and 2017 are derived from our audited financial statements included in this Form 10-K. The operating results data for the years ended December 31, 2015 and 2014 and the financial position data as of December 31, 2016, 2015 and 2014 are derived from our audited financial statements not included in this Form 10-K. Historical results are not necessarily indicative of future results. The selected financial data set forth below should be read in conjunction with our financial statements, the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K.

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Year Ended December 31,



 

2018 (2)

 

2017

 

2016

 

2015 (1)

 

2014



 

(in thousands, except per share data)

Operating Results:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

201,630 

 

$

174,716 

 

$

155,109 

 

$

129,755 

 

$

107,454 

Gross profit

 

 

147,120 

 

 

126,163 

 

 

111,101 

 

 

92,875 

 

 

75,750 

Gross margin

 

 

73.0% 

 

 

72.2% 

 

 

71.6% 

 

 

71.6% 

 

 

70.5% 

Net loss

 

 

(21,137)

 

 

(26,892)

 

 

(33,338)

 

 

(27,212)

 

 

(16,211)

Basic and diluted net loss per share

 

 

(0.62)

 

 

(0.83)

 

 

(1.05)

 

 

(0.97)

 

 

(0.61)

Weighted average shares outstanding

 

 

34,087 

 

 

32,387 

 

 

31,609 

 

 

28,058 

 

 

26,374 

Financial Position:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents and investments

 

$

124,402 

 

$

34,451 

 

$

47,009 

 

$

42,284 

 

$

68,543 

Working capital

 

 

134,457 

 

 

50,355 

 

 

56,889 

 

 

43,164 

 

 

67,865 

Total assets

 

 

356,759 

 

 

267,704 

 

 

276,421 

 

 

273,092 

 

 

158,404 

Long-term debt and capital leases

 

 

47,743 

 

 

36,861 

 

 

37,205 

 

 

13,710 

 

 

74 

Stockholders’ equity

 

 

249,381 

 

 

161,166 

 

 

168,442 

 

 

186,685 

 

 

132,538 



_________________________

(1)

We acquired nContact for $116.8 million on October 13, 2015. The acquisition is included in our Consolidated Balance Sheets beginning October 13, 2015, and the results of operations are included in our Consolidated Statements of Operations and Comprehensive Loss beginning with the period October 14, 2015 through December 31, 2015.

(2)

We adopted FASB ASC 606, “Revenue from Contracts with Customers” using the modified retrospective method effective January 1, 2018.  The adoption of ASC 606 did not have a material impact on the amount and timing of revenue recognized in the Consolidated Financial Statements.

 

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IT EM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollar and share amounts referenced in this Item 7 are in thousands, except per share amounts.)

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements and notes thereto contained in Item 8, “Financial Statements and Supplementary Data,” to provide an understanding of our results of operations, financial condition and cash flows. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those set forth under Item 1A “Risk Factors,” the cautionary statement regarding forward-looking statements at the beginning of Part I and elsewhere in this Form 10-K.

Overview

We are a leading innovator in treatments for atrial fibrillation (Afib) and left atrial appendage (LAA) management. We have several product lines for the ablation of cardiac tissue , including our Isolator Synergy Ablation System, the first and only surgical device approved by the United States Food and Drug Administration (FDA) for the treatment of persistent and longstanding persistent forms of Afib in patients undergoing certain open concomitant procedures. We also offer a variety of minimally invasive ablation devices and access tools to facilitate the growing trend in less invasive cardiac and thoracic surgery. Our cryoICE cryosurgery product line offers a variety of cryoablation devices for use in various types of cardiothoracic surgery .   Our AtriClip Left Atrial Appendage Exclusion System is a device specifically designed to occlude the heart’s left atrial appendage.

W e believe that we are currently the market leader in the surgical treatment of A fib . Our products are used by physicians during both open-heart and minimally invasive surgical procedures , either in conjunction with heart surgery for other conditions (“concomitant” to such a procedure), or on a standalone basis . Our Isolator Synergy System is approved   by FDA for the treatment of persistent and long-standing persistent Afib concomitant to other open-heart surgical procedures. All our other ablation devices are cleared for sale in the United States under FDA 510(k) clearances, including our other RF and cryoablation products, which are indicated for the ablation of cardiac tissue and/or the treatment of cardiac arrhythmias. In addition, our cryoICE probe is cleared for managing pain by temporarily ablating peripheral nerves. Our AtriClip products are 510(k)-cleared with an indication for the occlusion of the heart’s LAA, performed under direct visualization and in conjunction with other cardiac surgical procedures. Direct visualization, in this context, requires that the surgeon is able to see the heart directly, with or without assistance from a camera, endoscope or other appropriate viewing technologies. We also sell reusable surgical instruments typically used in cardiac valve replacement or repair. Our Isolator Synergy clamps, Isolator Synergy pens, Coolrail ®  l inear pen, cryosurgery devices, certain products of the AtriClip LAA Exclusion System, COBRA Fusion Ablation System, Numeris System and the EPi-Sense Guided Coagulation System with VisiTrax technology bear the CE mark and may be commercially distributed throughout the member states of the European Union and other countries that comply with or mirror the medical device directives. We anticipate that substantially all of our revenue for the foreseeable future will relate to products we currently sell, or are in the process of developing .

W e sell our products to medical centers through our direct sales force in the United States and in certain international markets, such as Germany , France, the United Kingdom and the Benelux region . We also sell our products to distributors who in turn sell our products to medical centers in other international markets . Our business is primarily transacted in U.S. Dollars with the exception of transactions with our European customers, which are transacted in Euros or British Pounds .

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

 

Results of Operations

Year Ended December 31, 2018 compared to December 31, 2017

The following table sets forth, for the periods indicated, our results of operations expressed as dollar amounts and as percentages of total revenue:







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Year Ended December 31,



 

2018

 

2017



 

 

 

 

% of

 

 

 

 

% of



 

Amount

 

Revenue

 

Amount

 

Revenue



 

(dollars in thousands)

Revenue

 

$

201,630 

 

100.0 

%

 

$

174,716 

 

100.0 

%

Cost of revenue

 

 

54,510 

 

27.0 

 

 

 

48,553 

 

27.8 

 

Gross profit

 

 

147,120 

 

73.0 

 

 

 

126,163 

 

72.2 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development expenses

 

 

34,723 

 

17.2 

 

 

 

34,144 

 

19.5 

 

Selling, general and administrative expenses

 

 

129,524 

 

64.2 

 

 

 

116,998 

 

67.0 

 

Total operating expenses

 

 

164,247 

 

81.5 

 

 

 

151,142 

 

86.5 

 

Loss from operations

 

 

(17,127)

 

(8.5)

 

 

 

(24,979)

 

(14.3)

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(4,607)

 

(2.3)

 

 

 

(2,264)

 

(1.3)

 

Interest income

 

 

1,006 

 

0.5 

 

 

 

227 

 

0.1 

 

Other

 

 

(183)

 

(0.1)

 

 

 

138 

 

0.1 

 

Other expense

 

 

(3,784)

 

(1.9)

 

 

 

(1,899)

 

(1.1)

 

Loss before income tax expense

 

 

(20,911)

 

(10.4)

 

 

 

26,878 

 

(15.4)

 

Income tax expense

 

 

226 

 

 —

 

 

 

14 

 

 —

 

Net loss

 

$

(21,137)

 

(10.5)

%

 

$

(26,892)

 

(15.4)

%



Revenue. Total revenue increased 15.4%  ( 14.9% on a constant currency basis). Revenue from customers in the United States increased $ 23,759 , or 17.2%, and revenue from international customers increased $ 3,155 , or 8.7%  ( 6.1% on a constant currency basis). Sales in the United States grew across several key product categories. Ablation-related open-heart sales increased $7,733 , or 12.0% in primarily from increased volume in existing accounts, as well as the expansion of cryoablation into new accounts. Ablation-related minimally invasive (MIS) sales increased $632 , or 1.8% , reflecting growth in our EPi-Sense product line which was offset partially by a decline in legacy MIS and Fusion product sales. Growth in Epi-Sense products resulted from an increase in volume of procedures in existing accounts as well as the addition of new customer accounts. Appendage management sales increased $15,610 , or 41.9% , due to increased volume and pricing. Appendage management sales reflect the positive impact of the AtriClip PRO·V LAA Exclusion System and AtriClip ACH ·V LAA Exclusion System , which launched in the third quarter of 2017 and first quarter of 2018 . International revenue grew primarily in the United Kingdom , Germany, and Japan, partially offset by a decrease in sales in China . International growth results from increased volume in AtriClip, cryoablation and MIS product sales.

Revenue reported on a constant currency basis is a non-GAAP measure and is calculated by applying previous period foreign currency (Euro) exchange rates, which are determined by the average daily Euro to Dollar exchange rate, to each of the comparable periods. Revenue is analyzed on a constant currency basis to better measure the comparability of results between periods. Because changes in foreign currency exchange rates have a non-operating impact on revenue, we believe that evaluating growth in revenue on a constant currency basis provides an additional and meaningful assessment of revenue to both management and our investors.

Cost of revenue and gross margin. Cost of revenue increased $5,957 and gross margin increased 0.8% from 72.2% in 2017 to 73.0% in 20 18 . Sales in 2018 reflect a higher concentration of higher-margin sales in the United States and direct markets in Europe, and a lower contribution to revenue from lower-margin sales in Asia and other distributor markets. Additionally, appendage management products launched in late 2017 and early 2018 are realizing a higher gross margin than legacy appendage management products. While overall product and geographic mix benefits margin in 2018, it is partially offset by a $935 increase in share-based compensation expense in 2018.

Research and development expenses. Research and development expenses increased $579, or 1.7%. The increases in expense reflects $1,375 of product development, regulatory and clinical personnel costs resulting from increased headcount and $531 of higher product development costs. These increases in expense were partially offset by $973 of lower clinical trial and grant expenses, largely from a reduction in patient recruitment spending in 2018, and $598 of compliance-related consulting expense.

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(In Thousands, Except Per Share Amounts)

 

Selling, general and administrative expenses. Selling, general and administrative expenses increased $12,526, or 10.7%, primarily due to higher expense of $16,539 related to personnel and related expenses resulting from increased headcount and variable compensation, $1,336 of incremental legal expenses, $1,100 related to bank fees, $1,009 of share-based compensation, and $1,356 related to various other operating expenses, including the provision for doubtful accounts and software maintenance and facilities costs.  These increases in expense were offset by a higher reduction in expense of $6,747 related to the contingent consideration liability as compared to the prior period (see Note 3 – Fair Value in the Consolidated Financial Statements) and a $1,652 decrease in marketing communication, tradeshow, and training expenses .

Net interest expense. Net interest expense was $3,601 for 2018 and $2,037 for 2017. Interest expense associated with outstanding amounts on our term loan and capital lease obligations, as well as the amortization of financing costs, are included in net interest expense. Also included in net interest expense is interest income from investments, including gains and losses on investments sold during the period. The increase in interest expense was driven by a n increase in borrowings under the term loan starting in February 201 8.

Other income and expense. Other income and expense consists primarily of foreign currency transaction gains and losses.

Year Ended December 31, 2017 compared to December 31, 2016

The following table sets forth, for the periods indicated, our results of operations expressed as dollar amounts and as percentages of total revenue:







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Year Ended December 31,



 

2017

 

2016



 

 

 

 

% of

 

 

 

 

% of



 

Amount

 

Revenue

 

Amount

 

Revenue



 

(dollars in thousands)

Revenue

 

$

174,716 

 

100.0 

%

 

$

155,109 

 

100.0 

%

Cost of revenue

 

 

48,553 

 

27.8 

 

 

 

44,008 

 

28.4 

 

Gross profit

 

 

126,163 

 

72.2 

 

 

 

111,101 

 

71.6 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development expenses

 

 

34,144 

 

19.5 

 

 

 

35,824 

 

23.1 

 

Selling, general and administrative expenses

 

 

116,998 

 

67.0 

 

 

 

106,415 

 

68.6 

 

Total operating expenses

 

 

151,142 

 

86.5 

 

 

 

142,239 

 

91.7 

 

Loss from operations

 

 

(24,979)

 

(14.3)

 

 

 

(31,138)

 

(20.1)

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(2,264)

 

(1.3)

 

 

 

(1,801)

 

(1.2)

 

Interest income

 

 

227 

 

0.1 

 

 

 

227 

 

0.1 

 

Other

 

 

138 

 

0.1 

 

 

 

(586)

 

(0.4)

 

Other income (expense)

 

 

(1,899)

 

(1.1)

 

 

 

(2,160)

 

(1.4)

 

Loss before income tax expense

 

 

(26,878)

 

(15.4)

 

 

 

(33,298)

 

(21.5)

 

Income tax expense

 

 

14 

 

 —

 

 

 

40 

 

 —

 

Net loss

 

$

(26,892)

 

(15.4)

%

 

$

(33,338)

 

(21.5)

%



Revenue. Total revenue increased 12.6% (12.4% on a constant currency basis). Revenue from sales to customers in the United States increased $16,002, or 13.1%, and revenue from international customers increased $3,605, or 11.0% (9.6% on a constant currency basis). Sales in the United States grew across several key product categories. Ablation-related open-heart sales increased $6,467, or 11%, primarily due to growth in our cryo products line, including the impact of the cryoFORM ® product which launched in the second quarter of 2016. Ablation-related minimally invasive (MIS) sales increased $3,252, or 10%, reflecting strong growth in our EPi-Sense product line which was offset partially by a decline in legacy MIS product sales. Growth in EPi-Sense product resulted from both an increase in volume of procedures in existing accounts as well as the addition of new customer accounts. Legacy MIS product sales in the United States were impacted throughout 2017 by various disruptions to key accounts such as physician movement and wildfires in California. AtriClip sales increased $6,960, or 23%, due to increased volume and pricing. AtriClip sales reflect the positive impact of the AtriClip PRO2 ® and AtriClip PRO·V LAA Exclusion System devices, which launched in the second quarter of 2016 and late third quarter of 2017, respectively. International revenue grew primarily in Asia, Germany, France, Turkey, Austria and the Benelux region as a result of increased volumes in AtriClip and cryo product sales.

Cost of revenue and gross margin. Cost of revenue increased $4,545 and gross margin increased 0.6% from 71.6% in 2016 to 72.2% in 20 17 . While 2017 includes heavier capital equipment sales, this factor is offset by a slight increase in the percentage of total revenue from customers in the United States, favorable product mix and lower inventory obsolescence charges in 2017.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

 

Research and development expenses. Research and development expenses decreased $1,680, or 4.7%. The decrease in expense was primarily due to lower expense of $1,887 related to product development projects resulting from the timing of project activities, $ 474 related to regulatory filing fees, $339 related to clinical trials and grants and $276 related to amortization expense. These decreases in expense were partially offset by higher expense of $1,115 related to product development, regulatory and clinical personnel costs resulting from increased headcount and $227 related to share-based compensation expense.

Selling, general and administrative expenses. Selling, general and administrative expenses increased $10,583, or 9.9%, primarily due to higher expense of $9,136 related to personnel and related expenses, such as travel costs, resulting from increased headcount, $2,563 related to professional education, marketing and tradeshow expenses, $2,501 related to share-based compensation expense, $1,405 related to legal expenses and $530 related to product samples, largely related to the September 2017 launch of the AtriClip PRO·V LAA Exclusion System. These increases in expense were offset by a $5,047 reduction in expense related to the contingent consideration adjustment and lower expenses related to consulting and professional services.

Net interest expense. Net interest expense was $2,037 for 2017 and $1,574 for 2016. Interest expense associated with outstanding amounts on our term loan and capital lease obligations, as well as the amortization of financing costs, are included in net interest expense. Also included in net interest expense is interest income from investments, including gains and losses on investments sold during the period. The increase in interest expense was driven by a full year of expense incurred on borrowings under the term loan in 2017, which was effective April 2016.

Other income and expense. Other income and expense consists primarily of foreign currency transaction gains and losses.

Liquidity and Capital Resources

As of December 31, 2018, the Company had cash, cash equivalents and investments of $124,402 and outstanding debt of $40,000 . We had unused borrowing capacity of $20,000 under our revolving credit facility. Most of our operating cash and all cash equivalents and investments are held by United States financial institutions. We had net working capital of $134,457 and an accumulated deficit of $247,003 as of December 31, 2018.

Cash flows used in operating activities. Net cash used in operating activities was $4,171 during 2018. The primary net uses of cash for operating activities were as follows:

·

the net loss of $21,137, which includes $15,567 of non-cash expenses comprised of $16,495 in share-based compensation, $8,754 of depreciation and amortization and $515 of debt fee amortization, offset by a decrease in fair value of contingent consideration of $10,825 ; and

·

a   net increase in cash used related to changes in operating assets and liabilities of $1,399, due primarily to the following:

·

an increase in accounts receivable of $2,837, due primarily to increased sales and the timing of collections and

·

a $4,618 increase in accounts payable and accrued liabilities reflecting increased accrued variable compensation payments.

Cash flows used in investing activities. Net cash used in investing activities was $85,404 during 2018. The primary uses of cash were $106,588 of purchases of available-for-sale securities and $ 6,211 related to the purchase of property and equipment, which included the placement of generators with our customers. These uses of cash were offset by $27,389 provided by sales and maturities of available-for-sale securities.

Cash flows provided by financing activities. Net cash provided by financing activities during 2018 was $100,176, which was primarily due to net proceeds generated from a common stock offering of $82,873 , proceeds from debt borrowings of $17,381 ,   proceeds from stock option exercises of $6,012 and proceeds from the issuance of common stock under our employee stock purchase plan of $2,383. This was partially offset by shares repurchased for payment of taxes on stock awards of $4,457 , debt and capital lease payments of $1,755 , debt fee payments of $1,136 , and payment of contingent consideration to former nContact shareholders of $1,125.

Credit facility. The Company’s Loan and Security Agreement with Silicon Valley Bank (SVB), as amended, restated, and modified effective February 23, 2018 and as further amended on December 28, 2018 (Loan Agreement), provides for a $40,000 term loan and a $20,000 revolving line of credit with an option to increase the revolving line of credit by an additional $20,000. The term loan and revolving credit facility both mature or expire, as applicable, in February 2023. According to the Loan Agreement, principal payments on the term loan are to be made ratably commencing eighteen months after the inception of the loan (September 2019) through the loan’s maturity date. The term loan accrues interest at the greater of the Prime Rate plus 0.50% or 5.00%. Borrowing

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

 

availability under the revolving credit facility is based on the lesser of $20,000 or a borrowing base calculation as defined by the Loan Agreement. As of December 31, 2018, we had no borrowings under the revolving credit facility, and we had borrowing availability of $20,000 . The revolving line of credit is subject to an annual facility fee of 0.33% of the revolving line of credit, and any borrowings bear interest at the greater of the Prime Rate or 4.50%. The Loan Agreement also provides for certain prepayment and early termination fees only if the term loan is repaid before January 2020 and establishes a minimum liquidity ratio, along with other customary terms and conditions. Specified assets have been pledged as collateral. We are in compliance with the covenants of the Loan Agreement as of December 31, 2018.

In connection with the terms of our corporate headquarters lease agreement, a letter of credit in the amount of $1,250 was issued to the landlord in October 2015 . The letter of credit is renewed annually and remains outstanding as of December 31, 2018.

Uses of liquidity and capital resources. Our future capital requirements depend on a number of factors, including the rate of market acceptance of our current and future products, the resources we devote to developing and supporting our products, future expenses to expand and support our sales and marketing efforts, costs relating to changes in regulatory policies or laws that affect our operations and costs of filings, costs associated with clinical trials and securing regulatory approval for new products, costs associated with acquiring and integrating businesses, costs associated with prosecuting, defending and enforcing our intellectual property rights and possible acquisitions and joint ventures. Global economic turmoil may adversely impact our revenue, access to the capital markets or future demand for our products.

We have on file with the SEC a shelf registration statement which allows us to sell any combination of senior or subordinated debt securities, common stock , preferred stock, warrants, depositary shares and units in one or more offerings should we choose to do so in the future. We expect to maintain the effectiveness of this shelf registration statement for the foreseeable future.

We believe that our current cash, cash equivalents and investments, along with the cash we expect to generate or use for operations or access via our term loan and revolving line of credit, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next twelve months. The nContact transaction provides for contingent consideration to be paid upon attaining specified regulatory approvals and revenue milestones over the next two years. Subject to the terms and conditions of the nContact merger agreement, such contingent consideration will be paid in AtriCure common stock and cash, with a requirement to make payments in AtriCure common stock first, up to a specified maximum number of shares. Over the next twelve months, we do not expect our cash requirements to include significant payments of contingent consideration based on terms of the acquisition agreement and related milestones.

If our sources of cash are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities or obtain a revised or additional credit facility. The sale of additional equity or convertible debt securities could result in dilution to our stockholders. If additional funds are raised through the issuance of debt securities, these securities could have rights senior to those associated with our common stock and could contain covenants that would restrict our operations. Finally, our term loan agreement and revolving line of credit require compliance with certain financial and other covenants. If we are unable to maintain these financing arrangements, we may be required to reduce the scope of our planned research and development, clinical activities and selling, training, education and marketing efforts.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

 

Contractual Obligations and Commitments

The following table sets forth our approximate aggregate obligations at December 31, 2018 for future payments under contracts and other contingent commitments:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Less than

 

 

 

 

 

 

 

More than

Contractual Obligations

 

Total

 

1 year

 

1-3 years

 

3-5 years

 

5 years

Long-term debt (1)    

 

$

40,000 

 

$

3,810 

 

$

22,857 

 

$

13,333 

 

$

 —

Capital leases (2)    

 

 

19,020 

 

 

1,493 

 

 

3,032 

 

 

3,102 

 

 

11,393 

Operating leases (3)    

 

 

3,010 

 

 

1,064 

 

 

1,541 

 

 

405 

 

 

 —

Royalty obligations (4) 

 

 

2,715 

 

 

2,715 

 

 

 —

 

 

 —

 

 

 —

Restricted grants

 

 

562 

 

 

562 

 

 

 —

 

 

 —

 

 

 —

Total contractual obligations

 

$

65,307 

 

$

9,644 

 

$

27,430 

 

$

16,840 

 

$

11,393 



_________________________

(1)

Long-term debt represents principal repayments related to our term loan. Principal payments under the term loan commence in September 2019 and are made ratably until maturity in February 2023. Intere st on the term loan accrues at the greater of the Prime Rate plus 0.50% or 5.00% and is payable monthly over the term of the loan. In addition, we have a contractual obligation to pay interest on amounts drawn on the revolving credit facility.

(2)

Capital leases consist of principal and interest payments related to our Mason, Ohio headquarters building and computer equipment. See Note 9 – Indebtedness to our Consolidated Financial Statements.

