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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2017

2023

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

Commission File Number 000-51470

AtriCure, Inc.

(Exact name of registrant as specified in its charter)

____________________________________

Delaware

34-1940305

Delaware

34-1940305

State or other jurisdiction of

incorporation or organization

(I.R.S. Employer

Identification Number)

7555 Innovation Way, Mason, OH

45040

(Address of principal executive offices)

(Zip Code)

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $.001 Par Value Per Share

par value

ATRC

NASDAQ Global Market

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

None

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitiondefinitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Non-Accelerated Filer

Smaller Reporting Company

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act:

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that are required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b).
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

The aggregate market value of the voting Common Stock held by non-affiliates of the registrant, based upon the closing sale price of the Common Stock on June 30, 2017,2023, the last business day of the registrant’s most recently completed second fiscal quarter as reported on the NASDAQ Global Market, was $797.2approximately $2,276.4 million.

As of February 23, 2018, there were 34,560,275 shares of Common Stock, $.001 par value per share, outstanding.

ClassOutstanding February 13, 2024
Common Stock, $.001 par value47,587,966

DOCUMENTS INCORPORATED BY REFERENCE

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



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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K, including the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Risk Factors” and “Risk Factors,”“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. There may be additional risks of which we are not presently aware or that we currently believe are immaterial which could have an adverse impact on our business. Forward-looking statements often 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,” “drives,” “seek,” “believes,” "see,"“see,” “focus,” “should,” “will,” “would,” “opportunity,” “outlook,” “could,” “can,” “may,” “future,” “predicts,” “target,” “potential,” "forecast," "trend," "might" and similar expressions and the negative versions thereof.of those words, and may be identified by the context in which they are used. However, the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements include, without limitation, statements that address activities, events, circumstances or developments that AtriCure expects, believes or anticipates will or may occur in the future, such as earnings estimates (including projections and guidance), other predictions of financial performance, launches by AtriCure of new products, developments with competitors and market acceptance of AtriCure’s products. Such statements are based onlylargely 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 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. In other words, these statements are not guarantees of future performance and inherently involve a wide range of risks and uncertainties that are difficult to predict. 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 obligation to publicly update or revise any forward-looking statements, to reflectwhether as a result of new information, or future events or otherwise unless required by law.

 (Dollar

WEBSITE AND SOCIAL MEDIA DISCLOSURE
We use our website (www.atricure.com) and our corporate Facebook, Instagram, YouTube, LinkedIn and X (formerly known as Twitter) accounts as channels of distribution of company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, Securities and Exchange Commission, or SEC, filings and public conference calls and webcasts. The contents of our website and social media channels are not, however, a part of this report.
TRADEMARKS
We own or have the rights to use various trademarks referred to in this Annual Report on Form 10-K, including Isolator® Synergy TM clamp, EPi-Sense® coagulation device, ENCOMPASS®, AtriClip® 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.
MARKET AND INDUSTRY INFORMATION
Market data used throughout this Annual Report on Form 10-K is based on management’s knowledge of the industry and good faith estimates of management. All of management’s estimates presented herein are based on industry sources, including analyst reports and management’s knowledge. We also relied, to the extent available, upon management’s review of independent industry surveys and publications prepared by a number of sources and other publicly available information. We are responsible for all of the disclosures in this Annual Report on Form 10-K, and while we believe that each of the publications, studies and surveys used throughout this Annual Report on Form 10-K are prepared by reputable sources, we have not independently verified market and industry data from third-party sources.
All of the market data used in this Annual Report on Form 10-K involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. While we believe the estimated market position, market opportunity and market size information included in this Annual Report on Form 10-K is generally reliable, such information, which in part is derived from management’s estimates and beliefs, is inherently uncertain and imprecise and


has not been verified by any independent source. Projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate are subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Item 1A. Risk Factors” of Part I of this Annual Report on Form 10-K and elsewhere in this Annual Report on Form 10-K. These and other factors could cause results to differ materially from those expressed in our estimates and beliefs and in the estimates prepared by independent parties.


PART I
(Dollar and share amounts referenced in this Part 1I are in thousands.)

ITEM

ITEM 1. BUSINESS

Overview

We are a leading innovator in treatments for atrial fibrillation (Afib) and, left atrial appendage (LAA) management and post-operative pain management. We have several product lines for the ablation of cardiac tissue,Afib is an irregular heartbeat, or arrhythmia, which affects over 37 million people worldwide, including our Isolator® Synergy™ Ablation System, the first and only surgical device approved bymore than eight million people in the United States, Food and Drug Administration (FDA) for the treatment of persistent and longstanding persistent forms of Afib in patients undergoing certain open heart procedures. We also offeris a variety of minimally invasive ablation devices and access tools to facilitate the growing trend in less invasive cardiac and thoracic surgery. Our cryoICE® cryosurgery product line offers a variety of cryoablation devices for use in multiple types of cardiothoracic surgery.  Our AtriClip® Left Atrial Appendage Exclusion System is specifically designed to occlude the heart’s left atrial appendage.

Physicians have adopted our radiofrequency (RF) ablation and cryoablation systems to treat Afib in over 250,000 patients since 2004, and we believe that we are currently the market leader in the surgical treatment of Afib. Our products are used by physicians during both open-heart and minimally invasive surgical procedures, either on a concomitant or standalone basis. During a concomitant procedure, the physician ablates cardiac tissue and/or occludes the LAA, secondary, or concomitant, to a primary structural heart procedure such as a valve repair or replacement or coronary artery bypass graft (CABG). Our Isolator Synergy System is approved by FDA for the treatment of persistent and long-standing persistent Afib concomitant to other open-heart surgical procedures. Our other ablation devices are all cleared for sale under FDA 510(k) clearances, including our other RF and cryoablation products, which are indicated for the ablation of cardiac tissue and/or the treatment of cardiac arrhythmias. In addition, our cryoICE probe is cleared for managing pain by temporarily ablating peripheral nerves. Our AtriClip products are 510(k)-cleared with an indication for the occlusion of the heart’s LAA, in conjunction with other cardiac surgical procedures. We also have a line of reusable surgical instruments typically used in cardiac valve replacement or repair. 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, which are used to ablate cardiac tissue, to occlude the left atrial appendage, to support mitral and aortic valve replacement and repair and/or to ablate peripheral nerves during cardiothoracic surgery.

Afib affects approximately 1% of the population in the United States.epidemic. It is the most common cardiac arrhythmia or irregular heartbeat, encountered in clinical practice and accountsresults in high utilization of healthcare services and significant cost burden. Patients often progress from being in Afib intermittently (paroxysmal) to being in Afib continuously. The continuous Afib patient population includes early persistent Afib, which lasts seven days to 6 months, persistent Afib, which lasts 6 months to one year, and long-standing persistent Afib, which lasts longer than one year. It is estimated that over 3.5 million people in the United States currently suffer from long-standing persistent Afib. Afib often occurs in conjunction with other cardiovascular diseases, including hypertension, congestive heart failure, left ventricular dysfunction, coronary artery disease and valvular disease.

Our cardiac ablation and left atrial appendage management (LAAM) products are used by physicians during open-heart and minimally invasive surgical procedures. In open-heart procedures, the physician is performing heart surgery for more doctor visitsother conditions, such as a mitral valve repair or a coronary artery bypass, and hospital days than anyour products are used in conjunction with (“concomitant” to) such a procedure. Minimally invasive procedures are performed on a standalone basis, and often include multi-disciplinary or “hybrid” approaches, combining surgical procedures using AtriCure ablation and AtriCure LAAM products with catheter ablation performed by an electrophysiologist.
Our pain management solutions are used by physicians to freeze nerves during cardiothoracic or thoracic surgical procedures. Recovery from cardiothoracic and thoracic surgery can be complicated and painful. Many surgeons use multi-modal pain management strategies that include oral delivery of opioid and non-opioid pain medications. Our cryoICE cryoSPHERE® probe for pain management (Cryo Nerve Block) provides temporary relief of post-operative pain, allowing the patient's body to heal after surgery while the nerves regenerate and sensation is regained.
We sell our products to medical centers through our direct sales force in the United States, Germany, France, the United Kingdom, the Benelux region, Canada and Australia. We also sell our products through distributors who in turn sell our products to medical centers in other international markets. Our business is primarily transacted in U.S. Dollars; direct sales transactions outside the United States are transacted in Euros, British Pounds, Canadian Dollars or Australian Dollars.
Market Overview
Afib is the most commonly diagnosed sustained cardiac arrhythmia.arrhythmia, with over one million diagnoses annually in the United States alone. Afib is an under-diagnosed condition due in large part to the fact that patients with Afib often have mild or no symptoms, and their Afib is diagnosed when they seek treatment for an associated condition, such as a structural heart disease or stroke. 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 become static,be in stasis, increasing the risk that a blood clot will form and cause a stroke or other serious complications. 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. Patients often progress from being in Afib intermittently to being in Afib continuously. Afib often occurs in conjunction with other cardiovascular diseases,  including hypertension, congestive heart failure, left ventricular dysfunction, coronary artery disease and valvular disease.

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

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Market Overview

Afib is the most commonly diagnosed sustained cardiac arrhythmia, and affects more than 30 million people worldwide, including more than five millionin the United States.  It is estimated that the incidence of Afib doubles with each decade of an adult’s life. At age 40, remaining lifetime risk for Afib is 26% for men and 23% for women. Afib is an under-diagnosed condition due in large part to the fact that patients with Afib, often have mild or no symptoms and their Afib is only diagnosed when they seek treatment for an associated condition, such as a structural heart disease or stroke.significant percentage of those clots can form inside of the LAA. We believe that increasing awareness of Afib and improved diagnostic screening will result in an increased number of patients diagnosed with Afib.  Recently, there have been several new diagnostic technologies introduced in the United States that allow for less invasive screening options, which should assist patients with more compliant and proactive identification of Afib.Afib over time. Also, since the prevalence of Afib increases with age, there will likely be an increase in the number of diagnosed Afib patients in the United Statesglobally as the world population ages. We believe that the same trends in the United States apply globally, as in many geographies the incidence of Afib is increasing as the population ages. 

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, which are typically classified as “persistent”or persistent and “long-standing persistent” Afib. Doctors typically begin treating Afib with pharmaceuticals, which are often ineffective, not well-tolerated and may be associated with serious side effects, including the risk of bleeding. Patients who cannot effectively be treated with pharmaceuticals may be candidates to undergo catheter-based procedures to treat their Afib. To perform a catheter ablation, an electrophysiologist inserts a flexible catheter into the inside of the heart, typically through the femoral vein. Catheter-based procedures, especially for more serious forms of Afib, are generally not indicated for patients with persistent or long-standing persistent Afib.  Implantable devices, such as pacemakers and defibrillators, are sometimes used to reduce the frequency and symptoms of Afib although they are not designed to treat the underlying disease. In the past, an open-heart surgical procedure known as the “cut and sew Maze” was used to treat Afib. While the cut and sew Maze was highly effective, this procedure has not been widely adopted because it is technically challenging, highly invasive and involves long recovery times. Over the past two decades, technology advancements have made surgical ablation more effective, repeatable and available to cardiac surgeons and electrophysiologists around the world. Recent societalSocietal guideline changes from the Society of Thoracic Surgeons (STS) and, Heart Rhythm Society (HRS) and American Association of Thoracic Surgery (AATS) now have increased the level of recommendationClass I recommendations for concomitant surgical ablation, to Class 1, meaning that it is a “recommended” treatment no longer just “reasonable”, for patients who have structural heart disease and Afib. 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. In 2023, the American College of Cardiology (ACC), American Heart Association (AHA), American College of Clinical Pharmacy (ACCP), and HRS released Guidelines for Diagnosis and Management of Atrial Fibrillation, and upgraded Left Atrial Appendage
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Management to the highest recommendation of Class 1 and now include Hybrid AF™ Therapy as a Class 2 recommendation. These societal guidelines are reflective of the scientific evidence suggesting that surgical and hybrid ablation is safe and effective for all structural heart patients who also have Afib.

Of the patients undergoing open-heart surgery globally on an annual basis, we estimate that over 250,000300,000 are potential candidates for surgical ablation using our products.products, as they have pre-operative Afib. Today, we estimate that approximately 25-30%less than 20% of those candidates are being treated but we believe many of these are not treated properly or fully. Of the population diagnosed with Afib,  a large percentage of patients are symptomatic and do not respond to pharmacological therapy. Additionally, there is a large population of patients who have no other underlying cardiac disease but who suffer from serious forms of Afib. Many of these patients fail traditional therapies, and thus we believe could benefit from a  minimally invasive or multi-disciplinary (“hybrid”)  Afib treatment using our products.

surgical ablation. In addition, Afib is thought to be responsible for approximately 15% to 20% of the estimated 700,000800,000 strokes that occur annually in the United States. According to the American Heart Association, the risk of stroke is five times higher in people with Afib. Studies have also suggested that 90% of clots that cause strokes in patients who have Afib originate from within the LAA. Recently, a large independent international randomized trial, Left Atrial Appendage Occlusion Study (LAAOS) III, demonstrated a significant reduction in strokes when the LAA was managed during cardiac surgery. Afib accounts for billions of dollars in hospitalization-related and office visit costs in the United States each year. Indirect costs, such as the management of Afib-related strokes, are also believed to be significant. Because of the risk of stroke and the significant cost burden on the healthcare system, more and more surgeons are routinely addressing the LAA.LAA, both in patients who have Afib and in those who do not have Afib but may be at increased risk of developing the disease in the future. We believe that our AtriClip system is safer, more effective and easier to use than other products and techniques for occludingexcluding the LAA and, because of this,during cardiac surgery. Therefore, we believe that the market for our ablation products and the AtriClip system represent significant growth opportunities.

Many Afib patients without other underlying structural heart disease, especially those with more advanced forms of Afib, are symptomatic and experience conditions such as palpitations, breathlessness and drowsiness. These patients tend to be motivated to seek treatment to alleviate their symptoms. Patients who are symptomatic are often treated by an electrophysiologist using catheter ablation. Catheter ablation is considered a percutaneous procedure that does not require the opening of the chest; rather, catheters are inserted through a small puncture in the groin. In addition to catheter ablation, there are other treatment options for patients with Afib, including pharmacological therapy (anti-arrhythmic drugs) and implantable pacemakers. It is estimated that approximately 350,000 to 450,000 Afib patients are treated by catheter ablation every year in the U.S., a number that is expected to grow 10 to 15% annually. While the majority of paroxysmal Afib patients treated by catheter ablation tend to experience freedom from Afib, less than a third of long-standing persistent patients treated by catheter ablation are cured of their Afib at one year, and it declines even more thereafter. Randomized, prospective, multi-center data from the CONVERGE™ IDE clinical trial, along with a number of other recent real-world studies performed by physician investigators, show that these long-standing persistent Afib patients can experience more than double the success rate by adding an ablation on the outside surface of the heart using AtriCure’s EPi-Sense ablation system. Thus, we believe the EPi-Sense ablation system used as a minimally invasive or Hybrid AFTM therapy also represents a significant growth opportunity.

Cardiothoracicopportunity for the Company.

Thoracic surgery involving an incision through the ribcage, typically referred to as thoracotomy access, and cardiothoracic surgery can often times result in significant post-operative pain and longer hospital recovery times as patients refrain from mobilizing their chest near the incision site. It is estimated that each year approximately 150,0000 thoracic procedures and approximately 250,000 cardiothoracic procedures are performed in the United States. Hospital recovery times can vary from two to fifteen days depending on the procedure, operative complications associated with the procedure, pain management protocol and other factors. Most cardiothoracic surgeons will employ a multi-modal pain management protocol that includes global and localvarious pain management techniques. Global techniques, includeincluding techniques such as epidural delivery of medication directly around the spinal cord, intravenous or oral delivery of opioid and non-opioid pain medications. Local, moremedications, or other strategies. More focused, local techniques include syringe injections between vertebrates and cryoanalgesia, the use of cryo-energyCryo Nerve Block which uses cryothermic energy to temporarily ablate peripheral nerves. Cryoanalgesianerves, temporarily stopping the transmission of pain signals coming from the chest wall during surgery. The nerve “scaffolds” remain intact, allowing axons to regenerate and restore nerve function over time. Cryo Nerve Block can be delivered using theour cryoICE CRYO2cryoSPHERE® probe, the same probe used to treat cardiac arrhythmias.which is specifically designed for Cryo Nerve Block therapy. Depending on the degree of invasiveness, of the cardiothoracic surgery, physicians and their nursing staff will take advantage of multiple modesways of managing pain management. It is estimated that each year roughly 150,000 cardiothoracic procedures are performed in the United States through thoracotomy access. Hospital recovery times can vary from two to eight days depending on the procedure, operative complications associated with the procedure, pain management protocol, and other factors.for their patients. In recent years, prescription narcotics, or opioids, have come under heavy scrutiny due to their potential for long-term dependency, overdose and possible death. The Center for Disease Control has reported over 42,000 deaths involving opioidsBoth federal and local governments in the United States in a single year, and both federal and local governments have proposed and implemented new regulations to curb the opioid overdose epidemic.

It is also estimated that one in seven thoracic surgery patients develops an unhealthy post-procedural addiction to prescription narcotics, making alternative, non-opioid pain management modalities, such as Cryo Nerve Block, an increasingly important part of how physicians manage post-operative pain. We believe the market for our pain management ablation product represents a significant growth opportunity. Further, applications for Cryo Nerve Block outside of thoracic surgery use are being studied by physician investigators and represent future possible growth opportunities.

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AtriCure SolutionSolutions and Products

We believe that we are currently the competingmarket leader in the surgical and catheter-based ablation devices currently available are not ideal for safely, rapidly and reliably creating lesions that completely and permanently block the abnormal electrical impulses that cause Afib, particularly for patients with more chronic formstreatment of Afib and left atrial appendage management, and pioneers of the application of Cryo Nerve Block in thoracic procedures. We anticipate that substantially all our revenue for the foreseeable future will relate to products we currently sell or patients who have failed single or multiple catheter ablations.are in the process of developing. Our products including our Isolator Synergy System, enable cardiothoracic surgeons to mimic the cut and sew Maze procedure butperform surgical ablation procedures with a faster, less invasive and less technically challenging approach. 

Clinicalapproaches. We have completed, and continue to invest in, clinical studies for the use of our ablation and LAAM products to treat Afib are ongoing.and reduce stroke. Leading cardiothoracic surgeons and electrophysiologists, including those who serve or who have served as consultants to us, have published results of initialpreclinical and clinical studies utilizing our Isolator Synergy System.devices. The results of these studies are to evaluatehave assessed efficacy, ease of use and safety.

We have two primary product linessafety endpoints.

Products for cardiac tissue ablation include those that create scar tissue using radio frequency (RF) energy or cryothermic modalities. Our ablation products are part of platforms each consisting of disposable hand pieces which connect to either a product lineRF generator or a cryothermic generator. We generally place this capital equipment with our direct customers and sell to our distributors.
Products for left atrial appendage managementopen and minimally invasive ablation:
Isolator® Synergy Clamps. Our Isolator Synergy Ablation System clamps are single-use disposable RF products with jaws that close in a product lineparallel fashion. We sell multiple configurations of our Isolator Synergy clamps. The various configurations provide the user with options to address patient specific procedure requirements or anatomy; however, all the clamps provide consistent performance using the same core technology. The parallel closure evenly compresses tissue and evacuates the blood and fluids from the energy pathway to make the ablation more effective. The Isolator Synergy Ablation System has been studied in multiple FDA approved clinical trials, including the previously completed ABLATE clinical trial which supported a pre-market approval (PMA) in 2011, as well as the ongoing DEEP AF IDE and HEAL-IST clinical trials.
Our Isolator Synergy Ablation System includes multiple configurations approved by the United States Food and Drug Administration (FDA) for temporary pain management. 

Product linesthe treatment of persistent and long-standing persistent Afib concomitant to other open-heart surgical procedures. Certain products of our Isolator Synergy clamps 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. These products are available for sale in a number of other countries globally.

In April 2022, we launched our most recent configuration, the ENCOMPASS® clamp, following 510(k) clearance in July 2021. The ENCOMPASS clamp is indicated for cardiac soft tissue ablation:

1.)

Radio Frequency Ablation Devices. Our Isolator Synergy System and related RF devices, such as our multifunctional pens, represent our primary product line and currently generate the majority of our revenue. Physicians use the Isolator Synergy System and related RF devices in both open and minimally invasive procedures. These devices are powered by an Isolator Synergy Ablation and Sensing Unit (ASU), Electrosurgical Unit (ESU) or nContact RF Generator, which are compact power generators that we generally place with our direct customers and sell to our distributors. Our RF devices primarily consist of the following products:

ablation. The configuration is designed to make concomitant surgical ablations more efficient and is expected to drive deeper penetration of cardiac surgery procedures.

·

Multifunctional Pens and Linear Ablation Devices. These devices are single-use disposable RF products that come in multiple configurations. 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 can readily toggle back and forth between these functions. The device comes in multiple configurations that have unique tissue contacting and shaft lengths. 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.

All our pen and Isolator Synergy Access® Clamps. We sell multiple configurations of our Isolator Synergy clamps. All of our clamps are single-use disposables and have jaws that close in a parallel fashion. The parallel closure compresses tissue and evacuates the blood and fluids from the energy pathway in order to make the ablation more effective.

·

COBRA Fusion® Surgical Ablation System. The COBRA Fusion Surgical Ablation System’s Versapolar™ technology combines bipolar temperature-controlled radio frequency (TCRF) energy control with monopolar energy. The COBRA Fusion System also incorporates a unique suction design that draws tissue into the device to create consistent, full thickness lesions without arresting and opening the heart.

·

EPi-Sense® Guided Coagulation System with VisiTrax®  Technology. The EPi-Sense Guided Coagulation System with VisiTrax technology is intended for the coagulation of cardiac tissue using RF energy using thoracoscopic, endoscopic and laparoscopic surgical techniques. It may be used for temporary cardiac signal sensing and recording during surgery when connected to an external recording device. The SUBTLE® cannula is an access device and conduit for the ablation device and endoscope to enable a closed chest endoscopic approach. This allows surgeons direct visualization while ablating on the posterior of the heart.

·

Multifunctional Pens and Linear Ablation Devices.  Multifunctional pens are disposable RF devices that come in two configurations—one that makes linear ablations and one that makes spot ablations. The pens enable surgeons to evaluate cardiac arrhythmias, perform temporary cardiac pacing, sensing and stimulation and ablate cardiac tissue with the same device. When the multifunctional pens are used, surgeons are able to toggle back and forth between temporary pacing, sensing, stimulation and ablation. Surgeons generally use one or more of our pen devices in combination with Isolator Synergy clamps.

Our linear ablation devices are cleared for sale in the United States under FDA 510(k) clearances, with indications for the ablation of cardiac tissue and/or the treatment of cardiac arrhythmias. Our Isolator Synergy pens bear the CE mark, and most configurations may be commercially distributed throughout the member states of the European Union and other countries that comply with or mirror the Medical Device Directive. These products are available for sale in a number of other countries globally.

Products for open ablation:
cryoICE Cryoablation System. The cryoICE cryoablation system is used in both open ablation procedures and cryoanalgesia. The system consists of the cryoICE BOX generator along with a variety of single-use disposable bi-polarprobes. The primary differences between these cryoablation probes is the form of the tissue-contacting distal end. The cryoICE devices enable the user to make linear ablations of varied lengths. Surgeons may utilize the cryoICE devices in combination with Isolator Synergy clamps or independently.
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Our cryoablation devices are cleared for sale in the United States under FDA 510(k) clearances, bear the CE mark for commercial distribution throughout the member states of the European Union and other countries that comply with or mirror the Medical Device Directive. These products are available for sale in a number of other countries globally.
The ICE-AFIB clinical trial is studying the safety and efficacy of the cryoICE system for persistent and long-standing persistent Afib treatment during concomitant on-pump cardiac surgery.
Products for minimally invasive ablation:
EPi-Sense Systems. The EPi-Sense Guided Coagulation System with VisiTrax technology and the new EPi-Sense ST® Guided Coagulation System utilize monopolar RF energy for the coagulation of tissue. Our EPi-Sense devices are single-use disposable ablation devices designed to allow physicians to create an expandedcapable of intraoperative cardiac ablation lesion set. These devices also include recording electrodes which allow for pacing,signal sensing and stimulation independentrecording when connected to an external recording device.
Our EPi-Sense® System was studied through the CONVERGE clinical trial and was subsequently approved in 2021 by FDA for the treatment of patients with systemic, drug refractory, long-standing persistent Afib when augmented with an endocardial ablation catheter. Our EPi-Sense ST Guided Coagulation System was approved via PMA supplement in late 2022. Hybrid AF Therapy is the only FDA-approved minimally invasive procedure to treat patients with long-standing persistent Afib and represents a proven option for patients with advanced disease.
The EPi-Sense System bears the CE mark and is commercially distributed throughout the member states of the ablation. We believe physicians are using these devicesEuropean Union and other countries that comply with or mirror the Medical Device Directive. This system is available for sale in a number of other countries globally.
Products for pain management:
cryoSPHERE probe. The cryoSPHERE probe is used to apply cryothermic energy to targeted intercostal peripheral nerves in the ribcage in order to improve long-termprovide temporary pain relief. This technique, called Cryo Nerve Block, is applied intraoperatively 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. Scientific data that has been published on the effects of Cryo Nerve Block has generally shown a significant reduction in prescription of opioids, significantly reduced length of stay for patients who have non-paroxysmal formsin the hospital and other benefits.
The cryoSPHERE probe is 510(k) cleared for managing pain by temporarily ablating peripheral nerves and bears the CE mark for commercial distribution throughout the member states of Afib.  

the European Union and other countries that comply with or mirror the Medical Device Directive.

2.)

cryoICE Cryoablation System. The cryoICE cryoablation system consistsProducts for appendage management:

AtriClip System. The AtriClip® LAA Exclusion System includes various combinations of an implantable device (AtriClip) coupled to a single-use disposable applier. The AtriClip device is designed to exclude the cryoICE BOX generator along with a range of cryoICE single use and reusable cryosurgery probes. The cryoICE cryoablation system is used to ablate cardiac tissue for the treatment of cardiac arrhythmias.  The probes come in a variety of configurations, with the primary difference being flexibility of the distal end of the probe.

Product line for left atrial appendage management:

by mechanically clamping the appendage from the outside of the heart. The left atrial appendage has been shown to be a source of arrhythmias. The exclusion of the LAA eliminates blood flow between the left atrial appendage and the atrium while avoiding contact with circulating blood and provides electrical isolation benefits after placement. We believe that the AtriClip system is potentially safer, more effective and easier to use than other techniques for permanently excluding the left atrial appendage. The device comes in two geometries (a rectangular configuration which encircles the targeted tissue and “V” shape which allows for an alternative lateral access) and a variety of lengths, which are matched to each patient's anatomy. The appliers come in multiple forms tailored to specific procedural needs depending on the type of surgery and how the surgeon is accessing the heart.

1.)

AtriClip System. The  AtriClip system is designed to occlude the left atrial appendage by mechanically clamping the appendage from the outside, 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. The AtriClip portfolio includes a range of devices with different size clips, as well as different applier lengths and deployment features.

In the United States, 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 can see the heart directly, with or without assistance from a camera, endoscope or other appropriate viewing technologies. Certain products of our AtriClip LAA Exclusion System bear the CE mark for commercial distribution throughout the member states of the European Union and other countries that comply with or mirror the Medical Device Directive. These products are available for sale in a number of other countries globally.

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Product line

The AtriClip LAA Exclusion System is currently being evaluated under the Left Atrial Appendage Exclusion for temporary pain management:

Prophylactic Stroke Reduction (LeAAPS™) IDE clinical trial.

1.)

CryoICE CRYO2 Cryoablation System. This system is used to apply cryo-energy to targeted intercostal peripheral nerves in the ribcageWe sell additional products and temporarily relieve pain. This technique, called cryoanalgesia, is applied intra-operatively by the cardiothoracic surgeon and results in temporary pain relief for 30-60 days post-operatively and after discharge from the hospital. Sensation typically returns to the affected region of the chest after this period. Studies are ongoing to characterize the effects of cryoanalgesia and further refine the procedure.

In addition to the above product lines we also sell enabling technologies including ourthat hold 510(k) approvals and/or bear the CE mark. The LARIAT® System is a solution for soft-tissue closure that includes a suture loop coupled to a single-use disposable applier. The Lumitip™ dissectors, the Fusion Magnetic Retriever System and a line of reusable cardiac surgery (valve) instruments. The Lumitip dissector is used by surgeons to separate tissues to provide access to key anatomical structures that are targeted for ablation. The Fusion Magnetic Retriever System™ allowsOther enabling technologies include our Glidepath™ guides for placement of our clamps, Subtle™ Cannula’s to support access around key anatomical structuresfor our EPi-Sense catheters and facilitates positioninga line of reusable cardiac surgery instruments.

Business Strategy
We are passionately focused on healing the Cobra Fusion Surgical Ablation System™. Cardiac surgery instruments are used during certain surgical procedures for repair or replacementlives of heart valves.

Current Afib Treatment Alternatives

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

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

·

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

·

Implantable Devices. Implantable devices, such as defibrillators and pacemakers, can be effective in reducing the symptoms of 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 performedaffected 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, only a small number of catheter-based Afib treatments are performed each year in the United States.

With the exception of the Isolator Synergy System, which may be promoted according to its FDA-approved indication for patients with persistent and long-standing persistent Afib undergoing certain open-heart procedures, we do not promote our products specifically for Afib treatment in the United States. Nevertheless, some physicians have adopted our products for use in open-heart and minimally invasive procedures for the treatment of 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, known as paroxysmal, or more continuous (non-paroxysmal),  which is typically further classified as persistent, long-standing persistent or permanent. Patients who have been diagnosed with Afib for a longer duration and have non-paroxysmal 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-heart procedure, physicians may use our AtriClip system to occlude the left atrial appendage.  

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

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

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Business Strategy

pain after surgery. Our missionstrategy is to expand the treatment options for patients who suffer from Afib, or have a high risk of stroke, or who suffer from post-operative pain, through the continued development of our technologies and expansion of our product offerings, clinical science investments and global commercial expansion and clinical science investments.expansion. The key elements of our strategy include:

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

Invest

Investments in Clinical Science and Build Physician Relationships.Science. We continue to invest in landmark clinical trials to validate the long termlong-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.

efforts and expand the body of clinical evidence. We believe publication of additional scientific evidence, in addition to robust ongoing research activities, will ultimately create an increased demand for our products.

Build Physician and Societal Relationships. We have formed consulting relationships with cardiothoracic surgeons, cardiologists, electrophysiologists, stroke neurologists and thoracic surgeons who work with us to evaluatedevelop and developevaluate our products. Additionally, we have formedregularly form advisory boards made up of key opinion leaders (KOLs) in multiple specialties to overseeprovide input to our training and clinical programs. We are also building these relationships along with extended care professionals such as nurse practitioners and advanced practice providers, to provide insight regarding treatment trends, input on future product direction and education for providers involved in treating the disease.

In addition, we

We are partnering with leading surgical and cardiology societies to increase the awareness of Afib treatment options. In the past twofive years, both the Society for Thoracic Surgeons (STS) and the, Heart Rhythm Society (HRS), American College of Cardiology (ACC), American Heart Association (AHA) and American College of Clinical Pharmacy (ACCP) have released new guidelines on the surgical treatment of Afib including in both open-heart and minimally-invasive settings.

Provide Training and Education. We have recruited and trained sales and physician education professionals to effectively communicate to our customers the unique features and benefits of our technologies as they relate to their indications for use. Our highly trained professionals meet with physicians at institutions around the world to provide education and technical training on the features, benefits and safe and effectivesafe-and-effective use of our products. With the approval of our Isolator Synergy System, for the treatment of non-paroxysmal Afib, we instituted a program to train providers on the use of the Isolator Synergy System to treat persistent and long-standing persistent Afib in patients undergoing open-heart surgery. With the approval of the EPi-Sense System, we began programs to train physicians on the use of the EPi-Sense system in a hybrid approach to treating patients with long-standing persistent Afib. More recently, we have implemented multidisciplinary training programs focused on the heart team approach for creating and growing an arrhythmia treatment program and managing post-operative pain. We believe 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.

Expand Adoption of Our Minimally Invasive Products. We believe that the catalysts for expanded adoption of our minimally invasive products include procedural advancements, such as the hybrid or multi-disciplinary procedure, and the publication of peer-reviewed articles, which we believe will help validate the successful, long-term use of our products for patients with 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.

Evaluate Acquisition Opportunities. In the past five years, we have acquired two companies that we believe further expand our ability to establish a platform for long-term revenue growth. We expect to continue to be opportunistic with respect to acquisitions which makeacquisitions. We evaluate acquisition opportunities on a variety of factors, including product innovation, clinical differentiation and other strategic and financial sense.

Clinical Trials

criteria.

Research and Product Development
Our ongoing research and development activities support our business strategy to expand treatment options and increase awareness in our current markets, as well as enabling expansion into adjacent markets. We are engaged in developing and researching new and existing products or concepts, preclinical studies, clinical trials and other regulatory
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activities. We make significant investments in both product development and clinical science activities to drive the advancement and adoption of new therapies in the marketplace.
In the United States, a significant risk device requires the prior submission of an application for an Investigational Device Exemption (IDE) to FDA for approval before initiating a clinical trial. Clinical trials are required to support a pre-market approval (PMA) and are sometimes required for 510(k) clearance. In the United States, clinical trials for a significant risk device require the prior submission of an application for an Investigational Device Exemption (IDE) to FDA for approval. An IDE application must be submitted before initiating a new clinical trial. Some trials require a feasibility study followed by a pivotal trial. An IDE supplement is utilized as a means of obtaining approval to initiate a pivotal trial following the conclusion of a feasibility trial. We are conducting several clinical trials to validate the long-term results of procedures using our products and to support applications to regulatory agencies for expanded indications. In addition, we also conduct various studies to gather clinical data regarding our products. Key trials and studies are:

CONVERGE. We

LeAAPS. In April 2022, FDA approved the protocol for the Left Atrial Appendage Exclusion for Prophylactic Stroke Reduction (LeAAPS) IDE clinical trial. The trial is designed to evaluate the effectiveness of prophylactic LAA exclusion using the AtriClip LAA Exclusion System for the prevention of ischemic stroke or systemic arterial embolism in cardiac surgery patients without pre-operative AF diagnosis who are conductingat risk for these events. This prospective, multicenter, randomized trial evaluates safety at 30 days post-procedure to demonstrate no increased risk with LAA exclusion during cardiac surgery and effectiveness with a minimum follow-up of five years post procedure for all subjects. The trial provides for enrollment of up to 6,500 subjects at up to 250 sites worldwide. In January 2023, we enrolled our first patient; site initiation and enrollment is ongoing.
HEAL-IST.In February 2022, FDA approved the protocol for the Hybrid Epicardial and Endocardial Sinus Node Sparing Ablation Therapy for Inappropriate Sinus Tachycardia (IST) clinical trial (HEAL-IST). The HEAL-IST clinical trial is designed to study the safety and efficacy of a hybrid sinus node sparing ablation procedure using the Isolator Synergy Surgical Ablation System for the treatment of symptomatic, drug refractory or drug intolerant IST. The trial is a prospective, multicenter, single arm trial that evaluates safety 30 days post-procedure and evaluates primary effectiveness of freedom from IST (as specified) at 12 months post-procedure. The trial provides for enrollment of up to 142 patients at up to 40 sites in the United States, United Kingdom and European Union. The first patient enrollment in the trial occurred in June 2022; site initiation and enrollment is ongoing.
CONVERGE. The CONVERGE IDE clinical trial to evaluateproved 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. In April 2021, we announced the PMA approval of the EPi-Sense System for treatment of symptomatic, drug-refractory, long-standing persistent atrial fibrillation, when augmented with an endocardial ablation catheter. We believe the Convergent procedure, or Hybrid AF therapy, provides the only compelling treatment option for a 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 to conduct the CONVERGE Post Approval Study (PAS). This study allows for 325 patients to be enrolled at up to 50 sites. The first patient enrollment in the trial occurred in June 2022; site initiation and enrollment is ongoing.
We have FDA approvalinvested in other clinical trials to enrollvalidate the long-term results of procedures using our products and to support applications to regulatory agencies for expanded indications. The ICE-AFIB clinical trial is designed to study the safety and efficacy of the cryoICE® system for persistent and long-standing persistent Afib treatment during concomitant on-pump cardiac surgery. The trial provides for enrollment of up to 153150 patients at 27 domestic medical centers and three international medical centers.  Enrollment beganup to 20 sites in 2014, and there are currently 108 patients enrolled and 24 domestic medical centers and one international medical center initiated. We received FDA approval to use a Sub-Xyphoid approach as an alternative surgical approach during the thirdUnited States, which was completed in May 2023. Patient follow-up for twelve months post ablation required by the study protocol remains ongoing. During the second quarter of 2017.

2023, results from our CEASE-AF trial were presented at the European Heart Rhythm Association meeting and subsequently published in July 2023. CEASE-AF is a prospective, multi-center randomized control trial that demonstrated superior freedom from atrial arrhythmias for staged hybrid ablation compared to endocardial catheter ablation. During the fourth quarter of 2023, the 12-month follow-up results of enrolled patients from the DEEP AF Pivotal Study.study were presented at the American Heart Association meeting. The DEEP AF IDE pivotal trial evaluatesevaluated the safety and efficacy of the Isolator SynergyAtriCure Bipolar System when used in a staged approach where a minimally invasive surgical ablation procedure is first performed and theperformed. The patient undergoes the intracardiacendocardial catheter procedure approximately 90-12091-120 days later. We have FDA approvalThe results from this single arm study demonstrated superior freedom from atrial arrhythmias for staged hybrid ablation compared to enroll up to 220 patients at 23 domestic medical centers and two international medical centers. Enrollment was temporarily suspended beginninga pre-specified performance goal. The Company is in May 2016 while we

the process of analyzing additional trial data for publication, future development activities, or possible evaluation of label expansions.

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evaluated changes to the trial protocol with FDA. We received FDA approval on the updated trial protocol during the third quarter of 2017. Six domestic medical centers have resumed participation in the study and five patients have been enrolled. Total enrollment in the trial is currently 47 patients.

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. The study provides for enrollment up to 2,000 patients at up to 40 medical centers. Enrollment began in February 2016, and there are currently 517 patients enrolled and twenty-three medical centers initiated. Enrollment is expected to end in 2018.

