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Actionable news in ELGX: Endologix, Inc.,

Endologix: Report Of Independent Registered Public Accounting Firm

The following excerpt is from the company's SEC filing.

To the Board of Directors and Stockholders of

TriVascular Technologies, Inc.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of comprehensive loss, of convertible preferred stock and stockholders equity (deficit) and cash flows present fairly, in all material respects, the financial position of TriVascular Technologies, Inc. and its subsidiaries (the Company) at December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014 in conformity with accounting pri nciples generally accepted in the United States of America. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

San Jose, California

March 9, 2015


Consolidated Balance Sheets

(in thousands, except par value and share data)

As of December 31,


Current assets

Cash and cash equivalents



Short-term investments


Accounts receivable, net

Inventories, net

Prepaid expenses and other current assets

Total current assets



Property and equipment, net


Other intangible assets

Other assets

Total assets



Liabilities, Convertible Preferred Stock and Stockholders Equity (Deficit)

Current liabilities

Accounts payable

Accrued liabilities and other

Total current liabilities


Notes payable



Other long term liabilities

Total liabilities



Commitments and contingencies (Note 9)

Convertible preferred stock


Stockholders equity (deficit)

Preferred stock, $0.01 par value5,000,000 shares authorized, 0 shares issued and

outstanding at December 31, 2014

Common stock, $0.01 par value -100,000,000 shares authorized, 20,168,069 and

580,458 shares issued and outstanding at December 31, 2014 and 2013, respectively

Additional paid-in capital


Accumulated other comprehensive (loss) income

Accumulated deficit



Total stockholders equity (deficit)



Total liabilities, convertible preferred stock and stockholders equity (deficit)

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statements of Comprehensive Loss

(in thousands, except share and per share data)

Year Ended December 31,

(in thousands, except share and per share data)




Cost of goods sold



Gross profit



Operating expenses:

Sales, general and administrative




Research and development




Total operating expenses




Loss from operations




Other income (expense):

Loss on extinguishment of senior notes


Interest expense




Interest income and other income (expense), net


Loss before income tax expense




Provision for income tax

Net loss




Other comprehensive (loss) income:

Change in foreign currency translation adjustment

Change in unrealized (loss) gain on short-term investments

Comprehensive loss




Net loss per share, basic and diluted



Weighted average shares used to compute net loss per share, basic and diluted




Consolidated Statements of Convertible Preferred Stock and Stockholders Equity (Deficit)

Common Stock





Income (Loss)

(in thousands, expect share and per share data)

Balances at January 1, 2012






Issuance of Series D convertible preferred stock at $0.3896 per share for cash in June and October 2012, net of issuance costs of $201



Issuance of common stock upon exercise of stock options


Issuance of common stock warrants in connection with term loan

Vesting of early exercised common stock

Stock-based compensation expense

Change in unrealized gain on investments

Balances at December 31, 2012






Issuance of Series E convertible preferred stock at $0.3896 per share for cash in November 2013, net of issuance costs of $110



Balances at December 31, 2013



Issuance of common stock in IPO, net of underwriters discount and offering costs




Conversion of preferred stock in connection with IPO





Conversion of preferred stock warrants into common stock warrants in connection with IPO

Unvested portion of early exercised stock options



Employee stock purchase plan


Change in unrealized loss on investments

Balances at December 31, 2014

Consolidated Statements of Cash Flows

(in thousands)

