Use of Estimates and Summary of Significant Accounting Policies | 12 Months Ended |
Dec. 31, 2014 |
Accounting Policies [Abstract] | |
Use of Estimates and Summary of Significant Accounting Policies | Use of Estimates and Summary of Significant Accounting Policies |
The preparation of financial statements in conformity with GAAP requires the Company's management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, the Company's management evaluates its estimates, including those related to (i) collectibility of customer accounts; (ii) whether the cost of inventories can be recovered; (iii) the value of goodwill and intangible assets; (iv) realization of tax assets and estimates of tax liabilities; (v) likelihood of payment and value of contingent liabilities; and (vi) potential outcome of litigation. Such estimates are based on management's judgment which takes into account historical experience and various assumptions. Nonetheless, actual results may differ from management's estimates. |
The following critical accounting policies and estimates were used in the preparation of the accompanying Consolidated Financial Statements: |
(i) Cash and Cash Equivalents |
We consider all highly liquid investments that are readily convertible into cash and have a maturity of three months or less at the time of purchase to be cash equivalents. The cost of these investments approximates their fair value. |
(ii) Marketable securities |
At December 31, 2014, the Company’s investments included short-term and long-term marketable securities, which are classified as held-to-maturity investments as the Company has the positive intent and ability to hold the investments to maturity. These investments are therefore recorded on an amortized cost basis. Discounts or premiums are amortized to interest income using the interest method. Marketable securities are investments with original maturities of greater than 90 days. |
Management reviewed the Company’s investments as of December 31, 2014 and concluded that there are no securities with other than temporary impairments in the investment portfolio. The Company does not intend to sell any investments and it is not likely that the Company will be required to sell the investments before recovery of their amortized cost bases at maturity. |
(iii) Accounts Receivable |
Trade accounts receivable are recorded at the invoiced amount, inclusive of applicable value-added tax ("VAT"), and do not bear interest. Revenue is recorded net of VAT. The allowance for doubtful accounts is management's best estimate of the amount of probable credit losses in existing accounts receivable. Account balances are charged off against the allowance after appropriate collection efforts are exhausted. |
(iv) Inventories |
The Company values inventory at the lower of the actual cost to purchase or manufacture the inventory, or the market value for such inventory. Cost is determined on the first-in, first-out method (FIFO). The Company regularly reviews inventory quantities in process and on hand, and when appropriate, records a provision for obsolete and excess inventory. The provision is based on actual loss experience and a forecast of product demand compared to its remaining shelf life. |
(v) Property and Equipment |
Property and equipment are stated at cost and depreciated on a straight-line basis over the following estimated useful lives: |
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Property Class | | Useful Life |
Office furniture | | Seven years |
Computer hardware | | Three years |
Computer software | | Three to eight years |
Production equipment and molds | | Three to seven years |
Leasehold improvements | | Shorter of expected useful life or remaining term of lease |
Upon sale or disposition of property and equipment, any gain or loss is included in the accompanying Consolidated Statements of Operations and Comprehensive Loss. Property and equipment are tested for impairment only when impairment indicators are present. |
(vi) Goodwill and Intangible Assets |
Intangible assets with definite lives are amortized over their estimated useful lives using a method that reflects the pattern over which the economic benefit is expected to be realized, and is as follows: |
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Intangible Asset Class | | Useful Life |
Goodwill | | Indefinite lived |
Trademarks and tradenames | | Indefinite lived |
Developed technology | | Thirteen years |
Patents & license | | One to five years |
Customer relationships | | Three years |
Goodwill and other intangible assets with indefinite lives are not subject to amortization, but are tested for impairment annually or whenever events or changes in business circumstances suggest the potential of an impairment. The Company completed its annual indefinite lived intangible asset impairment test as of June 30, 2014, with no resulting impairment based on the discounted cash flows expected to be generated in connection with underlying assets. |
The Company most recently completed its annual test for impairment of goodwill as of June 30, 2014, with no resulting impairment, as its market capitalization was in substantial excess of the value of its total stockholders' equity (the Company has one "reporting unit" for purposes of the goodwill impairment test). |
Intangible assets with finite lives are tested for impairment only when impairment indicators are present. |
(vii) Fair Value Measurements |
In determining the fair value of its assets and liabilities, the Company uses various valuation approaches. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (i) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (ii) an entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below: |
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. |
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
Level 3 - Inputs that are both significant to the fair value measurement and unobservable. |
The availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level input that is significant to the overall fair value measurement. |
The Company’s held-to-maturity securities, which are fixed income investments, are comprised of obligations of U.S. government agencies, corporate debt securities and other interest bearing securities. These held-to-maturity securities are recorded at amortized cost and are therefore not included in the Company’s market value measurement disclosure. Money market funds, which are cash and cash equivalents, are valued using quoted market prices with no valuation adjustments applied. Accordingly, these securities are categorized in Level 1. The recorded values of all our other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations. |
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The recorded values of all our accounts receivable and accounts payable approximate their current fair values because of their nature and respective relatively short maturity dates or durations. |
(viii) Contingent Consideration for Business Acquisition |
The Company's management determined the fair value of contingently issuable common stock on the Nellix acquisition date (see Note 9) using a probability-based income approach with an appropriate discount rate (determined using both Level 1 and Level 3 inputs). Changes in the fair value of this contingently issuable common stock are determined at each period end and are recorded in the other income (expense) section of the accompanying Consolidated Statements of Operations and Comprehensive Loss, and the current and non-current liabilities section of the accompanying Consolidated Balance Sheet. |
