SIENTRA, INC., 10-K filed on 3/18/2015
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2014
Mar. 13, 2015
Jun. 30, 2014
Document and Entity Information
 
 
 
Entity Registrant Name
Sientra, Inc. 
 
 
Entity Central Index Key
0001551693 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2014 
 
 
Amendment Flag
false 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Non-accelerated Filer 
 
 
Entity Public Float
 
 
$ 0 
Entity Common Stock, Shares Outstanding
 
14,924,949 
 
Document Fiscal Year Focus
2014 
 
 
Document Fiscal Period Focus
FY 
 
 
Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2014
Dec. 31, 2013
Current assets:
 
 
Cash and cash equivalents
$ 96,729 
$ 9,722 
Accounts receivable, net of allowances of $10,330 and $8,543 at December 31, 2014 and 2013, respectively
5,198 
6,111 
Inventories, net
20,174 
21,533 
Prepaid expenses and other current assets
1,782 
884 
Total current assets
123,883 
38,250 
Property and equipment, net
555 
254 
Goodwill
14,278 
14,278 
Other intangible assets, net
114 
207 
Other assets
248 
177 
Total assets
139,078 
53,166 
Current liabilities:
 
 
Current portion of long-term debt
3,757 
 
Accounts payable
2,589 
4,768 
Accrued and other current liabilities
5,772 
4,065 
Customer deposits
8,614 
4,908 
Total current liabilities
20,732 
13,741 
Long-term debt
21,671 
15,092 
Warranty reserve and other long-term liabilities
1,036 
550 
Total liabilities
43,439 
29,383 
Commitments and contingencies (Note 9)
   
   
Convertible preferred stock, $0.01 par value - Authorized, issued and outstanding 24,593,087 shares at December 31 2013 (Liquidation preference of $151,000 as of December 31, 2013)
 
150,456 
Stockholders' equity (deficit):
 
 
Preferred Stock, $0.01 par value - Authorized 10,000,000 shares; none issued or outstanding
   
 
Common stock, $0.01 par value - Authorized 200,000,000 and 30,200,000 shares; issued 14,985,704 and 279,879 and outstanding 14,912,977 and 207,152 shares at December31 2014 and 2013, respectively
150 
Additional paid-in capital
229,795 
1,819 
Treasury stock, at cost (72,727 shares at December 31, 2014 and 2013)
(260)
(260)
Accumulated deficit
(134,046)
(128,235)
Total stockholders' equity (deficit)
95,639 
(126,673)
Total liabilities, convertible preferred stock and stockholders' equity (deficit)
$ 139,078 
$ 53,166 
Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2014
Dec. 31, 2013
Balance Sheets
 
 
Accounts receivable, allowances (in dollars)
$ 10,330 
$ 8,543 
Convertible preferred stock, par value (in dollars per share)
 
$ 0.01 
Convertible preferred stock, shares authorized
 
24,593,087 
Convertible preferred stock, shares issued
 
24,593,087 
Convertible preferred stock, shares outstanding
 
24,593,087 
Liquidation preference (in dollars)
 
$ 151,000 
Preferred stock, par value (in dollars per share)
$ 0.01 
 
Preferred stock, shares authorized
10,000,000 
 
Preferred stock, shares issued
 
Preferred stock, shares outstanding
 
Common stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Common stock, shares authorized
200,000,000 
30,200,000 
Common stock, shares issued
14,985,704 
279,879 
Common stock, shares outstanding
14,912,977 
207,152 
Treasury stock, shares
72,727 
72,727 
Statements of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2012
Statements of Operations
 
 
 
Net sales
$ 44,733 
$ 35,171 
$ 10,447 
Cost of goods sold
11,500 
8,592 
2,352 
Gross profit
33,233 
26,579 
8,095 
Operating expenses:
 
 
 
Sales and marketing
23,599 
22,229 
17,919 
Research and development
4,707 
4,479 
3,670 
General and administrative
10,712 
18,078 
9,938 
Total operating expenses
39,018 
44,786 
31,527 
Loss from operations
(5,785)
(18,207)
(23,432)
Other (expense) income, net:
 
 
 
Interest expense
(2,172)
(872)
 
Other (expense) income, net:
2,146 
(46)
(1)
Total other (expense) income, net
(26)
(918)
(1)
Loss before income taxes
(5,811)
(19,125)
(23,433)
Net loss
$ (5,811)
$ (19,125)
$ (23,433)
Basic and diluted net loss per share attributable to common stockholders (in dollars per share)
$ (2.28)
$ (82.25)
$ (85.01)
Weighted average outstanding common shares used for net loss per share attributable to common stockholders:
 
 
 
Basic and diluted (in shares)
2,545,371 
232,512 
275,642 
Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit) (USD $)
In Thousands, except Share data
Convertible preferred stock
Common stock
Treasury stock
Additional paid-in capital
Accumulated deficit
Total
Balance, beginning of year at Dec. 31, 2011
$ 85,903 
$ 3 
 
$ 1,107 
$ (85,677)
$ (84,567)
Balance, beginning of year (in shares) at Dec. 31, 2011
12,409,397 
275,036 
 
 
 
 
Issuance of Series C convertible preferred stock at $5.335 per share, net of issuance costs of $447
64,553 
 
 
 
 
 
Issuance of Series C convertible preferred stock (in shares)
12,183,690 
 
 
 
 
 
Stock option exercises
 
 
 
 
Stock option exercises (in shares)
 
1,818 
 
 
 
 
Employee stock-based compensation expense
 
 
 
357 
 
357 
Net loss
 
 
 
