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2021 Delaware 34-1940305 7555 Innovation Way, Mason, OH 45040 (Address of principal executive offices) (Zip Code) Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, $.001 par value ATRC NASDAQ Class Outstanding February 14, 2022 Common Stock, $.001 par value This Form 10-K, including the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Risk Factors” and “Quantitative and Qualitative Disclosures about Market Risk” 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,” “could,” “can,” “may,” “future,” “predicts,” probe for pain management (Cryo Nerve Block). Our pain management solutions are used by physicians to freeze nerves during cardiothoracic or thoracic surgical procedures. This technique provides a long-lasting analgesic, allowing the patient's body to heal after surgery while the nerves regenerate and sensation is regained. Afib is a condition that doctors often find difficult to treat and, historically, there has been no widely accepted long-term cure for Afib. This difficulty is exacerbated with more serious forms of Afib, or persistent and long-standing persistent Afib. Over the past two decades, technology advancements have made surgical ablation more effective, repeatable and available to cardiac surgeons and electrophysiologists around the world. Societal guideline changes from the Society of Thoracic Surgeons (STS), Heart Rhythm Society (HRS) Products for cardiac tissue ablation include those that heat tissue using radio frequency (RF) energy to create the tissue effects or those that cool tissue using cryo-thermal heat transfer to create the tissue effects. Our ablation products are part of platforms each consisting of disposable In addition to the above product lines we also sell enabling technologies including our Lumitip™ dissectors, Business Strategy FDA to conduct the CONVERGE Post Approval Study (PAS). This study allows for 325 patients to be enrolled at up to 50 sites. Competition In addition to the cardiac surgery market, we also consider competition within the post-operative pain market. At this time, we are not aware of other companies in the United States who are pursuing cryothermic nerve block therapies for thoracic surgery. There are other companies outside of the United States who market their devices for a similar therapy. access 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. 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. 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. Afib and other diseases and conditions. Employee Compensation and Benefits leave. programs by fostering employee understanding, intentionality and measurable processes. Available Information COVID-19 Pandemic Risks We expect that challenges resulting from these recommendations and requirements will likely continue for the duration of the pandemic, which is uncertain. The COVID-19 pandemic continues to rapidly evolve. The extent to which COVID-19 may impact our business, including our nonclinical activities, clinical trials and financial condition, will depend on future developments, which are highly uncertain, such as the geographic spread of the disease (including new variants of COVID-19); the duration and severity of the pandemic, travel restrictions, business closures or business 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. These factors would affect the rate at which our products are adopted in the medical community. seriously harmed. Industry Conditions Risks 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. 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. 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 we cannot 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 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. 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. business. 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 have used or disclosed trade secrets or other proprietary information of their former employers. 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. Financial Risks $280,153. 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. 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. The price and trading volume of our common stock may experience extreme fluctuations and our stockholders could lose some or all of their investment. 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. 75. 2021. 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 AtriCure, Inc. $ 87.21 $ 81.28 $ 136.36 $ 144.88 $ 248.08 NASDAQ Composite $ 108.87 $ 141.13 $ 137.12 $ 187.44 $ 271.64 NASDAQ Medical Equipment $ 106.07 $ 153.41 $ 171.99 $ 209.03 $ 300.10 Year Ended December 31, 2020 (1) 2019 (2) 2018 (3) 2017 2016 (in thousands, except per share data) Operating Results: Revenue $ 206,531 $ 230,807 $ 201,630 $ 174,716 $ 155,109 Gross profit $ 149,309 $ 170,335 $ 147,120 $ 126,163 $ 111,101 Gross margin 72.3% 73.8% 73.0% 72.2% 71.6% Net loss $ (48,155) $ (35,194) $ (21,137) $ (26,892) $ (33,338) Basic and diluted net loss per share $ (1.14) $ (0.94) $ (0.62) $ (0.83) $ (1.05) Weighted average shares outstanding 42,125 37,589 34,087 32,387 31,609 Financial Position: Cash, cash equivalents and investments $ 258,396 $ 94,476 $ 124,402 $ 34,451 $ 47,009 Working capital 257,600 93,244 134,457 50,355 56,889 Total assets 714,539 557,880 356,759 267,704 276,421 Long-term debt and leases 65,584 74,204 47,743 36,861 37,205 Stockholders’ equity 412,394 247,343 249,381 161,166 168,442 2019 26, 2021. employees or as required by law. 2020 Year Ended December 31, 2020 2019 % of % of Amount Revenue Amount Revenue (dollars in thousands) Revenue $ 206,531 100.0 % $ 230,807 100.0 % Cost of revenue 57,222 27.7 60,472 26.2 Gross profit 149,309 72.3 170,335 73.8 Operating expenses: Research and development expenses 43,070 20.9 41,230 17.9 Selling, general and administrative expenses 150,472 72.9 162,227 70.3 Total operating expenses 193,542 93.7 203,457 88.2 Loss from operations (44,233) (21.4) (33,122) (14.4) Other income (expense) (3,808) (1.8) (1,873) (0.8) Loss before income tax expense (48,041) (23.3) (34,995) (15.2) Income tax expense 114 0.1 199 0.1 Net loss $ (48,155) (23.3) % $ (35,194) (15.2) % clinical trial costs of $806. During the year ended December 31, 2021, the Company recorded an impairment charge for the IPR&D asset associated with the aMAZE PMA. See Note 5 of the Consolidated Financial Statements for further discussion. Our corporate headquarters lease agreement requires a $1,250 letter of credit which renews annually and remains outstanding as of December 31, 2021. The following table Less than More than Contractual Obligations Total 1 year 1-3 years 3-5 years 5 years Long-term debt(1) $ 60,000 $ 6,667 $ 40,000 $ 13,333 $ — Finance leases(2) 16,360 1,608 3,281 3,299 8,172 Operating leases(3) 2,302 927 876 499 — Royalty obligations(4) 2,599 2,599 — — — Restricted grants 656 656 — — — Total contractual obligations $ 81,917 $ 12,457 $ 44,157 $ 17,131 $ 8,172 We have monitored and will continue to monitor the components of cost of revenue and operating expenses for the potential impact of inflation. on historical experience, current conditions and other reasonable factors. Actual results could differ from those estimates under different assumptions or conditions. 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 estimation of a provision for returns. We estimate the provision for sales returns and allowances using the expected value method based on historical experience and other factors that we believe could impact our expected returns, including defective or damaged products and invoice adjustments. In the normal course of business, we generally do not accept product returns unless a product is defective as manufactured, and we do not provide customers with the right to a refund. We estimate the fair value of Matter employee renders service. 17, 2022 2020 2020 2019 Assets Current assets: Cash and cash equivalents $ 41,944 $ 28,483 Short-term investments 202,274 53,318 Accounts receivable, less allowance for credit losses of $1,096 and $1,124 23,146 28,046 Inventories 35,026 29,414 Prepaid and other current assets 4,347 3,899 Total current assets 306,737 143,160 Property and equipment, net 28,290 32,646 Operating lease right-of-use assets 1,914 4,032 Long-term investments 14,178 12,675 Intangible assets, net 128,199 129,881 Goodwill 234,781 234,781 Other noncurrent assets 440 705 Total Assets $ 714,539 $ 557,880 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 12,736 $ 14,948 Accrued liabilities 27,984 32,750 Other current liabilities and current maturities of debt and leases 8,417 2,218 Total current liabilities 49,137 49,916 Long-term debt 53,435 59,634 Finance lease liabilities 10,969 11,774 Operating lease liabilities 1,180 2,796 Contingent consideration and other noncurrent liabilities 187,424 186,417 Total Liabilities 302,145 310,537 Commitments and contingencies (Note 12) Stockholders’ Equity: Common stock, $0.001 par value, 90,000 shares authorized; 45,346 and 39,655 issued and outstanding 45 40 Additional paid-in capital 742,389 529,658 Accumulated other comprehensive income (loss) 312 (158) Accumulated deficit (330,352) (282,197) Total Stockholders’ Equity 412,394 247,343 Total Liabilities and Stockholders’ Equity $ 714,539 $ 557,880 INCOME (LOSS) 2019 2020 2019 2018 Revenue $ 206,531 $ 230,807 $ 201,630 Cost of revenue 57,222 60,472 54,510 Gross profit 149,309 170,335 147,120 Operating expenses: Research and development expenses 43,070 41,230 34,723 Selling, general and administrative expenses 150,472 162,227 129,524 Total operating expenses 193,542 203,457 164,247 Loss from operations (44,233) (33,122) (17,127) Other income (expense): Interest expense (4,885) (4,111) (4,607) Interest income 1,101 2,398 1,006 Other (24) (160) (183) Loss before income tax expense (48,041) (34,995) (20,911) Income tax expense 114 199 226 Net loss $ (48,155) $ (35,194) $ (21,137) Basic and diluted net loss per share $ (1.14) $ (0.94) $ (0.62) Weighted average shares outstanding – basic and diluted 42,125 37,589 34,087 Comprehensive loss: Unrealized (loss) gain on investments $ (46) $ 137 $ (31) Foreign currency translation adjustment 516 (96) (202) Other comprehensive income (loss) 470 41 (233) Net loss (48,155) (35,194) (21,137) Comprehensive loss, net of tax $ (47,685) $ (35,153) $ (21,370) 2019 Accumulated Additional Other Total Common Stock Paid-in Accumulated Comprehensive Stockholders’ Shares Amount Capital Deficit Income (Loss) Equity Balance—December 31, 2017 34,586 $ 35 $ 386,963 $ (225,866) $ 34 $ 161,166 Issuance of common stock through public offering 2,875 3 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 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 Issuance of common stock for SentreHEART acquisition 699 1 20,306 — — 20,307 Issuance of common stock under equity incentive plans 248 — (7,831) — — (7,831) Issuance of common stock under employee stock purchase plan 104 — 2,662 — — 2,662 Share-based employee compensation expense — — 17,977 — — 17,977 Other comprehensive income — — — — 41 41 Net loss — — — (35,194) — (35,194) Balance—December 31, 2019 39,655 40 529,658 (282,197) (158) 247,343 Issuance of common stock through public offering 4,574 5 188,953 — — 188,958 Issuance of common stock under equity incentive plans 1,013 — (2,194) — — (2,194) Issuance of common stock under employee stock purchase plan 104 — 3,330 — — 3,330 Share-based employee compensation expense — — 22,642 — — 22,642 Other comprehensive income — — — — 470 470 Net loss — — — (48,155) — (48,155) Balance—December 31, 2020 45,346 $ 45 $ 742,389 $ (330,352) $ 312 $ 412,394 2019 2020 2019 2018 Cash flows from operating activities: Net loss $ (48,155) $ (35,194) $ (21,137) Adjustments to reconcile net loss to net cash used in operating activities: Share-based compensation expense 22,642 17,977 16,495 Depreciation 7,866 7,423 7,244 Amortization of intangible assets 1,682 1,943 1,510 Amortization of deferred financing costs 509 375 515 Loss on disposal of property and equipment and impairment of assets 277 604 323 Amortization (accretion) of investments 1,236 (922) (362) Change in fair value of contingent consideration (357) (4,916) (10,825) Other non-cash adjustments to income 1,070 1,514 763 Payment of contingent consideration in excess of purchase accounting amount — — (96) Changes in operating assets and liabilities, net of amounts acquired: Accounts receivable 5,087 (3,201) (2,837) Inventories (5,265) (5,151) (146) Other current assets (477) (1,199) (367) Accounts payable (1,560) 2,790 (2,398) Accrued liabilities (4,908) 3,108 7,016 Other noncurrent assets and liabilities 484 (962) 131 Net cash used in operating activities (19,869) (15,811) (4,171) Cash flows from investing activities: Purchases of available-for-sale securities (227,045) (73,249) (106,588) Sales and maturities of available-for-sale securities 75,306 100,485 27,389 Purchases of property and equipment (5,259) (12,182) (6,211) Proceeds from sale of property and equipment — 39 6 Proceeds from capital grant 800 — — Cash paid for SentreHEART business combination — (17,240) — Net cash used in investing activities (156,198) (2,147) (85,404) Cash flows from financing activities: Proceeds from sale of stock, net of offering costs of $218, $0, $229 188,958 — 82,873 Proceeds from debt borrowings — 20,000 17,381 Payments on debt and finance leases (667) (629) (1,755) Payment of debt fees (35) (329) (1,136) Proceeds from stock option exercises 10,835 1,202 6,012 Shares repurchased for payment of taxes on stock awards (13,029) (9,033) (4,457) Proceeds from issuance of common stock under employee stock purchase plan 3,330 2,662 2,383 Payment of contingent consideration liability previously established in purchase accounting — — (1,125) Proceeds from economic incentive loan — 500 — Net cash provided by financing activities 189,392 14,373 100,176 Effect of exchange rate changes on cash and cash equivalents 136 (163) (179) Net increase (decrease) in cash and cash equivalents 13,461 (3,748) 10,422 Cash and cash equivalents—beginning of period 28,483 32,231 21,809 Cash and cash equivalents—end of period $ 41,944 $ 28,483 $ 32,231 Supplemental cash flow information: Cash paid for interest $ 4,366 $ 3,719 $ 3,870 Cash paid for income taxes 217 259 65 Non-cash investing and financing activities: Contingent consideration in business combinations — 171,300 — Stock issuance in business combinations — 20,307 — Share-settled portion of contingent consideration — — 6,279 Accrued purchases of property and equipment 298 1,053 348 Assets obtained in exchange for finance lease obligations 22 270 24 Finance lease early termination — — (6) use. The Company reviews property and equipment for impairment at least annually using its best estimates based on reasonable and supportable assumptions and further discussion. tax: 2020 2019 2018 Total accumulated other comprehensive (loss) income at beginning of period $ (158) $ (199) $ 34 Unrealized gains (losses) on investments Balance at beginning of period $ 100 $ (37) $ (6) Other comprehensive (loss) income before reclassifications (70) 137 (31) Amounts reclassified from accumulated other comprehensive (loss) income to interest income 24 — — Balance at end of period $ 54 $ 100 $ (37) Foreign currency translation adjustment Balance at beginning of period $ (258) $ (162) $ 40 Other comprehensive income (loss) before reclassifications 555 (277) (367) Amounts reclassified from accumulated other comprehensive (loss) income to other (expense) income (39) 181 165 Balance at end of period $ 258 $ (258) $ (162) Total accumulated other comprehensive income (loss) at end of period $ 312 $ (158) $ (199) 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, 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, 2021: 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 $ — $ 38,452 $ — $ 38,452 Commercial paper — 76,914 — 76,914 U.S. government and agency obligations 45,399 — — 45,399 Corporate bonds — 73,730 — 73,730 Asset-backed securities — 20,409 — 20,409 Total assets $ 45,399 $ 209,505 $ — $ 254,904 Liabilities: Contingent consideration $ — $ — $ 184,800 $ 184,800 Total liabilities $ — $ — $ 184,800 $ 184,800 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 $ — $ 14,502 $ — $ 14,502 Repurchase agreements — 10,000 — 10,000 Commercial paper — 13,755 — 13,755 U.S. government and agency obligations 8,539 — — 8,539 Corporate bonds — 24,852 — 24,852 Asset-backed securities — 18,847 — 18,847 Total assets $ 8,539 $ 81,956 $ — $ 90,495 Liabilities: Contingent consideration $ — $ — $ 185,157 $ 185,157 Total liabilities $ — $ — $ 185,157 $ 185,157 There were 2020. Contingent Consideration. The Weighted average Fair Value Valuation Technique Input Range by relative fair value Probability of payment 70.00 - 85.00 % 80.62 % Regulatory & Reimbursement milestones $ 184,800 Probability-weighted scenario approach Projected year of payment 2022 - 2025 n/a Discount rate 5.56 % 5.56 % Contingent consideration liabilities are periodically 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: 2020 2019 2018 Beginning Balance – January 1 $ 185,157 $ 18,773 $ 37,098 Amounts acquired — 171,300 — Settlement of trial enrollment milestone — — (7,500) Changes in fair value included in selling, general and administrative expenses (357) (4,916) (10,825) Ending Balance – December 31 $ 184,800 $ 185,157 $ 18,773 Unrealized Gains Cost Basis (Losses) Fair Value Corporate bonds $ 73,702 $ 28 $ 73,730 U.S. government and agency obligations 45,385 14 45,399 Commercial paper 76,914 — 76,914 Asset-backed securities 20,397 12 20,409 Total $ 216,398 $ 54 $ 216,452 Unrealized Gains Cost Basis (Losses) Fair Value Corporate bonds $ 24,796 $ 56 $ 24,852 U.S. government and agency obligations 8,529 10 8,539 Commercial paper 13,755 — 13,755 Asset-backed securities 18,813 34 18,847 Total $ 65,893 $ 100 $ 65,993 The Company has August 13, 2019 Inventories $ 1,848 Current assets 328 Operating lease right-of-use asset 2,929 Property and equipment 94 Intangible assets 82,570 Other assets 202 Total identifiable assets $ 87,971 Current liabilities $ 5,719 Operating lease liability 2,929 Total liabilities assumed $ 8,648 Net identifiable assets acquired $ 79,323 Goodwill 129,524 Total consideration $ 208,847 Amortization Term Valuation (in years) Developed technology $ 270 15 IPR&D 82,300 Indefinite Total $ 82,570 Year Ended December 31, (unaudited) 2019 2018 Revenue $ 232,768 $ 205,725 Net loss (40,970) (42,959) Basic and diluted net loss per share $ (1.09) $ (1.23) 2019. ® System in the second quarter 2021, the related IPR&D asset with a value of $44,021 was determined to have a finite useful life. The intangible asset is now included in technology assets and amortized over an estimated fifteen year life. 2020 2019 Estimated Accumulated Accumulated Useful Life Cost Amortization Cost Amortization Technology 5-15 years $ 11,691 $ 9,813 $ 11,691 $ 8,131 IPR&D 126,321 — 126,321 — Total $ 138,012 $ 9,813 $ 138,012 $ 8,131 2021 $ 951 2022 718 2023 18 2024 18 2025 18 2026 and thereafter 155 Total $ 1,878 2020 2019 Raw materials $ 11,966 $ 11,126 Work in process 2,424 1,260 Finished goods 20,636 17,028 Inventories $ 35,026 $ 29,414 Estimated Useful Life 2020 2019 Generators and other capital equipment 1-3 years $ 18,669 $ 20,167 Building under finance lease 15 years 14,250 14,250 Computer and other office equipment 3 years 8,045 7,606 Machinery, equipment and vehicles 3-7 years 6,697 5,905 Furniture and fixtures 3-7 years 5,849 5,009 Leasehold improvements 5-15 years 8,645 6,078 Construction in progress N/A 2,067 5,708 Land N/A 502 502 Equipment under finance leases 3-5 years 409 483 Total 65,133 65,708 Less accumulated depreciation (36,843) (33,062) Property and equipment, net $ 28,290 $ 32,646 2020 2019 Accrued payroll and employee-related expenses $ 8,576 $ 6,748 Accrued legal settlement 6,000 — Accrued commissions 4,765 8,734 Accrued bonus 4,389 10,840 Sales returns and allowances 1,889 3,979 Accrued taxes and value-added taxes payable 1,256 1,658 Accrued royalties 703 732 Other accrued liabilities 406 59 Total $ 27,984 $ 32,750 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. 2021 $ 6,667 2022 20,000 2023 20,000 2024 13,333 Total long-term debt, of which $6,667 is current and $53,333 is noncurrent $ 60,000 The Loan Agreement also provides for certain prepayment and early termination fees, 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. As of December 31, 2020 As of December 31, 2019 Operating Leases Weighted average remaining lease term (years) 3.2 3.5 Weighted average discount rate 5.68 % 5.94 % Finance leases Weighted average remaining lease term (years) 9.7 11.0 Weighted average discount rate 6.91 % 7.05 % The components of lease expense are as follows: Year Ended Year Ended December 31, 2020 December 31, 2019 Operating lease cost $ 1,237 $ 952 Finance lease cost: Amortization of right-of-use assets 1,050 998 Interest on lease liabilities 844 872 Total finance lease cost $ 1,894 $ 1,870 Year Ended Year Ended December 31, 2020 December 31, 2019 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows for operating leases $ 1,236 $ 1,026 Operating cash flows for finance leases 844 872 Financing cash flows for finance leases 664 629 Right-of-use assets obtained in exchange for lease obligations: Operating Leases 1,421 1,884 Finance Leases 22 270 Operating lease right-of-use asset obtained in business combination — 2,929 Early termination of operating lease 2,743 — As of December 31, 2020 As of December 31, 2019 Operating Leases Operating lease right-of-use assets $ 1,914 $ 4,032 Other current liabilities and current maturities of debt and leases 927 1,465 Operating lease liabilities 1,180 2,796 Total operating lease liabilities $ 2,107 $ 4,261 Finance Leases Property and equipment, at cost $ 14,659 $ 14,733 Accumulated depreciation (5,247) (4,197) Property and equipment, net $ 9,412 $ 10,536 Other current liabilities and current maturities of debt and leases $ 823 $ 753 Finance lease liabilities 10,969 11,774 Total finance lease liabilities $ 11,792 $ 12,527 Maturities of lease liabilities as of December 31, Operating Leases Finance Leases 2021 $ 927 $ 1,608 2022 637 1,629 2023 239 1,652 2024 246 1,674 2025 253 1,625 2026 and thereafter — 8,172 Total payments $ 2,302 $ 16,360 Less imputed interest (195) (4,568) Total $ 2,107 $ 11,792 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 ablation, minimally invasive ablation, 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 $1,354, $1,192 and $1,485 in the years ended December 31, 2021, 2020 and 2019. The Company’s provision for income taxes for each of the years ended December 31 is as follows: 2020 2019 2018 Current Tax Expense Federal $ (26) $ (26) $ (51) State 78 34 28 Foreign 74 165 198 Total current tax expense 126 173 175 Deferred Tax Expense Federal $ (10,304) $ (7,655) $ (3,048) State (1,686) (1,368) 178 Foreign (3,071) (1,690) 45 Change in valuation allowance 15,049 10,739 2,876 Total deferred tax expense (12) 26 51 Total tax expense $ 114 $ 199 $ 226 2020 2019 Deferred tax assets (liabilities): Net operating loss carryforward $ 123,556 $ 111,000 Research and development and AMT credit carryforwards, net 9,365 8,193 Deferred interest 1,598 909 Equity compensation 8,623 8,233 Accruals and reserves 3,739 3,513 Inventories 1,360 1,007 Intangible assets (30,773) (30,996) Property and equipment, net (1,315) (1,482) Finance and operating lease liabilities 3,164 4,016 Right-of-use assets (2,547) (3,476) Other, net 293 287 Subtotal 117,063 101,204 Less valuation allowance (117,025) (101,178) Total $ 38 $ 26 The Company’s 2021, 2020 2020 2019 2018 Federal tax at statutory rate 21.00 % $ (10,088) 21.00 % $ (6,950) 21.00 % $ (4,391) Federal and Foreign tax rate change 2.97 (1,425) 1.40 (462) (6.84) 1,430 Federal R&D credit 2.05 (985) 2.53 (837) 4.39 (918) Federal deferred adjustment 2.77 (1,328) 3.28 (1,085) (10.77) 2,253 Valuation allowance (31.33) 15,048 (32.45) 10,739 (13.75) 2,876 State income taxes 3.35 (1,607) 4.02 (1,334) (0.99) 206 Foreign NOL rate change 0.92 (441) (1.17) 388 (1.22) 256 Foreign tax rate differential 0.57 (274) (0.38) 126 (0.60) 125 Permanent differences and other (2.53) 1,214 1.17 (386) 7.70 (1,611) Effective tax rate (0.23) % $ 114 (0.60) % $ 199 (1.08) % $ 226 2019. 