(3)

Represents lease commitments under various operating leases, primarily for office and warehouse space.

(4)

Represents obligations for royalty agreements ranging from 3% to 5% of specified product sales estimated using 2018 sales. See Note 10 – Commitments and Contingencies to our Consolidated Financial Statements.

We have contractual obligations for contingent consideration payments related to the nContact acquisition. Subject to the terms and conditions of the nContact merger agreement, such contingent consideration will be paid in AtriCure common stock and cash, with a requirement to make payments in AtriCure common stock first, up to a specified maximum number of shares.

Off-Balance-Sheet Arrangements

As of December 31, 2018, we had operating lease agreements that were not recorded on the Consolidated Balance Sheets. Operating leases are used in the normal course of business.

Inflation

Inflation has not had a significant impact on our historical operations, and we do not expect it to have a significant impact on our results of operations or financial condition in the foreseeable future.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenue and expenses, and disclosures of contingent assets and liabilities at the date of the financial statements. On a periodic basis, we evaluate our estimates, using authoritative pronouncements, historical experience and other assumptions as the basis for making estimates. Actual results could differ from those estimates under different assumptions or conditions. We have described our significant accounting policies in Note 1 – Description of Business and Summary of Significant Accounting Policies to our consolidated financial statements included in this Form 10-K.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition— Revenue is generated primarily from the sale of medical devices. The Company recognizes revenue in an amount that reflects the consideration the Company expects to be entitled to in exchange for those devices when control of promised devices is transferred to customers. At contract inception, the Company assesses the products promised in its contracts with customers and identifies a performance obligation for each promise to transfer to the customer a product that is distinct. The Company’s devices are distinct and represent performance obligations. These performance obligations are satisfied and revenue is recognized at a point in time upon shipment or delivery of products. Sales of devices are categorized as follows: open-heart ablation,

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(In Thousands, Except Per Share Amounts)

 

minimally invasive ablation (MIS), appendage management and valve tools. Shipping and handling activities performed after control over products transfers to customers are considered activities to fulfill the promise to transfer the products rather than as separate promises to customers. Products are sold primarily through a direct sales force and through distributors in certain international markets. Terms of sale are generally consistent for both end-users and distributors, except that payment terms are generally net 30 days for end-users and net 60 days for distributors, with limited exceptions. The Company does not maintain any post-shipping obligations to customers. No installation, calibration or testing of products is performed by the Company subsequent to shipment in order to render products operational.

We account for revenue in accordance with FASB ASC 606, “Revenue from Contracts with Customers”. Significant judgments and estimates involved in the Company’s recognition of revenue include the determination of the timing of transfer of control of products to customers and the estimation of a provision for returns. The Company considers the following indicators when determining when control of the product transfers to customers: (i) the Company has a right to payment in accordance with the shipping terms set forth in its contracts with customers; (ii) customers have legal title to products in accordance with shipping terms; (iii) the Company transfers physical possession of products either when the Company presents the products to a third party carrier for delivery to a customer (FOB shipping point) or when a customer receives the delivered goods (FOB destination); (iv) customers have the significant risks and rewards of ownership of products; and (v) customers have accepted products in connection with contractual shipping terms.

We maintain a provision for sales returns and allowances to account for potential returns of defective or damaged products, products shipped in error and invoice adjustments. We adjust the provision quarterly using a combination of specific identification and an estimated general reserve based on historical experience.

Allowance for Doubtful Accounts Receivable— We evaluate the collectability of accounts receivable to determine the appropriate reserve for doubtful accounts. In determining the amount of the reserve, we consider the aging of account balances, historical credit losses, customer-specific information and other relevant factors. We review accounts receivable and adjust the allowance based on current circumstances and charge off uncollectible receivables against the allowance when all attempts to collect the receivable have failed. Our history of write-offs against the allowance has not been significant.

Inventories— Our i nventories are stated at the lower of cost or net realizable value based on the first-in, first-out cost method (FIFO) and consist of raw materials, work in process and finished goods. Our industry is characterized by rapid product development and frequent new product introductions. Uncertain timing of product approvals, variability in product launch strategies and variation in product use all impact excess and obsolete inventory. We estimate and record reserves for excess, expired and obsolete inventory on a quarterly basis.

Property and Equipment— We state p roperty and equipment at cost less accumulated depreciation. Depreciation is computed using the straight-line method for financial reporting purposes and applied over the estimated useful lives of the assets. Included in property and equipment are generators and other capital equipment (such as our RF and cryo generators) that are placed with direct customers that use our disposable products. These generators and other capital equipment are depreciated over a period of one to three years, which approximates their useful lives, and such depreciation is included in cost of revenue. We estimate the useful lives of this equipment based on anticipated usage by our customers and the timing and impact of our expected new technology rollouts. To the extent we experience changes in the usage of this equipment or the introductions of new technologies, the estimated useful lives of this equipment may change in a future period.

Intangible Assets— Intangible assets with determinable useful lives are amortized on a straight-line basis over the estimated periods benefitted . Included in intangible assets is In Process Research and Development (IPR&D), which represents the value of acquired technology which has not yet reached technological feasibility. The primary basis for determining the technological feasibility is obtaining specific regulatory approvals. IPR&D is accounted for as an indefinite-lived intangible asset until completion or abandonment of the IPR&D project. Upon completion of the development project, the IPR&D will be amortized over its estimated useful life. If the IPR&D project is abandoned or regulatory approvals are not obtained, the related IPR&D asset would be written off. We review intangible assets for impairment using our best estimates based on reasonable and supportable assumptions and projections.

Goodwill—   Goodwill represents the excess of purchase price over the fair value of the net assets acquired in business combinations. We test goodwill for impairment annually on October 1, or more often if impairment indicators are present. Our goodwill is accounted for in a single reporting unit representing the Company as a whole.

Share-Based Employee Compensation— We account for share-based compensation for all share-based payment awards, including stock options, restricted stock awards, restricted stock units, performance share awards, and stock purchases related to an employee stock purchase plan, based on their estimated fair values. We estimate the fair value of time-based options on the date of grant using the Black-Scholes option pricing model (Black-Scholes model). Our determination of fair value of share-based payment

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

 

awards is affected by our stock price, as well as assumptions regarding a number of subjective variables. These variables include but are not limited to our expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors. The fair value of our market-based performance option grants is estimated at the date of grant using a Monte-Carlo simulation. The value of the portion of the awards that is ultimately expected to vest is recognized as expense over the requisite service periods in our Consolidated Statements of Operations and Comprehensive Loss.

We estimate the fair value of restricted stock awards, restricted stock units and performance share awards based upon the grant date closing market price of our common stock.

We also have an employee stock purchase plan (ESPP) which is available to all eligible employees as defined by the plan document. Under the ESPP, shares of our common stock may be purchased at a discount. We estimate the number of shares to be purchased under the ESPP at the beginning of the purchase period and calculate estimated compensation expense using the Black-Scholes model based upon the fair value of the stock at the beginning of the purchase period. Compensation expense is recognized over each purchase period, and expense is adjusted at the time of stock purchase.

Acquisition-Related Contingent Consideration Contingent consideration arrangements obligate the Company to pay former shareholders of an acquired entity certain amounts if specified future events occur or conditions are met, such as the achievement of certain technological milestones or the achievement of targeted revenue milestones. We measure such liabilities using unobservable inputs by applying an income approach, such as the discounted cash flow technique or the probability-weighted scenario method. Various key assumptions, such as the probability and timing of achievement of the agreed milestones, projected revenues from acquisitions and the discount rate, are used in the determination of fair value of contingent consideration arrangements and are not observable in the market. Subsequent revisions to key assumptions, which impact the estimated fair value of contingent consideration liabilities, are reflected in the Consolidated Statements of Operations and Comprehensive Loss.

Income Taxes— Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities from a change in tax rates is recognized in the period that includes the enactment date.

Our estimate of the valuation allowance for deferred tax assets requires us to make significant estimates and judgments about our future operating results. Deferred income tax assets are reduced by valuation allowances if, based on the consideration of all available evidence, it is more-likely-than-not that some portion of the deferred tax asset will not be realized. Significant weight is given to evidence that can be objectively verified. We evaluate deferred income tax assets on an annual basis to determine if valuation allowances are required by considering all available evidence. Deferred income tax assets are realized by having sufficient future taxable income to allow the related tax benefits to reduce taxes otherwise payable. The sources of taxable income that may be available to realize the benefit of deferred tax assets are future reversals of existing taxable temporary differences, future taxable income, exclusive of reversing temporary differences and carryforwards, taxable income in carry-back years and tax planning strategies that are both prudent and feasible. In evaluating whether to record a valuation allowance, the applicable accounting standards deem that the existence of cumulative losses in recent years is a significant piece of objectively verifiable negative evidence that must be overcome by objectively verifiable positive evidence to avoid the need to record a valuation allowance.

We believe our critical accounting policies regarding revenue recognition, allowance for uncollectible accounts receivable, inventories, property and equipment, intangible assets, goodwill, share-based employee compensation, acquisition-related contingent consideration and income taxes affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. We base our judgments and estimates on historical experience, current conditions and other reasonable factors.

Recent Accounting Pronouncements

See Note 2 – Recent Accounting Pronouncements to our Consolidated Financial Statements for further information.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

 

IT EM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

(Amounts referenced in this Item 7A are in thousands, except per share amounts.)

The Company is exposed to various market risks, which include potential losses arising from adverse changes in market rates and prices, such as foreign exchange fluctuations and changes in interest rates. Interest on the term loan and revolving credit facility accrue at a variable rate based on the Prime Rate.  

For the years ended December 31, 2018 and 2017, products sold by AtriCure Europe, B.V. accounted for 12.5% of the Company’s total revenue. Since such revenue was primarily denominated in Euros or British Pounds, the Company is exposed to exchange rate fluctuations between the Euro and the U.S. Dollar and between the British Pound and the Euro. For the years ended December 31, 2018 and 2017, foreign currency transaction (losses) gains of $(183) and $138 were recorded primarily in connection with settlements of the intercompany receivable balance and invoices transacted in British Pounds. For revenue denominated in Euros, if there is an increase in the rate at which Euros are exchanged for U.S. Dollars, it will require more Euros to equal a specified amount of U.S. Dollars than before the rate increase. In such cases, and if products are priced in Euros, the Company will receive less in U.S. Dollars than was received before the rate increase went into effect. If products are priced in U.S. Dollars and competitors price their products in the local currency, an increase in the relative strength of the U.S. Dollar could result in the Company’s price not being competitive in a market where business is not transacted in U.S. Dollars. The Euro to U.S. Dollar conversion rate fluctuations may impact our reported revenue and expenses.  

The Company invests its cash primarily in money market accounts, U.S. government agencies and securities, corporate bonds, asset-backed securities and commercial paper. Although the Company believes its cash to be invested in a conservative manner, with cash preservation being the primary investment objective, the value of the securities held will fluctuate with changes in the financial markets including, among other things, changes in interest rates, credit quality and general volatility. This risk is managed by investing in high quality investment grade securities with short-term maturities.

Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalent balances and investments in corporate bonds. Certain of AtriCure’s cash and cash equivalents balances exceed FDIC insured limits or are invested in money market accounts with investment banks that are not FDIC-insured. The Company places its cash and cash equivalents in what it believes to be credit-worthy financial institutions. As of December 31, 2018, $31,955 of the cash and cash equivalents balance was in excess of FDIC limits.

 

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

 

IT EM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



ATRICURE, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

 



 



 



Page

Financial Statements:

 

 Report of Independent Registered Public Accounting Firm

44 

 Consolidated Balance Sheets

45 

 Consolidated Statements of Operations and Comprehensive Loss

46 

 Consolidated Statements of Stockholders’ Equity

47 

 Consolidated Statements of Cash Flows

48 

 Notes to Consolidated Financial Statements

49 

Financial Statement Schedule:

 

 Schedule II Valuation and Qualifying Accounts

68 

 

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

 

REP ORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the stockholders and the Board of Directors of

AtriCure, Inc.

Mason, Ohio

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of AtriCure, Inc. and subsidiaries (the "Company") as of December 31, 2018 and 2017, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with   accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2019, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP

Cincinnati, Ohio

March 1, 2019

We have served as the Company's auditor since 2002.

 

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

 

ATR ICURE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2018 and 2017

(In Thousands, Except Per Share Amounts)







 

 

 

 

 

 



 

 

 

 

 

 



 

2018

 

2017

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

32,231 

 

$

21,809 

Short-term investments

 

 

92,171 

 

 

12,642 

Accounts receivable, less allowance for doubtful accounts of $547 and $32

 

 

25,195 

 

 

23,083 

Inventories

 

 

22,484 

 

 

22,451 

Prepaid and other current assets

 

 

2,592 

 

 

2,273 

Total current assets

 

 

174,673 

 

 

82,258 

Property and equipment, net

 

 

27,080 

 

 

28,749 

Intangible assets, net

 

 

49,254 

 

 

50,764 

Goodwill

 

 

105,257 

 

 

105,257 

Other noncurrent assets

 

 

495 

 

 

676 

Total Assets

 

$

356,759 

 

$

267,704 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

9,659 

 

$

12,431 

Accrued liabilities

 

 

25,840 

 

 

18,911 

Other current liabilities and current maturities of capital leases and long-term debt

 

 

4,717 

 

 

561 

Total current liabilities

 

 

40,216 

 

 

31,903 

Capital leases

 

 

12,172 

 

 

12,761 

Long-term debt

 

 

35,571 

 

 

24,100 

Other noncurrent liabilities

 

 

19,419 

 

 

37,774 

    Total Liabilities

 

 

107,378 

 

 

106,538 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

Common stock, $0.001 par value, 90,000 shares authorized and 38,604 and 34,586 issued and

  outstanding

 

 

39 

 

 

35 

Additional paid-in capital

 

 

496,544 

 

 

386,963 

Accumulated other comprehensive (loss) income

 

 

(199)

 

 

34 

Accumulated deficit

 

 

(247,003)

 

 

(225,866)

Total Stockholders’ Equity

 

 

249,381 

 

 

161,166 

Total Liabilities and Stockholders’ Equity

 

$

356,759 

 

$

267,704 



See accompanying notes to consolidated financial statements.

 

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

 

AT RICURE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

YEARS ENDED DECEMBER 31, 2018, 2017 and 2016

(In T housands, Except Per Share Amounts)







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

2018

 

2017

 

2016

Revenue

 

$

201,630 

 

$

174,716 

 

$

155,109 

Cost of revenue

 

 

54,510 

 

 

48,553 

 

 

44,008 

Gross profit

 

 

147,120 

 

 

126,163 

 

 

111,101 

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development expenses

 

 

34,723 

 

 

34,144 

 

 

35,824 

Selling, general and administrative expenses

 

 

129,524 

 

 

116,998 

 

 

106,415 

Total operating expenses

 

 

164,247 

 

 

151,142 

 

 

142,239 

Loss from operations

 

 

(17,127)

 

 

(24,979)

 

 

(31,138)

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(4,607)

 

 

(2,264)

 

 

(1,801)

Interest income

 

 

1,006 

 

 

227 

 

 

227 

Other

 

 

(183)

 

 

138 

 

 

(586)

Loss before income tax expense

 

 

(20,911)

 

 

(26,878)

 

 

(33,298)

Income tax expense

 

 

226 

 

 

14 

 

 

40 

Net loss

 

$

(21,137)

 

$

(26,892)

 

$

(33,338)

Basic and diluted net loss per share

 

$

(0.62)

 

$

(0.83)

 

$

(1.05)

Weighted average shares outstanding – basic and diluted

 

 

34,087 

 

 

32,387 

 

 

31,609 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

Unrealized (loss) gain on investments

 

$

(31)

 

$

15 

 

$

18 

Foreign currency translation adjustment

 

 

(202)

 

 

487 

 

 

125 

Other comprehensive (loss) income

 

 

(233)

 

 

502 

 

 

143 

Net loss

 

 

(21,137)

 

 

(26,892)

 

 

(33,338)

Comprehensive loss, net of tax

 

$

(21,370)

 

$

(26,390)

 

$

(33,195)



See accompanying notes to consolidated financial statements.

 

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

 

AT RICURE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

YEARS ENDED DECEMBER 31, 2018, 2017, and 2016

(In T housands)







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 



 

 

 

 

 

 

Additional

 

 

 

 

Other

 

Total



 

Common Stock  

 

Paid-in

 

Accumulated

 

Comprehensive

 

Stockholders’



 

Shares  

 

Amount  

 

Capital  

 

Deficit  

 

Income (Loss)  

 

Equity  

Balance—December 31, 2015

 

32,274 

 

$

32 

 

$

352,900 

 

$

(165,636)

 

$

(611)

 

$

186,685 

Issuance of common stock under equity incentive plans

 

934 

 

 

 

 

1,636 

 

 

 —

 

 

 —

 

 

1,637 

Issuance of common stock under employee stock purchase plan

 

134 

 

 

 —

 

 

1,618 

 

 

 —

 

 

 —

 

 

1,618 

Share-based employee compensation
 expense

 

 —

 

 

 —

 

 

11,697 

 

 

 —

 

 

 —

 

 

11,697 

Other comprehensive income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

143 

 

 

143 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(33,338)

 

 

 —

 

 

(33,338)

Balance—December 31, 2016

 

33,342 

 

$

33 

 

$

367,851 

 

$

(198,974)

 

$

(468)

 

$

168,442 

Issuance of common stock under equity incentive plans

 

1,112 

 

 

 

 

2,387 

 

 

 —

 

 

 —

 

 

2,389 

Issuance of common stock under employee stock purchase plan

 

132 

 

 

 —

 

 

2,110 

 

 

 —

 

 

 —

 

 

2,110 

Share-based employee compensation expense

 

 —

 

 

 —

 

 

14,615 

 

 

 —

 

 

 —

 

 

14,615 

Other comprehensive income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

502 

 

 

502 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(26,892)

 

 

 —

 

 

(26,892)

Balance—December 31, 2017

 

34,586 

 

$

35 

 

$

386,963 

 

$

(225,866)

 

$

34 

 

$

161,166 

Issuance of common stock through public offering

 

2,875 

 

 

 

 

82,870 

 

 

 —

 

 

 —

 

 

82,873 

Issuance of common stock for settlement of contingent consideration

 

232 

 

 

 —

 

 

6,279 

 

 

 —

 

 

 —

 

 

6,279 

Issuance of common stock under equity incentive plans

 

781 

 

 

 

 

1,554 

 

 

 —

 

 

 —

 

 

1,555 

Issuance of common stock under employee stock purchase plan

 

130 

 

 

 —

 

 

2,383 

 

 

 —

 

 

 —

 

 

2,383 

Share-based employee compensation expense

 

 —

 

 

 —

 

 

16,495 

 

 

 —

 

 

 —

 

 

16,495 

Other comprehensive loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(233)

 

 

(233)

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(21,137)

 

 

 —

 

 

(21,137)

Balance—December 31, 2018

 

38,604 

 

$

39 

 

$

496,544 

 

$

(247,003)

 

$

(199)

 

$

249,381 



See accompanying notes to consolidated financial statements.

 

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

 

ATR ICURE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2018, 2017 and 2016

(In Thousands)

 





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

2018

 

2017

 

2016

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(21,137)

 

$

(26,892)

 

$

(33,338)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

16,495 

 

 

14,615 

 

 

11,697 

Depreciation

 

 

7,244 

 

 

7,761 

 

 

7,655 

Amortization of intangible assets

 

 

1,510 

 

 

1,367 

 

 

1,644 

Amortization of deferred financing costs

 

 

515 

 

 

264 

 

 

218 

Loss on disposal of property and equipment and impairment of assets

 

 

323 

 

 

336 

 

 

433 

Realized loss (gain) from foreign exchange on intercompany transactions

 

 

165 

 

 

(173)

 

 

407 

(Accretion) amortization of investments

 

 

(362)

 

 

30 

 

 

126 

Provision for doubtful accounts 

 

 

598 

 

 

(172)

 

 

149 

Change in fair value of contingent consideration 

 

 

(10,825)

 

 

(4,078)

 

 

969 

Payment of contingent consideration in excess of purchase accounting amount

 

 

(96)

 

 

 —

 

 

 —

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(2,837)

 

 

(1,464)

 

 

(1,982)

Inventories

 

 

(146)

 

 

(4,477)

 

 

(79)

Other current assets

 

 

(367)

 

 

829 

 

 

122 

Accounts payable

 

 

(2,398)

 

 

1,290 

 

 

(1,072)

Accrued liabilities

 

 

7,016 

 

 

2,228 

 

 

(1,915)

Other noncurrent assets and liabilities

 

 

131 

 

 

(408)

 

 

(153)

Net cash used in operating activities

 

 

(4,171)

 

 

(8,944)

 

 

(15,119)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

Purchases of available-for-sale securities

 

 

(106,588)

 

 

(16,455)

 

 

(28,592)

Sales and maturities of available-for-sale securities

 

 

27,389 

 

 

26,600 

 

 

24,202 

Purchases of property and equipment

 

 

(6,211)

 

 

(6,384)

 

 

(7,692)

Proceeds from sale of property and equipment

 

 

 

 

 —

 

 

Net cash provided by (used in) investing activities

 

 

(85,404)

 

 

3,761 

 

 

(12,079)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

Proceeds from sale of stock, net of offering costs of $229

 

 

82,873 

 

 

 —

 

 

 —

Proceeds from debt borrowings

 

 

17,381 

 

 

 —

 

 

25,000 

Payments on debt and capital leases

 

 

(1,755)

 

 

(1,689)

 

 

(439)

Payment of debt fees

 

 

(1,136)

 

 

(50)

 

 

(120)

Proceeds from stock option exercises

 

 

6,012 

 

 

4,402 

 

 

3,337 

Shares repurchased for payment of taxes on stock awards

 

 

(4,457)

 

 

(2,013)

 

 

(1,701)

Proceeds from issuance of common stock under employee stock purchase plan

 

 

2,383 

 

 

2,110 

 

 

1,618 

Payment of contingent consideration liability previously established in purchase accounting

 

 

(1,125)

 

 

 —

 

 

 —

Net cash provided by financing activities

 

 

100,176 

 

 

2,760 

 

 

27,695 

Effect of exchange rate changes on cash and cash equivalents

 

 

(179)

 

 

24 

 

 

(53)

Net increase (decrease) in cash and cash equivalents

 

 

10,422 

 

 

(2,399)

 

 

444 

Cash and cash equivalents—beginning of period

 

 

21,809 

 

 

24,208 

 

 

23,764 

Cash and cash equivalents—end of period

 

$

32,231 

 

$

21,809 

 

$

24,208 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

3,870 

 

$

2,002 

 

$

1,506 

Cash paid for income taxes

 

 

65 

 

 

37 

 

 

30 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

 

Accrued purchases of property and equipment

 

 

348 

 

 

650 

 

 

340 

Assets acquired through capital lease

 

 

24 

 

 

 

 

152 

Share-settled portion of contingent consideration

 

 

6,279 

 

 

 —

 

 

 —

Capital lease asset early termination 

 

 

(6)

 

 

 —

 

 

37 

 

48


 

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

 



1. DE SCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of the Business —The “Company” or “AtriCure” consists of AtriCure, Inc. and its wholly-owned subsidiaries. The Company is a   leading innovator in treatments for atrial fibrillation (Afib) and left atrial appendage (LAA) management and sells its products to medical centers globally through its direct sales force and distributors.