FROST. We are conducting a cryoanalgesia study, which is a non-IDE randomized pilot study evaluating whether intraoperative intercostal cryoanalgesia in conjunction with standard of care provides improved analgesic efficacy in patients undergoing unilateral thoracotomy cardiac procedures as compared to the current standard of care. The study involves treatment arm patients who receive intercostal cryoanalgesia in conjunction with standard post-operative pain management and control arm patients who receive standard post-operative pain management only. The study provides for enrollment of up to 100 patients at five medical centers. We began enrollment in June 2016, and there are currently 61 patients enrolled and four medical centers initiated.

CEASE AF. We are also pursuing a non-IDE trial in Europe to compare staged hybrid ablation treatment (minimally invasive surgical ablation procedure is first performed and the patient undergoes the intracardiac catheter procedure approximately 91-180 days later) versus catheter ablation alone. We expect the study to have an enrollment of approximately 210 patients at twelve sites. There are currently 90 patients enrolled and eleven medical centers initiated.

Sales, Marketing and Medical Education

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

Our sales team in the United States has approximately 125 employees supporting approximately 52 sales territories.290 employees. 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.

We market and sell our products in selected marketscountries outside of the United States through independent distributors and through our European subsidiaries which include a combination of independent distributors and direct sales personnel. Our international sales team includes sales representativesapproximately 60 employees focused on our direct markets, such as Germany, France, the United Kingdom, and the Benelux region.region, Canada and Australia. We also havemaintain a network of distributors who market and sell our products in Asia and South America, and Canada, as well as certain countries in Europe, who market and sell our products.Europe. We continue to evaluate opportunities for further expansion into markets outside of the United States.

Competition

Our

AtriCure has the only medical devices that are approved by FDA for treating long-standing persistent Afib: the Isolator Synergy Ablation, the first medical device to receive FDA approval for the treatment of persistent Afib in a concomitant setting, and the EPi-Sense System, which received FDA approval for standalone treatment of Afib with Hybrid AF Therapy. However, our industry is competitive, is subject to change and can be significantly affected by new product introductions and other activities of industry participants. Our competitors have significantly greater financialWe compete with other companies and human resources than we do and have established reputations with our target customers, as well as worldwide distribution channelsdivisions of companies that are more established and developed than ours.sell a single or limited number of competitive product lines or in certain geographies. Our primary competitor in the cardiac surgery market is Medtronic, plc. Weplc, who provides surgical ablation products and our competitors provide products that have been adoptedLAAM devices used by physicians for the treatment of Afib and related conditions. SeveralFor standalone treatment of our competitorsAfib, several companies offer intracardiac catheter devices that are commonly used by electrophysiologists to treat Afib. Some of theseelectrophysiologists. These catheter devices are FDA-approved to treat the paroxysmal formand persistent forms of Afib, but they are not FDA-approvedFDA indicated to treat persistent or long-standing persistent Afib. AtriCure’s Isolator Synergy System is the only medical device FDA approvedOur Hybrid AF Therapy involves both epicardial and endocardial techniques, therefore, these catheters are complementary to treat  Afib in a surgical setting,our business and the only medical device approved to treat persistent or long-standing persistent Afib in a concomitant setting.not competitive. We believe that our products compare favorably against competing products during both open-heart and minimally invasive procedures. We also believe that our products compare favorably to intracardiac catheter devices when used to treatimprove treatment outcomes for patients with non-paroxysmal forms of Afib. Further,Afib when combined with intracardiac catheter devices.
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, although we believeare not aware of any ongoing FDA trials by other companies to study ablation of long-standing persistent Afib patients. We are aware of other companies developing technology for cardiac tissue ablation and appendage management. New product introductions, technological advances and regulatory clearances from competitors may impact the use of our AtriClip system is an ideal medical device indicatedproducts in cardiac procedures. In addition to the cardiac surgery market, we also consider competition within the post-operative pain market. Currently, we are not aware of other companies in the United States who are pursuing cryothermic nerve block therapies for exclusionthoracic surgery. There are other companies outside of the LAA.  

To compete effectively, we strive to demonstrate that our products are an attractive alternative to other treatments by differentiating our products on the basis of safety, efficacy, performance, ease of use, reputation, service and price. We have encountered and expect to continue to encounter potential customersUnited States who prefer products offered by our competitors.

market their devices for a similar therapy.

Third-Party Reimbursement

Payment

Reimbursement for patienthealth care services in the United States is generally made by third-party payors. These payors include private insurers and government insurance programs, such as Medicare and Medicaid. The Medicare program, the largest single payor in the United States, is a federal health benefit program administered by the Centers for Medicare and Medicaid Services (CMS) and covers certain medical care items and services for eligible beneficiaries, such asprimarily individuals over 65 years old, as well as chronically disabled individuals. Because Medicare beneficiaries comprise a large percentage of the populations for which our products are used, and private insurers

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may follow the coverage and payment policies for Medicare, Medicare’s coding, coverage and payment policies for cardiothoracic surgical procedures are significant to our business.

Medicare’s Part A program pays hospitals for inpatient services, such as cardiothoracic surgery, under the Inpatient Prospective Payment System,  (IPPS), which provides a predetermined payment based on the patient’s discharge diagnoses and surgical procedure(s). Discharge diagnoses are grouped into Medicare Severity Diagnosis Related Groupings (MS-DRG). There are several cardiac surgery MS-DRGs associated with the surgical treatment of Afib, with and without a concomitant open-heart procedure. When an ablation device and/or LAA exclusionLAAM device is used during a concomitant open-heart procedure, Medicare’s hospital reimbursement is based upon the patient’s primary structural heart surgical procedure. Reimbursement for sole-therapyIn contrast, sole therapy minimally invasive ablation or surgical LAAM procedures is also influenced by the patient’s severity of illness.typically are reimbursed under a general cardiac surgery or intracardiac procedure MS-DRG. We believe hospital reimbursement rates for sole therapy and concomitant therapy cardiac surgical tissue ablation or surgical LAAM are adequate to cover the cost of our products.

products even when multiple procedures are performed. Similar to surgical ablation for Afib or surgical LAAM, cryoablation performed for post-operative pain

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management is reimbursed as part of the primary procedure, open thoracic or cardiac surgery, MS-DRG. We believe hospital reimbursement rates are typically adequate in these situations.
Physicians are reimbursed for their services separately under the Medicare Part B physician fee schedule. When surgically performing a surgical cardiac ablation with and without a concomitant open-heart procedure, surgeons report Current Procedural Terminology (CPT) codes to receive a professional fee. Surgeons havefee payment. Multiple CPT codes may be reported by a choice ofphysician during a procedure if multiple procedures are performed. There are category one CPT codes for both concomitant and standalone surgical Afib treatment, as well as surgical LAAM. However, some providers utilize unlisted CPT codes to report sole-therapy and concomitant therapy cardiac tissue ablation. At this time, there areobtain reimbursement when no appropriate CPT codescode exists, such as Cryo Nerve Block ablation when used for the physician to report surgical exclusion of the left atrial appendage. 

post operative pain control.

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

Outside of the United States, third-party reimbursement varies widely by geography and by the type of therapy in which our devices are used. For example, 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 payers.payors. In addition, some private third-party payerspayors 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, whichpolicies may significantly reduce reimbursement for procedures using our medical devices or deny coverage for those procedures.procedures altogether. We are actively working to pursue market access initiatives in certain geographies, which includes applying for new reimbursement for therapies in which our devices are being used.

used or pursuing specific reimbursement for utilization of our devices.

Government Regulation

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

countries worldwide.

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

·

product design, development and manufacture;

·

product safety, testing, labeling and storage;

·

pre-clinical testing in animals and in the laboratory;

·

clinical investigations in humans;

·

premarket clearance or approval;

·

record keeping and document retention procedures;

·

advertising and promotion;

·

the import and export of products;

·

product marketing, sales and distribution;

·

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

·

corrective actions, removals and recalls.

total product lifecycle from early design, development and testing, to manufacturing and commercialization activities, as well as post-market surveillance and reporting, including corrective actions, removals and recalls. Unless an exemption applies, most medical devices distributed commercially in the United States require either 510(k) clearance or PMA from FDA.

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

clearance.

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

AfterA PMA supplement is required for changes affecting the safety or effectiveness of a PMA is submitted and FDA has determined that the application is sufficiently completePMA-approved device, including but not limited to permitnew indications for use, a substantive review, FDA will accept the application for filing. During the review period, FDA may request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside FDA may be convened to review and evaluate the application and provide recommendations to FDA as to the approvability of the device. In addition, FDA will conduct a preapproval inspection of thedifferent manufacturing facility, to ensure compliance with quality system regulations. Any approvals we receive may be limitedor changes in scope or may be contingent upon further post-approval study commitments or other conditions. New PMAs or PMA supplements are required for significant modification to the device, including indicated use, manufacturing process, labeling, andor design of a device that is approved through the premarket approval process. PMA supplements often require submissionspecifications or components of the same type of information as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and may not require as extensive clinical data or the convening of an advisory panel.

device.

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

Accountability Act (HIPAA).

Educational Grants.Grants. FDA regulates manufacturers of medical devices and, in particular, the promotion of medical devices by manufacturers.manufacturers and prohibits the promotion by manufacturers of uses that are not within 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.parties, which may include uses that are not within approved or cleared device labeling. Manufacturers may provide unrestricted financial support for suchindependent third-party medical education programs in the form of educational grants intended to offset the cost of such programs. If the manufacturer controls or unduly influences the content of such programs, FDA considers those programs to be promotional activities by the manufacturer and thus subject to FDA regulation including promotional restrictions. We seek to ensure that the activities we support pursuant to our educational grants program areis 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.

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

·

FDA’s Quality System Regulation (QSR) which requires manufacturers, including third-party manufacturers,approved by FDA, including, but not limited to: annual establishment registration and product listing; current good manufacturing practice for devices (GMP); labeling requirements and advertising and promotion guidelines; assessing the significance of any changes to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the manufacturing process;

·

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

·

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

·

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

·

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

·

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

·

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

Under FDA’s MedWatch regulation, we must submit a Medical Device Report (MDR)device; monitoring and reporting serious and adverse events and certain device malfunctions; and reporting certain device corrections and removals. Our manufacturing facilities and processes are also subject to FDA within 30 days whenever we receive information that reasonably suggests that one of our products may have caused or contributedinspections to a death or serious injury, or that one of our products malfunctioned in a manner which, if the malfunction were to recur, could cause or contribute to a death or

ensure compliance with Quality System Regulations (QSR).

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serious injury. Our products are often used to treat very ill patients in highly complex surgeries, only a small portion of which may involve our products, and it is frequently difficult to determine whether our products caused or contributed to a patient injury or death that occurred during or after the procedure. If we are able to determine that our product caused or potentially contributed to a death or serious injury in the particular case, or that a malfunction of the type reported would cause death or serious injury, we submit an MDR on the case. Other incidents, including serious injuries or deaths, which occurred during procedures utilizing our products and that are not the subject of MDRs, may occur either because we are not aware of those incidents or because our investigation determined that the incident did not involve a malfunction of an AtriCure device and/or that an AtriCure device did not cause or contribute to a serious injury or death.

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

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

Fraud, Abuse and False Claims.Claims. We are directly and indirectly subject to various federal and state laws governing our relationship with healthcare providers and pertaining to healthcare fraud and abuse, including anti-kickback laws.providers. In particular, the federal healthcare program Anti-Kickback Statute is a federal criminal law that applies broadly and prohibits persons from knowinglythe knowing and willfully soliciting, offering, receivingwillful offer or providingpayment of remuneration directly or indirectly, in exchange for or to induce either the referral of an individual,or reward patient referrals or the furnishing, arranging for or recommending a goodgeneration of business involving any item or service for which payment may be made in whole or part underpayable by a federal healthcare programs, such as the Medicare and Medicaid programs.

health care program. The Federalfederal 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.government. Damages under the FCA consist of the imposition of fines and penalties and can be significant. The FCA also allows a private individual or entity with knowledge of past or present fraud against the federal government to sue on behalf of the government to recover the civil penalties and treble damages. The U.S. Department

AtriCure is a member of Justice  (DOJ), on behalf of the government, has previously alleged that the marketing and promotional practices of pharmaceutical and medical device manufacturers included the off-label promotion of products or the payment of prohibited kickbacks to doctors violated the FCA resulting in the submission of improper claims to federal and state healthcare entitlement programs such as Medicaid. In certain cases, manufacturers have entered into criminal and civil settlements with the federal government under which they entered into plea agreements, paid substantial monetary amounts and entered into corporate integrity agreements that require, among other things, substantial reporting and remedial actions going forward.

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

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

different, but the general trend is toward increasing regulation and greater requirements for the manufacturer to provide more bench testing and clinical evidence. In addition, regulatory agencies and authorities can halt distribution within the country or otherwise take action in accordance with local laws.

Conformity Assessment Pathway. In the European Union, various directives and voluntary standards regulate the design, manufacture and labeling of medical devices. Devices may only be placed on the marketdevices, and more stringent conformity assessment requirements have been put in the European Union if they complyplace with the essential requirements of a relevant directive and bear the CE mark. Manufacturers must demonstrate that their devices comply with the relevant essential requirements through a conformity assessment procedure.2017 Medical Device Regulation, effective May 26, 2021. The method for assessing conformity varies depending on the type and class of the product, but normallytypically involves a combination of self-assessment by the manufacturerquality system assessment and a third-party product conformity
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assessment by a third-party notified body, an independent and neutral institution appointed by a country to conduct the conformity assessment. This third-party assessment will includeincludes a review of documentation relatingrelated to the device andthat may consist of an audit ofbe as extensive as the documentation requirements that the United States FDA requires for higher risk products. The notified body also audits the manufacturer’s quality system and specificperforms a detailed review of the testing of the manufacturer’s device. Successful completion of a conformity assessment procedure allows a manufacturer to issue a declaration of conformity with the requirements of the relevant directive and affix the CE mark to the device. Devices that bear the CE mark may be commercially distributed throughout the member states of the European Union and other countries that comply with or mirror the medical device directives. Aregulations.
Pervasive and Continuing Regulation. There are numerous regulatory requirements that apply after a product has been approved by the notified body has granted us a certificatefor CE marking, including, but not limited to: labeling, advertising and promotion, reporting of device modifications, monitoring the safety of the product and performing corrections and removals when necessary, maintaining “state of the art” requirements for the devices through compliance with the International Organization for

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Standardization, (ISO) 13485:2003 Quality Management System. Compliance with this standard establishes the presumption that our quality system conformsand individual device certificates on a periodic basis.

AtriCure is a member of MedTech Europe, a voluntary trade association for the medical technology industry including diagnostics, medical devices and digital health. MedTech Europe and its members are committed to a high level of ethical business practices and have put in place strict guidelines to advise medical technology manufacturers on how to collaborate ethically with healthcare professionals (HCPs). These guidelines are set out in the MedTech Europe Code of Ethical Business Practice (MedTech Code), which regulates all aspects of the industry's relationships with HCPs and healthcare organizations (HCOs). It covers medical education and research and development. It also introduces an independent enforcement mechanism and transparency obligations. The Code sets clear and transparent rules for the industry's relationships with HCPs and HCOs, including company events, third-party organized events, arrangements with consultants, gifts, research and financial support to medical education. We have adopted the MedTech Code and incorporated its principles in our standard operating procedures, employee training programs and relationships with medical professionals.
Consulting Relationships
We have developed consulting relationships with scientists and physicians throughout the world to support our research and development, clinical and training and education programs. We work closely with these thought leaders to understand unmet needs and emerging applications for the treatment of Afib and other diseases and conditions.
Our physician consulting agreements are intended to satisfy the requirements of the personal services “Safe Harbor” regulation as well as the AdvaMed Code and the MedTech Europe Code of Ethical Business Practice. As such, they provide for payment of a fair market value fee only for legitimate services rendered to us. We do not expect or require the consultant to utilize or promote our products, and consultants are required to disclose their relationship with us as appropriate, such as when publishing an article in which one of our products is discussed. Amounts paid to physicians in the United States are disclosed by us in annual reports submitted to CMS under the federal “Open Payments” law. Amounts paid to physicians in certain other countries are also disclosed by us in reports submitted to various governmental agencies in those countries, in accordance with the essential requirementslaws of the jurisdictions where those physicians reside or practice, or where the relevant directive. We have successfully completed the conformity assessment procedure and affixed the CE mark to our Isolator Synergy clamps,  Isolator Synergy pens, Coolrail linear pen, cryosurgery devices,  AtriClip LAA Exclusion System, COBRA Fusion Ablation System, Numeris System and the EPi-Sense Guided Coagulation System with VisiTrax technology.

payments are made.

Intellectual Property

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

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

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

Manufacturing

We assemble, inspect, test and package the majority of our products at our facilityfacilities in Ohio, and our products are sterilized by third parties. Purchased components are generallyoften sourced from a single supplier, but alternatives to critical suppliers are available from more than one supplier. However, some products, such as our RF generatorsin the event this would be needed.
To minimize supply chain risks, we maintain inventory levels of components and Fusionraw materials specific to the respective part or device. We assess tooling and EPi-Sense products, are critical components of our RF ablation lines and there are relatively few alternative sources of supply available.

equipment on an ongoing basis. Order quantities and lead times for components purchased from outside suppliers are based on our forecasts derived from historical demand and anticipated future demand. Lead times may vary significantly depending on the size of the order, time required to fabricate and test the components, specific supplier requirements and current market demand for the components and subassemblies.raw materials. To date, we have not experienced significant delays inproduct availability or delay issues directly related to obtaining any of our components.

We regularly audit our suppliers for compliance with our quality system requirements, the QSR and/or applicable ISOInternational Organization of Standardization (ISO) standards. We are an FDA-registered medical device manufacturer and certified to ISO 13485:2003.2016. We routinely conduct internal audits of our quality systems in accordance with various international standards. In addition, we have successfully participated in the Medical Device Single Audit Program (MDSAP) and have been certified accordingly. The MDSAP program is recognized in Australia, Brazil, Canada, Europe, Japan and the United States.

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

Consulting Relationships

Human Capital Management
Successful execution of our strategy is dependent on attracting, developing and retaining key employees and members of our management team. As of December 31, 2023, we had approximately 1,200 employees. Our Board of Directors, along with the Compensation Committee, provides oversight of the human capital management including demographics, diversity and inclusion efforts, and aspects of employee compensation.
At AtriCure, our employees are crucial to the ongoing success of the company. The skills, experience and industry knowledge of our employees significantly benefit our operations and performance. We have developed consulting relationships with scientistscontinuously evaluate, modify and physicians throughout the worldenhance our internal processes to increase employee engagement, productivity and efficiency, as well as to recruit new employees to support our growth. Recognizing the significance of our employees to our success, in 2022 we introduced a “people objective” to our annual incentive plan focused on attraction, development and retention of talent, in addition to strategic Diversity, Equity and Inclusion (DE&I) initiatives.
Talent Attraction and Retention
We attract top talent to AtriCure and provide mechanisms for them to take ownership of their career paths to support their career aspirations so they can build a long-term future with our company. Over the last five years, voluntary turnover rate among our employees has remained consistently below 10%, outperforming the industry average. We conduct engagement surveys of our employees at least annually with our last Organizational Health Survey resulting in above average results when compared to similar size companies. In addition, our employees have voted us as a Top Workplace eight times in the past nine years, and internationally, our employees have voted us a Great Place to Work for two consecutive years. We also promote employee retention and development by supporting internal movement to create accretive experiences for our employees. We have made focused efforts to attract diverse candidates in our pipeline and have expanded our recruiting channels to connect with new communities.
Talent Management and Development
Our philosophy of Talent Mastery is our aspirational commitment to spend as much time focusing on our talent as we do on our business strategies. Under this philosophy, we believe our leaders will better help attract, develop and retain talent. We are committed to identifying and developing the talents of our next-generation leaders, and conduct a
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comprehensive Talent and Organization Planning to position AtriCure with appropriate organization and leadership capability to meet current and future business needs. In that process, we review existing leaders and prospective leaders throughout the organization and determine next best steps for their future development.
Employee development is an important part of the way we drive retention and foster a strong culture of learning. We have invested in programs to drive ongoing career development and provide a range of training courses and online resources for employees, and opportunities for coaching and mentoring. Programs and offerings for development include AMPLIFY, our leadership development program for mid-level leaders across the company; and AtriCure YOUniversity, a series of competency-based courses for global employees. In addition to development programs for all employees, we have several functional development programs, such as the Engineering Development Program that offers four six-month rotations through different departments as part of our differentiated early pipeline talent development. Lastly, we provide tuition reimbursement for employees pursuing undergraduate and graduate degrees.
Diversity, Equity, and Inclusion (DE&I)
We are driven by the belief that diverse skills and experiences produce better outcomes and more innovative solutions to improve patients' lives. We have an ongoing commitment to advancing DE&I throughout our workplace and the communities in which we operate. Our leaders lead from the front by creating an environment that fosters a sense of belonging and ignites passion within their team. This leader-led approach to building an equitable and inclusive workforce has a longstanding commitment to fostering a workplace that rejects discrimination, celebrates differences, and promotes equality. Our DEI framework guides our long-term vision and is grounded in the following objectives:
Attract and develop employees resembling the diversity of the communities, partners and patients we serve
Create a diverse talent pipeline by fostering awareness of STEM and healthcare careers for women and ethnically diverse groups
Foster a culture of inclusion and belonging where all employees are valued and empowered
Enhance DE&I understanding and behaviors through education and development
Increase awareness and advocate for diversity in medical research and development, clinical trials through healthcare partnerships
Explore opportunities to invest in local economic growth by supporting women and trainingethnically diverse groups, while collaborating with our partners to engage communities to promote heart health awareness
Our DE&I efforts are overseen internally by our Chief Human Resources Officer who works with our leadership to further advance our commitment and education programs.programs by fostering employee understanding, intentionality and measurable processes. This commitment is also reflected in the current makeup of our Board of Directors, which helps to set the “tone at the top” for our DE&I initiatives.
Compensation and Benefits
Competitive compensation and benefits are an integral part of our efforts to attract and retain world-class talent. We work closely with these thought leadersare committed to understand unmet needsregularly analyzing and emerging applications forevaluating the treatmenteffectiveness of Afib.  

Our physician consulting agreementsour 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 intendedbased on performance and market evaluation. Performance expectations are communicated to satisfyemployees at the requirementstime of the personal services “Safe Harbor” regulationhiring, as well as the AdvaMedupon internal transfer or promotion, and Eucomed Codes. As such, they providedocumented through our annual performance management process.

Benefits for payment ofeligible U.S.-based employees include medical, dental and vision insurance; paid leave for vacation, illness and volunteer time; parental leave, fertility and adoption assistance; a fair market value fee only for legitimate services rendered401(k) retirement plan that includes a company matching contribution; a stock purchase plan enabling employees to us.purchase AtriCure stock at a reduced price; and life and disability insurance. Our international employee benefits vary due to local regulations and offerings. We do not expect or require the consultant to utilize or promote our products,ensure compliance with all statutory and consultants are required to disclose their relationship with us as appropriate,mandatory benefits which vary by country, such as when publishing an article in which onemedical, disability, retirement/pension, workers compensation, accident, social benefits and paid leave. None of our products is discussed. Amounts paid to physicians in the United Statesemployees are disclosed by us in annual reports submitted to CMS under the federal “Open Payments” law.

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Employees

We had approximately 570 full-time employees as of January 31, 2018. 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.

Our attrition rate is historically lower than the industry average. AtriCure has a strong company culture, which is reflected in our employee engagement and overall success.

Safety for All Employees
We are committed to maintaining a safe workplace and promoting all our employees' well-being. We have implemented multiple safety programs and regularly perform safety hazard evaluations within our facilities. Programs include our Emergency Site Action Plan for emergencies such as fire response, severe weather threats and shelter in place
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incidents, as well as our Certified First Responders safety program that include Red Cross training of employees in CPR, AED Usage and First Aid practices. We recognize that the use of tobacco is linked to many adverse health effects, including those that impact the heart, and we offer our employees tobacco cessation programs. Since 2021, our Ohio office locations are entirely tobacco- and nicotine-free, and to the extent permitted in the states of our other offices, those locations are also entirely tobacco- and nicotine-free.
Available Information

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

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ITEM

ITEM 1A. RISK FACTORS

The following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding other statements in this report. The following information should be carefully considered in addition to the other information set forth in this report, including the Management’s Discussion and Analysis of Financial Conditions and Results of Operations section and Consolidated 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.
Risk Factors Summary
The following is a summary of the principal risks that could adversely affect our business, operations, financial results and stock price.
Commercial Execution and Product Performance Risks Relating To
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 or reducing use of our products by the medical community.
Reliance on independent distributors to sell our products in some international markets could adversely impact our sales.
Industry Condition Risks
A prolonged downturn in macroeconomic conditions may materially adversely affect our business.
Rising healthcare costs may result in efforts by government and private payors to contain or reduce healthcare spending, including reimbursement for procedures that utilize our products.
Adverse changes in governmental and third-party payors’ policies toward coverage and reimbursement for surgical procedures would harm our ability to promote and sell our products.
Operational Risks
Unfavorable publicity relating to our business or industry could negatively impact our operations.
Reliance upon single and limited source third-party suppliers and service providers could harm our business if such third parties cannot provide materials or products or perform services for us in a timely manner.
Our Business

manufacturing operations are highly centralized and disruption could harm our business.

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.
Legal & Compliance Risks
We could face substantial penalties if we do 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 them for treatment of Afib and/or to prevent stroke, and our inability to maintain or 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 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.
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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, judgement, settlement or enforcement action against us as a result of the current qui 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 European Union medical device regulation may limit our ability to sell our products in European markets.
Financial Risks
Our quarterly financial results are likely to fluctuate significantly.
We have a history of net losses, and we may never become profitable.
Governmental authorities may question our intercompany transfer pricing policies or change their laws in a manner that could increase our effective tax rate.
Our goodwill 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.
Common Stock Risks
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 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.
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.
Anti-takeover provisions in our amended and restated certificate of incorporation and amended and restated bylaws and under Delaware law could inhibit a change in control or a change in management that stockholders consider favorable.
Our stockholders must rely on stock appreciation for any return on investment as we do not expect to pay dividends in the foreseeable future.

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

Our success will depend,depends in large part on the medical community’s acceptance of our principal products in the United States, which is the largest revenue market in the world for medical devices. Our ablation and LAAM 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 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 as compared to other products. In addition, acceptance of products for the treatment of Afib is dependent upon, among other factors, the level of screening for Afib general awareness and education of the medical community about the surgical treatment of Afib and the existence, effectiveness and safety of our products. Market acceptance and adoption of our products for the treatment of Afib also depends on the level of health insurer (including Medicare) reimbursement to physicians and hospitals for the use ofprocedures using our products.

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

We rely on

Competition from existing and new products and procedures may decrease our market share and may cause our revenue to decline, and could adversely affect our operating results.
The medical device industry, including the market for the treatment of Afib, is highly competitive, is subject to rapid technological change and can be significantly affected by new product introductions and promotional activities. There is no assurance that our products will compete effectively against drugs, catheter-based ablation, ablation-related andimplantable devices, other surgical ablation devices, other products or techniques to occlude the left atrial appendage managementor other products as our primary sources of revenue. If we are not successful in selling these products, or if these products become obsolete, our operating results will be harmed.

Our ablation and ablation-related products, along with our left atrial appendage management products, generate a large majority of our revenue. We expect that sales of these products will continuetechniques to account for a majority of our revenue for the foreseeable future and that our future revenue will depend on the increasing acceptance by the medical community of our products as a standard surgical treatment of Afib. We may not be able to maintain or increase market acceptance of our products for a number of additional reasons, including those set forth elsewhere in this “Risk Factors” section. In addition, ourmanage post-operative pain. Our products may become obsolete prior to the end of their anticipated useful lives, or we may introduce new products or next-generation products prior to the end of the useful life of a prior generation,our current products, either of which may require us to dispose of existing inventory and related capital equipment and/or write off their value or accelerate their depreciation. Since we believe that physicians are using our ablation and ablation-related products largely for the surgical treatment of Afib, if physicians do not use our products to treat Afib, we would lose substantially all of our revenue.

Competition from existing and new products and procedures may decrease our market share and cause our revenue to decline.

The medical device industry, including the market for the treatment of Afib, is highly competitive, subject to rapid technological change and significantly affected by new product introductions and promotional activities of its participants. There is no assurance that our products will compete effectively against drugs, catheter-based ablation, implantable devices, other ablation systems,In addition, other products or techniques to exclude the left atrial appendage, or other surgical Afib treatments, which may be more well-established among doctors and hospitals. In addition, such other products or techniques may be sold or implemented at lower prices. Due to the size of the Afib and LAA exclusionour markets, and the unmet need for an Afib cure, we anticipate that new or existing competitors may

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develop competing products, procedures and/or clinical solutions. There are few barriers to prevent new entrants or existing competitors from developing products to compete directly with ours. Companies also compete with us to attract qualified scientific, technical and technicalcommercial personnel as well as funding. SomeMost of our competitors and potential competitors have greater financial, manufacturing, marketing and research and development capabilities than we have, and may obtain FDA approval or clearance for their products before we do.products. In 2023, Medtronic announced the FDA clearance of the PenditureTM Left Atrial Appendage Exclusion System. The introduction of new products, procedures or clinical solutions, or of our competitors obtaining FDA approvals or clearances, such as Medtronic's Penditure device, may result in price reductions, reduced margins, loss of market share, or may render our products obsolete, which could adversely affect our revenue and future profitability.

Worldwide economic conditions

Any clinical data that is generated regarding our products may reduce demand for procedures usingnot be positive, and our current and planned clinical trials may not satisfy the requirements of the FDA or other regulatory authorities.
Our clinical trials are expensive to conduct, typically taking many years to complete and have uncertain outcomes. Delays in patient enrollment or failure of patients to consent or continue to participate in a clinical trial may cause an increase in costs and delays in the approval and attempted commercialization of our products or otherwise result in the failure of the clinical trial. Conducting successful clinical studies may require the enrollment of large numbers of clinical sites and patients, and suitable patients may be difficult to identify and recruit. Patient enrollment in clinical trials and completion of patient participation and follow-up depends on many factors, including the size of the patient population; the nature of the trial protocol; the attractiveness of, or the discomforts and risks associated with, the treatments received by enrolled subjects; the availability of appropriate clinical trial investigators, support staff, and proximity of patients to clinical sites; and the ability to comply with the eligibility and exclusion criteria for participation in the clinical trial and patient compliance.
Our products will be measured on their efficacy. We cannot provide any assurance that the data collected during our clinical trials will be compelling to the medical community because it may not be scientifically meaningful, may identify unexpected safety concerns, and may not demonstrate that procedures utilizing our products are an attractive option when
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compared against data from alternative procedures and products. Negative data could affect the use of our products and harm our business and prospects.
Conversely, positive results from clinical trial experience should not be relied upon as evidence that any of our products will gain 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 (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.
Our devices and products may not be approved or cleared even though clinical or other data, in our view, are adequate to support an approval or clearance. The FDA or other regulatory authorities may:
disagree with our trial design and our interpretation of data from preclinical 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.
These factors would affect the rate and extent to which our products are adopted in the medical community.
We rely on independent distributors to market and sell our products in certain markets outside of the United States, and a failure of our independent distributors to successfully market our products or any disruption in their ability to do so may adversely impact our sales.
We depend on independent third-party distributors to sell our products in certain markets outside of the United States, and if these distributors do not perform, we may be unable to maintain or increase international revenue. We intend to grow our business outside of the United States, and to do so, we will need to attract additional distributors or hire direct sales personnel to expand the territories in which we sell our products. Independent distributors may terminate their relationship with us or devote insufficient sales efforts to our products. We are not able to control our independent distributors, and they may not be successful in marketing our products. In addition, many of our independent distributors outside of the United States initially obtain and maintain foreign regulatory approval for sale of our products in their respective countries. Our failure to maintain our relationships with our independent distributors outside of the United States, or our failure to recruit and retain additional skilled independent distributors in these locations, could have an adverse implicationseffect on our business, operatingoperations. Turnover among our independent distributors, even if replaced, may adversely affect our short-term financial results while we transition to new independent distributors or direct sales personnel. The ability of these independent distributors to market and sell our products could also be adversely affected by unexpected events, including, but not limited to, power failures, nuclear events, local economic and political conditions, natural or other disasters and war or terrorist activities. In addition, the ability of our independent distributors to borrow money from their existing lenders or to obtain credit from other sources to purchase our products may be impaired or our independent distributors could experience a significant change in their liquidity or financial condition.

General worldwidecondition, all of which could impair their ability to distribute our products and eventually lead to distributor turnover, and may adversely impact our sales.

Industry Conditions Risks
A prolonged downturn in macroeconomic conditions in which we operate may materially adversely affect our business.
A prolonged economic conditions may deteriorate due todownturn as a result of the collateral effects of among other developments, general credit market crises, collateral effects on the finance and banking industries, concerns about inflation,inflationary pressures, increases in interest rates, slower economic activity, whicha future outbreak of COVID-19 or a similar infectious disease, among other factors, may be caused by many factors, including natural disasters or other catastrophes, decreased consumer confidence, reduced corporate profits and capital spending, adverse business conditions and liquidity concerns. We are unable to predict the extent to which current or future worldwide economic conditions mayadversely impact our business. Specifically, because many procedures usingimpacts to procedure volumes and hospital staffing may result in reductions of our revenue and materially and adversely affect our results of operations and cash flows. Geopolitical issues around the world have impacted the global supply chain and could materially adversely affect global economic growth, disrupt discretionary spending habits and generally decrease demand for our products are elective, they can be deferred by patients. In addition, patients may not be as willing under current or future economic conditions to take time off from work or spend their money on deductibles and co-payments often required in connection with the procedures that use our products.

Beyond patient demand, any current or future deterioration in worldwide economic conditions, including in particular their effects on the credit and capital markets, may have other adverse implications for our business. For example, ourservices. Our customers’ ability to borrow money from their existing lenders or to obtain credit from other sources to purchase our products may be impaired,

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resulting in a decrease in sales. Although we maintain allowances for estimated losses resultingWe may experience diversion of healthcare resources away from the inabilityconduct of clinical trials, including the diversion of hospitals serving as our customersclinical trial sites. We may also encounter interruption or delays in the operations of FDA or other regulatory authorities, which may impact review and approval timelines. We are unable to make required payments, we cannot guarantee that we will accurately predict the loss rates we will experience, especially given any continuing turmoil in theextent to which current or future worldwide economy. A significant change in the liquidity or financial condition ofeconomic conditions may impact our customers could cause unfavorable trends in our receivable collections and additional allowances may be required, which could adversely affect our operating results. Further, given the economic and political challenges facing Eurozone countries, concerns have been raised regarding the stability and suitability of the Euro as a single currency. The failure of the Euro as a single currency could adversely affect our operating results.

business.

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

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

We face significant uncertainty

Adverse changes in the industry duegovernmental and third-party payors’ policies toward coverage and reimbursement for surgical procedures would harm our ability to government healthcare reform. 

The U.S. Patient Protectionpromote and Affordable Care Act (PPACA), as amended, and other healthcare reform have a significant impact onsell our business. The impact of the PPACA on the healthcare industry is extensive and includes, among other things, the federal government assuming a larger role in the healthcare system, expanding healthcare coverage of United States citizens and mandating basic healthcare benefits. The PPACA impacted our business by requiring an excise tax on all U.S. medical device sales beginning in January 2013. In December 2015, the U.S. government approved the suspension of the excise taxproducts.

Third-party payors are increasingly exerting pressure on medical device sales beginning January 1, 2016 through December 31, 2017. Then,companies to reduce their prices. Even to the extent that the use of our products is reimbursed by private payors and governmental payors, adverse changes in January 2018,payors’ policies toward coverage and reimbursement for surgical procedures would also harm our ability to promote and sell our products. Payors continue to review their policies and can, without notice, deny coverage for treatments that include the U.S. government approved an additional suspensionuse of the excise tax on medical device sales from January 1, 2018 to December 31, 2019. When in effect, the increased tax burden from the PPACA significantly impacts our results of operationsproducts. Because each third-party payor individually approves coverage and cash flows.

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

Any healthcare reforms enacted in the futurecostly. In addition, third-party payors may like the PPACA, be phased in over a number of years but, if enacted, could reduce our revenue, increase our costs or require us to reviseprovide scientific and clinical support for the waysuse of our products. Adverse changes in coverage and reimbursement for surgical procedures could harm our business and reduce our revenue.

FDA does not regulate the practice of medicine. Physicians may use our products in circumstances where they deem it medically appropriate, such as for the treatment of Afib or the reduction in stroke risk, even though FDA may not have approved or cleared our products to be marketed specifically for those indications. Some payors may deny coverage or payment for the use of our products for indications not specifically approved or cleared by FDA. Often, these denials can be overcome through an appeals process, but there is no guarantee of success in these cases.
Our revenue generated from sales outside of the United States is also dependent upon coverage and reimbursement within prevailing foreign healthcare payment systems. Foreign healthcare payors generally do not provide the same level of reimbursement for sole-therapy minimally invasive procedures utilizing ablation devices and related products as payors in the United States. In addition, healthcare cost containment efforts similar to those we face in the United States are prevalent in many of the other countries in which we conduct business or put us at risk for losssell our products, and these efforts are expected to continue. To the extent that the use of

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business. In addition, our results of operations, financial position and cash flows could be materially adversely affected by changesdevices has historically received reimbursement under a foreign healthcare payment system, such reimbursement, if any, has typically been significantly less than the PPACA and changes under any federal or state legislation adoptedreimbursement provided in the future. 

We sellUnited States. If coverage and adequate levels of reimbursement from governmental and third-party payors outside of the United States are not obtained and maintained, sales of our products outside of the United States may decrease, and we are subjectmay fail to various regulatory and other risks relating to international operations, which could harm our revenue and profitability.

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

·

export restrictions and controls relating to technology;

States.

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pricing pressure that we may experience internationally;

Operational Risks

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

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political and economic instability;

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

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potentially adverse tax consequences, tariffs and other trade barriers;

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

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international terrorism and anti-American sentiment;

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

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difficulty in obtaining and enforcing intellectual property rights.

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

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

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

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

Restrictions in our ability to train surgeons in the use of our products could reduce the market acceptance of our products or result in injuries to patients or other adverse events that could possibly lead to litigation that could harm us or could reduce our revenue.