2020 2019 2018 Balance at the beginning of the year $ 1,777 $ 1,157 $ 1,157 Increases (decreases) for prior year tax positions 21 620 — Increases (decreases) for current year tax positions — — — Increases (decreases) related to settlements — — — Decreases related to statute lapse — — — Balance at the end of the year $ 1,798 $ 1,777 $ 1,157 The Company maintains cash and cash equivalents balances at financial institutions which at times exceed FDIC limits. As of December 31, Weighted Weighted Average Number of Average Remaining Aggregate Shares Exercise Contractual Intrinsic Time-Based Stock Options Outstanding Price Term Value Outstanding at January 1, 2020 1,507 $ 14.38 Granted 52 39.02 Exercised (646) 13.08 Cancelled (9) 28.97 Outstanding at December 31, 2020 904 $ 16.57 4.08 $ 35,345 Vested and expected to vest 900 $ 16.49 4.06 $ 35,271 Exercisable at December 31, 2020 807 $ 14.61 3.55 $ 33,143 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, 2020 1,402 $ 21.76 264 $ 26.34 Awarded 446 40.77 140 38.42 Released (875) 20.89 (72) 57.08 Forfeited (38) 33.34 (45) 34.16 Outstanding at December 31, 2020 935 $ 30.92 287 $ 39.70 Weighted Weighted Average Number of Average Remaining Aggregate Shares Exercise Contractual Intrinsic Performance Stock Options Outstanding Price Term Value Outstanding at January 1, 2020 450 $ 13.48 Granted — — Exercised (275) 8.66 Cancelled — — Outstanding at December 31, 2020 175 $ 21.04 3.07 $ 6,085 Exercisable at December 31, 2020 175 $ 21.04 3.07 $ 6,085 Weighted Weighted Average Number of Average Remaining Aggregate Shares Exercise Contractual Intrinsic Time-Based Stock Options Outstanding Price Term Value Outstanding at January 1, 2019 1,582 $ 13.83 Granted 42 28.77 Exercised (110) 10.91 Cancelled (7) 30.48 Outstanding at December 31, 2019 1,507 $ 14.38 4.25 $ 27,340 Vested and expected to vest 1,503 $ 14.35 4.24 $ 27,319 Exercisable at December 31, 2019 1,392 $ 13.55 3.90 $ 26,398 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, 2019 1,746 $ 18.19 90 $ 17.71 Awarded 435 30.12 174 30.77 Released (776) 18.44 — — Forfeited (3) 18.02 — — Outstanding at December 31, 2019 1,402 $ 21.76 264 $ 26.34 Weighted Weighted Average Number of Average Remaining Aggregate Shares Exercise Contractual Intrinsic Performance Stock Options Outstanding Price Term Value Outstanding at January 1, 2019 450 $ 13.48 Granted — — Exercised — — Cancelled — — Outstanding at December 31, 2019 450 $ 13.48 3.45 $ 8,566 Exercisable at December 31, 2019 350 $ 13.48 3.45 $ 6,662 The total intrinsic value of options exercised during the years ended December 31, 2021, 2020 and 2019 was $27,318, $29,594 and 2020 2019 2018 Cost of revenue $ 1,425 $ 917 $ 1,545 Research and development expenses 3,530 2,374 1,987 Selling, general and administrative expenses 17,687 14,686 12,963 Total $ 22,642 $ 17,977 $ 16,495 2020 2019 2018 Restricted Stock Awards & Time-Based Stock Options $ 18,612 $ 13,922 $ 15,032 Performance Share Awards 2,921 3,254 766 ESPP 1,109 801 697 Total $ 22,642 $ 17,977 $ 16,495 As of December 31, 2020 2019 2018 Range of risk-free interest rate 0.30-1.73 % 1.43-2.64 % 2.31 - 3.01 % Range of expected life of stock options (years) 5.15 to 5.65 5.13 to 5.69 5.14 to 5.71 Range of expected volatility of stock 40.00 - 43.00 % 40.00 - 42.00 % 41.00 - 42.00 % Weighted-average volatility 41.54 % 40.87 % 41.51 % Dividend yield 0.00 % 0.00 % 0.00 % 2020 2019 2018 Stock options $ 15.25 $ 11.56 $ 10.97 Restricted stock awards 40.77 30.12 18.71 Performance share awards 38.42 30.77 17.71 2020 2019 2018 United States $ 169,244 $ 185,829 $ 162,146 Europe 23,217 27,929 25,912 Asia 13,118 15,976 12,687 Other international 952 1,073 885 Total international 37,287 44,978 39,484 Total revenue $ 206,531 $ 230,807 $ 201,630 2020 2019 2018 Open ablation $ 75,399 $ 80,205 $ 72,250 Minimally invasive ablation 25,647 34,842 35,053 Appendage management 66,981 68,166 52,891 Total ablation and appendage management 168,027 183,213 160,194 Valve tools 1,217 2,616 1,952 Total United States $ 169,244 $ 185,829 $ 162,146 International revenue by product type 2020 2019 2018 Open ablation $ 18,655 $ 24,945 $ 21,118 Minimally invasive ablation 6,171 8,349 9,176 Appendage management 12,353 11,476 8,988 Total ablation and appendage management 37,179 44,770 39,282 Valve tools 108 208 202 Total international $ 37,287 $ 44,978 $ 39,484 For the Three Months Ended March 31, June 30, September 30, December 31, 2020 2019 2020 2019 2020 2019 2020 2019 Operating Results: Revenue $ 53,225 $ 53,966 $ 40,824 $ 58,906 $ 54,757 $ 56,614 $ 57,725 $ 61,321 Gross profit 38,884 39,871 27,654 43,893 40,334 41,797 42,437 44,774 Loss from operations (15,454) (5,320) (7,285) (3,839) (3,991) (8,637) (17,503) (15,326) Net loss (16,408) (5,635) (8,236) (4,101) (4,949) (9,362) (18,562) (16,096) Net loss per share (basic and diluted) $ (0.42) $ (0.15) $ (0.20) $ (0.11) $ (0.11) $ (0.25) $ (0.42) $ (0.42) Beginning Additions Ending Balance Costs and Expenses Other (1) Deductions Balance Reserve for sales returns and allowances Year ended December 31, 2020 $ 3,979 $ 66 $ — $ 2,156 $ 1,889 Year ended December 31, 2019 1,410 $ 369 $ 2,240 $ 40 $ 3,979 Year ended December 31, 2018 1,169 $ 312 $ — $ 71 $ 1,410 Allowance for inventory valuation Year ended December 31, 2020 $ 1,517 $ 801 $ — $ 539 $ 1,779 Year ended December 31, 2019 1,029 $ 848 $ — $ 360 $ 1,517 Year ended December 31, 2018 889 $ 718 $ — $ 578 $ 1,029 Valuation allowance for deferred tax assets Year ended December 31, 2020 $ 101,178 $ 15,847 $ — $ — $ 117,025 Year ended December 31, 2019 69,849 $ 10,739 $ 20,590 $ — $ 101,178 Year ended December 31, 2018 66,973 $ 2,876 $ — $ — $ 69,849 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Name and Title Target Value of PSAs Michael H. Carrel $ 3,150,000 Angela L. Wirick 750,000 Douglas J. Seith 875,000 Justin J. Noznesky 425,000 Salvatore (Sam) Privitera 325,000 Number of securities Weighted-average Number of securities remaining Plan Category (a) (b) (c) Equity compensation plans approved by security holders (3) 2,301,073 $ 17 1,932,220 Equity compensation plans not approved by security holders — — — Total 2,301,073 $ 17 1,932,220 Exhibit No. Description 3.1 3.2 4.1 10.1# 10.2# 10.3# 10.4# 10.5 10.6 10.7# 10.8# 10.9# 10.10# 10.11 10.19# 23.1 31.1 31.2 32.1 32.2 101.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 104 Cover Page Interactive Data File SIGNATURES AtriCure, Inc. (REGISTRANT) Date: February /s/ Michael H. Carrel Michael H. Carrel President and Chief Executive Officer (Principal Executive Officer) Date: February /s/ Angela L. Wirick Angela L. Wirick Chief Financial Officer (Principal Accounting and Financial Officer) 17, 2022. Signature Title(s) /s/ /s/ Michael H. Carrel Michael H. Carrel Michael H. Carrel Director, President and Chief Executive Officer (Principal Executive Officer) /s/ Mark A. Collar Mark A. Collar Mark A. Collar Director /s/ Daniel P. Florin Daniel P. Florin Daniel P. Florin Director /s/ Regina E. Groves Regina E. Groves Regina E. Groves Director /s/ Karen N. Prange Karen N. Prange Karen N. Prange Director /s/ Deborah H. Telman Sven A. Wehrwein Sven A. Wehrwein Director /s/ Robert S. White Robert S. White Robert S. White Director_________________________________ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 19342020 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Delaware34-1940305None_________________________________ No No No No ☐☐ No 2020,2021, the last business day of the registrant’s most recently completed second fiscal quarter as reported on the NASDAQ Global Market, was $1,960.6$3,556.1 million.ClassOutstanding February 24, 202145,573,00346,026,734_________________________________
TABLETABLE OF CONTENTS“target,”“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.Isolator® clamp, ® Synergy TM clamp, Epi-Sense®EPi-Sense® coagulation device, AtriClipAtriClip®® Flex·V®,, and cryoSPHERE® probe, among others, and their respective logos. Solely for convenience, we may refer to trademarks in this Annual Report on Form 10-K without the TM and ® symbols. Such references are not intended to indicate, in any way, that we will not assert, to the fullest extent permitted by law, our rights to our trademarks.1PARTPART IITEM and, left atrial appendage (LAA) management.management and post-operative pain. According to the American Heart Association, Afib affects 1-2% of the population in the United States. It is the most common cardiac arrhythmia, or irregular heartbeat, encountered in clinical practice and results in high utilization of healthcare services by Afib patients. Symptoms of Afib may include heart palpitations, dizziness, fatigue and shortness of breath, and these symptoms may be debilitating and life threatening in some cases. When a patient is in Afib, 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, increasing 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. Patients often progress from being in Afib intermittently (paroxysmal) to being in Afib continuously. The continuous Afib patient population includes persistent Afib, which lasts seven days to one year, and long-standing persistent Afib, which lasts longer than one year. Afib often occurs in conjunction with other cardiovascular diseases, including hypertension, congestive heart failure, left ventricular dysfunction, coronary artery disease and valvular disease.cryo nerveCryo Nerve Block therapy. Further, certain cryoablation probes are approved for the ablation of the intercostal nerves to temporarily block therapy. In January 2021, we announced 510(k) clearance of additional labeling claims for cryo nerve block therapy to include the treatment of adolescent patients (12-21 years of age).pain in adolescents aged 12 or older. Our AtriClip®AtriClip® LAA Exclusion System products are 510(k)-cleared with an indication for the exclusion of the 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. In July 2021, we received 510(k) clearance for the new ENCOMPASS® clamp to ablate cardiac tissue during surgery. The LARIAT® system is cleared under the 510(k) process for soft tissue ligation. Several of our products are currently being studied to expand labeling claims or to support indications specifically for the treatment of Afib. Our Isolator Synergy clamps, Isolator Synergy pens, Coolrail® linear pen, cryoablation devices, cryoSPHERE® probe, certain products of the AtriClip LAA Exclusion System, COBRA Fusion® Ablation System, the EPi-Sense® Guided Coagulation System with VisiTrax® technology,system and LARIAT Suture Delivery Device 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. Our Isolator Synergy clamps, Isolator Synergy pens, Coolrail linear pen, cryoablation devices and certain products of the AtriClip LAA Exclusion System are available in select Asia-Pacific countries. 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.the samethese trends in the United States also apply globally., and American Association of Thoracic Surgery (AATS) now have Class I recommendations for surgical ablation, meaning that it is a “recommended” treatment, no longer just “reasonable”, for patients who have structural heart disease and Afib. In addition, guidelines for the treatment of more serious forms of Afib for patients without structural heart disease have also been introduced in the past several years. These societal guidelines are reflective of the scientific evidence suggesting that surgical and hybrid ablation is safe and effective for patients who have Afib. 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 hybrid Afib treatment using our products.CardiothoracicTM therapy represents a significant growth opportunity for the Company.cryo nerve block,Cryo Nerve Block, the use of cryo-energy to temporarily ablate peripheral nerves. Cryo nerve blockNerve Block can be delivered using our cryoICE cryoSPHERE® probe, which is specifically designed for cryo nerve block,Cryo Nerve Block, as well as our cryoICE CRYO2 probe, one of the same probes used to treat cardiac arrhythmias. Depending on the degree of invasiveness, physicians and their nursing staff will take advantage of multiple modes of pain management. It is estimated that each year roughly 140,000 cardiac and thoracic 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 49,000 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,Cryo Nerve Block, increasingly important.The SolutionSolutions and Productspre-clinicalpreclinical and clinical studies utilizing our devices. The results of these studies have assessed efficacy, ease of use and safety endpoints.handpieceshand pieces which connect to compact RF power generation sources or the cryoICE Box generator that weBOX generator. We generally place this equipment with our direct customers and sell to our distributors.•Isolator Synergy Clamps. Our Isolator Synergy System historically represented our primary product line and currently generates the majority of our ablation-related revenue. All of our clamps are single-use disposable RF products with 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. The Isolator Synergy System is currently being evaluated under the DEEP AF IDE pivotal trial and was previously studied under the ABLATE clinical trial supporting a pre-market approval (PMA) in 2011.•Multifunctional Pens and Linear Ablation Devices. These devices are single-use disposable RF products that come in multiple configurations which have different contact lengths. The MAX 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 use one or more of our pen and linear devices in combination with Isolator Synergy clamps.•cryoICE Cryoablation System. The cryoICE cryoablation system is used in open ablation procedures and consists of the cryoICE BoxBOX generator along with a single-use disposable probe. The primary differences between these cryoablation probes is the form of the distal end. The cryoICE devices enables the user to make linear ablations of varied lengths. Surgeons may utilize the cryoICE devices in combination with Isolator Synergy clamps or independently. The ICE-AFIB clinical trial is studying the safety and efficacysystemprobe and certain cryoICE devices are used to apply cryo-energy to targeted intercostal peripheral nerves in the ribcage in order to provide temporary pain relief. This technique, called cryo nerve block,Cryo Nerve Block, is applied intra-operativelyintraoperatively by cardiothoracic or thoracic surgeons 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 including the FROST trial, are ongoing to characterize the effects of cryo nerve blockCryo Nerve Block and further refine the procedure.•EPi-Sense Guided Coagulation System with VisiTraxTechnology. The EPi-Sense Guided Coagulation System with VisiTrax technology utilizes monopolar RF energy for the coagulation of tissue. The Epi-SenseEPi-Sense device is a single-use disposable which is also capable of intra-operativeintraoperative cardiac signal sensing and recording when connected to an external recording device. The CONVERGE IDE clinical trial evaluatedIn April 2021, we announced the safety and efficacyPMA approval of the EPi-Sense Guided Coagulation System for treatment of symptomatic, drug-refractory, long-standing persistent atrial fibrillation, when augmented with VisiTrax technologyan endocardial ablation catheter. The Convergent procedure, or Hybrid AF Therapy, is the only FDA-approved minimally invasive procedure to treat symptomatic persistent andpatients with long-standing persistent Afib patients who are refractory or intolerant to at least one Class I and/or III anti-arrhythmic drug. The results from the trial have been submitted to the FDA as part of a PMA submission.Afib.•AtriClip System. The AtriClip System includes an implantable device (AtriClip) coupled to a single-use disposable applier. The AtriClip is designed to exclude 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 excluding the left atrial appendage. These benefits compared to other techniques include permanent exclusion and electrical isolation of the 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 (a rectangular configuration which encircles the targeted tissue and “V” shape which allows lateral access for improved usability). 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.•LARIAT System. The LARIAT System is a suture-based solution for soft-tissue closure and is compatible with a wide range of anatomical shapes. The product is currently being studied in the aMAZE IDE clinical trial. The LariatLARIAT System includes a suture loop coupled to a single-use disposable applier. The loop is designed to exclude the left atrial appendage by mechanically cinching 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. The objective ofLARIAT System is currently being evaluated under the aMAZEaMAZE™ IDE clinical trial is to demonstrate that using the LARIAT System for left atrial appendage exclusion, plustrial.a pulmonary vein isolation (PVI) catheter ablation, will lead to a reduced incidence of recurrent Afib compared to PVI alone, with a favorable safety profile.COBRA Fusion Surgical Ablation System, the Fusion Magnetic Retriever SystemGlidepath™ guides for placement of our clamps, Subtle™ Cannula’s to support access for our EPi-Sense catheters 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. Cardiac surgery instruments are used during certain surgical procedures for repair or replacement of heart valves.•Drug Therapy. 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 Afib episodes, but neither device is intended to treat Afib. Patients may continue to experience the adverse effects of Afib as well as some of the symptoms and complications, including dizziness, fatigue, palpitations and stroke because the Afib 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 Afib, less than 6% of patients receive catheter-based Afib treatments each year in the United States. The rate of treatment is even lower for long-standing persistent patients in which less than 1% receive catheter-based Afib treatments.whichand the EPi-Sense System. The Isolator Synergy System may be promoted according to its FDA-approved indication for patients with persistent and long-standing persistent Afib undergoing certain open concomitant procedures.procedures, and the EPi-Sense System may be promoted according to its FDA-approved indication to treat patients with long-standing persistent Afib. 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 Afib. Surgeons use our products to perform cardiac procedures that may vary depending on the length of time a patient has been diagnosed with Afib and whether the patient’s Afib is intermittent (paroxysmal), or continuous (non-paroxysmal), which is typically further classified as persistent or long-standing persistent. Patients who have been diagnosed with Afib for a longer duration and have persistent or long-standing persistent forms of Afib generally receive more extensive ablation procedures than patients who have been diagnosed with Afib for a shorter duration or who have paroxysmal Afib. Additionally, during an open-heartopen-concomitant procedure, physicians may use our AtriClip system to exclude the LAA.a concomitant open-heartan open-concomitant surgical procedure, surgeons have used our products for minimally invasive or hybrid Afib treatment procedures. These procedures have generally been performed through small 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, but we have two IDE trials underway at various stages of completion. Additionally, during a minimally invasive surgical procedure, physicians may use our AtriClip system to exclude the LAA. trials, including the CONVERGE, aMAZE IDE and ICE-AFIB IDE 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 and expand the body of clinical evidence.threefour 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.thisthese training and education program hasprograms have 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 technologies is growing and will result in the increased use of our products. completing clinical trials, including the CONVERGE, aMAZE IDE and DEEP AF IDE clinical trials, procedural advancements, such as the hybrid or multi-disciplinary procedure, continued innovation and product development and the publication of additional scientific evidence supporting the safety and efficacy of hybrid treatments for persistent and long-standing persistent Afib. We believe these efforts will help validate the successful, long-term use of our products for patients with persistent and long-standing persistent Afib. 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.are conductingconducted 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 and long-standing 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 forIn April 2021, we announced the primary effectiveness endpoint assessment and long-term follow-up through five years. The last PMA module was submitted in December 2019. Throughout 2020, we have conducted several meetings with FDA as they review our PMA submission, and we continue to actively work with FDA tocomplete the regulatory process. In November 2020, we submitted our responses to FDA, seeking PMA approval of the EPi-Sense system for an indicationSystem for treatment of symptomatic, drug-refractory, long-standing persistent atrial fibrillation, when augmented with an endocardial ablation catheter. We are currently waitingbelieve the Convergent procedure, or Hybrid AFfeedbacka large and vastly underpenetrated population of Afib patients. The CONVERGE trial demonstrated superiority in the hybrid therapy arm compared to endocardial catheter ablation alone. In patients diagnosed with long-standing persistent Afib, the therapy arm showed a 29% absolute difference in efficacy at 12 months (78% relative improvement) and an absolute difference of 35% at 18 months (110% relative improvement). There was also a 33% absolute difference in Afib burden reduction in favor of the Hybrid AF therapy at 12 months, which increased to 37% at 18 months. In April 2021, we also received approval from FDA.PVIpulmonary vein isolation (PVI) catheter ablation for the treatment of persistent and long-standing persistent Afib. The objective of the aMAZE IDE trial is to demonstrate that using the LARIAT system for LAA exclusion, plus a PVI catheter ablation, will lead to a reduced incidence of recurrent Afib compared to PVI alone, with a favorable safety profile. The aMAZE IDE trial provides enrollment of up to 600 patients at 65 sites with one-year follow up. Enrollment was completed in December 2019, and patient follow-up for twelve months post PVI catheter ablation required by the study protocol remains ongoing. At this time, we have not experienced a significant delaywas completed in patient follow-up. However, we are unable to predict the occurrence of future delays as a result of the COVID-19 pandemic.April 2021. In January 2020, we received approval forunder a CAP for the aMAZE IDE trial. The aMAZE CAP providescontinued access protocol (CAP) for additional patient enrollment of up to 85 patients at existing aMAZE IDE trial sites, withsites. In July 2021, the opportunity to further expand to 250 patientsCompany was informed that data from the aMAZE clinical trial did not achieve statistical superiority for the primary effectiveness endpoint. Specifically, while the pre-market application is under review. Enrollmenttrial met the safety endpoint, the trial did not meet the primary effectiveness endpoint. The Company has stopped enrollment in the aMAZE CAP, and is activein the process of further analyzing aMAZE trial data and remains ongoing.determining the next steps for the trial, PMA application and any future development activities.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. Preliminary data was presented at the Heart Rhythm Society meeting in May 2019, and a manuscript will be drafted after event adjudication is complete and data is analyzed.FROST. We have conducted a cryo nerve block study, which was a non-IDE randomized pilot study evaluating intraoperative intercostal cryoanalgesia. The study involves treatment arm patients who received intercostal cryoanalgesia in conjunction with standard post-operative pain management and control arm patients who receive standard post-operative pain management only. The study provided for enrollment of up to 100 patients at five medical centers. Enrollment began in June 2016 and an interim data analysis was completed when a total of 80 patients were enrolled in 2019. Enrollment was stopped following the interim analysis due to early achievement of statistical significance. Results from the trial were presented at the Society of Thoracic Surgeons podium in January 2020.treated. A report of the safety data has been submitted totreated, and in July 2021, we received FDA and we are awaiting their response. We plan to seek approval to enroll the full cohort of 220 patients, pending FDA’s review of additional safety data.patients. We are evaluating next steps to resume enrollment.2015 and remains ongoing.2015. However, we have temporarily suspended enrollment to perform an interim data analysis.180220 employees supporting approximately 5457 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 and thoracic surgery procedures and technologies.AtriCure’s Isolator Synergy System isAtriCure has the only medical devicedevices that isare approved by FDA approved to treat Afib in a surgical setting, andfor treating long-standing persistent Afib: the onlyIsolator Synergy Ablation, the first medical device approved to treat persistent or long-standingreceive FDA approval for the treatment of persistent Afib in a concomitant setting.setting, and the EPi-Sense System, which recently received FDA PMA approval for Hybrid AF Therapy. 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 and persistent forms of Afib, but they are not FDA indicated to treat long-standing persistent Afib. 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.Afib, although we are not aware of any ongoing FDA trials by other companies to study ablation of long-standing persistent Afib patients. We believe that our products compare favorably against competing products during both open-heart and minimally invasive procedures, and that our products improve treatment outcomes for patients with non-paroxysmal forms of Afib when combined with intracardiac catheter devices.price.impact on healthcare economics. 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.