Principles of Consolidation— The Consolidated Financial Statements include the accounts of the Company, AtriCure, LLC, Endoscopic Technologies, LLC and nContact Surgical, LLC, the Company’s wholly-owned subsidiaries, all organized in the State of Delaware; AtriCure Europe B.V. (AtriCure Europe), the Company’s wholly-owned subsidiary incorporated in the Netherlands; AtriCure Spain, S.L., AtriCure Europe’s wholly-owned subsidiary incorporated in Spain; AtriCure Germany GmbH, AtriCure Europe’s wholly-owned subsidiary incorporated in Germany; AtriCure Hong Kong Limited, the Company’s wholly-owned subsidiary incorporated in Hong Kong; and AtriCure (Beijing) Medicine Information Consulting Services, Co., Ltd., AtriCure Hong Kong Limited’s wholly-owned subsidiary incorporated in Beijing. All intercompany accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents— The Company considers highly liquid investments with maturities of three months or less at the date of acquisition as cash equivalents .

Investments— The Company places its investments primarily in U.S. Government agencies and securities, corporate bonds, commercial paper and asset-backed securities and classifies all investments as available-for-sale. Investments with maturities of less than one year are classified as short-term investments. Investments are recorded at fair value, with unrealized gains and losses recorded as accumulated other comprehensive income (loss). Gains and losses are recognized using the specific identification method when securities are sold and are included in interest income or expense.

Revenue Recognition— The Company recognizes revenue when control of promised goods is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods. This generally occurs upon shipment of goods to customers. See Note 11 for further discussion on revenue.

Sales Returns and Allowances T he Company maintains a provision for potential returns of defective or damaged products, products shipped in error and invoice adjustments. The Company adjusts the provision quarterly using a combination of specific identification and an estimated general reserve based on historical experience. Increases to the provision result in a reduction of revenue and the provision is included in accrued liabilities.

Allowance for Doubtful Accounts Receivable— The Company evaluates the collectability of accounts receivable to determine the appropriate reserve for doubtful accounts. In determining the amount of the reserve, the Company considers aging of account balances, historical credit losses, customer-specific information and other relevant factors. An increase to the allowance for doubtful accounts results in a corresponding increase in selling, general and administrative expense s . The Company reviews accounts receivable and adjusts the allowance based on current circumstances and charges off uncollectible receivables against the allowance when all attempts to collect the receivable have failed. The Company’s history of write-offs has not been significant.

Inventories— Inventories are stated at the lower of cost or net realizable value based on the first-in, first-out cost method (FIFO) and consist of raw materials, work in process and finished goods. The Company’s industry is characterized by rapid product development and frequent new product introductions. Uncertain timing of regulatory approvals, variability in product launch strategies and variation in product use all impact inventory reserves for excess, obsolete and expired products. An inventory reserve for excess, slow moving and obsolete inventory is recorded quarterly. An increase to inventory reserves results in a corresponding increase in cost of revenue. Inventories are written off against the reserve when they are physically disposed.

Property and Equipment— Property and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of assets (see Note 7). The Company reassesses the useful lives of property and equipment annually and retires assets if they are no longer in service. Maintenance and repair costs are expensed as incurred.

The Company’s RF and cryo generators are generally placed with customers served by our direct sales force . The estimated useful lives of this equipment are based on anticipated usage by customers and the timing and impact of expected new technology rollouts by the Company and may change in a future period if the Company experiences changes in the usage of the equipment or introduces new technologies. Depreciation related to generators and other capital equipment is recorded in cost of revenue.

The Company reviews property and equipment for impairment using its best estimates based on reasonable and supportable assumptions and projections of expected future cash flows. Property and equipment impairments recorded by the Company have not been significant.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

 

Intangible Assets— Intangible assets with determinable useful lives are amortized on a straight-line basis over the estimated periods benefited. The Company reassesses the useful lives of intangible assets annually .

Included in intangible assets is In Process Research and Development (IPR&D) , representing the value of acquired technology which has not yet reached technological feasibility. The primary basis for determining the technological feasibility is obtaining specific regulatory approvals. IPR&D is accounted for as an indefinite-lived intangible asset until completion or abandonment of the IPR&D project. Upon completion of the development project, the IPR&D will be amortized over its estimated useful life. If the IPR&D project is abandoned, the related IPR&D asset would be written off. The IPR&D asset represents an estimate of the fair value of the pre-market approval (PMA) that may result from the CONVERGE IDE clinical trial.

The Company reviews intangible assets for impairment using its best estimates based on reasonable and supportable assumptions and projections at least annually. The Company has historically tested IPR&D for impairment annually on November 30. In 2018, the Company has changed its testing date from November 30 to October 1. This change in the method of applying an accounting principle is preferred as it better aligns with the Company’s long-term planning process, which is a significant input to the testing, and it did not result in a material change to the Company's Consolidated Financial Statements.

Goodwill— Goodwill represents the excess of purchase price over the fair value of the net assets acquired in business combinations. The Company’s goodwill is accounted for in a single reporting unit representing the Company as a whole. The Company has historically tested goodwill for impairment annually on November 30, or more often if impairment indicators are present. In 2018, the Company has changed its goodwill testing date from November 30 to October 1. This change in the method of applying an accounting principle is preferred by the Company as it better aligns with the Company’s long-term planning process, which is a significant input to the testing, and it did not result in a material change to the Company’s Consolidated Financial Statements.

Other Noncurrent Liabilities— Other noncurrent liabilities consist of contingent consideration recorded in business combinations, deferred revenues and other contractual obligations. T he contingent consideration balance is included in noncurrent liabilities as such settlement is both required and expected to be made primarily in shares of the Company’s common stock pursuant to the nContact merger agreement.

Other Income (Expense)— Other income (expense) consists of foreign currency transaction gains and losses generated by settlements of intercompany balances denominated in Euros and invoices denominated in British Pounds.

Taxes — Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities from a change in tax rates is recognized in the period that includes the enactment date.

The Company’s estimate of the valuation allowance for deferred income tax assets requires it to make significant estimates and judgments about its future operating results. Deferred income tax assets are reduced by valuation allowances if, based on the consideration of all available evidence, it is more-likely-than-not that some portion of the deferred income tax asset will not be realized. Significant weight is given to evidence that can be objectively verified. The Company evaluates deferred tax income assets on an annual basis to determine if valuation allowances are required by considering all available evidence. Deferred income tax assets are realized by having sufficient future taxable income to allow the related tax benefits to reduce taxes otherwise payable. The sources of taxable income that may be available to realize the benefit of deferred income tax assets are future reversals of existing taxable temporary differences, future taxable income, exclusive of reversing temporary differences and carryforwards, taxable income in carry-back years and tax planning strategies that are both prudent and feasible. In evaluating whether to record a valuation allowance, the applicable accounting standards deem that the existence of cumulative losses in recent years is significant objectively verifiable negative evidence that must be overcome by objectively verifiable positive evidence to avoid the need to record a valuation allowance. The Company has recorded a full valuation allowance against substantially all net deferred income tax assets as it is more-likely-than-not that the benefit of the deferred income tax assets will not be recognized in future periods.

Net Loss Per Share— Basic and diluted net loss per share is computed in accordance with FASB ASC 260 “Earnings Per Share” (ASC 260) by dividing the net loss by the weighted average number of common shares outstanding during the period. Since the Company has experienced net losses for all periods presented, net loss per share excludes the effect of 3, 869 ,   4,321 and 4,320 stock options , restricted stock awards, restricted stock units and performance share   awards as of December 31, 2018, 2017 and 2016 because they are anti-dilutive. Therefore, the number of shares calculated for basic net loss per share is also used for the diluted net loss per share calculation.

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

 

Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (Loss)— In addition to net losses, the comprehensive loss includes foreign currency translation adjustments and unrealized gains and losses on investments.

Accumulated  o ther comprehensive (loss) income consisted of the following (net of tax):







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

2018

 

2017

 

2016

Total accumulated other comprehensive income (loss) at beginning of period

 

$

34 

 

$

(468)

 

$

(611)

Unrealized losses on investments

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

(6)

 

$

(21)

 

$

(39)

Other comprehensive (loss) income before reclassifications

 

 

(31)

 

 

15 

 

 

18 

Amounts reclassified from accumulated other comprehensive (loss) income
 to other income

 

 

 —

 

 

 —

 

 

 —

Balance at end of period

 

$

(37)

 

$

(6)

 

$

(21)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

40 

 

$

(447)

 

$

(572)

Other comprehensive (loss) income before reclassifications

 

 

(367)

 

 

660 

 

 

532 

Amounts reclassified from accumulated other comprehensive (loss) income
 to other income

 

 

165 

 

 

(173)

 

 

(407)

Balance at end of period

 

$

(162)

 

$

40 

 

$

(447)

Total accumulated other comprehensive (loss) income at end of period

 

$

(199)

 

$

34 

 

$

(468)

Research and Development Costs Research and development costs are expensed as incurred. These costs include compensation and other internal and external costs associated with the development of and research related to new and existing products or concepts, preclinical studies, clinical trials, healthcare compliance and regulatory affairs.

Advertising Costs The Company expenses advertising costs as incurred. Advertising expense was $785 ,   $900 and $625 during the years ended December 31, 2018, 2017 and 2016.

Share-Based Compensation— The Company follows FASB ASC 718 “Compensation-Stock Compensation” (ASC 718) to record share-based compensation for all share-based payment awards, including stock options, restricted stock, performance shares and stock purchases related to an employee stock purchase plan, based on estimated fair values.

ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s Consolidated Statements of Operations and Comprehensive Loss. The expense has been reduced for estimated forfeitures. The Company estimates forfeitures at the time of grant and revises them, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The Company estimates the fair value of time-based options on the date of grant using the Black-Scholes option-pricing model (Black-Scholes model). The Company’s determination of fair value is affected by the Company’s stock price, as well as assumptions regarding several subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors. The fair value of market-based performance option grants is estimated at the date of grant using a Monte-Carlo simulation. The value of the portion of the awards that is ultimately expected to vest is recognized as expense over the requisite service periods in the Consolidated Statements of Operations and Comprehensive Loss.   The Company estimates the fair value of restricted stock awards, restricted stock units and performance share awards based upon the grant date closing market price of the Company’s common stock.

The Company also has an employee stock purchase plan (ESPP) which is available to all eligible employees as defined by the plan document. Under the ESPP, shares of the Company’s common stock may be purchased at a discount. The Company estimates the number of shares to be purchased under the ESPP at the beginning of each purchase period based upon the fair value of the stock at the beginning of the purchase period using the Black-Scholes model and records estimated compensation expense during the period. Expense is adjusted at the time of stock purchase.

Use of Estimates— The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates.

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

 

Fair Value Disclosures — The Company classifies cash investments in U.S. government agencies and securities, accounts receivable, short-term other assets, accounts payable and accrued liabilities as Level 1. The carrying amounts of these assets and liabilities approximate their fair value due to their relatively short-term nature. Cash equivalents and investments in corporate bonds, commercial paper and asset-backed securities are classified as Level 2 within the fair value hierarchy. The fair value of fixed term debt is estimated by calculating the net present value of future debt payments at current market interest rates and is classified as Level 2. The book value of the Company’s fixed term debt approximates its fair value because the interest rate varies with market rates. Significant unobservable inputs with respect to the fair value measurement of the Level 3 contingent consideration liability are developed using Company data. See Note 3 – Fair Value for further information on fair value measurements.

 

2. RECENT ACCOUNTING PRONOUNCEMENTS

In February 2016, the FASB issued ASU 2016-02, “Leases”   (ASU 2016-02), codified as ASC 842, which requires lessees to record most leases onto their balance sheet but recognize expenses on their income statement in a manner similar to today’s accounting. The guidance is effective for interim and annual reporting periods beginning within 2019. We plan to adopt the standard using the transition method provided by ASU 2018-11, “Leases (Topic 842): Targeted Improvements”. Under this method, we will apply the new requirements to only those leases that exist as of January 1, 2019, rather than at the earliest comparative period presented in the financial statements.  Prior periods will be presented under existing lease guidance. Upon transition, we plan to apply the package of practical expedients permitted under ASC 842 transition guidance.  As a result, we are not required to reassess (1) whether expired or existing contracts contain leases under the new definition of a lease, including whether an existing or expired contract contains an embedded lease, (2) lease classification for expired or existing leases and (3) any initial direct costs of existing leases. The Company is finalizing procedures to validate the completeness of arrangements that meet the new definition of operating lease, in parallel with our assessment of policy elections, processes and internal controls.  T he Company currently estimates the adoption of this guidance will result in the recognition of right-of-use assets and lease liabilities for operating leases of approximately $2,000 to $4,000 as of January 1, 2019 .  

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment” (ASU 2017-04). The guidance removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. Under ASU 2017-04, a goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance becomes effective for annual reporting periods beginning after December 15, 2019 and interim periods within those fiscal years, with early adoption permitted, and applied prospectively. The Company is evaluating the provisions of ASU 2017-04 to determine the impact on its consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” (ASU 2018-13). The amendments modify the disclosure requirements for fair value measurements and are effective for all entities for interim and annual reporting periods beginning within 2020. Early adoption of either the entire standard or only the provisions that eliminate or modify the requirements is permitted. The Company is evaluating the provisions of ASU 2018-13 to determine the impact on its fair value measurement disclosures.

In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (ASU 2018-15). The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Entities should apply the guidance in ASC 350-40 on internal-use software when capitalizing implementation costs related to a hosting arrangement that is a service contract and expense the capitalized implementation costs related to a hosting arrangement that is a service contract over the hosting arrangement's term, presenting the expense in the same line item in the statement of income as that in which the fee associated with the hosting arrangement is presented. The amendments are effective for all entities for interim and annual reporting periods beginning within 2020. Early adoption is permitted, and entities have the option of applying either a retrospective or prospective transition method. The Company is evaluating the provisions of ASU 2018-15 to determine the impact on its consolidated financial statements and related disclosures.

In August 2018, the SEC issued a final rule that amends certain of its disclosure requirements.   The final rule was effective as of November 5, 2018. Among other amendments, the final rule extends to interim periods the annual disclosure requirement of changes in stockholders’ equity. Under the amendments, an analysis of changes in each caption of stockholders’ equity presented in the balance sheet must be provided in a note or a separate statement.  The analysis should present a reconciliation of the beginning balance of each period for which a statement of comprehensive income is required to be filed. The Company anticipates its first presentation of changes in stockholders’ equity will be included in its Form 10-Q for the quarter ended March 31, 2019.

 

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

 

3. FAIR VALUE

FASB ASC 820, “Fair Value Measurements and Disclosures” (ASC 820), defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

·

Level 1—Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. The valuation under this approach does not entail a significant degree of judgment.

·

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The valuation technique for the Company’s Level 2 assets is based on quoted market prices for similar assets from observable pricing sources at the reporting date.

·

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2018:







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Quoted Prices

 

 

 

 

 

 

 

 

 



 

in Active

 

Significant

 

Significant

 

 

 



 

Markets for

 

Other

 

Other

 

 

 



 

Identical

 

Observable

 

Unobservable

 

 

 



 

Assets

 

Inputs

 

Inputs

 

 

 



 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

 —

 

$

16,193 

 

$

 —

 

$

16,193 

Commercial paper

 

 

 —

 

 

40,731 

 

 

 —

 

 

40,731 

U.S. government agencies and securities

 

 

6,734 

 

 

 —

 

 

 —

 

 

6,734 

Corporate bonds

 

 

 —

 

 

30,195 

 

 

 —

 

 

30,195 

Asset-backed securities

 

 

 —

 

 

14,511 

 

 

 —

 

 

14,511 

Total assets

 

$

6,734 

 

$

101,630 

 

$

 —

 

$

108,364 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition-related contingent consideration

 

$

 —

 

$

 —

 

$

18,773 

 

$

18,773 

Total liabilities

 

$

 —

 

$

 —

 

$

18,773 

 

$

18,773 



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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

 

The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2017:







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Quoted Prices

 

 

 

 

 

 

 

 

 



 

in Active

 

Significant

 

Significant

 

 

 



 

Markets for

 

Other

 

Other

 

 

 



 

Identical

 

Observable

 

Unobservable

 

 

 



 

Assets

 

Inputs

 

Inputs

 

 

 



 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

 —

 

$

12,774 

 

$

 —

 

$

12,774 

Commercial paper

 

 

 —

 

 

7,472 

 

 

 —

 

 

7,472 

U.S. government agencies and securities

 

 

2,999 

 

 

 —

 

 

 —

 

 

2,999 

Corporate bonds

 

 

 —

 

 

2,920 

 

 

 —

 

 

2,920 

Total assets

 

$

2,999 

 

$

23,166 

 

$

 —

 

$

26,165 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition-related contingent consideration

 

$

 —

 

$

 —

 

$

37,098 

 

$

37,098 

Total liabilities

 

$

 —

 

$

 —

 

$

37,098 

 

$

37,098 



There were no changes in the levels or methodology of measurement of financial assets and liabilities during the years ended December 31, 2018 and 2017.



Acquisition-Related Contingent Consideration. Contingent consideration arrangements under the nContact merger agreement obligate the Company to pay former shareholders of nContact for the following milestones, if achieved:

·

Trial Enrollment Milestone $7,500 upon completion of patient enrollment in the CONVERGE IDE clinical trial. The Company completed patient enrollment on August 21, 2018, and payment was made to former nContact shareholders on September 20, 2018.

·

Regulatory Milestone – up to $42,500 upon the completion of the CONVERGE IDE clinical trial and receiving a PMA from FDA for the EPi-Sense AF Guided Coagulation System and/or any other nContact product with an indication for symptomatic persistent Afib or similar or related indication. The full contingent consideration amount of $42,500 is only earned if such regulatory approvals are received on or before January 1, 2020. The potential contingent consideration is reduced by 8.33% (or one-twelfth) each month following January 2020 and is reduced to zero if the regulatory milestone is achieved after December 31, 2020. Any payment of the regulatory milestone contingent consideration is due within 30 days following the receipt of the related PMA approval.

·

Commercial Milestone – for calendar years 2016 through 2019, nContact revenues in excess of specified target revenue amounts will result in contingent consideration equal to 1.5 times the revenues in excess of target. Payments of contingent consideration when the commercial milestone is achieved are due within 65 days of each calendar year end. No payments were made for calendar years 2016 through 2018 as revenues did not exceed the targets for these years.

Subject to the terms and conditions of the merger agreement, all contingent consideration must be paid first in shares of AtriCure common stock. The merger agreement limits the total number of shares of AtriCure common stock issued in connection with the acquisition to 5,660 , of which 3,757 shares were issued at closing of the nContact acquisition on October 13, 2015. As a result of the achievement of the trial enrollment milestone, the Company made cash payments totaling approximately $1,221 and issued and delivered 232 shares of common stock to the former shareholders of nContact on September 20, 2018.

The Company measures contingent consideration liabilities using unobservable inputs by applying an income approach, such as the discounted cash flow technique or the probability-weighted scenario method. Various key assumptions, such as the probability and timing of achievement of the agreed milestones, projected revenues and the discount rate, are used in the determination of fair value of contingent consideration arrangements and are not observable in the market, thus representing a Level 3 measurement within the fair value hierarchy.   The contingent consideration liability is recorded in other noncurrent liabilities. Subsequent revisions to key assumptions, which impact the estimated fair value of contingent consideration liabilities, are recorded in selling, general and administrative expenses.

The fair value of the nContact contingent consideration was remeasured during 2018, resulting in a decrease in fair value of $10,825 . This decrease in fair value is due to actual 2018 revenues falling below the commercial milestone target, a decrease in forecasted 2019 revenues for the 2019 commercial milestone, and changes in estimates related to the timing of achievement of the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

 

regulatory milestone as a result of the completion of enrollment in the CONVERGE IDE clinical trial in 2018. Adjustments to fair value are recorded in selling, general and administrative expenses.

The following table represents the company’s Level 3 fair value measurements using significant other unobservable inputs for acquisition-related contingent consideration for each of the years ended December 31:







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

2018

 

2017

 

2016

Beginning Balance – January 1

 

$

37,098 

 

$

41,176 

 

$

40,207 

Settlement of trial enrollment milestone

 

 

(7,500)

 

 

 —

 

 

 —

Changes in fair value included in selling, general and administrative expenses

 

 

(10,825)

 

 

(4,078)

 

 

969 

Ending Balance – December 31

 

$

18,773 

 

$

37,098 

 

$

41,176 

 

4. INVESTMENTS

Investments as of December 31, 2018 consisted of the following:







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

 

 

 

Unrealized

 

 

 



 

 

 

 

Gains

 

 

 



 

Cost Basis

 

(Losses)

 

Fair Value

Corporate bonds

 

$

30,223 

 

$

(28)

 

$

30,195 

U.S. government agencies and securities

 

 

6,734 

 

 

 —

 

 

6,734 

Commercial paper

 

 

40,731 

 

 

 —

 

 

40,731 

Asset-backed securities

 

 

14,520 

 

 

(9)

 

 

14,511 

Total

 

$

92,208 

 

$

(37)

 

$

92,171 



Investments as of December 31, 2017 consisted of the following:







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

 

 

 

Unrealized

 

 

 



 

 

 

 

Gains

 

 

 



 

Cost Basis

 

(Losses)

 

Fair Value

Corporate bonds

 

$

2,925 

 

$

(5)

 

$

2,920 

U.S. government agencies and securities

 

 

3,000 

 

 

(1)

 

 

2,999 

Commercial paper

 

 

6,723 

 

 

 —

 

 

6,723 

Total

 

$

12,648 

 

$

(6)

 

$

12,642 



The Company has not experienced any significant realized gains or losses on its investments in the years ended December 31, 2018, 2017 and 2016 .  