It is critical to the success of our sales efforts to ensure that there are a sufficient number of surgeons familiar with, trained on and proficient in the use of our products. While we train providers in the safe and effective use of our products, we do not train them to use any of our products specifically to treat Afib unless the product is FDA-approved specifically for the treatment of Afib. Our Isolator Synergy System is approved for the treatment of persistent and long standing persistent forms of Afib concomitant to open heart bypass graft or valve replacement surgery. The procedure using our Isolator Synergy System in this manner is known as the MAZE IV™ procedure. Following FDA approval, we instituted a program to train all new and existing users of the Isolator Synergy System in the MAZE IV procedure. We also make available training on the safe and effective use of our other products consistent with their FDA approved or cleared indications, but we cannot provide assurance that a sufficient number of surgeons will become aware of training programs.

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Surgeons may not commit enough time to sufficiently learn our products.  

In order for surgeons to learn to use our products, they must attend structured training sessions in order to familiarize themselves with the products and they must be committed to learning the technology. Further, surgeons must utilize the technology on a regular basis to ensure they maintain the skill set necessary to use the products. Continued market acceptance could be delayed by lack of surgeon willingness to attend training sessions, by the time required to complete this training or by state or institutional restrictions on our ability to provide training. An inability to train a sufficient number of surgeons to generate adequate demand for our products could have a material adverse impact on our financial condition and cash flow.  

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Despite measures taken to protect our intellectual property, unauthorized parties might copy aspects of our products or obtain and use information that we regard as proprietary.  Whether a product infringes a patent involves complex legal and factual issues, the determination of which is often uncertain. Any patent dispute, even one without merit or an unsuccessful one, would be time-consuming and expensive to defend and could result in the diversion of our management’s attention from our business and result in adverse publicity, the disruption of development and marketing efforts, injury to our reputation and loss of revenue. Litigation also puts our patent applications at risk of being rejected and our patents at risk of being invalidated or interpreted narrowly, and may provoke third parties to assert claims against us. Any of these events could negatively affect our earnings and financial condition.

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

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

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

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

We have incurred net losses each year since our inception, including, most recently, net losses of $26,892 in 2017, $33,338 in 2016 and $27,212 in 2015. As of December 31, 2017, we had an accumulated deficit of $225,866. 

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

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

We believe that our current cash, cash equivalents and investments, along with the cash we expect to generate or use for operations or access via our term loan and revolving line of credit will be sufficient to meet our projected capital requirements for at least the next 12 months. Our Loan and Security Agreement with Silicon Valley Bank (SVB), as amended and restated effective February 23, 2018, provides for a $40,000 term loan and $20,000 revolving line of credit, with an option to increase the revolving line of credit by an additional $20,000. The term loan and revolving credit facility both mature in February 2023. According to the Loan and Security Agreement, principal payments on the term loan are to be made ratably commencing eighteen months after the inception of the loan through the loan’s maturity date. If we meet certain conditions, as specified by the agreement, the commencement of term loan principal payments may be deferred by an additional six months. The term loan accrues interest at the greater of the Prime Rate plus 3.75% or 8.25% and is subject to an additional 3.50% fee on the original $40,000 term loan principal amount at maturity. 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 and Security Agreement. The applicable borrowing rate on advances outstanding under the revolving credit facility is the greater of the Prime Rate and 4.50%. The Loan and Security Agreement also provides for certain prepayment and early termination fees, as well as establishes a covenant related to sales growth and includes other customary terms and conditions. As of December 31, 2017, we had no borrowings under the revolving credit facility, and we had borrowing availability of $15,000. 

The nContact acquisition provided for contingent consideration to be paid upon attaining specified regulatory approvals and clinical and revenue milestones over the next three years. Subject to the terms and conditions of the nContact merger agreement, such

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contingent consideration is paid in AtriCure common stock and cash, with a requirement to make payments in AtriCure common stock first, up to a specified maximum number of shares. Over the next twelve months, we do not expect our cash requirements to include significant payments of contingent consideration based on terms of the acquisition agreement and related milestones. However, we do expect to issue shares in the amount of $7,500 as payment of contingent consideration related to the completion of the trial enrollment milestone in 2018. Significant changes to the estimated consideration to be paid could result in a substantial increase in liabilities for contingent consideration and our accumulated deficit, and reduce our net income or increase our net loss for the year in which the changes occur, which could contribute to difficulty in raising additional funds. The issuance of our stock to nContact shareholders to settle contingent consideration obligations would dilute the holdings of our existing stockholders. 

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

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

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

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

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

On June 30, 2001, we experienced an ownership change as defined by Section 382 of the Internal Revenue Code of 1986. Section 382 imposes limitations (Section 382 limitation) on a company’s ability to use net operating loss and general business credit carryforwards if a company experiences a more-than-50-percent ownership change over a three-year testing period. Additionally, in connection with acquisitions, additional acquired NOLs are also subject to Section 382 limitation. The Section 382 limitations could limit the availability of our net operating loss and general business credit carryforwards to offset any future taxable income, which may increase our future income tax expense and adversely impact future cash flows. Net operating losses generated prior to 2018 are also subject to expiration under current IRS regulations. We have total federal income tax net operating loss and research and development credit carryforwards that, if not used to reduce our taxable income, will begin to expire in 2021. We have generated or acquired available net operating loss and research and development credit carryforwards of $240,286 and $6,392. 

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

We rely on single and limited source third-party vendors for the manufacture and sterilization of components used in our products. For example, we rely on one vendor to manufacture several of our RF generators,generator, as well as separate vendors to manufacture our COBRA Fusion Surgical Ablation Systems, EPi-Sense Guided Coagulation System with VisiTrax technology, nContactand related RF generator and ORLab™ System.generator. It would be a time consuming and lengthy process to secure these products from an alternative supplier. In addition, in some cases thereWe have significant concentrations with a limited number of vendors. Additionally, our devices are relatively few alternative sourcessterilized prior to use using ethylene oxide at third-party sterilizers. Recently, certain sterilization facilities have experienced mandated temporary closures due to concerns over the impact of supply for certain other components that are critical to our products.emissions of ethylene oxide from such facilities, and the Environmental Protection Agency has proposed regulations aimed at reducing hazardous air pollutants. We also rely on a third partyparties to handle our warehousing and logistics functions for European and Middle Easternseveral other international markets on our behalf.

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

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

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we may have difficulty timely locating and qualifying alternative suppliers;

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

·

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

we may have difficulty timely locating and qualifying alternative suppliers or sterilizers;

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

Tablefuture regulatory actions to modify sterilization processes may cause sterilizers to close, even on a temporary basis, or require new regulatory approvals for us to use, creating lost sterilization capacity and delays;

our suppliers manufacture products for a range of Contents

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

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

·

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

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

If

Our manufacturing operations are highly centralized, and disruption at our goodwill or other intangible assets become impaired, itmanufacturing facilities could materially reduce the value of our assets and increase our net loss for the year in which the impairment occurs.

As of December 31, 2017,  we had $105,257 in goodwill related to acquisitions, which represents the purchase price we paid in excess of the fair value of the net assets we acquired. The Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) 350, “Goodwillexpenses and Other Intangible Assets” requires that goodwill be tested for impairment at least annually (absent any impairment indicators). The testing includes comparing the fair value of each reporting unit with its carrying value. We estimate fair value using several valuation methods, including discounted cash flows, market multiples and market capitalization. Impairment adjustments, if any,decrease our revenue.

Our manufacturing operations are required to be recognized as operating expenses. We may have future impairment adjustmentshighly centralized 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 losscorporate headquarters. While we take precautions, such as qualifying a second building for the year in which the write off occurs and increase our accumulated deficit, which could contribute to difficulty in raising additional funds.  

In Process Research and Development (IPR&D) valued at $44,021 was recorded as an intangible asset in connection with the nContact acquisition. Ifmanufacturing, we do not obtain the regulatory approvals that would confirm the technological feasibility of the IPR&D project, or if the IPR&D project is abandoned for any other reason, we would have an impairment adjustment to this asset that would require us to write it off. Additionally, and similar to goodwill, if the IPR&D asset is deemed to be impaired (asmaintain 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 valuebackup manufacturing facility outside of our assetsOhio campus, making us dependent on the current facilities and reduce our net income or increase our net lossproduction workers for the year in which the write off occurs and increase our accumulated deficit, which could contribute to difficulty in raising additional funds.  

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

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

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

Our manufacturing facility and the manufacturing facility of any of our third-party component manufacturers, critical suppliers or third-party sterilization facility are required to comply with FDA’s Quality System Regulation (QSR) which sets forth minimum standards for the procedures, execution and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage and shipping of the products we sell. FDA may evaluate our compliance with the QSR, among other ways, through periodic announced or unannounced inspections which could disrupt our operations and interrupt our manufacturing. If in conducting an inspection ofdestroy our manufacturing facility or the manufacturing facility of any of our third-party component manufacturers, critical suppliers or third-party sterilization facility, an FDA investigator observes conditions or practices believed to violate the QSR, the investigator may document their observations on a Form FDA-483 that is issued at the conclusion of the inspection. A manufacturer that receives an FDA-483 may respondequipment and cause substantial delays in writing and explain any corrective actions taken in response to the inspectional observations. FDA will typically review the facility’s written response and may re-inspect to determine the facility’s compliance with the QSR and other applicable regulatory requirements. Failure to take adequate and timely corrective actions to

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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 it 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 profitability.

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 delaylead 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 impedewithout insurance, damage to our abilityfacilities or our other property due to meet demand. The manufacture of our product also subjects us to risks thata natural disaster or casualty event could harm our business, including problems relating to the sterilization of our products or facilities and errors in manufacturing components that could negatively affect the efficacy or safety of our products or cause delays in shipment of our products. Any interruption or delay in the manufacture of the product or any of its components could impair our ability to meet the demand of our customers and cause them to cancel orders or switch to competitive products and could, therefore, have a material adverse effect on our business, financial condition and results of operations.

If we fail to comply with the extensive FDA regulations relating toproperly manage our anticipated growth, our business wecould suffer.
We may be subjectexperience periods of rapid growth and expansion, which could place a significant strain on our personnel, information technology systems and other resources. In particular, the increase in our direct sales force requires significant management and other supporting resources. Any failure by us to fines, injunctions and penalties, andmanage our growth effectively could have an adverse effect on our ability to commercially distributeachieve our development and promotecommercialization goals.
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To achieve our revenue goals, we must successfully increase production output as required by customer demand. In the future, we may experience difficulties in increasing production, including problems with production yields and quality control, component supply and shortages of qualified personnel. These problems could result in delays in product availability and increases in expenses. Any such delay or increased expense could adversely affect our ability to generate revenues and adversely impact our operating results.
Future growth will also impose significant added responsibilities on management, including the need to identify, recruit, train and integrate additional employees. In addition, rapid and significant growth will place a strain on our administrative and operational infrastructure. In order to manage our operations and growth, we will need to continue to improve our operational and management controls, reporting and information technology systems and financial internal control procedures. If we are unable to manage our growth effectively, it may be difficult for us to execute our business strategy and our operating results and business could suffer.
We depend on our officers and other skilled and experienced personnel to operate our business effectively. If we are not able to retain our current employees or recruit, hire, train and integrate additional qualified personnel, our business will suffer and our future revenue and profitability will be impaired.
We are highly dependent on the skills and experience of our President and Chief Executive Officer, Michael H. Carrel, and certain other officers and key employees. We do not have any insurance in the event of the death or disability of key personnel. Our officers and key employees, with the exception of our President and Chief Executive Officer, do not have employment agreements, and they may terminate their employment and work elsewhere without notice and without cause or good reason. Currently we have non-compete agreements with our officers and other employees. Due to the specialized knowledge of each of our officers with respect to our products may be hurt.

Ourand our operations and the limited pool of people with relevant experience in the medical device field, the loss of service of one or more of these individuals could significantly affect our ability to operate and manage our business. The announcement of the loss of one or more of our key personnel could negatively affect our stock price.

We depend on our scientific and technical personnel for successful product development and innovation, which are critical to the success of our business. In addition, to succeed in the implementation of our business strategy, our management team must rapidly execute our sales strategy, obtain expanded FDA clearances and approvals, achieve market acceptance for our products are classifiedand further develop products, while managing anticipated growth by FDA as medical devicesimplementing effective planning, manufacturing and as such, are subjectoperating processes. Managing this growth will require us to extensive regulationattract and retain additional management and technical personnel. We rely primarily on direct sales employees to sell our products in the United States by FDA and numerous other federal, statein Europe, and foreign governmental authorities. FDA regulations, guidance, notices and other issuances specificfailure to medical devices are broad and regulate numerous aspects of our business. 

Compliance with FDA, state and other regulations can be complex, expensive and time-consuming. FDA and other authorities have broad enforcement powers. Furthermore, changesadequately train them in the applicable governmental regulations could prevent further commercializationuse and benefits of our products will prevent us from achieving our market share and technologiesrevenue growth goals. We have key relationships with physicians that involve procedure, product, market and clinical development and training. Our business could materiallybe negatively impacted if any of these physicians end their relationship with us. We cannot assure you that we will be able to attract and retain the personnel and physician relationships necessary to grow and expand our business and operations. If we fail to identify, attract, retain and motivate these highly skilled personnel and physicians, we may be unable to continue our development and sales activities.

Disruptions of critical information systems or material breaches in the security of our systems could harm our business.

business, customer relations and financial condition.

In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our customers, suppliers and business partners, and personally identifiable information of our customers and employees in our data centers and on our networks. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. Like many other companies, we experience attempts to gain unauthorized access to our systems and information on a regular basis, and a number of our employees work remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities. Despite our security measures, including employee training, our information technology and infrastructure are vulnerable to cyber-attacks, malicious intrusions, breakdowns, destruction, loss of data privacy, breaches due to employee error, malfeasance or other disruptions. Cyber-attacks are becoming more sophisticated and frequent, and our systems could be the target of malware, ransomware and other cyber-attacks. We have invested in our systems and the protection of our data to reduce the risk of an intrusion or interruption, 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 serioussecurity breach or cyber-attack or other disruption from occurring, then we could incur losses or damage to our data, or inappropriate disclosure of our confidential information or that of others. We have cyber-insurance coverage that may not cover all possible events, and this insurance is subject to deductibles and coverage limitations. We could sustain damage to our reputation and customer 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
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additional regulatory scrutiny or penalties and to civil litigation and possible financial liability, any of which could have a material adverse effect on our business, operating margins, revenues and competitive position.
We also rely in part on information technology to store information, interface with customers, maintain financial accuracy, secure our data and accurately produce our financial statements. In addition, some of our software systems are cloud-based data management applications, hosted by third-party service providers whose security and information technology systems are subject to similar risks. The failure to protect either our or our service providers’ information technology infrastructure could disrupt our operations. 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 regulatory requirements was determined, itlaws and regulations could result in enforcement action by FDA or other state or federal agencies, including the DOJ, which may include any of the following sanctions, among others:  

·

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

·

repair, replacement, refunds, recall or seizure ofbe materially impaired. Any such impairment could have a material adverse effect on our products;

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operating restrictions, partial suspension or total shutdown of production;

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suspension or termination of our clinical trials;

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

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

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criminal prosecution.

If any of these events were to occur, we could lose customers and our production, product sales, business, results of operations, and financial condition wouldand the timeliness with which we report our operating results.

Our insurance may not cover our indemnification obligations and other liabilities associated with our operations.
We maintain insurance designed to provide coverage for ordinary risks associated with our operations and our ordinary indemnification obligations, which we believe to be harmed.

Wecustomary for our industry. The coverage provided by such insurance may not be adequate for claims we may make or may be contested by our insurance carriers. If our insurance is not adequate or available to pay liabilities associated with our operations, or if we are also subjectunable to medical device reporting regulations that require us to file reports with FDA if our products may have caused or contributed to a death or serious injury or,purchase adequate insurance at reasonable rates in the eventfuture, our business, financial condition, results of product malfunction, that if such malfunction were to recur, would likely causeoperations or contribute to a death or serious injury. There have been incidents, including patient deaths, which have occurred during or following procedures using our products that we have not, and believe were not required tocash flows may be reported to FDA because we determined that our products did not cause or contribute to the outcomes in these incidents. If FDA disagrees with us, however, and determines that we should have submitted reports for these adverse events, we could be subject to significant regulatory fines or other penalties. In addition, the number of medical device reports we make, or the magnitude of the problems reported, could cause FDA or us to terminate or modify our clinical trials or recall or cease the sale of our products, and could hurt commercial acceptance of our products and harm our reputation with customers.  

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

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

materially adversely impacted.

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

We spend considerable time and money complying with federal, state and foreign regulations in addition to FDA regulations, and, if we are unable todo not fully comply with such regulations, we could face substantial penalties.

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

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state consumer protection, fraud and business practice laws;

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

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

·

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

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;

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

·

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

state consumer protection, fraud and business practice laws, including the California Consumer Privacy Act (“CCPA”), which among other things, requires disclosures to California consumers and provides consumers new abilities to opt out of certain sales of personal information;

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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;

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;

·

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

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;

·

similar and other regulations outside the United States.

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

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

Our manufacturing operations and research and development activities involve the use of biological materials and hazardous substances and are subject to a variety of federal, state and local environmental laws and regulations relating to the storage, use, discharge, disposal, remediation of and human exposure to hazardous substances. Our research and development and manufacturing operations may produce biological waste materials, such as animal tissues and certain chemical waste. These operations are permitted by regulatory authorities, and the resultant waste materials are disposed of in compliance with environmental laws and regulations. Compliance with these laws and regulations may be expensive, and non-compliance could result in substantial liabilities. In addition, we cannot eliminate the risk of accidental contamination or injury to third parties from the use, storage, handling or disposal of these materials. In the event of contamination or injury, we could be held liable for any resulting damages, and any liability could exceed any applicable insurance coverage we may have. Our manufacturing operations may result in the release, discharge, emission or disposal of hazardous substances that could cause us to incur substantial liabilities, including costs for investigation and remediation.
If our past or present operations are found to be in violation of any of the laws described above or the other governmental regulations to which we, our distributors or our customers are subject, we may be subject to the applicable penalty associated with the violation, including civil and criminal penalties, damages, fines, exclusion from Medicare, Medicaid and other government programs and the curtailment or restructuring of our operations. If we are required to obtain permits or licensure under these laws that we do not already possess, we may become subject to substantial additional regulation or incur significant expense. Any penalties, damages, fines, curtailment or restructuring of our operations would adversely affect our ability to operate our business and our financial results. The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully or clearly interpreted by the regulatory authorities or the courts, and their provisions are subject to a variety of interpretations and additional legal or regulatory change. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management’s attention from the operation of our business and damage our reputation.

Adverse changes in payors’ policies toward coverage

If we fail to comply with the extensive FDA regulations relating to our business, we may be subject to fines, injunctions and reimbursement for surgical procedures would harmpenalties, and our ability to commercially distribute and promote our products may be hurt.
Our products are classified by FDA as medical devices and, sellas such, are subject to extensive regulation by FDA and numerous other federal, state and foreign governmental authorities. FDA regulations, guidance, notices and other issuances specific to medical devices are broad and regulate numerous aspects of our products.

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

If a serious failure to comply with applicable regulatory requirements was determined, it could result in enforcement action by FDA or other state or federal agencies, including the U.S. Department of Justice (USDOJ), which may include any of the following sanctions, among others:
warning letters, fines, injunctions, consent decrees and civil penalties;
repair, replacement, refunds, recall or seizure of our products;
operating restrictions, partial suspension or total shutdown of production;
suspension or termination of our clinical trials;
refusing or delaying our pending requests for 510(k) clearance or PMAs, new intended uses or modifications to existing products;
withdrawing 510(k) clearance or PMAs that have already been granted; and
criminal prosecution.
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If any of these events were to occur, we could lose customers and our production, product sales, business, results of operations and financial condition would be harmed.
We are increasingly exerting pressure onalso subject to medical device companiesreporting regulations that require us to reduce their prices. Evenfile reports with FDA if our products may have caused or contributed to a death or serious injury or, in the event of product malfunction, that if such malfunction were to recur, would likely cause or contribute to a death or serious injury. There have been incidents, including patient deaths, which have occurred during or following procedures using our products that we have not reported to FDA because we determined that our products did not malfunction and did not cause or contribute to the extentoutcomes in these incidents. If FDA disagrees with us, however, and determines that we should have submitted reports for these adverse events, we could be subject to significant regulatory fines or other penalties. In addition, the number of medical device reports we make, or the magnitude of the problems reported, could cause us or FDA to terminate or modify our clinical trials or recall or cease the sale of our products, and could hurt commercial acceptance of our products and harm our reputation with customers.
Unless and until we obtain additional FDA approval for our products, we will not be able to promote them for the treatment of Afib and/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 is reimbursed by private payorsfor unapproved, or off-label, uses.
Our business and governmental payors, adverse changes in payors’ policies toward coverage and reimbursement for surgical procedures would also harm our ability to promote and sell our products. Payors continue to review their policies and can, without notice, deny coverage for treatments that includefuture growth depend on the continued use of our products. Because each third-party

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payor individually approves coverageAfib. 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 reimbursement, obtaining these approvalseffective for such use. Development of sufficient and appropriate clinical protocols to demonstrate quality, safety and efficacy may be time-consumingrequired and costly. In addition, third-party payorswe may require usnot adequately develop such protocols to provide scientificsupport approval. We cannot assure you that any of our clinical trials will be completed in a timely manner or successfully or that the results obtained will be acceptable to FDA. We, FDA or the IRB may suspend a clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh the anticipated benefits.

These limitations present a material risk that FDA or other federal or state law enforcement authorities could determine that the nature and clinicalscope of our sales, marketing and/or support activities, though designed to comply with all FDA requirements, constitute the promotion of our products for an unapproved use in violation of the FDCA. We also face the risk that FDA or other governmental authorities might pursue enforcement based on past activities that we have discontinued or changed, including sales activities, arrangements with institutions and doctors, educational and training programs and other activities. Investigations concerning the promotion of unapproved uses and related issues, are typically expensive, disruptive and burdensome and generate negative publicity. If our promotional activities are found to be in violation of the law, we may face significant fines and penalties and may be required to substantially change our sales, promotion, grant and educational activities. There is also a possibility that we could be enjoined from selling some or all of our products for any unapproved use.
Although our Isolator Synergy System and EPi-Sense System have received FDA approval for the usetreatment of some forms of Afib in certain procedures, we have not received FDA clearance or approval to promote our products. Adverse changes in coverage and reimbursement for surgical procedures could harm our business and reduce our revenue.

FDA does not regulate the practice of medicine. Physicians may use ourother products in circumstances where they deem it medically appropriate, such as for the treatment of Afib or the reduction in stroke risk, even thoughprevention of stroke. Unless and until we obtain FDA may not have approvedclearance or cleared our products to be marketed specificallyapproval for those indications. Some payors may deem the use of our other products to treat Afib or prevent stroke, we, and others acting on our behalf, may not claim in the U.S. that such products are safe and effective for indications not specifically approvedsuch uses or cleared by FDA to be experimental and, asotherwise promote them for such may deny coverage or payment. Often times, these denials can be overcome through an appeals process, but thereuses. Similar restrictions also exist outside of the U.S. There is no guarantee of success in these cases.

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

Important factors upon which the efficacyapprovals of our products will be measured include long-term data ongranted or that current or future clearances or approvals will not be withdrawn. Failure to obtain a clearance or approval or loss of an existing clearance or approval, could hurt our ability to maintain and grow our business.

Modifications to our products may require new clearances or approvals or may require us to cease promoting or to recall the numbermodified products until such clearances or approvals are obtained and FDA may not agree with our conclusions regarding whether new clearances or approvals were required.
Any modification to a 510(k)-cleared device or PMA-approved device that would constitute a change in its intended use, design or manufacture could require a new or supplemental 510(k) clearance or, possibly, submission and FDA approval of patients that experience Afiba PMA application or stroke following treatment withPMA supplement. FDA requires every medical device company to make the determination as to whether a 510(k) must be filed, but FDA may review any medical device company’s decision. We have made modifications to our products and concluded that such modifications did not require us to submit a new or supplemental 510(k). FDA may not agree with our decisions regarding whether submissions were required.
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If FDA were to disagree with us and require us to submit a 510(k), PMA or a PMA supplement for then-existing modifications, we could be required to cease promoting or to recall the numbermodified product until we obtain clearance or approval. In addition, we could be subject to significant regulatory fines or other penalties. Furthermore, our products could be subject to recall if FDA determines, for any reason, that our products are not safe or effective or that appropriate regulatory submissions were not made. Delays in receipt or failure to receive clearances or approvals, the loss of patients that have serious complications resulting from ablationspreviously received clearances or LAA occlusion usingapprovals or the failure to comply with existing or future regulatory requirements could reduce our products. Whilesales, profitability and future growth prospects.
If we believe we are now well-positionedor our third-party vendors fail to provide sufficient long-term data regardingcomply with extensive FDA regulations relating to the safety and efficacymanufacturing of our products such dataor component parts, we may be subject to fines, injunctions and penalties, and our ability to commercially distribute and sell our products may be hurt.
Our manufacturing facilities and the manufacturing facilities of any of our third-party component manufacturers, critical suppliers or third-party sterilization facilities are required to comply with FDA’s QSR, which sets forth minimum standards for the procedures, execution and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage and shipping of the products we sell. FDA may evaluate our compliance with the QSR, among other ways, through periodic announced or unannounced inspections which could identify unexpected safety issues. We cannot providedisrupt our operations and interrupt our manufacturing. If in conducting an inspection of our manufacturing facilities or the manufacturing facilities of any assuranceof our third-party component manufacturers, critical suppliers or third-party sterilization facilities, an FDA investigator observes conditions or practices believed to violate the QSR, the investigator may document their observations on a Form FDA-483 that is issued at the data collected during our clinical trials will be compellingconclusion of the inspection. A manufacturer that receives an FDA-483 may respond in writing and explain any corrective actions taken in response to the medical community because it may not be scientifically meaningfulinspection 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 demonstrate that procedures utilizingcorrected, 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 products are an attractive option when compared against data from alternative procedures andmanufacturing operations or a recall of our products. Negative long-term data would affect the useAdverse inspections could also delay FDA approval of our products and could have an adverse effect on our production, sales and financial condition.
We and any of our third-party vendors may also encounter other problems during manufacturing including failure to follow specific protocols and procedures, equipment malfunction and environmental factors, any of which could delay or impede our ability to meet demand. The manufacture of our product also subjects us to risks that could harm our business, and prospects.

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

Because someincluding problems relating to the sterilization of our international sales are denominatedproducts or facilities and errors in local currencies and notmanufacturing components that could negatively affect the efficacy or safety of our products or cause delays in U.S. Dollars,shipment of our reported sales and earnings are subject to fluctuationsproducts. Interruption or delay in foreign currency exchange rates, primarily the Euro and British Pound. We translate results of transactions denominated in local currencies into U.S. Dollars using market conversion rates applicable to the period in which the transaction is reported. As a result, changes in exchange rates during a period can unpredictably and adversely affect our consolidated operating results and our asset and liability balances, even if the underlying valuemanufacture of the item inproduct or any of its original currency has not changed. At present, we do not hedgecomponents could impair our exposureability to foreign currency fluctuations. As a result, sales and expenses occurring inmeet the future that are denominated in foreign currencies may be translated into U.S. Dollars at less favorable rates, resulting in reduced revenues and earnings.

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

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

We relyare currently defending against a lawsuit brought under the False Claims Act, and any adverse finding, judgement, or enforcement action could materially and adversely affect our business, financial condition or results of operations.
As previously disclosed, on independent distributorsDecember 11, 2017, the Company received a Civil Investigative Demand (CID) from the US Department of Justice (USDOJ) stating that it was investigating the Company to marketdetermine 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 sell our products insubmitted or caused to be submitted false claims to certain markets outsidefederal and state health care programs for medically unnecessary healthcare services related to the treatment of Afib. The Company provided the USDOJ with documents and answers to the written interrogatories, and cooperated with the investigation. In 2021, USDOJ informed the Company that the investigation resulted from a lawsuit by a private individual, or "relator", brought on behalf of the United States and various state and local governments under the qui tam provisions of the federal and similar state and local laws. Although the USDOJ and all of the state and local governments declined to intervene, the relator continues to pursue the lawsuit. During the third quarter of 2022, the relator filed a failureFourth Amended Complaint, which dropped allegations of off-label promotion and now alleges that the Company paid illegal kickbacks to healthcare providers in exchange for using or referring the Company’s products, in violation of the federal Anti-Kickback Statute and various comparable state and local laws. While the Company is contesting the case, it is not possible to predict when the lawsuit
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will be resolved, the outcome of the lawsuit or its potential impact on the Company. While the Company believes its practices are lawful, there can be no assurance that the lawsuit will not result in findings of violations of federal laws that could lead to 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.
The use of products we sell may result in injuries or other adverse events that lead to product liability suits, which could be costly to our business or our customers’ businesses.
The use of our independent distributorsproducts may result in a variety of serious complications, including damage to successfullythe heart, nerves, internal bleeding, death, paralysis or other adverse events. Serious complications are commonly encountered in connection with surgical procedures. If products we sell are defectively designed, manufactured or labeled, contain inadequate warnings, contain defective components, are misused or are associated with serious injuries or deaths, we may become subject to costly litigation by our customers or their patients. We carry product liability insurance that is limited in scope and amount and may not be adequate to fully protect us against product liability claims. We could be required to pay damages that exceed our insurance coverage, and such amounts could be significant. Any product liability claim, with or without merit, could also result in an increase in our insurance rates or our inability to secure coverage on reasonable terms, if at all. Even in the absence of a claim, our insurance rates may rise in the future. Any product liability claim, even a meritless or unsuccessful one, would be time-consuming and expensive to defend and could result in the diversion of our management’s attention from our business and result in adverse publicity, withdrawal of clinical trial participants, injury to our reputation and loss of revenue. Any of these events could negatively affect our financial condition.
Our intellectual property rights may not provide meaningful commercial protection for our products, which could enable third parties to use our technology or methods, or very similar technology or methods, and could reduce our ability to compete.
Our success depends significantly on our ability to protect our proprietary rights to the technologies used in our products. We rely on patent protection, as well as a combination of copyright, trade secret and trademark laws and nondisclosure, confidentiality and other contractual restrictions to protect our proprietary technology. However, these legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. Our patent applications may not issue as patents at all or in a form that will be advantageous to us. Our issued patents and those that may be issued in the future may be challenged, invalidated or circumvented, which could limit our ability to stop competitors from marketing related products.
Although we have taken steps to protect our intellectual property and proprietary technology, we cannot assure you that third parties will not be able to design around our patents or, if they do infringe upon our technology, that we will be successful in or will have sufficient resources to pursue a claim of infringement against those third parties. We believe that third parties may have developed or are developing products that could infringe upon our patent rights. Any pursuit of an infringement claim by us may involve substantial expense or diversion of management attention. In addition, although we have generally entered into confidentiality agreements and intellectual property assignment agreements with our employees, consultants, investigators and advisors, such agreements may be breached, may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements. Additionally, as is common in the medical device industry, some of these individuals were previously employed at other medical equipment or biotechnology companies, including our competitors. Although no claims are currently pending against us, we may be subject to claims that these individuals have used or disclosed trade secrets or other proprietary information of their former employers.
The laws of foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States. Foreign countries generally do not allow patents to cover methods for performing surgical procedures. If our intellectual property does not provide significant protection against foreign or domestic competition, any current or future competitors could compete more directly with us, which could result in a decrease in our revenue and market share. All of these factors may harm our competitive position.
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The medical device industry is characterized by extensive litigation and administrative proceedings over patent and other intellectual property rights and any litigation or claim against us may cause us to incur substantial costs, could place a significant strain on our financial resources, divert the attention of management from our business and harm our reputation.
Despite measures taken to protect our intellectual property, unauthorized parties might copy aspects of our products or anyobtain and use information that we regard as proprietary. Whether a product infringes a patent involves complex legal and factual issues, the determination of which is often uncertain. Any patent dispute, even one without merit or an unsuccessful one, would be time-consuming and expensive to defend and could result in the diversion of our management’s attention from our business and result in adverse publicity, the disruption in their abilityof development and marketing efforts, injury to do soour reputation and loss of revenue. Litigation also puts our patent applications at risk of being rejected and our patents at risk of being invalidated or interpreted narrowly and may adversely impactprovoke third parties to assert claims against us. Any of these events could negatively affect our sales.

We depend on third-party distributorsfinancial condition.

In the event of a patent dispute, if a third-party’s patents were upheld as valid and enforceable, and we were found to sellbe infringing, or found to be inducing infringement by others, we could be prevented from selling our products unless we were able to obtain a license to use technology or ideas covered by such patent or are able to redesign our system to avoid infringement, or we may be ordered to pay substantial damages to the patent holders. A license may not be available at all or on terms acceptable to us, and we may not be able to redesign our products to avoid any infringement. Modification of our products or development of new products could require us to conduct additional clinical trials and to revise our filings with FDA and other regulatory bodies, which would be time-consuming and expensive. If we are not successful in certain markets outside of the United States, and if these distributors do not perform,obtaining a license or redesigning our products, we may be unable to maintain or increase our level of international revenue. Over the long term, we intend to continue to grow our business outside of the United States. To do so we will need to attract additional distributors or hire direct sales personnel to expand the territories in which we sell our products. Independent distributors may terminate their relationship with us or devote insufficient sales efforts to our products. We are not able to control our independent distributors, and they may not be successful in implementing our marketing plans. In addition, many of our independent distributors outside of the United States initially obtain and maintain foreign regulatory approval for sale of our products in their respective countries. Our failure to maintain our relationships with our independent distributors outside of the United States, or our failure to recruit and retain additional skilled independent distributors in these locations, could have an adverse effect on our operations. Turnover among our independent distributors, even if replaced, may adversely affect our short-term financial results while we transition to new independent distributors or direct sales personnel. Fluctuations in foreign currency exchange rates including any strengthening of the U.S. dollar may cause our independent sales distributors to seek longer payment terms to offset the higher prices they are paying in local currency for our products. The ability of these third-party distributors to market and sell our products and our business could also be adversely affected by unexpected events, including, but not limited to, power failures, nuclear events, natural or other disasters and war or terrorist activities. In addition, in light of the worldwide economic crisis, the ability of our distributors to borrow money from their existing lenders or to obtain credit from other sources to purchase our products may be impaired or our distributors could experience a significant change in

suffer.

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their liquidity or financial condition, all of which could impair their ability to distribute our products and eventually lead to distributor turnover.

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

Ourvarious regulatory and other risks relating to international operations, which could harm our revenue generated from salesand profitability.

Doing business outside of the United States is also dependent upon the availability of coverage and reimbursement within prevailing foreign healthcare payment systems. Foreign healthcare payors generally do not provide the same level of reimbursement for sole-therapy minimally invasive procedures utilizing ablation devices and related products as payors in the United States. In addition, healthcare cost containment efforts similarexposes us to risks distinct from those we face in the United States are prevalent in many of the other countries in which we sell our products, and these efforts are expected to continue. To the extent that the use of ablation devices such asdomestic operations. For example, our Isolator Synergy system has historically received reimbursement under a foreign healthcare payment system, such reimbursement, if any, has typically been significantly less than the reimbursement provided in the United States. If coverage and adequate levels of reimbursement from governmental and third-party payorsoperations outside of the United States are subject to different regulatory requirements in each jurisdiction where we operate or have sales. Our failure, or the failure of our distributors, to comply with current or future foreign regulatory requirements, or the assertion by foreign authorities that we or our distributors have failed to comply, could result in adverse consequences, including enforcement actions, fines and penalties, recalls, cessation of sales, civil and criminal prosecution, and the consequences could be disproportionate to the relative contribution of our international operations to our results of operations. Moreover, if political or economic conditions deteriorate in these countries, or if any of these countries are affected by a natural disaster or other catastrophe, our ability to conduct our international operations or collect on international accounts receivable could be limited and our costs could be increased, which could negatively affect our operating results. Engaging in business outside of the United States inherently involves a number of other difficulties and risks, including, but not obtainedlimited to:
export restrictions and maintained, sales ofcontrols 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 may decreaseStates;
international terrorism and we may fail to achieve or maintain significantanti-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.

If we failStates; and

difficulty in obtaining and enforcing intellectual property rights.
Our exposure to properly manageeach of these risks may increase our anticipated growth, our business could suffer.

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

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

Future growth will also impose significant added responsibilities on management, including the need to identify, recruit, train and integrate additional employees. In addition, rapid and significant growth will place a strain on our administrative and operational infrastructure.

In order to manage our operations and growth, we will need to continue to improve our operational and management controls, reporting and information technology systems and financial internal control procedures. If we are unable to manage our growth effectively, it may be difficult for us to execute our business strategy and our operating results and business could suffer.

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

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

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

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

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

·

successfully identify targets for acquisition;

·

negotiate reasonable terms;

·

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

·

properly evaluate target company management capabilities; and

·

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

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

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

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

In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our customers, suppliers and business partners, and personally identifiable information of our customers and employees in our data centers and on our networks. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disrupt our operations and the services we provide to customers, and damage our reputation and cause a loss of confidence in our products and services, which could adversely affect our business, operating margins, revenues and competitive position.

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

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

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

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Compliance with environmental laws and regulations may be expensive. Failure to comply with environmental laws and regulations could subject us to significant liability.

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

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

In June 2016, a majority of voters in the United Kingdom elected to withdraw from the European Union, or the EU, in a national referendum. The referendum was advisory, and the terms of any withdrawal are subject to a negotiation period that could last at least two years after the government of the United Kingdom formally initiates a withdrawal process. Nevertheless, the referendum has created significant uncertainty about the future relationship between the United Kingdom and the EU, including with respect to the laws and regulations that will apply as the United Kingdom determines which EU laws to replace or replicate in the event of a withdrawal. The referendum has also given rise to calls for the governments of other EU member states to consider withdrawal. These developments, or the perception that any of them could occur, have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Any of these factors could depress economic activity and restrict our access to capital, which could have a material adverse effect on our business, financial condition and results of operations and reduce the price of our common stock.

