Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2019

The accompanying consolidated financial statements in this Annual Report on Form 10-K have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and with the rules and regulations of the United States Securities and Exchange Commission (“SEC”). These financial statements include the financial position, results of operations and cash flows of the Company, including its subsidiaries, all of which are wholly-owned. All inter-company accounts and transactions have been eliminated in consolidation. For the years ended December 31, 2019, 2018 and 2017, there were no related party transactions.

Operating Segment

The Company has one operating and reporting segment that is focused exclusively on the development, manufacture, marketing and sale of EVAR and EVAS products for the treatment of aortic disorders. For the year ended December 31, 2019, all of the Company’s revenue and related expenses were solely attributable to these activities. Substantially all of the Company’s long-lived assets are located in the United States

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses, and the related disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. Management evaluates its estimates on an ongoing basis, including those related to: (i) collectibility of customer accounts; (ii) whether the cost of inventories can be recovered; (iii) the value of goodwill and intangible assets; (iv) realization of tax assets and estimates of tax liabilities; (v) likelihood of payment and the value of contingent liabilities; and (vi) the potential outcome of litigation. Such estimates are based on management’s judgment which takes into account historical experience and various assumptions. Nonetheless, actual results may differ from management’s estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments that are readily convertible into cash and have a maturity of 3 months or less at the time of purchase to be cash equivalents. The cost of these investments approximates fair value.

Accounts Receivables

Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount, inclusive of applicable value-added tax (“VAT”), and do not bear interest. Revenue is recorded net of VAT. The allowance for doubtful accounts is management’s best estimate of the amount of probable credit losses in existing accounts receivable. These estimates are based on our review of the aging of customer balances, correspondence with the customer, and the customer’s payment history. Account balances are charged off against the allowance after appropriate collection efforts are exhausted.

Inventories

The Company values its inventory at the lower of the actual cost to purchase or manufacture the inventory or net realizable value for such inventory. Cost is determined using the first-in, first-out method. The Company regularly reviews inventory quantities in process and on-hand and, when appropriate, records a provision for obsolete and excess inventory. The provision is based on actual loss experience and a forecast of product demand compared to its remaining shelf life.

Property and Equipment

Property and equipment are stated at cost and depreciated on a straight-line basis over the following estimated useful lives:



Property Class		Useful Life
Office furniture		7 years
Computer hardware		3 years
Computer software		3-8 years
Production equipment and molds		3-7 years
Leasehold improvements		Shorter of expected useful life or remaining term of lease

Upon the sale or disposition of property and equipment, any gain or loss is included in the Consolidated Statements of Operations and Comprehensive Loss. Property and equipment are tested for impairment only when impairment indicators are present.

Goodwill and Intangible Assets

Goodwill and intangible assets often represent a significant portion of the assets acquired in a business combination. The Company recognize the fair value of an acquired intangible asset apart from goodwill whenever the intangible asset arises from contractual or other legal rights, or when it can be separated or divided from the acquired entity and sold, transferred, licensed, rented or exchanged, either individually or in combination with a related contract, asset or liability. Intangible assets consist primarily of technology, customer relationships, trade name and trademarks acquired in business combinations, and in-process research and development (“IPR&D”). The Company generally assess the estimated fair values of acquired intangible assets using a combination of valuation techniques. To estimate fair value, the Company is required to make certain estimates and assumptions, including future economic and market conditions, revenue growth, market share, operating costs and margins, and risk-adjusted discount rates. The Company’s estimates require significant judgment and are based on historical data, various internal estimates and external sources. The Company’s assessment of IPR&D also includes consideration of the risk that the projects may not achieve technological feasibility.

Intangible assets with definite lives are amortized over their estimated useful lives using a method that reflects the pattern over which the economic benefit is expected to be realized.

In-process research and development is amortized over its useful life upon commencement of commercial sales.