 

5. INTANGIBLE ASSETS AND GOODWILL

The following table provides a summary of the Company’s intangible assets at December 31:







 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

2018

 

2017



Estimated

 

 

 

 

Accumulated

 

 

 

 

Accumulated



Useful Life

 

Cost

 

Amortization

 

Cost

 

Amortization

Fusion technology

8 years

 

$

9,242 

 

$

4,763 

 

$

9,242 

 

$

3,697 

Clamp & probe technology

3 years

 

 

829 

 

 

829 

 

 

829 

 

 

829 

SUBTLE access technology

5 years

 

 

2,179 

 

 

1,425 

 

 

2,179 

 

 

981 

IPR&D

 

 

 

44,021 

 

 

 —

 

 

44,021 

 

 

 —

Total

 

 

$

56,271 

 

$

7,017 

 

$

56,271 

 

$

5,507 



Amortization expense related to intangible assets with definite lives, which excludes the IPR&D asset, was $1,510 ,   $1,367 and $1,644 for the years ended December 31, 2018, 2017 and 2016.   In 2018, the Company reduced the ten-year estimated useful life of the Fusion technology asset by two years based on changes in estimated periods benefited. This change in estimate resulted in additional amortization expense of $143 in 2018 and will be applied prospectively.

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

 

Intangible assets with definite lives will be fully amortized in 2021. Future amortization expense is projected as follows:







 

 

 



 

 

 

2019

 

$

1,936 

2020

 

 

1,804 

2021

 

 

1,493 

Total

 

$

5,233 



The following table provides a summary of the Company’s goodwill, which is not amortized, but rather tested annually for impairment:







 

 

 



 

 

 

Net carrying amount as of December 31, 2016

 

$

105,257 

Additions (impairments)

 

 

 —

Net carrying amount as of December 31, 2017

 

 

105,257 

Additions (impairments)

 

 

 —

Net carrying amount as of December 31, 2018

 

$

105,257 

 

6. INVENTORIES

Inventories consisted of the following at December 31:







 

 

 

 

 

 



 

 

 

 

 

 



 

2018

 

2017

Raw materials

 

$

9,100 

 

$

7,755 

Work in process

 

 

1,232 

 

 

1,299 

Finished goods

 

 

12,152 

 

 

13,397 

Inventories

 

$

22,484 

 

$

22,451 

 

7. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at December 31:







 

 

 

 

 

 

 



 

 

 

 

 

 

 



Estimated Useful Life

 

2018

 

2017

Generators and other capital equipment 

1-3 years

 

$

18,158 

 

$

15,754 

Building under capital lease

15 years

 

 

14,250 

 

 

14,250 

Computer and other office equipment

3 years

 

 

6,360 

 

 

5,873 

Machinery, equipment and vehicles 

3-7 years

 

 

4,859 

 

 

4,576 

Furniture and fixtures

3-7 years

 

 

4,702 

 

 

4,366 

Leasehold improvements

5-15 years

 

 

3,943 

 

 

3,636 

Construction in progress

N/A

 

 

1,868 

 

 

1,810 

Equipment under capital leases

3-5 years

 

 

213 

 

 

221 

Total

 

 

 

54,353 

 

 

50,486 

Less accumulated depreciation

 

 

 

(27,273)

 

 

(21,737)

Property and equipment, net

 

 

$

27,080 

 

$

28,749 



Property and equipment depreciation expense was $7,244 ,   $7,761 and $7,655 for the years ended December 31, 2018, 2017 and 2016. Depreciation related to generators and other capital equipment was $3,191 ,   $3,574 and $3,591 in 2018, 2017 and 2016. As of December 31, 2018 and 2017, the net carrying value of generators and other capital equipment was $4,545 and $4,656 .

 

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

 

8. ACCRUED LIABILITIES

Accrued liabilities consisted of the following at December 31:







 

 

 

 

 

 



 

 

 

 

 

 



 

2018

 

2017

Accrued bonus

 

$

9,100 

 

$

4,726 

Accrued commissions

 

 

8,065 

 

 

6,964 

Accrued payroll and employee-related expenses

 

 

4,512 

 

 

4,097 

Sales returns and allowances

 

 

1,410 

 

 

1,169 

Other accrued liabilities

 

 

1,205 

 

 

695 

Accrued taxes and value-added taxes payable

 

 

886 

 

 

634 

Accrued royalties

 

 

662 

 

 

626 

Total

 

$

25,840 

 

$

18,911 

 

9. INDEBTEDNESS

Credit Facility. The Company has a Loan and Security Agreement (“Loan Agreement”) with Silicon Valley Bank (SVB). The Loan Agreement, as amended, restated and modified effective February 23, 2018 and as further amended on December 28, 2018, includes a $40,000 term loan and $20,000 revolving line of credit, with an option to increase the revolving line of credit by an additional $20,000. The term loan and revolving credit facility both mature or expire, as applicable, in February 2023 .  

Principal payments of the term loan are to be made ratably commencing September 2019 through the loan’s maturity date. If the Company meets certain conditions, as specified by the Loan Agreement, the commencement of term loan principal payments may be deferred by an additional six months. The term loan accrues interest at the greater of the Prime Rate plus 0.50% or 5.00% . Financing costs related to the term loan of $6 20 are netted against the outstanding loan balance in the Consolidated Balance Sheets and amortized ratably over the term of the Loan Agreement.

The revolving line of credit is subject to an annual facility fee of 0.33% of the revolving line of credit, and any borrowings thereunder bear interest at the greater of the Prime Rate or   4.50% . Borrowing availability under the revolving credit facility is based on the lesser of $20,000 or a borrowing base calculation as defined by the Loan Agreement. As of December 31, 2018, the Company had no borrowings under the revolving credit facility and had borrowing availability of $20,000 .   Financing costs related to the revolving line of credit are included in other assets in the Consolidated Balance Sheets and amortized ratably over the twelve-month period of the annual fee.

The Loan Agreement also provides for certain prepayment and early termination fees if repaid before January 2020, as well as establishes a minimum liquidity covenant and dividend restrictions, along with other customary terms and conditions. Specified assets have been pledged as collateral.

Capital Lease Obligations . As of December 31, 2018, the Company had capital leases for its corporate headquarters building and computer equipment that expire at various terms through 2030 . Capital lease assets are depreciated over their estimated useful lives. As of December 31, 2018, the cost of the leased assets, both building and computer equipment, was $14,463 , and accumulated amortization on the capital lease assets was $3,198 .  

In connection with the terms of the Company’s corporate headquarters lease, a letter of credit in the amount of $1,250 was issued to the landlord of the building in October 2015. The letter of credit is renewed annually and remains outstanding as of December 31, 2018.

Future maturities on debt and capital lease obligations are projected as follows:







 

 

 



 

 

 

2019

 

$

5,303 

2020

 

 

12,942 

2021

 

 

12,947 

2022

 

 

12,968 

2023

 

 

3,467 

2024 and thereafter

 

 

11,393 

Total payments

 

$

59,020 

Imputed interest on capital lease obligations

 

 

(6,225)

Net debt obligations, of which $4,433 is current and $48,362 is noncurrent

 

$

52,795 

 

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

 

10. COMMITMENTS AND CONTINGENCIES

Lease Commitments. The Company leases certain office and warehouse facilities and a vehicle under noncancelable operating leases that expire at various terms through 2022 . Future minimum lease payments under non-cancelable operating leases are projected as follows:







 

 

 



 

 

 

2019

 

$

1,064 

2020

 

 

893 

2021

 

 

648 

2022

 

 

405 

Total

 

$

3,010 

Rent expense was $1,146 ,   $850 and $1,250 in 2018, 2017, and 2016.

Royalty Agreements. The Company has certain royalty agreements in place with terms that include payment of royalties of 3% to 5% of specified product sales. The current royalty agreements have effective dates as early as 2003 and terms ranging from eighteen years to at least twenty years. Parties to the royalty agreements have the right at any time to terminate the agreement immediately for cause. Royalty expense of $2,715 ,   $2,323 and $1,895 was recorded as part of cost of revenue for the years ended December 31, 2018, 2017 and 2016.

Purchase Agreements. The Company enters into standard purchase agreements with certain vendors in the ordinary course of business. Outstanding commitments at December 31, 2018 were not significant.

Legal. The Company may, from time to time, become a party to legal proceedings. Such matters are subject to many uncertainties and to outcomes of which the financial impacts are not predictable with assurance and that may not be known for extended periods of time. When management has assessed that a loss is probable and an amount can be reasonably estimated, the Company records a liability in the Consolidated Financial Statements.

The Company received a Civil Investigative Demand (CID) from the U.S. Department of Justice (USDOJ) in December 2017 stating that it is investigating the Company to determine whether the Company has violated the False Claims Act, relating to the promotion of certain medical devices related to the treatment of atrial fibrillation for off-label use and submitted or caused to be submitted false claims to certain federal and state health care programs for medically unnecessary healthcare services related to the treatment of atrial fibrillation. The CID covers the period from January 2010 to December 2017 and requires the production of documents and answers to written interrogatories. The Company had no knowledge of the investigation prior to receipt of the CID. The Company maintains rigorous policies and procedures to promote compliance with the False Claims Act and other applicable regulatory requirements.  The Company provided the USDOJ with documents and answers to the written interrogatories and is cooperating with its investigation. However, the Company cannot predict when the investigation will be resolved, the outcome of the investigation or its potential impact on the Company.

 

11. REVENUE

The Company adopted FASB ASC 606, “Revenue from Contracts with Customers” (ASC 606) using the modified retrospective method effective January 1, 2018. The adoption of ASC 606 did not have a material impact on the amount and timing of revenue recognized in the Consolidated Financial Statements.

Revenue is generated primarily from the sale of medical devices. The Company recognizes revenue in an amount that reflects the consideration the Company expects to be entitled to in exchange for those devices when control of promised devices is transferred to customers. At contract inception, the Company assesses the products promised in its contracts with customers and identifies a performance obligation for each promise to transfer to the customer a product that is distinct. The Company’s devices are distinct and represent performance obligations. These performance obligations are satisfied and revenue is recognized at a point in time upon shipment or delivery of products. Sales of devices are categorized as follows: open-heart ablation, minimally invasive ablation (MIS), appendage management and valve tools. Shipping and handling activities performed after control over products transfers to customers are considered activities to fulfill the promise to transfer the products rather than as separate promises to customers. Revenue includes shipping and handling revenue of $1,236 ,   $1,090 and $1,266 in 2018, 2017 and 2016.

Products are sold primarily through a direct sales force and through distributors in certain international markets. Terms of sale are generally consistent for both end-users and distributors, except that payment terms are generally net 30 days for end-users and net 60 days for distributors, with limited exceptions. The Company does not maintain any post-shipping obligations to customers. No installation, calibration or testing of products is performed by the Company subsequent to shipment in order to render products operational.

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

 

Significant judgments and estimates involved in the Company’s recognition of revenue include the determination of the timing of transfer of control of products to customers and the estimation of a provision for returns. The Company considers the following indicators when determining when the control of products transfers to customers: (i) the Company has a right to payment in accordance with the shipping terms set forth in its contracts with customers; (ii) customers have legal title to products in accordance with shipping terms; (iii) the Company transfers physical possession of products either when the Company presents the products to a third party carrier for delivery to a customer (FOB shipping point) or when a customer receives the delivered goods (FOB destination); (iv) customers have the significant risks and rewards of ownership of products; and (v) customers have accepted products in connection with contractual shipping terms.

In the normal course of business, the Company does not accept product returns unless a product is defective as manufactured. The Company establishes estimated provisions for returns based on historical experience. The Company does not provide customers with the right to a refund.

The Company expects to be entitled to the total consideration for the products ordered by customers as product pricing is fixed according to the terms of customer contracts and payment terms are short. Payment terms fall within the one-year guidance for the practical expedient which allows the Company to forgo adjustment of the promised amount of consideration for the effects of a significant financing component. The Company excludes taxes assessed by governmental authorities on revenue-producing transactions from the measurement of the transaction price.

Costs associated with product sales include commissions and royalties. Considering that product sales are performance obligations in contracts that are satisfied at a point in time, commission expense associated with product sales and royalties paid based on sales of certain products is incurred at that point in time rather than over time. Therefore, the Company applies the practical expedient and recognizes commissions and royalties as expense when incurred because the expense is incurred at a point in time and the amortization period is less than one year. Commissions are recorded as selling expense and royalties are recorded as cost of revenue.

See Note 16 for disaggregated revenue by geographic area and by product category.

 

12. INCOME TAXES

The Company files federal, state, local and foreign income tax returns in jurisdictions with varying statutes of limitations. Income taxes are computed using the asset and liability method in accordance with FASB ASC 740, “Income Taxes”, under which deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. Deferred taxes are measured using provisions of currently enacted tax laws. A valuation allowance against deferred tax assets is recorded when it is more likely than not that such assets will not be fully realized. The Company has recorded a full valuation allowance against substantially all net deferred tax assets as it is more likely than not that the benefit of the deferred tax assets will not be recognized in future periods.

On December 22, 2017, H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the Tax Reform Act) was enacted and amends the Internal Revenue Code to reduce tax rates and modify policies, credits and deductions for businesses. For businesses, U.S. GAAP requires resulting tax effects of accounting for the Tax Reform Act to be recorded in the reporting period of enactment. On December 22, 2017, the SEC staff also issued Staff Accounting Bulletin No. 118 (SAB 118) which allowed businesses to record provisional amounts in the application of U.S. GAAP during a measurement period, not to extend beyond one year from the enactment of the Tax Reform Act, in situations when a registrant did not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act.

We have completed our accounting for the tax effects of enactment of the Tax Reform Act which resulted in the following:

Reduction of US federal corporate tax rate: The Tax Reform Act reduces the corporate tax rate from 34 to 21 percent, effective January 1, 2018. Consequently, the Company has recorded a reduction to its federal deferred tax assets of $29,480 with an offsetting reduction in its valuation allowance at December 31, 2017. In addition, the Company’s state deferred tax assets and corresponding valuation allowance have been adjusted to account for the impact of the federal rate change on state deferred taxes.

Interest Limitation: The Tax Reform Act limits a Company’s interest deduction to 30% of tax earnings before interest, tax, depreciation and amortization beginning in 2018 through 2021. Thereafter, the interest deduction is limited to 30% of tax earnings before interest and taxes. Any disallowed interest in a year becomes a separate deferred tax asset with an indefinite carryforward period that can be utilized by a Company in a future tax year by an amount equal to its interest limitation in excess of its interest expense for that year. In 2018, the Company’s net interest expense of $3 ,131 was disallowed and became a $774 deferred tax asset on which a full valuation allowance was recorded.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

 

Compensation and Shared-Based Payment Awards: The Tax Reform Act modifies the deductibility of covered employees’ compensation and eliminates the exclusion of performance-based compensation under IRC § 162(m), prospectively.  The Tax Reform Act includes a transition rule that permits the continued exclusion of performance-based compensation paid pursuant to a written, binding contract which was in effect on November 2, 2017, and which was not modified in any material respect on or after such date. In 2018, the Company completed its analysis of all of its relevant equity compensation agreements and recorded a reduction to its federal deferred tax assets of $2,482 with an offsetting reduction in its valuation allowance at December 31, 2018.

Corporate Alternative Minimum Tax (AMT): The repeal of AMT provides companies with the ability to obtain refunds of historic AMT credits. In 2018, the Company has recorded a current federal tax refund of $51 of its historic AMT credits.

Bonus Depreciation: The Tax Reform Act provides for 100 percent bonus depreciation on personal tangible property expenditures beginning September 27, 2017 through 2022. The bonus depreciation percentage is phased down from 100 percent beginning in 2023 through 2026. The Company intends to claim 100 percent bonus depreciation for eligible property in 2018.

International Tax : The Tax Reform Act provides for a one-time "deemed repatriation" of accumulated foreign earnings for the year ended December 31, 2017. In addition, beginning in 2018 the Tax Reform Act imposes a new tax on global intangible low taxed income of foreign subsidiaries and provides a new deduction for foreign derived intangible income of a domestic company. The Company did not incur a tax on the deemed repatriation or its current year foreign earnings as a result of its foreign deficits and previously taxed foreign earnings. The Company also did not receive a deduction for its foreign derived income due to its net operating losses.

The Tax Reform Act provided companies with the ability to elect to reclassify the income tax effects of the Tax Cuts and Jobs Act on items within accumulated other comprehensive income (loss) to retained earnings. The Company will not make this election due to its full valuation allowance.

The detail of deferred tax assets and liabilities at December 31 is as follows:







 

 

 

 

 

 



 

 

 

 

 

 



 

2018

 

2017

Deferred tax assets (liabilities):

 

 

 

 

 

 

Net operating loss carryforward

 

$

68,563 

 

$

64,776 

Research and development and AMT credit carryforwards, net

 

 

6,206 

 

 

5,339 

Deferred interest

 

 

774 

 

 

 —

Equity compensation

 

 

4,750 

 

 

6,955 

Accruals and reserves

 

 

802 

 

 

874 

Inventories

 

 

726 

 

 

588 

Intangible assets

 

 

(11,448)

 

 

(11,297)

Property and equipment, net

 

 

(608)

 

 

(339)

Other, net

 

 

135 

 

 

179 

Subtotal

 

 

69,900 

 

 

67,075 

Less valuation allowance

 

 

(69,849)

 

 

(66,973)

Total

 

$

51 

 

$

102 



The Company’s provision for income taxes for each of the years ended December 31 is as follows:







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

2018

 

2017

 

2016

Current Tax Expense

 

 

 

 

 

 

 

 

 

Federal

 

$

(51)

 

$

 —

 

$

 —

State

 

 

28 

 

 

44 

 

 

32 

Foreign

 

 

198 

 

 

72 

 

 

Total current tax expense

 

 

175 

 

 

116 

 

 

40 

Deferred Tax Expense

 

 

 

 

 

 

 

 

 

Federal

 

$

(3,048)

 

$

18,485 

 

$

(7,333)

State

 

 

178 

 

 

(1,337)

 

 

210 

Foreign

 

 

45 

 

 

(2,241)

 

 

(1,177)

Change in valuation allowance

 

 

2,876 

 

 

(15,009)

 

 

8,300 

Total deferred tax expense

 

 

51 

 

 

(102)

 

 

 —

Total tax expense

 

$

226 

 

$

14 

 

$

40 



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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

 

The Company has federal net operating loss carryforwards of $239,162 which have expirations between 2021 and 2038 and $18,228 which ha s no expiration as a result of the Tax Reform Act.  The Company has state and local net operating loss carryforwards of $15 4 , 370 with varying expirations from 2019 to 2039 . A portion of the Company’s federal and state net operating loss carryforwards are subject to certain limitations under Internal Revenue Code Sections 382 and 383. The Company has federal research and development credit carryforwards of $6,154 which have expirations between 2023 and 2039 . Additionally, the Company has foreign net operating loss carryforwards of approximately $37,694 which have expirations between 2019 and 2028 . At December 31, 2016, there were $2,816 of unrecognized deferred tax assets that arose from tax deductions for equity compensation in excess of compensation recognized for financial reporting during years when net operating losses were created. On January 1, 2017, the Company adopted ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting” and recognized $2,816 of previously unrecognized deferred tax assets with a corresponding increase in its valuation allowance.

The Company’s 2018, 2017 and 2016 effective income tax rates differ from the federal statutory rate as follows:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

2018

 

2017

 

2016

Federal tax at statutory rate

 

21.00 

%

 

$

(4,391)

 

34.00 

%

 

$

(9,139)

 

34.00 

%

 

$

(11,322)

Federal and Foreign tax rate change

 

(6.84)

 

 

 

1,430 

 

(109.68)

 

 

 

29,480 

 

 —

 

 

 

 —

Federal R&D credit

 

4.39 

 

 

 

(918)

 

(0.40)

 

 

 

107 

 

2.89 

 

 

 

(962)

Federal deferred adjustment

 

(10.77)

 

 

 

2,253 

 

 —

 

 

 

 —

 

 —

 

 

 

 —

Federal NOL adjustment for ASU

 

 —

 

 

 

 —

 

10.48 

 

 

 

(2,816)

 

 —

 

 

 

 —

Valuation allowance

 

(13.75)

 

 

 

2,876 

 

55.84 

 

 

 

(15,009)

 

(24.93)

 

 

 

8,300 

State income taxes

 

(0.99)

 

 

 

206 

 

4.81 

 

 

 

(1,292)

 

(0.69)

 

 

 

231 

Foreign NOL adjustment

 

(1.22)

 

 

 

256 

 

1.30 

 

 

 

(348)

 

(1.36)

 

 

 

452 

Foreign tax rate differential

 

(0.60)

 

 

 

125 

 

(2.45)

 

 

 

658 

 

(1.62)

 

 

 

539 

Permanent differences and other

 

7.70 

 

 

 

(1,611)

 

6.05 

 

 

 

(1,627)

 

(8.41)

 

 

 

2,802 

Effective tax rate

 

(1.08)

%

 

$

226 

 

(0.05)

%

 

$

14 

 

(0.12)

%

 

$

40 



The Company’s pre-tax book loss for domestic and international operations was $(13,44 3 ) and $(7,468) for 2018, ( $19,409 ) and ( $7,469 ) for 2017 and ( $27,271 ) and ( $6,027 ) for 2016.

The Company had undistributed earnings of foreign subsidiaries of approximately $234 at December 31, 2018. The Company does not consider these earnings as permanently reinvested and thus has recognized appropriate U.S. current and deferred taxes on such amounts.

Federal, state and local tax returns of the Company are routinely subject to examination by various taxing authorities. Federal income tax returns for periods beginning in 2015 are open for examination. Generally, state and foreign income tax returns for periods beginning in 2014 are open for examination. H owever, taxing authorities have the ability to adjust net operating loss and tax credit carryforwards from years prior to these periods. The Company has not recognized certain tax benefits because of the uncertainty of realizing the entire value of the tax position taken on income tax returns upon review by the taxing authorities.

A reconciliation of the change in federal and state unrecognized tax benefits for 2018, 2017 and 2016 is presented below:







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

2018

 

2017

 

2016

Balance at the beginning of the year

 

$

1,157 

 

$

3,175 

 

$

1,982 

Increases (decreases) for prior year tax positions

 

 

 —

 

 

(2,018)

 

 

1,193 

Increases (decreases) for current year tax positions

 

 

 —

 

 

 —

 

 

 —

Increases (decreases) related to settlements

 

 

 —

 

 

 —

 

 

 —

Decreases related to statute lapse

 

 

 —

 

 

 —

 

 

 —

Balance at the end of the year

 

$

1,157 

 

$

1,157 

 

$

3,175 



The Internal Revenue Service completed its review of the Company’s 2014 federal income tax return in February 2017. In 2017, the Company also completed a detailed analysis of R&D credit carryforwards for the tax years 2008 through 2016. As a result of this analysis, as well as completion of the IRS audit of the 2014 credit, the Company has reduced both the R&D credit carryforward and related unrecognized tax benefits by $2,018 . The Company has not had to accrue any interest and penalties related to unrecognized income tax benefits as a result of offsetting of net operating losses. However, if the situation occurs, the Company will recognize interest and penalties within income tax expense and the related tax liability.  