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

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

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

·

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

·

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

·

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

·

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

·

audits or other challenges by taxing authorities; and

·

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

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

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

As a U.S. company doing business in international markets through subsidiaries, we are subject to foreign tax and intercompany pricing laws, including those relating to the flow of funds between the parent and subsidiaries. Tax authorities in the United States and

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

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

We are required to

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

Our insurance

Compliance with developing European Union medical device regulations may not cover alllimit our ability to maintain sales of our indemnification obligationsproducts in European markets or to introduce new products into European markets.
Many foreign countries where we market or may market our products have regulatory bodies and restrictions similar to those of FDA. International sales are subject to foreign government regulation, the requirements of which vary substantially from country to country. The time required to obtain approval by a foreign country may be longer or shorter than that required for FDA clearance and the requirements may differ. In particular, marketing of medical devices in the EU is subject to compliance with the Medical Device Directive 93/92/EEC (MDD). A medical device may be placed on the market within the EU only if it conforms to certain “essential requirements” and bears the CE Mark. The most fundamental and essential requirement is that a medical device must be designed and manufactured in such a way that it will not compromise the clinical condition or safety of patients, or the safety and health of users and others. In addition, the device must achieve the essential performance intended by the manufacturer and be designed, manufactured and packaged in a suitable manner.
In May 2017, the EU adopted a new Medical Device Regulation (EU) 2017/745 (MDR), which repealed and replaced the MDD effective May 26, 2021. The MDR clearly envisages, among other liabilities associatedthings, stricter controls of medical devices, including strengthening of the conformity assessment procedures, increased expectations with our operations.

We maintain insurance designedrespect to provide coverageclinical data for ordinary risks associateddevices 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 our operations and our ordinary indemnification obligations, which we believenotified body certificates issued under the MDD prior to May 26, 2021, may continue to be customary for our industry. The coverage providedplaced on the market until 2027 or 2028, depending on device classification, as long as those devices meet the requirements of 2017/745 as amended by such insuranceEU 2023/607. 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 adequateable to continue to sell existing products in the EU or introduce new products for all claimssale in the EU, either of which could materially harm our results of operations and financial condition.

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Table of Contents
Financial Risks
Our quarterly financial results are likely to fluctuate significantly because the pace of adoption of our products by clinicians are uncertain.
Due to differing rates of adoption of our devices, our quarterly operating results may fluctuate significantly. Current worldwide economic conditions, natural disasters and other factors discussed in this “Risk Factors” section also may impact our sales results, causing our quarterly operating results to be difficult to predict and may fluctuate significantly from quarter to quarter or from prior year to current year periods. These fluctuations may also affect our annual operating results and may cause those results to fluctuate unexpectedly from year to year.
We have a history of net losses, and we may make or may be contested by our insurance carriers. If our insurance is not adequate or availablenever become profitable.
Even though we reported net income of $50,199 in 2021, we have a history of net losses, including net losses of $30,438 in 2023, and $46,466 in 2022. As of December 31, 2023, we had an accumulated deficit of $357,057.
Our net losses have resulted principally from costs and expenses relating to pay liabilities associated with our operations, or if we are unablesales, training and promotional efforts, research and development, clinical trials, seeking regulatory clearances and approvals and general operating expenses. We expect to purchase adequate insurance at reasonable ratescontinue to incur substantial expenditures and to potentially incur additional operating losses in the future as we further develop and commercialize our products. If sales of our products do not continue to grow as we anticipate, we may not be able to achieve profitability. Our expansion efforts may prove to be more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently to offset these higher expenses. Our losses have had, and are expected to continue to have, an adverse impact on our working capital, total assets and accumulated deficit.
Governmental authorities may question our intercompany transfer pricing policies or change their laws in a manner that could increase our effective tax rate or otherwise harm our business.
As a U.S. company doing business in international markets through subsidiaries, we are subject to foreign tax and intercompany transfer pricing laws, including those relating to the flow of funds between the parent and subsidiaries. If tax authorities challenge our intercompany transfer pricing, 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 including minimum taxation. As these guidelines are formally adopted by the OECD, it is possible that separate taxing jurisdictions in which we operate 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 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 financial condition,could be adversely affected.
If our goodwill becomes impaired, it could materially reduce the value of our assets and reduce our net income or increase our net loss for the year in which the impairment occurs.
As of December 31, 2023, we had $234,781 in goodwill, which represents 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). 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.
An inability to forecast future revenue or estimate life cycles of products may result in inventory-related charges that would negatively affect our gross margins and results of operations.
To mitigate the risk of supply interruptions, we may choose to maintain additional inventory of our products or component parts. Managing our inventory levels is important to our cash position and results of operations or cash flows may be materially adversely impacted.

Risks Relating To Our Common Stock

The price and trading volume ofis challenging in the current economic environment. As we grow and expand our common stock may experience extreme fluctuationsproduct offerings, managing our inventory levels becomes more difficult, particularly as we expand into new product areas and bring product enhancements to market. While we rely on our stockholders could lose some or all of their investment.

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

·

variations in our quarterly financial and operating results;

·

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

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·

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

·

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

·

the timing of orders received;

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delays or interruptions in manufacturing or shipping of our products;

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pricing of our products;

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

information technology systems may fail to adequately perform these functions or may experience an interruption. An excessive amount of inventory reduces our cash available for operations and may result in excess or obsolete materials. Conversely, inadequate inventory levels may make it difficult for us to meet customer product demand, resulting in decreased revenue. An inability to forecast future revenue or estimated life cycles of products may result in inventory-related charges that would negatively affect our gross margins and results of operations and increase our accumulated deficit.

·

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

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

·

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

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additions to or departures of our key personnel;

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

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

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failure to achieve or maintain an effective healthcare compliance environment;

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changes in accounting principles; and

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failure to achieve and maintain an effective internal control environment.

These factors, some of which are not within our control, may cause the priceThe majority of our stock to fluctuate substantially. If our quarterly or annual operating results fail to meet or exceedaccounts receivable arise from sales in the expectationsUnited States. However, we also have significant receivable balances from customers within the European Union and Asia. Our accounts receivable in the United States are primarily due from public and private hospitals. Our accounts receivable outside the United States are primarily due from public and private hospitals and from independent distributors. Our historical write-offs of securities analysts or investors, our stock price could drop suddenlyaccounts receivable have not been significant. We monitor the financial performance and significantly. We believe the quarterly and annual comparisonscredit worthiness of our customers so that we can properly assess and respond to changes in their credit profile. Our independent distributors operate in certain countries where economic conditions continue to present challenges to their businesses, and, thus, could place the amounts due to us at risk. These distributors are owed amounts from public hospitals that are funded by their governments. Adverse financial results are not necessarily meaningful and should notconditions in these countries may negatively affect the length of time that it will take us to collect associated accounts receivable or impact the likelihood of ultimate collection.

We may be relied upon as an indicationunable to comply with the covenants of our future performance.

Credit Agreement.

The market pricesCredit Agreement entered into on January 5, 2024, contains specific financial covenants and a minimum liquidity requirement, along with other terms restricting indebtedness, liens, investments and acquisitions, asset dispositions, certain payments and other customary representations and warranties. The Credit Agreement contains mandatory prepayment provisions which require prepayment of amounts outstanding (i) upon the securitiesreceipt of medical device companies, particularly companies like ours without consistent product revenueproceeds from the issuance of any non-permitted indebtedness and earnings, have been highly volatile and are likely to remain highly volatile in the future. This volatility has often been unrelated to the operating performance(ii) when there is an Availability shortfall, as defined. The occurrence of these particular companies. In the past, companies that experience volatility in the market pricean event of their securities have often faced securities class action litigation. Whether or not meritorious, litigation brought against usdefault could result in substantial costs, divertan obligation to repay all obligations in full and a right by our management’s attention and resources and harm our abilitylenders to grow our business.

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

Under the terms of the merger agreement with nContact and the other parties thereto, we agreed to issue additional shares of our common stock, or make payments in cash, to the former stockholders of nContact as contingent consideration upon our satisfaction of milestones described in the merger agreement. Issuing additional shares of our common stock to the former stockholders of nContact in satisfaction of contingent consideration dilutes the ownership interests of holders of our common stock on the dates of such issuances.them. If we are unable to realizepay those amounts, our lenders could proceed against the strategic, operationalcollateral granted to it pursuant to the Credit Agreement, and financial benefits anticipated fromwe may in turn lose access to both our acquisitioncollateral and our current source of nContact,borrowing availability.

Common Stock Risks
We may fail to meet our stockholders may experience dilution of their ownership interests inpublicly announced guidance or other expectations about our company upon any suchbusiness and future issuances of shares of our common stock without receiving any commensurate benefit.

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

The downward pressure on our stock price caused by the sale of a significant number of shares of our common stock or the perception that such sales could occur by any of our significant stockholders could cause our stock price to decline, thus allowing short sellers of our stock an opportunity to take advantage of any decrease in the value of our stock. The presence of short sellers in our common stock may further depress the price of our common stock.

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

We provide financial guidance about our business and future operating results. In developing this guidance, our management makes certain assumptions and judgments about our future operating performance, including rate of adoption of our common stock.

Weproducts, projected hiring to support our growth, continued increase of our market share, potential impact from competitive devices and therapies, and stability of the macro-economic environment in our key markets. Furthermore, analysts and investors may needdevelop and publish their own projections of our business, which may form a consensus about our future performance. Our business results may vary significantly from such guidance or that consensus due to raise capital in the future to funda number of factors, many of which are outside of our control and could adversely affect our operations and operating results. Furthermore, if we make downward revisions of our previously announced guidance, or new initiatives or reduce or pay in fullif our indebtedness. If we raise funds by issuing equity securities, our stock price may decline and our existing stockholders may experience significant dilution. Furthermore, we may enter into capital raising transactions at prices that represent a substantial discountpublicly announced guidance of future operating results fails to market price. A negative reaction by investors andmeet expectations of securities analysts, to any sale of our equity securities could result in a decline in the trading price of our common stock.

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

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

·

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

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·

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

·

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

·

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

·

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

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

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

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

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

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

The requirementsprice and trading volume of beingour common stock may experience extreme fluctuations and our stockholders could lose some or all of their investment.
Because we operate within the medical device segment of the healthcare industry, our stock price is likely to be volatile. The market price of our common stock has had and may continue to have substantial fluctuation due to a public companyvariety of factors, including, but not limited to those risk factors described in the “Risk Factors” section herein. These factors, some of which are not within our control, may straincause the price of our stock to fluctuate substantially. We believe the quarterly and annual comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.
The market prices of the securities of medical device companies, particularly companies like ours without consistent revenue and earnings, have been highly volatile and are likely to remain highly volatile in the future. This volatility has often been unrelated to the operating performance of these particular companies. In the past, companies that experience volatility in the market price of their securities have often faced securities class action litigation. Whether or not meritorious, litigation brought against us could result in substantial costs, divert our management’s attention and resources and distract management.

harm our ability to grow our business.

The sale of material amounts of common stock could encourage short sales by third parties and depress the price of our common stock. As a public company, we are subject toresult, our stockholders may lose all or part of their investment.
The downward pressure on our stock price caused by the reporting requirementssale of the Securities Exchange Acta significant number of 1934, as amended (Exchange Act), and the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act).  We are also subject to certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. In order to maintain and improve the effectivenessshares of our disclosure controls and procedures and internal control over financial reporting,common stock or the perception that such sales could occur by any of our significant resources and management oversight is required.stockholders could cause our stock price to decline, thus allowing short sellers of our stock an opportunity to take advantage of any decrease in the value of our stock. The Dodd-Frank Act requirespresence of short sellers in our common stock may further depress the SEC to adopt certain rules and regulations relating toprice of our public disclosures, corporate governancecommon stock. Some of our directors and executive compensation, among other things, and such rules and regulations require significant attention from management. Compliance with allofficers have entered into, or may enter into, Rule 10b5-1 trading plans pursuant to which they may sell shares of these laws, rules and regulations mayour stock from time to time divert management’s attention fromin the future. Actual or potential sales by these insiders, including those under a prearranged Rule 10b5-1 trading plan, could be interpreted by the market as an indication that the insider has lost confidence in our stock and adversely impact the market price of our stock.
Sales of common stock by us in a capital raising transaction or our issuances of shares in an acquisition may dilute stockholder ownership of common stock and cause a decline in the market price of our common stock.
We may need to raise capital in the future to fund our operations or new initiatives or reduce or pay in full our indebtedness. If we raise funds by issuing equity securities, our stock price may decline and our existing stockholders may experience significant dilution. Furthermore, we may enter into capital raising transactions or issue shares in acquisitions at prices that represent a substantial discount to market price. A negative reaction by investors and securities analysts to any sale of our equity securities could result in a decline in the trading price of our common stock.
Anti-takeover provisions in our amended and restated certificate of incorporation and amended and restated bylaws and under Delaware law could inhibit a change in control or a change in management that stockholders consider favorable.
Provisions in our certificate of incorporation and bylaws could delay or prevent a change of control or change in management that would provide a premium to the market price of common stock. These provisions include those:
authorizing the issuance without further approval of “blank check” preferred stock that could be issued by our board of directors to increase the number of outstanding shares and thwart a takeover attempt;
prohibiting cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates;
limiting the ability of stockholders to call special meetings of stockholders;
prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of stockholders; and
establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.
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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.
We do not expect to pay dividends in the foreseeable future. As a result, stockholders must rely on stock appreciation for any return on investment.
We do not anticipate paying cash dividends on our common stock in the foreseeable future. Any payment of cash dividends will also depend on our financial condition, results of operations, capital requirements and other business concerns,factors and will be at the discretion of our board of directors. Accordingly, stockholders will have to rely on capital appreciation, if any, to earn a return on investment in our common stock. Furthermore, pursuant to our credit facility, we are currently subject to restrictions on our ability to pay dividends and we may in the future become subject to other contractual restrictions on, or prohibitions against, the payment of dividends.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
Risk Management and Strategy
We are committed to preserving the trust and confidence of our stakeholders by taking appropriate technical and organizational measures for maintaining information security and data privacy. Our cybersecurity program allows us to assess, identify and manage information security and cybersecurity threats through robust risk assessment and prevention measures to facilitate communication, training, awareness and incident response procedures. We have established policies and procedures to ensure timely and appropriate notifications to relevant parties and regulators as required for cybersecurity threats and data breaches.
We have continued to expand investments in information security, including additional end-user training, using layered defenses, identifying and protecting critical assets, strengthening monitoring and alerting mechanisms, and engaging experts. Information security awareness trainings are a compliance requirement for employees. We regularly test defenses by performing simulations and drills at both a technical level (including through penetration tests) and by reviewing our operational policies and procedures with third-party experts.
Our data breach response plan designates an incident response team comprised of senior leaders within information technology, finance, legal and compliance functions to ensure timely diagnosis and mitigation of cyber events. The incident response team is responsible for determining whether a cybersecurity incident is material and requires current reporting pursuant to SEC Form 8-K Item 1.05 (Material Cybersecurity Incidents). In conducting the assessment, the team considers factors including, but not limited to: the probability of an adverse outcome; the potential significance of loss; the nature and extent of harm to individuals, customers, and vendors; the nature and extent of harm to our competitive position or reputation; and the possibility of litigation or regulatory investigations.
To ensure our cybersecurity programs adhere to industry best practices, we have adopted the National Institute of Standards and Technology (NIST) Cybersecurity Framework and subscribed to the principles of Zero Trust. Both models represent recognized best practices for security and the capabilities needed to identify, protect, detect and respond to cybersecurity risks and challenges. We evaluate our physical, electronic and administrative safeguards on a continuous basis to ensure they are effectively deployed across the business.
We also work with trusted and recognized third parties to help us assess, strengthen and monitor the operations of our information security program. We engage third-party services to conduct evaluations of our security controls, whether through penetration testing, independent audits or consulting on best practices to address new challenges. These evaluations include testing both the design and operational effectiveness of security controls. We also share and receive threat intelligence with information sharing and analysis centers and cybersecurity associations.
Assessing, identifying and managing cybersecurity related risks are integrated into our overall enterprise risk management (ERM) process, which, evaluates and assesses top risks to the enterprise on a periodic basis. To the extent the ERM process identifies a heightened cybersecurity related risk, risk owners are assigned to develop risk mitigation plans, which are then tracked to completion. The ERM process's risk assessment is presented to the Board of Directors. In
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addition to assessing our own cybersecurity preparedness, we also consider cybersecurity risks associated with the use of third-party software and service providers. Such providers are subject to security risk assessments at time of onboarding, contract renewal and upon detection of an increase in risk profile. On an annual basis we review System and Organization Controls (SOC) 1 or SOC 2 reports for third-party service providers deemed significant to our environment.
Despite the Company’s security measures and programs, our information technology and infrastructure are vulnerable to cybersecurity incidents, intrusions and attacks, any of which could have a materialmaterially adverse effect on our business, financial condition, results, revenues and competitive position. See “Part I—Item 1A. Risk Factors” for further discussion of operationsthese risks.
Governance
Our Board of Directors is responsible for the oversight of cybersecurity risks and cash flows.

threats. The SECBoard has adopted rules regardingdelegated certain information security and data privacy oversight to the disclosureAudit Committee and the Compliance, Quality and Risk Committee (CQRC) of the useBoard. The CQRC oversees compliance with information security and data privacy laws, while the Audit Committee has oversight responsibility for cybersecurity risks related to accounting, audit and financial matters. The CQRC, Audit Committee and management report to the Board on a periodic basis regarding our information security and data privacy functions, including any cybersecurity threats.

The CQRC is responsible for oversight of conflict minerals (commonly referred toour cybersecurity policy, procedures and risk mitigation. Our information technology (IT) leadership briefs the CQRC on a periodic basis on information security matters, including the current cybersecurity landscape, progress on information security initiatives and accomplishments, and reports on material cybersecurity incidents, as tantalum, tin, tungstenneeded. Our enterprise risk management team reports address the Company’s cybersecurity risk management processes. Our Chief Legal Officer oversees the management of our ERM program and gold) which are mined from the Democratic Republichas over a decade of experience in risk management. The Chair of the Congo (DRC)CQRC is an expert in enterprise risk assessment and neighboring countries. Under the rules, we are required to disclose the procedures we employ to determine the sourcing of such mineralsmitigation and metals produced from those minerals. holds a CERT Certificate in Cybersecurity Oversight.
The requirements require due diligence effortsAudit Committee is responsible for reviewing our disclosures on cybersecurity risk management, strategy and could affect the sourcing of components usedgovernance in our products. IfAnnual Report on Form 10-K. The Audit Committee assists in determining materiality for timely reporting of cybersecurity incidents and is notified immediately if the conflict minerals includedincident response team has assessed that a material event may have occurred that may require filing an SEC Current Report on Form 8-K.
The Vice President of Information Technology, assisted by our broader IT team, is responsible for setting the strategic direction and priorities for information security, coordination of enterprise-wide compliance with information security policies and procedures, as well as day-to-day information security management. Our Vice President of IT has served in our products are found to be sourced from the DRC or surrounding countries, we may take actions to change materials or product designs to reduce the possibility that our purchasevarious roles in information technology and information security for over 20 years. Our information security team has an aggregate of conflict minerals may fund armed groupsmore than 60 years of experience in information technology roles across several industries.
ITEM 2. PROPERTIES
The Company operates in the region. These actions could add engineering and other costs to the manufacture of our products. We expect to continue to incur costs in the investigation of the origin of the conflict minerals used in our products and in the reporting of the findings of our investigation.

following principal locations:

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Our reputation may suffer if we have included conflict minerals in our products that are found to have funded armed groups in the DRC region.

ITEM 1B.  UNRESOLVED STAFF COMMENTS 

None. 

ITEM 2.  PROPERTIES 

The Company maintains its headquartersAtriCure Corporate Headquarters Campus; Mason, Ohio – This campus encompasses three locations in Mason, Ohio, in a leasedincluding our global headquarters facility totaling approximately 92,000 square feet. The facilitythat contains the Company’sCompany's administrative, clinical, regulatory, engineering, product development, distributionquality and some manufacturing functions. The monthly rentheadquarters facility is approximately 106,000 square feet. The Mason Distribution Warehouse is primarily used for thiswarehousing and distribution activities and is approximately 40,000 square feet. The Mason Manufacturing Building is approximately 37,000 square feet and is used for manufacturing, quality and engineering activities.

Minnetonka, Minnesota – This location includes administrative, clinical, regulatory and product development space. The office is approximately 32,000 square feet.
Pleasanton, California – This location is used for product development activities and is approximately 6,000 square feet.
Amsterdam, Netherlands – This location houses administrative functions for our international operations. The space is $117. The initial lease term expires in September 2030. The Company also maintains the following locations:

·

Minneapolis, Minnesota – This location includes both administrative and product development space. The office is approximately 22,300 square feet with monthly rent of $22. The lease will expire in October 2022.

approximately 9,000 square feet.

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

Hertogenbosch, Netherlands – This location is used for service activities and is approximately 19,000 square feet.

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Amsterdam, Netherlands – This location is primarily for the administration of our European subsidiaries and is approximately 7,500 square feet. The monthly rent for this space is $17, and the lease will expire in January 2021.

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Hong Kong – This location is for the administration of business throughout Asia. Monthly rent under this lease, which expires in June 2018, is approximately $5. 

·

Beijing, China – This location is for the administration of business in China. Monthly rent under this lease, which expires in July 2018, is approximately $3. 

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

33

Table of ContentsITEM
ITEM 3. LEGAL PROCEEDINGS

The Company is not party to any material pending or threatened litigation.

We may from time to time become a party to additional legal proceedings that arise in the ordinary course of business. See Note 10 – Commitments and Contingencies to our Consolidated Financial Statements.

ITEM

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

applicable.

28


34

Table of Contents

PART

PART II

ITEM

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

Common Stock Market Price

Our common stock is traded on the NASDAQ Global Market under the symbol “ATRC.” The following table sets forth the high and low closing sales price of our common stock for 2017 and 2016:



 

 

 

 

 

 



 

 

 

 

 

 



 

Price Range



 

High

 

Low

2017

 

 

 

 

 

 

First Quarter

 

$

19.20 

 

$

14.94 

Second Quarter

 

$

24.65 

 

$

18.54 

Third Quarter

 

$

24.88 

 

$

20.00 

Fourth Quarter

 

$

23.44 

 

$

17.69 



 

 

 

 

 

 



 

 

 

 

 

 



 

Price Range



 

High

 

Low

2016

 

 

 

 

 

 

First Quarter

 

$

21.47 

 

$

15.29 

Second Quarter

 

$

17.75 

 

$

13.57 

Third Quarter

 

$

17.19 

 

$

13.54 

Fourth Quarter

 

$

20.06 

 

$

15.20 

As of February 23, 2018,13, 2024, the closing price of our common stock on the NASDAQ Global Market was $18.00$31.71 per share, and the number of stockholders of record was 86.

Dividend Policy

The Company has not declared or paid any dividends on its capital stock since incorporation. Furthermore, pursuant to the revolving credit facility terms, the Company is subject to certain restrictions on its ability to pay dividends. The Company currently expects to retain future earnings, if any, for use in the operation and expansion of the business and does not anticipate paying any cash dividends in the foreseeable future.

67.

29


Table of Contents

Performance Graph

The following graph compares the cumulative total stockholder return on our common stock with the cumulative total return of the NASDAQ Composite Index (“NASDAQ Composite”) and the NASDAQ Medical EquipmentHealth Care Index (“NASDAQ Health Care”) for the period beginning on January 1, 2013December 31, 2018, and ending on December 31, 2017.

2023.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among AtriCure, Inc., the NASDAQ Composite Index
and the NASDAQ Health Care Index
912
*$100 invested on 12/31/18 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.
This graph assumes that $100.00 was invested on December 31, 20122018, in our common stock, the NASDAQ Composite Index and the NASDAQ Medical EquipmentHealth Care 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.



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

12/31/2013

 

12/31/2014

 

12/31/2015

 

12/31/2016

 

12/31/2017

AtriCure, Inc.  

 

$

270.72 

 

$

289.28 

 

$

325.22 

 

$

283.62 

 

$

264.35 

NASDAQ Composite

 

$

141.63 

 

$

162.09 

 

$

173.33 

 

$

187.19 

 

$

242.29 

NASDAQ Medical Equipment

 

$

118.21 

 

$

139.19 

 

$

155.48 

 

$

164.37 

 

$

232.47 

30

 12/31/201812/31/201912/31/202012/31/202112/31/202212/31/2023
AtriCure, Inc.$100.00$106.24$181.93$227.22$145.03$116.63
NASDAQ Composite$100.00$136.69$198.10$242.03$163.28$236.17
NASDAQ Health Care$100.00$110.75$140.85$126.71$95.29$96.06

Table of Contents

ITEM

ITEM 6. SELECTED FINANCIAL DATA

The following table reflects selected financial data derived from our Consolidated Financial Statements for each of the last five years. The operating results data for the years ended December 31, 2017, 2016 and 2015 and the financial position data as of December 31, 2017 and 2016 are derived from our audited financial statements included in this Form 10-K. The operating results data for the years ended December 31, 2014 and 2013 and the financial position data as of December 31, 2015, 2014 and 2013 are derived from our audited financial statements not included in this Form 10-K. Historical results are not necessarily indicative of future results. The selected financial data set forth below should be read in conjunction with our financial statements, the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K.



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Year Ended December 31,



 

2017

 

2016

 

2015 (1)

 

2014

 

2013 (2)



 

(in thousands, except per share data)

Operating Results:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

174,716 

 

$

155,109 

 

$

129,755 

 

$

107,454 

 

$

81,889 

Gross profit

 

 

126,163 

 

 

111,101 

 

 

92,875 

 

 

75,750 

 

 

59,563 

Gross margin

 

 

72.2% 

 

 

71.6% 

 

 

71.6% 

 

 

70.5% 

 

 

72.7% 

Net loss

 

 

(26,892)

 

 

(33,338)

 

 

(27,212)

 

 

(16,211)

 

 

(11,462)

Basic and diluted net loss per share

 

 

(0.83)

 

 

(1.05)

 

 

(0.97)

 

 

(0.61)

 

 

(0.56)

Weighted average shares outstanding

 

 

32,387 

 

 

31,609 

 

 

28,058 

 

 

26,374 

 

 

20,431 

Financial Position:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents and investments

 

$

34,451 

 

$

47,009 

 

$

42,284 

 

$

68,543 

 

$

34,125 

Working capital

 

 

50,355 

 

 

56,889 

 

 

43,164 

 

 

67,865 

 

 

25,774 

Total assets

 

 

267,704 

 

 

276,421 

 

 

273,092 

 

 

158,404 

 

 

111,947 

Long-term debt and capital leases

 

 

36,861 

 

 

37,205 

 

 

13,710 

 

 

74 

 

 

4,412 

Stockholders’ equity

 

 

161,166 

 

 

168,442 

 

 

186,685 

 

 

132,538 

 

 

72,604 

_________________________

(1)

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

[RESERVED]

(2)

We acquired Estech for $39.7 million on December 31, 2013. The acquisition is included in our Consolidated Balance Sheets as of December 31, 2013.

31


Table of Contents

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

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

35

Table of Contents
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying consolidated 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 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. 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.

Year Ended December 31, 2022 compared to December 31, 2021
For a comparison of our results of operations for the years ended December 31, 2022 and December 31, 2021, 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 year ended December 31, 2022, filed with the SEC on February 22, 2023.
Overview

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

Physicians have adopted our radiofrequency (RF) ablation and cryoablation systems to treat Afib, and we believe that we are currently the market leader in the surgical treatment of Afib. Ourmanagement (LAAM) products are used by physicians during both open-heart and minimally invasive surgicalprocedures. In open-heart procedures, either on a concomitant or standalone basis. During a concomitant procedure, the physician ablates cardiac tissue and/or occludes the LAA, secondary, or concomitant, to a primary structuralis performing heart procedure such as a valve repair or replacement or coronary artery bypass graft (CABG). Our Isolator Synergy System is approved by FDAsurgery for the treatment of persistentother conditions, and long-standing persistent Afib concomitant to other open-heart surgical procedures. All of our other ablation devices are cleared for sale under FDA 510(k) clearances, including our other RF and cryoablation products, which are indicated for the ablation of cardiac tissue and/or treatment of cardiac arrhythmias. In addition, our cryoICE probe is cleared for managing pain by temporarily ablating peripheral nerves. Our AtriClip products are 510(k)-cleared with an indication for the occlusion of the heart’s LAA, performed under direct visualization andused in conjunction with other cardiac(or “concomitant” to) such a procedure. Minimally invasive procedures are performed on a standalone basis, and often include multi-disciplinary or “hybrid” approaches, combining surgical procedures. Direct visualization, in this context, requires that the surgeon is ableprocedures using AtriCure ablation and LAAM products with catheter ablation procedures performed by electrophysiologists. Our pain management devices are used by physicians to see the heart directly, withfreeze nerves during cardiothoracic or without assistance from a camera, endoscope or other appropriate viewing technologies. We also have a line of reusablethoracic surgical instruments typically used for cardiac valve replacement or repair.procedures. 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, which are used to ablate cardiac tissue, to occlude the left atrial appendage, to perform mitral and aortic valve replacement and repair and/or to ablate peripheral nerves during cardiothoracic surgery.

In the United States, wedeveloping.

We sell our products to medical centers through our direct sales force. In certain international markets, such asforce in the United States, Germany, France, the United Kingdom, and the Benelux region, sales areAustralia and Canada. We also made directly to medical centers, while other international sales are madesell our products to distributors who in turn sell our products to end users.medical centers in other markets. Our business is primarily transacted in U.S. Dollars with the exception ofDollars; direct international sales transactions with our European subsidiaries, which are transacted in Euros, British Pounds, Australian Dollars or British Pounds.

Canadian Dollars.

32

In 2023, we realized significant global revenue growth and continued our strategic initiatives of product innovation, clinical science and expanding physician awareness and adoption through superior training and education. Our worldwide revenues for the year ended December 31, 2023 of $399,245 was an increase of 20.8% over the prior year driven by growing adoption across key product lines. Historically there have been limited competitors in our key markets, but we have begun to see more entrants that may cause variability in 2024 results. Highlights of the strategic and operational advancements in 2023 include:
PRODUCT INNOVATION. We received final labeling approval for the next generation EPi-Sense ST device and began a limited launch evaluation in the fourth quarter of 2022, followed by full product launch in the second quarter of 2023. In October 2023, we received clearance for our next generation cryoSPHERE probe for pain management and expect to launch in the first quarter of 2024. Additionally, we completed several 510k submissions to FDA for new products in development. We also continue to make significant progress on European Medical Device Regulation (EU MDR) clearance submissions for our products. As of the second quarter of 2023, all of our products have been submitted to our notified body under EU MDR. These activities are in addition to several research and development programs currently underway.
CLINICAL SCIENCE. We continue to invest in studies to expand labeling claims, support various indications for our products and gather clinical data regarding our products.
LeAAPS. The Left Atrial Appendage Exclusion for Prophylactic Stroke Reduction (LeAAPS) IDE clinical trial is designed to evaluate the effectiveness of prophylactic LAA exclusion using the AtriClip LAA Exclusion System for the prevention of ischemic stroke or systemic arterial embolism in cardiac surgery patients without pre-operative AF diagnosis who are at risk for these events. This prospective, multicenter, randomized trial evaluates safety at 30 days post-procedure to demonstrate no increased risk with LAA exclusion during cardiac surgery, and efficacy over a minimum follow-up of five years post procedure. The trial provides for enrollment of up to 6,500 subjects at up to 250 sites worldwide. In January 2023, the first patient was enrolled in the trial, and we ended 2023 with nearly 1,400 patients enrolled. Site initiation and enrollment is ongoing.
ICE-AFIB. Trial enrollment was completed in the second quarter of 2023 for the ICE-AFIB clinical trial, which is designed to study the safety and efficacy of our cryoICE® system for persistent and long-standing persistent Afib treatment during concomitant on-pump cardiac surgery. The trial provided for enrollment of up to 150 patients at up to 20 sites in the United States. Patient follow-up for twelve months post ablation required by the study protocol remains ongoing.
36

Table of Contents

CEASE-AF. During the second quarter of 2023, results from our CEASE-AF trial were presented at the European Heart Rhythm Association meeting. CEASE-AF is a prospective, multi-center randomized control trial for persistent and long-standing persistent Afib treatment that demonstrated superior freedom from atrial arrhythmias for staged hybrid ablation compared to endocardial catheter ablation.
DEEP AF. During the fourth quarter of 2023, 12-month follow-up results of enrolled patients from our DEEP AF IDE trial were presented at the American Heart Association meeting. The DEEP AF IDE pivotal trial evaluated the safety and efficacy of the AtriCure Bipolar System when used in a staged approach where a minimally invasive surgical ablation procedure is first performed. The patient undergoes the endocardial catheter procedure approximately 91-120 days later. The results from this single arm study for persistent and long-standing persistent Afib treatment demonstrated superior freedom from atrial arrhythmias for staged hybrid ablation compared to a pre-specified performance goal.
TRAINING. Our professional education and marketing teams conduct virtual and in-person training programs for physicians and healthcare professionals. These training methods ensure invaluable access to continuing education and awareness of our products and related procedures. During 2023, we launched new training courses for Advanced Practice Providers, pain management in pectus procedures, as well as a best practice course for developing arrhythmia programs, with a primary focus on Hybrid therapies. These trainings allow for collaborative, hands-on engagement with our physician partners and other healthcare professionals. Additionally, our professional education courses continue to benefit from use of inanimate models or synthetic cadavers, known as CADets. These reusable CADets provide a sustainable alternative to the use of animals or cadavers, in addition to reducing spend on training programs.
SOCIETY GUIDELINES. In 2023, the American College of Cardiology (ACC), American Heart Association (AHA), American College of Clinical Pharmacy (ACCP), and HRS released Guidelines for Diagnosis and Management of Atrial Fibrillation, and they upgraded Left Atrial Appendage Management to the highest recommendation of Class 1 and now include Hybrid AF™ Therapy as a Class 2 recommendation. These societal guidelines are reflective of the scientific evidence suggesting that surgical and hybrid ablation is safe and effective for patients who have Afib.
Results of Operations

Year Ended December 31, 20172023 compared to December 31, 2016

2022

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

 

2017

 

2016

 

 

 

% of

 

 

 

% of

 

Amount

 

Revenue

 

Amount

 

Revenue

 

(dollars in thousands)

Year Ended December 31,Year Ended December 31,
202320232022
% of% of
AmountAmountRevenueAmountRevenue

Revenue

 

$

174,716 

 

100.0 

%

 

$

155,109 

 

100.0 

%

Revenue$399,245 100.0 100.0 %330,379 100.0 %

Cost of revenue

 

 

48,553 

 

27.8 

 

 

 

44,008 

 

28.4 

 

Gross profit

 

 

126,163 

 

72.2 

 

 

 

111,101 

 

71.6 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

Operating expense (benefit):
Research and development expenses
Research and development expenses

Research and development expenses

 

34,144 

 

19.5 

 

 

35,824 

 

23.1 

 

Selling, general and administrative expenses

 

 

116,998 

 

67.0 

 

 

 

106,415 

 

68.6 

 

Total operating expenses
Total operating expenses

Total operating expenses

 

 

151,142 

 

86.5 

 

 

 

142,239 

 

91.7 

 

Loss from operations

 

(24,979)

 

(14.3)

 

 

(31,138)

 

(20.1)

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(2,264)

 

(1.3)

 

 

(1,801)

 

(1.2)

 

Interest income

 

227 

 

0.1 

 

 

227 

 

0.1 

 

Other

 

 

138 

 

0.1 

 

 

 

(586)

 

(0.4)

 

Other expense

 

 

(1,899)

 

(1.1)

 

 

 

(2,160)

 

(1.4)

 

Other expense, net

Loss before income tax expense

 

 

(26,878)

 

(15.4)

 

 

 

(33,298)

 

(21.5)

 

Income tax expense

 

 

14 

 

 —

 

 

 

40 

 

 —

 

Net loss

 

$

(26,892)

 

(15.4)

%

 

$

(33,338)

 

(21.5)

%

Net loss$(30,438)(7.6)(7.6) %$(46,466)(14.1)(14.1)%

37

Table of Contents
Revenue. Total The following table sets forth, for the periods indicated, our revenue by product type and geography expressed as dollar amounts and the corresponding change in such revenues between periods, in both dollars and percentages:
Year Ended December 31,Change
20232022Amount%
Open ablation$105,287$86,119$19,168 22.3 %
Minimally invasive ablation44,57738,5536,024 15.6  %
Pain management49,19939,9749,225 23.1 %
Appendage management134,481112,55521,926 19.5 %
Total United States$333,544$277,201$56,343 20.3 %
Total International65,70153,17812,523 23.5 %
Total Revenue$399,245$330,379$68,866 20.8 %
Worldwide revenue increased 12.6% (12.4%20.8% (20.6% on a constant currency basis). Revenue from customersIn the United States, we experienced growth in all key product lines as a result of deepening market penetration and expanding physician adoption. Key products contributing to the increase in revenue in the United States were:
the ENCOMPASS® clamp in open ablation,
Hybrid AF™ Therapy procedures using the EPi-Sense System in minimally invasive ablation,
the cryoSPHERE® probe for post-operative pain management and
the AtriClip® Flex⋅V® for appendage management.
International revenue increased $16,002, or 13.1%, and revenue from international customers increased $3,605, or 11.0% (9.6%23.5% (22.1% on a constant currency basis). Sales in the United States grew, across several key product categories. Ablation-related open-heart sales increased $6,467, or 11%, primarily due to growth in our cryo products line, including the impact of the cryoFORM® product which launched in the second quarter of 2016.  Ablation-related minimally invasive (MIS) sales increased $3,252, or 10%, reflecting strong growth in our EPi-Sense product line which was offset partially by a decline in legacy MIS product sales. Growth in EPi-Sense product resulted from both an increase in volume of procedures in existing accounts as well as the addition of new customer accounts. Legacy MIS product sales in the United States were impacted throughout 2017 by various disruptions to key accounts such as physician movementall franchises and wildfires in California. AtriClip sales increased $6,960, or 23%, due to increased volume and pricing. AtriClip sales reflect the positive impact of the AtriClip PRO2® and AtriClip PRO·V LAA Exclusion System devices, which launched in the second quarter of 2016 and late third quarter of 2017, respectively.  International revenue grew primarily in Asia, Germany, France, Turkey, Austria and the Benelux region as a result of increased volumes in AtriClip and cryo product sales.

major geographic regions.

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

Cost of revenue and gross margin. Cost of revenue increased $4,545 and$14,436 primarily reflecting higher sales volumes. The gross margin increased 0.6% from 71.6% in 2016 to 72.2% in 2017. While 2017 includes heavier capital equipment sales, this factor isincrease of 80 basis points was driven by favorable production efficiencies, partially offset by a slight increase in the percentage of total revenue from customers in the United States,less favorable geographic and product mix and lower inventory obsolescence charges in 2017.

mix.