 
(23,433)
(23,433)
Balance, end of year at Dec. 31, 2012
150,456 
 
1,467 
(109,110)
(107,640)
Balance, end of year (in shares) at Dec. 31, 2012
24,593,087 
276,854 
 
 
 
 
Stock option exercises
 
 
 
10 
 
10 
Stock option exercises (in shares)
 
3,025 
 
 
 
 
Repurchased common shares
 
 
(260)
 
 
(260)
Repurchased common shares (in shares)
 
 
72,727 
 
 
 
Employee stock-based compensation expense
 
 
 
342 
 
342 
Net loss
 
 
 
 
(19,125)
(19,125)
Balance, end of year at Dec. 31, 2013
150,456 
(260)
1,819 
(128,235)
(126,673)
Balance, end of year (in shares) at Dec. 31, 2013
24,593,087 
279,879 
72,727 
 
 
 
Conversion of convertible preferred stock to common stock
(150,456)
89 
 
150,367 
 
150,456 
Conversion of convertible preferred stock to common stock (in shares)
(24,593,087)
8,942,925 
 
 
 
 
Proceeds from IPO, net of costs
 
58 
 
76,977 
 
77,035 
Proceeds from IPO, net of costs (in shares)
 
5,750,000 
 
 
 
 
Stock option exercises
 
 
 
38 
 
38 
Stock option exercises (in shares)
 
12,900 
 
 
 
 
Employee stock-based compensation expense
 
 
 
594 
 
594 
Net loss
 
 
 
 
(5,811)
(5,811)
Balance, end of year at Dec. 31, 2014
 
$ 150 
$ (260)
$ 229,795 
$ (134,046)
$ 95,639 
Balance, end of year (in shares) at Dec. 31, 2014
 
14,985,704 
72,727 
 
 
 
Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit) (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Series C preferred stock
Value of issued stock (in dollars per share)
$ 5.335 
Issuance costs
$ 447 
Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2012
Cash flows from operating activities:
 
 
 
Net loss
$ (5,811)
$ (19,125)
$ (23,433)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
275 
280 
288 
Provision for sales return reserve
1,748 
3,936 
4,240 
Provision for doubtful accounts
39 
107 
140 
Provision for warranties
447 
392 
123 
Change in fair value of warrants
220 
46 
 
Non cash interest expense
490 
179 
 
Stock-based compensation expense
594 
342 
357 
Changes in assets and liabilities:
 
 
 
Accounts receivable
(873)
(6,804)
(7,636)
Prepaid expenses, other current assets and other assets
(864)
195 
(575)
Inventories
1,359 
(10,852)
(7,520)
Accounts payable
(2,266)
1,904 
390 
Accrued and other liabilities
1,385 
(70)
2,931 
Customer deposits
3,707 
3,593 
849 
Net cash provided by (used in) operating activities
450 
(25,877)
(29,846)
Cash flows from investing activities:
 
 
 
Purchase of property and equipment
(439)
(71)
(394)
Contingent payment related to Silimed acquisition
 
(18,000)
 
Net cash used in investing activities
(439)
(18,071)
(394)
Cash flows from financing activities:
 
 
 
Proceeds from exercise of stock options
38 
10 
Repurchase of common stock
 
(260)
 
Proceeds from issuance of preferred stock, net
 
 
64,553 
Proceeds from issuance of common stock, net of underwriters discount
80,213 
 
 
Proceeds from issuance of long-term debt
10,000 
15,000 
 
Deferred financing costs
(148)
(288)
 
Deferred equity issuance costs
(3,107)
 
 
Net cash provided by financing activities
86,996 
14,462 
64,556 
Net increase (decrease) in cash and cash equivalents
87,007 
(29,486)
34,316 
Cash and cash equivalents at:
 
 
 
Beginning of period
9,722 
39,208 
4,892 
End of period
96,729 
9,722 
39,208 
Cash paid during the year for:
 
 
 
Interest paid
1,577 
641 
 
Supplemental disclosure of noncash investing and financing activities:
 
 
 
Accrual for the resolution of contingent payment related to Silimed acquisition
 
 
18,000 
Accrued equity issuance costs
71 
 
 
Property and equipment in accounts payable
$ 44 
 
 
Formation and Business of the Company
Formation and Business of the Company

 

1) Formation and Business of the Company

(a)   Formation

        Sientra, Inc., or the Company, was incorporated in the State of Delaware on August 29, 2003 under the name Juliet Medical, Inc. and subsequently changed its name to Sientra, Inc. in April 2007. The Company acquired substantially all the assets of Silimed, Inc., or Silimed, on April 4, 2007. The purpose of the acquisition was to acquire the rights to the silicone breast implant clinical trials. Following this acquisition, the Company focused on completing the clinical trials to gain Food and Drug Administration, or FDA, approval to offer its silicone gel breast implants in the United States.

        In March 2012, Sientra announced it had received approval from the FDA for its portfolio of silicone gel breast implants, and in the second quarter of 2012 the Company began commercialization efforts to sell its products in the United States. The Company, based in Santa Barbara, California, is a medical aesthetics company that focuses on serving board-certified plastic surgeons and offers a portfolio of silicone shaped and round breast implants, tissue expanders, and body contouring products.