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.treatment. At this time, there are no category one CPT codes for the physician to reporttreatment, as well as surgical LAAM. However, some providers utilize unlisted CPT codes to obtain reimbursement in these situations.eveneven 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 marketonwithin the approved or cleared labeling of the device. FDA does not regulate the practice of medicine or the conduct or content of medical education conducted by third parties, which may include uses that are not onwithin approved or cleared device labeling, referred to as “off-label” uses.labeling. Manufacturers may provide unrestricted financial support for independent 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 our educational grants program is conducted in accordance with FDA criteria for independent educational activities. However, we cannot provide an assurance that FDA or other government authorities would view the third-party programs we have supported as being independent.guidelines,guidelines; assessing the significance of any changes to a device,device; monitoring and reporting serious and adverse events and certain device malfunctions,malfunctions; and reporting certain device corrections and removals. Our manufacturing facilities and processes are also subject to FDA inspections to ensure compliance with QSR. and California, and our products are sterilized by third parties. Purchased components are generally sourced from a single supplier, but alternatives to these suppliers are available in the event this would be needed.Afib.750875 employees as of January 31, 2021.2022. None of the employees were represented by a labor union, or covered by a collective bargaining agreement. Weand we have never experienced any employment-related work stoppages andstoppages. We consider our employee relations to be in good standing. At AtriCure, the employee experience is crucial to the ongoing success of the company. We work to provide a culture that augments the intrinsic rewards of our mission – one where employees feel valued and supported every day. We strive to communicateengage with transparency, engage atour employees across every level of the organization, celebrate their personal milestones and share in personal milestones.cultivate a sense of trust and transparency. Our culture provides opportunities for employees to feel a part of a community through paid leave for volunteering and individual recognition with “Heart of AtriCure” awards. Our employees have voted us as a Top Workplace fivesix times in the past seven years, and our culture is regularly cited in our internal engagement surveys as a leading positive attribute of the company.Company. Our culture is a central asset to our company.Company.attractingour efforts to attract and retain world-class talent to our organization.talent. We are committed to regularly analyzing and evaluating the effectiveness of our compensation and benefit programs and benchmarking our programs against the market and our industry peers. Annual pay increases and other forms of incentive compensation are based on performance which isand market evaluation. Performance expectations are communicated to employees and documented through our annual talent review and management process,at the time of hiring, as well as upon internal transfer and/or promotion.Allpromotion, and documented through our performance management process as part of our annual review procedures.are eligible forinclude medical, dental and vision insurance,insurance; paid leave for both vacation and illness,illness; a 401(k) plan that includes a discretionary company matching contribution,contribution; a stock purchase plan enabling employees to purchase AtriCure stock at a reduced price,price; and life and AD&D insurance,disability insurance. Our international employee benefits vary due to local regulations and short-offerings. We ensure compliance with all statutory and long-term disability coverage. We also offer a variety of ancillarymandatory benefits as enhancements,which vary by country, such as critical illnessmedical, disability, retirement/pension, workers compensation, accident, social benefits and accident coverage, telemedicine, adoption assistance, paid time off to volunteer, tuition reimbursement, and a wellness program. International benefits are aligned with local market offerings. We believe that everyone should feel confident in bringing their authentic selves to work and contribute to our mission.In addition to established and ongoing workplace harassment training, we recently have expanded ourOur 2021 DE&I training company-wide, as well as into new hire orientation, established DE&I committees with employee volunteers, and expanded recruitment outreach to include more organizations, societies, and sources that serve minority communities. In 2020, we provided a paid half-day holiday to all U.S. employees on election day, to offer ample opportunity for voting, and for 2021, we added Martin Luther King Jr. Day as a designated AtriCure U.S. holiday. We have also recently hired aefforts were overseen internally by our Diversity, Equity and Inclusion leader and Chief Human Resources Officer who work to further advance our commitment and programs.leaders. Onleaders, and conduct a comprehensive review of our leadership team on an annual basis, we conduct a 9-Box Leadership Review, a process in which our Executive Leadership Team and Vice Presidents are closely involved.basis. In that process, we review existing leaders and prospective leaders throughout the organization and determine next best steps for their future development. Developmental plans for employees can range from leadership support to technical skill-building. Most of our office-based employees began working remotely in March 2020, while field-based sales and clinical employees continue to support cases, utilizing technology to engage with customers in virtual settings when physical access is prohibited. We have modified our manufacturing operations in order to adhere to social distancing requirements dictated by local law and have taken measures to help ensure safety, including requiring temperature checks for employees entering our facilities, wearing face coverings, and other best practices surrounding hygiene to mitigate the spread of viruses by our employees. We have not implemented any temporary or permanent reductions in headcount or to non-executive employee compensation. AtriCure has provided regular, mandatory training for all employees on COVID-19 protocols that are consistent with Center for Disease Control recommendations and state and country-specific guidelines. Such protocols and guidance is continually updated and made available to employees. We have also established decision-making protocols for contact tracing, return to work, and sanitization. Employees who are able to perform essential functions of their job remotely are allowed to do so. For those who need to be in a facility to perform their work, strict adherence to our COVID-19 protocols is required, including temperature checks, wearing face coverings, socially-distancing and other best practices surrounding hygiene to mitigate virus spread. We have not implemented any temporary or permanent reductions in headcount or to non-executive employee compensation.
ITEMITEM 1A. RISK FACTORSconsolidated financial statementsConsolidated Financial Statements and accompanying notes. If any of the risks or uncertainties described below actually occur or continue to occur, our business, reputation, financial condition, results of operations, future prospects and stock price could be materially and adversely affected. The risks below are not the only risks we face and additional risks not currently known to us or that we presently deem immaterial may emerge or become material at any time and may negatively impact our business, reputation, financial condition, results of operations, future prospects or stock price. The order in which these factors appear should not be construed to indicate their relative importance or priority.•COVID-19 pandemic may continue to affect the demand for our products, adversely impact our clinical trials and limit our ability to execute our business strategy.•Failure to achieve widespread market acceptance domestically may harm operating results.•Competition from existing and new products and procedures may decrease our market share.•Clinical data may be negative, or our trials may not satisfy requirements of regulatory authorities, slowing or reversing the rate of adoption foror reducing use of our products by the medical community.•We may not achieve Pre-Market ApprovalOur success depends, in part, on the commercial success of the EPi-Sense device for the EPi-Sense device.treatment of Afib following 2021 FDA pre-market approval of this product.•We may be unable to promptly train sufficient numbers of physicians in the use of our products, resulting in slower market acceptance.•Reliance on independent distributors to sell our products in some international markets could adversely impact our sales.•Rising healthcare costs may result in efforts by government and private payors to contain or reduce healthcare spending, including for procedures that utilize our products.•Adverse changes in payors’ policies toward coverage and reimbursement for surgical procedures would harm our ability to promote and sell our products.•International sales may decrease if coverage and adequate levels of reimbursement from governmental and third-party payors outside of the United States are not obtained and maintained.•Unfavorable publicity relating to our business and industry could negatively impact our operations.•Reliance upon single and limited source third-party suppliers and logistics providers could harm our business if such third parties cannot provide materials or products or perform services for us in a timely manner.•Our manufacturing operations are highly centralized and any disruption at our manufacturing facility could harm our business.•Our business could be negatively impacted if we fail to successfully integrate acquisitions.•If we fail to properly manage our anticipated growth, our business could suffer.•If we cannot retain our skilled and experienced officers and other employees, or recruit, hire, train and integrate sufficient additional qualified personnel, our business may suffer.•Disruptions of critical information systems or material breaches in the security of our systems could harm our business, customer relations and financial condition.•Our insurance may not cover our indemnification obligations and other liabilities associated with our operations.•We could face substantial penalties if we are unable todo not fully comply with federal, state and foreign regulations.•We may be subject to fines, injunctions and penalties if we fail to comply with extensive FDA regulations.•Unless and until we obtain additional FDA approval for our products, we will not be able to promote most of them to treat Afibprevent stroke and our inability to maintain or prevent stroke.grow our business could be harmed. We may be subject to fines, injunctions and penalties if we are found to be promoting our products for unapproved or off-label uses.•Modifications to our products may require new clearances or approvals by the FDA; failure to obtain such clearances or approvals where required could result in a recall of the modified products and limitation on future sales until cleared or approved.•If we or our third-party vendors fail to comply with extensive FDA regulations relating to the manufacturing of our products we may be subject to fines, injunctions and penalties.•Any adverse finding, allegation,judgement, settlement or exercise of enforcement or regulatory discretionaction against us as a result of the current investigation by the United States Department of Justicequi tam lawsuit could negatively affect our business.•The use of products we sell may result in injuries or other adverse events that lead to product liability claims.•Our ability to compete in the marketplace could be affected if our intellectual property rights fail to provide meaningful commercial protection for our products.•Litigation and administrative proceedings over patent and other intellectual property rights are common in our industry, and any litigation or claim against us may cause us to incur substantial costs.•We are subject to various regulatory and other risks related to selling our products internationally which could harm our revenue.•Any allegation or determination of wrongdoing under the Foreign Corrupt Practices Act or other anti-corruption laws could have a material adverse effect on our business.•Compliance with new European Union medical device regulation may limit our ability to sell our productproducts in European markets.The United Kingdom’s withdrawal from the European Union may have a negative impact on global economic conditions and our international sales.•Our quarterly financial results are likely to fluctuate significantly.•We have a history of net losses, and we may never become profitable.•Our income tax expense could increase and adversely impact cash flows if our federal tax net operating loss and general business credit carryforwards expire or are limited.•Fluctuations in our effective income tax rate could adversely affect our operations, earnings, and earnings per share.Regulatory questions ofGovernmental authorities may question our intercompany transfer pricing policies or changeschange their laws in transfer pricing lawsa manner that could increase our effective tax rate.•Our goodwill or other intangibles assets may become impaired which could adversely affect our financial performance.•We may take inventory-related charges as a result of inaccurate forecasting or estimates of product life cycles which would negatively affect our gross margins and results of operations.•We are subject to credit risk from our accounts receivable related to our sales.•We may be unable to comply with the covenants of our Loan Agreement.•We may fail to achieve our publicly announced guidance about our business which could cause a decline in our stock price.•Securities analysts may discontinue coverage for our common stock or issue negative reports which could have a negative impact on the market price of our common stock.•Our common stock may experience extreme fluctuations in the price and trading volume causing our stockholders to lose some or all of their investment.•The sale of material amounts of common stock could encourage short sales by third parties and depress the price of our common stock causing our stockholders to lose part or all of their investment.Our stock ownership will be diluted if we are required to issue additional shares of our common stock to the former stockholders of SentreHEART as certain milestones in the merger agreement are met.•Stockholder ownership of our common stock may be diluted if we sell common stock in a capital raising transaction or issue shares in a future acquisition.•Our stockholders must rely on stock appreciation for any return on investment as we do not expect to pay dividends in the foreseeable future.
On January 30, 2020, the World Health Organization declared that the recent coronavirus COVID-19 outbreak was a global health emergency, and on March 11, 2020, declared it to be a pandemic.The COVID-19 outbreak has negatively impacted and, is expected to continue toin the future may negatively impact, our operations and revenues and overall financial condition by significantly decreasing the number of procedures performed with our products. The number of procedures performed hasduring 2020 and periods of 2021 significantly decreased as health care organizations globally have deferred non-emergent procedures to preserve resources and prioritized the treatment of patients with COVID-19 and protect patients from potential exposure to COVID-19. For example, in the United States, governmental authorities have recommended, and in certain cases required, that elective, specialty and other procedures and appointments be suspended or canceled to avoid non-essential patient exposure to medical environments and potential infection with COVID-19 and to focus limited resources and personnel on the treatment of COVID-19. TheseAlthough we observed a decrease in such measures in mid-2021, emergence of the Omicron variant in late 2021 led to such measures being reinstated in many areas globally. We expect that challenges resulting from these recommendations and challengesrequirements will likely continue for the duration of the pandemic, and may significantly reduce our revenue.is uncertain, and willmay significantly reduce our revenue while the pandemic continues.“shelter-in-place”shelter-in-place orders, quarantines, vaccination requirements, executive orders and similar government orders and restrictions for their residents to control the spread of COVID-19. Such orders or restrictions have resulted in slowdowns and delays, travel restrictions and cancellation of events, among other effects. Other disruptions or potential disruptions include restrictions on our personnel and partners to travel and access customers for training and case support; delays in approvals by regulatory bodies; delays in product development efforts; and additional government requirements or other incremental mitigation efforts that may further impact our or our suppliers’ capacity to manufacture, sell and support the use of our products.disruptionsdisruptions; the distribution and efficacy of vaccines and other treatments; U.S. and foreign government actions to respond to the effectiveness of actions takenreduction in global economic activity; and how quickly and to containwhat extent normal economic and treat the disease.operating conditions can resume. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks set forth in this “Risk Factors” section.our LAA managementLAAM product sales in the United States generate the 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 standard of care for treating Afib, managing the LAA and managing the LAA.pain with Cryo Nerve Block therapy. 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 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 procedures using our products. Negative publicity resulting from incidents involving our products, or similar products 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.products before we do.products. The introduction of new products, procedures or clinical solutions, or 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.wouldcould affect the use of our products and harm our business and prospects.clinical trialsproducts will succeedgain market acceptance or that they will satisfy regulatory requirements for product approval. There can be no assurance that the results of studies conducted by collaborators or other third parties will be viewed favorably or are indicative of our own future study results. We may be required to demonstrate with substantial evidence through well-controlled clinical trials that our product candidates are either (i) safe and effective for use in a diverse population for their intended uses or (ii) are substantially equivalent to predicate devices under section 510(k) of the Food, Drug and Cosmetic Act.Act (FDCA). Success in early clinical trials does not mean that future clinical trials will be successful because product candidates in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy to the satisfaction of the FDA and other regulatory authorities despite having progressed through initial clinical trials.•disagree with our trial design and our interpretation of data from pre-clinicalpreclinical studies and clinical trials;•change requirements for the approval or clearance of a product candidate even after reviewing and providing comment on a protocol for a pivotal clinical trial;•approve or clear a product candidate for fewer or more limited indications or uses than we request;•grant approval or clearance contingent on the performance of costly post-marketing clinical trials; or•not approve the labeling claims necessary or desirable for the successful commercialization of our product candidates.our ability to achieve FDA pre-market approvalthe commercial success of the EPi-Sense device for the treatment of Afib and the commercial successfollowing FDA pre-market approval of this product.May 8, 2020,April 29, 2021, we announced the results from the CONVERGE IDE clinical trial. The CONVERGE trial achieved its primary efficacy endpoint with an approximately 18% difference in favor of the hybrid Convergent procedure as compared to standalone endocardial catheter ablation.The CONVERGE trial primary efficacy endpoint is freedom from Afib, atrial tachycardia (AT), and atrial flutter (AFL), absent class I and III anti-arrhythmic drugs (AADs) except for a previously failed or demonstrated intolerance to class I or III AADs, with no increase in dosage following the 3-month blanking period through the 12 months post procedure follow-up visit. The primary safety endpoint is the incidence of major adverse events (MAEs) specified in the protocol for subjects undergoing the Convergent procedure from the time of the intervention through 30-days post intervention. There were no deaths, cardiac perforations, or atrio-esophageal fistulas reported in the CONVERGE trial, and the MAE rate of 7.8% in the treatment arm is lower than the protocol pre-specified performance goal of 12%. However, there can be no assurance that the FDA will grant pre-market approval of the EPi-Sense device basedSystem to treat patients diagnosed with long-standing persistent Afib. Our success depends, in part, on the medical community’s acceptance of this data.Althoughand other of our CONVERGE IDE device is currently cleared under section 510(k), we are also pursuing a PMA fromproducts in the FDA.United States. We expect that our future revenue will depend largely on the increasing acceptance by the medical community of our products as standard of care for treating Afib. The process for obtaining marketing approval from the FDA or similar foreign governmental agencies is both time-consuming and costly, with no certainty of a successful outcome. The last module of the PMA application was submitted to FDA in December 2019. Throughout 2020, we have conducted several meetings with FDA as they review our PMA submission to complete the regulatory process. In November 2020, we submitted our responses to questions posed by FDA, seeking PMA approvalU.S. medical community’s acceptance of the EPi-Sense systemSystem and other of our products will depend upon our ability to demonstrate long-term clinical performance and advantages and cost-effectiveness of our products. In addition, acceptance of products for an indication forthe treatment of symptomatic, drug-refractory, long-standing persistent atrial fibrillation, when augmented with an endocardial ablation catheter. There can be no assurance that we will obtain a pre-market approvalAfib is dependent upon, among other factors, the level of 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 or procedures for the treatment of Afib, including but not limited to the EPi-Sense deviceSystem, also depends on the level of health insurer (including Medicare) reimbursement to physicians and hospitals for procedures using our products. Negative publicity resulting from incidents involving our products, or similar products, could have a timely basis,significant adverse effect on the overall acceptance of our products. Market acceptance could be delayed by lack of physician willingness to attend training sessions by the time required to complete this training, or at all.by state or institutional restrictions on our ability to provide training. If we are unable to gain and/or maintain such support, training services and collaboration, our ability to grow the market for our products may be impacted and we may not be able to increase our revenue enough to achieve pre-market approval for the EPi-Sense device,or sustain profitability, and our business willand operating results may be significantly adversely impacted, which could have a materially adverse effect on our business, financial condition and results of operations.Guided Coagulation System with VisiTrax technology and related RF generator. It would be a time consuming and lengthy process to secure these products from an alternative supplier. We have significant concentrations with a limited number of vendors. We also rely on a third party to handle our warehousing and logistics functions for European and Middle Eastern markets on our behalf.•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 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 fulfillfulfill our orders and meet our requirements. primarily conducted at a single location, and any disruption at our manufacturing facility could increase our expenses and decrease our revenue. primarily conducted at a single location in Ohio, with select products manufactured in California.Ohio. While we take precautions at the Ohio location, we do not maintain a backup manufacturing facility, making us dependent on the current facility and production workers 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. 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.Our business growth strategy involvespotential for significant acquisitions.future. Acquisitions have inherent uncertainties and involve risks and difficulties in integrating that may adversely affect our business, results of operations and financial condition.