(ix) Revenue Recognition |
The Company recognizes revenue when all of the following criteria are met: |
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• Appropriate evidence of a binding arrangement exists with the customer; |
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• | The sales price for the EVAR or EVAS product (including device extensions and accessories) is established with the customer; | |
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• | The EVAR or EVAS product has been used by the hospital in an EVAR procedure, or the distributor has assumed title with no right of return; and | |
• Collection of the corresponding receivable from the customer is reasonably assured at the time of sale. |
For sales made to hospitals, the Company recognizes revenue upon completion of an EVAR or EVAS procedure, when the EVAR or EVAS products are implanted in a patient. For sales made to distributors, the Company recognizes revenue when title passes, which is typically at the time of shipment, as this represents the period that the customer has assumed custody of the EVAR or EVAS product, without right of return, and assumed risk of loss. |
The Company does not offer rights of return, other than honoring a standard warranty. |
In the event that the Company enters into a bill and hold arrangement with its customer, which is uncommon, though occurred in 2012, the following conditions must be met for revenue recognition: |
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(i) | The risks of ownership must have passed to the customer; | |
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(ii) | The customer must have made a fixed and written commitment to purchase the EVAR or EVAS product; | |
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(iii) | The customer must request that the transaction be on a bill and hold basis; | |
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(iv) | There must be a fixed schedule for delivery of the EVAR or EVAS product. The date for delivery must be reasonable and must be consistent with the customer's business purpose; | |
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(v) | The Company must have no remaining specific performance obligations and its earnings process must be complete; | |
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(vi) | The customer's ordered EVAR or EVAS product must be segregated from the Company's inventory and cannot be used to fulfill other customer orders; and | |
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(vii) | The EVAR or EVAS products must be complete and ready for shipment. | |
In addition to the above requirements, the Company also considers other pertinent factors prior to its recognition of revenue for bill and hold arrangements, such as: |
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(i) | The date by which payment is expected from the customer, and whether the Company has modified its normal billing and credit terms for the customer; | |
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(ii) | The Company's past experiences with, and pattern of, bill and hold transactions; | |
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(iii) | Whether the customer has the expected risk of loss in the event of a decline in the market value of the EVAR or EVAS product; | |
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(iv) | Whether the Company's custodial risks are insurable and insured; and | |
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(v) | Whether extended procedures are necessary in order to assure that there are no exceptions to the customer's commitment to accept and pay for the EVAR or EVAS product (i.e., that the business reasons for the bill and hold have not introduced a contingency to the customer's commitment). | |
(x) Shipping Costs |
Shipping costs billed to customers are reported within revenue, with the corresponding costs reported within costs of goods sold. |
(xi) Foreign Currency Transactions |
The assets and liabilities of the Company's foreign subsidiaries are translated at the rates of exchange at the balance sheet date. The income and expense items of these subsidiaries are translated at average monthly rates of exchange. Gains and losses resulting from foreign currency transactions, which are denominated in a currency other than the respective entity’s functional currency are included in other income (expense), net, within the accompanying Consolidated Statements of Operations and Comprehensive Loss. Foreign currency translation adjustments between the respective entity's functional currency and the U.S. dollar are recorded to accumulated other comprehensive loss within the stockholders' equity section of the accompanying Consolidated Balance Sheets. There were no items reclassified out of accumulated other comprehensive loss and into net loss during the years ended December 31, 2014, 2013, and 2012. The only activity in the accumulated other comprehensive loss was related to foreign currency translation. |
(xii) Income Taxes |
The Company records the estimated future tax effects of temporary differences between the tax basis of assets and |
liabilities and amounts reported in the financial statements, as well as operating losses and tax credit carry forwards. The Company has recorded a valuation allowance to substantially reduce its net deferred tax assets, because the Company believes that, based upon a number of factors, it is more likely than not that substantially all the deferred tax assets will not be realized. If the Company were to determine that it would be able to realize additional deferred tax assets in the future, an adjustment to the valuation allowance on its deferred tax assets would increase net income in the period such determination was made. In the event that the Company were assessed interest and/or penalties from taxing authorities, such amounts would be included in "income tax expense" within the Consolidated Statements of Operations and Comprehensive Loss in the period the notice was received. |
(xiii) Net Loss Per Share |
Net loss per common share is computed using the weighted average number of common shares outstanding |
during the periods presented. Because of the net losses during the years ended December 31, 2014, 2013, and 2012, options to purchase the common stock, restricted stock awards, and restricted stock units of the Company were excluded from the computation of net loss per share for these periods because the effect would have been antidilutive. |
(xiv) Research and Development Costs |
Research and development costs are expensed as incurred. |
(xv) Product Warranty |
Within six months of shipment, certain customers may request replacement of products they receive that do not meet product specifications; no other warranties are offered. The Company contractually disclaims responsibility for any damages associated with physician's use of its EVAR or EVAS product. Historically, the Company has not experienced a significant amount of costs associated with its warranty policy. |