(b)   Reverse Stock Split

        On October 10, 2014, the board of directors and stockholders approved an amendment to the Company's fourth amended and restated certificate of incorporation, which was filed on October 17, 2014, which effected a 1 for 2.75 reverse stock split of the Company's issued and outstanding shares of common stock. The par value of the common stock was not adjusted as a result of the reverse stock split. All issued and outstanding shares of common stock, stock options and warrants and the related per share amounts contained in the Company's financial statements have been retroactively adjusted to reflect this reverse stock split for all periods presented. Also, as a result of the reverse stock split of the common stock, the conversion ratios for all of the Company's convertible preferred stock have been adjusted such that the preferred stock are now convertible into shares of common stock at a conversion rate of 2.75-to-1 instead of 1-to-1. The number of issued and outstanding shares of preferred stock and their related per share amounts have not been affected by the reverse stock split and therefore have not been adjusted in the Company's financial statements. However, to the extent that the convertible preferred stock are presented on an as converted to common stock basis, such share and per share amounts contained in the Company's financial statements have been retroactively adjusted to reflect this reverse stock split for all periods presented.

(c)   Initial Public Offering

        On November 3, 2014, the Company completed an initial public offering, or IPO, whereby it sold a total of 5,750,000 shares of common stock at $15.00 per share inclusive of 750,000 shares sold to underwriters for the exercise of their option to purchase additional shares. The Company received net proceeds from the IPO of approximately $77,035, after deducting underwriting discounts and commissions and offering expenses of approximately $9,215. These expenses will be recorded against the proceeds received from the IPO.

        The interest-only period for the tranche D term loan (see Note 4) was extended from August 1, 2015 to August 1, 2016 as a result of having raised at least $50,000 in gross proceeds in the IPO and the completion of the IPO before June 30, 2015.

        The outstanding shares of convertible preferred stock were converted on a 2.75-to-1 basis into shares of common stock concurrent with the closing of the IPO. All of the outstanding shares of Series A, Series B and Series C preferred stock converted into 8,942,925 shares of common stock. Following the closing of the IPO, there were no shares of preferred stock outstanding.

Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

 

(2) Summary of Significant Accounting Policies

(a)   Basis of Presentation and Use of Estimates

        The preparation of 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 and the disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Assets and liabilities which are subject to significant judgment and use of estimates include the allowance for doubtful accounts, sales return reserves, provision for warranties, valuation of inventories, recoverability of long-lived assets, valuation allowances with respect to deferred tax assets, useful lives associated with property and equipment and finite lived intangible assets, and the valuation and assumptions underlying stock-based compensation and other equity instruments. On an ongoing basis, the Company evaluates its estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities. In addition, the Company engages the assistance of valuation specialists in concluding on fair value measurements in connection with stock-based compensation and other equity instruments.

(b)   Liquidity

        Since inception, the Company has incurred net losses. During the years ended December 31, 2014, 2013, and 2012 the Company incurred net losses of $5,811, $19,125, and $23,433, respectively. The Company provided $450 of cash in operations for the year ended December 31, 2014 and used $25,877 and $29,846 of cash in operations during the years ended December 31, 2013 and 2012, respectively. At December 31, 2014 and 2013 the Company had an accumulated deficit of $134,046 and $128,235, respectively. At December 31, 2014, the Company had cash and cash equivalents of $96,729. The Company's ability to continue to meet its obligations and to achieve its business objectives is dependent upon, amongst other things, generating sufficient revenues. The Company believes that it has the ability to continue as a going concern through at least December 31, 2015.

(c)   Cash and Cash Equivalents

        The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents consist primarily of checking accounts.

(d)   Concentration of Credit and Supplier Risks

        Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company's cash and cash equivalents are deposited in demand accounts at a financial institution that management believes is creditworthy. The Company is exposed to credit risk in the event of default by this financial institution for cash and cash equivalents in excess of amounts insured by the Federal Deposit Insurance Corporation (FDIC). Management believes that the Company's investments in cash and cash equivalents are financially sound and have minimal credit risk and the Company has not experienced any losses on its deposits of cash and cash equivalents.

        The Company currently purchases all of its Breast Products from one supplier under an exclusivity contract. The supplier and its production facility are located in Brazil. The Company is exposed to risks of foreign regulations in Brazil that could hinder the Company's ability to import goods, as well as halts or limitations in productions due to events outside of the Company's control occurring at the production facility. This could result in the Company not being able to acquire the inventory needed to meet customer demand, which would result in possible loss of sales and affect operating results adversely. Management believes that there is minimal risk of such events occurring.

(e)   Fair Value of Financial Instruments

        The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and customer deposits are reasonable estimates of their fair value because of the short maturity of these items. The fair value of the common stock warrant liability is discussed in Note 2(f). The fair value of our long-term debt is based on the amount of future cash flows associated with the instrument discounted using our current market rate. At December 31, 2014, the carrying value of the long-term debt was not materially different from the fair value.

(f)    Fair Value Measurements

        Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined 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. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

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

Level 2—Observable inputs (other than Level 1 quoted prices) such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

        The Company's common stock warrant liabilities are carried at fair value determined according to the fair value hierarchy described above. The Company has utilized an option pricing valuation model to determine the fair value of its outstanding common stock warrant liabilities. The inputs to the model include fair value of the common stock related to the warrant, exercise price of the warrant, expected term, expected volatility, risk-free interest rate and dividend yield. Prior to the IPO, the Company determined the fair value per share of the underlying common stock by taking into consideration its most recent sale of its convertible preferred stock as well as additional factors that the Company deems relevant. Subsequent to the IPO, the warrants are valued using the fair value of common stock as of the measurement date. The Company historically has been a private company and lacks company-specific historical and implied volatility information of its stock. Therefore, it estimates its expected stock volatility based on the historical volatility of publicly traded peer companies for a term equal to the remaining contractual term of the warrants. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of the warrants. The Company has estimated a 0% dividend yield based on the expected dividend yield and the fact that the Company has never paid or declared dividends. As several significant inputs are not observable, the overall fair value measurement of the warrants is classified as Level 3.