Years ended December 31,

Cash flows from operating activities

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

Depreciation and amortization of property and equipment

Amortization of premium on short-term investments, net

Amortization of debt issuance costs and debt discount

Provision for excess and obsolete inventory

Provision for bad debts

Changes in fair value of warrants

Amortization of intangibles acquired in business combination

Non-cash interest expense on notes payable

Changes in assets and liabilities





Net cash used in operating activities




Cash flows from investing activities

Purchase of short-term investments


Proceeds from sales of short-term investments

Proceeds from maturity of short-term investments

Purchase of property and equipment

Proceeds from notes receivable from related parties

Net cash provided by (used in) investing activities


Cash flows from financing activities

Proceeds from initial public offering, net


Proceeds from issuance of convertible preferred stock, net of issuance costs


Proceeds from bridge notes


Extinguishment of notes payable



Proceeds from notes payable, net of issuance costs



Payments for deferred offering costs

Proceeds from issuance of common stock

Net cash provided by financing activities




Effects of exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents




Beginning of year


End of year

Supplemental cash flow information

Interest paid on notes payable

Cash paid for income taxes

Significant non cash transactions

Conversion of convertible preferred stock into common stock

Unpaid deferred offering costs

Conversion of convertible preferred stock warrants into common stock warrants

Increase in deferred revenue related to distributor agreement

Vesting of early exercised stock options

Issuance of common and preferred stock warrants

Conversion of bridge notes and accrued interest into Series D preferred stock



1. The Company

TriVascular Technologies, Inc. (the Company) was incorporated in the state of Delaware in July 2007 and began operations on March 28, 2008. The Company is a medical device company developing and commercializing innovative technologies to significantly advance minimally invasive treatment of abdominal aortic aneurysms (AAA). The Ovation System, the Companys solution for the treatment of AAA through minimally invasive endovascular aortic repair (EVAR) is a new stent graft platform, providing an innovative and effective alternative to conventional devices. It is designed specifically to address many of the limitations associated with conventional EVAR devices and expand the pool of patients eligible for EVAR. The Company received CE Mark clearance in August 2010 and began commercial sales of its Ovation System in Europe in September 2010. In October 2012, the Company received approval from the U.S. Food and Drug Administration (the FDA) for the Ovation System for the treatment of AAA and began commercial sales in the United States in November 2012.

As a medical device company with little commercial operating history, the Company is subject to all of the risks and expenses associated with a growing company. The Company must, among other things, respond to competitive developments, attract, retain and motivate qualified personnel, and support the expense of developing and marketing new products based on innovative technology.

In the course of its development activities, the Company has sustained significant operating losses. Even if development and marketing efforts are successful, substantial time may pass before significant revenues will be realized, and during this period, the Company will require additional funds, the availability of which cannot be reasonably assured. From inception through December 31, 2014, the Company had an accumulated deficit of $295.9 million and had been unable to generate positive cash flow from operations. The Company has been able to fund its operations to date through the sale of convertible preferred stock, its initial public offering (IPO) and debt financing. The Companys management plans to expand commercial activities to grow revenues, manage expenses and obtain additional funds through the issuance of stock and additional debt. There can be no assurances that, in the event the Company requires additional financing, such financing will be available on terms which are favorable or at all. Failure to generate sufficient cash flows from operations, raise additional capital and reduce discretionary spending could have a material adverse effect on the Companys ability to achieve its intended business objectives.

2. Summary of Significant Accounting Policies

Basis of Presentation

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (U.S. GAAP) and with the rules and regulations of the U.S. Securities and Exchange Commission (SEC). The consolidated financial statements include the Companys accounts and those of its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

On April 22, 2014, the Company completed its IPO of 7,475,000 shares of common stock, which included the exercise in full by the underwriters in the offering of their option to purchase 975,000 additional shares of common stock, at an offering price of $12.00 per share. The Company received net proceeds of approximately $81.1 million, after deducting underwriting discounts and commissions and offering expenses. In connection with the IPO, the Companys outstanding shares of convertible preferred stock were automatically converted into 11,601,860 shares of common stock and warrants exercisable for convertible preferred stock were automatically converted into warrants exercisable for 192,472 shares of common stock, resulting in the reclassification of the related redeemable convertible preferred stock warrant liability of $0.6 million to additional paid-in capital.

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates and such differences could be material.

Segment Information

The Company considers operating segments to be components of the Company in which separate financial information is available that is evaluated regularly by the Companys chief operating decision maker in deciding how to allocate resources and in assessing performance. 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 by information about revenue by geographic region, for purposes of allocating resources and evaluating financial performance. The Company has one business activity and there are no segment managers who are held accountable for operations, operating results or plans for levels or components below the consolidated unit level. Accordingly, the Company has determined that it has a single reportable and operating segment structure. The Company and its Chief Executive Officer evaluate performance based primarily on revenue in the geographic locations in which the Company operates.

Revenues by geography are based on the billing address of the customer. The following table sets forth revenue by geographic area (in thousands):

United States (U.S.)





The following table summarizes countries with revenues accounting for more than 10% of the total:

Years ended December 31,


Amounts represent revenues accounting for less than 10%

Long-lived assets and operating income outside the U.S. are not material; therefore disclosures have been limited to revenue.

Cash and Cash Equivalents

Cash and cash equivalents consists of demand deposit accounts and institutional money market funds held in U.S. and foreign banks. Cash equivalents consists of highly liquid investment securities with original maturities at the date of purchase of three months or less and can be exchanged for a known amount of cash to be cash equivalents.


At December 31, 2014, the Companys investments consisted of investments, with maturities of longer than 90 days but less than a year based on expected maturity dates. They are classified as available for sale as the Company can liquidate their securities as needed, and changes in fair value between accounting periods are included in accumulated other comprehensive (loss) income on the balance sheet until the securities are sold. Discounts or premiums are amortized to interest income and other income (expense) net using the interest method.