Goodwill and other intangible assets with indefinite lives are not subject to amortization but are tested for impairment annually or whenever events or changes in business circumstances suggest the potential of an impairment. The evaluation of indefinite-lived intangible assets for impairment allows for a qualitative assessment to be performed. In performing its qualitative assessment, the Company considers relevant events and conditions including, but not limited to: macroeconomic trends, industry and market conditions, overall financial performance, cost factors, company-specific events, legal and regulatory factors and market capitalization.

The Company completed its annual test for impairment of goodwill as of June 30, 2019, under the quantitative assessment, with no resulting impairment, as the Company’s market capitalization was in substantial excess of the value of its total stockholders’s equity (The Company have one reporting unit for purposes of its goodwill impairment test).

In the fourth quarter of the year ended December 31, 2019, the Company determined that there was a sufficient indicator to trigger an additional interim goodwill impairment test due to a significant decrease in the the Company’s market capitalization during the fourth quarter of 2019. The interim goodwill impairment test was prepared as of December 31, 2019 using a quantitative assessment to determine if the fair value of the Company’s single reporting unit was less than its carrying value as of the test date. Based on the results of the quantitative interim goodwill impairment test, the fair value of the Company’s single reporting unit substantially exceeded its carrying value and therefore, no impairment charge was recognized as of December 31, 2019.

In performing quantitative goodwill assessment the Company estimated the reporting unit's fair value based on its enterprise value plus an assumed control premium as evidence of fair value. The estimates used to determine the fair value of the reporting unit may change based on results of operations, macroeconomic conditions stock price fluctuations or other factors. Changes in these estimates could materially affect the estimate of the fair value of the reporting unit and the resulting conclusion as to any goodwill impairment for the reporting unit.

If the recent negative volatility of the Company’s market capitalization is sustained, the Company may perform impairment tests more frequently and it is possible that the Company’s goodwill could become impaired, which could result in a material charge and adversely affect the Company’s results of operations.

Long-lived assets, including finite-lived intangible assets, are tested for impairment whenever events or changes in circumstances indicate that the carrying value of finite-lived intangible asset or asset group may not be recoverable. The first step in the impairment testing involves a comparison of the sum of the undiscounted future cash flows of the asset or asset group to its carrying amount. If the sum of the undiscounted future cash flows exceeds the carrying amount, then no impairment exists. If the carrying amount exceeds the sum of the undiscounted future cash flows, then a second step is performed to determine the amount of impairment, if any, to be recognized. An impairment loss is recognized to the extent that the carrying amount of the asset or asset group exceeds its fair value. The fair value of the asset or asset group is based on estimated discounted future cash flows of the asset or asset group using a discount rate commensurate with the related risk. The estimate of future cash flows requires management to make assumptions and to apply judgment, including forecasting future sales and expenses and estimating useful lives of the assets. These estimates can be affected by a number of factors, including, among others, future results, demand and economic conditions, many of which can be difficult to predict.

For reasons similar to those described above related to goodwill, during the fourth quarter of 2019, the Company performed the first step of the impairment analysis over the Company’s asset groups as of December 31, 2019. The results of the first step of the impairment analysis test indicated that the sums of the undiscounted future cash flows of the asset groups exceeded their carrying amounts. Accordingly, no impairment charge was recognized as of December 31, 2019.

Fair Value Measurements

When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of nonperformance. The Company uses the following three levels of inputs in determining the fair value of the Company’s assets and liabilities, focusing on the most observable inputs when available:


•	Level 1 — Quoted prices in active markets for identical assets or liabilities.

•

Level 2 — Observable inputs other than Level 1 prices such as: quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.


•	Level 3 — Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

Business Combinations

Contingent Consideration for Business Acquisition

The Company determined the fair value of contingently issuable common stock on the date of the Nellix, Inc. (“Nellix”) acquisition (see Note 9) using a probability-based income approach with an appropriate discount rate (determined using both Level 1 and Level 3 inputs). Changes in the fair value of the contingently issuable common stock are determined at each period end and are recorded in the other income (expense), net line item of the Consolidated Statements of Operations and Comprehensive Loss, and the current and non-current liabilities line items of the Consolidated Balance Sheets.