        The following tables present information about the Company's liabilities that are measured at fair value on a recurring basis as of December 31, 2014 and 2013 and indicate the level of the fair value hierarchy utilized to determine such fair value:

                                                                                                                                                                                    

 

 

Fair Value Measurements as of
December 31, 2014 Using:

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability for common stock warrants

 

$

 

 

 

 

420 

 

 

420 

 

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Fair Value Measurements as of
December 31, 2013 Using:

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability for common stock warrants

 

$

 

 

 

 

90 

 

 

90 

 

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        The following table provides a rollforward of the aggregate fair values of the Company's common stock warrants for which fair value is determined by Level 3 inputs:

                                                                                                                                                                                    

Fair value upon issuance during 2013

 

$

44 

 

Increase in fair value through December 31, 2013

 

 

46 

 

​  

​  

Balance, January 1, 2014

 

 

90 

 

Fair value of warrants upon issuance during 2014

 

 

110 

 

Increase in fair value through December 31, 2014

 

 

220 

 

​  

​  

Balance, December 31, 2014

 

$

420 

 

​  

​  

​  

​  

​  

        The company recognized changes in the fair value of these warrants in other (expense) income, net in the statement of operations.

(g)   Property and Equipment

        Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful life of the asset; generally three years. Leasehold improvements are depreciated over the shorter of the lease term or the estimated useful life of the related asset. Upon retirement or sale of an asset, the cost and related accumulated depreciation or amortization are removed from the balance sheet and any resulting gain or loss is reflected in operations in the period realized. Maintenance and repairs are charged to operations as incurred.

(h)   Goodwill and Other Intangible Assets

        Goodwill represents the excess of the purchase price over the fair value of net assets of purchased businesses. Goodwill is not amortized, but instead subject to impairment tests on at least an annual basis and whenever circumstances suggest that goodwill may be impaired. The Company's annual test for impairment is performed as of October 1 of each fiscal year. The Company makes a qualitative assessment of whether it is more likely than not that a reporting unit's fair value is less than its carrying amount before applying the two-step goodwill impairment test. If the Company concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it is not required to perform the two-step impairment test for that reporting unit.

        Under the first step of the test, the Company is required to compare the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired and the second step of the test is not performed. If the results of the first step of the impairment test indicate that the fair value of a reporting unit does not exceed its carrying amount, then the second step of the test is required. The second step of the test compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. The impairment loss is measured by the excess of the carrying amount of the reporting unit goodwill over the implied fair value of that goodwill.

        Management evaluates the Company as a single reporting unit for business and operating purposes as all of the Company's revenue streams are generated by the same underlying products via sales in the United States of America. In addition, the majority of the Company's costs are, by their nature, shared costs that are not specifically identifiable to a geography or product line, but relate to all products. As a result, there is a high degree of interdependency among the Company's net sales and cash flows for the entity and identifiable cash flows for a reporting unit separate from the entity are not meaningful.

        Judgments about the recoverability of purchased finite-lived intangible assets are made whenever events or changes in circumstance indicate that impairment may exist. Each fiscal year the Company evaluates the estimated remaining useful lives of purchased intangible assets and whether events or changes in circumstance warrant a revision to the remaining periods of amortization. Recoverability of finite-lived intangible assets is measured by comparison of the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. The intangible asset is amortized to the statement of operations based on estimated cash flows generated from the intangible over its estimated life.

(i)    Impairment of Long-Lived Assets

        The Company's management routinely considers whether indicators of impairment of long-lived assets are present. If such indicators are present, management determines whether the sum of the estimated undiscounted cash flows attributable to the assets in question is less than their carrying value. If less, the Company will recognize an impairment loss based on the excess of the carrying amount of the assets over their respective fair values. Fair value is determined by discounted future cash flows, appraisals or other methods. If the assets determined to be impaired are to be held and used, the Company will recognize an impairment charge to the extent the present value of anticipated net cash flows attributable to the asset are less than the asset's carrying value. The fair value of the asset will then become the asset's new carrying value. There have been no impairments of long-lived assets recorded during the years ended December 31, 2014, 2013 and 2012. The Company may record impairment losses in future periods if factors influencing its estimates change.

(j)    Revenue Recognition

        The Company sells its product directly to customers in markets where it has regulatory approval. The Company offers a six-month return policy and recognizes revenue net of sales discounts and returns in accordance with the Financial Accounting Standards Board, or FASB, Accounting Standards Codification 605, Revenue Recognition (ASC 605). ASC 605 requires that six basic criteria must be met before revenue can be recognized when a right of return exists:

the seller's price to the buyer is substantially fixed or determinable at the date of sale;

the buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product;

the buyer's obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product;

the buyer acquiring the product for resale has economic substance apart from that provided by the seller;

the seller does not have significant obligations for future performance to directly bring about resale of the product by the buyer; and

the amount of future returns can be reasonably estimated.

        Appropriate reserves are established for anticipated sales returns based on historical experience, recent gross sales and any notification of pending returns. The Company recognizes revenue when title to the product and risk of loss transfer to customers, provided there are no remaining performance obligations required of the Company or any written matters requiring customer acceptance. The Company allows for the return of product from customers within six months after the original sale and records estimated sales returns as a reduction of sales in the same period revenue is recognized. Sales return provisions are calculated based upon historical experience with actual returns. Actual sales returns in any future period are inherently uncertain and thus may differ from the estimates. If actual sales returns differ significantly from the estimates, an adjustment to revenue in the current or subsequent period would be recorded. The Company has established an allowance for sales returns of $10,018 and $8,270 as of December 31, 2014 and 2013, respectively, recorded net against accounts receivable in the balance sheet.