There are no amounts included in the balance of unrecognized tax benefits at December 31, 2018, 2017 and 2016 that, if recognized, would affect the effective tax rate. Included in the balance of unrecognized tax benefits at December 31, 2018 are $1,157  

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of tax benefits that, if recognized, would result in adjustments to other tax accounts, primarily deferred taxes and valuation allowance. The Company does not expect that its unrecognized tax benefits for research credits will significantly change within twelve months of December 31, 2018.

 

13. CONCENTRATIONS

During 2018, 2017 and 2016, approximately 10.8% ,   13.2% and 14.4% of the Company’s total net revenue was derived from its top ten customers. During 2018, 2017 and 2016 no individual customer accounted for more than 10% of the Company’s revenue.

As of December 31, 2018 and 2017, 11.8% and 19.7% of the Company’s total accounts receivable balance was derived from its top ten customers. No individual customer accounted for more than 10% of the Company’s accounts receivable as of December 31, 2018 and 2017.  

The Company maintains cash and cash equivalents balances at financial institutions which at times exceed FDIC limits. As of December 31, 2018, $31,955 of the cash and cash equivalents balance was in excess of the FDIC limits.

 

14. EMPLOYEE BENEFIT PLANS

The Company sponsors the AtriCure, Inc. 401(k) Plan (401(k) Plan), a defined contribution plan covering substantially all U.S. employees of the Company. Eligible employees may contribute pre-tax annual compensation up to specified maximums under the Internal Revenue Code. During 2018, 2017 and 2016 the Company made matching contributions of 50%  o n the first 6% of employee contributions to the 401(k) Plan. The Company’s matching contributions expensed during 2018, 2017 and 2016 were $1,560 ,   $1,367 and $1,222 . Additional amounts may be contributed to the 401(k) Plan at the discretion of the Company’s Board of Directors, however, no such discretionary contributions were made during 2018, 2017 or 2016. The Company also provides retirement benefits for employees of AtriCure Europe and other foreign subsidiaries. Total contributions to retirement plans for these employees were $243 ,   $205 and $101 in 2018, 2017 and 2016.

 

15. EQUITY COMPENSATION PLANS

The Company has two share-based incentive plans: the 2014 Stock Incentive Plan (2014 Plan) and the 2018 Employee Stock Purchase Plan (ESPP).

Stock Incentive Plan

Under the 2014 Plan, the Board of Directors may grant incentive stock options to Company employees and may grant restricted stock awards, restricted stock units, collectively “RSAs”, nonstatutory stock options, performance share awards (PSAs) or stock appreciation rights to Company employees, directors and consultants. The administrator (the Compensation Committee of the Board of Directors) has the authority to determine the terms of any awards, including the number of shares subject to each award, the exercisability of the awards and the form of consideration. As of December 31, 2018, 11,099 shares of common stock had been reserved for issuance under the 2014 Plan and 1,319 shares were available for future grants.

Effective March 1, 2018, the Compensation Committee of the Board approved the grant of performance share awards (2018 PSAs) to the Company’s named executive officers and certain other executive employees pursuant to the Company’s 2014 Plan. The form of award agreement for the 2018 PSAs (2018 PSA Grant Form) provides, among other things, that (i) each 2018 PSA that vests represents the right to receive one share of the Company’s common stock; (ii) the 2018 PSAs vest based on the Company achieving specified performance measurements over a performance period of three years, beginning January 1, 2018; (iii) the performance measurements include revenue CAGR as defined in the 2018 PSA Grant Form; (iv) threshold, target and maximum payout opportunities established for the 2018 PSAs will be used to calculate the number of shares that will be issuable when the award vests, which may range from 0% to 200% of the target amount; (v) any 2018 PSAs that are earned are scheduled to vest and be settled in shares of the Company’s common stock at the end of the performance period; and  (vi) all or a portion of the 2018 PSAs may vest following a change of control or a termination of service by reason of death or disability (each as described in greater detail in the 2018 PSA Grant Form).

With respect to the 2018 PSAs, the number of shares that vest and are issued to the recipient is based upon the Company’s performance as measured against the specified targets at the end of the three -year performance period as determined by the Compensation Committee of the Board. The Company estimated the fair value of the 2018 PSAs based on its closing stock price on the grant date and will adjust compensation expense over the performance period based on its estimate of performance target achievement.

Stock options granted prior to 2018 under the 2014 Plan generally expire ten years from the date of grant and generally vest at a rate of 25% on the first anniversary date of the grant and ratably each month thereafter over the following three years. Restricted stock

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(In Thousands, Except Per Share Amounts)

 

awards granted prior to 2018 generally vest between one and four years from the date of grant. Beginning in 2018, stock options, restricted stock awards, and restricted stock units granted generally vest in one-third increments on the first, second and third anniversaries of the grant date.

Activity under the plans during 2018 was as follows:





 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

Weighted

 

 

 



 

 

 

 

 

Weighted

 

 

Average

 

 

 



 

 

Number of

 

 

Average

 

 

Remaining

 

 

Aggregate



 

 

Shares

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

Time-Based Stock Options

 

 

Outstanding

 

 

Price

 

 

Term

 

 

Value

Outstanding at January 1, 2018

 

 

2,026 

 

$

13.30 

 

 

 

 

 

 

Granted

 

 

52 

 

 

26.05 

 

 

 

 

 

 

Exercised

 

 

(474)

 

 

12.70 

 

 

 

 

 

 

Cancelled

 

 

(22)

 

 

18.14 

 

 

 

 

 

 

Outstanding at December 31, 2018

 

 

1,582 

 

$

13.83 

 

 

5.02 

 

$

26,587 

Vested and expected to vest

 

 

1,574 

 

$

13.78 

 

 

5.00 

 

$

26,525 

Exercisable at December 31, 2018

 

 

1,419 

 

$

12.99 

 

 

4.63 

 

$

24,991 







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

Weighted

 

 

 

 

 

Weighted



 

 

RSA

 

 

Average

 

 

PSA

 

 

Average



 

 

Shares

 

 

Grant Date

 

 

Shares

 

 

Grant Date

Restricted Stock Awards and Performance Share Awards

 

 

Outstanding

 

 

Fair Value

 

 

Outstanding

 

 

Fair Value

Outstanding at January 1, 2018

 

 

1,845 

 

$

18.22 

 

 

 —

 

$

 —

Awarded

 

 

630 

 

 

18.71 

 

 

90 

 

 

17.71 

Released

 

 

(638)

 

 

18.87 

 

 

 —

 

 

 —

Forfeited

 

 

(91)

 

 

17.97 

 

 

 —

 

 

 —

Outstanding at December 31, 2018

 

 

1,746 

 

$

18.19 

 

 

90 

 

$

17.71 







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

Weighted

 

 

 



 

 

 

 

 

Weighted

 

 

Average

 

 

 



 

 

Number of

 

 

Average

 

 

Remaining

 

 

Aggregate



 

 

Shares

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

Performance Stock Options

 

 

Outstanding

 

 

Price

 

 

Term

 

 

Value

Outstanding at January 1, 2018

 

 

450 

 

$

13.48 

 

 

 

 

 

 

Granted

 

 

 —

 

 

 —

 

 

 

 

 

 

Exercised

 

 

 —

 

 

 —

 

 

 

 

 

 

Cancelled

 

 

 —

 

 

 —

 

 

 

 

 

 

Outstanding at December 31, 2018

 

 

450 

 

$

13.48 

 

 

4.45 

 

$

5,555 

Exercisable at December 31, 2018

 

 

350 

 

$

13.48 

 

 

4.45 

 

$

4,321 



Activity under the plans during 2017 was as follows:









 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

Weighted

 

 

 



 

 

 

 

 

Weighted

 

 

Average

 

 

 



 

 

Number of

 

 

Average

 

 

Remaining

 

 

Aggregate



 

 

Shares

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

Time-Based Stock Options

 

 

Outstanding

 

 

Price

 

 

Term

 

 

Value

Outstanding at January 1, 2017

 

 

2,454 

 

$

12.51 

 

 

 

 

 

 

Granted

 

 

65 

 

 

20.22 

 

 

 

 

 

 

Exercised

 

 

(458)

 

 

9.61 

 

 

 

 

 

 

Cancelled

 

 

(35)

 

 

19.08 

 

 

 

 

 

 

Outstanding at December 31, 2017

 

 

2,026 

 

$

13.30 

 

 

5.62 

 

$

11,730 

Vested and expected to vest

 

 

2,004 

 

$

13.23 

 

 

5.58 

 

$

11,717 

Exercisable at December 31, 2017

 

 

1,766 

 

$

12.48 

 

 

5.20 

 

$

11,471 



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(In Thousands, Except Per Share Amounts)

 





 

 

 

 

 

 



 

 

 

 

 

 



 

 

 

 

 

Weighted



 

 

Number of

 

 

Average



 

 

Shares

 

 

Grant Date

Restricted Stock Awards

 

 

Outstanding

 

 

Fair Value

Outstanding at January 1, 2017

 

 

1,416 

 

$

17.40 

Awarded

 

 

771 

 

 

19.38 

Released

 

 

(331)

 

 

17.43 

Forfeited

 

 

(11)

 

 

18.52 

Outstanding at December 31, 2017

 

 

1,845 

 

$

18.22 







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

Weighted

 

 

 



 

 

 

 

 

Weighted

 

 

Average

 

 

 



 

 

Number of

 

 

Average

 

 

Remaining

 

 

Aggregate



 

 

Shares

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

Performance Stock Options

 

 

Outstanding

 

 

Price

 

 

Term

 

 

Value

Outstanding at January 1, 2017

 

 

450 

 

$

13.48 

 

 

 

 

 

 

Granted

 

 

 —

 

 

 —

 

 

 

 

 

 

Exercised

 

 

 —

 

 

 —

 

 

 

 

 

 

Cancelled

 

 

 —

 

 

 —

 

 

 

 

 

 

Outstanding at December 31, 2017

 

 

450 

 

$

13.48 

 

 

5.45 

 

$

2,774 

Exercisable at December 31, 2017

 

 

250 

 

$

13.48 

 

 

5.45 

 

$

1,541 





The total intrinsic value of options exercised during the years ended December 31, 2018, 2017 and 2016 was $5,343 ,   $5,121 and $3,550 . As a result of the Company’s full valuation allowance on its net deferred tax assets, no tax benefit was recognized related to the stock option exercises. The exercise price per share of each option is equal to the fair market value of the underlying share on the date of grant. For 2018, 2017 and 2016, $6,012 ,   $4,402 and $3,337 in cash proceeds were included in the Company’s Consolidated Statements of Cash Flows as a result of the exercise of stock options. The total fair value of restricted stock vested during 2018, 2017 and 2016 was $11,864 ,   $6,235 and $5,102 . The Company issues registered shares of common stock to satisfy stock option exercises and restricted stock grants.

The Company has awarded 450 performance options to its President and Chief Executive Officer. The options expire ten years from the date of grant and vest in increments of 25 shares when the volume adjusted weighted average closing price of the common stock of the Company as reported by NASDAQ (or any other exchange on which the common stock of the Company is listed) for 30 consecutive days equals or exceeds each of $10.00 per share, $12.50 per share, $15.00 per share, $17.50 per share, $20.00 per share, $25.00 per share, $30.00 per share, $35.00 per share and $40.00 per share. In accordance with FASB ASC 718, a Monte Carlo simulation was performed to estimate the fair values, vesting terms and vesting probabilities for each tranche of options. Expense calculated using these estimates is being recorded over the estimated vesting terms. The Company recognized expense related to the performance options during 2018, 2017 and 2016 of $0 ,   $43 and $269 . As of December 31, 2017, compensation costs related to non-vested performance options were fully recognized.

Employee Stock Purchase Plan

The ESPP is available to eligible employees as defined in the plan document. Under the ESPP, shares of the Company’s common stock may be purchased at a discount (currently 15% ) of the lesser of the closing price of the Company’s common stock on the first trading day or the last trading day of the offering period. The offering period (currently six months) and the offering price are subject to change. Participants may not purchase more than $25 of the Company’s common stock in a calendar year and may not purchase a value of more than 3 shares during an offering period. As of December 31, 2018, there were 595 shares available for future issuance under the ESPP.

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(In Thousands, Except Per Share Amounts)

 

Valuation and Expense Information Under FASB ASC 718

The following table summarizes share-based compensation expense related to employees, directors and consultants under FASB ASC 718 for 2018, 2017 and 2016. The expense was allocated as follows:







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

2018

 

2017

 

2016

Cost of revenue

 

$

1,545 

 

$

610 

 

$

420 

Research and development expenses

 

 

1,987 

 

 

2,052 

 

 

1,825 

Selling, general and administrative expenses

 

 

12,963 

 

 

11,953 

 

 

9,452 

Total

 

$

16,495 

 

$

14,615 

 

$

11,697 

Share-based compensation expense with respect to the ESPP was $697 ,   $664 and 556 for 2018, 2017 and 2016. The Company recognized expense related to time-based stock options, restricted stock awards, and restricted stock units for 2018, 2017, and 2016 of $15,032 ,   $13,908 and $10,872 . The Company recognized expense of $766 related to performance share awards in 2018. As of December 31, 2018 there was $20,198   of unrecognized compensation costs related to non-vested stock options and restricted stock arrangements ( $1,432 relating to stock options and   $18,766 relating to restricted stock). This cost is expected to be recognized over a weighted-average period of 2.0 years for stock options and 1.5 years for restricted stock. As of December 31, 2018 there was $1,869 of unrecognized compensation costs related to non-vested performance share awards , and th is cost is expected to be recognized over a weighted-average period of 1.9 years.

In calculating compensation expense, the fair value of the options is estimated on the grant date using the Black-Scholes model including the following assumptions:







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

2018

 

 

2017

 

 

2016

Risk-free interest rate

 

 

2.31 - 3.01

%

 

 

1.75 - 2.12

%

 

 

1.06 - 2.02

%

Expected life of option (years)

 

 

5.14 to 5.71

 

 

 

5.21 to 5.76

 

 

 

5.27 to 7.10

 

Expected volatility of stock

 

 

41.00 - 42.00

%

 

 

43.00 - 48.00

%

 

 

46.00 - 51.00

%

Weighted-average volatility

 

 

41.51 

%

 

 

44.50 

%

 

 

48.87 

%

Dividend yield

 

 

0.00 

%

 

 

0.00 

%

 

 

0.00 

%

The Company’s estimate of volatility is based solely on the Company’s trading history over the expected option life. The risk-free interest rate assumption is based upon the U.S. treasury yield curve at the time of grant for the expected option life. The Company estimates the expected terms of options using historical employee exercise behavior.

The fair value of restricted stock awards, restricted stock units and performance share awards is based on the market value of the Company’s stock on the date of the awards.

Based on the assumptions noted above, the weighted average estimated grant date fair value per share of the stock options, restricted stock awards and performance share awards granted for 2018, 2017 and 2016 was as follows:  









 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

2018

 

 

2017

 

 

2016

Stock options

 

$

10.97 

 

 

$

8.60 

 

 

$

8.25 

Restricted stock awards

 

 

18.71 

 

 

 

19.38 

 

 

 

16.35 

Performance share awards

 

 

17.71 

 

 

 

 —

 

 

 

 —

In calculating compensation expense for performance options, the fair value of the options was estimated on the grant dates using a Monte Carlo simulation including strike prices of $5.91 and $21.04 , contractual terms of 10 years, expected volatility of 69.60% and 60.50% and interest rates of 1.75% and 2.73% . The contractual term assumes that the performance options issued to the CEO of the Company will be held until expiration. Expected volatility was estimated based on the Company’s trading history over the expected option life. The expected rate of return assumption was based upon the U.S. treasury yield curve at the time of grant for the expected option life.

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Based on the assumptions noted above, the estimated grant date fair value per share of the performance options granted were as follows:







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

Price

 

 

Fair Value of

 

 

Fair Value of



 

Target

 

 

2012 Grant

 

 

2014 Grant

Tranche 1

 

$

10.00 

 

 

$

4.32 

 

 

$

14.74 

Tranche 2

 

 

12.50 

 

 

 

4.30 

 

 

 

14.74 

Tranche 3

 

 

15.00 

 

 

 

4.27 

 

 

 

14.74 

Tranche 4

 

 

17.50 

 

 

 

4.23 

 

 

 

14.74 

Tranche 5

 

 

20.00 

 

 

 

4.19 

 

 

 

14.73 

Tranche 6

 

 

25.00 

 

 

 

4.10 

 

 

 

14.73 

Tranche 7

 

 

30.00 

 

 

 

4.01 

 

 

 

14.71 

Tranche 8

 

 

35.00 

 

 

 

3.92 

 

 

 

14.67 

Tranche 9

 

 

40.00 

 

 

 

3.83 

 

 

 

14.61 

 

16. SEGMENT AND GEOGRAPHIC INFORMATION

The Company evaluates reporting segments in accordance with FASB ASC 280, “Segment Reporting”. The Company develops, manufactures and sells devices designed primarily for the surgical ablation of cardiac tissue and systems designed for the exclusion of the left atrial appendage. These devices are developed and marketed to a broad base of medical centers globally. Management considers all such sales to be part of a single operating segment. Revenue attributed to geographic areas is based on the location of the customers to whom products are sold.

Revenue by geographic area was as follows:







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

2018

 

2017

 

2016

United States

 

$

162,146 

 

$

138,387 

 

$

122,385 

Europe

 

 

25,912 

 

 

21,901 

 

 

19,772 

Asia

 

 

12,687 

 

 

13,616 

 

 

12,223 

Other international

 

 

885 

 

 

812 

 

 

729 

Total international

 

 

39,484 

 

 

36,329 

 

 

32,724 

Total revenue

 

$

201,630 

 

$

174,716 

 

$

155,109 



United States revenue by product type was as follows:







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

2018

 

2017

 

2016

Open-heart ablation

 

$

72,250 

 

$

64,517 

 

$

58,050 

Minimally invasive ablation

 

 

35,053 

 

 

34,421 

 

 

31,169 

Appendage management

 

 

52,891 

 

 

37,281 

 

 

30,321 

Total ablation and appendage management

 

 

160,194 

 

 

136,219 

 

 

119,540 

Valve tools

 

 

1,952 

 

 

2,168 

 

 

2,845 

Total United States

 

$

162,146 

 

$

138,387 

 

$

122,385 



International revenue by product type was as follows:







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

2018

 

2017

 

2016

Open-heart ablation

 

$

21,118 

 

$

20,718 

 

$

20,189 

Minimally invasive ablation

 

 

9,176 

 

 

8,007 

 

 

8,065 

Appendage management

 

 

8,988 

 

 

7,251 

 

 

3,986 

Total ablation and appendage management

 

 

39,282 

 

 

35,976 

 

 

32,240 

Valve tools

 

 

202 

 

 

353 

 

 

484 

Total international

 

$

39,484 

 

$

36,329 

 

$

32,724 



The Company’s long-lived assets are located primarily in the United States, except for $1,296 as of December 31, 2018 and $957 as of December 31, 2017, which are located primarily in Europe.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

 

17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the Three Months Ended



 

March 31,

 

June 30,

 

September 30,

 

December 31,



 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

Operating Results:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

46,994 

 

$

41,273 

 

$

51,802 

 

$

45,231 

 

$

49,941 

 

$

42,150 

 

$

52,893 

 

$

46,062 

Gross profit

 

 

34,503 

 

 

30,008 

 

 

38,079 

 

 

32,554 

 

 

35,948 

 

 

30,918 

 

 

38,590 

 

 

32,683 

Income (loss) from operations

 

 

(9,430)

 

 

(9,642)

 

 

958 

 

 

(6,355)

 

 

(6,048)

 

 

(6,847)

 

 

(2,607)

 

 

(2,135)

Net loss

 

 

(10,134)

 

 

(10,183)

 

 

(338)

 

 

(6,883)

 

 

(7,235)

 

 

(7,246)

 

 

(3,430)

 

 

(2,580)

Net loss per share (basic and diluted)

 

$

(0.31)

 

$

(0.32)

 

$

(0.01)

 

$

(0.21)

 

$

(0.22)

 

$

(0.22)

 

$

(0.09)

 

$

(0.08)



Amounts may not sum to consolidated totals for the full year due to rounding. Basic and diluted net loss per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly per share amounts will not necessarily equal the total for the year.

 



 

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SCH EDULE II

VALUATION AND QUALIFYING ACCOUNTS

 





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Beginning

 

 

 

 

 

 

 

Ending



 

Balance

 

Additions

 

Deductions

 

Balance

Reserve for sales returns and allowances

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2018

 

$

1,169 

 

$

312 

 

$

71 

 

$

1,410 

Year ended December 31, 2017

 

 

834 

 

 

441 

 

 

106 

 

 

1,169 

Year ended December 31, 2016

 

 

207 

 

 

634 

 

 

 

 

834 

Allowance for inventory valuation

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2018

 

$

889 

 

$

718 

 

$

578 

 

$

1,029 

Year ended December 31, 2017

 

 

1,080 

 

 

1,004 

 

 

1,195 

 

 

889 

Year ended December 31, 2016

 

 

843 

 

 

1,692 

 

 

1,455 

 

 

1,080 

Valuation allowance for deferred tax assets

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2018

 

$

66,973 

 

$

2,876 

 

$

 —

 

$

69,849 

Year ended December 31, 2017

 

 

81,982 

 

 

 —

 

 

15,009 

 

 

66,973 

Year ended December 31, 2016

 

 

73,682 

 

 

8,300 

 

 

 —

 

 

81,982 

 

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Table of Contents

 

ITE M 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  

None.



IT EM 9A.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the President and Chief Executive Officer (the Principal Executive Officer) and Senior Vice President and Chief Financial Officer (the Principal Accounting and Financial Officer), has evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Rules 13(a) – 15(e) of the Securities Exchange Act of 1934 (Exchange Act), as of the end of the period covered by this report. Based on this evaluation, we concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in providing reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s forms and rules, and the material information relating to the Company is accumulated and communicated to management, including the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Control systems, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that control objectives are met. Because of inherent limitations in all control systems, no evaluation of controls can provide assurance that all control issues and instances of fraud, if any, within a company will be detected. Additionally, controls can be circumvented by individuals, by collusion of two or more people or by management override. Over time, controls can become inadequate because of changes in conditions or the degree of compliance may deteriorate. Further, the design of any system of controls is based in part upon assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all future conditions. Because of the inherent limitations in any cost-effective control system, misstatements due to errors or fraud may occur and not be detected.