•successfullysuccessfully 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•successfullysuccessfully transition and integrate the acquired company into our business and achieve the desired performance.may beare vulnerable to attacks by hackers or breachedcyber-attacks, malicious intrusions, breakdowns, destruction, loss of data privacy, breaches due to employee error, malfeasance or other disruptions. Any such breachCyber-attacks are becoming more sophisticated and frequent, and our systems could compromisebe the target of malware, ransomware and other cyber-attacks. We have invested in our networkssystems and the information stored there could be accessed, publicly disclosed, lostprotection of our data to reduce the risk of an intrusion or stolen. Any such access, disclosureinterruption, and we monitor our systems on an ongoing basis for any current or potential threats. We can give no assurances that these measures and efforts will prevent interruptions or breakdowns. If we are unable to detect or prevent a security breach or cyber-attack or other lossdisruption from occurring, then we could incur losses or damage to our data, or inappropriate disclosure of our confidential information or that of others; and we 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 providesustain damage to customers, and damage our reputation and cause a losscustomer and employee relationships, suffer disruptions to our business and incur increased operating costs including costs to mitigate any damage caused and protect against future damage, and be exposed to additional regulatory scrutiny or penalties and to civil litigation and possible financial liability, any of confidence in our products and services, which could adversely affecthave a material adverse effect on our business, operating margins, revenues and competitive position.wouldcould 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.are unable todo not fully comply with such regulations, we could face substantial penalties.•the FederalFederal 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 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 consumer protection, fraud and business practice laws, including the California Consumer Privacy Act (“CCPA”), which became effective on January 1, 2020, which among other things, requires new disclosures to California consumers and provides consumers new abilities to opt out of certain sales of personal information;•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.DOJ,U.S. Department of Justice (USDOJ), which may include any of the following sanctions, among others:•warningwarning 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•criminalcriminal prosecution. to treat Afib or to prevent stroke, and our ability to maintain and grow our business could be harmed. 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.Afib or prevention of stroke.Afib. 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. 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 clinicalinspectionalinspection 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.investigation by the United States Department of Justice,False Claims Act, and any adverse finding, allegation,judgement, or exercise of enforcement or regulatory discretion by the DOJaction could materially and adversely affect our business, financial condition or results of operations.U.S. Department of Justice (DOJ)USDOJ stating that it iswas 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 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 DOJUSDOJ with documents and answers to the written interrogatories, and is cooperatingcooperated with the investigation. In 2021, USDOJ informed the Company that the investigation resulted from a lawsuit filed in Western District of North Carolina by a private individual, or "relator," under the federal False Claims Act, and that USDOJ was electing not to intervene in the lawsuit. The relator has indicated that he intends to pursue the lawsuit. The Company sought and obtained a transfer of the case to the Southern District of Ohio, and intends to defend itself vigorously. However, the Company cannot predict when the investigationlawsuit will be resolved, the outcome of the investigationlawsuit 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 powerslawsuit will not result in findings or allegedof 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.•exportexport restrictions and controls relating to technology;•pricing pressure that we may experience internationally;•difficulties in enforcing agreements and collecting receivables through certain foreign legal systems;•political and economic instability;•consequences arising from natural disasters and other similar catastrophes, such as hurricanes, tornados, earthquakes, floods and tsunamis;•potentially adverse tax consequences, tariffs and other trade barriers;•the need to hire additional personnel to promote our products outside of the United States;•international terrorism and anti-American sentiment;•fluctuations in exchange rates for future sales denominated in foreign currency, which represent a portion of our sales outside of the United States; and•difficulty in obtaining and enforcing intellectual property rights.will repealrepealed and replacereplaced the MDD effective May 26, 2021. 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, 2021 may continue to be placed on the market for the remaining validity of the certificate, until May 26, 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 introduce new products for sale in the EU, either of which could materially harm our results of operations and financial condition.The United Kingdom’s withdrawal from the European Union (EU) may have a negative effect on global economic conditions, financial markets and our business.The United Kingdom (U.K.) left the EU on January 31, 2020. The withdrawal (known as “Brexit”) 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 to facilitate the withdrawal. From a regulatory perspective, the United Kingdom’s withdrawal gives 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.The U.K. and the EU reached a free trade agreement on December 24, 2020, which included regulatory and customs cooperation mechanisms, as well as provisions supporting open and fair competition. Under the trade agreement, the U.K. is free to set its own trade policy and can negotiate with other countries that do not currently have free trade deals with the EU. Although the fullimpact of the trade agreement is uncertain, it is possible that the recent changes to the trading relationship between the U.K. and the EU due to the trade agreement could result in increased cost of goods imported into and exported from the U.K., which may decrease the profitability of our operations. Additional currency volatility could drive a weaker British pound, which could increase the cost of goods imported into the U.K. and may decrease the profitability of our operations. A weaker British pound versus the U.S. dollar may also cause local currency results of our operations to be translated into fewer U.S. dollars during a reporting period.The U.K.’s withdrawal from the EU has resulted in significant changes to the movement of goods and personnel between the United Kingdom and the remaining member states of the EU. Products will be subject to additional inspections and documentation checks, leading to possible delays at ports of entry and departure. The withdrawal could also adversely impact the operations of our vendors and of our other partners. Additionally, we face new regulations regarding trade, aviation, tax, security and employees, among others, in the United Kingdom. Compliance with such regulations could be costly, negatively impacting our business, results of operations and financial condition. Brexit could also adversely affect European and worldwide economic and market conditions and could contribute to instability in global financial markets.Given the lack of precedent, it is unclear what financial, trade, regulatory and legal implications the trade agreement will have on our business; however, Brexit and its related effects could potentially have an adverse impact on our financial position and results of operations. Our management team has evaluated a range of possible outcomes, identified areas of concerns, and implemented strategies to help mitigate these concerns. It is possible that these strategies may not be adequate to mitigate any adverse impacts of Brexit, and that these impacts could further adversely affect our business and results of operations.Weincurreda history of net losses, each year since our inception, including, most recently, net losses of $48,155 in 2020 and $35,194 in 2019 and $21,137 in 2018.2019. As of December 31, 2020,2021, we had an accumulated deficit of $330,352.On June 30, 2001, we experienced an ownership change as defined by1986. Section 3821986 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-percentNetFederal 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 carryforwards that have begunbegan to expire in 2020 and federal and state research and development credit carryforwards that will begin to expire in 2022. We have available federal net operating loss and research and development credit carryforwards, subject to expiration of $339,699$336,792 and $9,365$11,269 as of December 31, 2020.Our effective income tax rate may fluctuate, which may adversely affect our operations, earnings2021. We also have various state 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 profitsforeign net operating losses 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 ofthe 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.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; andthe 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.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,intercompany 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 offset any associated increase in tax expense in the other jurisdiction, 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.sharing including minimum taxation. As 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, including changes in minimum taxation, 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 Taxvalue 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.or other intangible assets becomebecomes 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.2020,2021, we had $234,781 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 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 $126,321 was recorded as an intangible asset in connection with the nContact and SentreHEART acquisitions. If we do not obtain the regulatory approvals that would confirm the technological feasibility of the respective IPR&D projects, or if the IPR&D projects are abandoned for any other reason, we could have an impairment adjustment of this asset that could require us to write off a portion or all of the recorded asset value. Additionally, and similar to goodwill, if the IPR&D asset is deemed to be impaired as a result of the 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.capitalizations,capitalization, 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.pre-arrangedprearranged 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.We may be obligated to issue additional shares of our common stock to the former stockholders of SentreHEART as a result of our satisfaction of certain milestones set forth in the merger agreement, resulting in dilution of our current stock ownership.Under the terms the SentreHEART merger agreement, we could issue additional shares of our common stock, or make payments in cash, to the former stockholders of SentreHEART as contingent consideration upon our satisfaction of milestones described in the merger agreements. The SentreHEART merger agreement limits the total number of shares of AtriCure common stock issued in connection with the acquisition to 7,021, of which 699 shares were issued at the closing of the SentreHEART acquisition on August 13, 2019. Issuing additional shares of our common stock 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 SentreHEART, 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.•authorizingauthorizing 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•establishingestablishing 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.ITEMITEMmaintains its headquartersoperates in the following principal locations:in a leasedincluding our global headquarters facility totaling approximately 92,000 square feet. The facilitythat contains the Company’sCompany's administrative, regulatory, engineering, product development, distribution and manufacturing functions. The Company also leases the following principal locations:Mason, Ohio – This secondary location inheadquarters facility is approximately 92,000 square feet. The Mason OhioSouth facility is primarily used for warehousing and distribution activities. The facilityactivities and is approximately 40,000 square feet. During 2021, we purchased the Mason Manufacturing Building which is currently being renovated. It will be used for manufacturing and engineering activities and is approximately 37,000 square feet.•Minnetonka, Minnesota – This location includes both administrative and product development space. The office is approximately 27,50032,000 square feet.•Redwood City,Pleasanton, California – This location is primarily used for product development and manufacturing activities for the LARIAT System and is approximately 10,0006,000 square feet.•Amsterdam, Netherlands – This location is primarily for the administration of our European subsidiaries and houses administrative functions for our global operations. The space is approximatelyapproximately 9,000 square feet.ITEMThe Company is not party to any material pending or threatened litigation. 1211 – Commitments and Contingencies to our Consolidated Financial Statements.ITEMPARTPART IIITEM24, 2021,14, 2022, the closing price of our common stock on the NASDAQ Global Market was $62.41$64.20 per share, and the number of stockholders of record was 82.20152016 and ending on December 31, 2020.
20152016 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. 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 AtriCure, Inc. $ 93.20 $ 156.36 $ 166.12 $ 284.47 $ 355.29 NASDAQ Composite $ 129.64 $ 125.96 $ 172.17 $ 249.51 $ 304.85 NASDAQ Medical Equipment $ 145.08 $ 161.91 $ 196.50 $ 281.91 $ 332.54 ITEM 6. SELECTED FINANCIAL DATAThe 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, 2020, 2019 and 2018 and the financial position data as of December 31, 2020 and 2019 are derived from our audited financial statements included in this Form 10-K. The operating results data for the years ended December 31, 2017 and 2016 and the financial position data as of December 31, 2018, 2017 and 2016 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._________________________(1)The challenging environment resulting from the COVID-19 pandemic adversely impacted our 2020 results of operations and financial condition. In May 2020, we strengthened our liquidity position through a public offering of 4,574 shares of common stock and received net proceeds of $188,958.(2)We acquired SentreHEART on August 13, 2019. Total consideration paid at the acquisition date was $18,008 in cash and 699 shares of AtriCure common stock valued at approximately $20,307. The purchase price also included $171,300 of contingent consideration liabilities.We adopted FASB ASC 842, “Leases” using the transition method provided by Accounting Standard Update (ASU) 2018-11, “Leases (Topic 842): Targeted Improvements” on January 1, 2019. Under this method, we applied the new requirements to leases that existed as of January 1, 2019. As a result of the adoption, the Company recorded operating right-of-use assets and operating lease liabilities of approximately $1,884 and $2,189 as of January 1, 2019.(3)In October 2018, we raised $82,870 in net proceeds in a public offering of 2,875 shares of common stock.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.
ITEMITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSconsolidated financial statementsConsolidated 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 section of this Form 10-K generally discusses 20202021 and 20192020 items and year-to-year comparisons between 20202021 and 2019.2020. 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.20192020 compared to December 31, 2018fiscal years ended December 31, 20192020 and December 31, 2018,2019, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the fiscal year ended December 31, 2019,2020, filed with the SEC on February 24, 2020. and, left atrial appendage (LAA) management.management and post-operative pain. We believe that we are currently the market leader in the surgical treatment of Afib. Our Isolator Synergy® Synergy™ Ablation System is approved by FDAthe United States Food and Drug Administration (FDA) for the treatment of persistent and long-standing persistent Afib concomitant to other open-heart surgical procedures. The EPi-Sense® System is approved by FDA to treat patients with long-standing persistent Afib. All of our other ablation devices are cleared for sale in the United States under FDA 510(k) clearances, including our other radio frequency (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.nerves, or Cryo Nerve Block therapy. Further, certain cryoablation probes are approved for the ablation of the intercostal nerves to temporarily block pain in adolescents aged 12 or older. Our AtriClip® LAA Exclusion System products are 510(k)-cleared with an indication for the exclusion of the 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. In July 2021, we received 510(k) clearance for the new ENCOMPASS® clamp to ablate cardiac tissue during surgery. The LARIAT® system is cleared under the 510(k) process for soft tissue ligation. Several of our products are currently being studied to expand labeling claims or to support indications specifically for the treatment of Afib. ManyOur Isolator Synergy clamps, Isolator Synergy pens, Coolrail® linear pen, cryoablation devices, cryoSPHERE® probe, certain products of our productsthe AtriClip LAA Exclusion System, COBRA Fusion® Ablation System, the EPi-Sense® system and LARIAT Suture Delivery Device 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. CertainOur Isolator Synergy clamps, Isolator Synergy pens, Coolrail linear pen, cryoablation devices and certain products of the AtriClip LAA Exclusion System are also available in select Asia-Pacific countries. 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.The challenging environment resulting from the COVID-19 pandemic adversely impacted ourresultsand periods of operations and financial condition. We2021, we experienced a significant decrease in demand for our products asnon-emergent procedures arewere being indeterminately deferred in order to preserve resources for COVID-19 patients and caregiverscaregivers. While we saw many regions stabilize during 2021 with improvements in procedure volumes, there continues to be variability throughout our markets and uncertainty as variants of the virus emerge. For the year ended December 31, 2021, we reported annual revenues of $274,329, an increase of 32.8% when compared to protect patients from potential exposureour prior year. We can make no assurance regarding any future level of demand for our products, and COVID-19 may adversely impact our results of operations and financial condition.COVID-19. In the second half of 2020, we beganserve our customers while taking every precaution to see some hospitals resuming elective procedures although do not believe that most hospitals were operating at the same levels as they had historically.provide a safe work environment for our employees and customers. Field-based sales and clinical employees continue to support cases, using technology to engage with customers in virtual settings when physical access is restricted. We are maintaining manufacturing and fulfillment operations to continue providing products to our customers. We continue to be impacted bymodify our remote working protocols and evaluate hybrid work models for our office-based employees, and we will take further actions in the COVID-19 pandemic and believe the effect on the Company’s business differs by geography and procedure type.We adjusted our operating plan and expect to continuously evaluate and as may be necessary, amend our operating plan as a result of the COVID-19 pandemic. We have elected to delay certain capital investments, and implemented other expense-reduction measures, including ceasing non-essential travel and conference activity, and suspending work on certain research and development projects. Adjustments to the operating plan did not include temporary or permanent reductions in headcount or to non-executive employee compensation. However, we are unable to ensure the operating plan adjustments we have made will be sufficient or sustained due to the inherent uncertainty of the unprecedented and rapidly evolving situation. We strengthened our liquidity position through a public offering and salebest interests of our common stock. In May 2020, we completed an underwritten public offering of 4,574 shares of common stock and received net proceeds of $188,958.ofresulting from the COVID-19 pandemic, we continuedcontinue to build on our strategic initiatives of product innovation, investing in clinical science and providing superior training and education. Throughout 2020,conducted several meetings with FDA as they review our PMA submissionreceived 510(k) clearance for the EPi-Sense system,new ENCOMPASS® clamp, and we have initiated a limited product launch. The ENCOMPASS clamp marks innovation in our core open ablation market, and is expected to drive deeper penetration of cardiac surgery procedures. During 2021, our cryoSPHERE probe for Cryo Nerve Block was approved for CE marking.actively work with FDAinvest in studies to completeexpand labeling claims, support indications for the regulatory process. treatment of Afib and other arrhythmias and stroke, and gather clinical data regarding our products.November 2020,January 2021, we submitted our responsesannounced 510(k) clearance of additional labeling claims for Cryo Nerve Block therapy to FDA, seekinginclude the treatment of adolescent patients (12-21 years of age).system for an indicationSystem for treatment of symptomatic, drug-refractory, long-standing persistent atrial fibrillation, when augmented with an endocardial ablation catheter. AtriCure is currently waitingWe believe the Convergent procedure, or Hybrid AF therapy, provides the only compelling treatment option for feedbacka large and vastly underpenetrated patient population. The CONVERGE™ trial demonstrated superiority in the hybrid therapy arm compared to endocardial catheter ablation alone. In patients diagnosed with long-standing persistent Afib, the hybrid therapy arm showed a 29% absolute difference in efficacy at 12 months (78% relative improvement) and an absolute difference of 35% at 18 months (110% relative improvement). There was also a 33% absolute difference in Afib burden reduction in favor of the Hybrid AF therapy at 12 months, which increased to 37% at 18 months. FDA. We also made meaningful progress on the aMAZE IDEclinical trial continuing twelve-month post treatment follow-up with patients.did not achieve statistical superiority. Specifically, while the trial met the safety endpoint, the trial did not meet the primary efficacy endpoint. As a result, we identified indicators of impairment for the related IPR&D asset that represented an estimate of the fair value of the PMA that could have resulted from the aMAZE clinical trial and recorded an impairment charge of $82,300. Additionally, the contingent consideration arrangements arising from the SentreHEART acquisition include success-based milestone payments. We have not yet experienced a significant delayassessed the projected probability of payment during the contractual achievement periods to be remote, resulting in patient follow-up. In additionno remaining fair value. The $184,800 change in fair value of the contingent consideration was credited to the progressoperating expenses in clinical science initiatives, we are also progressing towards 510(k) clearance of the2021.new ENCOMPASSTRAINING® clamp and preparing for subsequent market launch.. Our professional education and marketing teams have adapted to the pandemic by offeringconducting online and mobile trainings for physicians.For the year ended December 31, 2020 we reported annual revenues of $206,531, a decrease of 10.5% when comparedphysicians and our sales team. These adaptations expanded our training methods and ensured invaluable access to our prior year. Our net loss for fiscal year 2020 was $48,155 as compared to $35,194 for fiscal year 2019, primarily as a resultcontinuing education and awareness of our decrease in revenues as a resultproducts and related procedures. The recent FDA approval of the COVID-19 pandemic. SeeEPi-Sense System has enabled us to educate and train physicians on the “Resultsbenefits of Operations” section below for additional analysisHybrid AF therapy in treating long-standing persistent Afib patients. The first of our 2020 results.several training courses were offered beginning in June 2021.20202021 compared to December 31, 2019Year Ended December 31, 2021 2020 % of % of Amount Revenue Amount Revenue (dollars in thousands) Revenue $ 274,329 100.0 % 206,531 100.0 % Cost of revenue 68,469 25.0 57,222 27.7 Gross profit 205,860 75.0 149,309 72.3 Operating (benefit) expenses: Operating (benefit) expenses: Research and development expenses 48,506 17.7 43,070 20.9 Selling, general and administrative expenses 204,649 74.6 150,829 73.0 Change in fair value of contingent consideration Change in fair value of contingent consideration (184,800) (67.4) (357) (0.2) Intangible asset impairment Intangible asset impairment 82,300 30.0 — — Total operating expenses 150,655 54.9 193,542 93.7 Income (loss) from operations Income (loss) from operations 55,205 20.1 (44,233) (21.4) Other income (expense), net Other income (expense), net (4,818) (1.8) (3,808) (1.8) Income (loss) before income tax expense Income (loss) before income tax expense 50,387 18.4 (48,041) (23.3) Income tax expense 188 0.1 114 0.1 Net income (loss) Net income (loss) $ 50,199 18.3 % $ (48,155) (23.3) % decreased 10.5% (10.7%increased 32.8% (32.4% on a constant currency basis) due toreflecting a recovery of cardiac surgery procedure volumes during 2021 from the deferralsignificant impact of non-emergent proceduresCOVID-19 during 2020 within each franchise and across our key markets globally, as a resultwell as further adoption of the COVID-19 pandemic.our products. Revenue from customers in the United States decreased $16,585,increased $59,887, or 8.9%35.4%, and revenue from international customers decreased $7,691, or 17.1% (18.3% on a constant currency basis). Sales in the United States declined across all product categories. Open ablation sales decreased $4,806,increased $18,496, or 6.0% minimally24.5%, primarily as a result of increased adoption of our Cryo Nerve Block therapy as well as volume increases in legacy products. Minimally invasive (MIS) ablation sales decreased $9,195,increased $13,733, or 26.4% and appendage53.5%, reflecting the rebound in elective procedures in 2021, as well as Hybrid AF therapy procedure growth from the PMA approval of the EPi-Sense System in late April 2021. Appendage management sales decreased $1,185,increased $27,587, or 1.7%. The more severe decline41.2% due to volume growth in MIS ablation sales reflects the typically non-emergent nature of these procedures. However, both the AtriClip Flex·V®and AtriClip Pro·V® LAA Exclusion System (included in appendage management sales)devices and cryoSPHERE probe (included in open ablation sales) continued to grow in volume in 2020 despite the continued pressure of the COVID-19 pandemic.other AtriClip products. International revenue declined in both open ablation and MIS ablation productsincreased $7,911, or 21.2% (19.1% on a constant currency basis) throughout our major European and Asia markets as a result of the global pandemic, offset by increases in themarkets. International revenues increased from both ablation and appendage management product line driven from increased volumesales due to a lessening impact of the AtriClip line.COVID-19 in 2021.decreased $3,250increased $11,247 primarily reflecting revenue growth. The gross margin improvement of 270 basis points was driven primarily by reductionsour return to normal production activity in sales. Partially offsetting2021, leverage from higher revenue and favorable geographic and product mix, offset by inventory management charges related to the decline in cost of revenue from reduced sales are charges during the second quarter as a result of production volumes below normal operating levels and continued absorption of SentreHEART operations acquired in August 2019.LARIAT system.