        A portion of the Company's revenue is generated from consigned inventory of breast implants maintained at doctor, hospital, and clinic locations. The customer is contractually obligated to maintain a specific level of inventory and to notify the Company upon use. For these products, revenue is recognized at the time the Company is notified by the customer that the product has been implanted. Notification is usually through the replenishing of the inventory and the Company periodically reviews consignment inventories to confirm accuracy of customer reporting. FDA regulations require tracking the sales of all implanted products.

        Shipping and handling charges are largely provided to customers free of charge. The associated costs are viewed as part of the Company's marketing programs and are recorded as a component of sales and marketing expense in the statement of operations. For the years ended December 31, 2014, 2013 and 2012 these costs amounted to $1,305, $1,021 and $354, respectively.

        In other cases, shipping and handling charges may be invoiced to customers based on the amount of products sold. In such cases, shipping and handling fees collected are recorded as revenue and the related expense as a component of cost of goods sold.

(k)   Accounts Receivable and Allowance for Doubtful Accounts

        Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability to collect from some of its customers. The allowances for doubtful accounts are based on the analysis of historical bad debts, customer credit-worthiness, past transaction history with the customer, and current economic trends. If the financial condition of the Company's customers were to deteriorate, adversely affecting their ability to make payments, additional allowances may be required. The Company has established an allowance for doubtful accounts of $312 and $273 as of December 31, 2014 and 2013, respectively.

(l)    Inventories and Cost of Goods Sold

        Inventories represent finished goods that are recorded at the lower of cost or market on a first-in, first-out basis (FIFO). The Company periodically assesses the recoverability of all inventories to determine whether adjustments for impairment or obsolescence are required. The Company evaluates the remaining shelf life and other general obsolescence and impairment criteria in assessing the recoverability of the Company's inventory.

        The Company recognizes the cost of inventory transferred to the customer in cost of goods sold when revenue is recognized.

        At December 31, 2014 and 2013, approximately $1,989 and $528, respectively, of the Company's inventory was held on consignment at doctors' offices, clinics, and hospitals. The value and quantity at any one location is not significant.

(m)  Income Taxes

        The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

        The Company accounts for uncertain tax position in accordance with ASC 740-10, Accounting for Uncertainty in Income Taxes. The Company assesses all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position's sustainability and is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. As of each balance sheet date, unresolved uncertain tax positions must be reassessed, and the Company will determine whether (i) the factors underlying the sustainability assertion have changed and (ii) the amount of the recognized tax benefit is still appropriate. The recognition and measurement of tax benefits requires significant judgment. Judgments concerning the recognition and measurement of tax benefit might change as new information becomes available.

(n)   Research and Development Expenditures

        Research and development costs are charged to operating expenses as incurred. Research and development, or R&D, primarily consist of clinical expenses, regulatory expenses, product development, consulting services, outside research activities, quality control, and other costs associated with the development of the Company's products and compliance with Good Clinical Practices, or GCP, requirements. R&D expenses also include related personnel and consultant compensation and stock-based compensation expense.

(o)   Advertising

        Expenses related to advertising are charged to sales and marketing expense as incurred. Advertising costs were $1,548, $801 and $510 for fiscal years 2014, 2013 and 2012, respectively.

(p)   Stock-Based Compensation

        The Company applies the fair value provisions of ASC 718, Compensation—Stock Compensation (ASC 718). ASC 718 requires the recognition of compensation expense, using a fair-value based method, for costs related to all employee share-based payments, including stock options and the employee stock purchase plan. ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. All option grants valued are being expensed on a straight-line basis over their vesting period.

(q)   Product Warranties

        The Company offers a limited warranty and a lifetime product replacement program for the Company's silicone gel breast implants. Under the limited warranty program, the Company will reimburse patients for certain out-of-pocket costs related to revision surgeries performed within ten years from the date of implantation in a covered event. Under the lifetime product replacement program, the Company provides no-charge replacement breast implants under a covered event. The programs are available to all patients implanted with the Company's silicone breast implants after April 1, 2012 and are subject to the terms, conditions, claim procedures, limitations and exclusions. Timely completion of a device tracking and warranty enrollment form by the patient's Plastic Surgeon is required to activate the programs and for the patient to be able to receive benefits under either program.

        The following table provides a rollforward of the accrued warranties:

                                                                                                                                                                                    

 

 

December 31,

 

 

 

2014

 

2013

 

Beginning balance

 

$

515

 

$

123

 

Payment made during the period

 

 

(1

)

 

 

Changes in accrual related to warranties issued during the period

 

 

509

 

 

392

 

Changes in accrual related to pre-existing warranties

 

 

(62

)

 

—  

 

​  

​  

​  

​  

Ending balance

 

$

961

 

$

515

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

(r)   Deferred Equity Issuance Costs

        Deferred equity issuance costs, primarily consisting of legal, accounting and other direct fees and costs relating to the IPO, were capitalized, as incurred, in other current assets prior to the completion of the IPO. Upon completion of the IPO, $3,178 of issuance costs were capitalized, all of which were reclassified to additional-paid-in capital to offset the IPO proceeds.

(s)   Segment Information

        Management has determined that it has one business activity and operates in one segment as it only reports financial information on an aggregate basis to its Chief Executive Officer, who is the Company's chief operating decision maker. All tangible assets are held in the United States.