Accounts Receivable

Trade accounts receivable are recorded at the invoice amount and do not include interest. The Company regularly reviews accounts for collectability and establishes an allowance for probable credit losses and writes off uncollectible accounts as necessary. The Company recorded an allowance for doubtful accounts of $72,000 and $0 at December 31, 2014 and 2013.


The Company values inventory at the lower of cost to purchase or manufacture the inventory or the market value for such inventory. Cost is determined using the standard cost method which approximates the first-in first-out method. The Company regularly reviews inventory quantities in consideration of actual loss experiences, projected future demand, and remaining shelf life to record a provision for excess and obsolete inventory when appropriate.

Concentration of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents and investments. The majority of the Companys cash is held by one financial institution in the United States in excess of federally insured limits. The Company held cash in foreign banks of approximately $0.9 million and $0.8 million at December 31, 2014 and 2013, respectively, which was not federally insured. The Company has not experienced any losses on its deposits of cash and cash equivalents.

Prior to 2013, the majority of the Companys revenues had been derived from sales of its products in international markets, principally Europe. In most international markets in which the Company participates, the Company uses distributors to sell its products. The Company performs ongoing credit evaluation of its distributors, does not require collateral, and maintains allowances for potential credit losses on customer accounts when deemed necessary.

As of December 31, 2014 and 2013, one customer accounted for 16.9% and 18% of the Companys accounts receivable, respectively.

The Companys products require approval from the FDA and certain international regulatory agencies prior to commencing commercial sales. There can be no assurance that the Companys future products will receive all of these required approvals. If the Company is denied such approvals or such approvals are delayed, it may have a material adverse impact on the Companys results of operations, financial position and liquidity.

The Company is subject to risks common to early-stage medical device companies including, but not limited to, new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, uncertainty of market acceptance of products, product liability and the need to obtain additional financing.

The Company currently conducts all of its manufacturing, development and management activities at a single location in Santa Rosa, California, near known earthquake fault zones. The Companys finished goods inventory is maintained in its Santa Rosa location and its third-party European distribution center in Belgium.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets.

The depreciation and amortization periods for the Companys property and equipment are as follows:

Equipment and software

3 years

Laboratory machinery and equipment

35 years

Furniture and fixtures

5 years

Leasehold improvements are amortized over the lesser of their useful lives or the remaining life of the lease. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation and amortization are removed from the consolidated balance sheet and the resulting gain or loss is reflected in operations in the period realized. Cost of maintenance and repairs are charged to expense as incurred, and improvements and betterments are capitalized.

Goodwill and Indefinite Lived Intangible Assets

On March 28, 2008, the Company acquired Boston Scientific Santa Rosa, or BSSR, (formerly known as TriVascular, Inc.), a business unit of Boston Scientific Corporation, a publically held global manufacturer of medical devices. Pursuant to the terms of the Stock Purchase Agreement, the Company purchased BSSR, for approximately $38.0 million, resulting in goodwill of $8.3 million, which is the excess of the purchase price over the identifiable tangible and intangible assets. The goodwill is not deductible for tax purposes.

The Company classifies goodwill and intangible assets into three categories: (1) goodwill; (2) intangible assets with indefinite lives not subject to amortization; and (3) intangible assets with definite lives subject to amortization.

Goodwill and intangible assets with indefinite lives are not amortized. The Company assesses goodwill and intangible assets with indefinite lives for impairment on an annual basis in the fourth quarter of each year or more frequently if indicators of impairment exist. For the purpose of testing goodwill for impairment, the Company has determined that it has one reporting unit.

The goodwill impairment assessment involves a two-step process. We first assess the book value and fair value of the Company to determine if an impairment of goodwill exists by reporting unit. A potential impairment exists if the fair value of the reporting unit is lower than its net book value. The second step of the process is only performed if a potential impairment exists, and it involves comparing the aggregate fair value of the reporting units net assets, other than goodwill, to the fair value of the reporting unit as a whole. Goodwill is considered impaired, and an impairment charge is recorded, if the excess of the fair value of the reporting unit over the fair value of the net assets is less than the carrying value of goodwill. This evaluation requires use of internal business plans that are based on managements judgments regarding future economic conditions, product demand and pricing, costs, inflation rates and discount rates, among other factors. These judgments and estimates involve inherent uncertainties, and the measurement of the fair value is dependent on the accuracy of the assumptions used in making the estimates and how those estimates compare to our future operating performance. There was no impairment of goodwill identified through December 31, 2014.