Changes in Internal Control over Financial Reporting

In the ordinary course of business, we routinely enhance our information systems by either upgrading current systems or implementing new ones. There were no changes in our internal control over financial reporting that occurred during the three months ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Annual Report on Internal Control Over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018. No matter how well designed, because of inherent limitations in all control systems, internal control over financial reporting may not prevent or detect misstatements should they occur. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the control procedures may deteriorate. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013) . Based on such assessment, management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2018.

Deloitte & Touche LLP, the Company’s independent registered public accounting firm, has audited the consolidated financial statements included in this Annual Report on Form 10-K and, as part of its audit, has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting. The attestation report can be found on the following page as part of this Item 9A.



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Table of Contents

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the stockholders and the Board of Directors of

AtriCure, Inc.

Mason, Ohio

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of AtriCure, Inc. and subsidiaries (the “Company”) as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2018, of the Company and our report dated March 1, 2019, expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP



Cincinnati, Ohio

March 1, 2019



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IT EM 9B.  OTHER INFORMATION  

None.

 

PA RT III



IT EM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE  

The information required by this Item is incorporated by reference to the definitive proxy statement for our 2019 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of 2018 (the “Proxy Statement”).



ITE M 11.  EXECUTIVE COMPENSATION  

The information required by this Item is incorporated by reference to the Proxy Statement.



ITE M 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS  

The following table summarizes information about our equity compensation plans as of December 31, 2018.







 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

Number of securities
 to be issued upon 
exercise of 
outstanding options, 
warrants and rights (1)

 

Weighted-average
 exercise price of 
outstanding options, 
warrants and rights (2)

 

Number of securities remaining
 available for future issuance 
under equity compensation 
plans (excluding securities
 reflected in column (a))

Plan Category

 

(a)

 

 

(b)

 

(c)

Equity compensation plans approved by
security holders (3)

 

3,868,445 

 

$

14 

 

1,319,287 

Equity compensation plans not approved by
security holders

 

 —

 

 

 —

 

 —

Total

 

3,868,445 

 

$

14 

 

1,319,287 

_________________________

(1)

Represents outstanding stock options, restricted stock and performance shares as of December 31, 2018.

(2)

The weighted average exercise price is calculated without taking into account restricted stock that will become issuable, without any cash consideration or other payment, as vesting requirements are achieved.

(3)

Amounts include awards under our 2005 Equity Incentive Plan and 2014 Stock Incentive Plan but exclude shares purchased under our 2018 Employee Stock Purchase Plan.

The remaining information required by this Item is incorporated by reference to the Proxy Statement.



IT EM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE  

The information required by this Item is incorporated by reference to the Proxy Statement.



IT EM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES  

The information required by this Item is incorporated by reference to the Proxy Statement.

 

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Table of Contents

 

PA RT IV



IT EM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES    

(1) The financial statements required by Item 15(a) are filed in Item 8 of this Form 10-K.

(2) The financial statement schedules required by Item 15(a) are filed in Item 8 of this Form 10-K.

(3) The following exhibits are included in this Form 10-K or incorporated by reference in this Form 10-K:







 

Exhibit No.

Description

  3.1

Second Amended and Restated Certificate of Incorporation (incorporated by reference to our Current Report on Form 8-K, filed on May 27, 2016).

  3.2

Fourth Amended and Restated Bylaws (incorporated by reference to our Current Report on Form 8-K filed on February 16, 2017).

  4.1

Warrant to purchase AtriCure, Inc. common stock issued to Silicon Valley Bank on May 1, 2009 (incorporated by reference to our Quarterly Report on Form 10-Q, filed on August 10, 2009).

10.1#

Employment Agreement, dated as of November 1, 2012, between AtriCure, Inc. and Michael H. Carrel (incorporated by reference to our Current Report on Form 8-K, filed on November 1, 2012).

10.2#

2005 Equity Incentive Plan, as amended on September 19, 2007 and on March 6, 2013 (incorporated by reference to our Annual Report on Form 10-K filed on March 8, 2013).

10.3#

2018 Employee Stock Purchase Plan (incorporated by reference to our Current Report on Form 8-K filed on May 23, 2018).

10.4#

Form of Change in Control Agreement between AtriCure and AtriCure Executive Officers (incorporated by reference to our Annual Report on Form 10-K filed on March 8, 2013).

10.5

Loan and Security Agreement dated as of February 23, 2018 by and among Silicon Valley Bank, AtriCure, Inc., AtriCure, LLC, Endoscopic Technologies, LLC and nContact Surgical, LLC (incorporated by reference to our Current Report on Form 8-K, filed on February 26, 2018).

10.6

Lease Agreement Dated August 20, 2014 between LM-VP AtriCure, LLC, as Landlord, and AtriCure, Inc., as Tenant (incorporated by reference to our Current Report on Form 8-K, filed on August 25, 2014).

10.7#

AtriCure, Inc. 2014 Stock Incentive Plan (Amended and Restated as of May 22, 2018) (incorporated by reference to our Current Report on Form 8-K, filed on May 23, 2018).

10.8#

Form of Restricted Stock Award Agreement under the Amended and Restated AtriCure, Inc. 2014 Stock Incentive Plan (incorporated by reference to our Quarterly Report on Form 10-Q, filed on October 31, 2014).

10.9#

Form of Stock Option Award Agreement for Executive Officers under the Amended and Restated AtriCure, Inc. 2014 Stock Incentive (incorporated by reference to our Quarterly Report on Form 10-Q, filed on October 31, 2014).

10.10#

Form of Stock Option Award Agreement for Non-Employee Directors under the Amended and Restated AtriCure, Inc. 2014 Stock Incentive Plan (incorporated by reference to our Quarterly Report on Form 10-Q, filed on October 31, 2014).

10.11

Merger Agreement dated as of October 4, 2015 among nContact Surgical, Inc., AtriCure, Inc., Portal Merger Sub, Inc., Second Portal Merger Sub, LLC and WRYP Stockholder Services, LLC, as Representative of nContact stockholders (incorporated by reference to our Current Report on Form 8-K, filed on October 5, 2015).



 

10.12

First Loan Modification Agreement dated December 28, 2018 among AtriCure, Inc., Silicon Valley Bank, the lenders named therein, AtriCure, LLC, Endoscopic Technologies, LLC and nContact Surgical, LLC (incorporated by reference to our Current Report on Form 8-K filed on January 3, 2019) .

10.13#

2018 Form of Performance Share Award Grant (incorporated by reference to our Current Report on Form 8-K, filed on March 2, 2018) .

10.14#

2019 Form of Performance Share Award Grant.

14

Code of Conduct .

21

Subsidiaries of the Registrant.

23.1

Consent of Deloitte & Touche LLP.

31.1

Rule 13a-14(a) Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Rule 13a-14(a) Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 .

32.1

Certification pursuant to 18 U.S.C. Section 1350 by the Chief Executive Officer, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 .

32.2

Certification pursuant to 18 U.S.C. Section 1350 by the Chief Financial Officer, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



72


 

Table of Contents

 



 

Exhibit No.

Description

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document



_________________________

#    Compensatory plan or arrangement.



ITEM 16.  FORM 10-K SUMMARY

Not provided.

 

73


 

Table of Contents

 



SIG NATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-K to be signed on our behalf by the undersigned, thereunto duly authorized.





 



AtriCure, Inc.



(REGISTRANT)



 

Date: March 1, 2019

/s/ Michael H. Carrel



Michael H. Carrel



President and Chief Executive Officer



(Principal Executive Officer)



 

Date: March 1, 2019

/s/ M. Andrew Wade



M. Andrew Wade



Senior Vice President and Chief Financial Officer



(Principal Accounting and Financial Officer)



KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael H. Carrel and M. Andrew Wade, his attorney-in-fact, with the power of substitution, for him in any and all capacities, to sign any and all amendments to this Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact, and any of them or his substitute or substitutes, may do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed by the following persons on behalf of the registrant and in the capacities indicated on March 1, 2019.

 



 

Signature

Title(s)



 

/s/ Scott W. Drake

Scott W. Drake

Scott W. Drak e

Chairman of the Board



 

/s/ Michael H. Carrel

Michael H. Carrel

Michael H. Carrel

Director, President and Chief  Executive  Officer



(Principal Executive Officer)



 

/s/ M. Andrew Wade

M. Andrew Wade

M. Andrew Wade

Senior Vice President and Chief  Financial  Officer



(Principal Accounting and  Financial  Officer)



 

/s/ Mark A. Collar

Mark A. Collar

Mark A. Collar

Director



 

/s/ Regina E. Groves

Regina E. Groves

Regina E. Groves

Director



 

/s/ B. Kristine Johnson

B. Kristine Johnson

B. Kristine Johnson

Director



 

/s/ Mark R. Lanning

Mark R. Lanning

Mark R. Lanning

Director



 

/s/ Sven A. Wehrwein

Sven A. Wehrwein

Sven A. Wehrwein

Director



 

/s/ Robert S. White

Robert S. White

Robert S. White

Director

 

74


Exhibit 10.14

 

ATRICURE, INC.
2014 STOCK INCENTIVE PLAN

PERFORMANCE SHARE AWARD AGREEMENT

Summary of Performance Share Award Grant

AtriCure, Inc., a Delaware corporation (the “ Company ”), grants to the Grantee named below, in accordance with the terms of the 2014 Stock Incentive Plan  ( as amended and restated from time to time, the “ Plan ”) , and this Performance Share Award Agreement (the “ Agreement ”), Performance Shares as follows:

 



 

 

 

 



 

 

 

 



 

 

Name of Grantee:

 

 

 

 



Threshold Number of Performance Shares:

 

 

 

 



Target Number of Performance Shares:

 

 

 

 



 

 

Maximum  Number  of Performance Shares:

 

 

 

 



 

 

Grant Date:

 

 

 

 



 

 

Performance Goals:

 

As set forth on Exhibit A

 

 



 

 

Performance Period:

 

As set forth on Exhibit A

 

 



Terms of Agreement

1. Grant of Performance Shares. Subject to and upon the terms, conditions, and restrictions set forth in this Agreement and in the Plan, the Company grants to the Grantee as of the Grant Date, Performance Share Award consisting of, the m aximum number Common Stock   of the Company (“ Performance Shares ”) as provided above , upon the terms and conditions of this Agreement.

2. Eligibility. The Grantee shall hold a position within the Company or any Subsidiary that is recommended by the Company’s Chief Executive Officer and /or the award contemplated hereby shall be approved by the Committee.


 

 

3. Vesting and Earning of Performance Shares.

(a) The p eriod during which the Performance Goals are measured shall be a three-year period, beginning in the year of the Grant Date and ending on December 31 of the third year (the “ Performance Period ”) .  

(b) T he number of Performance Shares earned by the Grantee will be determined at the end of the Performance Period based on the Performance Goals set forth on Exhibit A Except as provided in Section 4, Performance Shares will vest and become nonforfeitable , if at all, on the last day of the Performance Period provided that the Grantee has remained continuously employed by the Company or any Subsidiary from the Grant Date through the last da y of the Performance Period (the “ Vesting Date ”) .    

(c) If the Grantee is hired by the Company or promoted within the Company prior to October 1 of any fiscal year and is thereby granted Performance Shares under this Agreement, the Performance Shares shall be earned on a pro-rata basis beginning on the effective date of this Agreement until the end of the Performance Period as set forth on Exhibit A .

(d) Following the completion of the Perfor mance Period and no later than 90 days following the end of the Performance Period, the Committee shall determine in writing the extent, if any, that the Performance Goals have been satisfied and shall determine the number of Performance Shares that Grantee shall earn, if any, subject to Section   3 (a) of this Agreement. The Committee may , in its sole discretion , modify the Performance Goals, in whole or in part, as the Committee deems appropriate and equitable to re flect a change in the business (including, without limitation, the Company’s acquisition of another business or company), operations, corporate structure or capital structure of the Company or its Subsidiaries, the manner in which it conducts its business, or other events or circumstances.

4. Termination of Continuous Employment .  

(a) Except as otherwise provided in Section s  4 (b) ,   4 (c) , 4(d)   or 4(e ) ,   if the Grantee ’s continuous employment   with the Company or a Subsidiary   is terminated prior to the Vesting Date , the Grantee’s un vested Performance Shares shall be automatically forfeited upon such termination of continuous employment and neither the Company nor any Subsidiary shall have any further obligations under this Agreement .

(b) I f   the Grantee’s continuous employment w ith the Company or any   S ubsidiary terminates for Cause   (as defined in the Plan) , all Shares underlying the Performance Shares  ( including une arned portions thereof), whether vested or not, shall immediately be forfeited upon such termination for Cause.

(c) If the Grantee’s continuous employment with the Company or any Subsidiary terminates due to a permanent and total disability (a “ Permanent Disability ”) within the meaning of Section 22(e)(3) of the Code, the Grantee’s employment with the Company or any Subsidiary shall, for all purposes under this Agreement, be deemed to continue. If Grantee dies while suffering a Permanent Disability, Grantee’s estate shall have the rights to Shares underlying Performance Shares on the terms set forth in Section 4 ( d ).

2

 


 

 

(d) If a “ Change in Control ” (as defined in the Plan) described in Section  2(i) of the Plan occurs while the Grantee is employed by the Company or any Subsidiary or if the Grantee dies, in either case at any time prior to the end of the Performance Period , then the Grantee shall be de emed to have earned the number of Performance Shares equal to the greater of (A) t he Target Number of Performance Shares identified on the first page of this Agreement or (B) the number of Performance Shares which would have vested based on the actual performance of the Company had the Performance Period ended on the last day of the fiscal quarter ending immediately prior to the date that the Company executes a definitive agreement (“ CIC Date ”) pursuant to which a Change in Control occurs . Upon such Change in Control or death of the Grantee, as the case may be,   the Company shall deliver to Grantee (or Grantee’s estate in the case of death) the Shares underlying all Performance Shares   earned in accordance with this Section 4(d) .   The Committee shall have the authority to determine the extent to which Performance G oals with respect to the Performance Period (as shortened to end on the CIC Date) have been met based on such audited or un audited financial information or other information then available that the Committee deems relevant so that the vesting contemplated by this Section 4(d) reflects the actual performance of the Company achieved immediately prior to the CIC Date .

(e) Notwithstanding anything contained in this Agreement to the contrary, the Committee may, in its sole discretion, accelerate the time at which the Shares underlying any Performance Shares become vested and nonforfeitable on such terms and conditions as it deems appropriate   upon a Change in Control or the death or Disability of Grantee .  

5. Transferability. The Performance Shares may not be Transferred and shall not be subject in any manner to assignment, alienation, pledge, encumbrance or charge, unless otherwise provided under the Plan. Any purported Transfer or encumbrance in violation of the provisions of this Section  5 shall be void, and the other party to any such purported transaction shall not obtain any rights to or interest in such Performance Shares.

6. Dividend, Voting and Other Rights.   Neither the Grantee nor any person claiming under or through   the Grantee has any of the rights or privileges of a shareholder of the Company in respect of shares of Common Stock that may become deliverable hereunder unless and until certificates representing such shares of Common Stock have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered in certificate or book entry form to the Grantee or any person claiming under or through the Grantee.

7. Continuous Employment. For purposes of this Agreement, the continuous employment of the Grantee with the Company and its Subsidiaries shall not be deemed to have been interrupted, and the Grantee shall not be deemed to have ceased to be an employee of the Company and its Subsidiaries, by reason of the transfer of his employment among the Company and its Subsidiaries.

8. No Employment Contract. Nothing contained in this Agreement shall confer upon the Grantee any right with respect to continuance of employment by the Company and its Subsidiaries, nor limit or affect in any manner the right of the Company and its Subsidiaries to terminate the employment or adjust the compensation of the Grantee.

3

 


 

 

9. Relation to Other Benefits. Any economic or other benefit to the Grantee under this Agreement or the Plan shall not be taken into account in determining any benefits to which the Grantee may be entitled under any profit-sharing, retirement or other benefit or compensation plan maintained by the Company or a Subsidiary and shall not affect the amount of any life insurance coverage available to any beneficiary under any life insurance plan covering employees of the Company or a Subsidiary.

10. Taxes and Withholding. To the extent that the Company or any Subsidiary is required to withhold any federal, state, local, foreign or other tax in connection with the Performance Shares pursuant to this Agreement, it shall be a condition to earning the award that the Grantee make arrangements satisfactory to the Company or such Subsidiary for payment of such taxes required to be withheld. The Committee may, in its sole discretion, require the Grantee to satisfy such required withholding obligation by surrendering to the Company a portion of the Shares earned by the Grantee under this Agreement, and the Shares so surrendered by the Grantee shall be credited against any such withholding obligation at the Fair Market Value of such Shares on the date of surrender.

11. Adjustments. The number and kind of Shares deliverable pursuant to the Performance Shares are subject to adjustment as provided in Section 13 of the Plan.

12. Compliance with Law. The Company shall make reasonable efforts to comply with all applicable federal and state securities laws and listing requirements with respect to the Performance Shares; provided ,   however , notwithstanding any other provision of this Agreement, the Company shall not be obligated to deliver any Shares pursuant to this Agreement if the delivery of this Agreement would result in a violation of any such law or listing requirement.

13. Amendments. Subject to the terms of the Plan, the Committee may modify this Agreement upon written notice to the Grantee. Any amendment to the Plan shall be deemed to be an amendment to this Agreement to the extent that the amendment is applicable to this Agreement. Notwithstanding the foregoing, no amendment of the Plan or this Agreement shall adversely affect the rights of the Grantee under this Agreement without the Grantee’s consent unless the Committee determines, in good faith, that such amendment is required for the Agreement to either be exempt from the application of, or comply with, the requirements of Section 409A of the Code, or as otherwise may be provided in the Plan.

14. Compliance with Section 409A of the Code. It is intended that this Agreement shall either be exempt from the application of, or comply with, the requirements of Section 409A of the Code. This Agreement shall be construed, administered, and governed in a manner that effects such intent, and the Committee shall not take any action that would be inconsistent with such intent. Without limiting the foregoing, the Performance Shares shall not be deferred, accelerated, extended, paid out, settled, adjusted, substituted, exchanged or modified in a manner   that would cause the award to fail to satisfy the conditions of an applicable exception from the requirements of Section 409A of the Code or otherwise would subject the Grantee to the additional tax imposed under Section 409A of the Code. The amounts payable pursuant to this Agreement are intended to be separate payments that qualify for the “short-term deferral” exception to Section 409A of the Code to the maximum extent possible.

4

 


 

 

15. Severability. In the event that one or more of the provisions of this Agreement shall be invalidated for any reason by a court of competent jurisdiction, any provision so invalidated shall be deemed to be separable from the other provisions of this Agreement, and the remaining provisions of this Agreement shall continue to be valid and fully enforceable.

16. Relation to Plan. This Agreement is subject to the terms and conditions of the Plan. This Agreement and the Plan contain the entire agreement and understanding of the parties with respect to the subject matter contained in this Agreement, and supersede all prior written or oral communications, representations and negotiations with respect to this Agreement. In the event of any inconsistency between the provisions of this Agreement and the Plan, the Plan shall govern. Capitalized terms used of this Agreement without definition shall have the meanings assigned to them in the Plan. The Committee acting pursuant to the Plan, as constituted from time to time, shall, except as expressly provided otherwise of this Agreement, have the right to determine any questions which arise in connection with the grant of the Performance Shares.

17. Successors and Assigns. Without limiting Section  5 , the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, administrators, heirs, legal representatives and assigns of the Grantee, and the successors and assigns of the Company.

18. Governing Law. The interpretation, performance, and enforcement of this Agreement shall be governed by the laws of the State of Delaware, without giving effect to the principles of conflict of laws of this Agreement.

19. Electronic Delivery. The Grantee consents and agrees to electronic delivery of any documents that the Company may elect to deliver (including, but not limited to, prospectuses, prospectus supplements, grant or award notifications and agreements, account statements, annual and quarterly reports, and all other forms of communications) in connection with this and any other award made or offered under the Plan. The Grantee understands that, unless earlier revoked by the Grantee by giving written notice to the Chief Financial Officer of the Company, this consent shall be effective for the duration of the Agreement. The Grantee also understands that he or she shall have the right at any time to request that the Company deliver written copies of any and all materials referred to above at no charge. The Grantee consents to any and all procedures the Company has established or may establish for an electronic signature system for delivery and acceptance of any such documents that the Company may elect to deliver, and agrees that his or her electronic signature is the same as, and shall have the same force and effect as, his or her manual signature. The Grantee consents and agrees that any such procedures and delivery may be effected by a third party engaged by the Company to provide administrative services related to the Plan.

20. Clawback.   I n the event the Company is required to prepare an accounting restatement due to the material noncompliance of the Company with any financial reporting requirement under federal securities laws, the Board of Directors shall require reimbursement to the Company of any Performance Shares made to Grantee where: (i) the payment was predicated upon achieving certain financial results that were subsequently the subject of a substantial restatement of Company financial statements filed with the SEC; (ii) the members of the Board of Directors who are considered “independent” for purposes of the listing standards of Nasdaq

5

 


 

 

determine Grantee engaged in intentional misconduct that caused or substantially caused the need for the accounting restatement; and (iii) a lower payment would have been made to Grantee based upon the restated financial results. In each such instance, the Company will, to the extent practicable, seek to recover from Grantee the amount by which any Performance Shares paid to such officer for the relevant period exceeded the lower payment that would have been made based on the restated financial results.  



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The Company has caused this Agreement to be executed on its behalf by its duly authorized officer and the Grantee has also executed this Agreement, as of the Grant Date.

 



 

 



ATRICURE, INC.



 

 



By:

 



Name:

 



Title:

 



The undersigned acknowledges that a copy of the Plan, Plan Summary and Prospectus, and the Company’s most recent Annual Report and Proxy Statement (the “ Prospectus Information ”) are available for viewing on the Company’s intranet site at www.atricure.com. The Grantee consents to receiving this Prospectus Information electronically, or, in the alternative, agrees to contact the Company’s Chief Financial Officer at (513) 755-4100 to request a paper copy of the Prospectus Information at no charge. The Grantee represents that he or she is familiar with the terms and provisions of the Prospectus Information and accepts the award of Performance Shares on the terms and conditions set forth of this Agreement and in the Plan.

 



 

 



 



Grantee

 



 

 



Date:

 



ALTERNATIVE FOR ELECTRONIC SIGNATURE

You may accept the award online or by telephone in accordance with the procedures established by the Company and the Plan administrator. By accepting your award in accordance with these procedures, you acknowledge that a copy of the Plan, Plan Summary and Prospectus, and the Company’s most recent Annual Report and Proxy Statement (the “ Prospectus Information ”) either have been received by you or are available for viewing on the Company’s intranet site at www.atricure.com, and consent to receiving this Prospectus Information electronically, or, in the alternative, agree to contact the Company’s Chief Financial Officer at (513) 755-4100 to request a paper copy of the Prospectus Information at no charge. You also represent that you are familiar with the terms and provisions of the Prospectus Information and accept the award on the terms and conditions set forth of this Agreement and in the Plan. These terms and conditions constitute a legal contract that will bind both you and the Company as soon as you accept the award as described above.