(t)    Net Loss Per Share

        Basic loss per share attributable to common stockholders is computed by dividing net loss by the weighted average number of common shares outstanding during each period. Diluted loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares and dilutive potential common share equivalents then outstanding, to the extent they are dilutive. Potential common shares consist of shares issuable upon the exercise of stock options and warrants (using the treasury stock method), and the weighted average conversion of the convertible preferred stock into shares of common stock (using the if-converted method). Dilutive loss per share is the same as basic loss per share for all periods presented because the effects of potentially dilutive items were anti-dilutive.

                                                                                                                                                                                    

 

 

December 31,

 

 

 

2014

 

2013

 

2012

 

Net loss

 

$

(5,811

)

$

(19,125

)

$

(23,433

)

Weighted average common shares outstanding, basic and diluted

 

 

2,545,371

 

 

232,512

 

 

275,642

 

​  

​  

​  

​  

​  

​  

Net loss per share attributable to common stockholders

 

$

(2.28

)

$

(82.25

)

$

(85.01

)

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

        The Company excluded the following potentially dilutive securities, outstanding as of December 31, 2014, 2013 and 2012 from the computation of diluted net loss per share attributable to common stockholders for the years ended December 31, 2014, 2013 and 2012 because they had an anti-dilutive impact due to the net loss attributable to common stockholders incurred for the periods.

                                                                                                                                                                                    

 

 

December 31,

 

 

 

2014

 

2013

 

2012

 

Stock options to purchase common stock

 

 

1,613,544 

 

 

1,422,315 

 

 

1,409,047 

 

Warrants for the purchase of common stock

 

 

47,710 

 

 

30,670 

 

 

 

Convertible preferred stock (as converted to common stock)

 

 

 

 

8,942,925 

 

 

8,942,925 

 

​  

​  

​  

​  

​  

​  

 

 

 

1,661,254 

 

 

10,395,910 

 

 

10,351,972 

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

(u)   Recent Accounting Pronouncements

        In May 2014, the FASB issued accounting standard update 2014-09, Revenue from Contracts with Customers. The standard was issued to provide a single framework that replaces existing industry and transaction specific GAAP with a five step analysis of transactions to determine when and how revenue is recognized. This accounting standard update is expected to be effective for the Company beginning in fiscal year 2018. The Company is currently assessing the impact that the standard will have on the financial statements upon adoption of the guidance.

        In August 2014, the FASB issued accounting standard update 2014-15, Presentation of Financial Statement—Going Concern. The standard was issued to provide guidance about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. This accounting standard updated will be effective for the Company beginning in fiscal year 2016. The Company anticipates there will be no impact on its financial statement upon adoption of this guidance.

Balance Sheet Components
Balance Sheet Components

 

(3) Balance Sheet Components

        Property and equipment, net consist of the following:

                                                                                                                                                                                    

 

 

December 31,

 

 

 

2014

 

2013

 

Leasehold improvements

 

$

69

 

$

19

 

Computer equipment

 

 

138

 

 

183

 

Software

 

 

166

 

 

85

 

Office equipment

 

 

167

 

 

128

 

Furniture and fixtures

 

 

636

 

 

456

 

​  

​  

​  

​  

 

 

 

1,176

 

 

871

 

Less accumulated depreciation

 

 

(621

)

 

(617

)

​  

​  

​  

​  

 

 

$

555

 

$

254

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

        Depreciation expense for the years ended December 31, 2014, 2013 and 2012 was $182, $148 and $109 respectively.

        Accrued and other current liabilities consist of the following:

                                                                                                                                                                                    

 

 

December 31

 

 

 

2014

 

2013

 

Accrued clinical trial and research and development expenses

 

$

109 

 

$

166 

 

Audit, consulting and legal fees

 

 

72 

 

 

124 

 

Payroll and related expenses

 

 

2,497 

 

 

1,890 

 

Accrued commission

 

 

1,969 

 

 

1,563 

 

Warrant liability

 

 

420 

 

 

90 

 

Other

 

 

705 

 

 

232 

 

​  

​  

​  

​  

 

 

$

5,772 

 

$

4,065 

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

 

Long-term Debt
Long-term Debt

 

(4) Long-term Debt

        On January 17, 2013, the Company entered into a Loan and Security Agreement, or the Original Term Loan Agreement, with Oxford providing for a $15,000 term loan facility consisting of original term loans of (i) a $7,500 tranche A term loan, (ii) a $2,500 tranche B term loan and (iii) a $5,000 tranche C term loan, maturing on February 1, 2017. The term loan facility is collateralized by a first-priority security interest in substantially all of the Company's assets. Borrowings under the term loan facility bear interest at a rate equal to 8.4% per annum and the Original Term Loan Agreement provides for interest-only payments through June 30, 2015. The term loans include an additional lump sum payment of $975 due on February 1, 2017.

        On June 30, 2014, the Company entered into the Amended and Restated Loan and Security Agreement, or the Amended Term Loan Agreement, with Oxford, under which the interest-only period for the original term loans was extended to August 1, 2015 and raised an additional $10,000 in a fourth tranche (tranche D) maturing on January 1, 2019. The term loans are collateralized by a first-priority security interest in substantially all of the Company's assets. The term loans bear interest at a rate equal to 8.4% per annum. The interest-only period for the tranche A, B and C term loans ends on August 1, 2015 and the interest-only period for the tranche D term loan ends on the same date, but was extended another year to August 1, 2016 as the Company raised at least $50,000 in gross proceeds as part of the IPO (see Note 1). The tranche D term loan includes an additional lump sum payment of $650 due on January 1, 2019.