The fair value measurement of purchased intangible assets with indefinite lives involves the estimation of the fair value which is based on management assumptions about expected future cash flows, discount rates, growth rates, estimated costs and other factors which utilize historical data, internal estimates, and, in some cases, outside data. If the carrying value of the indefinite live intangible asset exceeds managements estimate of fair value, the asset is impaired, and the Company is required to record an impairment charge which would negatively impact its operating results. There was no impairment of intangible assets with indefinite lives identified through December 31, 2014.

Impairment of Long-Lived Assets

Purchased intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets of five years. Long-lived assets, including intangible assets, with definite lives and property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Such conditions may include an economic downturn or a

change in the assessment of future operations. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset (or asset group) and its eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the amount that the carrying value of the asset (or asset group) exceeds its fair value. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported as a separate caption at the lower of the carrying amount or fair value less costs to sell. There were no impairment charges, or changes in estimated useful lives recorded through December 31, 2014.

Deferred Offering Costs

Deferred offering costs, consisting of legal, accounting and other fees and costs relating to the IPO, are capitalized. The deferred offering costs were offset against the Companys IPO proceeds upon the closing of the offering in April 2014. There was $0.7 million of deferred offering costs capitalized as of December 31, 2013 in other assets on the consolidated balance sheets.

Convertible Preferred Stock Warrant Liability

Freestanding warrants related to convertible preferred stock shares that are contingently redeemable are classified as a liability on the Companys accompanying consolidated balance sheet. The convertible preferred stock warrants are subject to re-measurement at each balance sheet date, and any change in fair value is recognized as a component of interest income and other income (expense), net. The Company continued to adjust the liability for changes in fair value until the completion of its IPO, at which time all redeemable convertible preferred stock warrants converted into warrants to purchase common stock and the liability was reclassified to additional paid-in capital.


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

persuasive evidence of an arrangement exists;

the sales price is fixed or determinable;

collection is reasonably assured; and

delivery has occurred or services have been rendered.

For sales directly to hospitals or medical facilities, the Company recognizes revenue upon completion of a procedure, which is when the product is implanted in a patient, and a valid purchase order has been received. For distributor sales, the Company recognizes revenue at the time of shipment of product, as this represents the point that the customer has taken ownership and assumed risk of loss. The Company does not offer rights of return or price protection and has no post-delivery obligations.

Product Returns

The Company offers rights of exchange to distributors in limited circumstances for products with a short shelf life at the time of shipment. The allowance for sales returns is based on historical returned quantities as compared to Ovation shipments. The return rate is then applied to the sales for the current period to establish a reserve at the end of the period. The return rates used are adjusted for known or expected changes in the marketplace when appropriate. The Companys allowance for product returns was $0.1 million and $0 million at December 31, 2014 and 2013, respectively. Actual product returns have not differed materially from the amounts reserved.

Medical Device Excise Tax

In accordance with the Patient Protection and Affordable Care Act, effective January 1, 2013, the Company began to incur a 2.3% excise tax on sales of medical devices in the U.S. The medical device excise tax is included in operating expenses in the consolidated statements of comprehensive loss for fiscal year 2014 and 2013.

Research and Development Costs

Research and development, or R&D, costs, including new product development, regulatory compliance and clinical research, are charged to operations as incurred in the consolidated statements of comprehensive loss. Such costs include personnel-related costs, including stock-based compensation, supplies, services, depreciation, allocated facilities and information services, clinical trial and related clinical manufacturing expenses, fees paid to clinical research organizations and investigative sites and other indirect costs.


All advertising costs are expensed as incurred and are included in selling, general and administrative expenses in the consolidated statements of comprehensive loss.

Shipping and Handling

Shipping costs incurred are included in cost of goods sold in the consolidated statements of comprehensive loss.

Income Taxes

The Company records income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Companys consolidated financial statements or income tax returns. In estimating future tax consequences, expected future events other than enactments or changes in the tax law or rates are considered. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized.

The Company operates in various tax jurisdictions and is subject to audit by various tax authorities. The Company provides for tax contingencies whenever it is deemed probable that a tax asset has been impaired or a tax liability has been incurred for events such as tax claims or changes in tax laws. Tax contingencies are based upon their technical merits, relative tax law, and the specific facts and circumstances as of each reporting period. Changes in facts and circumstances could result in material changes to the amounts recorded for such tax contingencies.

The Company records uncertain tax positions on the basis of a two-step process whereby (1) a determination is made as to whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold the Company recognizes the largest amount of tax benefit that is greater...