 

 

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EXHIBIT A

PERFORMANCE GOALS AND PERFORMANCE PERIOD

Performance Period: Three- Year Period, Ending on December 31 ,  

 



 

 



 

 

Performance Goal:

 

Revenue CAGR

              Threshold: 8%

              Target: 12%

              Maximum: 16%



If, for the Performance Period , the Company achieves the Threshold   Performance Goal set forth above, Grantee shall be entitled to                        Performance Shares   (50% of the Target Value of Performance Shares) .  

If, for the Performance Period , the Company achieves the Target Performance Goal set forth above, Grantee shall be entitled to                        Performance Shares   (100% of the Target Value of Performance Shares) .

If, for the Performance Period , the Company achieves the Maximum Performance Goal set forth above, Grantee shall be entitled to                        Performance Shares   (200% of the Target Value of Performance Shares) .

If, for the Performance Period , the Grantee fails to achieve the Threshold   Performance Goal set forth above, then Grantee’s right to earn Performance Shares for the Performance Period   shall be forfeited automatically without further action or notice.

To the extent the act ual level of attainment of the P erformance G oal is at a point between the Threshold Performance Goal and Target Performance Goal or between Target Performance Goal and Maximum Performance Goal , th e maximum number of Performance Shares in which the Grantee can vest shall be determined based on a straight-line interpolation.

The maximum number of Performance Shares in which the Grantee can vest on the basis of the actual level of Performance Go al a ttainment shall in no event exceed in the aggregate 200 % of the number of Performance Shares set forth above.



A- 1

 


Exhibit 14

 



PICTURE 1

AtriCure Code of Conduct AtriCure, Inc. Code of Conduct POL-002-000 / Version: 01 Effective Date: Nov. 1, 2017


 

 



PICTURE 2

Unwavering integrity, honesty, and transparency means that we use good judgment, make ethical and informed decisions, and take personal responsibility for our actions.   A Message from the CEO, Michael Carrel The last five years have been a time of great growth and change at AtriCure. I am proud of the success we have achieved, the reputation we have built, and the credibility we have established.   I am even more proud of the commitment to ethics and transparency that has been the foundation of our culture, and the key to our success .   AtriCure’s Code of Conduct provides guidance on how to make good decisions in the face of our many challenges. It is the responsibility of each of us to ensure that the Code of Conduct is more than just words on a page or screen. Each of us must live both the spirit and the letter of the Code in every decision we make and every action we take. At AtriCure, we do not tolerate unethical behavior, and we do not tolerate retaliation against those who report it. Together, we will ensure the continued success of AtriCure through our shared commitment to the Code of Conduct. Sincerely, Michael Carrel AtriCure AtriCure Code of Conduct 1


 

 



PICTURE 3

Table of Contents A Message from the CEO 1 About This Code 4 Policies, Procedures, and Supplements to This Code 4 Your Obligations Under This Code 4 Consequences to Violating This Code 5 Our Core Values 6 Acting with Integrity and Honesty 6 How We Conduct Our Business 8 Conduct Guided by Our Culture and Values 8 Management Sets the Tone 8 Protecting our Reputation 9 Managing Conduct Risk 10 Complying with the Law 10 Putting Integrity First for Patients & Customers 11 Product and Service Quality 11 Honest Communications 11 Relationships with Customers and Business Partners 12 Fair Dealing 12 Evaluation and Demonstration Products 13 Giving Gifts 13 Receiving Gifts 14 Providing Meals and Other Hospitality 15 Invitations to Conferences/Symposiums 15 Addressing Conflicts of Interest 15 Clinical Trials 15 Data Protection and Patient/Consumer Privacy 16 Raising Legal and Ethical Concerns and Reporting Misconduct 16 Speaking Up 16 Non-Retaliation Commitment 17 Investigations 18 2 AtriCure Code of Conduct


 

 



PICTURE 4

Employee Activities 19 Outside Activities 19 Use of Social Media 20 Insider Trading 20 Political Contributions and Activities 20 Charitable Donations 21 Misconduct Off the Job 21 Maintaining a Fair and Healthy Work Environment 22 Discrimination and Harassment 22 Workplace Violence 22 Workplace Safety and Environment Substance Abuse 23 Solicitation and Fundraising 23 Gambling 24 Employee Privacy 24 Protecting AtriCure’s Assets and Reputation Managing Accurate Records 25 Safeguarding Information 25 Relationships with and Obligations of Departing and Former Employees Communications with the Public 27 Company Property 28 Government Requests for Information and Facility Visits 28 Request for Waivers 28 3 AtriCure Code of Conduct


 

 



PICTURE 5

About This Code This Code of Conduct is a statement of AtriCure’s commitment to integrity and the highest ethical standards in all that we do. The Code defines the standards of conduct that we expect from our employees, members of our Board of Directors (“directors” or “board”), and business partners and guides us to make the right decisions when performing our jobs. Policies, Procedures, and Supplements to This Code Many of the values and principles set forth in this Code are described further in our policies, procedures, and Employee Handbook. Specific business functions or geographical locations may have their own policies and procedures, which you must also follow. In addition, requirements that apply to specific regions and countries are detailed in Country Supplements to the Code. You are responsible for following this Code and all policies and procedures that apply to you. When we use the term “Code,” we are referring collectively to the Code and any applicable Country Supplement. Your Obligations Under This Code This Code forms part of the terms and conditions of your employment/contract and governs your activities at AtriCure, whether you are an employee or board member. It also covers certain continuing obligations in the event you leave AtriCure. At the time you are hired and at least annually thereafter, you are required to acknowledge that you have read, understand, are in compliance with and agree to abide by this Code. This Code and its provisions apply to you even if you fail to provide your acknowledgment. This Code is not a contract guaranteeing your continued employment or entitling you to any special privileges, rights, or benefits. Q & A WHAT IF I HAVE A CONCERN THAT IS NOT COVERED IN THIS CODE? This Code cannot address every potential concern that you may have. However, the standards, values and other guidance set forth in this Code can help you make the right decision. You are expected to act ethically and with sound, reasoned judgment even in the absence of a specific law, regulation or AtriCure policy. If you need more assistance, contact your manager, a member of the Legal Department or your Human Resources representative. 4 AtriCure Code of Conduct


 

 



PICTURE 6

Consequences of Violating This Code If you violate this Code or any other AtriCure policy or procedure, you may be subject to discipline up to and including the termination of your employment/contract. You are personally responsible for any improper or illegal acts you commit during your employment/contract with AtriCure. You can also be held responsible for the action (or inaction) of others if you knew, or should have known, about their misconduct. Your activities may also be reported to regulators and other governmental authorities, which could result in regulatory or criminal investigations. Depending on the outcome of those investigations, you may be subject to fines, partial suspension, disqualification from employment in the biomedical industry, employment termination, and/or imprisonment. 5 AtriCure Code of Conduct


 

 



PICTURE 7

Our Core Values At AtriCure, we are committed to innovation for the sake of our patients and customers. Our core values reflect this commitment and inform everything we do. This Code is a guide to employees to live the values that have been the foundation of this company. Management relies on employees to hold each other accountable because actions that violate this Code put us and the company at risk. Our first responsibility is to the patients and customers we serve. Our commitment to innovation is relentless. Our corporate integrity, honesty, and transparency are unwavering. Acting with Integrity and Honesty This Code is designed to promote honest, ethical, and lawful conduct by all employees and board members, and all third parties conducting business on behalf of AtriCure. In addition, the Code is intended to help you understand AtriCure’s standards of ethical business practices, including compliance with the standards of the AdvaMed Code and MedTech Europe Code of Ethical Business Practices, and to stimulate awareness of ethical and legal issues that may be encountered in carrying out your responsibilities. 6 AtriCure Code of Conduct


 

 



PICTURE 8

This Code cannot anticipate every situation that may arise, so it is important to use a systematic approach to each new question or problem. Below are the steps you should follow when you face a question about whether an action or proposed action complies with this Code: 1.   Make sure you have all the facts. To make an informed decision, you must understand the situation. If requested, you should provide AtriCure with all available facts to reach the right solution. 2.Ask Yourself:  What specifically am I being asked to do? Does it seem unethical or improper? Answering these questions and the additional questions below will enable you to focus on the specific question you are faced with, and the alternatives available to you. 3.Use your common sense. If something seems unethical or improper, it probably is. 4.Clarify your responsibility and role. In most situations, there is shared responsibility. Talk with your colleagues about what you are being asked to do. It often helps to get perspective or input from others. 5.Discuss the problem with your manager. In most situations, your manager will be more knowledgeable about the situation and will appreciate being brought into the decision-making process. Remember, it is your manager’s responsibility to help you solve problems. If your manager cannot help you, there is someone else at the company who can. 6.Seek help from company resources. In a case where it may not be appropriate to discuss an issue with your manager or where you do not feel comfortable approaching your manager with your questions, discuss it with the Human Resources or Legal Department or, if applicable, the Compliance Officer. 7.Always ask first, act later. If you are unsure of what to do in any situation, seek guidance before you act. When in doubt, stop and think. Use your best judgment to make the right decision. If you are unclear about the laws, regulations and policies that apply to your job responsibilities, or if you are unsure about the legality or appropriateness of a course of action, you should seek guidance from your manager, the Legal Department, or your Human Resources representative before any action is taken. 7 AtriCure Code of Conduct


 

 



PICTURE 9

How We Conduct Our Business Conduct Guided by Our Culture and Values We strive to adhere to the highest standards of ethical conduct. We will not compromise the legal, regulatory or policy requirements that govern our activities. Our commitment to ethical conduct means that we abide not only by the letter, but also by the intent, of applicable laws and regulations. As part of our commitment to act ethically, each of us is responsible for complying with relevant conduct standards, including: •acting with integrity, due skill, care, and diligence at all times; •being open and cooperative with regulators; •putting the patient’s interest first; and •observing proper standards of market conduct. MANAGEMENT SETS THE TONE We earn credibility with our customers, business partners, and co-workers by keeping our commitments, acting with honesty and integrity, and pursuing our company goals solely through ethical and professional conduct. Our managers have the added responsibility of creating an open and supportive environment where employees feel comfortable asking questions, raising concerns, and reporting misconduct. Ethical behavior does not simply happen; it is the product of clear and direct communication of behavioral expectations, modeled from the top and demonstrated by example. 8 AtriCure Code of Conduct


 

 



PICTURE 10

Managers who do not take appropriate action when reasonably expected to do so may be held responsible for failure to supervise properly and may subject themselves and AtriCure to adverse consequences. Although managers may delegate certain supervisory functions to a qualified person, managers remain responsible for all activities within their department, and must confirm on a regular basis that any delegated duties that relate to regulatory obligations are being performed. PROTECTING OUR REPUTATION Management and the Board of Directors recognize that AtriCure’s reputation of excellence and integrity is essential to our success. Such a reputation is a precious asset and, once damaged, is extremely difficult to restore. One irresponsible employee or inappropriate transaction could compromise AtriCure’s reputation. All employees and board members are expected at all times to: •Avoid actual or perceived conflicts between personal and professional interests where possible; •Pursue the ethical handling of actual or perceived conflicts of interest when unavoidable (see the Addressing Conflicts of Interest section below); •Provide full, fair, accurate, timely, and understandable disclosure in applicable regulatory and other public communications made by AtriCure; •Be accountable personally for adherence to this Code; •Comply with applicable governmental rules and regulations, and with applicable industry standards; and •Promptly report any actions that violate this Code. Does my action comply with the letter and intent of applicable laws, regulations, and our policies? Could my action damage my or AtriCure’s reputation for being ethical or embarrass me or AtriCure? 9 AtriCure Code of Conduct


 

 



PICTURE 11

Who might benefit from or be harmed by my action? How would my action appear if it were the subject of media reports or other publicity? Could my action be perceived by others as inappropriate or unethical? This Code is part of a broader set of Company policies and compliance procedures, including the AtriCure Employee Handbook. If you have any questions or concerns about your responsibilities under this Code, discuss your questions or concerns with your manager or request advice from our Human Resources Department or the Compliance Officer. MANAGING CONDUCT RISK You must be alert to any potential adverse consequences that your actions or the actions of others might have for our customers, patients, or AtriCure; these types of actions are considered conduct risks. AtriCure has processes in place to support you in identifying, managing, and reporting conduct risk. If you identify any concerns, whether they affect your business unit or others, you must escalate these to your manager or use any of the other escalation channels described in this Code. When escalating your concerns, discuss whether it is appropriate for the notified individual to communicate with representatives of other AtriCure businesses or legal entities. If you are a manager, you must act promptly to address any concerns that are brought to your attention. For more information, refer to the Management Sets the Tone section above. COMPLYING WITH THE LAW Although this Code addresses some of the common challenges that AtriCure faces, it cannot address every situation that may arise in our workplace. When in doubt as to whether an activity is proper, you should seek guidance from your manager, the Human Resources Department, or the Compliance Department. Laws and regulations are complex and subject to change, and often vary from country to country. Company policies may also be subject to change and may vary greatly depending on the country in which we are operating. For these reasons, you 10 AtriCure Code of Conduct


 

 



PICTURE 12

must take care to familiarize yourself with the policy, procedures, and laws that apply to your particular job functions and location(s). If a local law conflicts with this Code, comply with local law. If local custom or practice conflicts with this Code, comply with the Code. Q & A WE ARE BEHIND SCHEDULE AND UNDER A GREAT DEAL OF PRESSURE. MAY WE MODIFY A FEW MANUFACTURING STEPS TO SPEED UP PRODUCTION? While we strive to streamline manufacturing processes to make them as efficient as possible, we must always go through proper channels to receive approval to modify existing manufacturing procedures. Some steps may be required by regulatory agencies or as part of our quality systems. Others may be required to meet our own quality standards.  If you have further questions – or to make suggestions on how to improve a process – consult with your manager or the VP of Quality before taking action. Putting Integrity First for Patients & Customers PRODUCT AND SERVICE QUALITY We are committed to meeting or exceeding customer and regulatory requirements regarding the research, development, manufacturing, packing, testing, supplying, and marketing of our products. Quality means consistently satisfying requirements and expectations by delivering products and services of the highest value in a timely manner. Our customers include internal company employees, consumers, health care professionals, health care organizations, government agencies, wholesalers, and distributors.  While patients are not our customers, they are ultimately impacted by what we do and how we do it. After all, one of our core values is putting patients and our customers first. Quality improvement in all areas of our business, from product research in our laboratories to patient use of our products, is imperative to deliver consistent quality products and procedures that can treat even the most complex conditions. The achievement of our quality goals and objectives depends on our ability to listen to and respect customer needs in every business activity. HONEST COMMUNICATIONS Our customers and the patients they serve depend not only on the quality of our products, but also on the quality of the information we provide to the medical community and general public. Information furnished to our customers about our 11 AtriCure Code of Conduct


 

 



PICTURE 13

products, including availability and delivery, must be useful, accurate, supported by scientific evidence where relevant, and presented honestly, fairly, and by proper means. This means that promotional communications include a description of uses and must also include (unless otherwise required by law or regulations) a summary of precautions, warnings, and the effectiveness of the described indicated uses. We do not communicate with the intent of promoting products for use before the product is approved for such use. Q & A AS A SALES REPRESENTATIVE FOR ONE OF OUR PRODUCTS, I KNOW I AM NOT SUPPOSED TO ENCOURAGE OR PROMOTE THE PRODUCT IN A WAY THAT IS INCONSISTENT WITH PRODUCT LABELING. BUT IF A PHYSICIAN STARTS ASKING QUESTIONS ABOUT SUCH USE, MAY I REFER HIM TO STUDIES AND TO OTHER DOCTORS WHO ARE ALSO PRESCRIBING SUCH USE? Our employees must not provide physicians with information that is inconsistent with the FDA cleared or approved label. You should advis e the physician that AtriCure does not promote use of the product for purposes other than those specified in the product label. If the physician desires additional information on this topic, the physician may contact the company’s Medical Director. Company employees and third parties acting on behalf of AtriCure may only distribute promotional materials that have been approved for distribution by AtriCure’s Promotional Review Committee. RELATIONSHIPS WITH CUSTOMERS AND BUSINESS PARTNERS Fair Dealing Each employee and board member should deal fairly with AtriCure’s suppliers, customers, competitors, and employees. No employee or board member should take unfair advantage through manipulation, concealment, or abuse of privileged information, misrepresentation of material facts, or any other unfair-dealing practice. We respect the confidentiality and privacy of our suppliers and customers. Information about the Company’s suppliers, customers, competitors and employees must be used in an ethical manner and in compliance with the law. Under no circumstance should information be obtained through theft, illegal entry, blackmail, or electronic eavesdropping, or through misrepresenting affiliation with AtriCure. Any confidential or proprietary information should not be used if it is suspected that such information has been obtained improperly. 12 AtriCure Code of Conduct


 

 



PICTURE 14

Customers and potential customers are entitled to receive accurate information regarding prices, capabilities, terms, and scheduling. AtriCure strives to produce advertisements and sales and marketing materials that are fair, accurate and lawful. False or misleading statements to sell or market AtriCure products or services are to be strictly avoided. Immediate efforts should be made to correct any misunderstanding that may exist with a customer or potential customer. Evaluation and Demonstration Products in the United States, AtriCure products may be provided at no charge to Health Care Professionals for evaluation including single use (sometimes called “consumable” or “disposable” products) and multiple use products (sometimes referred to as “capital equipment”). These products allow Health Care Professionals to assess the appropriate use and functionality of the product and determine whether and when to use, order, purchase, or recommend the product in the future. Refer to the Guide to Interactions with Health Care Professionals for details. Health Care Professionals should be provided with documentation and disclosure regarding the no-charge status of evaluation and demonstration products. Giving Gifts Business interactions with Health Care Professionals should be professional in nature and should facilitate the exchange of medical or scientific information that will benefit patient care. To ensure the appropriate focus on an educational and/or informational exchange and to avoid the appearance of impropriety, AtriCure may provide items to Health Care Professionals that benefit patients or serve a genuine educational function. Other than medical textbooks or anatomical models used for educational purposes, any such educational item should have a fair market value of less than $100. To safeguard the public’s confidence in physicians to make decisions solely on the basis of patient health, we do not allow any gift giving, regardless of cost or type with the exception of the education materials discussed above, to non-employee Health Care Professionals. Payments may be made to Health Care Professionals in exchange for the Health Care Professionals providing bona fide services to AtriCure where the payments reflect the fair market value of the services, the services are of genuine need to AtriCure, and other applicable policies and procedures are adhered to. If you have any questions regarding a specific matter or event, you should discuss your questions or concerns with your manager or request advice from our Human Resources or Compliance Department. 13 AtriCure Code of Conduct


 

 



PICTURE 15

Government Officials or Employees: No Gifts, Meals, Hospitality, or Other Benefits In most countries, it is prohibited to provide payments or anything of value to government officials or government employees to obtain or retain business.  Providing gifts, meals, hospitality, or similar items requires additional evaluation to ensure that no inappropriate payment or benefit is being provided. Also, AtriCure wants to avoid even the appearance of impropriety. Talk with the Compliance Department before providing a gift, invitation, or any other kind of benefits to a government employee. Receiving Gifts Gifts or entertainment should never be accepted by any employee or family member of an AtriCure employee unless it is infrequent in nature and: •is not a cash gift, •is consistent with customary business practices, •is not excessive in value (use less than $100 in value per person as a guideline), •cannot be construed as a bribe or payoff, and •does not violate any laws or regulations. Employees, board members, and their families are prohibited from requesting, accepting, or offering any form of “under-the-table” payment, “kickback,” bribe, rebate or other improper payment or gratuity in connection with any corporate expenditure or sale of goods or services. If approached with such an offer, the individual must immediately notify a responsible manager, the Human Resources Department or Legal Department. Providing Meals and Other Hospitality We may provide occasional meals or hospitality, provided that the meal is modest and accompanied by a legitimate informational presentation or discussion, or ancillary to another legitimate activity such as a consultant meeting. Meals for a spouse or guest of a Health Care Professional are not provided. The providing of meals or other hospitality is permitted only if it is not likely to 14 AtriCure Code of Conduct


 

 



PICTURE 16

be perceived as an attempt to improperly influence business decisions and not embarrassing to AtriCure if it were to receive public scrutiny. INVITATIONS TO CONFERENCES/SYMPOSIUMS We are committed to conducting and participating in educational programs that share medical and scientific information. We also recognize the importance of ensuring that these activities are undertaken in an appropriate and professional manner, with the ultimate goal of improving patient care. Accordingly, the meeting agenda must be appropriate for participants and support the meeting’s scientific purpose. The location should be selected on the basis of participant travel convenience, cost, and appropriateness for the type of meeting and audience. We do not pay for physicians to attend events not hosted or sponsored by AtriCure. We do not fund travel for spouses or companions of attendees. ADDRESSING CONFLICTS OF INTEREST Potential and actual conflicts of interest can pose regulatory risk to AtriCure. Consistent with our core value of AtriCure’s patients and customers being our first responsibility, you must be sensitive to whether the actions you take could create an actual or potential conflict of interest, or even the appearance of a conflict. This is the case whether you are acting on your own behalf or on the behalf of AtriCure, your business unit, or a customer. In the complex business environment in which AtriCure operates, conflicts of interest will arise. What is important is to recognize when an actual or potential conflict exists and to take the appropriate steps to address it appropriately. Our Conflict of Interest Policy describes the framework in place at AtriCure for identifying and addressing actual or potential conflicts of interest. You should promptly discuss any business or personal activity or relationship (including those that involve family members) that could give rise to an actual or potential conflict of interest, or the appearance of a conflict, with your manager or a member of the Compliance Department. For more information, refer to the Conflict of Interest Policy. CLINICAL TRIALS Clinical trials determine the safety and usefulness of our products in people who volunteer to participate in our studies. Therefore, it is crucial that we conduct these trials with the utmost regard for the health and safety of participants while furthering the interests of science and society. Detailed standards and guidelines concerning clinical trials and product protocols are available from the Medical Director or Senior VP of Clinical, Regulatory, and Scientific Affairs. 15 AtriCure Code of Conduct


 

 