        The Amended Term Loan Agreement contains various negative and affirmative covenants, including certain restrictive covenants that limit the Company's ability to transfer or dispose of certain assets, engage in new lines of business, change the composition of Company management, merge with or acquire other companies, incur additional debt, create new liens and encumbrances, pay dividends or subordinated debt and enter into material transactions with affiliates, among others. The Amended Term Loan Agreement also contains financial reporting requirements.

        The aggregate maturities of long-term debt as of December 31, 2014 are: $3,757 in 2015, $11,094 in 2016, $5,558 in 2017, $4,223 in 2018 and $368 in 2019.

        In connection with the Original Term Loan Agreement and the Amended Term Loan Agreement, the Company issued to Oxford (i) seven-year warrants in January 2013 to purchase shares of the Company's common stock with a value equal to 3.0% of the tranche A, B and C term loans amounts and (ii) seven-year warrants in June 2014 to purchase shares of the Company's common stock with a value equal to 2.5% of the tranche D term loan amount. The warrants have an exercise price per share equal to the lesser of (i) the Series C preferred stock conversion price of $14.671 per share or (ii) the price per share in a subsequent qualified round of financing where gross proceeds are greater than $10,000.

Acquisition of Silimed, Inc.
Acquisition of Silimed, Inc.

 

(5) Acquisition of Silimed, Inc.

        On April 4, 2007, the Company acquired substantially all of the assets of Silimed, a privately held Texas-based company engaged in the development and sale of medical devices including breast implants, under the terms of an Asset Purchase Agreement, or the APA. The consideration paid by the Company to Silimed was $29,850 in cash and 90,909 shares of the Company's common stock. The transaction also specified a series of contingent payments with a total potential value of $70,000. As the net assets acquired exceeded the purchase price, and since the contingencies were not resolved, the purchase price allocation included a deferred credit (negative goodwill) of $4,298.

        On May 16, 2013, the Company, Grader Street (formerly, Silimed, Inc.) and Grader Street's founder reached a confidential agreement in which the Company agreed to pay Grader Street a gross amount of $18,000 and to release all claims that the Company had against Grader Street and its founder. In return, Grader Street and its founder also released all claims, including all future contingent payments, under the APA. In addition, under the terms of the agreement, the Company paid $260 to repurchase all 72,727 shares (of the original 90,909 shares issued) currently held by Grader Street's founder.

        Accordingly, the excess fair value of the settlement payment and the release of $576 in other assets related to claims against Grader Street over the $4,298 deferred credit were recognized as additional cost of the asset acquisition as of December 31, 2013.

Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets

 

(6) Goodwill and Other Intangible Assets

(a)   Goodwill

        The carrying amount of goodwill was $14,278 for all periods presented. The Company has determined that it has one reporting unit and has chosen October 1 as the date for its annual impairment test. The Company performed the annual impairment test of goodwill for 2014 and 2013 and determined that goodwill was not impaired.

(b)   Other Intangible Assets

        The Company recorded approximately $1,713 of intangible assets in connection with the acquisition of Silimed. The components of the Company's intangible assets are as follows:

                                                                                                                                                                                    

 

 

December 31,

 

 

 

2014

 

2013

 

Acquired FDA non-gel product approval

 

$

1,713

 

$

1,713

 

Less accumulated amortization

 

 

(1,599

)

 

(1,506

)

​  

​  

​  

​  

 

 

$

114

 

$

207

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

        Amortization expense for intangible assets for the years ended December 31, 2014, 2013 and 2012 was $93, $132 and $179 respectively, and is recorded in general and administrative expense in the statement of operations. The remaining amortization period as of December 31, 2014 is 3 years. The following table summarizes the estimated amortization expense relating to the Company's intangible assets as of December 31, 2014:

                                                                                                                                                                                    

2015

 

$

61 

 

2016

 

 

37 

 

2017

 

 

16 

 

​  

​  

 

 

$

114 

 

​  

​  

 

Income Taxes
Income Taxes

 

(7) Income Taxes

        Actual income tax expense differs from that obtained by applying the statutory federal income tax rate of 34% to income before income taxes as follows:

                                                                                                                                                                                    

 

 

Year Ended December 31,

 

 

 

2014

 

2013

 

2012

 

Tax at federal statutory rate

 

$

(1,976

)

$

(6,502

)

$

(7,967

)

State, net of federal benefit

 

 

(260

)

 

(576

)

 

(774

)

Permanent items

 

 

580

 

 

339

 

 

255

 

Research and development credits

 

 

(216

)

 

(232

)

 

(186

)

Benefit state rate change

 

 

(941

)

 

 

 

 

Other

 

 

495

 

 

15

 

 

98

 

Change in valuation allowance

 

 

2,318

 

 

6,956

 

 

8,574

 

​  

​  

​  

​  

​  

​  

 

 

$

 

$

 

$

—  

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

        The tax effects of temporary differences and carryforwards that give rise to significant portions of the deferred tax assets are as follows:

                                                                                                                                                                                    

 

 

December 31,

 

 

 

2014

 

2013

 

Net operating loss carryforwards

 

$

39,372

 

$

37,278

 

Research and development credits

 

 

2,230

 

 

2,014

 

Depreciation

 

 

36

 

 

31

 

Accruals and reserves

 

 

5,035

 

 

3,706

 

Intangibles

 

 

5,732

 

 

7,058

 

​  

​  

​  

​  

 

 

 

52,405

 

 

50,087

 

Less valuation allowance

 

 

(52,405

)

 

(50,087

)

​  

​  

​  

​  

Total deferred tax assets

 

$

 

$

—  

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

        The Company has established a full valuation allowance against its net deferred tax assets due to the uncertainty surrounding realization of such assets.