Research and development expenses. Research and development expenses decreased $1,680,increased $16,578, or 4.7%28.9%. The decrease in expense was primarily due to lower expenseExpansion of $1,887 related to product development projects resulting from the timing of project activities, $474 related to regulatory filing fees, $339 related to clinical trials and grants and $276 related to amortization expense. These decreases in expense were partially offset by higher expense of $1,115 related to product development, regulatory and clinical teams resulted in $7,413 of additional personnel costs, resulting fromincluding variable compensation and share-based compensation. Clinical trial expenses increased headcount$6,667 due to strong enrollment activity in the LeAAPS clinical trial throughout the year. Additionally, our expanding product pipeline and $227 related to share-based compensation expense.

domestic and international regulatory submissions drove a $2,389 increase in spending.

Selling, general and administrative expenses. Selling, general and administrative expenses increased $10,583,$21,866, or 9.9%, primarily due to higher expense9.5%. Personnel costs increased $26,971 as a result of $9,136 related to personnelgrowth in headcount, variable compensation and relatedshare-based compensation. Trade shows and marketing activities increased $1,538 and other administrative and operating expenses suchincreased $2,274 as travel costs, resulting from increased headcount, $2,563 related to professional education, marketing and tradeshow expenses, $2,501 related to share-based compensation expense, $1,405 related to legal expenses and  $530 related to product samples, largely relatedcompared to the September 2017 launch of the

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Table of Contents

AtriClip PRO·V LAA Exclusion System. These increases in expense wereprior year. This increase was offset by a $5,047 reduction$4,019 decrease in expense relatedtraining costs as a result of growing efficiencies and enhancements to the contingent consideration adjustment (see Note 3 – Fair Value to the Consolidated Financial Statements)our global training programs and lower expenses related to consulting and professional services.

Net interest expense. Net interest expense was $2,037 for 2017 and $1,574 for 2016. Interest expense associated with outstanding amounts on our term loan and capital lease obligations, as well as the amortizationa net gain of financing costs, are included in net interest expense. Also included in net interest expense is interest income$4,412 from investments, including gains and losses on investments soldnon-recurring legal settlements during the period. The increase in interest expense was drivenfirst half of 2023. Legal settlement activity included a $7,500 gain from proceeds on a legal matter settled during the first quarter of 2023, partially offset by a full year$3,088 charge for settlement of expense incurred on borrowings underan intellectual property matter during the term loan in 2017, which was effective April 2016.

second quarter of 2023. See Note 10 – Commitments and Contingencies for further information.

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

Year Ended December 31, 2016 compared to December 31, 2015

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



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Year Ended December 31,



 

2016

 

2015



 

 

 

 

% of

 

 

 

 

% of



 

Amount

 

Revenue

 

Amount

 

Revenue



 

(dollars in thousands)

Revenue

 

$

155,109 

 

100.0 

%

 

$

129,755 

 

100.0 

%

Cost of revenue

 

 

44,008 

 

28.4 

 

 

 

36,880 

 

28.4 

 

Gross profit

 

 

111,101 

 

71.6 

 

 

 

92,875 

 

71.6 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development expenses

 

 

35,824 

 

23.1 

 

 

 

25,742 

 

19.8 

 

Selling, general and administrative expenses

 

 

106,415 

 

68.6 

 

 

 

93,853 

 

72.3 

 

Total operating expenses

 

 

142,239 

 

91.7 

 

 

 

119,595 

 

92.2 

 

Loss from operations

 

 

(31,138)

 

(20.1)

 

 

 

(26,720)

 

(20.6)

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(1,801)

 

(1.2)

 

 

 

(292)

 

(0.2)

 

Interest income

 

 

227 

 

0.1 

 

 

 

190 

 

0.1 

 

Other

 

 

(586)

 

(0.4)

 

 

 

(354)

 

(0.3)

 

Other income (expense)

 

 

(2,160)

 

(1.4)

 

 

 

(456)

 

(0.4)

 

Loss before income tax expense

 

 

(33,298)

 

(21.5)

 

 

 

(27,176)

 

(21.0)

 

Income tax expense

 

 

40 

 

 —

 

 

 

36 

 

 —

 

Net loss

 

$

(33,338)

 

(21.5)

%

 

$

(27,212)

 

(21.0)

%

Revenue. Total revenue increased 19.5% (19.6% on a constant currency basis), from $129,755 in 2015 to $155,109 in 2016. Constant currency basis amounts are calculated by applying previous period foreign currency exchange rates to each of the comparable periods. Revenue from sales to customers in the United States increased $20,173, or 19.7%, and revenue from sales to international customers increased $5,181, or 18.8% (18.9% on a constant currency basis). The increase in sales to customers in the United States was primarily due to increased sales of ablation-related open-heart products of $4,509, increased sales of ablation-related minimally invasive (MIS) products of $9,605 and increased sales of the AtriClip system of $5,944. The increase in MIS sales was largely influenced by the nContact acquisition, which closed in the fourth quarter of 2015. Increases in both ablation-related open-heart product and AtriClip system revenues were positively impacted by new product launches in 2016, which include the cryoFORM cryoablation probe and AtriClip PRO2™ device. While U.S. MIS and AtriClip sales were consistently strong throughout 2016, U.S. open-heart sales were up 11% through the third quarter but slowed to 1% growth during the fourth quarter. The Company is working to improve focus on the open-chest procedures and take advantage of recent guideline changes related to Afib from a U.S. cardiothoracic surgeon society. The increase in international revenue was primarily due to an increase in sales in Japan, China, Italy, Germany and France. Unlike domestic sales, international revenue growth was primarily the result of increased volumes, rather than new product launches or the nContact acquisition.

Cost of revenue and gross margin. Cost of revenue increased $7,128, from $36,880 in 2015 to $44,008 in 2016. As a percentage of revenue, cost of revenue was 28.4% for 2015 and 2016. Gross margin for 2015 and 2016 was 71.6%. Favorable impacts on gross margin in 2016 include the suspension of the medical device excise tax, as well as product mix, which was affected by the nContact acquisition and new product launches. These increases in gross margin were offset by increased loaner generator depreciation and increased costs related to moving into a larger and more modern facility. While certain scrap and obsolescence charges were incurred in both 2016 and 2015, we expect such amounts to be significantly reduced in future years.

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Research and development expenses. Research and development expenses increased $10,082, or 39.2%, from $25,742 in 2015 to $35,824 in 2016. The increase in expense was primarily due to a $3,147 increase in product development, regulatory and clinical personnel expense, a $2,599 increase in product development project expense, a $1,334 increase in clinical trial spending, a $443 increase in regulatory filing expense, a $452 increase in share-based compensation and a $348 increase in amortization expense. The nContact acquisition directly impacted personnel, clinical trial, regulatory filing and amortization expenses.

Selling, general and administrative expenses. Selling, general and administrative expenses increased $12,562, or 13.4%, from $93,853 in 2015 to $106,415 in 2016. The increase was primarily due to a $6,560 increase in personnel and related expenses, such as travel costs, a $2,244 increase in share-based compensation expense and a $2,196 increase in marketing, tradeshows, training and related expenses, partially offset by a $2,489 decrease in expense due to transaction costs recorded in connection with the acquisition of nContact during 2015.

Net interest income (expense). Net interest expense was $1,574$3,133 for 20162023 and $102$2,992 for 2015. Interest expense associated with outstanding amounts on our term loan and capital lease obligations, as well as the amortization2022.

38

Table of financing costs, are included in net interest expense. The increase in interest expense was driven by the commencement of the Mason facility capital lease in late 2015 and the addition of the term loan in April 2016.

Other income and expense. Other income and expense consists primarily of foreign currency transaction gains and losses. Non-employee option gains and losses related to the fair market value change for fully vested options outstanding for consultants, which are accounted for as free-standing derivatives, and grant income were also included in other income and expense during 2015.  Net other expense for 2016 and 2015 totaled $586 and $354.

Contents

Liquidity and Capital Resources

As of December 31, 2017, the Company2023, we had cash, cash equivalents and investments of $34,451$137,285 and outstanding debt of $24,100.  We had unused borrowing capacity of $15,000approximately $28,750 under our revolvingthe SVB Credit Facility. As a result of the new asset-based credit facility. Mostagreement with JPMorgan Chase Bank, N.A. entered into on January 5, 2024, unused borrowing availability increased to approximately $61,885 (see Note 8 – Indebtedness for related discussion). All cash equivalents and investments and most of our operating cash and all cash equivalents and investments are held byin United States financial institutions. A minor portion of our cash is held in foreign banks to support our international operations. We had net working capital of $50,355$191,677 and an accumulated deficit of $225,866$357,057 as of December 31, 2017.

Cash flows used in operating activities. Net cash used in operating activities was $8,944 during 2017. The primary net uses of cash for operating activities were as follows:

·

the net loss of $26,892, offset by $19,950 of non-cash expenses, including $14,615 in share-based compensation, $9,128 in depreciation and amortization and a change in fair value of contingent consideration of $4,078; and

2023.

·

a  net decrease in cash used related to changes in operating assets and liabilities of $2,002, due primarily to the following:

·

an increase in accounts receivable of $1,464, due primarily to increased sales and the timing of collections; 

·

an increase in inventory of $4,477, due primarily to additional products in inventory, as well as increased inventory levels in support of anticipated revenue growth; and

·

a $3,518 increase in accounts payable and accrued liabilities due primarily to an increase in accrued variable compensation payments.

Cash flows provided by investing activities. Net cash provided by investing activities was $3,761 during 2017. The primary source of cash from investing activities was $26,600 related to sales and maturities of available-for-sale securities to fund operations. This source of cash was offset by $6,384 related to the purchase of property and equipment, which included the placement of our RF and cryo generators with our customers, and $16,455 related to the purchase of available-for-sale securities.

Cash flows provided by financing activities. Net cash provided by financing activities during 2017 was $2,760, which was primarily due to proceeds from stock option exercises of $4,402 and proceeds from the issuance of common stock under our employee stock purchase plan of $2,110, partially offset by shares repurchased for payment of taxes on stock awards of $2,013 and debt and capital lease payments of $1,689.

Credit facility. The Company’s Loan and Security Agreement with Silicon Valley Bank (SVB), as amended, restated, and modified effective April 25, 2016 (Loan Agreement) provides for a $25,000 term loan and a revolving credit facility under which we may borrow a maximum of $15,000. The term loan and revolving credit facility both mature in April 2021. According to the Loan Agreement, principal payments on the term loan are to be made ratably commencing eighteen months after the inception of the loan (November 2017) through the loan’s maturity date. The term loan accrues interest at the Prime Rate and is subject to an additional 4.0% fee on the original $25,000 term loan principal amount at maturity or prepayment of the term loan. Borrowing availability under the revolving credit facility is based on the lesser of $15,000 or a borrowing base calculation as defined by the Loan Agreement. As of December 31, 2017, we had no borrowings under the revolving credit facility, and we had borrowing availability of $15,000. The revolving line of credit is subject to an annual commitment fee of $50, and any borrowings bear interest at the Prime Rate. The Loan Agreement also provides for certain prepayment and early termination fees and includes other customary terms and conditions.

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The Loan Agreement establishes covenants related to maintaining a minimum liquidity ratio, achieving a minimum sales growth measured over a trailing twelve-month period and maintaining a minimum cash balance. Additional covenants include, among others, covenants that limit our ability to dispose of assets, enter into mergers or acquisitions, incur indebtedness, incur liens, pay dividends or make distributions on our capital stock, make investments or loans and enter into certain affiliate transactions, in each case subject to customary exceptions for a credit facility of this size and type. Certain covenants apply when we have outstanding borrowings under the revolving credit facility or when we hold less than $20,000 in cash and investments with SVB. Further, a minimum fixed charge ratio applies when specific covenant milestones are achieved. The occurrence of an event of default could result in an increase to the applicable interest rate by 3.0%, an acceleration of all obligations under the Loan Agreement, an obligation to repay all obligations in full and a right by SVB to exercise all remedies available to it under the Loan Agreement and related agreements including the Guaranty and Security Agreement. Specified assets have been pledged as collateral. We are in compliance with the covenants of the Loan Agreement as of December 31, 2017.

Effective February 23, 2018, the Company and SVB entered into a Loan and Security Agreement which amends and restates the Company’s credit facility with SVB. The agreement provides for a $40,000 term loan and $20,000 revolving line of credit, with an option to increase the revolving line of credit by an additional $20,000. The Loan and Security Agreement credit facility has a five-year term, expiring February 2023. Principal payments of the term loan are to be made ratably commencing eighteen months after the inception of the loan through the loan’s maturity date. If the Company meets certain conditions, as specified by the agreement, the commencement of term loan principal payments may be deferred by an additional six months. The term loan accrues interest at the greater of the Prime Rate plus 3.75% or 8.25% and is subject to an additional 3.50% fee on the original $40,000 term loan principal amount at maturity. The revolving line of credit is subject to an annual facility fee of 0.33% of the revolving line of credit, and any borrowings bear interest at the greater of the Prime Rate and 4.50%. The Loan and Security Agreement also provides for certain prepayment and early termination fees, as well as establishes covenants related to sales growth, along with other customary terms and conditions similar to those in the Company’s current agreement with SVB. The proceeds from the agreement are expected to fund current and future operations of the Company.

In connection with the terms of our corporate headquarters lease agreement, a letter of credit in the amount of $1,250 was issued to the landlord in October 2015. The letter of credit is renewed annually and remains outstanding as of December 31, 2017.

Uses of liquidity and capital resources. Our executive officers and Board of Directors review our funding sources and future capital requirements in connection with our annual operating plan and periodic updates to the plan. Our principal cash requirements include costs of operations, capital expenditures, debt service costs and other contractual obligations. Our future capital requirements depend on a number of factors, including, the rate ofwithout limitation: market acceptance of our current and future products, the resources we devoteproducts; investments in working capital; costs to developingdevelop and supportingsupport our products, future expensesincluding professional training; costs to expand and support our sales and marketing efforts,efforts; operating and filing costs relating to changes in regulatory policies or laws that affect our operations andlaws; costs of filings, costs associated withfor clinical trials and securingto secure regulatory approval for new products,products; costs associated with acquiringto prosecute, defend and integrating businesses, costs associated with prosecuting, defending and enforcingenforce our intellectual property rightsrights; maintenance and enhancements to our information systems and security; and possible acquisitions and joint ventures. Global economic turmoilventures, including potential business integration costs. We continue to evaluate additional measures to maintain financial flexibility, and we will continue to closely monitor macroeconomic conditions including, but not limited to, inflationary pressures, rising interest rates, and fluctuations in currency exchange rates that may adversely impact our revenue,liquidity and access to capital resources.

Credit facility. As of December 31, 2023, we had a Loan and Security Agreement with Silicon Valley Bank (SVB), (SVB Loan Agreement). The SVB Loan Agreement provides for a $60,000 term loan, with an option to make available an additional $30,000 in term loan borrowings, and a $30,000 revolving line of credit. The Loan Agreement has a five-year term and expires November 2026. The term loan accrues interest at the capital markets or future demandPrime Rate plus 1.25% and is subject to an additional 3.00% fee on the term loan principal amount at maturity. We had unused borrowing capacity of approximately $28,750 under our revolving credit facility.
As of January 5, 2024, we entered into an asset-based credit agreement with JPMorgan Chase Bank, N.A. as Administrative Agent, JPMorgan Chase Bank, N.A. and Silicon Valley Bank, a division of First-Citizen Bank and Trust Company, as Joint Lead Arrangers and Joint Bookrunners (Credit Agreement) that provides for our products.

We have on filea $125,000 asset-based revolving credit facility (ABL Facility), with an option to increase the SECrevolving commitment by an additional $40,000. A portion of the ABL facility, limited to $5,000, is available for the issuance of letters of credit. The Credit Agreement has a shelf registration statementthree-year term and expires January 5, 2027. Amounts available to be drawn from time to time under the ABL Facility are determined by calculating the applicable borrowing base, which allows us to sell any combinationis based upon applicable percentages of senior or subordinated debt securities, common stock, preferred stock, warrants, depositary shares and units in one or more offerings should we choose to do sothe values of eligible accounts receivable, eligible inventory, eligible liquid assets, less reserves as determined by the Administrative Agent, all as specified in the future.Credit Agreement. The borrowings bear interest at a rate per annum equal to, at the Company's election: (i) an alternate base rate (ABR) plus an applicable margin or (ii) an adjusted term secured overnight financing rate (SOFR) plus an applicable margin. At the time of closing, the Company borrowed $61,865 and had unused borrowing availability of approximately $61,885. The proceeds of the ABL Facility were used to terminate the Company’s indebtedness under the SVB Loan Agreement. As a result of the new Credit Agreement, the $60,000 borrowings outstanding under the SVB Loan Agreement as of December 31, 2023 are classified as noncurrent in the Consolidated Balance Sheet.

Our corporate headquarters lease agreement requires a $1,250 letter of credit which renews annually and remains outstanding as of December 31, 2023.
For additional information on the terms and conditions, as well as applicable interest and fee payments, see Note 8 – Indebtedness.
Capital Expenditures. We incur capital expenditures on an ongoing basis to continue investment in our growth and our ability to better serve our customers. Throughout 2021 through 2023, we continued expansion and renovation of our manufacturing and engineering facilities in our Mason, Ohio campus.
Other Contractual Obligations. Our future obligations include both current and long-term obligations. In 2022, the Company entered into a clinical trial management agreement for the LeAAPS clinical trial. The terms of the agreement require we make milestone payments upon achievement of various enrollment and project milestones over the estimated ten-year term, yet the agreement may be terminated early for any reason. Furthermore, we incur additional variable costs, including pass through costs from clinical trial sites. We expect to maintaindisburse between $14,000 and $17,000 of fixed and
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variable costs based on estimated achievement of milestone payments, site initiation and trial enrollment within the effectivenessnext twelve months.
We have operating and finance leases primarily for our corporate offices, manufacturing and warehouse facilities and automobiles. Our finance leases consist primarily of this shelf registration statementprincipal and interest payments related to our Mason, Ohio headquarters building. As of December 31, 2023, we have current finance lease obligations of $1,086 and long-term obligations of $8,061. Our operating leases for office and warehouse space includes current obligations of $1,447 and long-term obligations of $3,307. For additional information, see Note 9 – Leases.
We have contractual obligations for contingent consideration payments related to the foreseeable future.

SentreHEART acquisition. Subject to the terms and conditions of the SentreHEART merger agreement, such contingent consideration would be paid in AtriCure common stock and cash, up to a specified maximum number of shares. As of December 31, 2023, we believe the likelihood of payment is remote, and the estimated fair value of the contingent consideration is $0. See Note 2 – Fair Value.

Sources of liquidity. We believe that our current cash, cash equivalents and investments, along with the cash we expect to generate or use for operations or access via our term loan and revolving line of credit,Credit Agreement, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next twelve months. The nContact transaction provides for contingent considerationHowever, we have on file with the SEC a shelf registration statement which allows us to be paid upon attaining specified regulatory approvalssell any combination of debt securities, common stock, preferred stock, warrants, depository shares and clinical and revenue milestones overunits in one or more offerings should we choose to do so in the next three years. Subjectfuture. We expect to maintain the terms and conditionseffectiveness of the nContact merger agreement, such contingent consideration will be paid in AtriCure common stock and cash, with a requirement to make payments in AtriCure common stock first, up to a specified maximum number of shares. 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 related milestones. However, we do expect to issue shares in the amount of $7,500 as payment of contingent consideration related to the completion of the trial enrollment milestone in 2018.

foreseeable future.

If our sources of cash are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities or obtain a revised or additional credit facility. The sale of additional equity or convertible debt securities could result in dilution to our stockholders. If additional funds are raised through the issuance of debt securities, these securities 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 requireCredit Agreement requires compliance with certain financial and other covenants. If we are unable to maintain these financing arrangements, we may be required to reduce the scope of our planned research and development, clinical activities and selling, training, education and marketing efforts.

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Contractual Obligations and Commitments  

Historical Cash Flow Activity.The following table sets forthsummarizes our approximate aggregate obligations at December 31, 2017consolidated cash flow activities:

Years Ended December 31,
20232022Change
Net cash provided by (used in) operating activities$4,484 $(22,141)$26,625 
Net cash provided by investing activities21,817 44,006 (22,189)
Net cash used in financing activities(32)(7,059)7,027 
Cash flows provided by (used in) operating activities. Net cash provided by operating activities increased $26,625 in 2023 as compared to 2022, largely reflecting the improvement in operating results of $16,028 driven by higher sales, improvements to gross and operating margin and a net gain from legal settlements. Cash used for futureworking capital remained relatively flat year over year, with increased investment in inventories largely offset by increased accruals for annual variable compensation payments under contractsdue to improved operating performance.
Cash flows provided by investing activities. Net cash provided by investing activities decreased by $22,189 in 2023 compared to 2022, reflecting the $30,000 acquisition of intellectual property, partially offset by a $4,883 decrease in purchases of property and other contingent commitments:



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Less than

 

 

 

 

 

 

 

More than

Contractual Obligations

 

Total

 

1 year

 

1-3 years

 

3-5 years

 

5 years

Long-term debt(1)    

 

$

24,100 

 

$

 —

 

$

9,070 

 

$

13,606 

 

$

1,424 

Capital leases(2)    

 

 

20,451 

 

 

1,468 

 

 

2,990 

 

 

3,038 

 

 

12,955 

Operating leases(3)    

 

 

3,348 

 

 

965 

 

 

1,664 

 

 

719 

 

 

 —

Royalty obligations(4) 

 

 

2,379 

 

 

2,379 

 

 

 —

 

 

 —

 

 

 —

Restricted grants

 

 

804 

 

 

804 

 

 

 —

 

 

 —

 

 

 —

Total contractual obligations

 

$

51,082 

 

$

5,616 

 

$

13,724 

 

$

17,363 

 

$

14,379 

 _________________________

(1)

Long-term debt represents principal repayment related to our term loan. Obligations under the term loan reflect the impact of the refinancing transaction consummated in February 2018, which delays the payment of principal amounts under the term loan for 18 months, after which principal payments are made ratably until maturity in February 2023. Interest on the term loan accrues at the Prime Rate and is payable monthly over the term of the loan. In addition, we have a contractual obligation to pay interest on amounts drawn on the revolving credit facility.

equipment following our 2022 manufacturing facilities expansion and $2,928 increase in net maturities of available-for-sale securities.

(2)

Capital leases consist of principal and interest payments related to a building and computer equipment. The rent payments related to our corporate headquarters building in Mason, Ohio are also included in these amounts. See Note 9 – Indebtedness to our Consolidated Financial Statements.

(3)

Represents lease commitments under various operating leases.

(4)

Represents obligations for royalty agreements ranging from 3% to 5% of specified product sales estimated using 2017 sales. See Note 10 – Commitments and Contingencies to our Consolidated Financial Statements.

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

Off-Balance-Sheet Arrangements

As of December 31, 2017, we had operating lease agreements that were not recorded on the Consolidated Balance Sheets. Operating leases areCash flows used in financing activities. Net cash from financing activities increased by $7,027 in 2023 compared to 2022, reflecting savings of $5,644 due to fewer shares repurchased at a lower value for payment of taxes on stock awards and an increase of $1,536 of proceeds from the normal course of business.

Inflation

Inflation has not had a significant impact on our historical operationsemployee stock purchase plan and we do not expect it tostock option exercise activity.

Inflation
Inflationary pressures may have a significantan adverse impact on our results of operations or financial condition in the foreseeable future.

Inflation has impacted our operating costs throughout 2023 and 2022. Continued increases in our cost of revenue may affect our ability to maintain our gross margin if the selling prices of our products do not increase commensurately, while continued increases in our operating expenses may adversely affect our operating results and the

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ability to make discretionary investments. We will continue to monitor the impact of inflation on our cost of revenue and operating expenses.
Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated 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, including those related to sales returns and allowances, accounts receivable, inventories and share-based compensation. We useusing 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.

We believe the following critical accounting policies 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.

on historical experience, current conditions and other reasonable factors. Actual results could differ from those estimates under different assumptions or conditions.

Revenue Recognition—Revenue is generated primarily from the sale of our disposable surgicalmedical devices. PursuantWe recognize revenue in an amount that reflects the consideration we expect to our standard termsbe entitled to in exchange for those devices when control of sale, revenuepromised devices is recognized when titletransferred to the goods and risk of loss transfers to customers and there are no remaining obligations that will affect customers’ final acceptance of the sale. Generally, our standard terms of sale define the transfer of title and risk of loss to occur upon shipment to the respective customer. We generally do not maintain any post-shipping obligations to the recipients of the products. No installation, calibration or testing of this equipment is performed by AtriCure subsequent to shipment to the customer in order to render it operational. Shipping and handling revenues and cost of freight for shipments made to customers is included in revenue and cost of revenue. Sales and other value-added taxes collected from customers and remitted to governmental

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Table of Contents

authorities are excluded from revenue. We sell our products through a direct sales force, distributors outside of the U.S. and through a wholly-owned subsidiary, AtriCure Europe, B.V. 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.

customers. We account for revenue in accordance with FASB ASC 605,606, “Revenue Recognition” (ASC 605)from Contracts with Customers”. We determineSignificant judgments and estimates involved in the timingCompany’s recognition of revenue recognition based upon factors such as passageinclude the estimation of title, payment terms and ability to return products.a provision for returns. We recognize revenue when all ofestimate the following criteria are met: (i) there is persuasive evidence that an arrangement exists; (ii) delivery of the products and/or services has occurred; (iii) the selling price is fixed or determinable; and (iv) collectability is reasonably assured.

We maintain a provision for sales returns and allowances to account for potentialusing the expected value method based on historical experience and other factors that we believe could impact our expected returns, ofincluding defective or damaged products products shipped in error and invoice adjustments,adjustments. In the normal course of business, we are not obligated to accept product returns unless a product is defective as well as current deferrals of revenue. We adjustmanufactured, and we do not provide customers with the provision quarterly usingright to a combination of specific identification and an estimated general reserve based on historical experience.

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

Inventories—refund.

InventoriesOur inventories are stated at the lower of cost or net realizable value based on the first-in, first-out cost method (FIFO) and consist of raw materials, work in process and finished goods. Our industry is characterized by rapid product development and frequent new product introductions. Uncertain timing of product approvals, variability in product launch strategies and variation in product usesales all impact excess and obsolete inventory. We estimate and record an inventory reservereserves for excess, slow movingobsolete and obsoleteexpired products. An increase to inventory onreserves results in a quarterly basis.

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

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

Goodwill— Goodwill represents the excess of purchase price over the fair value of the net assets acquired in business combinations. We test goodwill for impairment annually on November 30, or more often if impairment indicators are present. Our goodwill is accounted for in a single reporting unit representing the Company as a whole.

physically disposed.

Share-Based Employee Compensation—We account for share-based compensation for all share-based payment awards, including stock options, restricted stock, and stock purchases related to an employee stock purchase plan, based on their estimated fair values. We estimate the fair value of time-based optionsperformance share awards with a performance condition initially based on the closing stock price on the date of grant usingassuming the Black-Scholes option pricing model (Black-Scholes model). Our determination of fair value of share-based paymentperformance goal will be achieved. Such performance share 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 overhave specified performance targets based on the term of the awards and actual and projected employee stock option exercise behaviors. The fair valuecompound annual growth rate (CAGR) of our market-basedrevenue over a three-year performance option grants is estimated at the date of grant using a Monte-Carlo simulation. The value of the portion of theperiod. With respect to these performance share awards, that is ultimately expected to vest is recognized as expense over the requisite service periods in our Consolidated Statements of Operations and Comprehensive Loss.

We estimate the fair value of restricted stock awards based upon the grant date closing market price of our common stock.

We also have an employee stock purchase plan (ESPP) which is available to all eligible employees as defined by the plan document. Under the ESPP, shares of our common stock may be purchased at a discount. We estimate the number of shares that vest and are issued to be purchased under the ESPP at the beginning of the purchase period and calculate estimated compensation expense using the Black-Scholes modelrecipient is based upon revenue performance over the fair valueperformance period. We may adjust the expense over the performance period based on changes to estimates of performance target achievement. If such goals are not met or service is not rendered for the stock at the beginning of the purchase period. Compensation expenserequisite service period, no compensation cost is recognized, over each purchase period, and expense is adjusted at the time of stock purchase.

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

prior periods will be reversed.

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

Our estimate of the valuation allowance for deferred tax assets requires us to make significant estimates and judgments about our future operating results. Deferred income tax assets are reduced by valuation allowances if, based on the consideration of all available evidence, it is more-likely-than-not that some portion of 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 carryforwards, taxable income in carry-backprior carryforward 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
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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 believe our critical accounting policies regarding revenue recognition, Our valuation allowance for uncollectible accounts receivable, inventories, property and equipment, intangibleoffsets substantially all net deferred income tax assets goodwill, share-based employee compensation, acquisition-related contingent consideration and taxes affect our more significant judgments and estimates usedas it is more-likely-than-not that the benefit of such deferred income tax assets will not be recognized in the preparation of our consolidated financial statements. We base our judgments and estimates on historical experience, current conditions and other reasonable factors.

future periods.

Recent Accounting Pronouncements

See Note 21RecentDescription of Business and Summary of Significant Accounting PronouncementsPolicies to ourthe Consolidated Financial Statements in Item 8 of Part II for further information.

more information regarding recent accounting pronouncements.

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Table of Contents

ITEMITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

The Company is exposed to various market risks, which include potential losses arising from adverse changes in market rates and prices, such as foreign exchange fluctuations and changes in interest rates.
Credit and Interest onRate Risk
The Company invests its cash primarily in money market accounts, U.S. government and agency obligations, corporate bonds, and asset-backed securities. Although the term loanCompany believes it has invested in a conservative manner, with preservation being the primary investment objective, the value of the securities held will fluctuate with changes in financial markets including, among other things, changes in interest rates, credit quality and revolvinggeneral volatility. This risk is managed by investing in high quality investment grade securities to maintain liquidity and preserve principal without significantly increasing risk.
Financial instruments that potentially subject the Company to credit facility accruerisk consist of cash equivalents and investments in corporate bonds. The Company maintains deposit accounts in federally insured financial institutions in excess of federally insured limits. Cash held in financial institutions in foreign countries is not significant. Although these depository accounts may exceed government insured depository limits, we have evaluated the credit worthiness of these applicable financial institutions and determined the risk of material financial loss due to the exposure of such credit risk to be minimal. The Company also maintains investments in money market funds that are not federally insured.
We are subject to interest rate risk as rate fluctuations impact cash payments for outstanding borrowings. Outstanding amounts under the Credit Agreement bear interest at a rate per annum equal to, at the Company's election: (i) an alternate base rate (ABR) plus an applicable margin or (ii) an adjusted term secured overnight financing rate (SOFR) plus an applicable margin. Alternate base rate is equal to the greatest of Prime, Rate.  

For the years ended December 31, 2017NYFRB Rate plus 0.50% and 2016,Adjusted Term SOFR Rate plus 1.00%. The applicable margin spread is 1.50% to 2.75%, as determined by the average excess availability of the aggregate revolving commitment. All swingline loans bear interest at a rate per annum equal to the ABR plus the applicable margin under the Credit Agreement. Interest periods for SOFR Term Benchmark borrowings range from one month, three months or six months, at the Company's election. Interest rate risk is highly sensitive due to many factors, including United States monetary and tax policies and United states and international economic factors beyond our control.

Foreign Currency Exchange Rate Risk
We sell our products to medical centers through our direct sales force in the United States, Germany, France, the United Kingdom, Australia and Canada. We also sell our products to distributors who in turn sell our products to medical centers in Japan, China and other international markets. Our business is primarily transacted in U.S. Dollars; direct international sales transactions are transacted in Euros, British Pounds, Australian Dollars or Canadian Dollars. Sales to international distributors outside of Europe are under agreements primarily denominated 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.
Products sold by AtriCure Europe, B.V. and its subsidiaries are primarily denominated in Euros or British Pounds. European product sales accounted for 12.5%9.4% and 12.7%9.0% of the Company’s total revenue. Since such revenue was primarily denominated in Euros,for 2023 and 2022. Accordingly, the Company is exposed to exchange rate fluctuations between the Euro and the U.S. Dollar as well as exchange rate fluctuationsand between the British Pound and the Euro. To a lesser extent, the Company is also exposed to exchange rate fluctuations between the Australian and Canadian Dollars to the U.S. Dollar. For the years ended December 31, 20172023 and 2016,2022, foreign currency transaction gains (losses)losses of $138$(101) and ($586)$(559) were recorded primarily in connection with partial settlements of the intercompany receivable balance with the subsidiarybalances 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
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require more Euros to equal a specified amount of U.S. Dollars than before the rate increase. In such cases, and if products are priced in Euros, the Company will receive less in U.S. Dollars than was received before the rate increase went into effect. If products are priced in U.S. Dollars and competitors price their products in Euros, 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 transacted in Euros. The Euro to U.S. Dollar conversion rate fluctuations may impact our reported revenue and expenses.

In 2022, we entered into a clinical trial management agreement for the LeAAPS clinical trial. The Company invests its cash primarily in money market accounts, U.S. government agencies and securities, corporate bonds and commercial paper. Although the Company believes its cash to be invested in a conservative manner, with cash preservation being the primary investment objective, the valueterms of the securities heldagreement require we make fixed milestone payments upon achievement of various enrollment and project milestones over the estimated ten-year term. Additional variable costs, including pass through costs incurred at clinical trial sites, will fluctuate with changesbe billed to us by the contracted party. Fixed milestone payments are denominated in Canadian Dollars, while variable pass-through fees incurred at clinical trial sites outside the United States may be billed in U.S. Dollars or other local currencies. Fluctuations in the financial markets including, among other things, changes in interestconversation rates credit quality and general volatility. This risk is managed by investing in high quality investment grade securities with short-term maturities.

Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalent balances and investments in corporate bonds. Certain of AtriCure’s cash and cash equivalents balances exceed FDIC insured limits or are invested in money market accounts with investment banks that are not FDIC-insured. The Company places its cash and cash equivalents in what it believes to be credit-worthy financial institutions. As of December 31, 2017, $21,360 of the U.S. Dollar to the Canadian Dollar and local currencies of international trial sites may impact the cash outlay required for future milestone payments and cash equivalents balance was in excess of FDIC limits. 

variable pass-through costs under the clinical trial management agreement.

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ITEM

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ATRICURE, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

Page

Financial Statements:

Page

Financial Statements:

42 

43 

44 

45 

46 

47 

Financial Statement Schedule:

66 

41

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REPORT


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of

AtriCure, Inc.

Mason, Ohio

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of AtriCure, Inc. and subsidiaries (the "Company") as of December 31, 20172023 and 2016,2022, the related consolidated statements of operations and comprehensive loss,(loss) income, stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2017,2023, 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, 20172023 and 2016,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2023, in conformity withaccounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017,2023, 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 28, 2018,16, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

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

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

 /s/

Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
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Valuation of Performance Share Awards with a Market Condition - Refer to Note 14 to the financial statements
Critical Audit Matter Description
Performance share awards (PSAs) granted in 2023 have two performance targets measured at the end of the three-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 determined independently.
The number of PSAs with a market condition that vest and are issued to the recipient is based upon the Company's TSR relative to the TSR of the selected market index at the end of the three-year performance period. A Monte Carlo simulation was performed to estimate the fair value on the grant date, with associated share-based compensation expense recognized over the requisite service period as the employee renders service.
The determination of the fair value on the date of grant is affected by the stock price of the Company and the market index, as defined by the award agreement, at the beginning of the service period and grant date, the expected stock price volatility of the Company and the market index over the performance period, the risk-free interest rate, and the correlation coefficient of the daily returns for the Company and the market index over the performance period.
Given the level of judgment involved by management, including the use of a specialist, to determine the grant date fair value of the PSAs 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.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company's determination of the grant date fair value of the PSAs with a market condition included the following, among others:
We inquired with management regarding the key valuation assumptions and the Monte Carlo simulation methodology used in the determination of the grant date fair value of the PSAs.
We tested the design and operating effectiveness of the Company's internal controls over the determination of the grant date fair value of the PSAs.
We tested the accuracy of the data used in measuring the awards by agreeing the underlying inputs, such as grant date, share price, and vesting conditions, among others, back to source documents, such as compensation committee minutes or PSA agreements.
With the assistance of our fair value specialists, we evaluated management's valuation of PSAs with a market condition by:
Evaluating the Monte Carlo simulation methodology and the reasonableness of the valuation assumptions, including the risk-free interest rate, expected volatility, and the correlation coefficients.
Independently calculating a fair value estimate for the market condition PSAs using the underlying PSA agreement and independently calculated valuation inputs.
/s/ Deloitte & Touche LLP

Cincinnati, Ohio

February 28, 2018

16, 2024

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

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ATRICURE,

ATRICURE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 20172023 and 2016

2022

(In Thousands, Except Per Share Amounts)



 

 

 

 

 

 



 

 

 

 

 

 



 

2017

 

2016

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,809 

 

$

24,208 

Short-term investments

 

 

12,642 

 

 

19,801 

Accounts receivable, less allowance for doubtful accounts of $32 and $246

 

 

23,083 

 

 

21,094 

Inventories

 

 

22,451 

 

 

17,660 

Other current assets

 

 

2,273 

 

 

2,954 

Total current assets

 

 

82,258 

 

 

85,717 

Property and equipment, net

 

 

28,749 

 

 

29,995 

Long-term investments

 

 

 —

 

 

3,000 

Intangible assets, net

 

 

50,764 

 

 

52,131 

Goodwill

 

 

105,257 

 

 

105,257 

Other noncurrent assets

 

 

676 

 

 

321 

Total Assets

 

$

267,704 

 

$

276,421 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

12,431 

 

$

10,673 

Accrued liabilities

 

 

18,911 

 

 

16,467 

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

 

 

561 

 

 

1,688 

Total current liabilities

 

 

31,903 

 

 

28,828 

Capital leases

 

 

12,761 

 

 

13,319 

Long-term debt

 

 

24,100 

 

 

23,886 

Other noncurrent liabilities

 

 

37,774 

 

 

41,946 

Total Liabilities

 

 

106,538 

 

 

107,979 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

Common stock, $0.001 par value, 90,000 shares authorized and 34,586 and 33,342 issued and
outstanding

 

 

35 

 

 

33 

Additional paid-in capital

 

 

386,963 

 

 

367,851 

Accumulated other comprehensive income (loss)

 

 

34 

 

 

(468)

Accumulated deficit

 

 

(225,866)

 

 

(198,974)

Total Stockholders’ Equity

 

 

161,166 

 

 

168,442 

Total Liabilities and Stockholders’ Equity

 

$

267,704 

 

$

276,421 

20232022
Assets
Current assets:
Cash and cash equivalents$84,310 $58,099 
Short-term investments52,975 63,014 
Accounts receivable, less allowance for credit losses of $500 and $23052,501 42,693 
Inventories67,897 45,931 
Prepaid and other current assets8,563 5,477 
Total current assets266,246 215,214 
Long-term investments— 51,509 
Property and equipment, net42,435 38,833 
Operating lease right-of-use assets4,324 3,787 
Intangible assets, net63,986 39,339 
Goodwill234,781 234,781 
Other noncurrent assets2,160 1,985 
Total Assets$613,932 $585,448 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$27,354 $19,898 
Accrued liabilities44,682 33,022 
Current maturities of debt and leases2,533 5,472 
Total current liabilities74,569 58,392 
Long-term debt60,593 56,834 
Finance lease liabilities8,061 9,147 
Operating lease liabilities3,307 3,095 
Other noncurrent liabilities1,234 1,226 
Total Liabilities147,764 128,694 
Commitments and contingencies (Note 10)
Stockholders’ Equity:
Common stock, $0.001 par value, 90,000 shares authorized; 47,526 and 46,563 issued and outstanding48 47 
Additional paid-in capital824,170 787,422 
Accumulated other comprehensive loss(993)(4,096)
Accumulated deficit(357,057)(326,619)
Total Stockholders’ Equity466,168 456,754 
Total Liabilities and Stockholders’ Equity$613,932 $585,448 
See accompanying notes to consolidated financial statements.