PICTURE 17

Clinical research shall be conducted under the direction of qualified medical and scientific personnel and according to high standards of medical and clinical ethics. Close collaboration and interaction with the medical and scientific community are essential to our mission. DATA PROTECTION AND PATIENT/CONSUMER PRIVACY AtriCure makes all reasonable efforts to comply with all applicable privacy and data protection laws, regulations, and treaties to protect personal information that the Company collects from, or maintains about, customers, patients, or others. Employees, board members, and third parties working on behalf of AtriCure must take care to protect customer, patient, and other personal health information from inappropriate or unauthorized use or disclosure. AtriCure provides all required privacy notices regarding the collection of information in accordance with applicable law. Raising Legal and Ethical Concerns and Reporting Misconduct SPEAKING UP We are expected to work together to ensure prompt and consistent action to address violations of this Code. However, sometimes it is difficult to discern if a violation has occurred or may occur. We each have an obligation to speak up when we are faced with conduct or situations that raise legal or ethical concerns. This includes suspected or attempted wrongdoing and fraud, whether taking place within AtriCure or being attempted by a third party. If you believe your own or another’s behavior may violate the principles of conduct outlined in this Code or our supporting policies, it is your responsibility to promptly inform the appropriate person. Q & A CAN I REPORT A CONCERN ANONYMOUSLY? AtriCure encourages employees making reports to identify themselves so that the information can be reviewed promptly and thoroughly. Our ability to directly contact an individual who has raised a concern will expedite any review. However, you may submit an anonymous report when using the hotline or ethics website. AtriCure does not tolerate any form of retaliation against individuals reporting suspicions or violations or participating in related investigations. 16 AtriCure Code of Conduct


 

 



PICTURE 18

For suspected violations, notify one of the following:   Ethics hotline (855.541.4171) •Ethics website (atricure.ethicspoint.com) You may also report matters and concerns in a non-anonymous manner by calling members of the Compliance Department or by email (compliance@atricure.com). Reporting violations: Ethics hotline: 855.541.4171 Ethics website: ethicspoint.atricure.com Refer to the Code of Ethics for the Chief Executive Officer and Senior Financial Officers for information on reporting any suspected violations related to audit and accounting procedures or related matters. If you are in a situation that you believe may involve or lead to a violation of this Code, you have a responsibility to disclose to, and seek guidance from, a responsible manager, the Human Resources Department, or the Compliance Officer. Failure to follow this Code, as well as to comply with federal, state, local, and any applicable foreign laws, and AtriCure’s corporate policies and procedures may result in discipline up to and including termination of employment or board service. NON-RETALIATION COMMITMENT We encourage the communication of concerns relating to the lawful and ethical conduct of business and require reporting of any suspected violations. It is AtriCure’s policy to protect those who communicate concerns and those who participate in an investigation from any retaliation for such reporting. Confidential and anonymous mechanisms for reporting concerns are available and are described in the Code. However, anonymous reporting does not serve to satisfy a duty to disclose your potential involvement in a conflict of interest or in unethical or illegal conduct. Refer to the Employee Handbook for more information. Q & A WHAT ABOUT RETALIATION FOR REPORTING A CONCERN? We take allegations of misconduct seriously and prohibit retaliation against or the victimization of any individual raising a concern or participating in an investigation. 17 AtriCure Code of Conduct


 

 



PICTURE 19

INVESTIGATIONS Allegations of Code violations will be reviewed and investigated as applicable by the Human Resources Department, Compliance Officer, CFO, or President/CEO. In some appropriate circumstances, the Audit Committee, Corporate Governance Committee, or the Compliance, Quality and Risk Committee or their respective designees may be involved. AtriCure may also engage outside resources, such as legal counsel or consultants, as necessary. 18 AtriCure Code of Conduct


 

 



PICTURE 20

Employee Activities Outside Activities AtriCure’s employees are expected to devote their full time and attention to company business during regular working hours and for whatever additional time may be required. Outside business activities can easily create conflicts of interest or diminish productivity and effectiveness. For these reasons, employees should avoid outside business activities that divert their time and talents from AtriCure’s business. Though AtriCure encourages professional activities and community involvement, special care must be taken not to compromise duties owed to the company. Employees are expected to disclose the nature of any non-company activity for which compensation is received if there is a possibility the activity could be viewed as creating a conflict of interest pursuant to this Code.  Employees must obtain approval from the AtriCure board before agreeing to serve on the board of directors or similar body of a for-profit enterprise or government agency. Serving on boards of not-for-profit or community organizations does not require prior approval. However, if service with a not-for-profit or community organization creates a situation that poses a conflict of interest with AtriCure (for example, the organization solicits charitable contributions from the company or purchases significant services from the company), AtriCure’s board should be contacted for approval prior to such service. Subject to the limitations imposed by this Code, and other applicable company policies and agreements, each employee is free to engage in outside activities that do not interfere with the performance of his or her responsibilities or otherwise conflict with the company’s interests. No employee or board member may use his or her Company position or title or any company equipment, supplies or facilities in connection with outside activities, nor may any employee or board member do anything that might infer sponsorship or support by the company of such activity, 19 AtriCure Code of Conduct


 

 



PICTURE 21

unless such use has been approved in writing by a responsible manager, the Human Resources Department or the Compliance Officer. Use of Social Media Due to federal regulations, there are strict requirements related to posting information about or promoting AtriCure or any of our products. See the Employee Handbook, Social Media section for details. In general, when you interact on social media, remember that you are representing AtriCure. Insider Trading No employee or board member may trade in securities while in possession of information that would be considered valuable to investors, such as earnings estimates, clinical trial results, or mergers and acquisitions. Employees and board members cannot disclose such information to third parties (“tipping”). The use of this type of information for trading, or tipping others to trade, is both unethical and illegal. Any questions as to whether information is material or non-public should be directed to AtriCure’s CFO. For additional information, see also the Insider Trading Policy, available upon request from the CFO. Additionally, all employees and board members must provide full, fair, and accurate disclosure in all government filings and public communications. Political Contributions and Activities the Company permits political activity and participation in electoral politics by employees and board members where appropriate. However, such activity must occur strictly in an individual and private capacity and not on behalf of AtriCure, except as approved by the board. Employees and board members may not conduct personal political activity on company time or use company property or equipment for this purpose. No direct or indirect political contribution of any kind may be made in the name of AtriCure, unless the Human Resources Department or the Legal Department has certified in writing that such political contribution complies with applicable law. When such permission is given, such contributions shall be by check to the order of the political candidate or party involved, or by such other means as will readily enable AtriCure to verify, at any given time, the amount and origin of the contribution. 20 AtriCure Code of Conduct


 

 



PICTURE 22

Charitable Donations In the United States, AtriCure and AtriCure personnel may make monetary or medical technology donations for charitable purposes, such as supporting indigent care, patient education, public education, or the sponsorship of events where the proceeds are intended for charitable purposes. If the contribution is given to an organization that provides services related to AtriCure’s business, approval must be granted prior to the contribution. Contributions to organizations not related to AtriCure’s business, such as the United Way, American Red Cross, or a religious organization, does not require approval. Donations should be motivated by authentic charitable purposes and should be made only to charitable organizations. Outside the United States, AtriCure and AtriCure personnel may make monetary donations for any charitable or philanthropical purpose, any authentic organization and/or other non-profit entities entitled to receive them under applicable national or local laws and regulations. All charitable donations by AtriCure are administrated through Finance and approved by management. Misconduct Off the Job Employees and board members must avoid conduct off the job that could impair work performance or affect AtriCure’s reputation or business interests. For AtriCure to determine any potential impact to your work performance or AtriCure, you must promptly report to the Compliance Officer any arrest or charge pending final resolution or conviction for: 1.Any felony (or state or local law felony equivalent); 2. Any crime involving dishonesty, fraud, assault, battery or violence; 3.Any other circumstance which may affect your ability to perform your job or otherwise affect the company’s business interests. An arrest or conviction will not automatically disqualify you from employment or other service with AtriCure. The company will make an individualized assessment of the circumstances of the situation and take into account how the situation may be related to and impact your job duties. 21 AtriCure Code of Conduct


 

 



PICTURE 23

Maintaining a Fair and Healthy Work Environment The Company is an equal opportunity employer and bases our recruitment, employment, development, and promotion decisions solely on a person’s ability and potential in relation to the needs of the job, and complies with local, state, and federal employment laws.  Discrimination and Harassment AtriCure has a zero-tolerance policy for discrimination, sexual harassment, or other harassment based on race, color, national origin, sex, religion, age, sexual orientation, gender identity, status as a protected veteran or an individual with disability, or any other protected group status or non- job related characteristic as directed by law. Harassment includes but is not limited to, racist, sexist, or ethnic comments, jokes, or gestures, or any conduct or statements creating an intimidating, hostile or offensive work environment. Refer to the Employee Handbook, Harassment-Free Workplace section for more information. Any unlawful discrimination or harassment must be brought to the attention of your manager or Human Resources Department, who will arrange for an investigation. If your complaint is about your manager or you are otherwise uncomfortable reporting your complaint to him or her, you should report it directly to the Human Resources Department. All efforts will be made to handle the investigation as confidentially as possible. Workplace Violence AtriCure will not tolerate any threatening, hostile, or abusive behavior in the workplace, while operating company vehicles or on company business, or by any persons on company property. Immediate and appropriate action will be taken against offenders, up to and including termination of employment and referral for criminal prosecution. AtriCure will also not tolerate threatening, hostile, or abusive conduct directed by employees or customers towards AtriCure personnel at any time or place. Damage to property is also prohibited. Refer to the Employee Handbook, Violence-Free Workplace section for more information. You must immediately report any instance of violence or hostile behavior to 22 AtriCure Code of Conduct


 

 



PICTURE 24

a manager. In cases of imminent danger, you should contact 911 or local law enforcement first, then contact a manager. Workplace Safety and Environment AtriCure is committed to providing a safe workplace for all employees and meeting its environmental responsibilities. You must perform your job in a safe and environmentally responsible manner in compliance with applicable AtriCure policies and procedures and the law. If you believe that a safety, health, or environmental hazard exists, or you have concerns about unsafe equipment practices or conditions, you must immediately report the situation to your manager. If you are unable to reach your manager directly or there is an imminent threat to personnel, you must also contact the Environmental Health and Safety Manager. If you are a manager, you must ensure that the employees you manage are trained on the safety and environmental regulations and policies. You must investigate all safety, health, and environmental issues that come to your attention, and refer any issues of potential non-compliance to your manager, Environmental Health and Safety Manager, or a member of the Safety Committee. If you believe that your manager has failed to take appropriate action to remedy a condition which is unsafe or in violation of any safety, health, or environmental law or practice, you must immediately contact the Environmental Health and Safety Manager or a member of the Safety Committee. AtriCure is required to record and report work-related accidents. If you are involved in a work-related accident, you must immediately report it to your manager and follow the company’s policies for reporting accidents and injuries. Substance Abuse AtriCure is committed to providing a drug-free work environment. The illegal possession, distribution, or use of any controlled substances on company premises, while on company business, or at business functions is strictly prohibited. Similarly, reporting to work under the influence of any illegal drug or alcohol, and the use of alcohol or the misuse of prescribed or over-the-counter medications in the workplace or on company business, are not in AtriCure’s best interest and violates this Code. Refer to the Employee Handbook, Drug-Free and Alcohol-Free Workplace section for more information. 23 AtriCure Code of Conduct


 

 



PICTURE 25

Solicitation and Fundraising Soliciting and fundraising distract from work time productivity, may be perceived as required, and may be unlawful. Therefore, employees should not solicit contributions or other support from fellow employees, or distribute non-work-related material to fellow employees, during working hours or in areas where work is being performed. The use of company resources, such as email, phone, or computers, to solicit or distribute non-business literature is prohibited, unless otherwise permitted by law.  Non-employees may not engage in solicitation or distribution of literature on company property. The only exception to this prohibition is when the company has authorized communications related to benefits or services made available to employees, company-sponsored charitable organizations, or other company-sponsored events or activities. To determine whether a particular activity is authorized by AtriCure, contact the Compliance Officer Gambling You may not gamble or participate in any games of chance (including raffles, sports pools or lotteries) on company property, on company systems, or while conducting company business. The only exceptions are those events held or sponsored by AtriCure. Employee Privacy In order to protect company assets, provide excellent service, ensure a safe workplace, and to investigate improper use or access, AtriCure may monitor employee’s use of computer and/or communication devices, including internet use and corporate and personal web-based email access from AtriCure devices or systems. AtriCure reserves the right to inspect, monitor, and record the use of all company property, company-provided communication devices, vehicles, systems, and facilities – with or without notice – and to search or monitor at any time any and all company property and any other personal property (including vehicles) on company property. Refer to the Privacy Policy for more information. 24 AtriCure Code of Conduct


 

 



PICTURE 26

Protecting AtriCure’s Assets and Reputation Every employee and board member has a personal responsibility to protect AtriCure’s assets from misuse or misappropriation. The assets include tangible assets, such as products, equipment, and facilities, as well as intangible assets, such as business opportunities for AtriCure, intellectual property, trade secrets, business information, and its reputation. Managing Accurate Records Accurate business records are essential to the operations of AtriCure and to maintain and safeguard stockholder confidence. All employees are expected to retain records, whether hard copy or electronic, according to AtriCure’s Records Management Policy. Destroying or altering a document with the intent to impair the document’s integrity or availability for use in any potential official proceeding is a crime. Prior to the destruction of corporate records, all employees must consult an appropriate manager to ensure compliance with the Records Management Policy. Documents relevant to any pending, threatened, or anticipated litigation, investigation, or audit shall not be destroyed for any reason. Any belief that AtriCure’s records are being improperly altered or destroyed should be reported to a responsible manager, the Legal Department or the Human Resources Department. See the Records Management Policy for more details. Safeguarding Information No employee or board member of AtriCure who is entrusted with information of a confidential or proprietary nature shall disclose that information outside the Company, except with written authorization of the Company or as may be otherwise required by law. Any employee who receives communications from the Securities and Exchange Commission should contact the Chief Financial Officer. Confidential information includes all non-public information learned as an employee or board member of AtriCure and could be about AtriCure, its suppliers, customers, patients, or other constituents.  Regardless of the subject or source of the information, all employees and board members cannot use confidential information for their own personal benefit or the benefit of persons or entities outside the company. 25 AtriCure Code of Conduct


 

 



PICTURE 28

Some examples of confidential information: • Non-public information that might be of use to competitors, of interest to the press, or harmful to AtriCure or its customers, if disclosed; Non-public information about AtriCure’s financial condition, prospects or plans; AtriCure’s marketing and sales programs and research and development information; Non-public information concerning possible transactions with other companies; and Non-public information about discussions and deliberations between and among employees and board members related to business issues and decisions, except that employees are permitted to discuss their terms and conditions of employment. Refer to the Employee Handbook, Confidentiality section for more information. You can also refer back to the Non-Competition, Proprietary Information, and Inventions Agreement you signed when hired. See the Insider Trading section above, as well as the Insider Trading Policy and any policies relating to individual confidentiality agreements. There are laws in place to ensure vigorous competition exists to ensure the production of high quality, appropriately priced and innovative products and services. AtriCure is dedicated to ethical, fair, and vigorous competition. Our products are sold solely on the basis of their merit, superior quality, and innovative design, through the efforts and contributions of its employees and board members. Every employee and board member is expected to support these efforts. Whenever any doubt exists as to the legality of any communication, action, or arrangement, please contact the Human Resources Department or the Compliance Officer immediately. Concerns about any financial transactions should be referred to the Chief Financial Officer for handling. 26 AtriCure Code of Conduct


 

 



PICTURE 29

Relationships with and Obligations of Departing and Former Employees Your obligation to abide by company standards exists even after your employment with AtriCure ends. The following requirements apply to all current, departing, and former AtriCure employees: •When leaving or retiring, you must ensure that you return all AtriCure property in your possession, including all records and equipment. You may not breach any employment condition or agreement you have with AtriCure.  You may not use or disclose AtriCure non-public information in any subsequent employment, unless you receive written permission in advance from an AtriCure officer and the Legal Department. You may not provide any AtriCure non-public company information to former employees, unless authorized. If a former employee solicits non-public information from you, you must immediately notify the Legal Department. When considering a former employee for re-hire, use as an independent contractor, or to purchase products or services on AtriCure’s behalf, refer to Human Resources or the Executive Management team. Please note that some former employees are never eligible for rehire. If you are concerned that a former AtriCure employee is benefiting unfairly from information obtained while employed at AtriCure, or may be inappropriately receiving AtriCure non-public information, you should contact the Compliance Officer for guidance. Communicating with the Public The Company is committed to delivering accurate and reliable information to the media, financial analysts, stockholders, brokers, and other members of the public. All public disclosures, including forecasts, press releases, speeches, and other communications, are intended to be honest, accurate, timely, and representative of the facts. To ensure consistent and accurate delivery of company information, employees are not authorized to answer questions from the news media, securities analysts, stockholders, or other members of the public. Please direct all inquiries to the Director of Marketing Communications, who will direct the inquiry to the AtriCure employee who is authorized to speak to the media. When approached for information, you must record the name of the person making the inquiry and immediately notify the Director of Marketing Communications or Chief Financial Officer. AtriCure Code of Conduct 27


 

 



PICTURE 30

Company Property Theft, damage, carelessness, and waste have a direct impact on AtriCure’s success. We must commit to protecting AtriCure’s physical assets from theft, damage, loss, or misuse. This includes our facilities, vehicles, merchandise, and supplies. If you suspect any form of fraud or theft, you must report it to your manager immediately. AtriCure’s property can only be used for business purposes and such other purposes as are approved by the Company. No employee or board member may take, make use of, or knowingly misappropriate AtriCure’s assets for personal use, for use by another party, or for an improper or illegal purpose. The unauthorized removal, disposal, or destruction of anything of value belonging to AtriCure, including both physical items and electronic information, is prohibited. Refer to the Company Asset Use Policy for more information. Intellectual property is a vital component of AtriCure and consists of any of AtriCure’s patents, trademarks, copyrights, or other intangible assets, such as ideas, inventions, processes, or designs created at company expense, on work time, using AtriCure resources or within the scope of the employees’ job duties. Management will identify any new AtriCure inventions and direct them to the Legal Department for protection. You should report any suspected misuse of AtriCure’s intellectual property to the Legal Department. Refer to the Non-Competition, Proprietary Information, and Inventions Agreement for more details. Government Requests for Information and Facility Visits AtriCure cooperates with all government departments and agencies in any authorized request for information or for a facility inspection or other visit. Management will represent AtriCure in such situations and will determine what information is appropriate to supply to visitors. If you are contacted by any government agency with such a request for information or for a facility inspection or other visit, contact AtriCure’s CFO or Compliance Officer. Requests for Waivers While some standards in this Code require strict application (and exceptions or waivers are not allowed), others do allow for waivers. For example, minor conflicts of interest might be resolved by disclosing the conflict to all interested parties. Any waiver of this Code for board members and officers must be approved by the full board. Employees, who are not officers or board members and believe they merit a waiver, should first contact their manager. If the manager agrees that a waiver is warranted, the manager may forward a written request for a waiver to the Compliance Officer, who will review the request. 28 AtriCure Code of Conduct


 

 



PICTURE 31

ATRICURE, INC. CORPORATE HEADQUARTERS 7555 Innovation Way Mason, Ohio 45040 USA www.atricure.com ATRICURE – MINNETONKA 130 Cheshire Lane, Suite 250 Minnetonka, MN 55305 USA ATRICURE – SAN RAMON 2420 Camino Ramon, Suite 110 San Ramon, CA 94583 USA ATRICURE – EUROPE BV De Entrée 260 1101 EE Amsterdam Z.O. Netherlands AtriCure, Inc. Code of Conduct POL-002-000 / Version: 01 Effective Date: Nov. 1, 2017 30 Atricure


 

Exhibit 21

SUBSIDIARIES OF ATRICURE, INC.

AtriCure Europe , B.V., incorporated in the Netherlands

AtriCure, LLC , a Delaware limited liability company  

Endoscopic Technologies, LLC , a Delaware limited liability company

nContact Surgical LLC, a Delaware limited liability company

AtriCure Spain, S.L., incorporated in Spain

AtriCure Germany GmbH, incorporated in Germany

AtriCure Hong Kong Limited, incorporated in Hong Kong

AtriCure (Beijing) Medicine Information Consulting Service Co., Ltd., incorporated in Beijing



 


 

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-212088 on Form S-3 and Registration Statement Nos. 333-22654 1, 333-226540, 333-219535, 333-216704, 333-199744, 333-194481, 333-187123, 333-180037, 333-173204, 333-173203, 333-165781, 333-165780, 333-157974, 333-157972, 333-152014, and 333-152013 on Form S-8 of our reports dated March 1 , 201 9 , relating to the consolidated financial statements and financial statement schedule of AtriCure, Inc. and subsidiaries (the “Company”), and the effectiveness of the Company’s internal control over financial reporting, appearing in the Annual Report on Form 10-K of AtriCure, Inc. for the year ended December 31, 201 8 .

/s/ Deloitte & Touche LLP

Cincinnati, Ohio

March 1 , 201 9

 


 

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO

SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael H. Carrel , certify that:

1. I have reviewed this annual report on Form 10-K of AtriCure, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 1 , 201 9  

 



 

 

 



By:

/s/ Michael H. Carrel

 



 

Michael H. Carrel

 



 

President and Chief Executive Officer

 



 

(Principal Executive Officer)

 



 


 

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO

SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, M. Andrew Wade , certify that:

1. I have reviewed this annual report on Form 10-K of AtriCure, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date :   March 1, 2019

 



 

 

 



By:

/s/ M. Andrew Wade

 



 

M. Andrew Wade

 



 

Senior Vice President and Chief Financial Officer

 



 

(Principal Accounting and Financial Officer)

 



 


 

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of AtriCure, Inc. (the “Company”) on Form 10–K for the year ended December 31, 20 1 8 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael H. Carrel , President and Chief Executive Officer of the Company, certify, pursuant to Rule 13a–14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 1, 2019  

 



 

 

 



By:

/s/ Michael H. Carrel

 



 

Michael H. Carrel

 



 

President and Chief Executive Officer

 



 

(Principal Executive Officer)

 



A signed original of this written statement or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to AtriCure, Inc. and will be retained by AtriCure, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the report or as a separate disclosure document.

 


 

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of AtriCure, Inc. (the “Company”) on Form 10–K for the year ended December 31, 20 1 8 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, M. Andrew Wade ,   Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to Rule 13a–14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date :   March 1, 2019  

 



 

 

 



By:

/s/ M. Andrew Wade

 



 

M. Andrew Wade

 



 

Senior Vice President and Chief Financial Officer

 



 

(Principal Accounting and Financial Officer)

 



A signed original of this written statement or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to AtriCure, Inc. and will be retained by AtriCure, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the report or as a separate disclosure document.