Litigation Accruals

From time to time the Company is involved in various claims and legal proceedings of a nature considered normal and incidental to its business. These matters may include product liability, intellectual property, employment and other general claims. The Company accrues for contingent liabilities when it is probable that a liability has been incurred and the amount can be reasonably estimated. The accruals are adjusted periodically as assessments change or as additional information becomes available.

Debt and Derivative Liabilities

The Company accounted for the refinance of its debt in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 470-50, Debt Modifications and Extinguishment. The Company accounted for refinancing of debt as an extinguishment if terms of the new debt and original debt are substantially different (i.e. the present value of the cash flows under the terms of the new debt is at least 10% different from the present value of the remaining cash flows under the terms of the original debt). The original debt is derecognized and the new debt is recorded at fair value, with the difference recorded as extinguishment gain or loss line item of the Consolidated Statements of Operations and Comprehensive Loss. If the terms of the new debt and original debt are not substantially different, the debt refinancing is accounted for as debt modification where no gain or loss is recognized.

The Company incurred debt issuance costs in connection with the issuance and refinance of its convertible notes and term loan facility, which are presented as a direct deduction against the carrying amount of the debt and is amortized to interest expense using the effective interest method.

The Company’s debt includes conversion feature that meets the definition of embedded derivative under ASC 815. Consequently, the embedded derivative was bifurcated and accounted for separately at fair value. Changes in the fair value of the derivative liabilities are determined at each period end and are recorded in the change in fair value of derivative liabilities line item of the Consolidated Statements of Operations and Comprehensive Loss and the non-current liabilities line items of the Consolidated Balance Sheets.

Revenue Recognition and Shipping Costs

Revenue Recognition

The Company measures revenue based on consideration specified in contracts with customers: hospitals and distributors. The Company excludes any amounts related to taxes assessed by governmental authorities from this revenue measurement and reduces revenue by any sales incentives offered by the Company to its customers. The Company recognizes revenue when it satisfies a performance obligation by transferring control of products to customers.

Specifically, the Company recognizes revenue when all of the following criteria are met:


•	A contract has been identified with the customer;


•	The performance obligations have been identified;


•	The transaction price has been determined and allocated to the respective performance obligations; and


•	The performance obligations have been satisfied.

Respective performance obligations are satisfied at a point in time for sales made to both hospitals and distributors. Payment terms with customers range from 30 to 180 days which reflects days from the date the Company satisfies the performance obligations.

For implant-based sales, the Company recognizes revenue when the AAA products are utilized in a procedure or implanted in a patient. For shipment-based sales, the Company recognizes revenue when control over a product has transferred to the customer, which is typically at the time of shipment, without a right of return.

The Company provides certain sales incentives to customers for meeting certain purchase thresholds and, accordingly, the transaction price is reduced by the Company’s best estimate of this variable consideration. The Company estimates this variable consideration through the most-likely amount method.

Shipping Costs

Shipping and handling costs billed to customers are reported within revenue, with the corresponding costs within cost of goods sold. In addition, any shipping and handling costs related to outbound freight after control over a product has transferred to a customer are accounted for as fulfillment costs and are included in cost of goods sold.

Stock-based Compensation

The Company values stock-based awards, including stock options, restricted stock awards (“RSAs”) and restricted stock units (“RSUs”), as of the date of grant. The fair value of stock options is estimated at the date of grant using the Black-Scholes option-pricing model. The fair value of RSAs and RSUs is based on the closing market price of the Company’s common stock on the grant date.

The Company recognizes stock-based compensation expense (net of estimated forfeitures) using the straight-line method over the requisite or implicit service period, as applicable. Forfeitures of employee awards are estimated at the time of grant, and the forfeiture assumption is periodically adjusted for actual employee vesting behavior.