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ATRICURE,

ATRICURE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(LOSS) INCOME

YEARS ENDED DECEMBER 31, 2017, 20162023, 2022 and 2015

2021

(In Thousands, Except Per Share Amounts)



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

2015

Revenue

 

$

174,716 

 

$

155,109 

 

$

129,755 

Cost of revenue

 

 

48,553 

 

 

44,008 

 

 

36,880 

Gross profit

 

 

126,163 

 

 

111,101 

 

 

92,875 

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development expenses

 

 

34,144 

 

 

35,824 

 

 

25,742 

Selling, general and administrative expenses

 

 

116,998 

 

 

106,415 

 

 

93,853 

Total operating expenses

 

 

151,142 

 

 

142,239 

 

 

119,595 

Loss from operations

 

 

(24,979)

 

 

(31,138)

 

 

(26,720)

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(2,264)

 

 

(1,801)

 

 

(292)

Interest income

 

 

227 

 

 

227 

 

 

190 

Other

 

 

138 

 

 

(586)

 

 

(354)

Loss before income tax expense

 

 

(26,878)

 

 

(33,298)

 

 

(27,176)

Income tax expense

 

 

14 

 

 

40 

 

 

36 

Net loss

 

$

(26,892)

 

$

(33,338)

 

$

(27,212)

Basic and diluted net loss per share

 

$

(0.83)

 

$

(1.05)

 

$

(0.97)

Weighted average shares outstanding – basic and diluted

 

 

32,387 

 

 

31,609 

 

 

28,058 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

Unrealized gain on investments

 

$

15 

 

$

18 

 

$

15 

Foreign currency translation adjustment

 

 

487 

 

 

125 

 

 

(278)

Other comprehensive income (loss)

 

 

502 

 

 

143 

 

 

(263)

Net loss

 

 

(26,892)

 

 

(33,338)

 

 

(27,212)

Comprehensive loss, net of tax

 

$

(26,390)

 

$

(33,195)

 

$

(27,475)

202320222021
Revenue$399,245 $330,379 $274,329 
Cost of revenue98,875 84,439 68,469 
Gross profit300,370 245,940 205,860 
Operating expenses (benefit):
Research and development expenses73,915 57,337 48,506 
Selling, general and administrative expenses253,138 231,272 204,649 
Change in fair value of contingent consideration (Note 2)— — (184,800)
Intangible asset impairment (Note 4)— — 82,300 
Total operating expenses327,053 288,609 150,655 
(Loss) income from operations(26,683)(42,669)55,205 
Other income (expense):
Interest expense(6,925)(4,986)(4,918)
Interest income3,792 1,994 466 
Other(31)(537)(366)
(Loss) income before income tax expense(29,847)(46,198)50,387 
Income tax expense591 268 188 
Net (loss) income$(30,438)$(46,466)$50,199 
Net (loss) income per share:
Basic net (loss) income per share$(0.66)$(1.02)$1.11 
Diluted net (loss) income per share$(0.66)$(1.02)$1.09 
Weighted average shares outstanding:
Basic46,309 45,740 45,066 
Diluted46,309 45,740 46,039 
Comprehensive (loss) income:
Unrealized gain (loss) on investments$2,898 $(2,811)$(941)
Foreign currency translation adjustment205 (337)(319)
Other comprehensive income (loss)3,103 (3,148)(1,260)
Net (loss) income(30,438)(46,466)50,199 
Comprehensive (loss) income, net of tax$(27,335)$(49,614)$48,939 
See accompanying notes to consolidated financial statements.

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ATRICURE,

ATRICURE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

YEARS ENDED DECEMBER 31, 2017, 2016,2023, 2022, and 2015

2021

(In Thousands)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 



 

 

 

 

 

 

Additional

 

 

 

 

Other

 

Total



 

Common Stock 

 

Paid-in

 

Accumulated

 

Comprehensive

 

Stockholders’



 

Shares 

 

Amount 

 

Capital 

 

Deficit 

 

Income (Loss) 

 

Equity 

Balance—December 31, 2014

 

27,580 

 

 

28 

 

 

271,282 

 

 

(138,424)

 

 

(348)

 

 

132,538 

Issuance of common stock through public offering

 

3,757 

 

 

 

 

68,985 

 

 

 —

 

 

 —

 

 

68,988 

Issuance of common stock under equity incentive
   plans

 

850 

��

 

 

 

1,920 

 

 

 —

 

 

 —

 

 

1,921 

Issuance of common stock under employee stock
   purchase plan

 

87 

 

 

 —

 

 

1,539 

 

 

 —

 

 

 —

 

 

1,539 

Reclassification of non-employee option liability

 

 —

 

 

 —

 

 

177 

 

 

 —

 

 

 —

 

 

177 

Share-based employee compensation expense

 

 —

 

 

 —

 

 

8,997 

 

 

 —

 

 

 —

 

 

8,997 

Other comprehensive loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(263)

 

 

(263)

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(27,212)

 

 

 —

 

 

(27,212)

Balance—December 31, 2015

 

32,274 

 

$

32 

 

$

352,900 

 

$

(165,636)

 

$

(611)

 

$

186,685 

Issuance of common stock under equity incentive
   plans

 

934 

 

 

 

 

1,636 

 

 

 —

 

 

 —

 

 

1,637 

Issuance of common stock under employee stock
   purchase plan

 

134 

 

 

 —

 

 

1,618 

 

 

 —

 

 

 —

 

 

1,618 

Share-based employee compensation expense

 

 —

 

 

 —

 

 

11,697 

 

 

 —

 

 

 —

 

 

11,697 

Other comprehensive income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

143 

 

 

143 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(33,338)

 

 

 —

 

 

(33,338)

Balance—December 31, 2016

 

33,342 

 

$

33 

 

$

367,851 

 

$

(198,974)

 

$

(468)

 

$

168,442 

Issuance of common stock under equity incentive
   plans

 

1,112 

 

 

 

 

2,387 

 

 

 —

 

 

 —

 

 

2,389 

Issuance of common stock under employee stock
   purchase plan

 

132 

 

 

 —

 

 

2,110 

 

 

 —

 

 

 —

 

 

2,110 

Share-based employee compensation expense

 

 —

 

 

 —

 

 

14,615 

 

 

 —

 

 

 —

 

 

14,615 

Other comprehensive income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

502 

 

 

502 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(26,892)

 

 

 —

 

 

(26,892)

Balance—December 31, 2017

 

34,586 

 

$

35 

 

$

386,963 

 

$

(225,866)

 

$

34 

 

$

161,166 

Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
(Loss) Income
Total
Stockholders’
Equity
Shares
Amount
Balance—December 31, 202045,346$45$742,389 $(330,352)$312 $412,394 
Issuance of common stock under equity incentive plans5891(9,837)(9,836)
Issuance of common stock under employee stock purchase plan814,181 4,181 
Share-based employee compensation expense28,078 28,078 
Other comprehensive loss(1,260)(1,260)
Net income50,199 — 50,199 
Balance—December 31, 202146,016$46$764,811 $(280,153)$(948)$483,756 
Issuance of common stock under equity incentive plans4261(10,385)(10,384)
Issuance of common stock under employee stock purchase plan1214,225 4,225 
Share-based employee compensation expense28,771 28,771 
Other comprehensive loss(3,148)(3,148)
Net loss(46,466)— (46,466)
Balance—December 31, 202246,563$47$787,422 $(326,619)$(4,096)$456,754 
Issuance of common stock under equity incentive plans8111(4,241)(4,240)
Issuance of common stock under employee stock purchase plan1525,261 5,261 
Share-based employee compensation expense35,728 35,728 
Other comprehensive income3,103 3,103 
Net loss(30,438)— (30,438)
Balance—December 31, 202347,526$48$824,170 $(357,057)$(993)$466,168 
See accompanying notes to consolidated financial statements.

45

49

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ATRICURE,

ATRICURE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2017, 20162023, 2022 and 2015 

2021

(In Thousands)



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

2015

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(26,892)

 

$

(33,338)

 

$

(27,212)

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

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

14,615 

 

 

11,697 

 

 

8,997 

Depreciation

 

 

7,761 

 

 

7,655 

 

 

4,975 

Amortization of intangible assets

 

 

1,367 

 

 

1,644 

 

 

1,303 

Amortization of deferred financing costs

 

 

264 

 

 

218 

 

 

61 

Loss on disposal of property and equipment and impairment of assets

 

 

336 

 

 

433 

 

 

276 

Realized (gain) loss from foreign exchange on intercompany transactions

 

 

(173)

 

 

407 

 

 

434 

Amortization/accretion on investments

 

 

30 

 

 

126 

 

 

577 

Change in allowance for doubtful accounts 

 

 

(172)

 

 

149 

 

 

144 

Change in fair value of contingent consideration 

 

 

(4,078)

 

 

969 

 

 

 —

Changes in operating assets and liabilities, net of amounts acquired:

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(1,464)

 

 

(1,982)

 

 

(900)

Inventories

 

 

(4,477)

 

 

(79)

 

 

(2,950)

Other current assets

 

 

829 

 

 

122 

 

 

(928)

Accounts payable

 

 

1,290 

 

 

(1,072)

 

 

4,013 

Accrued liabilities

 

 

2,228 

 

 

(1,915)

 

 

3,070 

Other noncurrent assets and liabilities

 

 

(408)

 

 

(153)

 

 

298 

Net cash used in operating activities

 

 

(8,944)

 

 

(15,119)

 

 

(7,842)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

Purchases of available-for-sale securities

 

 

(16,455)

 

 

(28,592)

 

 

(19,525)

Sales and maturities of available-for-sale securities

 

 

26,600 

 

 

24,202 

 

 

40,602 

Purchases of property and equipment

 

 

(6,384)

 

 

(7,692)

 

 

(13,445)

Proceeds from sale of property and equipment

 

 

 —

 

 

 

 

 —

Increases in property under build-to-suit obligation

 

 

 —

 

 

 —

 

 

(10,552)

Cash paid for nContact business combination

 

 

 —

 

 

 —

 

 

(7,581)

Net cash provided by (used in) investing activities

 

 

3,761 

 

 

(12,079)

 

 

(10,501)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

Proceeds from debt borrowings

 

 

 —

 

 

25,000 

 

 

 —

Payments on debt and capital leases

 

 

(1,689)

 

 

(439)

 

 

(263)

Proceeds from build-to-suit obligation

 

 

 —

 

 

 —

 

 

10,552 

Proceeds from economic incentive loan

 

 

 —

 

 

 —

 

 

340 

Payment of debt fees

 

 

(50)

 

 

(120)

 

 

(62)

Proceeds from stock option exercises

 

 

4,402 

 

 

3,337 

 

 

2,703 

Shares repurchased for payment of taxes on stock awards

 

 

(2,013)

 

 

(1,701)

 

 

(782)

Proceeds from issuance of common stock under employee stock purchase plan

 

 

2,110 

 

 

1,618 

 

 

1,539 

Payment of stock issuance fees

 

 

 —

 

 

 —

 

 

(66)

Net cash provided by financing activities

 

 

2,760 

 

 

27,695 

 

 

13,961 

Effect of exchange rate changes on cash and cash equivalents

 

 

24 

 

 

(53)

 

 

(238)

Net (decrease) increase in cash and cash equivalents

 

 

(2,399)

 

 

444 

 

 

(4,620)

Cash and cash equivalents—beginning of period

 

 

24,208 

 

 

23,764 

 

 

28,384 

Cash and cash equivalents—end of period

 

$

21,809 

 

$

24,208 

 

$

23,764 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

2,002 

 

$

1,506 

 

$

232 

Cash paid for income taxes

 

 

37 

 

 

30 

 

 

20 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

 

Accrued purchases of property and equipment

 

 

650 

 

 

340 

 

 

1,277 

Assets acquired through capital lease

 

 

 

 

152 

 

 

50 

Capital lease asset early termination 

 

 

 —

 

 

37 

 

 

 —

Stock issuance in business combinations

 

 

 —

 

 

 —

 

 

69,054 

Contingent consideration in business combinations

 

 

 —

 

 

 —

 

 

40,207 

46

202320222021
Cash flows from operating activities:
Net (loss) income$(30,438)$(46,466)$50,199 
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Share-based compensation expense35,728 28,771 28,078 
Depreciation9,460 8,057 7,534 
Amortization of intangible assets5,353 3,653 2,907 
Amortization of deferred financing costs486 507 759 
Amortization of investments632 1,478 2,482 
Change in fair value of contingent consideration— — (184,800)
Intangible asset impairment— — 82,300 
Other non-cash adjustments1,503 739 1,607 
Changes in operating assets and liabilities:
Accounts receivable(9,872)(8,989)(10,087)
Inventories(21,830)(7,305)(4,274)
Other current assets(3,084)(515)(700)
Accounts payable6,177 2,6774,710 
Accrued liabilities11,562 (2,966)8,271 
Other noncurrent assets and liabilities(1,193)(1,782)(2,766)
Net cash provided by (used in) operating activities4,484 (22,141)(13,780)
Cash flows from investing activities:
Purchases of available-for-sale securities— (24,637)(173,105)
Sales and maturities of available-for-sale securities63,815 85,524 206,362 
Purchases of property and equipment(11,998)(16,881)(9,753)
Acquisition of intellectual property(30,000)— — 
Net cash provided by investing activities21,817 44,006 23,504 
Cash flows from financing activities:
Proceeds from debt borrowings— — 5,000 
Payments on debt and finance leases(992)(899)(5,816)
Payment of debt fees(60)— (1,171)
Proceeds from stock option exercises2,316 1,816 8,175 
Shares repurchased for payment of taxes on stock awards(6,557)(12,201)(18,011)
Proceeds from issuance of common stock under employee stock purchase plan5,261 4,225 4,181 
Net cash used in financing activities(32)(7,059)(7,642)
Effect of exchange rate changes on cash and cash equivalents(58)(361)(372)
Net increase in cash and cash equivalents26,211 14,445 1,710 
Cash and cash equivalents—beginning of period58,099 43,654 41,944 
Cash and cash equivalents—end of period$84,310 $58,099 $43,654 
Supplemental cash flow information:
Cash paid for interest$6,376 $4,270 $4,223 
Cash paid for income taxes, net of refunds395 192 190 
Non-cash investing and financing activities:
Accrued purchases of property and equipment1,427 272 1,552 
See accompanying notes to consolidated financial statements.
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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)


CAK
1. DESCRIPTIONDESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

Cash and Cash Equivalents—The Company considers highly liquid investments with maturities of three months or less at the date of acquisitionpurchase as cash equivalents. Cash equivalents in the accompanying Consolidated Financial Statements.

include demand deposits and money market funds with financial institutions.

Investments—The Company places its investmentsinvests primarily in U.S. Government agenciesgovernment and securities,agency obligations, corporate bonds, and 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 investments. Investments are recorded at fair value, with unrealized gains and losses recorded as accumulated other comprehensive income (loss). Gains and losses are recognized using the specific identification method when securities are sold and are included in interest income or expense inincome.
Revenue RecognitionRevenue is generated primarily from the Consolidated Statementssale of Operationsmedical devices. Sales of devices are categorized based on the type of product as follows: open ablation, minimally invasive ablation, pain management and Comprehensive Loss.

Revenue Recognition—The Company accounts for revenue in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 605, “Revenue Recognition” (ASC 605).appendage management. The Company recognizes revenue when allcontrol of promised devices is transferred to customers in an amount that reflects the following criteria are met: (i) thereconsideration the Company expects to be entitled to in exchange for those devices. Revenue is persuasive evidence that an arrangement exists, (ii)recognized at a point in time upon shipment or delivery of the products and/or services has occurred, (iii) the selling price is fixed or determinable,products. Shipping and (iv) collectability is reasonably assured.

Pursuant to the Company’s standard terms of sale, revenue is recognized when title to the goods and risk of losshandling activities performed after control transfers to customers and there are no remaining obligations that will affectconsidered activities to fulfill the customers’ final acceptance ofpromise to transfer the sale. Generally, the Company’s standard terms of sale define the transfer of title and risk of loss to occur upon shipment to the respective customer. 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 to the customer in order to render products operational.

products. Revenue includes shipping and handling revenue of $1,090, $1,266$1,860, $1,496 and $1,056$1,354 in 2017, 2016the years ended December 31, 2023, 2022 and 2015. Cost of freight for shipments to customers is included in cost of revenue. Sales and other value-added taxes collected from customers and remitted to governmental authorities2021.

Products are excluded from revenue. The Company sells its productssold primarily through a direct sales force with sales madeand through distributors in selectcertain 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 limitedsome exceptions.

The Company does not maintain any post-shipping obligations to customers; no installation, calibration or testing of products is performed subsequent to shipment in order to render products operational. The Company expects to be entitled to the total consideration for the products ordered as product pricing is fixed, and there are no adjustments for a significant financing component as payment terms fall within one year. The Company excludes taxes assessed by governmental authorities on revenue-producing transactions from the measurement of the transaction price.

Costs associated with product sales include commission expense for product sales and royalties paid for sales of certain products. As revenue from product sales are satisfied at a point in time, commission expense and royalties are incurred at that point in time rather than over time. Commissions are included in selling, general and administrative expenses, while royalties are included in cost of revenue.
Significant judgments and estimates involved in the Company’s recognition of revenue include the estimation of a provision for returns. In the normal course of business, the Company is not obligated to accept product returns unless a product is defective as manufactured. The Company does not provide customers with the right to a refund.
Sales Returns and AllowancesThe Company maintains a provision for sales returns and allowances to account for potential returns of defective or damaged products, products shipped in error and invoice adjustments, as well as current deferrals of revenue.adjustments. The Company adjusts the provision quarterly using a combination of specific identification and an estimated general reservethe expected value method based on historical experience. Increases to the provision result in a reduction of revenue. Thereduce revenue, and the provision is included in accrued liabilities in the Consolidated Balance Sheets.

liabilities.

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

Recoveries are recognized when received as a reduction to the allowance for credit losses by decreasing bad debt expense. The following

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ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
table provides a reconciliation of the changes in the allowance for estimated accounts receivable credit losses for the years ended December 31, 2023, 2022 and 2021:
Year Ended December 31,
202320222021
Beginning balance - January 1$230 $1,096 $1,096 
Provision for expected credit losses270 190 65 
Recovery— (1,056)(65)
Ending balance - December 31$500 $230 $1,096 
Concentration of Credit Risk and Significant Customers — During 2023, 2022 and 2021, 8.8%, 9.7% and 10.5% of the Company’s total revenue was derived from its top ten customers. During 2023, 2022 and 2021 no individual customer accounted for more than 10% of the Company’s revenue. As of December 31, 2023 and 2022, 11.3% and 11.7% of the Company’s total accounts receivable were derived from its top ten customers. No individual customer accounted for more than 10% of the Company’s accounts receivable as of December 31, 2023 and 2022.
Inventories—Inventories are stated at the lower of cost or net realizable value based on the first-in, first-out cost method (FIFO) and consist of raw materials, work in process and finished goods. The Company’s industry is characterized by rapid product development and frequent new product introductions. Uncertain timing of productregulatory approvals, variability in product launch strategies and variation in product usesales all impact inventory reserves for excess, obsolete and obsoleteexpired products. An estimated inventory reserve for excess, slow moving and obsolete inventory is recorded quarterly. An increase to inventory reserves results in a corresponding increase in cost of revenue. Inventories are written off against the reserve when they are physically disposed.

Property and Equipment—Property and equipment is stated at cost less accumulated depreciation. Depreciation is computeddetermined using the straight-line method over the estimated useful liveslife. The estimated useful life of assets (see Note 7).leasehold improvements is the shorter of the estimated life or the lease term. The Company reassesses theestimated useful lives of

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

property buildings is 15 to 20 years, while furniture, fixtures, computers and office equipment annually and retires assets if they are no longer in service. Maintenance and repair costs are expensed as incurred.

depreciated from three to seven years. The Company’s RFradiofrequency and cryocryothermic generators are generally placed with customers that usepurchase the Company’s disposable products. The estimated useful lives of this equipmentgenerators 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 experiencesperiods with changes in the usage or introduction of the equipment or introduces new technologies.technology. Depreciation related to generators and other capital equipment is recorded in cost of revenue in the Consolidated Statements of Operationsover three years. Maintenance and Comprehensive Loss.

repair costs are expensed as incurred. The Company reviewsassesses the useful lives of property and equipment for impairment using its best estimates based on reasonableat least annually and supportable assumptions and projections of expected future cash flows. Property and equipment impairments recorded by the Company have not been significant.

retires assets no longer in use.

Intangible Assets—IntangibleTechnology intangible assets with determinable useful lives are amortized on a straight-line basis over the estimated periods benefited (see Note 5).

Includedfifteen year period benefited. Patent intangible assets with determinable useful lives are amortized over the estimated useful life of five years in a pattern reflecting the estimated economic benefit of the asset to the Company. Amortization of technology intangible assets is In Process Researchrecorded in research and Development (IPR&D). The Company defines IPR&D as the valuedevelopment expense, while amortization of acquired technology which has not yet reached technological feasibility. The primary basis for determining the technological feasibilitypatent intangible assets is obtaining specific regulatory approvals. IPR&D is accounted for as an indefinite-lived intangible asset until completion or abandonmentrecorded in cost of the IPR&D project. Upon completion of the development project, the IPR&D will be amortized over its estimated useful life. If the IPR&D project is abandoned, the related IPR&D asset would be written off. The IPR&D asset represents an estimate of the fair value of the pre-market approval (PMA) that could result from the CONVERGE IDE clinical trial.

revenue. The Company reviews intangible assets for impairment at least annually or more often if impairment indicators are present using its best estimates based on reasonable and supportable assumptions and projections.

Goodwill—Goodwill represents the excess of purchase price over the fair value of the net assets acquired in business combinations. The Company tests goodwill for impairment annually on November 30, or more often if impairment indicators are present. The Company’s goodwill is accounted for in a single reporting unit representing the Company as a whole.

Other Noncurrent Liabilities—Other noncurrent The Company performs impairment testing annually on October 1 or more often if impairment indicators are present.

Long-lived Assets—The Company reviews property and equipment and intangible assets, excluding goodwill, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. When such an event occurs, management determines whether there has been impairment by comparing the anticipated undiscounted future net cash flows to the related asset's carrying value.
Leases—The Company leases office, manufacturing and warehouse facilities and automobiles under leases that qualify as either financing or operating leases, as determined at the inception of the lease arrangement. Lease assets represent the right to use an underlying asset for the lease term, and lease liabilities consistrepresent 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 contingent consideration recorded in business combinations, deferred revenuespayments over the lease term.
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ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
Lease assets and other contractual obligations. Althoughliabilities include lease incentives and options to extend or terminate when it is reasonably certain the Company expectswill exercise that option. The Company uses the implicit rate when readily determinable; however, as most leases do not provide an implicit rate, the Company generally uses its incremental borrowing rate. The Company also applies the short-term lease recognition exemption, recognizing lease payments in profit or loss, for lease terms of 12 months or less at commencement and with no option to settleextend the lease whose exercise is reasonably certain. The Company accounts for the lease and non-lease components as a portionsingle lease component. Additionally, the portfolio approach is applied for operating leases based on the terms of the contingent consideration liability within the following year, the balance isunderlying leases.
Operating leases are included in noncurrentoperating lease right-of-use (ROU) assets and operating lease liabilities, as such settlementwhile finance leases are included in property and equipment and finance lease liabilities. The short-term portions of lease liabilities are included in other current liabilities and current maturities of debt and leases. Operating lease expense is both required and expected to be made in shares ofrecognized on a straight-line basis over the Company’s common stock pursuant to the nContact merger agreement.

lease term. See Note 9 – Leases for further discussion.

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

Pounds, Australian Dollars and Canadian Dollars.

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

The Company’s estimate of the valuation allowance for deferred income tax assets requires it to make significant estimates and judgments about its future operating results. Deferred income tax assets are reduced by valuation allowances if, based on the consideration of all available evidence, it is more-likely-than-not that some portion of 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 income assets on an annual basis to determine if valuation allowances are required by considering all available evidence. Deferred income tax assets are realized by having sufficient future taxable income to allow the related tax benefits to reduce taxes otherwise payable. The sources of taxable income that may be available to realize the benefit of deferred income tax assets are future taxable income, future reversals of existing taxable temporary differences, future taxable income, exclusive of reversing temporary differences and carryforwards, taxable income in carry-backprior carryforward 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 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 a fullCompany'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.

A provision of The Patient Protection and Affordable Care Act enacted in 2010, as amended (PPACA), requires manufacturers of medical devices to pay an exciseCompany has not reclassified income tax on all U.S. medical device sales. In December 2015, the U.S. government approved the suspensioneffects of the excise tax on medical device sales beginning January 1, 2016 through December 31, 2017. Then, in January 2018,

Tax Cuts and Jobs Act within accumulated other comprehensive (loss) income to retained earnings due to its full valuation allowance.

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, ExceptEarnings Per Share Amounts)

the U.S. government approved an additional suspension of the excise tax on medical device sales from January 1, 2018 to December 31, 2019. The Company’s expense related to the medical device excise tax, which was recorded in cost of revenue, was $667 for the year ended December 31, 2015.

Net Loss Per Share—Basic and diluted net lossearnings per share is computed in accordance with FASB ASC 260 “Earnings Per Share” (ASC 260) by dividing net (loss) 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 4,321, 4,320 and 4,255restricted stock optionsawards and restricted stock units, exercise of stock options as well as shares asissuable under the Company's employee stock purchase plan (ESPP).

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ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
Year Ended December 31,
202320222021
Net (loss) income available to common stockholders$(30,438)$(46,466)$50,199 
Basic weighted average common shares outstanding46,309 45,740 45,066 
Effect of dilutive securities— — 973 
Diluted weighted average common shares outstanding46,309 45,740 46,039 
Basic net (loss) income per common share$(0.66)$(1.02)$1.11 
Diluted net (loss) income per common share$(0.66)$(1.02)$1.09 
For the years ended December 31, 2017, 20162023 and 2015 because they are anti-dilutive. Therefore,2022, the number of shares calculated for basic net loss per share is also used for the diluted net loss per share calculation.

Comprehensive Income (Loss)calculation, and Accumulated Other Comprehensive Income (Loss)—In addition to net losses,loss per share excludes the comprehensive loss includes foreign currency translation adjustmentseffect of 1,668 and unrealized gains and losses on investments.

Accumulated  other comprehensive income (loss) consisted1,292 shares because the effect would be anti-dilutive. The computation of diluted earnings per share in the following (net of tax):

year ended December 31, 2021 excludes 404 shares because the effect would be anti-dilutive.



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

2015

Total accumulated other comprehensive loss at beginning of period

 

$

(468)

 

$

(611)

 

$

(348)

Unrealized losses on investments

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

(21)

 

$

(39)

 

$

(54)

Other comprehensive income before reclassifications

 

 

15 

 

 

18 

 

 

15 

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

 

 

 —

 

 

 —

 

 

 —

Balance at end of period

 

$

(6)

 

$

(21)

 

$

(39)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

(447)

 

$

(572)

 

$

(294)

Other comprehensive income before reclassifications

 

 

660 

 

 

532 

 

 

156 

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

 

 

(173)

 

 

(407)

 

 

(434)

Balance at end of period

 

$

40 

 

$

(447)

 

$

(572)

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

 

$

34 

 

$

(468)

 

$

(611)

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

activities, as well as amortization of technology assets. Research and development costs are expensed as incurred. Clinical trial costs and other development costs incurred by third parties are expensed as contracted work is performed or over the expected service period.

Advertising CostsThe Company expenses advertising costs as incurred. Advertising expense was $900, $625$1,695, $1,233 and $476$907 during the years ended December 31, 2017, 20162023, 2022 and 2015.

2021.

Share-Based Compensation—The Company follows FASB ASC 718 “Compensation-Stock Compensation” (ASC 718) to recordrecognizes share-based compensation expense for all share-based payment awards, including stock options, restricted stock awards, restricted stock units, performance share awards (PSAs) and stock purchases related to an employee stock purchase plan, based on estimated fair values. The Company’s share-based compensation expense recognized under ASC 718 for the years ended December 31, 2017, 2016 and 2015 was $14,615, $11,697 and $8,997.

ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of thean award that is ultimately expected to vest is recognized as expense over the requisite service periods inperiod. Prior to January 1, 2023, the Company’s Consolidated Statements of Operations and Comprehensive Loss. The expense has been reduced forCompany estimated forfeitures. The Company estimates forfeitures at the time of grant and revisesrevised them, ifas necessary, in subsequent periods ifas actual forfeitures differ from those estimates.

Effective January 1, 2023, the Company's policy was amended to account for forfeitures as they occur rather than estimating at the time of grant, and the effect on income from continuing operations and retained earnings is not significant.

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

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(In Thousands, Except Per Share Amounts)

The Company estimates the fair value of restricted stock awards and restricted stock units based upon the grant date closing market price of the Company’s common stock.

The Company estimates the fair value of PSAs with a performance condition based on the closing stock price on the date of grant assuming the performance target will be achieved and may adjust 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 market index stock performance, as defined by the award agreement, at the beginning of the service period and grant date; the expected volatility of the Company and market index stock performance over the performance period and the correlation coefficient of the daily returns for the Company and market index over the performance period.
The Company also has an employee stock purchase plan (ESPP) which is available tocovering substantially all eligibleU.S. employees as defined byof the plan document.Company. Under the ESPP, shares of the Company’s common stock may be purchased at a discount. The Company estimates the number of shares to be purchased under the ESPP at the beginning of each purchase period based upon the
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(In Thousands, Except Per Share Amounts)
fair value of the stock at the beginning of the purchase period using the Black-Scholes model and records estimated compensation expense during the purchase period. Expense is adjusted at the time of stock purchase.

Use of Estimates—The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure 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.

Segments—The Company evaluates reporting segments in accordance with FASB ASC 280, “Segment Reporting”. The Company develops, manufactures and sells devices designed primarily for the surgical ablation of cardiac tissue, systems designed for the exclusion of the left atrial 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. The chief operating decision maker for the Company is the Chief Executive Officer. The Chief Executive Officer reviews financial information presented on a consolidated basis, accompanied only by information about revenue by product type and geographic area, for purposes of allocating resources and evaluating financial performance. Accordingly, the Company has determined that it has a single operating segment. The Company’s long-lived assets are located in the United States, except for $3,432 as of December 31, 2023 and $1,616 as of December 31, 2022 located primarily in Europe.
Fair Value Disclosures—The Company classifies cash and investments in U.S. government agencies and securities as Level 1 within the fair value hierarchy. Accountsagency obligations, accounts receivable, short-term other current assets, and accounts payable and accrued liabilities are also classified as Level 1. The carrying amounts of these assets and liabilities approximate their fair value due to their relatively short-term nature. Cash equivalents and investments in corporate bonds, and commercial paper and asset-backed securities are classified as Level 2 within the fair value hierarchy. The fair value of fixed term debt is estimated by calculating the net present value of future debt payments at current market interest rates and is classified as Level 2. The book value of the Company’s fixed term debt approximates its fair value.value because the interest rate varies with market rates. Significant unobservable inputs with respect to the fair value measurementmeasurements of the Level 3 contingent consideration liabilityliabilities are developed using Company data. When an input is changed, the corresponding valuation models are updated and the results are analyzed for reasonableness. See Note 32 – Fair Value for further information on fair value measurements.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Recent Accounting PronouncementsIn May 2014 the FASB issued Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09), which requires an entity to recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled in exchange for those goods or services. ASU 2014-09 supersedes most current revenue recognition guidance. In July 2015 the FASB deferred the effective date of ASU 2014-09 for entities reporting under U.S. GAAP from interim and annual reporting periods beginning after December 15, 2016 to interim and annual reporting periods beginning after December 15, 2017. A full retrospective or modified retrospective approach may be taken to adopt the guidance in the ASU. FASB ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net)”, FASB ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing”, FASB ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” and FASB ASU 2017-13, “Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842)” were issued to further refine the guidance in ASU 2014-09.

The Company performed a comprehensive review of the requirements of ASU 2014-09. This review identified customer contracts and associated revenue streams within the scope of the new guidance by applying the five-step model of the new standard and comparing the results to current accounting to identify potential differences that would result from applying the requirements of the new standard. The Company’s revenue recognition related to product sales will remain substantially unchanged since the majority of the Company’s revenue arrangements consist of a single performance obligation related to the transfer of a promised good to a customer that allows the Company to recognize revenue at a point in time.The Company will adopt the new guidance as of January 1, 2018 using the modified retrospective adoption method. The adoption of ASU 2014-09 will not have a material impact on the amount and timing of revenue recognized in the consolidated financial statements.

In February 2016November 2023, the FASB issued ASU 2016-02, “Leases”(ASU 2016-02) which requires lessees2023-07, “Segment Reporting (Topic 280): Improvements to record most leases onto their balance sheet but recognize expenses on their income statement inReportable Segment Disclosures”. This guidance provides new segment disclosure requirements for entities with a manner similar to today’s accounting.single reportable segment and modifies certain reportable segment disclosure requirements. The guidance is effective for fiscal years beginning after December 15, 2018, including2023, and interim periods within those fiscal years. Entities are required to use a modified retrospective approach for leases that exist or are entered intoyears beginning after the beginning of the earliest comparative period in the financial statements. Full retrospective application is prohibited.December 15, 2024, with early adoption permitted. The Company is evaluatingin the provisionsprocess of ASU 2016-02 to determineassessing the impact of the adoption of this guidance; however, adoption is not expected to have a material impact on itsthe Company’s consolidated financial position, results of operations and related disclosures.  

statements.

In May 2017December 2023, the FASB issued ASU 2017-09, “Compensation — Stock Compensation2023-09, “Income Taxes (Topic 718), Scope740): Improvements to Income Tax Disclosures”. This guidance requires disclosure of Modification Accounting” (ASU 2017-09), which amends the scope of modification accounting for share-based payment arrangements. ASU 2017-09 provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. The new guidance also clarifies that a modification to an award could be significant and therefore require disclosure, even if modification

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

accounting is not required. ASU 2017-09 is effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period. The Company will consider the new guidance in its accounting and financial reporting for modifications if and when they occur.

In February 2018, the FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income (AOCI)”(ASU 2018-02) to address industry concerns related to the application of ASC 740, “Income Taxes” to certain provisions of the new tax reform legislation. Upon adopting ASU 2018-02, an entity is required to disclose (1) its accounting policy related to releasing income tax effects from AOCI, (2) whether it has elected to reclassify, to retained earningsspecific categories in the statement of stockholders’ equity, the stranded tax effects in AOCI related to the new tax reform legislationrate reconciliation and (3) if it has elected to reclassify to retained earnings the stranded tax effects in AOCI related to the new tax reform legislation, what the reclassification encompasses.provide additional information for reconciling items that meet a specified quantitative threshold. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early2024, with early adoption is permitted. An entity will apply this guidance to each period in which the effect of the new tax reform legislation (or portion thereof) is recorded and may apply it either (1) retrospectively as of the date of enactment or (2) as of the beginning of the period of adoption. The Company is evaluatingin the provisionsprocess of ASU 2018-02 to determineassessing the impact of the adoption of this guidance; however, adoption is not expected to have a material impact on itsthe Company’s consolidated financial position, results of operations and related disclosures.

3.statements.

2. FAIR VALUE

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

·

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

·

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

Level 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

·

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. The valuation under this approach does not entail a significant degree of judgment.
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The valuation technique for the Company’s Level 2 assets is based on quoted market prices for similar assets from observable pricing sources at the reporting date.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.
The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2017:

2023:



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Quoted Prices

 

 

 

 

 

 

 

 

 



 

in Active

 

Significant

 

Significant

 

 

 



 

Markets for

 

Other

 

Other

 

 

 



 

Identical

 

Observable

 

Unobservable

 

 

 



 

Assets

 

Inputs

 

Inputs

 

 

 



 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

 —

 

$

12,774 

 

$

 —

 

$

12,774 

Commercial paper

 

 

 —

 

 

7,472 

 

 

 —

 

 

7,472 

U.S. government agencies and securities

 

 

2,999 

 

 

 —

 

 

 —

 

 

2,999 

Corporate bonds

 

 

 —

 

 

2,920 

 

 

 —

 

 

2,920 

Total assets

 

$

2,999 

 

$

23,166 

 

$

 —

 

$

26,165 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition-related contingent consideration

 

$

 —

 

$

 —

 

$

37,098 

 

$

37,098 

Total liabilities

 

$

 —

 

$

 —

 

$

37,098 

 

$

37,098 
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$$77,864$$77,864
Government and agency obligations12,71112,711
Corporate bonds38,03338,033
Asset-backed securities2,2312,231
Total assets$12,711$118,128$$130,839

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2016:

2022:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quoted Prices

 

 

 

 

 

 

 

in Active

 

Significant

 

Significant

 

 

 

Markets for

 

Other

 

Other

 

 

 

Identical

 

Observable

 

Unobservable

 

 

 

Assets

 

Inputs

 

Inputs

 

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Total

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
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

 

$

 —

 

$

17,085 

 

$

 —

 

$

17,085 
Money market funds
Money market funds$$54,414$$54,414

Commercial paper

 

 —

 

5,996 

 

 —

 

5,996 Commercial paper11,93511,935

U.S. government agencies and securities

 

7,000 

 

1,529 

 

 —

 

8,529 
Government and agency obligationsGovernment and agency obligations32,63732,637

Corporate bonds

 

 

 —

 

 

8,276 

 

 

 —

 

 

8,276 Corporate bonds67,59867,598
Asset-backed securitiesAsset-backed securities2,3532,353

Total assets

 

$

7,000 

 

$

32,886 

 

$

 —

 

$

39,886 Total assets$32,637$136,300$$168,937

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition-related contingent consideration

 

$

 —

 

$

 —

 

$

41,176 

 

$

41,176 

Total liabilities

 

$

 —

 

$

 —

 

$

41,176 

 

$

41,176 

There were no changes in the levels or methodology of measurement of financial assets and liabilities during the years ended December 31, 20172023 and 2016.