$1,840,$5,436, or 4.5%12.6%. The increase in researchPersonnel costs, including variable compensation, travel and development expenses isshare-based compensation, increased $6,289 as a result of $1,156 increase in share-based compensationadditional headcount as we continued to expand our product development, regulatory and $777 increase in clinical activity primarily driven byteams throughout 2021. Commencement of amortization of the aMAZEtechnology asset related to the PMA resulting from the CONVERGE IDE clinical trial. Increasesoffset declines in regulatory submissionsof $997 and filing fees.decreased $11,755,increased $53,820, or 7.2%35.7%. Personnel costs decreased $14,726increased $47,161 due to an increase in headcount, variable and share-based compensation, as well as a declinereturn in variable compensationtravel expenses. During 2021, quarantine and travel restrictions lifted, allowing for more live events. This, along with additional training activities upon the CONVERGE PMA approval in April 2021, drove an increase in training expenses of $5,754, while tradeshow and marketing activities increased $1,322 as compared to the prior year. Other expense drivers include a result of decreased sales$1,769 rise in operating costs, including organization meetings, facility expenses and travel restrictions. Trade show, marketingdues and meeting costs decreased $4,384 as activities moved to remote platforms. Other decreasessubscriptions; a $1,776 increase inexpenses included $3,840 of acquisition-related expenses, $1,179 of professional services fees, $533corporate costs and consulting fees; $1,717 of additional legal expenses and a $958 increase in bad debt expenseproduct samples and $322 of recruiting fees.demos expense. These decreasesincreases were offset in part by a decrease of $6,000 expense recorded in the prior year for the accrual of the value of the legal settlement with the former nContact stockholders, increase of $3,001 in share-based compensation and $4,559 fluctuation in the contingent consideration liability adjustment.stockholders. See Note 1211 – Commitments and Contingencies in the Consolidated Financial Statements for further discussion of the nContact legal settlement.– Fair Value inof the Consolidated Financial Statements for further discussiondiscussion.contingent consideration liabilities.intangible assets.2020 and $1,713 for 2019.2020. Interest expense relates to our term loan and finance lease obligations, as well as the amortization of financing costs. Interest income reflects returns on our investments, including gains and losses on investments sold during the period. The increase in net interest expense was driven by $1,297 lower interest income from lower investment yields and $774 increase in interest expense reflecting higher borrowings on the term loan due to the August 2019 amendment for the SentreHEART acquisition.a lower investment balance.2020,2021, we had cash, cash equivalents and investments of $258,396.$223,428 and borrowing capacity of approximately $28,750. All cash equivalents and investments and most of our operating cash are held in United States financial institutions. A minor portion of our cash is held in foreign banks for the operation ofto support our international subsidiaries. Our outstanding debt was $60,000 and we had unused borrowing capacity of $8,750 under our revolving credit facility.operations. We had net working capital of $257,600$139,631 and an accumulated deficit of $330,352$280,153 as of December 31, 2020.2021.Cash flows used Our executive officers and Board of Directors review our funding sources and future capital requirements in connection with our annual operating activities. We used $19,869plan. Our future capital requirements depend on a number of net cash infactors, including market acceptance of our current and future products; costs to develop and support our products, including professional training; future expenses to expand and support our sales and marketing efforts; operating activities during 2020, reflecting our net loss of $48,155 offset by $34,925 of non-cash expenses and a net decrease in cash used relatedfiling costs relating to changes in operating assetsregulatory policies or laws; costs for clinical trials and liabilitiesto secure regulatory approval for new products; business integration costs; costs to prosecute, defend and enforce our intellectual property rights; and possible acquisitions and joint ventures. We continue to evaluate additional measures to maintain financial flexibility, and we will continue to closely monitor our liquidity and capital resources through the recovery from, and any further disruptions caused by COVID-19. Our principal cash requirements include costs of $6,639. Non-cash expenses primarily included $22,642 in share-based compensationoperations, capital expenditures, debt service costs and $9,548 of depreciation and amortization. The net decrease in cash used related to changes in operating assets and liabilities was driven by the impact of COVID-19, including lower customer receivables from reduced sales volumes; increased investment in inventories to protect against potential future production disruptions; and lower payables and accrued liabilities from lower variable compensation and reduced operating activities.other contractual obligations.Cash flows used in investing activities. We used $156,198 of net cash in investing activities during 2020, reflecting $151,739 investment activity in available-for-sale securities largely stemming from the proceeds of our May 2020 equity offering and investment of $5,259 in property and equipment to support our new product introductions and maintenance and expansion of our existing manufacturing and distribution facilities.Cash flows provided by financing activities. We generated $189,392 of net cash from financing activities during 2020. This was primarily a result of the $188,958 net proceeds from the May 2020 public stock offering. Equity compensation plan activity included $10,835 proceeds from stock option exercises and $3,330 proceeds for the issuance of common stock under our employee stock purchase plan, offset by $13,029 shares repurchased for payment of taxes on stock awards.$20,000$30,000 revolving line of credit. The Loan Agreement has a five year term, loan and revolving credit facility both mature or expire, as applicable, on August 1, 2024. Principal payments on the term loan are to be made ratably commencing Marchbeginning November 1, 2021 through the loan’s maturity date. If the Company meets certain conditions, as specified in the Loan Agreement, the commencement of the term loan principal payments may be deferred by an additional six months. Ourand expires November 2026. The term loan accrues interest at the greater of the Prime Rate or 5.00%, plus 0.75%1.25% and is subject to an additional 3.00% fee on the $60,000 term loan principal amount payable at maturity or upon acceleration or prepaymentmaturity. Principal payments are to be made ratably commencing 24 months after the inception of the loan through the loan's maturity date. At the option of the Company, the commencement of term loan. Our 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. Borrowing availability under the revolving credit facility is further limited by a cap on total debt outstanding under the Loan Agreement, including outstanding letters of credit, of $70,000.loan principal payments may be extended an additional twelve months. As of December 31, 2020, we2021, our outstanding debt was $60,000 and is classified as noncurrent. We had no borrowingsunused borrowing capacity of approximately $28,750 under theour revolving credit facility, and we had borrowing availability of $8,750. The Loan Agreement also provides for certain prepayment and early termination fees only iffacility. For additional information on the term loan is repaid before August 2024 and establishes a minimum liquidity ratio and dividend restrictions, along with other customary terms and conditions. Specified assets have been pledgedconditions, as collateral. We are in compliance with the covenants of the Loan Agreementwell as of December 31, 2020.On February 8, 2021, the Companyapplicable interest and SVB entered into an amendment to the Loan Agreement which modified conditions which allow the Company to request to defer the term loan principalfee payments, an additional six months, commencing in September 2021, if such conditions are so satisfied. Subsequent to the amendment, the conditions were satisfied by the Company and the Company requested such deferral. As a result, borrowings outstanding under the existing term loan agreement have been classified to reflect the deferral of principal payments in the Consolidated Balance Sheet as of December 31, 2020.see Note 9 - Indebtedness.2020.resources.expenditures on an ongoing basis.capital requirements depend on a number of factors, including market acceptance of ourobligations include both current and future products;long-term obligations. We have operating and finance leases for our corporate offices, manufacturing and warehouse facilities, as well as computer equipment. Our finance leases consist of principal and interest payments related to our Mason, Ohio headquarters and computer equipment. As of December 31, 2021, we have current finance lease obligations of $895 and long-term obligations of $10,082. Our operating leases for office and warehouse space includes current obligations of $861 and long-term obligations of $4,068. For additional information, see Note 10 - Leases. We additionally maintain royalty agreements with terms that require royalty payments of 3% to 5% of specified product sales. See Note 11 - Commitments and Contingencies for information about the resources we devoteterms. We have contractual obligations for contingent consideration payments related to developingthe SentreHEART acquisition. Subject to the terms 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 cost 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, including the impactconditions of the COVID-19 pandemic, has evolved rapidly over the past year and may continue to adversely impact our revenue, thus having an adverse impact on our operating results and financial condition. We continue to evaluate additional measures to maintain financial flexibility, and we will continue to closely monitor our liquidity and capital resources through the disruption caused by COVID-19.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, depository shares and unitsSentreHEART merger agreement, such contingent consideration would be paid 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. In May 2020, we completed a public offering of 4,574 shares of ourAtriCure common stock and received net proceedscash, up to a specified maximum number of $188,958 after underwriting discountsshares. The SentreHEART milestones expire on December 31, 2023 and commissions and offering costs.December 31, 2026. As of December 31, 2021, the estimated fair value of the contingent consideration is $0. See Note 3 – Fair Value.The SentreHEART acquisition provides for contingent considerationWe have on file with the SEC a shelf registration statement which allows us to be paid upon PMA approval before December 2023sell any combination of debt securities, common stock, preferred stock, warrants, depository shares and CPT reimbursement before December 2026. Subjectunits in one or more offerings should we choose to do so in the terms and conditionsfuture. We expect to maintain the effectiveness of the SentreHEART merger agreement, such contingent consideration will be paid in AtriCure common stock and cash, up to a specified maximum number of shares. Overshelf registration statement for 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 progress towards achievement of the related milestones.foreseeable future.couldwould 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.Contractual Obligations and Commitmentssets forthsummarizes our approximate aggregate obligations at December 31,consolidated cash flow activities:Years Ended December 31, 2021 2020 Change (dollars in thousands) Net cash used in operating activities $ (13,780) $ (19,869) $ 6,089 Net cash provided by (used in) investing activities 23,504 (156,198) 179,702 Net cash (used in) provided by financing activities (7,642) 189,392 (197,034) for future payments under contractslargely reflecting recovery from the impact of COVID-19. While customer receivables increased from higher sales volumes, our investment in inventories increased from 2020 and other contingent commitments:_________________________(1)Long-term debt represents principal repayments related to our term loan. See Note 10 – Indebtedness regarding applicable interest and fee payments.(2)Finance leases consistaccounts payable balance grew as a result of principal and interest payments related to our Mason, Ohio headquarters and computer equipment. See Note 11 – Leases.(3)Represents lease commitments under variousincreasing operating leases, primarily for office and warehouse space. See Note 11 – Leases.(4)Represents obligations for royalty agreements ranging from 3% to 5% of specified product sales estimated using 2020 sales. Royalty obligations beyond one year have not been included as payments arecosts. Finally, based on specified producthigher variable compensation and the timing of payment, accrued liabilities increased over 2020.not estimable at this time. See Note 12 – Commitmentsmaturities of available-for-sale securities, offset by an increase of $4,494 for the investment in property and Contingenciesequipment to support our Consolidated Financial Statements.We have contractual obligationsnew product introductions and construction costs for contingent consideration payments relatedthe renovation of a recently purchased building to expand our manufacturing capabilities.SentreHEART acquisition. Subject to the termsincrease in shares repurchased for payment of taxes on stock awards and conditionsdecrease in proceeds from stock option exercises. The remaining increase in cash used in financing activities was a result of the SentreHEART merger agreement, such contingent consideration will be paidan increase in AtriCure common stock and cash, up to a specified maximum numberpayment of shares. The SentreHEART milestones expire on December 31, 2023 and December 31, 2026. See Note 3 – Fair Value.debt fees.Off-Balance-Sheet ArrangementsWe are not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, sales or expenses, resultsTable of operations, liquidity, capital expenditures or capital resources.Contentsconsolidated financial statements,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 statementsConsolidated Financial Statements included in this Form 10-K.affectinvolve a significant level of estimation uncertainty and judgments that are reasonably likely to have a material impact on our more significantConsolidated Financial Statements. We base our judgments and estimates used in the preparation of our consolidated financial statements.At contract inception, we assess the products promised in contracts with customers and identify a performance obligation for each promise to transfer to the customer a product that is distinct. Our 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 ablation, minimally invasive ablation, appendage management and valve tools. Shipping and handling activities performed after control over products transfers to customers are considered activities to fulfillthe promise to transfer the products rather than as separate promises to customers. Products are sold primarily through our 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. We do 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.Allowance for Credit Losses on Accounts Receivable—We evaluate the expected credit losses of accounts receivable, considering historical credit losses, current customer-specific information and other relevant factors when determining the allowance. An increase to the allowance for credit losses results in a corresponding increase in selling, general and administrative expenses. We charge off uncollectible receivables against the allowance when all attempts to collect the receivable have failed. Our history of write-offs has not been significant.Property and Equipment—We state property and equipment at cost less accumulated depreciation. Depreciation is computed using the straight-line method 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.TheIn July 2021, we were informed that data from the aMAZE clinical trial did not achieve statistical superiority. As a result, we identified impairment indicators for the IPR&D asset representsthat represented an estimate of the fair value of the PMA that maycould result from the CONVERGE IDEaMAZE clinical trial and aMAZE IDE clinical trials. We review intangible assets for impairment annually on October 1, or more often if impairment indicators are present, using our best estimates based on reasonable and supportable assumptions and projections of expected future cash flows. If the IPR&D project is abandoned or regulatory approvals are not obtained, we may have a full or partial impairment charge related to the IPR&D, calculated as the excess carrying value of the IPR&D assets over the estimated fair value.Goodwill— Goodwill represents the excess of purchase price over the fair value of the net assets acquired in business combinations. Our goodwill is accounted for in a single reporting unit representing the Company as a whole. We test goodwill for impairment annually on October 1 or more often if impairment indicators are present. The impairment test requires a comparison of the estimated fair value of the reporting unit to the carrying value of the assets and liabilities of that reporting unit. If the carrying value of the reporting unit exceeds the fair value of the reporting unit, the carrying value of the reporting unit’s goodwill is reduced to its fair value throughrecorded an impairment charge to adjust the goodwill balance. The estimates of fair value and the determination of reporting units requires management judgment.$82,300.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 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 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.restricted stock awards, restricted stock units and performance share awards with a performance condition based uponon the closing stock price on the date of grant date closing market price of our common stock. The estimated fair value ofassuming the performance goal will be achieved. Such performance share awards have specified performance targets based on the compound annual growth rate (CAGR) of our revenue over a three-year performance period. With respect to these performance share awards, the number of shares that vest and are issued to the recipient is based upon revenue performance over the performance period. We may be adjustedadjust the expense over the performance period based on changes to estimates of performance target achievement.We also have an employee stock purchase plan (ESPP) which If such goals are not met or service is available to all eligible employees as defined bynot rendered for 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 purchaserequisite service period, and calculate estimatedno compensation expense using the Black-Scholes model based upon the fair value of the stock at the beginning of the purchase period. Compensation expensecost is recognized, over each purchase period, and expense is adjusted at the time of stock purchase.any recognized compensation cost from prior periods will be reversed. milestones or reimbursement milestones. We measure such liabilities using unobservable inputs by applying the probability-weighted scenario method. Various key assumptions, such as the probability and timing of achievement of the agreed milestones, are used in the determination of fair value of contingent consideration arrangementsWe measure deferredDeferred 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 changes in tax rates is recognized in the period that includes the enactment date.some portion of thea 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 taxable income, future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwardsin prior carryback years and tax planning strategies that are both prudent and feasible. In evaluating whether to recordthe need for 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 verifiableobjectively-verifiable positive evidence to avoid the need to recordfor a valuation allowance. We have recorded aOur valuation allowance againstoffsets substantially all net deferred income tax assets as it is more-likely-than-not that the benefit of such deferred income tax assets will not be recognized in future periods.We believe our critical accounting policies regarding revenue recognition, allowance for credit losses on accounts receivable, inventories, property and equipment, IPR&D intangible asset, goodwill, share-based employee compensation, 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.
ITEMITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK10.9%9.9% and 11.7%10.9% of the Company’s total revenue for the years ended December 31, 20202021 and 2019.2020. 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 31,2021 and 2020, and 2019, foreign currency transaction gains of $44$387 and $180$44 were recorded primarily in connection with settlements of the intercompany balances 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. The Euro to U.S. Dollar conversion rate fluctuations may impact our reported revenue and expenses. In other international markets, the Company denominates sales in U.S. Dollars. 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.its cash to beit has 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.and cash equivalents 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, 2020, $41,6942021, $43,404 of the cash and cash equivalents balance was in excess of FDIC limits.
ITEMITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAREPORT20202021 and 2019,2020, the related consolidated statements of operations and comprehensive loss,income (loss), stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2020,2021, 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, 20202021 and 2019,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020,2021, in conformity with accounting principles generally accepted in the United States of America.2020,2021, 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 February 26, 2021,17, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.Mattersmattersmatter communicated below are mattersis a matter arising from the current-period audit of the financial statements that werewas communicated or required to be communicated to the audit committee and that (1) relaterelates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit mattersmatter below, providing a separate opinionsopinion on the critical audit mattersmatter or on the accounts or disclosures to which they relate.it relates.Contingent Consideration Pursuant to the SentreHEART Merger AgreementPerformance Share Awards with a Market Condition - Refer to Note 316 to the financial statementsThe Company has a contingent consideration arrangement of $184.8 million as of December 31, 2020 arising from2019 SentreHEART acquisition which obligates the Company to pay former shareholdersend of the acquired company certain amounts if specified future events occur or conditionsthree-year performance period: (i) the Company's revenue compound annual growth rate, a performance condition; and (ii) relative total shareholder return (TSR), a market condition. The performance and market condition payouts are met, such asdetermined independently.achievement of certain regulatory or reimbursement milestones (“milestones”). The Company measuredrecipient is based upon the liability associated withCompany's TSR relative to the contingent consideration arrangement at fair value, using unobservable inputs by applying the probability-weighted scenario method. Various key assumptions, including the probability and timing of achievement of regulatory or reimbursement milestones (“key assumptions”), are used in the determination of fair valueTSR of the contingent consideration arrangement and are not observable inselected peer group at the market, thus representing a Level 3 measurement withinend of the three-year performance period. A Monte Carlo simulation was performed to estimate the fair value hierarchy. Given thaton the valuationdate of grant, with associated share-based compensation expense recognized over the contingent consideration arrangement is based on unobservable inputs and is sensitive to changes inrequisite service period as the probability and timing of achievement of the milestones, auditing these key assumptions required a high degree of auditor judgment and an increased extent of effort.How the Critical Audit Matter Was Addressed in the AuditOur audit procedures related to the Company’s key assumptions used in theThe determination of the fair value on the date of grant is affected by the Company and the peer group's stock price, as defined by the award agreement, at the beginning of the contingent consideration arrangement includedservice period and grant date, the following, among others:We inquiredexpected volatility of managementthe Company and peer group's stock price over the performance period and the Company’s clinical research personnel to understand each milestone and key assumptions, including current progress and any clinical results received to date.We tested the design and operating effectivenesscorrelation coefficient of the Company’s internal controls over management’s estimates of key assumptions used in the valuation of the contingent consideration arrangement, including consideration of the impact on assumptions from the COVID-19 pandemic.We evaluated management’s ability to accurately project the key assumptions by comparing actual progress to management’s historical projections.We evaluated the reasonableness of the key assumptions by comparing them to (1) internal communications to management and the Board of Directors and (2) information included in the Company’s external communications.We examined regulatory trends to consider the impact of changes in the regulatory environment on the key assumptions.We independently corroborated the reasonableness of the key assumptions by verifying the process and timing necessary to achieve each milestone.Valuation of the In Process Research and Development Intangible Asset Pursuant to the nContact Merger Agreement — Refer to Note 6 to the financial statementsCritical Audit Matter DescriptionThe Company has an in process research and development (IPR&D) intangible asset arising from the 2015 nContact acquisition in the amount of $44.0 million. On at least an annual basis,daily returns for the Company performs impairment testing onand peer group over the IPR&D intangible asset,performance period.comparingmanagement, including the carrying valueuse of a specialist, to determine the estimated fair value. An impairment charge is required if the carrying value of the IPR&D intangible asset is in excess of the estimated fair value. Estimated fair value is measured using the excess earnings method and key cash flow assumptions, such as revenue growth rates, related profit margins, and obsolescence rates (“key cash flow assumptions”). Given that the determination of the estimatedgrant date fair value of the IPR&D intangible asset required management to make significant estimates related to key cash flows assumptions, auditing these key cash flow assumptionsPSAs with a market condition, audit procedures required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.Company’sCompany's determination of the grant date fair value of the PSAs with a market condition included the following, among others:IPR&D intangible asset arising from the 2015 nContact acquisition included the following, among others:PSAs.We inquired of management and the Company’s commercial personnel to understand the key cash flow assumptions.•We tested the design and operating effectiveness of the Company’sCompany's internal controls over management’s estimatesthe determination of key cash flow assumptionsthe grant date fair value of the PSAs.valuation ofawards by agreeing the IPR&D intangible asset.We evaluated whether the key cash flow assumptions used were reasonable by considering industry dataunderlying inputs, such as grant date, share price, and current market forecasts, including consideration of the effects of the COVID-19 pandemic, and whethervesting conditions, among others, back to source documents, such assumptions were consistent with evidence obtained in other areas of the audit.as compensation committee minutes or PSA agreements.We evaluated management’s ability to accurately project the key cash flow assumptions by comparing actual progress to management’s historical projections.•With the assistance of our fair value specialists, we evaluated the reasonablenessmanagement's valuation of the significant valuation assumptions and calculationsPSAs with a market condition by:▪Evaluating the excess earnings method,TestingMonte Carlo simulation methodology and the reasonableness of the valuation assumptions, utilized, including the discountrisk-free interest rate, expected volatility, and the correlation coefficients.▪Testing the mathematical accuracy of the discounted cash flows used to determine the estimatedIndependently calculating a fair value ofestimate for the IPR&D intangible asset.market condition PSAs using the underlying PSA agreement and independently calculated valuation inputs.26, 2021
ATRICURE,ATRICURE, INC. AND SUBSIDIARIES20202021 and 20192021 2020 Assets Current assets: Cash and cash equivalents $ 43,654 $ 41,944 Short-term investments 75,436 202,274 Accounts receivable, less allowance for credit losses of $1,096 33,021 23,146 Inventories 38,964 35,026 Prepaid and other current assets 5,001 4,347 Total current assets 196,076 306,737 Property and equipment, net 31,409 28,290 Operating lease right-of-use assets 4,761 1,914 Long-term investments 104,338 14,178 Intangible assets, net 42,992 128,199 Goodwill 234,781 234,781 Other noncurrent assets 955 440 Total Assets $ 615,312 $ 714,539 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 18,597 $ 12,736 Accrued liabilities 36,092 27,984 Other current liabilities and current maturities of debt and leases 1,756 8,417 Total current liabilities 56,445 49,137 Long-term debt 59,741 53,435 Finance lease liabilities 10,082 10,969 Operating lease liabilities 4,068 1,180 Contingent consideration and other noncurrent liabilities 1,220 187,424 Total Liabilities 131,556 302,145 Commitments and contingencies (Note 11) 0 0 Stockholders’ Equity: Common stock, $0.001 par value, 90,000 shares authorized; 46,016 and 45,346 issued and outstanding 46 45 Additional paid-in capital 764,811 742,389 Accumulated other comprehensive (loss) income (948) 312 Accumulated deficit (280,153) (330,352) Total Stockholders’ Equity 483,756 412,394 Total Liabilities and Stockholders’ Equity $ 615,312 $ 714,539
ATRICURE,ATRICURE, INC. AND SUBSIDIARIESLOSS2019 and 20182021 2020 2019 Revenue $ 274,329 $ 206,531 $ 230,807 Cost of revenue 68,469 57,222 60,472 Gross profit 205,860 149,309 170,335 Operating expenses (benefit): Research and development expenses 48,506 43,070 41,230 Selling, general and administrative expenses 204,649 150,829 167,143 Change in fair value of contingent consideration (Note 3) (184,800) (357) (4,916) Intangible asset impairment (Note 5) 82,300 — — Total operating expenses 150,655 193,542 203,457 Income (loss) from operations 55,205 (44,233) (33,122) Other income (expense): Interest expense (4,918) (4,885) (4,111) Interest income 466 1,101 2,398 Other (366) (24) (160) Income (loss) before income tax expense 50,387 (48,041) (34,995) Income tax expense 188 114 199 Net income (loss) $ 50,199 $ (48,155) $ (35,194) Net income (loss) per share: Basic net income (loss) per share $ 1.11 $ (1.14) $ (0.94) Diluted net income (loss) per share $ 1.09 $ (1.14) $ (0.94) Weighted average shares outstanding: Basic 45,066 42,125 37,589 Diluted 46,039 42,125 37,589 Comprehensive (loss) income: Unrealized (loss) gain on investments $ (941) $ (46) $ 137 Foreign currency translation adjustment (319) 516 (96) Other comprehensive (loss) income (1,260) 470 41 Net income (loss) 50,199 (48,155) (35,194) Comprehensive income (loss), net of tax $ 48,939 $ (47,685) $ (35,153)
ATRICURE,ATRICURE, INC. AND SUBSIDIARIES2019, and 2018Balance—December 31, 2018 38,604 $ 39 $ 496,544 $ (247,003) $ (199) $ 249,381 Issuance of common stock for SentreHEART acquisition 699 1 20,306 — — 20,307 Issuance of common stock under equity incentive plans 248 — (7,831) — — (7,831) Issuance of common stock under employee stock purchase plan 104 — 2,662 — — 2,662 Share-based employee compensation expense — — 17,977 — — 17,977 Other comprehensive income — — — — 41 41 Net loss — — — (35,194) — (35,194) Balance—December 31, 2019 39,655 $ 40 $ 529,658 $ (282,197) $ (158) $ 247,343 Issuance of common stock through public offering 4,574 5 188,953 — — 188,958 Issuance of common stock under equity incentive plans 1,013 — (2,194) — — (2,194) Issuance of common stock under employee stock purchase plan 104 — 3,330 — — 3,330 Share-based employee compensation expense — — 22,642 — — 22,642 Other comprehensive income — — — — 470 470 Net loss — — — (48,155) — (48,155) Balance—December 31, 2020 45,346 $ 45 $ 742,389 $ (330,352) $ 312 $ 412,394 Issuance of common stock under equity incentive plans 589 1 (9,837) — — (9,836) Issuance of common stock under employee stock purchase plan 81 — 4,181 — — 4,181 Share-based employee compensation expense — — 28,078 — — 28,078 Other comprehensive loss — — — — (1,260) (1,260) Net income — — — 50,199 — 50,199 Balance—December 31, 2021 46,016 $ 46 $ 764,811 $ (280,153) $ (948) $ 483,756
ATRICURE,ATRICURE, INC. AND SUBSIDIARIES2019 and 20182021 2020 2019 Cash flows from operating activities: Net income (loss) $ 50,199 $ (48,155) $ (35,194) Adjustments to reconcile net income (loss) to net cash used in operating activities: Share-based compensation expense 28,078 22,642 17,977 Depreciation 7,534 7,866 7,423 Amortization of intangible assets 2,907 1,682 1,943 Amortization of deferred financing costs 759 509 375 Amortization (accretion) of investments 2,482 1,236 (922) Change in fair value of contingent consideration (184,800) (357) (4,916) Intangible asset impairment 82,300 — — Other adjustments to income 1,607 1,347 2,118 Changes in operating assets and liabilities, net of amounts acquired: Accounts receivable (10,087) 5,087 (3,201) Inventories (4,274) (5,265) (5,151) Other current assets (700) (477) (1,199) Accounts payable 4,710 (1,560) 2,790 Accrued liabilities 8,271 (4,908) 3,108 Other noncurrent assets and liabilities (2,766) 484 (962) Net cash used in operating activities (13,780) (19,869) (15,811) Cash flows from investing activities: Purchases of available-for-sale securities (173,105) (227,045) (73,249) Sales and maturities of available-for-sale securities 206,362 75,306 100,485 Purchases of property and equipment (9,753) (5,259) (12,182) Proceeds from sale of property and equipment — — 39 Proceeds from capital grant — 800 — Cash paid for SentreHEART business combination — — (17,240) Net cash provided by (used in) investing activities 23,504 (156,198) (2,147) Cash flows from financing activities: Proceeds from sale of stock, net of offering costs of $218 — 188,958 — Proceeds from debt borrowings 5,000 — 20,000 Payments on debt and finance leases (5,816) (667) (629) Payment of debt fees (1,171) (35) (329) Proceeds from stock option exercises 8,175 10,835 1,202 Shares repurchased for payment of taxes on stock awards (18,011) (13,029) (9,033) Proceeds from issuance of common stock under employee stock purchase plan 4,181 3,330 2,662 Proceeds from economic incentive loan — — 500 Net cash (used in) provided by financing activities (7,642) 189,392 14,373 Effect of exchange rate changes on cash and cash equivalents (372) 136 (163) Net increase (decrease) in cash and cash equivalents 1,710 13,461 (3,748) Cash and cash equivalents—beginning of period 41,944 28,483 32,231 Cash and cash equivalents—end of period $ 43,654 $ 41,944 $ 28,483 Supplemental cash flow information: Cash paid for interest $ 4,223 $ 4,366 $ 3,719 Cash paid for income taxes, net of refunds 190 217 259 Non-cash investing and financing activities: Contingent consideration in business combinations — — 171,300 Stock issuance in business combinations — — 20,307 Accrued purchases of property and equipment 1,552 298 1,053 Assets obtained in exchange for finance lease obligations — 22 270 DESCRIPTIONDESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES and, left atrial appendage (LAA) management and post-operative pain management and sells its products to medical centers globally through its direct sales force and distributors.ourits wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.certain financial institutions.makes investmentsinvests primarily in U.S. government and agency obligations, corporate bonds, commercial paper and asset-backed securities and classifies all investments as available-for-sale. Investments with maturities ofmaturing in less than one year are classified as short-term.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.1312 for further discussion on revenue.result in a reduction ofreduce revenue, and the provision is included in accrued liabilities.the expected credit losses ofon accounts receivable, considering historical credit losses, current customer-specific information and other relevant factors when determining the allowance. An increase to the allowance for credit losses results in a corresponding increase in selling, general and administrative expenses. The Company 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.productregulatory approvals, variability in product launch strategies and variation in product use all impact inventory reserves for excess, obsolete and expired products. 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.computeddetermined using the straight-line method over the estimated useful lives of assets (see Note 8)7). Maintenance and repair costs are expensed as incurred. The Company reassessesassesses the useful lives of property and equipment at least 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.projections of expected future cash flows. Property and equipment impairments recorded by the Company haveimpairment has not been significant.determines if an arrangement is a leaseleases office, manufacturing and warehouse facilities and computer equipment under leases that qualify as either financing or operating leases, as determined at the inception of the contract.lease arrangement. Lease assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make payments under the lease. Lease assets and liabilities are measured and recorded at the commencement date based on the present value of payments over the lease term.a purchasean option to extend the lease whose exercise is reasonably certain. Operating leases are included in operating lease right-of-use (ROU) assets, other current liabilities and current maturities of debt and leases, and operating lease liabilities. Finance leases are included in property and equipment, other current liabilities and current maturities of debt and leases, and finance lease liabilities.ATRICURE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(In Thousands, Except Per Share Amounts)ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are measured and recorded at the commencement date based on the present value of lease payments over the lease term. The operating lease ROU asset excludes lease incentives. The Company uses the implicit rate when readily determinable, however, most of the leases do not provide an implicit rate and therefore, the Company uses the incremental borrowing rate based on the information available at measurement. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. For real estate and equipment leases, the Company accounts for the lease and non-lease components as a single lease component. Additionally, the portfolio approach is applied to effectively account for the operating lease ROU assets and liabilitiesleases based on the termterms of the underlying lease. Leaseleases.1110 for further discussion.The Company reassesses the useful lives of intangibleIntangible assets annually.Included in intangible assets isinclude In Process Research and Development (IPR&D), representing the value of technology acquired technologies which havein business combinations that 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 converted to a technology asset and amortized over its estimated useful life. TheDue to the nature of IPR&D projects, the Company may experience future delays or failures to obtain approvals or market clearances, or may discontinue or abandon the project, all of which may impact the estimated fair value of the IPR&D project. As a result, the Company may have a full or partial impairment charge related to the IPR&D, determined as the excess carrying value of the IPR&D asset over the estimated fair value.representat least annually for impairment using its best estimates based on reasonable and supportable assumptions and projections. The Company performs impairment testing annually on October 1 or more often if impairment indicators are present.IfThe Company received PMA approval for CONVERGE on April 28, 2021 and began amortizing the $44,021 technology asset over an estimated fifteen year life. During the year ended December 31, 2021, the Company identified indicators of impairment for the IPR&D project is abandoned or regulatory approvals are not obtained,asset that represented an estimate of the Company may have a full or partial impairment charge related to the IPR&D, calculated as the excess carryingfair value of the IPR&D assets overPMA that could result from the estimated fair value.TheaMAZE clinical trial. As a result of the analysis performed, the Company reviews intangible assetsrecorded an impairment loss of $82,300. See Note 3 for impairment using its best estimates based on reasonable and supportable assumptions and projections of expected future cash flows. The Company performs impairment testing annually on October 1 or more often if impairment indicators are present.tests goodwill forperforms impairment testing annually on October 1 or more often if impairment indicators are present.otherOther Noncurrent Liabilities—This balance consists of theasset retirement obligations and other contractual obligations. The balance in prior periods also includes contingent consideration recorded infrom business combinations, as well as deferred payroll taxes as a result of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), deferred revenues, asset retirement obligations and other contractual obligations.. The contingent consideration balance is included in noncurrent liabilities as suchany settlement is both required and expected to be made primarily in shares of the Company’s common stock pursuant to the SentreHEART merger agreement. 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.thea deferred income tax asset will not be realized. Significant weight is given to evidence that can be objectively verified. The Company evaluates deferred income tax assets on an annual basis to determine if valuation allowances are required.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 taxable income, future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards,in prior carryback years and tax planning strategies that are both prudent and feasible. In evaluating the need for a valuation allowance, the existence of cumulative losses in recent years is significant objectively verifiableobjectively-verifiable negative evidence that must be overcome by objectively verifiableobjectively-verifiable positive evidence to avoid the need to recordfor a valuation allowance. The Company has recorded aCompany's valuation allowance againstoffsets 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. The Tax Cut and Jobs Act (Tax Reform Act) allows companies an election to reclassify theCompany has not reclassified income tax effects of the Tax ReformCuts and Jobs Act on items within accumulated other comprehensive income (loss) to retained earnings. The Company has not made this electionearnings due to its full valuation allowance.ATRICURE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(In Thousands, Except Per Share Amounts)Net LossEarnings Per Share—Basic and diluted net lossearnings per share is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share reflects net lossincome available to common stockholders divided by the weighted average number of common shares outstanding during the period. Sinceperiod and any dilutive common share equivalents, including shares issuable upon the Company has experienced net losses for all periods presented, net loss per share excludes the effectvesting of 2,301, 3,623 and 3,869 stock options, restricted stock awards and restricted stock units, and performanceexercise of stock options as well as shares issuable under the Company's employee stock purchase plan (ESPP).Year Ended December 31, 2021 2020 2019 Net income (loss) available to common stockholders $ 50,199 $ (48,155) $ (35,194) Basic weighted average common shares outstanding 45,066 42,125 37,589 Effect of dilutive securities 973 — — Diluted weighted average common shares outstanding 46,039 42,125 37,589 Basic net income (loss) per common share $ 1.11 $ (1.14) $ (0.94) Diluted net income (loss) per common share $ 1.09 $ (1.14) $ (0.94) awards as ofin the year ended December 31, 2021 excludes 404 shares because the effect would be anti-dilutive. For the years ended December 31, 2020 2019 and 2018 because they are anti-dilutive. Therefore,2019, the number of shares calculated for basic net loss per share is also used for the diluted net loss per share calculation.calculation, and net loss per share excludes the effect of 2,301 and 3,623 shares because the effect would be anti-dilutive.losses,income (loss), the comprehensive income/lossincome (loss) includes foreign currency translation adjustments and unrealized gains and losses(losses) on investments.(netnet of tax):2021 2020 2019 Total accumulated other comprehensive income (loss) at beginning of period Total accumulated other comprehensive income (loss) at beginning of period $ 312 $ (158) $ (199) Unrealized gains (losses) on investments Balance at beginning of period $ 54 $ 100 $ (37) Other comprehensive (loss) income before reclassifications (941) (70) 137 Amounts reclassified from accumulated other comprehensive income (loss) to interest income Amounts reclassified from accumulated other comprehensive income (loss) to interest income — 24 — Balance at end of period $ (887) $ 54 $ 100 Foreign currency translation adjustment Balance at beginning of period $ 258 $ (258) $ (162) Other comprehensive (loss) income before reclassifications Other comprehensive (loss) income before reclassifications (768) 555 (277) Amounts reclassified from accumulated other comprehensive income (loss) to other income (expense) Amounts reclassified from accumulated other comprehensive income (loss) to other income (expense) 449 (39) 181 Balance at end of period $ (61) $ 258 $ (258) Total accumulated other comprehensive (loss) income at end of period Total accumulated other comprehensive (loss) income at end of period $ (948) $ 312 $ (158) of and research related toof new and existing products or concepts, preclinical studies, clinical trials scientific and related regulatory affairs.activities, as well as amortization of technology assets.$635 and $785$635 during the years ended December 31, 2021, 2020 2019 and 2018.2019.recordsrecognizes share-based compensation expense for all share-based payment awards, including stock options, restricted stock awards, restricted stock units, performance sharesshare awards (PSAs) and stock purchases related to an employee stock purchase plan, based on estimated fair values.The Company estimates the fair value of share-based payment awards on the date of grant. The value of the portion of thean award that is ultimately expected to vest, net of estimated forfeitures, is recognized as expense over the requisite service periods in the Consolidated Statements of Operations and Comprehensive Loss.period. The Company estimates forfeitures at the time of grant and revises them, ifas necessary, in subsequent periods ifas actual forfeitures differ from those estimates.assumptions regarding several subjective variables. These variables include, but are not limited to,assumptions, such as the Company’s expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors. 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 and restricted stock units and performance share awards based upon the grant date closing market price of the Company’s common stock.estimatedCompany estimates the fair value of PSAs with a performance share awardscondition based on the closing stock price on the date of grant assuming the performance target will be achieved and may be adjustedadjust expense over the performance period based on changes to estimates of performance target achievement. If such targets are not met or service is not rendered for the requisite service period, no compensation cost is recognized, and any recognized compensation cost in prior periods will be reversed. For PSAs with a market condition, a Monte Carlo simulation is performed to estimate the fair value on the date of grant, and compensation cost is recognized over the requisite service period as the employee renders service, even if the market condition is not satisfied. The Company’s determination of the fair value is affected by the Company and peer group stock price, as defined by the award agreement, at the beginning of the service period and grant date, the expected volatility of the Company and peer group’s stock price over the performance period and the correlation coefficient of the daily returns for the Company and peer group over the performance period.ATRICURE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(In Thousands, Except Per Share Amounts)disclosure ofincluding intangible assets, contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Estimates are based on historical experience, where applicable, and other assumptions believed to be reasonable by management. Actual results could differ from those estimates.June 2016,November 2021, the FASB issued Accounting Standard Update (ASU) 2016-13, “Financial Instruments – Credit Losses2021-10, “Government Assistance (Topic 326)832): Measurement of Credit Losses on Financial Instruments”Disclosures by Business Entities about Government Assistance” (ASU 2016-13)2021-10). This guidance requires that financial assets measured at amortized costs, such as trade receivablesbusiness entities to provide certain disclosures when they have received government assistance and contract assets, be presented net of expected credit losses, which may be estimated based on relevant information such as historical experience, current conditions and future expectationsuse a grant or contribution accounting model by analogy to other accounting guidance. The guidance becomes effective for each pool of similar financial assets.annual reporting periods beginning after December 15, 2021. The Company has applied the new requirements by calculating and recording an allowance for credit losses on trade receivables as of January 1, 2020. As a result ofdoes not expect the adoption the Company adjusted its allowance for credit losses on trade receivables; however, the adjustment did notof this standard to have a material impact on its consolidated financial statements and related disclosures.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 has adopted this guidance as of January 1, 2020, and the adoption of this standard did not have a material impact on its consolidated financial statements and related disclosures.•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.Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)Significant