The Company uses the Black-Scholes option-pricing model, in combination with the discounted employee price, in determining the value of expense related to its Amended and Restated 2006 Employee Stock Purchase Plan, as amended (the “ESPP”) to be recognized during each offering period.

Foreign Currency Transactions

The assets and liabilities of the Company’s foreign subsidiaries are translated using the exchange rates at the balance sheet date. The income and expense items of these subsidiaries are translated using average monthly exchange rates. Gains and losses resulting from foreign currency transactions, which are denominated in a currency other than the respective entity’s functional currency are included in other income (expense), net. Foreign currency translation adjustments between the respective entity’s functional currency and the United States dollar are included in accumulated other comprehensive income (loss). There were no items reclassified out of accumulated other comprehensive income (loss) in the years ended December 31, 2019, 2018 and 2017.

Income Taxes

The Company records the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in the financial statements, as well as operating losses and tax credit carry forwards. The Company has recorded a valuation allowance to substantially reduce its net deferred tax assets, because the Company believes that, based upon a number of factors, it is more-likely-than-not that substantially all of the deferred tax assets will not be realized. If the Company was to determine that it would be able to realize additional deferred tax assets in the future, an adjustment to the valuation allowance on its deferred tax assets would increase net income in the period such determination was made. In the event that the Company was assessed interest and/or penalties from taxing authorities, such amounts would be included in income tax benefit (expense) in the period the notice of such interest and/or penalties was received.

Net Loss Per Share

Net loss per common share is computed using the weighted average number of common shares outstanding during the periods presented.

Research and Development Costs

Research and development costs are expensed as incurred.

Product Warranty

Within 6 months of shipment, certain customers may request replacement of products they receive that do not meet product specifications. No other warranties are offered. The Company contractually disclaims responsibility for any damages associated with a physician’s use of its EVAR or EVAS products. Historically, the Company has not experienced a significant amount of costs associated with its warranty policy.

Reclassifications

Certain amounts in prior periods have been reclassified to conform to current period presentation. See the “Recent Accounting Pronouncements” section below for details.

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, which amends the FASB Accounting Standards Codification and creates Topic 842, “Leases.” The new topic supersedes Topic 840, “Leases,” and increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requires disclosures of key information about leasing arrangements. In July 2018, the FASB made targeted improvements to ASU No. 2016-02, including providing an additional and optional modified retrospective transition method. Under this method, an entity initially applies the standard at the adoption date, including the election of certain transition reliefs and recognizes a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. Effective January 1, 2019, the Company adopted this new accounting standard using the modified retrospective approach with no restatement of prior periods or cumulative adjustment to retained earnings. The Company elected certain practical expedients permitted under the transition guidance, including the election to carry forward historical lease classification. The Company also elected the short-term lease practical expedient, which allowed it to not recognize leases with a term of less than twelve months on our consolidated balance sheets. Upon adoption of the new lease accounting standard the Company recognized an operating lease right-of-use asset of $5.8 million and a corresponding operating lease liability of $13.7 million, respectively as of January 1, 2019. The operating lease liability was determined based on the present value of the remaining minimum rental payments and the operating lease asset was determined based on the value of the lease liability, adjusted for the deferred rent balances of $7.9 million. The adoption of the new lease accounting standard did not have an impact on our consolidated statements of operations and comprehensive loss and consolidated statements of cash flows. See Note 8(a) of the Notes to the Consolidated Financial Statements for further discussion.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants and the SEC did not have a material effect on our consolidated financial statements.

Leases

All facility leases are accounted for as operating leases. A right-of-use asset, representing the underlying asset during the lease term, and a lease liability, representing the payment obligation arising from the lease, are recognized on the balance sheet at lease commencement based on the present value of the payment obligation. For operating leases, expense is recognized on a straight-line basis over the lease term. Short-term leases with an initial term of 12 months or less are not recorded on the balance sheet.

The Company primarily uses its incremental borrowing rate in determining the present value of lease payments as the Company's facility leases generally do not provide an implicit rate.