Derivative Instruments. Vested non-employee options historically issued by the Company were accounted for as derivative liabilities and remeasured at fair value through earnings at each reporting period until exercised or forfeited. All vested non-employee options were exercised as of December 31, 2015.  

The following table represents the Company’s Level 3 fair value measurements using significant other unobservable inputs for derivative instruments for each of the years ended December 31:

2022.



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

2015

Beginning Balance

 

$

 —

 

$

 —

 

$

120 

Total loss included in earnings

 

 

 —

 

 

 —

 

 

57 

Exercises

 

 

 —

 

 

 —

 

 

(177)

Ending Balance

 

$

 —

 

$

 —

 

$

 —

Acquisition-Related Contingent Consideration. ContingentThe Company's contingent consideration arrangements underarising from the nContact merger agreementSentreHEART acquisition obligate the Company to pay certain defined amounts to former shareholders of nContactSentreHEART if specified milestones are met related to the aMAZE IDE clinical trial, including PMA approval and reimbursement for the followingtherapy involving SentreHEART's devices. The achievement periods for the PMA approval and reimbursement milestones if achieved:

·

Trial Enrollment Milestone – $7,500 upon completion of patient enrollment in the CONVERGE IDE clinical trial. Such payment is due within 30 days following enrollment of the final patient.

·

Regulatory Milestone – up to $42,500 upon the completion of the CONVERGE IDE clinical trial and receiving a PMA from FDA for the EPi-Sense AF Guided Coagulation System and/or any other nContact product with an indication for symptomatic persistent Afib or similar or related indication.expire on December 31, 2023 and December 31, 2026, respectively. The full contingent consideration amount of $42,500 is only earned if such regulatory approvals are received on or before January 1, 2020. The potential contingent consideration is reduced by 8.33% (or one-twelfth) each month following January 2020, and is reduced to zero if the regulatory milestone is achieved after December 31, 2020. Any payment of the regulatory milestone contingent consideration is due within 30 days following the receipt of the related PMA approval.

·

Commercial Milestone – for calendar years 2016 through 2019, nContact revenues in excess of specified target revenue amounts will result in contingent consideration equal to 1.5 times the revenues in excess of target. Payments of contingent consideration when the commercial milestone is achieved are due within 65 days of each calendar year end.

Subject to the terms and conditions of the merger agreement, all contingent consideration must be paid first in shares of AtriCure common stock. The merger agreement limits the total number of shares of AtriCure common stock issued in connection with the acquisition to 5,660, of which 3,757 shares were issued at closing of the nContact acquisition on October 13, 2015. Since the acquisition, no payments of contingent consideration have been required or made. As of December 31, 2017 and 2016, contingent consideration is recorded in other noncurrent liabilities in the Consolidated Balance Sheets.

are measured by

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(In Thousands, Except Per Share Amounts)

The Company measures contingent consideration liabilities

applying the probability weighted scenario method using unobservable inputs, by applying an income approach, such as the discounted cash flow technique or the probability-weighted scenario method. Various key assumptions, such as the probability of achievement of the agreed milestones, projected revenues from acquisitions and the discount rate, are used in the determination of fair value of contingent consideration arrangements and are not observable in the market, thus representing a Level 3 measurement within the fair value hierarchy. Subsequent revisionsDuring 2021, the Company was informed that data from the aMAZE clinical trial did not achieve statistical superiority, and the Company assessed the projected probability of payment to key assumptions, which impactbe remote. The Company recorded a credit to operating expenses of $184,800 reflecting the estimated fair value of contingent consideration liabilities, are reflectedchange in the Consolidated Statements of Operations and Comprehensive Loss.

The fair value of the nContact contingent consideration was remeasuredconsideration. The Company continues to assess the projected probability of payment during the contractual achievement periods to be remote, resulting in no fair value as of December 31, 2017, resulting in a decrease in fair value of $4,078. This decrease in fair value is  due primarily to changes in estimates related to the timing of achievement of the regulatory milestone as a result of actual enrollment in the CONVERGE IDE clinical trial in 2017, offset partially by an increase in forecasted revenues for 20182023 and 2019 under the commercial milestone payment. The fair value of contingent consideration increased $969 during the year ended December 31, 2016 due primarily to a reduction in the discount period. Adjustments to fair value are recorded in selling, general and administrative expenses in the accompanying Consolidated Statements of Operations and Comprehensive Loss. 

2022.

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



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

2015

Beginning Balance

 

$

41,176 

 

$

40,207 

 

$

 —

Amounts acquired

 

 

 —

 

 

 —

 

 

40,207 

Changes in fair value included in earnings

 

 

(4,078)

 

 

969 

 

 

 —

Ending Balance

 

$

37,098 

 

$

41,176 

 

$

40,207 
202320222021
Beginning Balance – January 1$— $— $184,800 
Amounts acquired— — — 
Changes in fair value of contingent consideration— — (184,800)
Ending Balance – December 31$— $— $— 

4.


3. INVESTMENTS

Investments as of December 31, 20172023 consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized

 

 

 

 

 

Gains

 

 

 

Cost Basis

 

(Losses)

 

Fair Value

Cost BasisUnrealized
Losses
Fair Value

Corporate bonds

 

$

2,925 

 

$

(5)

 

$

2,920 Corporate bonds$38,514$(481)$38,033

U.S. government agencies and securities

 

3,000 

 

(1)

 

2,999 

Commercial paper

 

 

6,723 

 

 

 —

 

 

6,723 
Government and agency obligationsGovernment and agency obligations12,998(287)12,711
Asset-backed securities
Asset-backed securities
Asset-backed securities2,263(32)2,231

Total

 

$

12,648 

 

$

(6)

 

$

12,642 Total$53,775$(800)$52,975

Investments as of December 31, 20162022 consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized

 

 

 

 

 

Gains

 

 

 

Cost Basis

 

(Losses)

 

Fair Value

Cost BasisCost BasisUnrealized
Losses
Fair Value

Corporate bonds

 

$

8,284 

 

$

(8)

 

$

8,276 Corporate bonds$69,832$(2,234)$67,598

U.S. government agencies and securities

 

8,542 

 

(13)

 

8,529 
Government and agency obligationsGovernment and agency obligations33,971(1,334)32,637

Commercial paper

 

 

5,996 

 

 

 —

 

 

5,996 Commercial paper11,93511,935
Asset-backed securitiesAsset-backed securities2,483(130)2,353

Total

 

$

22,822 

 

$

(21)

 

$

22,801 Total$118,221$(3,698)$114,523

The Company has not experienced any significantgross realized gains or losses on itsfrom sales of available-for-sale investments were not material in the years ended December 31, 2023, 2022 and 2021.
The cost and fair value of investments in the periods presented in the Consolidated Statementsdebt securities, by contractual maturity, as of Operations and Comprehensive Loss. Long term investments held by the Company at December 31, 2016 had2023 were as follows:
Available-for-sale
Amortized CostFair Value
Due in 1 year or less$51,512$50,744
Instruments not due at a single maturity date2,2632,231
Total$53,775$52,975
Instruments not due at a single maturity date consist of asset-backed securities. Actual maturities between one and two years.

may differ from the contractual maturities due to call or prepayment rights.

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(In Thousands, Except Per Share Amounts)

5.

4. INTANGIBLE ASSETS AND GOODWILL

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



 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

2017

 

2016



Estimated

 

 

 

 

Accumulated

 

 

 

 

Accumulated



Useful Life

 

Cost

 

Amortization

 

Cost

 

Amortization

Fusion technology

10 years

 

$

9,242 

 

$

3,697 

 

$

9,242 

 

$

2,773 

Clamp & probe technology

3 years

 

 

829 

 

 

829 

 

 

829 

 

 

829 

SUBTLE access technology

5 years

 

 

2,179 

 

 

981 

 

 

2,179 

 

 

538 

IPR&D

 

 

 

44,021 

 

 

 —

 

 

44,021 

 

 

 —

Total

 

 

$

56,271 

 

$

5,507 

 

$

56,271 

 

$

4,140 

Amortization expense related

 20232022
 CostAccumulated AmortizationCostAccumulated Amortization
Technology$46,470$10,084$46,470$7,131
Patents30,0002,400$$
Total$76,470$12,484$46,470$7,131
In May 2023, the Company acquired patents that are amortizable over an estimated useful life of five years, in a pattern reflecting the estimated economic benefit of the patents to intangible assets with definite lives, which excludes the Company. See Note 10 – Commitments and Contingencies for further information on the patent acquisition. During 2021, the Company recorded an impairment charge of $82,300 to reduce the carrying value of the aMAZE IPR&D asset to $0 as of December 31, 2021 resulting from the aMAZE clinical trial not achieving statistical superiority.
Amortization expense of intangible assets was $1,367,  $1,644$5,353, $3,653 and $1,303$2,907 for the years ended December 31, 2017, 20162023, 2022 and 2015.

2021. The following table summarizes the allocation of amortization expense of intangible assets:

202320222021
Cost of revenues$2,400$$
Selling, general and administrative expenses2,9533,6532,907
Total$5,353$3,653$2,907
Future amortization expense related to intangible assets with definite lives is projected as follows:



 

 

 



 

 

 

2018

 

$

1,367 

2019

 

 

1,367 

2020

 

 

1,235 

2021

 

 

924 

2022

 

 

925 

2023 and thereafter

 

 

925 

Total

 

$

6,743 

2024$7,453
20258,353
20269,553
202710,453
20286,553
2029 and thereafter21,621
Total$63,986
The following table provides a summary of the Company’s goodwill, which is not amortized, but rather tested annually for impairment:

Net carrying amount as of December 31, 2015

$

105,257 

Additions (Impairments)

 —

Net carrying amount as of December 31, 2016

105,257 

Additions (Impairments)

 —

Net carrying amount as of December 31, 2017

$

105,257 

6.

Net carrying amount as of December 31, 2021$234,781
Additions (Impairment)
Net carrying amount as of December 31, 2022234,781
Additions (Impairment)
Net carrying amount as of December 31, 2023$234,781
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
5. INVENTORIES

Inventories consisted of the following at December 31:



 

 

 

 

 

 



 

 

 

 

 

 



 

2017

 

2016

Raw materials

 

$

7,755 

 

$

5,719 

Work in process

 

 

1,299 

 

 

1,221 

Finished goods

 

 

13,397 

 

 

10,720 

Inventories

 

$

22,451 

 

$

17,660 

54

 20232022
Raw materials$36,751$19,880
Work in process3,5822,959
Finished goods27,56423,092
Inventories$67,897$45,931

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

7.

6. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at December 31:



 

 

 

 

 

 

 



 

 

 

 

 

 

 



Estimated Useful Life

 

2017

 

2016

Generators and other capital equipment 

1 - 3 years

 

$

15,754 

 

$

13,087 

Building under capital lease

15 years

 

 

14,250 

 

 

14,250 

Computer and other office equipment

3 years

 

 

5,873 

 

 

5,321 

Machinery, equipment and vehicles 

3 - 7 years

 

 

4,576 

 

 

3,731 

Furniture and fixtures

3 - 7 years

 

 

4,366 

 

 

3,676 

Leasehold improvements

5 - 15 years

 

 

3,636 

 

 

3,319 

Construction in progress

N/A

 

 

1,810 

 

 

539 

Equipment under capital leases

3 - 5 years

 

 

221 

 

 

215 

Total

 

 

 

50,486 

 

 

44,138 

Less accumulated depreciation

 

 

 

(21,737)

 

 

(14,143)

Property and equipment, net

 

 

$

28,749 

 

$

29,995 

 20232022
Buildings and improvements$29,193 $28,947 
Generators23,407 21,354 
Machinery and office equipment24,076 20,184 
Computer equipment and software9,845 10,251 
Construction in progress7,332 3,909 
Land1,006 1,006 
Total94,859 85,651 
Less accumulated depreciation(52,424)(46,818)
Property and equipment, net$42,435 $38,833 
Property and equipment depreciation expense was $7,761,  $7,655$9,460, $8,057 and $4,975$7,534 for the years ended December 31, 2017, 20162023, 2022 and 2015. Depreciation related to generators and other capital equipment was $3,574,  $3,591 and $2,944 in 2017, 2016 and 2015.2021. As of December 31, 20172023 and 2016,2022, the net carrying value of generators was $4,912 and other capital equipment was $4,656 and $5,692.

8.$4,447.

7. ACCRUED LIABILITIES

Accrued liabilities consisted of the following at December 31:



 

 

 

 

 

 



 

 

 

 

 

 



 

2017

 

2016

Accrued commissions

 

$

6,964 

 

$

5,737 

Accrued bonus

 

 

4,726 

 

 

2,871 

Accrued payroll and employee-related expenses

 

 

4,097 

 

 

4,326 

Sales returns and allowances

 

 

1,169 

 

 

834 

Other accrued liabilities

 

 

695 

 

 

929 

Accrued taxes and value-added taxes payable

 

 

634 

 

 

1,289 

Accrued royalties

 

 

626 

 

 

481 

Total

 

$

18,911 

 

$

16,467 
 20232022
Accrued compensation and employee-related expenses$39,425 $26,924 
Other accrued liabilities2,503 3,301 
Sales returns and allowances2,754 2,797 
Total$44,682 $33,022 

9.

8. INDEBTEDNESS

Credit Facility. The

SVB Loan Agreement. As of December 31, 2023, the Company has a Loan and Security Agreement, (Loan Agreement)as amended and modified effective February 8, 2021 and as further amended November 1, 2021 with Silicon Valley Bank (SVB) (SVB Loan Agreement). The SVB Loan Agreement as amended, restated and modified, includes a $25,000$60,000 term loan, with an option to make available an additional $30,000 in term loan borrowings, and $15,000a $30,000 revolving line of credit. The SVB Loan Agreement has a five-year term, expiring November 2026.
Principal payments under the SVB Loan Agreement are to be made ratably commencing 24 months after inception through the loan's maturity date. In November 2023, the Company exercised its option to extend the commencement of term loan principal payments for an additional twelve months. The term loan accrues interest at the Prime Rate plus 1.25% and is subject to an additional 3.00% fee on the term loan principal amount at maturity. The Company is accruing the 3.00% fee over the term of the SVB Loan Agreement, with $780 included in the outstanding loan balance as of December 31, 2023. Additionally, the unamortized financing costs related to the term loan of $187 are netted against the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
outstanding loan balance in the Consolidated Balance Sheets and are amortized ratably over the term of the SVB Loan Agreement.
The revolving line of credit both which mature in April 2021.is subject to an annual facility fee of 0.20% of the revolving line of credit, and any borrowings thereunder bear interest at the Prime Rate. Borrowing availability under the revolving credit facility is based on the lesser of $15,000$30,000 or a borrowing base calculation as defined by the SVB Loan Agreement. As of December 31, 2017, the Company had no borrowings under the revolving credit facility and had borrowing availability of $15,000. The revolving line of credit is subject to an annual commitment fee of $50, and any borrowings thereunder bear interest at the Prime Rate. Financing costs related to the revolving line of credit are included in other assets in the Consolidated Balance Sheets and amortized ratably over the termtwelve-month period of the Loan Agreement.

The term loan has a five-year term, with principal payments made ratably commencing eighteen months after the inception of the loan (November 2017) through the loan’s maturity date. The term loan accrues interest at the Prime Rate and is subject to an additional 4.0% fee on the original $25,000 principal amount at maturity or prepayment of the term loan. The Company is accruing the 4.0% fee over the term of the Loan Agreement.annual fee. As of December 31, 2017,2023, the Company has accrued $337had no borrowings under the revolving credit facility and had borrowing availability of this fee and included it in the outstanding loan balance in the Consolidated Balance Sheets. Other financing costs related to the term loan are net against the outstanding loan balance in the Consolidated Balance Sheets and amortized ratably over the term of the Loan Agreement.

approximately $28,750.

The SVB Loan Agreement also provides for certain prepayment and early termination fees, as well as establishes covenants related to liquidity, sales growth and a minimum cash balance,liquidity covenant and includesdividend restrictions, along with other customary terms and conditions. Specified assets have been pledged as collateral.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

Effective February 23, 2018,New Credit Agreement. On January 5, 2024, the Company and SVB entered into an asset-based credit agreement (Credit Agreement) among the Borrowers, JPMorgan Chase Bank, N.A., as administrative agent, and JPMorgan Chase Bank, N.A., as bookrunner and lead arranger (JPMCB), and Silicon Valley Bank, a LoanDivision of First-Citizen Bank & Trust Company, as Joint Lead Arrangers and SecurityJoint Bookrunners, and the lenders party thereto (Lenders). The Credit Agreement which amends and restates the Company’sprovides for an asset based revolving credit facility with SVB.(ABL Facility) in an amount of up to $125,000. The agreement provides for a $40,000 term loan, and $20,000 revolving line of credit withCompany may request an option to increase in the revolving linecommitment by up to $40,000 (not to exceed a total of $165,000). Borrowing availability under the ABL Facility is based on the lesser of $125,000 or a borrowing base calculation as defined by the Credit Agreement. A portion of the ABL Facility, limited to $5,000, is available for the issuance of letters of credit by an additional $20,000.JPMCB or other financial institutions. JPMCB in its sole discretion, may create swingline loans by advancing floating rate revolving loans requested. Any such swingline loans will reduce availability under the ABL Facility on a dollar-for-dollar basis. The Loan and SecurityCredit Agreement credit facility has a five-yearthree-year term, expiring February 2023. Principal payments of the term loan are to be made ratably commencing eighteen months after the inception of the loan through the loan’s maturity date. If the Company meets certain conditions, as specified by the agreement, the commencement of term loan principal payments may be deferred by an additional six months. January 5, 2027.

The term loan accrues interest at the greater of the Prime Rate plus 3.75% or 8.25% andABL facility is subject to an additional 3.50% fee on the original $40,000 term loan principal amount at maturity. The revolving line of credit is subject to an annuala facility fee of 0.33%0.37% per annum of the daily available revolving line of credit,commitment and any borrowingspaid on a quarterly basis. Outstanding amounts under the Credit Agreement bear interest at a rate per annum equal to, at the greaterCompany's election: (i) an alternate base rate (ABR) plus an applicable margin or (ii) an adjusted term secured overnight financing rate (SOFR) plus an applicable margin. All swingline loans bear interest at a rate per annum equal to the ABR plus the applicable margin under the Credit Agreement. Alternate base rate is equal to the greatest of Prime, the NYFRB Rate plus 0.50% and Adjusted Term SOFR Rate plus 1.00%. The applicable margin on borrowings will adjust ranging 1.50% to 1.75% per annum for ABR borrowings and from 2.50% to 2.75% per annum for SOFR term borrowings determined by the average historical excess availability. Participation and fronting fees are accrued and paid on a quarterly basis. At time of closing, the Company borrowed $61,865 and had $61,885 of available borrowing capacity under the ABL facility. The proceeds of the Prime RateABL Facility were used to terminate the Company’s indebtedness under the SVB Loan Agreement. The SVB Loan Agreement terminated on January 5, 2024 and 4.50%. The Loan and Security Agreement also provides for certainwas treated as a debt extinguishment. Certain prepayment and early termination fees as well as establishes covenants related to sales growth, along with other customary terms and conditions similar to thoseunder the SVB Loan Agreement were waived at termination. The resulting loss on debt extinguishment in the Company’s current agreement with SVB. The proceeds from the agreement are expected to fund current and future operations of the Company.2024 is not significant. As a result of the refinancing,new Credit Agreement, borrowings outstanding under the existing term loan agreementSVB Loan Agreement have been classified as long-term in the Consolidated Balance Sheet as of December 31, 2017.

Capital Lease Obligations. As2023.

Outstanding borrowings are due upon maturity of December 31, 2017,the Credit Agreement in January 5, 2027. Through January 2025, the Company's required minimum utilization of the ABL facility is 40% of the aggregate revolving commitment or $50,000. Subject to customary exceptions and restrictions, the Company had capital leases for its corporate headquarters building and computer equipment that expiremay voluntarily prepay outstanding amounts under the ABL Facility at various terms through 2030.  Capital leaseany time thereafter without premium or penalty. Any voluntary prepayments made will not reduce commitments under the ABL Facility. The Credit Agreement contains mandatory prepayment provisions which require prepayment of amounts outstanding under the ABL Facility upon specified events or shortfall.
The ABL Facility is secured by the assets are depreciated over their estimated useful lives. As of December 31, 2017, the cost of the leased assets, both building and computer equipment, was $14,471. Accumulated amortization onCompany, whether consisting of personal, tangible or intangible property, including specified all of the capital lease assets was $2,249.  

In connection with the termsoutstanding equity interests of the Company’s corporate headquartersdirect subsidiaries, subject to limitations specified in the Credit Agreement. The Credit Agreement contains customary representations and warranties, events of default and financial, affirmative and negative covenants for facilities of this type, including but not limited to financial covenants relating to a fixed charge coverage ratio, a minimum liquidity requirement and a minimum excess availability requirement, and restrictions on indebtedness, liens, investments and acquisitions, asset dispositions, specified agreements, restricted payments and prepayment of certain indebtedness.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
Future maturities of debt, after consideration of the new Credit Agreement on January 5, 2024, are projected as follows:
2024$
2025
2026
202761,865
2028
Total long-term debt, of which $0 is current and $61,865 is noncurrent$61,865
9. LEASES
The Company has operating and finance leases for office, manufacturing and warehouse facilities and automobiles. The Company’s leases have remaining lease aterms of one to nine years. Options to renew or extend leases beyond their initial term have been excluded from measurement of the ROU assets and lease liabilities as exercise is not reasonably certain.
The weighted average remaining lease term and the discount rate for the reporting periods are as follows:
As ofAs ofAs of
December 31, 2023December 31, 2022December 31, 2021
Operating Leases
Weighted average remaining lease term (years)4.84.43.6
Weighted average discount rate5.75 %4.60 %4.69 %
Finance Leases
Weighted average remaining lease term (years)6.77.68.6
Weighted average discount rate6.93 %6.92 %6.91 %
A letter of credit in the amount offor $1,250 was issued to the landlordlessor of the Company's corporate headquarters building in October 2015. The letterat inception of credit wasthe lease and is renewed in June 2017annually and remains outstanding as of December 31, 2017.

Future maturities on capital2023.

The components of lease obligationsexpense are as follows:
 Year EndedYear EndedYear Ended
 December 31, 2023December 31, 2022December 31, 2021
Operating lease cost$1,284 $1,133 $1,052 
 
Finance lease cost:
Amortization of right-of-use assets1,020 1,016 1,019 
Interest on lease liabilities673 735 792 
Total finance lease cost$1,693 $1,751 $1,811 
Short term lease expense was not significant for the twelve months ended December 31, 2023, 2022 and debt, after consideration2021.
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ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
Supplemental cash flow information related to leases was as follows:



 

 

 



 

 

 

2018

 

$

1,468 

2019

 

 

3,755 

2020

 

 

8,305 

2021

 

 

8,309 

2022

 

 

8,335 

2023 and thereafter

 

 

14,379 

Total payments

 

$

44,551 

Imputed interest on capital lease obligations

 

 

(7,129)

Net debt obligations, of which $561 is current and $36,861 is noncurrent

 

$

37,422 
Year EndedYear EndedYear Ended
December 31, 2023December 31, 2022December 31, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases$1,235 $845 $998 
Operating cash flows for finance leases673 735 620 
Financing cash flows for finance leases992 899 792 
Right-of-use assets obtained in exchange for lease obligations:
Operating Leases1,509 — 3,752 
Finance Leases— 62 — 

Supplemental balance sheet information related to leases was as follows:
As of December 31, 2023As of December 31, 2022
Operating Leases
Operating lease right-of-use assets$4,324 $3,787 
Other current liabilities and current maturities of debt and leases1,447 1,147 
Operating lease liabilities3,307 3,095 
Total operating lease liabilities$4,754 $4,242 
Finance Leases
Property and equipment, at cost$14,620 $14,645 
Accumulated depreciation(8,105)(7,109)
Property and equipment, net$6,515 $7,536 
Other current liabilities and current maturities of debt and leases$1,086 $992 
Finance lease liabilities8,061 9,147 
Total finance lease liabilities$9,147 $10,139 
Maturities of lease liabilities as of December 31, 2023 were as follows:
Operating LeasesFinance Leases
2024$1,449 $1,689 
20251,188 1,638 
2026848 1,671 
2027842 1,703 
2028458 1,725 
2029 and thereafter767 3,099 
Total payments$5,552 $11,525 
Less imputed interest(798)(2,378)
Total lease liabilities$4,754 $9,147 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
10. COMMITMENTS AND CONTINGENCIES

Lease Commitments.

License Agreements.The Company leases certain office and warehouse facilities andhad been party to a vehicle under noncancelable operating leaseslicense agreement that expire at various terms through 2022. Future minimum leaserequired payments under non-cancelable operating leases are projected as follows:



 

 

 



 

 

 

2018

 

$

965 

2019

 

 

927 

2020

 

 

737 

2021

 

 

413 

2022

 

 

306 

2023 and thereafter

 

 

 —

Total

 

$

3,348 

Rent expense was approximately $850,  $1,250 and $1,515 in 2017, 2016, and 2015.  

Royalty Agreements. The Company has certain royalty agreements in place with terms that include payment of royalties based on product revenue from sales of specified current products. The current royalty agreements have effective dates as early as 2003 and terms ranging from eighteen years to at least twenty years. The royalties range from 3% to 5% of specified product sales. PartiesIn May 2023, the Company entered into an agreement that terminated the license agreement and the Company's obligations to themake royalty agreements have the right at any time to terminate the agreement immediatelypayments. See Legal section below for cause.additional information. Royalty expense of $2,323,  $1,895was $1,333, $3,264 and $1,799 was recorded as part of cost of revenue$3,124 for the years ended December 31, 2017, 20162023, 2022 and 2015.  

2021.

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

Purchase Agreements. The Company enters into standard purchase agreements with certain vendorssuppliers in the ordinary course of business. Outstanding commitments at December 31, 2017 were not significant.

business, generally with terms that allow cancellation.

Legal.The Company may, from time to time, become a party to legal proceedings. Such matters are subject to many uncertainties and to outcomes of which the financial impacts are not predictable with assurance and that may not be known for extended periods of time. WhenA liability is established once management has assessed thatdetermines a loss is probable and an amount can be reasonably estimated, theestimated. The Company recordsrecognizes income from a liability in the Consolidated Financial Statements. Costs associated withfavorable resolution of legal proceedings could have a material adverse effect onwhen the Company’s future consolidated results of operations, financial position,associated cash or cash flows.

On December 11, 2017, theassets are received.

The Company received a Civil Investigative Demand (CID) from the U.S. Department of Justice (USDOJ) in December 2017 stating that it is investigating the Company to determine whether the Company has violated the False Claims Act, relating to the promotion of certain medical devices related to the treatment of atrial fibrillation for off-label use and submitted or caused to be submitted false claims to certain federal and state health care programs for medically unnecessary healthcare services related to the treatment of atrial fibrillation. The CID covers the period from January 1, 2010 to the presentDecember 2017 and 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,requirements. The Company provided the USDOJ with documents and is working with the U.S. Department of Justice to promptly respondanswers to the CID. However,written interrogatories. In March 2021, USDOJ informed the Company cannotthat its investigation was based on a lawsuit brought on behalf of the United States and various state and local governments 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. During the third quarter of 2022, the relator filed a Fourth Amended Complaint, which dropped allegations of off-label promotion and alleges that the Company paid illegal kickbacks to healthcare providers in exchange for using or referring the Company’s products, in violation of the federal Anti-Kickback Statute and various comparable state and local laws. While the Company is contesting the case, it is not possible to predict when the investigation willthis matter may be resolved or what impact, if any, the outcome of this matter might have on our consolidated financial position, results of operations or cash flows.
On August 23, 2022, the investigation orCleveland Clinic Foundation (Clinic) and IDx Medical, Ltd. (IDx) filed a Demand for Arbitration against the Company with the American Arbitration Association (AAA), alleging that the Company breached certain provisions of the License Agreement dated December 9, 2003, among the Company, Clinic and IDx (License Agreement). Clinic and IDx allege the Company did not include the revenues from sales of certain products in its potential impact oncalculation of royalty payments due under the Company.

License Agreement, and that the Company did not provide related notices required under the License Agreement. The Company filed its Answering Statement and Counterclaims to the allegations in September 2022, denying each claim and counterclaiming for breach of contract, correction of inventorship, declaratory judgment, patent prosecution and legal fees. In May 2023, the Company entered into an Assignment and Agreement Regarding IDx and CCF Intellectual Property (Assignment Agreement) with Clinic and IDx. Pursuant to the Assignment Agreement, during the second quarter of 2023, the Company made a one-time payment of $33,400 to Clinic and IDx for the acquisition of patents and other intellectual property. The Assignment Agreement also required dismissal of the arbitration and release of payment for royalty obligations due to Clinic and IDx under the License Agreement after March 31, 2023. The amount paid, together with transaction costs, was allocated between the acquired intangible asset, the release of payment for royalty obligations and the settlement of the dispute. The intangible asset was assigned a value of $30,000 and is being amortized over an estimated useful life of 5 years. The release of the royalty obligations was valued at $432. The remaining $3,088 was allocated to the settlement and is included in selling, general and administrative expenses for the twelve months ended December 31, 2023.

During the first quarter of 2023, the Company entered into a legal settlement of $7,500 in connection with the settlement of claims filed against a competitor. The Company recorded a $7,500 gain for the twelve months ended December 31, 2023 for the proceeds received as a reduction to selling, general and administrative expenses.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
11. REVENUE
The Company develops, manufactures and sells devices designed primarily for surgical ablation of cardiac tissue, exclusion of the left atrial appendage, and temporarily blocking pain by ablating peripheral nerves. These devices are marketed to a broad base of medical centers globally. The Company recognizes revenue when control of promised goods is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods.
United States revenue by product type is as follows:
 202320222021
Open ablation$105,287$86,119$72,396
Minimally invasive ablation44,57738,55339,380
Pain management49,19939,97422,787
Total ablation$199,063$164,646$134,563
Appendage management134,481112,55594,568
Total United States$333,544$277,201$229,131
International revenue by product type is as follows:
 202320222021
Open ablation$31,483$26,809$23,194
Minimally invasive ablation6,6705,9866,409
Pain management2,01355861
Total ablation$40,166$33,353$29,664
Appendage management25,53519,82515,534
Total International$65,701$53,178$45,198
Revenue attributed to customer geographic locations is as follows:
 202320222021
United States$333,544$277,201$229,131
Europe38,46930,42827,931
Asia-Pacific24,52620,73416,077
Other International2,7062,0161,190
Total International65,70153,17845,198
Total Revenue$399,245$330,379$274,329
12. INCOME TAXES

The Company files federal, state local and foreign income tax returns in jurisdictions with varying statutes of limitations. Income taxes are computed 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 a fullCompany'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. Tax credits are accounted for as a reduction of income taxes in the year in which the credit originates.

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

We have not completed our accounting for the tax effects of enactment of the Tax Reform Act. However, we have made a reasonable estimate of the effects on our existing deferred tax balances where possible, and accounted for material provisions of the Tax Reform Act as follows:

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

Deemed Repatriation Transition Tax: The Tax Reform Act provides for a one-time "deemed repatriation" of accumulated foreign earnings for the year ended December 31, 2017. The Company does not anticipate a tax on the deemed repatriation as a result of its foreign deficits.

Compensation and Shared-Based Payment Awards: The Tax Reform Act modifies the deductibility of covered employees’ compensation and eliminates the exclusion of performance-based compensation under IRC § 162(m), prospectively.  The Tax Reform Act includes a transition rule that permits the continued exclusion of performance-based compensation paid pursuant to a written, binding contract which was in effect on November 2, 2017, and which was not modified in any material respect on or after such date. The Company has not completed its analysis of all of its relevant equity compensation agreements to determine if the transition rule will apply and the deferred tax implications of this provision.  

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

Corporate Alternative Minimum Tax (AMT): The repeal of AMT provides companies with the ability to obtain refunds of historic AMT credits. The Company has recorded a deferred tax benefit of $102 associated with release of its valuation allowance on its AMT credits.

Bonus Depreciation: The Tax Reform Act provides for 100 percent bonus depreciation on personal tangible property expenditures beginning September 27, 2017 through 2022. The bonus depreciation percentage is phased down from 100 percent beginning in 2023 through 2026. The Company is continuing to evaluate its bonus depreciation election based on an analysis of property eligible for 100 percent bonus depreciation and its net operating loss carryforwards.  

The Company expects to complete the accounting for the Tax Reform Act when the 2017 U.S. corporate income tax return is filed in 2018. The ultimate impact may differ materially from these provisional amounts due to additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Reform Act.

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



 

 

 

 

 

 



 

 

 

 

 

 



 

2017

 

2016

Deferred tax assets (liabilities):

 

 

 

 

 

 

Net operating loss carryforward

 

$

64,776 

 

$

84,056 

Research and development and AMT credit carryforwards, net

 

 

5,339 

 

 

5,446 

Equity compensation

 

 

6,955 

 

 

8,406 

Accruals and reserves

 

 

874 

 

 

914 

Inventories

 

 

588 

 

 

1,503 

Intangible assets

 

 

(11,297)

 

 

(16,922)

Property and equipment, net

 

 

(339)

 

 

(1,487)

Other, net

 

 

179 

 

 

66 

Subtotal

 

 

67,075 

 

 

81,982 

Less valuation allowance

 

 

(66,973)

 

 

(81,982)

Total

 

$

102 

 

$

 —

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



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

2015

Current Tax Expense

 

 

 

 

 

 

 

 

 

Federal

 

$

 —

 

$

 —

 

$

State

 

 

44 

 

 

32 

 

 

34 

Foreign

 

 

72 

 

 

 

 

 —

Total current tax expense

 

 

116 

 

 

40 

 

 

36 

Deferred Tax Expense

 

 

 

 

 

 

 

 

 

Federal

 

$

18,485 

 

$

(7,333)

 

$

(7,154)

State

 

 

(1,337)

 

 

210 

 

 

(398)

Foreign

 

 

(2,241)

 

 

(1,177)

 

 

(955)

Change in valuation allowance

 

 

(15,009)

 

 

8,300 

 

 

8,507 

Total deferred tax expense

 

 

(102)

 

 

 —

 

 

 —

Total tax expense

 

$

14 

 

$

40 

 

$

36 

 202320222021
Current tax expense
Federal$— $— $— 
State389 142 42 
Foreign217 118 125 
Total current tax expense606 260 167 
Deferred tax expense
Federal$(2,972)$(8,351)$(30,925)
State(928)(459)(4,803)
Foreign(3,671)(1,636)(826)
Change in valuation allowance7,556 10,454 36,575 
Total deferred tax expense(15)21 
Total tax expense$591 $268 $188 
The detail of deferred tax assets and liabilities at December 31 is as follows:
 20232022
Deferred tax assets:
Net operating loss carryforwards$129,744 $138,263 
Research and development credit carryforwards15,171 13,205 
Research and experimental expenditures20,193 10,104 
Equity compensation10,599 8,287 
Finance and operating lease liabilities3,083 3,395 
Deferred interest— 2,411 
Inventories2,822 1,896 
Accruals and reserves1,131 1,332 
Property and equipment219 (2,568)
Total deferred tax assets182,962 176,325 
Deferred tax liabilities:
Intangible assets(8,568)(9,278)
Right-of-use assets(2,160)(2,626)
Other(444)506 
Total deferred tax liabilities(11,172)(11,398)
Valuation allowance(171,766)(164,918)
Net deferred tax assets$24 $
Provisions enacted in the Tax Cut and Jobs Act of 2017 related to the capitalization of research and experimental expenditures for tax purposes became effective on January 1, 2022. These provisions require the Company to capitalize and amortize research and experimental expenditures for tax purposes over five or fifteen years, depending on where research is conducted. The Company has federal net operating loss carryforwards of $240,286$276,866 which expire between 2024 and 2037 and $175,758 which have expirations between 2021no expiration. The Company has state and 2038 and statelocal net operating loss carryforwards of $147,841 with varying expirations from 2018$301,639 which expire between 2024 to 2038. At December 31, 2016, there were $2,816 of unrecognized deferred tax assets that arose from tax deductions for equity compensation in excess of compensation recognized for financial reporting during years when net operating losses were created. On January 1, 2017, the Company adopted ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting” and recognized $2,816 of previously unrecognized deferred tax assets with a corresponding increase in its valuation allowance.2043. A portion of the Company’s federal and state net operating loss carryforwards are subject to certain limitations under Internal Revenue Code Sections 382 and 383. The Company has federal research and development credit carryforwards of $6,392$15,171 which have expirationsexpire between 20222024 and 2038.2043. Additionally, the Company has foreign net operating loss carryforwards of approximately $30,501$75,355 which have expirations between 2018 and 2027.

no expiration.