Other
Observable
Inputs
(Level 2)Significant
Other
Unobservable
Inputs
(Level 3)Total Assets: Money market funds $ — $ 38,360 $ — $ 38,360 Commercial paper — 22,978 — 22,978 Government and agency obligations 32,690 — — 32,690 Corporate bonds — 95,845 — 95,845 Asset-backed securities — 28,261 — 28,261 Total assets $ 32,690 $ 185,444 $ — $ 218,134 Liabilities: Contingent consideration $ — $ — $ — $ — Total liabilities $ — $ — $ — $ — Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)Significant
Other
Observable
Inputs
(Level 2)Significant
Other
Unobservable
Inputs
(Level 3)Total Assets: Money market funds $ — $ 38,452 $ — $ 38,452 Commercial paper — 76,914 — 76,914 Government and agency obligations Government and agency obligations 45,399 — — 45,399 Corporate bonds — 73,730 — 73,730 Asset-backed securities — 20,409 — 20,409 Total assets $ 45,399 $ 209,505 $ — $ 254,904 Liabilities: Contingent consideration $ — $ — $ 184,800 $ 184,800 Total liabilities $ — $ — $ 184,800 $ 184,800 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, 2019:0no changes in the levels or methodology of measurement of financial assets and liabilities during the years ended December 31, 20202021 and 2019.ATRICURE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(In Thousands, Except Per Share Amounts)Company hasCompany's contingent consideration arrangements arising from the nContact and SentreHEART acquisitions.Contingent consideration arrangements under the nContact merger agreement obligated the Company to pay former shareholders of nContact up to $50,000 for the completion of enrollment of the CONVERGE IDE trial (Trial Enrollment Milestone) and corresponding PMA approval by December 31, 2020 (Regulatory Milestone). nContact shareholders were also entitled to additional sales-based contingent consideration on revenue in excess of an annual growth rate of more than 25% over a specified baseline through 2019 (Commercial Milestone). NaN payments were made under the Commercial Milestone for calendar years 2016 through 2019 as revenues did not exceed the targets for these years. The Company completed patient enrollment on August 21, 2018, and cash payment of $1,221 and issuance of 232 shares of common stock was made to former nContact shareholders for the Trial Enrollment Milestone on September 20, 2018. NaN payments were made for the Regulatory Milestone as the Company did not obtain PMA approval from FDA for the Epi-Sense Guided Coagulation System as of December 31, 2020. Therefore, as of December 31, 2020, the terms of the contingent consideration arrangements under the nContact merger agreement expired and the underlying fair value is $0.Contingent consideration arrangements under the SentreHEART merger agreementacquisition obligate the Company to pay certain defined amounts to former shareholders of SentreHEART if specified milestones are met related to the aMAZE IDE clinical trial, including PMA approval and reimbursement for the following milestones, if achieved:therapy involving SentreHEART's devices, as follows:•PMA Milestone – up to $140,000 upon receiving PMA from FDA for the LARIAT system with an approved indication allowing commercial distribution in the United States for the exclusion of the LAA for treatment of atrial fibrillation. The full contingent consideration amount is only received if PMA approval is received on or before December 31, 2022. The potential contingent consideration is reduced by 4.17% (or one-twenty-fourth) each month following December 2022 and is reduced to 0zero if the milestone is achieved after December 31, 2023. Payment of $25,000 of•CPT Reimbursement Milestone – up to $120,000 upon American Medical Association approval of a Medicare Category 1 Current Procedural Terminology (CPT) Code. The full contingent consideration amount is only received if approval of the CPT Code is received on or before December 31, 2025. The potential contingent consideration is reduced by 4.17% (or one-twenty-fourth) each month following December 2025 and is reduced to 0zero if the milestone is achieved after December 31, 2026.used insignificant to 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 recurring Level 3 fair value measurements of the contingent consideration liabilities include the following significant inputs as of December 31, 2020:remeasured.measured, with changes in the estimated fair value reflected in operating expenses. Changes in the discount rate, projected time until payment and probabilitiesprobability of payment may result in materially different fair value measurements. A decrease in the discount rate would result in a higher fair value measurement, while a decrease in the probability of payment would result in a lower fair value measurement. Movement in the forecasted timing of achievement to later in the milestone periods also causeswould cause a decrease in the fair value measurement. Subsequent revisions in key assumptions, which impactestimated fair value ofCompany was informed that data from the aMAZE clinical trial did not achieve statistical superiority. Specifically, while the trial met the safety endpoint, the trial did not meet the primary effectiveness endpoint. As the contingent consideration liabilities are recorded in selling, general and administrative expenses. The nContact contingent consideration was remeasured to $0 during 2020 and expired as of December 31, 2020 without meetingarrangements were success-based milestone payments, the regulatory milestone. The fair value of the SentreHEART contingent consideration was remeasured during 2020as of September 30, 2021 resulting in an increasea decrease in fair value due to accretion and changes in estimates related to both the forecasted timing and probability of achievement of the regulatory and reimbursement milestones. Accordingly, the Company recorded a credit to operating expenses of $184,800 reflecting the change in fair value of the contingent consideration. The Company has assessed the projected probability of payment during the contractual achievement periods to be remote, resulting in no remaining fair value as of December 31, 2021.ATRICURE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(In Thousands, Except Per Share Amounts)2021 2020 2019 Beginning Balance – January 1 $ 184,800 $ 185,157 $ 18,773 Amounts acquired $ — $ — $ 171,300 Changes in fair value of contingent consideration (184,800) (357) (4,916) Ending Balance – December 31 $ — $ 184,800 $ 185,157 Contingent consideration liabilities are classified as noncurrent liabilities primarily based on expected timingAs of payments andDecember 31, 2020, the Company expects to settle the majorityterms of the milestone payments in stock.contingent consideration arrangements under the nContact merger agreement expired. Cost Basis Unrealized
Gains
(Losses)Fair Value Corporate bonds $ 96,408 $ (563) $ 95,845 Government and agency obligations 32,953 (263) 32,690 Commercial paper 22,978 — 22,978 Asset-backed securities 28,322 (61) 28,261 Total $ 180,661 $ (887) $ 179,774 Cost Basis Unrealized
Gains
(Losses)Fair Value Corporate bonds $ 73,702 $ 28 $ 73,730 Government and agency obligations Government and agency obligations 45,385 14 45,399 Commercial paper 76,914 — 76,914 Asset-backed securities 20,397 12 20,409 Total $ 216,398 $ 54 $ 216,452 Investments as of December 31, 2019 consisted of the following:0tnot experienced any significant realized gains or losses on its investments in the years ended December 31, 2020, 2019 and 2018.5. BUSINESS COMBINATIONSOn August 13, 2019, the Company acquired 100% of the outstanding equity interests of SentreHEART. Founded in 2005 and based in Redwood City, California, SentreHEART developed innovative technology for remote delivery of a suture for closure of anatomic structures including the left atrial appendage (LAA). This technology is currently being studied in the aMAZE IDE clinical trial, an FDA-approved, prospective, multicenter, randomized controlled trial. The objective of the aMAZE IDE trial is to demonstrate that the LARIAT® device for LAA closure, plus a Pulmonary Vein Isolation (PVI) ablation, will lead to a reduced incidence of recurrent Afib compared to PVI alone. Management believes the acquisition of SentreHEART will significantly expand the Company’s addressable markets with a product designed for electrophysiologists, and the acquisition of SentreHEART deepens the Company’s commitment to provide the broadest possible offering of ablation and LAA management solutions to patients and customers.The total consideration paid to SentreHEART’s former shareholders at the acquisition date was $18,008 in cash and 699 shares of AtriCure common stock valued at approximately $20,307. The cash paid at acquisition was subject to adjustment for net working capital balances outside of a specified range, resulting in a $768 adjustment received by the Company in November 2019. The mergerATRICURE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(In Thousands, Except Per Share Amounts)agreement also provides for the Company to pay contingent consideration to former shareholders of SentreHEART if specified milestones are met related to the aMAZE IDE clinical trial, including PMA approval and reimbursement for the therapy involving SentreHEART’s devices. In connection with the acquisition of SentreHEART, fair value of $171,300 was recorded for the SentreHEART contingent consideration. See Note 3 for further details regarding the SentreHEART acquisition-related contingent consideration. Subject to the terms and conditions of the merger agreement, all contingent consideration would be paid in cash and stock at the discretion of the Company, subject to certain limitations, including the total number of shares that may be issued in connection with the merger. The maximum contingent consideration payable by AtriCure will not exceed $260,000.The Company accounted for the acquisition in accordance with ASC 805, “Accounting for Business Combinations”. The assets acquired, liabilities assumed and the estimated contingent consideration obligations are recorded at their respective fair values as of the date of acquisition. The process of estimating fair values of identifiable assets, certain intangible assets and assumed liabilities requires significant assumptions and estimates. The judgments used to determine the fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact the amounts recorded and the Company’s results of operations.The components of the aggregate purchase price for the SentreHEART acquisition are as follows:Fair value of AtriCure common stock issued at closing$20,307Cash17,240Fair value of contingent consideration liabilities171,300Total purchase price$208,847The fair value of the contingent consideration liabilities was determined by applying the probability-weighted scenario method. Key assumptions in the valuation of the contingent consideration liabilities are based on management’s judgment and estimates and include the probability of achievement of each of the milestones, timing of achievement and discount rates, reflecting the inherent risks of achieving the respective milestones. Most assumptions are not observable in the market, and thus represent a Level 3 measurement within the fair value hierarchy. See Note 3 for discussion of unobservable inputs.The following table summarizes the fair values of the assets acquired and the liabilities assumed based on the information that was available as of the acquisition date:During the measurement period, the Company recorded adjustments for the fair value of consideration transferred, including settlement of working capital, and the evaluation of certain tax attributes. Net deferred tax assets of $20,590 and offsetting valuation allowances were also recognized at the acquisition date for the future tax consequences attributable to differences between the above financial statement carrying amounts of existing assets and liabilities and their respective tax bases and acquired operating loss and tax credit carryforwards of SentreHEART. At acquisition, SentreHEART had approximately $184,036 of federal and state net operating loss carryforwards, which begin to expire in 2026 and $37,906 of federal net operating loss carryforwards which have no expiration as a result of the Tax Reform Act. A portion of the net operating loss carryforwards are subject to certain limitations under InternalATRICURE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(In Thousands, Except Per Share Amounts)Revenue Code Section 382. The Company recorded a full valuation allowance against the net deferred tax assets at acquisition. The goodwill recorded is not deductible for tax purposes.The valuation of the intangible assets acquired and related amortization periods are as follows:The fair value of the LARIAT developed technology was estimated using the relief-from-royalty method, an income approach. The LARIAT developed technology asset is amortized on a straight-line basis over its estimated useful life. The IPR&D asset was estimated using the excess earnings method, also an income approach. The IPR&D asset represents an estimate of the fair value of the PMA approval from the in-process aMAZE IDE clinical trial and is accounted for as an indefinite-lived intangible asset until completion or abandonment of the project.The Company recorded the excess of the aggregate purchase price over the estimated fair values of the identifiable net assets acquired as goodwill. Goodwill is primarily attributable to the benefits the Company expects to realize by enhancing its product offering and addressable markets, thereby contributing to an expanded revenue base. As discussed in Note 1, the Company accounts for goodwill in a single reporting unit representing the Company as a whole.The 2019 operating results of SentreHEART, including $1,280 of appendage management revenue and $8,505 of net loss, are included in the Consolidated Statements of Operations and Comprehensive Loss beginning August 14, 2019. The Consolidated Balance Sheet as of December 31, 2019 reflects the acquisition of SentreHEART. The Company recognized approximately $138 and $3,978 of acquisition-related costs in the years ended December 31,2021, 2020 and 2019, consisting of legal, audit, tax and other due diligence expenses. Acquisition-related costs are included in selling, general and administrative expenses.The following supplemental pro forma information presents the financial results of the Company for the twelve months ended December 31, 2019 and 2018 as if the acquisition of SentreHEART had occurred on January 1, 2018.Certain pro forma adjustments have been made when calculating the amounts above to reflect the impact of the purchase transaction, primarily consisting of the exclusion of SentreHEART’s interest expense incurred on debt paid off or converted to equity in the acquisition, exclusion of fair value adjustments for SentreHEART’s derivative liabilities and preferred warrants settled as part of the acquisition, adjustments for amortization of intangible assets with determinable lives and exclusion of contingent consideration remeasurement. The Company also eliminated transaction expenses incurred by both AtriCure and SentreHEART. The supplemental pro forma information has been prepared for comparative purposes and does not purport to be indicative of what would have occurred had the acquisition been made on January 1, 2018, nor is it indicative of any future results. The pro forma information does not include any adjustments for potential revenue enhancements, cost synergies or other operating efficiencies that could result from the acquisition.ATRICURE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(In Thousands, Except Per Share Amounts)6.5. INTANGIBLE ASSETS AND GOODWILL 2021 2020 Cost Accumulated Amortization Cost Accumulated Amortization Technology 5-15 years $ 55,712 $ 12,720 $ 11,691 $ 9,813 IPR&D — — 126,321 — Total $ 55,712 $ 12,720 $ 138,012 $ 9,813 related toof intangible assets with definite lives, which excludes the IPR&D asset,assets, was $2,907, $1,682 $1,943 and $1,510$1,943 for the years ended December 31, 2021, 2020 2019 and 2018.2019.The Company expects to begin amortizing the $44,021 IPR&D asset that represents the fair value of the PMA approval from the CONVERGE IDE clinical trial in 2021.2022 $ 3,653 2023 2,953 2024 2,953 2025 2,953 2026 2,953 2027 and thereafter 27,527 Total $ 42,992 Net carrying amount as of December 31, 2018$105,257Additions129,524Net carrying amount as of December 31, 2019234,781Additions—Net carrying amount as of December 31, 2020$234,7817.Net carrying amount as of December 31, 2019 $ 234,781 Additions — Net carrying amount as of December 31, 2020 234,781 Additions — Net carrying amount as of December 31, 2021 $ 234,781 ATRICURE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(In Thousands, Except Per Share Amounts)8. 2021 2020 Raw materials $ 12,653 $ 11,966 Work in process 2,064 2,424 Finished goods 24,247 20,636 Inventories $ 38,964 $ 35,026 Estimated Useful Life 2021 2020 Generators and related equipment 1 - 3 years $ 20,175 $ 18,669 Building under finance lease 15 years 14,250 14,250 Computer, software and office equipment 3 - 5 years 7,762 8,045 Machinery and equipment 3 - 7 years 8,501 6,697 Furniture and fixtures 3 - 7 years 5,877 5,849 Leasehold improvements 5 - 15 years 8,727 8,645 Construction in progress N/A 5,999 2,067 Land N/A 1,006 502 Equipment under finance leases 3 - 5 years 380 409 Total 72,677 65,133 Less accumulated depreciation (41,268) (36,843) Property and equipment, net $ 31,409 $ 28,290 $7,423 and $7,244$7,423 for the years ended December 31, 2021, 2020 2019 and 2018.2019. Depreciation related to generators and other capital equipment was $2,327, $2,503 and $2,910 and $3,191 for2019 and 2018.2019. As of December 31, 20202021 and 2019,2020, the net carrying value of generators and other capital equipment was $3,410$3,637 and $4,272.9.$3,410. 2021 2020 Accrued compensation and employee-related expenses Accrued compensation and employee-related expenses $ 30,990 $ 17,730 Sales returns and allowances 2,416 1,889 Accrued taxes and value-added taxes payable 1,452 1,256 Accrued royalties 754 703 Other accrued liabilities 470 406 Accrued legal settlement Accrued legal settlement 10 6,000 Total $ 36,092 $ 27,984 10., which. The Loan Agreement includes a $60,000 term loan, with an option to make available an additional $30,000 in term loan borrowings, and $20,000a $30,000 revolving line of credit. The total combinedLoan Agreement has a five year term, loan and revolving line of credit outstandingexpiring November 2026. cannot exceed $70,000 at any time prior to SVB’s consent. The term loan and revolving credit facility both mature or expire, as applicable, on August 1, 2024.Principal payments of the term loan are to be made ratably commencing March 1, 202124 months after inception through the loan’sloan's maturity date. IfAt the Company meets certain conditions, as specified byoption of the Loan Agreement,Company, the commencement of term loan principal payments may be deferred byextended an additional sixtwelve months. The term loan accrues interest at the greater of the Prime Rate or 5.00%, plus 0.75%1.25% and is subject to an additional 3.00% fee on the $60,000 term loan principal payableamount at maturity or upon acceleration or prepayment of the term loan.maturity. The Company is accruing the 3.00% fee over the term of the Loan Agreement, with $495 accrued$60 included in the outstanding loan balance as of December 31, 2020.2021. Additionally, the unamortized original financing costs related to the term loan of $393$319 are netted against the outstanding loan balance in the Consolidated Balance Sheets and are amortized ratably over the term of the Loan Agreement.0.15%0.20% of the revolving line of credit, and any borrowings thereunder bear interest at the greater of the Prime Rate or 5.00%.Rate. Borrowing availability under the revolving credit facility is based on the lesser of $20,000$30,000 or a borrowing base calculation as defined by the Loan Agreement. As of December 31, 2020,2021, the Company had 0no borrowings under the revolving credit facility and had borrowing availability of $8,750.approximately $28,750. Financing costs related to theATRICURE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(In Thousands, Except Per Share Amounts)On April 29, 2020, the Company and SVB entered into an amendment to the Loan Agreement which modified a covenant related to the Company’s liquidity ratio through the third quarter 2020 testing date and increased the early termination fees for both the term loan and revolving line of credit. The amendment was treated as a debt modification.On February 8, 2021, the Company and SVB entered into an amendment to the Loan Agreement which modified conditions which allow the Company to request to defer the term loan principal payments an additional six months, commencing in September 2021, if such conditions were satisfied. Additionally, the covenant reporting requirements were modified. The amendment was treated as a debt modification. Subsequent to the amendment, the conditions were satisfied by the Company and the Company requested such deferral. As a result, borrowings outstanding under the existing term loan agreement have been classified to reflect the deferral of principal payments in the Consolidated Balance Sheet as of December 31, 2020.Future principal payments of long-term debt are projected as follows:11.2022 $ — 2023 3,333 2024 20,000 2025 20,000 2026 16,667 Total long-term debt, of which $60,000 is noncurrent $ 60,000 corporate offices, manufacturing and warehouse facilities and computer equipment. The Company’s leases have remaining lease terms of one year to tennine years. Options to renew or extend leasesisare as follows:As of As of As of December 31, 2021 December 31, 2020 December 31, 2019 Operating Leases Weighted average remaining lease term (years) 3.6 3.2 3.5 Weighted average discount rate 4.69 % 5.68 % 5.94 % Finance leases Weighted average remaining lease term (years) 8.6 9.7 11.0 Weighted average discount rate 6.91 % 6.91 % 7.05 % In connection with the terms of the Company’s corporate headquarters lease, a lessor in October 2015. The letter of credit2015, which is renewed annually and remains outstanding as of December 31, 2020.2021.ATRICURE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(In Thousands, Except Per Share Amounts) Year Ended Year Ended Year Ended December 31, 2021 December 31, 2020 December 31, 2019 Operating lease cost $ 1,052 $ 1,237 $ 952 Finance lease cost: Amortization of right-of-use assets 1,019 1,050 998 Interest on lease liabilities 792 844 872 Total finance lease cost $ 1,811 $ 1,894 $ 1,870 duringfor the twelve months ended December 31, 2021, 2020 and 2019.iswas as follows:Year Ended Year Ended Year Ended December 31, 2021 December 31, 2020 December 31, 2019 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows for operating leases $ 998 $ 1,236 $ 1,026 Operating cash flows for finance leases 620 844 872 Financing cash flows for finance leases 792 664 629 Right-of-use assets obtained in exchange for lease obligations: Operating Leases 3,752 1,421 1,884 Finance Leases — 22 270 Operating lease right-of-use asset obtained in business combination — — 2,929 Early termination of operating lease — 2,743 — iswas as follows:ATRICURE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(In Thousands, Except Per Share Amounts)As of December 31, 2021 As of December 31, 2020 Operating Leases Operating lease right-of-use assets $ 4,761 $ 1,914 Other current liabilities and current maturities of debt and leases 861 927 Operating lease liabilities 4,068 1,180 Total operating lease liabilities $ 4,929 $ 2,107 Finance Leases Property and equipment, at cost $ 14,607 $ 14,659 Accumulated depreciation (6,116) (5,247) Property and equipment, net $ 8,491 $ 9,412 Other current liabilities and current maturities of debt and leases $ 895 $ 823 Finance lease liabilities 10,082 10,969 Total finance lease liabilities $ 10,977 $ 11,792 2020 are2021 were as follows:12.Operating Leases Finance Leases 2022 $ 861 $ 1,629 2023 1,160 1,652 2024 1,164 1,674 2025 920 1,625 2026 592 1,657 2027 and thereafter 868 6,515 Total payments $ 5,565 $ 14,752 Less imputed interest (636) (3,775) Total $ 4,929 $ 10,977 payment of royaltiespayments of 3% to 5% of specified product sales. One royalty agreement remains in effect through 2025, while the other agreement remains in effect until the later of 2023 or until expiration of the underlying patents or patent applications. Parties to the royalty agreements have the right at any time to terminate the agreement immediately for cause. Royalty expense of $3,124, $2,596 $2,892 and $2,715$2,892 was recorded as part of cost of revenue for the years ended December 31, 2021, 2020 2019 and 2018.2019.certain vendorssuppliers in the ordinary course of business, generally with terms that allow cancellation. The Company is committed to funding renovation of a recently purchased building for additional manufacturing capacity. Approximately $3,800 of construction costs remain committed and outstanding.WhenA liability is established once management has assessed thatdetermines a loss is probable and an amount can be reasonably estimated, the Company records a liability. estimated.requiresrequired 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,interrogatories. In March 2021, USDOJ informed the Company cannotthat its investigation was based on a lawsuit brought on behalf of the United States and the various state and local government under the qui tam provisions of federal and certain state and local False Claims Acts. Although the USDOJ and all of the state and local governments declined to intervene, the relator continues to pursue the case. The Company is vigorously contesting the case, however, it is not possible to predict when the investigation willthis matter may be resolved or what impact, if any, the outcome of the investigationthis matter might have on our consolidated financial position, results of operations or its potential impact on the Company. cash flows.providesprovided for contingent consideration or “earnout” to be paid upon attaining specified regulatory approvals and clinical and revenue milestones. The merger agreement’s earnout provisions required the Company to deliver periodic earnout reports to a designated representative of former nContact stockholders. In response to the reports delivered in and after February 2018, the Company received letters from representatives purporting to serve as “earnout objection statements” (as that term is defined in the merger agreement) and claim that for purposes of determining the commercial milestone payment, the Company should be including revenues of certain additional items and products that the Company has not included in its earnout statements. During February 2021, the Company entered into a settlement agreement with the former nContact stockholders requiring payment of $6,000. The Company has recorded the $6,000 settlement as a component of current liabilities as of December 31, 2020 as the underlying cause occurred prior to December 31, 2020.13.2020, and has made substantially all of the settlement payment as of December 31, 2021.ATRICURE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(In Thousands, Except Per Share Amounts)$1,236 in 2020, 2019 and 2018.limitedsome 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 estimateThe Company estimates the provision for sales returns and allowances using the expected value method based on historical experience and other factors that we believethe Company believes could impact ourits expected returns, including defective or damaged products and invoice adjustments. In the normal course of business, the Company generally does not accept product returns unless a product is defective as manufactured. The Company does not provide customers with the right to a refund.recorded asincluded in selling expense andwhile royalties are recorded asincluded in cost of revenue.1817 for disaggregated revenue by geographic area and by product category.14. local and foreign income tax returns in jurisdictions with varying statutes of limitations. Income taxes are computed usingThe Company uses 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 aCompany's valuation allowance againstoffsets substantially all its 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.ATRICURE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(In Thousands, Except Per Share Amounts) 2021 2020 2019 Current Tax Expense Federal $ — $ (26) $ (26) State 42 78 34 Foreign 125 74 165 Total current tax expense 167 126 173 Deferred Tax Expense Federal $ (30,925) $ (10,304) $ (7,655) State (4,803) (1,686) (1,368) Foreign (826) (3,071) (1,690) Change in valuation allowance 36,575 15,049 10,739 Total deferred tax expense 21 (12) 26 Total tax expense $ 188 $ 114 $ 199 2021 2020 Deferred tax assets (liabilities): Net operating loss carryforwards $ 137,920 $ 123,556 Research and development credit carryforwards 11,269 9,365 Intangible assets (9,993) (30,773) Equity compensation 7,974 8,623 Finance and operating lease liabilities 3,700 3,164 Right-of-use assets (3,037) (2,547) Deferred interest 2,469 1,598 Inventories 2,434 1,360 Accruals and reserves 1,755 3,739 Property and equipment (1,264) (1,315) Other 587 293 Subtotal 153,814 117,063 Less valuation allowance (153,798) (117,025) Total $ 16 $ 38 $339,699$336,792 which have expirationsexpire between 20212022 and 2037 and $116,485$175,883 which has no expiration. The Company has state and local net operating loss carryforwards of $301,983 with varying expirations from 2021$344,968 which expire between 2022 to 2040.2041. 