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

The Company’s 2017, 20162023, 2022 and 20152021 effective income tax rates differ from the federal statutory rate as follows:



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

2015

Federal tax at statutory rate

 

34.00 

%

 

$

(9,139)

 

34.00 

%

 

$

(11,322)

 

34.00 

%

 

$

(9,240)

Federal tax rate change

 

(109.68)

 

 

 

29,480 

 

 

 

 

 

 

 

 

 

 

 

 

Federal R&D credit

 

(0.40)

 

 

 

107 

 

2.89 

 

 

 

(962)

 

3.23 

 

 

 

(878)

Federal NOL adjustment for ASU

 

10.48 

 

 

 

(2,816)

 

 

 

 

 

 

 

 

 

 

 

 

Valuation allowance

 

55.84 

 

 

 

(15,009)

 

(24.93)

 

 

 

8,300 

 

(31.30)

 

 

 

8,507 

State income taxes

 

4.81 

 

 

 

(1,292)

 

(0.69)

 

 

 

231 

 

1.38 

 

 

 

(375)

Foreign NOL rate change

 

1.30 

 

 

 

(348)

 

(1.36)

 

 

 

452 

 

(2.02)

 

 

 

549 

Foreign tax rate differential

 

(2.45)

 

 

 

658 

 

(1.62)

 

 

 

539 

 

(1.99)

 

 

 

542 

Permanent differences and other

 

6.05 

 

 

 

(1,627)

 

(8.41)

 

 

 

2,802 

 

(3.43)

 

 

 

931 

Effective tax rate

 

(0.05)

%

 

$

14 

 

(0.12)

%

 

$

40 

 

(0.13)

%

 

$

36 

 202320222021
Federal tax at statutory rate21.0 %$(6,268)21.0 %$(9,701)21.0 %$10,580 
Permanent differences(10.4)3,092 (1.9)876 (80.3)(40,439)
Valuation allowance(25.3)7,556 (22.6)10,454 72.6 36,575 
State income taxes1.8 (539)0.7 (317)(9.4)(4,760)
Federal R&D credit6.6 (1,966)4.2 (1,936)(3.7)(1,878)
Foreign income taxes3.4 (1,012)(0.5)215 0.7 344 
Federal deferred adjustments0.9 (272)(1.5)677 (0.5)(234)
Effective tax rate(2.0)%$591 (0.6)%$268 0.4 %$188 
The Company’s pre-tax book loss(loss) income for domestic and international operations respectively, was $(19,409)$(17,822) and $(7,469)$(12,025) for 2017, ($27,271)2023, $(38,008) and ($6,027)$(8,190) for 20162022, and ($21,157)$55,666 and ($6,019)$(5,279) for 2015.  2021.
The Company had undistributed earnings of foreign subsidiaries of approximately $107$444 at December 31, 2017.2023. The Company does not consider these earnings as permanently reinvested and thus has recognized appropriate U.S.determined that no current and deferred taxes are required on such amounts.

Federal, state and local tax returns of the Company are routinely subject to examination by various taxing authorities. Federal income tax returns for periods beginning in 20152020 are open for examination. Generally, state and foreign income tax returns for periods beginning in 20142019 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.

A reconciliation of the change in federal and state unrecognized tax benefits for 2017, 20162023, 2022 and 20152021 is presented below:



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

2015

Balance at the beginning of the year

 

$

3,175 

 

$

1,982 

 

$

1,982 

Increases (decreases) for prior year tax positions

 

 

(2,018)

 

 

1,193 

 

 

 —

Increases (decreases) for current year tax positions

 

 

 —

 

 

 —

 

 

 —

Increases (decreases) related to settlements

 

 

 —

 

 

 —

 

 

 —

Decreases related to statute lapse

 

 

 —

 

 

 —

 

 

 —

Balance at the end of the year

 

$

1,157 

 

$

3,175 

 

$

1,982 

 202320222021
Balance at the beginning of the year$1,762 $1,798 $1,798 
Increases (decreases) for prior year tax positions(90)(36)— 
Increases (decreases) for current year tax positions— — — 
Increases (decreases) related to settlements— — — 
Decreases related to statute lapse— — — 
Balance at the end of the year$1,672 $1,762 $1,798 
The Internal Revenue Service completed its review of the Company’s 2014 federal income tax return in February 2017. In 2017, the Company also completed a detailed analysis of R&D credit carryforwards for the tax years 2008 through 2016. As a result of this analysis, as well as completion of the IRS audit of the 2014 credit, the Company has reduced both the R&D credit carryforward and related unrecognized tax benefits by $2,018. The Company has not had to accrue any interest and penalties related to unrecognized income tax benefits as a result of offsetting of net operating losses. However, if the situation occurs, the Company will recognize interest and penalties within the income tax expense line in the Consolidated Statements of Operations and Comprehensive Loss and within the related tax liability line in the Consolidated Balance Sheets.

There are no amounts included in the balance of unrecognized tax benefits at December 31, 2017, 20162023, 2022 and 2015 that, if recognized, would affect the effective tax rate. Included in the balance of unrecognized tax benefits at December 31, 2017 are $1,1572021 includes $1,672, $1,762 and $1,798 of tax benefits that, if recognized, would result in adjustments to other tax accounts, primarily deferred taxes and valuation allowance. The Company does not expect that its unrecognized tax benefits for research credits will significantly change within twelve months of December 31, 2017.  

12. CONCENTRATIONS

During 2017, 2016 and 2015, approximately 13.2%,  14.4% and 12.9%, of the Company’s total net revenue was derived from its top ten customers.  During 2017, 2016 and 2015  no individual customer accounted for more than 10% of the Company’s revenue.

As of December 31, 2017 and 2016, 19.7% and 19.9% 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, 2017 and 2016.

2023.

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

The Company maintains cash and cash equivalents balances at financial institutions which at times exceed FDIC limits. As of December 31, 2017, $21,360 of the cash and cash equivalents balance was in excess of the FDIC limits.

13. EMPLOYEE BENEFIT PLANS

The Company sponsors the AtriCure, Inc. 401(k) Plan (401(k) Plan), a defined contribution plan covering substantially all U.S. employees of the Company. Eligible employees may contribute pre-tax annual compensation up to specified maximums under the Internal Revenue Code. During 2017, 2016the years ended December 31, 2023 and 20152022, the Company made matchingmatched contributions of 50% on the first 8% of employee contributions to the 401(k) Plan. During the year ended December 31, 2021, the Company matched contributions of 50% on the first 6% of employee contributions to the 401(k) Plan. The Company’s matching contributions expensed during 2017, 2016in 2023, 2022 and 20152021 were $1,367,  $1,222$4,949, $4,447 and $1,007.$2,651. Additional amounts may be contributed to the 401(k) Plan at the discretion of the Company’s Board of Directors,Directors; however, no such discretionary contributions were made during 2017, 2016in 2023, 2022 or 2015.2021. The Company also provides retirement benefits for
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ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
employees of AtriCure Europe and otherits foreign subsidiaries. Total contributions to foreign retirement plans for these employees were $205,  $101$503, $446 and $133$349 in 2017, 20162023, 2022 and 2015.

2021.

14. EQUITY COMPENSATION PLANS

The Company has two share-based incentive plans: the 20142023 Stock Incentive Plan (2014(2023 Plan) and the 20082018 Employee Stock Purchase Plan (ESPP).

Stockholders approved the 2023 Plan at the 2023 Annual Meeting of Stockholders. Pursuant to its terms, the 2023 Plan supersedes and replaces the 2014 Stock Incentive Plan

(Prior Plan).

Stock Incentive Plan
Under the 20142023 Plan, the Board of Directors may grant incentiverestricted stock options to Company employees and may grantawards or restricted stock units (collectively RSAs), nonstatutory stock options, restricted stockperformance share awards (PSAs) or stock appreciation rights to Company employees, directors and consultants.consultants, and may grant incentive stock options to Company employees. The administrator (currently the Compensation Committee of the Board of Directors)Directors, as the administrator of the 2023 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, 2017, 10,2492023, 2,287 shares of common stock had been reserved for issuance under the 20142023 Plan and 1,1282,238 shares were available for future grants.

OptionsThe Company issues registered shares of common stock for stock option exercises, restricted stock grants and performance award grants.

The following table summarizes total share-based compensation expense related to employees, directors and consultants for 2023, 2022 and 2021. The expense was allocated as follows:
 202320222021
Cost of revenue$1,817$1,868$2,243
Research and development expenses5,8024,5444,206
Selling, general and administrative expenses28,10922,35921,629
Total$35,728$28,771$28,078
Performance Share Awards. The award agreements for the PSAs provide 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 with respect to specified targets at the end of the three-year performance period. PSAs granted since 2021 have two weighted performance targets: (i) the Company’s compound annual growth rate (CAGR), a performance condition and (ii) relative total shareholder return (TSR), a market condition, both measured over the three-year performance period. TSR is measured against the Nasdaq Health Care Index constituents and the 20-trading-day average stock price prior to the start and end of the performance period. PSAs granted in 2021 have payout opportunities ranging from 0% to 200% of the target amount, based on equally weighted performance targets. PSAs granted beginning in 2022 have payout opportunities ranging from 0% to 300% of the target amount. PSAs granted in 2022 are weighted 60% on the CAGR performance target and 40% on the TSR performance target. PSAs granted in 2023 are weighted 75% on the CAGR performance target and 25% on the TSR performance target. These ranges are used to determine the number of shares that will be issuable when the award vests. 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 agreements. All or a portion of the PSAs may vest following a change of control or a termination of service by reason of death or disability.
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ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
PSA activity at target attainment under the 2014 Planplans during 2023 was as follows:
Performance Share AwardsNumber of Shares Outstanding
Weighted
Average
Grant Date
Fair Value
Outstanding at January 1, 2023213 $90.70
Awarded236 46.16
Vested(96)89.36
Forfeited— 
Outstanding at December 31, 2023353 $61.09
During the year ended December 31, 2023, the 2021 PSAs with a TSR performance target vested at the target threshold, while 2021 PSAs with a CAGR performance target vested over the target threshold. An additional 43 shares were earned that are excluded from plan activity above. The total fair value of performance share awards vested during 2023, 2022 and 2021 was $4,955, $5,185 and $8,165.
In determining compensation expense, the fair value of 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. The fair value of performance share awards with a market condition is estimated on the grant date using a Monte Carlo simulation and includes the following assumptions:
202320222021
Stock price$38.81$39.94 - $69.59$66.31
Expected term (years)2.82.6 to 2.82.8
Company volatility44.80%43.50 - 46.90%42.10%
Market index average volatility91.00%90.30 - 92.00%91.00%
Market index average correlation32.20%33.50 - 35.40%31.50%
Risk-free interest rate4.60%1.40 - 2.70%0.20%
Dividend yield0.00%0.00%0.00%
The expected term is estimated as the remaining performance period at the grant date. Expected volatility is estimated based on the Company and daily trading prices of the market index, adjusted for dividends and stock splits over the remaining performance period. The risk-free interest rate is based upon the US Constant Maturity yield curve at the time of grant for the expected term of the performance share awards. Based on the assumptions above, the weighted average estimated grant date fair value per share and expense was as follows:
202320222021
Weighted average estimated grant date fair value$46.16$91.05$89.36
Expense11,4178,7318,095
As of December 31, 2023, $11,610 of unrecognized compensation costs related to non-vested performance share awards are expected to be recognized over a weighted-average period of 1.7 years.
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Table of Contents
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
Restricted Stock Awards and Units. Restricted stock awards and restricted stock units granted generally vest at a rate of 33.3% on the first, second and third anniversaries of the grant date. Activity under the plans during 2023 was as follows:
Restricted Stock Awards
RSA
Shares
Outstanding
Weighted
Average
Grant Date
Fair Value
Outstanding at January 1, 2023598 $60.00
Awarded751 39.21
Released(338)54.08
Forfeited(29)50.25
Outstanding at December 31, 2023982 $46.43
The total fair value of restricted stock vested during 2023, 2022 and 2021 was $13,824, $23,242 and $40,510.
In determining compensation expense, the fair value of restricted stock awards and restricted stock units is based on the market value of the Company’s stock on the grant date of the awards. The weighted average estimated grant date fair value per share and expense was as follows:
202320222021
Weighted average estimated grant date fair value$39.21$63.14$67.51
Expense21,79717,62117,746
As of December 31, 2023, $28,202 of unrecognized compensation costs related to non-vested performance share are expected to be recognized over a weighted-average period of 1.9 years.
Stock Options. Stock options granted generally vest at a rate of 33.3% on the first, second and third anniversaries of the grant date and expire ten years from the date of grant and generally vest at a rate of 25% on the first anniversary date of the grant and ratably each month thereafter over the following three years. Restricted stock awards granted under the 2014 Plan vest between one and four years from  the date of grant.

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ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

Activity under the plans during 20172023 was as follows:



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

Weighted

 

 

 



 

 

 

 

 

Weighted

 

 

Average

 

 

 



 

 

Number of

 

 

Average

 

 

Remaining

 

 

Aggregate



 

 

Shares

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

Time-Based Stock Options

 

 

Outstanding

 

 

Price

 

 

Term

 

 

Value

Outstanding at January 1, 2017

 

 

2,454 

 

$

12.51 

 

 

 

 

 

 

Granted

 

 

65 

 

 

20.22 

 

 

 

 

 

 

Exercised

 

 

(458)

 

 

9.61 

 

 

 

 

 

 

Cancelled

 

 

(35)

 

 

19.08 

 

 

 

 

 

 

Outstanding at December 31, 2017

 

 

2,026 

 

$

13.30 

 

 

5.62 

 

$

11,730 

Vested and expected to vest

 

 

2,004 

 

$

13.23 

 

 

5.58 

 

$

11,717 

Exercisable at December 31, 2017

 

 

1,766 

 

$

12.48 

 

 

5.20 

 

$

11,471 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

Weighted

 

 

 

 

 

 



 

 

Number of

 

 

Average

 

 

 

 

 

 



 

 

Shares

 

 

Grant Date

 

 

 

 

 

 

Restricted Stock

 

 

Outstanding

 

 

Fair Value

 

 

 

 

 

 

Outstanding at January 1, 2017

 

 

1,416 

 

$

17.40 

 

 

 

 

 

 

Awarded

 

 

771 

 

 

19.38 

 

 

 

 

 

 

Released

 

 

(331)

 

 

17.43 

 

 

 

 

 

 

Forfeited

 

 

(11)

 

 

18.52 

 

 

 

 

 

 

Outstanding at December 31, 2017

 

 

1,845 

 

$

18.22 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

Weighted

 

 

 



 

 

 

 

 

Weighted

 

 

Average

 

 

 



 

 

Number of

 

 

Average

 

 

Remaining

 

 

Aggregate



 

 

Shares

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

Performance Stock Options

 

 

Outstanding

 

 

Price

 

 

Term

 

 

Value

Outstanding at January 1, 2017

 

 

450 

 

$

13.48 

 

 

 

 

 

 

Granted

 

 

 —

 

 

 —

 

 

 

 

 

 

Exercised

 

 

 —

 

 

 —

 

 

 

 

 

 

Cancelled

 

 

 —

 

 

 —

 

 

 

 

 

 

Outstanding at December 31, 2017

 

 

450 

 

$

13.48 

 

 

5.45 

 

$

2,774 

Exercisable at December 31, 2017

 

 

250 

 

$

13.48 

 

 

5.45 

 

$

1,541 
Time-Based Stock Options
Number of
Shares
Outstanding
Weighted
 Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Outstanding at January 1, 2023481 $29.34 
Granted— — 
Exercised(137)16.93 
Forfeited(12)64.93 
Outstanding at December 31, 2023332 $33.20 4.0$3,584 
Vested and expected to vest332 $33.15 4.0$3,584 
Exercisable at December 31, 2023308 $30.22 3.7$3,584 

61


Table of Contents

ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

Activity under the plans during 2016 was as follows:



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

Weighted

 

 

 



 

 

 

 

 

Weighted

 

 

Average

 

 

 



 

 

Number of

 

 

Average

 

 

Remaining

 

 

Aggregate



 

 

Shares

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

Time-Based Stock Options

 

 

Outstanding

 

 

Price

 

 

Term

 

 

Value

Outstanding at January 1, 2016

 

 

2,734 

 

$

11.75 

 

 

 

 

 

 

Granted

 

 

215 

 

 

16.74 

 

 

 

 

 

 

Exercised

 

 

(394)

 

 

8.47 

 

 

 

 

 

 

Cancelled

 

 

(101)

 

 

16.66 

 

 

 

 

 

 

Outstanding at December 31, 2016

 

 

2,454 

 

$

12.51 

 

 

6.02 

 

$

18,295 

Vested and expected to vest

 

 

2,420 

 

$

12.42 

 

 

5.99 

 

$

18,228 

Exercisable at December 31, 2016

 

 

1,914 

 

$

11.01 

 

 

5.40 

 

$

16,897 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

Weighted

 

 

 

 

 

 



 

 

Number of

 

 

Average

 

 

 

 

 

 



 

 

Shares

 

 

Grant Date

 

 

 

 

 

 

Restricted Stock

 

 

Outstanding

 

 

Fair Value

 

 

 

 

 

 

Outstanding at January 1, 2016

 

 

1,071 

 

$

17.30 

 

 

 

 

 

 

Awarded

 

 

710 

 

 

16.35 

 

 

 

 

 

 

Forfeited

 

 

(70)

 

 

17.31 

 

 

 

 

 

 

Released

 

 

(295)

 

 

14.49 

 

 

 

 

 

 

Outstanding at December 31, 2016

 

 

1,416 

 

$

17.40 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

Weighted

 

 

 



 

 

 

 

 

Weighted

 

 

Average

 

 

 



 

 

Number of

 

 

Average

 

 

Remaining

 

 

Aggregate



 

 

Shares

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

Performance Stock Options

 

 

Outstanding

 

 

Price

 

 

Term

 

 

Value

Outstanding at January 1, 2016

 

 

450 

 

$

13.48 

 

 

 

 

 

 

Granted

 

 

 —

 

 

 —

 

 

 

 

 

 

Exercised

 

 

 —

 

 

 —

 

 

 

 

 

 

Cancelled

 

 

 —

 

 

 —

 

 

 

 

 

 

Outstanding at December 31, 2016

 

 

450 

 

$

13.48 

 

 

6.45 

 

$

3,074 

Exercisable at December 31, 2016

 

 

250 

 

$

13.48 

 

 

6.45 

 

$

1,708 

The total intrinsic value of options exercised during the years ended December 31, 2017, 20162023, 2022 and 20152021 was $5,121,  $3,550$2,982, $5,565 and $2,740.$27,318. As a result of the Company’s full valuation allowance on its net deferred tax assets, no tax benefit was recognized related to the stock option exercises. The exercise price per share of each option is equal to the fair market value of the underlying share on the date of grant. For 2017, 20162023, 2022 and 2015,  $4,402, $3,3372021, $2,316, $1,816 and $2,703$8,175 in cash proceeds from the exercise of stock options were included in the Company’s Consolidated Statements of Cash Flows as a result of the exercise of stock options. Flows.

The total fair value of restrictedoptions is estimated on the grant date using the Black-Scholes model. No options were granted during 2023 or 2022.
69

Table of Contents
ATRICURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In Thousands, Except Per Share Amounts)
Options granted in 2021 included the following assumptions:
2021
Range of risk-free interest rate0.43 - 1.22%
Range of expected life of stock options (years)5.3 to 5.7
Range of expected volatility of stock40.00 - 43.00%
Weighted-average volatility41.84%
Dividend yield0.00%
The Company’s estimate of volatility is based solely on the Company’s stock vested during 2017, 2016 and 2015 was $6,235,  $5,102 and $2,767.price over the expected option life. The risk-free interest rate assumption is based upon the U.S. treasury yield curve at the time of grant for the expected option life. The Company issues registered sharesestimates the expected terms of common stock to satisfy stock option exercisesoptions using historical employee exercise behavior. Based on the assumptions noted above, the weighted average estimated grant date fair value per share and restricted stock grants.

 The Company recognized expense related to time-based stock options and restricted stock for 2017, 2016, and 2015 of $13,908,  $10,872 and $8,072. was as follows:

 202320222021
Weighted average estimated grant date fair value$$$27.31
Expense7651,012981
As of December 31, 2017 there was $23,3312023, $287 of unrecognized compensation costs related to non-vested stock option and restricted stock arrangements ($2,197 relating to stock options and $21,134 relating to restricted stock). This cost isare expected to be recognized over a weighted-average period of 2.2 years for stock options and 2.2 years for restricted stock.

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

0.5 years.

62


Table of Contents

ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

performance options during 2017, 2016 and 2015 of $43,  $269 and $546. As of December 31, 2017, compensation costs related to non-vested performance options were fully recognized.  

Employee Stock Purchase Plan

The ESPP is available to eligible employees as defined in the plan document.

Under the ESPP, shares of the Company’s common stock may be purchased at a discount (currently 15%(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 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. On the first day of each fiscal year during the term of the ESPP, the number of shares available for sale under the ESPP may be increased by the lesser of (i) two percent (2%) of the Company’s outstanding shares of common stock as of the close of business on the last business day of the prior calendar year, not to exceed 600 shares, or (ii) a lesser amount determined by the Board of Directors. Shares have not been added to the ESPP since 2011. As of December 31, 2017, there were 2252023, 782 shares are available for future issuance under the ESPP. Share-based compensation expense with respect to the ESPP was $664,  $556 and $379 for 2017, 2016 and 2015.

Valuation and Expense Information Under FASB ASC 718

The following table summarizes share-based compensation expense related to employees, directors and consultants under FASB ASC 718 for 2017, 2016 and 2015. The expense was allocated as follows:

$1,749, $1,407 and $1,256 for the years ended December 31, 2023, 2022 and 2021.



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

2015

Cost of revenue

 

$

610 

 

$

420 

 

$

416 

Research and development expenses

 

 

2,052 

 

 

1,825 

 

 

1,373 

Selling, general and administrative expenses

 

 

11,953 

 

 

9,452 

 

 

7,208 

Total

 

$

14,615 

 

$

11,697 

 

$

8,997 

15. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
In calculating compensation expense, the fair valueaddition to net (loss) income, comprehensive (loss) income includes foreign currency translation adjustments and unrealized losses on investments. Accumulated other comprehensive income (loss) consisted of the options is estimated on the grant date using the Black-Scholes model including the following, assumptions:



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

2017

 

 

2016

 

 

2015

Risk-free interest rate

 

 

1.75 - 2.12

%

 

 

1.06 - 2.02

%

 

 

1.30 - 1.96

%

Expected life of option (years)

 

 

5.21 to 5.76

 

 

 

5.27 to 7.10

 

 

 

5.20 to 6.89

 

Expected volatility of stock

 

 

43.00 - 48.00

%

 

 

46.00 - 51.00

%

 

 

46.00 - 67.00

%

Weighted-average volatility

 

 

44.50 

%

 

 

48.87 

%

 

 

54.75 

%

Dividend yield

 

 

0.00 

%

 

 

0.00 

%

 

 

0.00 

%

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

The fair value of restricted stock awards is based on the market value of the Company’s stock on the date of the awards.

Based on the assumptions noted above, the weighted average estimated grant date fair value per share of the stock options and restricted stock granted for 2017, 2016 and 2015 was as follows:

tax:



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

2017

 

 

2016

 

 

2015

Stock options

 

$

8.60 

 

 

$

8.25 

 

 

$

11.12 

Restricted stock

 

 

19.38 

 

 

 

16.35 

 

 

 

17.82 
202320222021
Total accumulated other comprehensive (loss) income at beginning of period$(4,096)$(948)$312 
Unrealized (losses) gains on investments
Balance at beginning of period$(3,698)$(887)$54 
Other comprehensive income (loss) before reclassifications2,898 (2,739)(941)
Amounts reclassified from accumulated other comprehensive income (loss) to interest income— (72)— 
Balance at end of period$(800)$(3,698)$(887)
Foreign currency translation adjustment
Balance at beginning of period$(398)$(61)$258 
Other comprehensive income (loss) before reclassifications154 (774)(768)
Amounts reclassified from accumulated other comprehensive (loss) income to other (expense) income51 437 449 
Balance at end of period$(193)$(398)$(61)
Total accumulated other comprehensive loss at end of period$(993)$(4,096)$(948)

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

63

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Table of Contents

ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

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



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

Price

 

 

Fair Value of

 

 

Fair Value of



 

Target

 

 

2012 Grant

 

 

2014 Grant

Tranche 1

 

$

10.00 

 

 

$

4.32 

 

 

$

14.74 

Tranche 2

 

 

12.50 

 

 

 

4.30 

 

 

 

14.74 

Tranche 3

 

 

15.00 

 

 

 

4.27 

 

 

 

14.74 

Tranche 4

 

 

17.50 

 

 

 

4.23 

 

 

 

14.74 

Tranche 5

 

 

20.00 

 

 

 

4.19 

 

 

 

14.73 

Tranche 6

 

 

25.00 

 

 

 

4.10 

 

 

 

14.73 

Tranche 7

 

 

30.00 

 

 

 

4.01 

 

 

 

14.71 

Tranche 8

 

 

35.00 

 

 

 

3.92 

 

 

 

14.67 

Tranche 9

 

 

40.00 

 

 

 

3.83 

 

 

 

14.61 

15. SEGMENT AND GEOGRAPHIC INFORMATION

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

Revenue by geographic area was as follows:



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

2015

United States

 

$

138,387 

 

$

122,385 

 

$

102,212 

Europe

 

 

21,901 

 

 

19,772 

 

 

17,180 

Asia

 

 

13,616 

 

 

12,223 

 

 

9,510 

Other international

 

 

812 

 

 

729 

 

 

853 

Total international

 

 

36,329 

 

 

32,724 

 

 

27,543 

Total revenue

 

$

174,716 

 

$

155,109 

 

$

129,755 

United States revenue by product type was as follows:



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

2015

Open-heart ablation

 

$

64,517 

 

$

58,050 

 

$

53,541 

Minimally invasive ablation

 

 

34,421 

 

 

31,169 

 

 

21,564 

AtriClip devices

 

 

37,281 

 

 

30,321 

 

 

24,377 

Total ablation and AtriClip devices

 

 

136,219 

 

 

119,540 

 

 

99,482 

Valve tools

 

 

2,168 

 

 

2,845 

 

 

2,730 

Total United States 

 

$

138,387 

 

$

122,385 

 

$

102,212 

International revenue by product type was as follows:



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

2015

Open-heart ablation

 

$

20,718 

 

$

20,189 

 

$

16,287 

Minimally invasive ablation

 

 

8,007 

 

 

8,065 

 

 

7,964 

AtriClip devices

 

 

7,251 

 

 

3,986 

 

 

2,868 

Total ablation and AtriClip devices

 

 

35,976 

 

 

32,240 

 

 

27,119 

Valve tools

 

 

353 

 

 

484 

 

 

424 

Total international

 

$

36,329 

 

$

32,724 

 

$

27,543 

64


Table of Contents

ATRICURE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(In Thousands, Except Per Share Amounts)

The Company’s long-lived assets are located primarily in the United States, except for $957 as of December 31, 2017 and $931 as of December 31, 2016, which are located primarily in Europe.

16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the Three Months Ended



 

March 31,

 

June 30,

 

September 30,

 

December 31,



 

2017

 

2016

 

2017

 

2016

 

2017

 

2016

 

2017

 

2016

Operating Results:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

41,273 

 

$

35,940 

 

$

45,231 

 

$

39,672 

 

$

42,150 

 

$

38,340 

 

$

46,062 

 

$

41,157 

Gross profit

 

 

30,008 

 

 

25,914 

 

 

32,554 

 

 

28,818 

 

 

30,918 

 

 

27,472 

 

 

32,683 

 

 

28,897 

Loss from operations

 

 

(9,642)

 

 

(9,419)

 

 

(6,355)

 

 

(7,738)

 

 

(6,847)

 

 

(6,286)

 

 

(2,135)

 

 

(7,695)

Net loss

 

 

(10,183)

 

 

(9,724)

 

 

(6,883)

 

 

(8,206)

 

 

(7,246)

 

 

(6,783)

 

 

(2,580)

 

 

(8,625)

Net loss per share (basic and diluted)

 

$

(0.32)

 

$

(0.31)

 

$

(0.21)

 

$

(0.26)

 

$

(0.22)

 

$

(0.21)

 

$

(0.08)

 

$

(0.27)

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.

65


Table of Contents

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Beginning

 

 

 

 

 

 

 

Ending



 

Balance

 

Additions

 

Deductions

 

Balance

Reserve for sales returns and allowances

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2017

 

$

834 

 

$

441 

 

$

106 

 

$

1,169 

Year ended December 31, 2016

 

 

207 

 

 

634 

 

 

 

 

834 

Year ended December 31, 2015

 

 

135 

 

 

78 

 

 

 

 

207 

Allowance for inventory valuation

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2017

 

$

1,080 

 

$

1,004 

 

$

1,195 

 

$

889 

Year ended December 31, 2016

 

 

843 

 

 

1,692 

 

 

1,455 

 

 

1,080 

Year ended December 31, 2015

 

 

522 

 

 

720 

 

 

399 

 

 

843 

Valuation allowance for deferred tax assets

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2017

 

$

81,982 

 

$

 —

 

$

15,009 

 

$

66,973 

Year ended December 31, 2016

 

 

73,682 

 

 

8,300 

 

 

 —

 

 

81,982 

Year ended December 31, 2015

 

 

59,554 

 

 

14,128 

 

 

 —

 

 

73,682 

66


Table of Contents

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

None.

ITEM

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As defined in Rules 13(a)-15(e) and 15(d) -15(e) of the Securities Exchange Act of 1934 (Exchange Act), the

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

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

Changes in Internal Control over Financial Reporting

In the ordinary course of business, we routinely enhance our information systems by either upgrading current systems or implementing new ones. There were no changes in our internal control over financial reporting that occurred during the three or twelve months ended December 31, 20172023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Annual Report on Internal Control Over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017.2023. 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, 2017.  

2023.

Deloitte & Touche LLP, the Company’s independent registered public accounting firm, has audited the 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.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of

AtriCure, Inc.

Mason, Ohio

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of AtriCure, Inc. and subsidiaries (the “Company”) as of December 31, 2017,2023, 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, 2017,2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2017,2023, of the Company and our report dated February 28, 2018,16, 2024, expressed an unqualified opinion on those financial statements.

Basis for Opinion

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

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

Definition and Limitations of Internal Control over Financial Reporting

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

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

/s/ Deloitte & Touche LLP

Cincinnati, Ohio

February 28, 2018

16, 2024

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ITEM

ITEM 9B. OTHER INFORMATION

During the quarter ended December 31, 2023, except as described below, none of our executive officers or directors adopted or terminated a "Rule 10b5-1(c) trading arrangement" or a “non-Rule 10b5-1 trading arrangement” (as each term is defined in Item 408 of Regulation S-K).
On December 12, 2023, Justin J. Noznesky, our Chief Marketing and Strategy Officer, adopted a trading plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c). Mr. Noznesky's plan covers the sale of up to 9,273 shares of our common stock between March 12, 2024 and June 28, 2024. Transactions under the plan were based upon pre-established dates and stock price thresholds.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.

PART

PART III

ITEM

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this Itemitem with respect to the Company’s Directors is incorporated by reference to thecontained in our definitive proxy statement (the “Proxy Statement”) for our 20182024 Annual Meeting of Stockholders to be filed withunder the Securitiesheading “Proposal One—Election of Directors” and Exchange Commission within 120 days after the end of 2017 (the “Proxy Statement”).

ITEM 11.  EXECUTIVE COMPENSATION 

is incorporated herein by reference.

The information required by this Itemitem with respect to the Company’s Executive Officers is contained in the Proxy Statement under the heading “Management” and is incorporated herein by referencereference.
The information required by this item with respect to compliance with Section 16(a) of the Exchange Act is contained in the Proxy Statement under the heading “Delinquent Section 16(a) Reports” and is incorporated herein by reference.
The information required by this item with respect to the Company’s code of ethics that applies to directors, officers and employees, including the Company’s principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions, is contained in the Proxy Statement.

Statement under the heading “Corporate Governance Guidelines—Code of Conduct” and is incorporated herein by reference.

The information required by this item with respect to the procedures by which security holders may recommend nominees to the Board is contained in the Proxy Statement under the heading “Questions and Answers” and is incorporated herein by reference.
The information required by this item with respect to the Company’s Audit Committee, including the Audit Committee’s members and its financial experts, is contained in the Proxy Statement under the heading “Committees of the Board—Audit Committee” and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item with respect to executive compensation and director compensation is contained in the Proxy Statement under the headings “Executive Compensation” and “Director Compensation” and is incorporated herein by reference.
The information required by this item with respect to compensation committee interlocks and insider participation is contained in the Proxy Statement under the heading “Compensation Committee Interlocks and Insider Participation” and is incorporated herein by reference.
The Compensation 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.
The information required by this item with respect to compensation policies and practices as they relate to the Company’s risk management is contained in the Proxy Statement under the heading “Compensation Discussion and Analysis” and is incorporated herein by reference.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table summarizes information about our equity compensation plans as of December 31, 2017.

2023.



 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

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

 

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

 

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

Plan Category

 

(a)

 

 

(b)

 

(c)

Equity compensation plans approved by
security holders (3)

 

4,320,704 

 

$

13 

 

1,127,972 

Equity compensation plans not approved by
security holders

 

 —

 

 

 —

 

 —

Total

 

4,320,704 

 

$

13 

 

1,127,972 

_________________________

(1)

Represents outstanding stock options and restricted stock as of December 31, 2017.

 
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights (1)
Weighted-average
exercise price of
outstanding options,
warrants and rights (2)
Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a))
Plan Category(a)
 (b)
 (c)
Equity compensation plans approved by security holders (3)
1,667,626 $33.20 2,237,742 
Equity compensation plans not approved by security holders— — — 
Total1,667,626 $33.20 2,237,742 

(2)

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

(3)

Amounts include awards under our 2005 Equity Incentive Plan and 2014 Stock Incentive Plan but exclude shares purchased under our 2008 Employee Stock Purchase Plan.

(1)Represents outstanding stock options, restricted stock awards and performance shares as of December 31, 2023.

(2)The remainingweighted average exercise price is calculated without taking into account restricted stock that will become issuable, without any cash consideration or other payment, as vesting requirements are achieved.
(3)Amounts include awards under our 2023 Stock Incentive Plan (and prior plans, the 2005 Equity Incentive Plan and 2014 Stock Incentive Plan) but exclude shares purchased under our 2018 Employee Stock Purchase Plan.
The information required by this Itemitem with respect to security ownership of certain beneficial owners and management is contained in the Proxy Statement under the heading “Security Ownership of Certain Beneficial Owners and Management” and is incorporated herein by reference to the Proxy Statement.

ITEMreference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Itemitem with respect to director independence is contained in the Proxy Statement under the heading “Corporate Governance and Board Matters – Independence of the Board” and is incorporated herein by reference to the Proxy Statement.

ITEMreference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Itemitem with respect to audit fees, tax fees and the Audit 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 to the Proxy Statement.

reference.

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PART

PART IV

ITEM

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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

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

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

Exhibit No.

Description

Exhibit No.

3.1

Description

  3.1

3.2

4.1

10.1#

Agreement, dated asSection 12 of July 18, 2006, by and between AtriCure, Inc. and the Cleveland Clinic (incorporated by reference to our Current Report on Form 8-K, filed on July 20, 2006).

10.2#

Amendment No. 1, dated asSecurities Exchange Act of December 1, 2008, to Agreement dated as of July 18, 2006 by and between AtriCure, Inc. and the Cleveland Clinic1934 (incorporated by reference to our Annual Report on Form 10-K filed on March 16, 2009)February 24, 2020).

10.3#

10.1#

Amendment No. 2, effective as of December 28, 2009, to Agreement dated as of July 18, 2006 by and between AtriCure, Inc. and the Cleveland Clinic (incorporated by reference to our Annual Report on Form 10-K filed on March 30, 2010).

10.4#

Employment Agreement, dated as of January 16, 2012, between AtriCure, Inc. and Andrew L. Lux (incorporated by reference to our Current Report on Form 8-K, filed on January 17, 2012).

10.5#

10.6#

10.2#

10.7#

10.3#

10.4#

10.8#

10.5#

10.6#

10.9

10.7

10.10

10.8

10.11#

10.9

10.12#

10.10#

10.13#

10.11#

10.14#

Form of Stock Option Award Agreement for Non-Employee Directors under the Amended and Restated AtriCure, Inc. 2014 Stock Incentive Plan (incorporated by reference to our Quarterly Report on Form 10-Q, filed on OctoberJuly 31, 2014)2019).

10.15

10.12#

10.13

10.14

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Table of Contents

Exhibit No.

Description

10.16

10.15
10.16
75

Table of Contents
Exhibit No.Description
10.17

12.1

10.18§

21

10.19#

10.20#
10.21#
10.22#
10.23#
10.24#
14
Code of Conduct (incorporated by reference to our Annual Report on Form 10-K filed on February 22, 2023).
19
21

23.1

31.1

31.2

32.1

32.2

97

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

104Cover Page Interactive Data File

_________________________

#    Compensatory plan or arrangement.

§    Certain portions of this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The omitted information is not material and would likely cause competitive harm to the Registrant if publicly disclosed. The Registrant hereby agrees to furnish a copy of any omitted portion to the SEC upon request.
ITEM 16. FORM 10-K SUMMARY

Not provided

provided.

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SIGNATURES

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

AtriCure, Inc.

AtriCure, Inc.

(REGISTRANT)

(REGISTRANT)

Date: February 28, 2018

16, 2024

/s/ Michael H. Carrel

Michael H. Carrel

President and Chief Executive Officer

(Principal Executive Officer)

Date: February 28, 2018

16, 2024

/s/ M. Andrew Wade

Angela L. Wirick

M. Andrew Wade

Angela L. Wirick

Senior Vice President and Chief Financial Officer

(Principal Accounting and Financial Officer)

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


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Table of Contents
Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed by the following persons on behalf of the registrant and in the capacities indicated on February 28, 2018. 

16, 2024.

Signature

Title(s)

Signature

/s/ B. Kristine Johnson

Title(s)

B. Kristine Johnson

B. Kristine Johnson

/s/ Richard M. Johnston

Richard M. Johnston

RichardM.Johnston

ChairmanChair of the Board

/s/ Michael H. Carrel

Michael H. Carrel

Michael H. Carrel

Director, President and Chief Executive Officer

(Principal Executive Officer)

/s/ M. Andrew Wade

M. Andrew Wade

M. Andrew Wade

Senior Vice President and Chief Financial Officer

(Principal Accounting and Financial Officer)

/s/ Mark A. Collar

Mark A. Collar

Mark A. Collar

Director

/s/ Scott W. Drake

Scott W. Drake

Scott W. Drake

Director

/s/ Regina E. Groves

Regina E. Groves

Regina E. Groves

Director

/s/ Shlomo Nachman

Shlomo Nachman

/s/ B. Kristine Johnson

Shlomo Nachman

B. Kristine Johnson

Director

B. Kristine Johnson

/s/ Karen N. Prange

Director

Karen N. Prange

Karen N. Prange

Director

/s/ Elizabeth D. Krell

Deborah H. Telman

Elizabeth D. Krell

Deborah H. Telman

Elizabeth D. Krell

Deborah H. Telman

Director

/s/ Mark R. Lanning

Mark R. Lanning

Mark R. Lanning

Director

/s/ Sven A. Wehrwein

Sven A. Wehrwein

Sven A. Wehrwein

Director

/s/ Robert S. White

Robert S. White

Robert S. White

Director

/s/ Maggie YuenMaggie Yuen
Maggie YuenDirector

72

78