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 $9,365$11,269 which have expirationsexpire between 2022 and 2040.2041. Additionally, the Company has foreign net operating loss carryforwards of approximately $49,714$50,817 which have expirationsexpire between 20212022 and 2027. On January 1, 2019 the Company adopted ASC 842 and recognized $400 of operating lease liability deferred tax assets and $400 of offsetting right-of-use asset deferred tax liabilities.ATRICURE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(In Thousands, Except Per Share Amounts)2019 and 20182019 effective income tax rates differ from the federal statutory rate as follows: 2021 2020 2019 Federal tax at statutory rate 21.0% $ 10,580 21.0% $ (10,088) 21.0% $ (6,950) Permanent differences (80.3)% (40,439) (2.5)% 1,214 1.2 % (386) Valuation allowance 72.6 % 36,575 (31.3) % 15,048 (32.4) % 10,739 State income taxes (9.4)% (4,760) 3.3% (1,607) 4.0 % (1,334) Federal R&D credit (3.7)% (1,878) 2.0% (985) 2.5% (837) Foreign income taxes 0.7% 344 4.5�� % (2,140) (0.2) % 52 Federal deferred adjustments (0.5)% (234) 2.8 % (1,328) 3.3 % (1,085) Effective tax rate 0.4 % $ 188 (0.2) % $ 114 (0.6) % $ 199 2019 and $(13,443) and $(7,468) for 2018.$235$290 at December 31, 2020.2021. The Company does not consider these earnings as permanently reinvested and has determined that no current and deferred taxes are required on such amounts.20172018 are open for examination. Generally, state and foreign income tax returns for periods beginning in 20162017 are open for examination. However, taxing authorities have the ability to adjustaudit 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.2019 and 20182019 is presented below:For 2019, the Company’s 2021 2020 2019 Balance at the beginning of the year $ 1,798 $ 1,777 $ 1,157 Increases (decreases) for prior year tax positions — 21 620 Increases (decreases) for current year tax positions — — — Increases (decreases) related to settlements — — — Decreases related to statute lapse — — — Balance at the end of the year $ 1,798 $ 1,798 $ 1,777 for prior yearin unrecognized tax positionsbenefits in 2019 relates to uncertain income tax benefits assumed pursuant to the SentreHEART acquisition. Historically, the Company didhas not haveincurred any significant interest and penalties accrued for unrecognized income tax benefits as a result of offsetting net operating losses. The Company has accrued interestInterest and penalties associated with uncertain income tax benefits assumed pursuant to the SentreHEART acquisition were recognized as part of December 31, 2019, and recognized interest and penalties within income tax expense.purchase accounting. The amount is not significant.There are 0 amounts included in the balance of unrecognized tax benefits at December 31, 2018 that, if recognized, would affect the effective tax rate. 2020.15.2021.2018, approximately 10.8%, 12.0% and 10.8% of the Company’s total net revenue was derived from its top 10 customers. During 2021, 2020 2019 and 20182019 no individual customer accounted for more than 10% of the Company’s revenue.2019, 13.0% and 16.5% 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, 20202021 and 2019.2020.ATRICURE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(In Thousands, Except Per Share Amounts)2020, $41,6942021, $43,404 of the cash and cash equivalents balance was in excess of the FDIC limits.16.2019 and 2018,2019, the Company made matching contributions of 50% on the first 6% of employee contributions to the 401(k) Plan. The Company’s matching contributions expensed duringin 2021, 2020 and 2019 were $2,651, $2,237 and 2018 were $2,237, $1,915 and $1,560.$1,915. Additional amounts may be contributed to the 401(k) Plan at the discretion of the Company’s Board of Directors, however, 0no such discretionary contributions were made duringin 2021, 2020 2019 or 2018.2019. The Company also provides retirement benefits for employees of AtriCure Europe B.V. and other foreign subsidiaries. Total contributions to retirement plans for these employees were $349, $244 and $248 in 2021, 2020 and $243 in 2020, 2019 and 2018.17.2019.administrator (the CompensationDirectors)Directors, as the administrator of the 2014 Plan, 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, 2020,2021, 12,899 shares of common stock had been reserved for issuance under the 2014 Plan and 1,9321,505 shares were available for future grants.granted prior to 2018 under the 2014 Plan 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 awards granted prior to 2018 generally vest between one year and four years from the date of grant. Stock options generally expire ten years from the date of grant.In 2012 the Company granted 450 performance options to its President and Chief Executive Officer pursuant to his Employment Agreement. The Performance 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. As of December 31, 2020, all of the performance options vested.specified amounts. 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 was recognized over the estimated vesting terms. As of December 31, 2017, compensation costs related to non-vested performance options were fully recognized.Compensation Committee approved the grant of performance share awards to the Company’s Executive Leadership Team pursuant to the Company’s 2014 Plan. The form of award agreementagreements for the PSAs (PSA Grant Form) provides, among other things,provide that each PSA that vests represents the right to receive one1 share of the Company’s common stock at the end of the performance period. With respect to the PSAs, the number of shares that vest and are issued to the recipient is based upon the Company’s performance as measured against thewith respect to specified performance targettargets at the end of the three-yearthree year performance period as determined byperiod. Payout opportunities range from 0% to 100% of the Compensation Committee. Established threshold, target and maximumamount for awards granted prior to 2021, while awards granted in 2021 have payout opportunities which may rangeranging from 0% to 200% of the target amount,amount. These ranges are used to calculatedetermine the number of shares that will be issuable when the award vests. Additionally, allAll or a portion of the PSAs may vest following a change of control or a termination of service by reason of death or disability (each as describeddisability. PSAs granted prior to 2021 have performance targets based on the Company’s revenue compound annual growth rate (CAGR) over the three year performance period. PSAs granted in greater detail2021 have two equally weighted performance targets measured at the end of the three year performance period: (i) the Company’s revenue CAGR; and (ii) relative total shareholder return (TSR). TSR is measured against the Nasdaq Health Care Index constituents and the 20-trading-day average stock price prior to the end of the performance period over the 20-trading-day average stock price prior to the beginning of the performance period. The performance and market condition payouts will be determined independently and accumulated to determine the total payout for the three year performance period, subject to the maximum payout defined in the PSA Grant Form). The Company estimatedagreements.fair value of the 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.plans during 2021 was as follows:Weighted Average Number of Remaining Shares Contractual Time-Based Stock Options Outstanding Term Outstanding at January 1, 2021 904 $ 16.57 Granted 100 70.00 Exercised (333) 13.48 Cancelled (18) 46.76 Outstanding at December 31, 2021 653 $ 25.53 4.4 $ 29,071 Vested and expected to vest 647 $ 25.18 4.4 $ 29,023 Exercisable at December 31, 2021 520 $ 16.67 3.3 $ 27,513 In 2020, the Compensation Committee modified the methodology for measuring performance of the 2018, 2019, and 2020 performance awards. As a result of the modification which impacted the vesting conditions and performance measures related to the awards, the incremental compensation cost resulting from the modification is $4,162, of which $569 is reflected in the year ended December 31, 2020.Activity under the plans during 2020 was as follows:Activity under the plans during 2019 was as follows:RSA PSA Shares Shares Restricted Stock Awards and Performance Share Awards Outstanding Outstanding Outstanding at January 1, 2021 935 $ 30.92 287 $ 39.70 Awarded 306 67.51 99 89.36 Released (595) 28.73 (117) 38.51 Forfeited (18) 45.73 (42) 57.08 Outstanding at December 31, 2021 628 $ 50.96 227 $ 64.27 ATRICURE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(In Thousands, Except Per Share Amounts)Weighted Average Number of Remaining Shares Contractual Performance Stock Options Outstanding Term Outstanding at January 1, 2021 175 21.04 Granted — — Exercised (175) 21.04 Cancelled — — Outstanding at December 31, 2021 — $ — 0 $ — Exercisable at December 31, 2021 — $ — 0 $ — 2018 was $29,594, $1,985 and $5,343.$1,985. As a result of the Company’s full valuation allowance on its net deferred tax assets, 0no 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 2021, 2020 and 2019, $8,175, $10,835 and 2018, $10,835, $1,202 and $6,012 in cash proceeds from the exercise of stock options were included in the Consolidated Statements of Cash Flows as a result of the exercise of stock options.Flows. The total fair value of restricted stock vested during 2021, 2020 and 2019 was $40,510, $34,200 and 2018$23,479. The total fair value of performance share awards vested during 2021 and 2020 was $34,200, $23,479$8,165 and $11,864.$4,003. The Company issues registered shares of common stock to satisfy stock option exercises and restricted stock and performance award grants.The ESPP is available to eligible employees as defined in the plan document. (currently 15%(15%) ofto 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 a value of 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, 2020,2021, there were 387305 shares available for future issuance under the ESPP.2019 and 2018.2019. The expense was allocated as follows: 2021 2020 2019 Cost of revenue $ 2,243 $ 1,425 $ 917 Research and development expenses 4,206 3,530 2,374 Selling, general and administrative expenses 21,629 17,687 14,686 Total $ 28,078 $ 22,642 $ 17,977 2021 2020 2019 Restricted Stock Awards & Time-Based Stock Options $ 18,727 $ 18,612 $ 13,922 Performance Share Awards 8,095 2,921 3,254 ESPP 1,256 1,109 801 Total $ 28,078 $ 22,642 $ 17,977 ATRICURE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(In Thousands, Except Per Share Amounts)20202021 there was $18,561$21,687 of unrecognized compensation costs related to non-vested stock options and restricted stock arrangements ($1,0752,341 relating to stock options and $17,486$19,346 relating to restricted stock). This cost is expected to be recognized over a weighted-average period of 2.02.2 years for stock options and 1.71.8 years for restricted stock. As of December 31, 20202021 there was $6,940$10,301 of unrecognized compensation costs related to non-vested performance share awards, and this cost is expected to be recognized over a weighted-average period of 1.61.8 years.calculatingdetermining compensation expense, the fair value of restricted stock awards, restricted stock units and performance share awards with a performance condition is based on the market value of the Company’s stock on the grant date of the awards or subsequent modification (as applicable). the options is estimated on the grant date using the Black-Scholes model includingand includes the following assumptions: 2021 2020 2019 Range of risk-free interest rate 0.43-1.22% 0.30-1.73% 1.43 - 2.64% Range of expected life of stock options (years) 5.3 to 5.7 5.2 to 5.7 5.1 to 5.7 Range of expected volatility of stock 40.00 - 43.00% 40.00 - 43.00% 40.00 - 42.00% Weighted-average volatility 41.84% 41.54% 40.87% Dividend yield 0.00% 0.00% 0.00% 2021 Stock price $ 66.31 Expected term (years) 2.8 Company volatility 42.10% Peer group average volatility 91.00% Peer group average correlation 31.50% Risk-free interest rate 0.20% Dividend yield 0.00% 2019 and 20182019 was as follows:18. 2021 2020 2019 Stock options $ 27.31 $ 15.25 $ 11.56 Restricted stock awards 67.51 40.77 30.12 Performance share awards 89.36 38.42 30.77 and systems designed for the exclusion of the left atrial appendage.appendage and devices designed to block pain by temporarily ablating peripheral nerves. 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 customer geographic areaslocations is based on the location of the customers to whom products are sold.Revenue by geographic area was as follows: 2021 2020 2019 United States $ 229,131 $ 169,244 $ 185,829 Europe 27,931 23,217 27,929 Asia 16,077 13,118 15,976 Other international 1,190 952 1,073 Total international 45,198 37,287 44,978 Total revenue $ 274,329 $ 206,531 $ 230,807 wasis as follows:ATRICURE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)(In Thousands, Except Per Share Amounts) 2021 2020 2019 Open ablation $ 93,895 $ 75,399 $ 80,205 Minimally invasive ablation 39,380 25,647 34,842 Appendage management 94,568 66,981 68,166 Total ablation and appendage management 227,843 168,027 183,213 Valve tools 1,288 1,217 2,616 Total United States $ 229,131 $ 169,244 $ 185,829 wasis as follows: 2021 2020 2019 Open ablation $ 23,206 $ 18,655 $ 24,945 Minimally invasive ablation 6,409 6,171 8,349 Appendage management 15,534 12,353 11,476 Total ablation and appendage management 45,149 37,179 44,770 Valve tools 49 108 208 Total international $ 45,198 $ 37,287 $ 44,978 principally located in the United States, except for $1,399 as of December 31, 2021 and $1,693 as of December 31, 2020 and $1,228 as of December 31, 2019, which are located primarily in Europe.19. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)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.SCHEDULEAdditions Beginning
BalanceCosts and Expenses Other (1) Deductions Ending
BalanceReserve for sales returns and allowances Year ended December 31, 2021 $ 1,889 $ 1,226 $ — $ 699 $ 2,416 Year ended December 31, 2020 3,979 66 — 2,156 1,889 Year ended December 31, 2019 1,410 369 2,240 40 3,979 Allowance for inventory valuation Year ended December 31, 2021 $ 1,779 $ 3,251 $ — $ 390 $ 4,640 Year ended December 31, 2020 1,517 801 — 539 1,779 Year ended December 31, 2019 1,029 848 — 360 1,517 Valuation allowance for deferred tax assets Year ended December 31, 2021 $ 117,025 $ 36,773 $ — $ — $ 153,798 Year ended December 31, 2020 101,178 15,847 — — 117,025 Year ended December 31, 2019 69,849 10,739 20,590 — 101,178 of for transition to ASC 606 to reflect SentreHEART’s historical refund practices and recorded a valuation allowance to offset the acquired net deferred tax assets.
ITEMITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM20202021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.2020.2021. 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, 2020.2021.consolidated financial statementsConsolidated 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.2020,2021, 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, 2020,2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.2020,2021, of the Company and our report dated February 26, 2021,17, 2022, expressed an unqualified opinion on those financial statements.26, 2021
ITEM 9B. OTHER INFORMATIONBoard CommitteesEffective February 25, 2021, the Company’s Board of Directors re-constituted its committees as follows:Audit: Sven A. Wehrwein (Chair), Daniel P. Florin, Mark R. Lanning, Regina E. GrovesCompensation: B. Kristine Johnson (Chair), Mark A. Collar, Mark R. Lanning, Karen N. PrangeCompliance, Quality and Risk: Regina E. Groves (Chair), Sven A. Wehrwein, Robert S. White, Daniel P. FlorinNominating and Corporate Governance: Mark A. Collar (Chair), Scott W. Drake, Robert S. White, Karen N. PrangeStrategy: Robert S. White (Chair), Regina E. Groves, B. Kristine JohnsonAmendments to Performance Share AwardsEffective as of February 25, 2021, pursuant to approval and direction from the Compensation Committee, the Company amended certain terms of performance share awards (PSAs) granted to active named executive officers and certain other executive employees (collectively, the “Executive Leadership Team”) in 2018, 2019 and 2020 pursuant to the Company’s 2014 Plan.The award agreements for the PSAs provide, among other things, that each PSA that vests represents the right to receive one share of the Company’s common stock at the end of the performance period. The number of shares that vest and are issued to the recipient is based upon the Company’s performance as measured against the specified performance target (the Company’s revenue compound annual growth rates (CAGR) at the end of the three-year performance period).The amendments modify the methodology for calculating the Company’s three year revenue growth as follows: (i) one-year revenue growth will be calculated for each year in the performance cycle; (ii) with respect to the calculation of revenue growth for each year in the performance cycle, if the Company achieves a growth rate less than the “Threshold” Performance Goal, then a 0% growth rate shall be substituted in place of such actual rate for the applicable year in the performance cycle; (iii) with respect to the calculation of revenue growth for each year in the performance cycle, if the Company achieves a growth rate greater than the “Maximum” Performance Goal, then the “Maximum” growth rate identified in the Performance Share Award Agreement shall be substituted in place of such actual rate for the applicable year in the performance cycle; (iv) all three years in the applicable performance cycle shall be averaged to provide revenue growth for purposes of determination vesting; and (v) in no event shall payouts under such PSA agreements exceed the “Target” amount originally identified in the applicable PSA agreements.With respect to the PSAs granted in 2018 to current active members of the Executive Leadership Team, the Compensation Committee applied the calculation methodology described above to determine that the 2018 PSAs vest at the 93% payout level. With respect to the PSAs granted in 2019 and 2020, on February 25, 2021 the Company executed amendments to the PSA agreements for the 2019 and 2020 awards reflecting the modified calculation methodology described above. The form of amendment to the PSA agreements is filed herewith as Exhibit 10.19. The description of these amendments does not purport to be complete and is qualified in its entirety by reference to such exhibit.The Compensation Committee took the actions described above due to developments related to the COVID-19 pandemic. The challenging environment resulting from the COVID-19 pandemic materially and adversely impacted the Company’s addressable markets, as cardiac surgery and elective procedures were either significantly reduced or indeterminately deferred during the pandemic in order to preserve resources for COVID-19 patients and caregivers and to protect patients from potential exposure to COVID-19. Consequently, the achievement of any revenue growth was rendered extremely unlikely. Management expects that the contraction in addressable markets will continue to decrease demand for the Company’s products and adversely impact the Company’s revenue and financial condition while the pandemic persists.Recognizing the significant adverse impact of COVID-19 on the Company’s opportunity to grow revenue, which is the single metric used to measure performance under the outstanding awards, the Compensation Committee determined that the opportunities to achieve the performance thresholds for the PSA agreements entered into in 2018, 2019 and 2020 had all been directly and significantly impacted. The Compensation Committee also noted that while the pandemic had a direct and material impact on the Company’s 2020 revenue, the Company’s historical revenue growth outperformed the target revenue metrics. Further, despite the lack of opportunity to achieve revenue growth as a result of the pandemic, the Compensation Committee believes that the Executive Leadership team has been successful in executing strategic initiatives and has driven meaningful value for shareholders. The Compensation Committee views the efforts of the ExecutiveLeadership Team throughout the performance periods as critical to the advancement of key Company initiatives, theprioritizationofthesafetyandretentionofCompanyemployeesandtheCompany’sexecutionofshareholdervalue-drivingactivity.2021 Performance Share Award GrantsEffective as of February 25, 2021, pursuant to approval and direction from the Compensation Committee, the Company granted PSAs granted to the Executive Leadership Team.The award agreements for the PSAs provide, among other things, that each PSA that vests represents the right to receive one share of the Company’s common stock at the end of the performance period. With respect to the PSAs, the number of shares that vest and are issued to the recipient is based upon the Company’s performance with respect to two measurements, each of which is equally weighted at the end of the three-year performance period as determined by the Compensation Committee: (i) the Company’s revenue compound annual growth rates (CAGR); and (ii) relative total shareholder return (TSR). TSR will be measured against the Nasdaq Health Care Index constituents and will be measured as the 20-trading-day average stock price prior to the end of the performance period over the 20-trading-day average stock price prior to the beginning of the performance period. Established threshold, target and maximum payout opportunities, which may range from 0% to 200% of the target amount, are used to calculate the number of shares that will be issuable when the award vests. The CAGR and TSR component payouts will be determined independently and added together for the total payout for the three-year performance period, subject to the maximum(s) defined in the PSA agreements. All or a portion of the 2021 PSAs may vest following a change of control or a termination of service by reason of death or disability.The Compensation Committee granted target value of 2021 PSAs to the Company’s named executive officers as follows:
President and Chief Executive Officer
Chief Financial Officer
Chief Operating Officer
Senior Vice President, Marketing and Business Development
Chief Technical OfficerThe form of award agreement for the PSAs granted in 2021 is filed herewith as Exhibit 10.20. The description of this agreement does not purport to be complete and is qualified in its entirety by reference to such exhibit.PART IIIITEMITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE20212022 Annual Meeting of Stockholders under the heading “Proposal One—Election of Directors” and is incorporated herein by reference.ITEMITEM 11. EXECUTIVE COMPENSATIONcompensation committeeCompensation Committee report required by this item is contained in the Proxy Statement under the heading “Executive Compensation—Report of the Compensation Committee of the Board of Directors” and is incorporated herein by reference.2020.2021.
to be issued upon
exercise of
outstanding options,
warrants and rights (1)
exercise price of
outstanding options,
warrants and rights (2)
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a)) Plan Category (a) (c) Equity compensation plans approved by security holders (3) 1,507,801 $ 26 1,504,648 Equity compensation plans not approved by security holders — — — Total 1,507,801 $ 26 1,504,648 performance stock options and performance shares as of December 31, 2020.2021.ITEMITEMaudit committee’sAudit Committee’s pre-approval policies and procedures are contained in the Proxy Statement under the heading “Proposal Two-Ratification of Appointment of Independent Registered Public Accounting Firm” and is incorporated herein by reference.PARTPART IVITEM(1) The financial statements required by Item 15(a) are filed in Item 8 of this Form 10-K.
10.1210.1310.1410.1210.1510.1310.1610.1410.17§10.1510.18#10.16§Exhibit No. Description 10.17 10.19#10.18#10.20#Form of Performance Share Award Agreement for Awards Granted in 2021.1410.20# 14 21
Exhibit No.DescriptionSIGNATURES26, 202126, 202126, 2021.Scott W. DrakeB. Kristine JohnsonScott W. DrakeB. Kristine JohnsonScott W. DrakeB. Kristine JohnsonChairmanChair of the Board/s/ Angela L. WirickAngela L. WirickAngela L. WirickChief Financial Officer(Principal Accounting and Financial Officer)/s/ B. Kristine JohnsonB. Kristine JohnsonB. Kristine JohnsonDirector/s/ Mark R. LanningMark R. LanningMark R. LanningDirectorDeborah H. Telman Deborah H. Telman Director /s/ Sven A. Wehrwein /s/ Maggie S. Yuen Maggie S. Yuen Maggie S. Yuen Director