        As of December 31, 2014, the Company had net operating loss carryforwards of approximately $101,172 and $91,474 available to reduce future taxable income, if any, for federal and state income tax purposes, respectively. The federal net operating loss carryforward begins expiring in 2027, and the state net operating loss carryforwards begin expiring in 2017. It is possible that we will not generate taxable income in time to use these NOLs before their expiration. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an "ownership change" (generally defined as a greater than 50% change, be value, in its equity ownership over a three year period), the corporation's ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income may be limited. We have not performed a detailed analysis to determine whether an ownership change under Section 382 of the Code has previously occurred. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards to offset U.S. federal taxable income may become subject to limitations, which could potentially result in increased future tax liability to us. Until such analysis is completed, we cannot be sure that the full amount of the existing federal NOLs will be available to us, even if we do generate taxable income before their expiration.

        As of December 31, 2014, the Company had research and development credit carryforwards of approximately $1,799 and $1,762 available to reduce future taxable income, if any, for federal and California state income tax purposes, respectively. The federal credit carryforwards begin expiring in 2027 and the state credits carryforward indefinitely.

        At December 31, 2014, the Company had unrecognized tax benefits of approximately $732 associated with the research and development credits. The Company does not anticipate that total unrecognized net tax benefits will significantly change over the next twelve months.

        A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

                                                                                                                                                                                    

Ending balance at December 31, 2012

 

$

594 

 

Additions based on tax positions taken in the current year

 

 

77 

 

​  

​  

Ending balance at December 31, 2013

 

 

671 

 

Additions based on tax positions taken in the current year

 

 

61 

 

​  

​  

Ending balance at December 31, 2014

 

$

732 

 

​  

​  

​  

​  

​  

        It is the Company's policy to include penalties and interest expense related to income taxes as a component of other expense and interest expense, respectively, as necessary. There was no interest expense or penalties related to unrecognized tax benefits recorded through December 31, 2014.

        The Company files U.S. federal and state income tax returns in jurisdictions with varying statute of limitations. The years that may be subject to examination will vary by jurisdiction. The Company's tax years 2010 to 2014 will remain open for examination by the federal and state tax authorities.

Stockholders' Equity (Deficit)
Stockholders' Equity (Deficit)

 

(8) Stockholders' Equity (Deficit)

(a)   Authorized Stock

        The Company's Amended and Restated Certificate of Incorporation, effective upon the completion of the IPO, authorizes the Company to issue 210,000,000 shares of common and preferred stock, consisting of 200,000,000 shares of common stock with $0.01 par value and 10,000,000 shares of preferred stock with $0.01 par value. As of December 31, 2014, the Company has no preferred stock issued or outstanding.

        Prior to the IPO, the Company was authorized to issue 30,200,000 shares of common stock with $0.01 par value and 24,593,087 shares of preferred stock with $0.01 par value.

(b)   Convertible Preferred Stock

        Prior to completion of the IPO, under the Company's Certificate of Incorporation, as amended, the Company's convertible preferred stock was issued in three series: A, B and C. The outstanding shares of convertible preferred stock were converted on a 2.75-to-1 basis into shares of common stock concurrent with the closing of the IPO. All of the outstanding shares of Series A, Series B and Series C preferred stock converted into 8,942,925 shares of common stock.

        At December 31, 2013, the Company's convertible preferred stock consists of the following:

                                                                                                                                                                                    

Series

 

Shares
authorized

 

Outstanding

 

Proceeds
net of
issuance
costs

 

Liquidation
value

 

Issuance
date

A

 

 

1,000,000 

 

 

1,000,000 

 

$

994 

 

 

1,000 

 

October 2006

B

 

 

11,409,397 

 

 

11,409,397 

 

 

84,909 

 

 

85,000 

 

April 2007 and October 2008

C

 

 

12,183,690 

 

 

12,183,690 

 

 

64,553 

 

 

65,000 

 

March 2012

​  

​  

​  

​  

​  

​  

​  

​  

 

 

 

24,593,087 

 

 

24,593,087 

 

$

150,456 

 

 

151,000 

 

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

        As of December 31, 2013, the holders of convertible preferred stock have various rights and preferences as follows:

(c)   Voting Rights

        The holder of each share of Series A, Series B and Series C convertible preferred stock are entitled to the number of votes equal to the number of shares of the common stock into which each share of the preferred stock could be converted on the record date. The holders of shares of preferred stock have voting rights and powers equal to the voting rights and powers of holders of common stock.

(d)   Dividends

        The holders of convertible preferred stock are entitled to receive noncumulative dividends, when and if declared by the Board of Directors, out of any assets legally available, prior to and in preference to any declaration or payment of dividends on the common stock of the Company.

(e)   Liquidation Preference

        In the event of any corporate reorganization, liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of Series A, Series B and Series C are entitled to receive an amount of $1.00, $7.45 and $5.335 per share, respectively (adjusted to reflect stock dividends, stock splits, and recapitalization), plus any accrued but unpaid dividends. Holders of Series C are entitled to be paid first prior to payment of holders of Series A and Series B. Thereafter, the holders of Series B are entitled to be paid prior to payment of holders of Series A. The remaining assets, if any, shall be distributed among common stockholders.

        As of December 31, 2013, the carrying value of the preferred stock has not been adjusted to its liquidation redemption value as an event that would trigger liquidation redemption is not considered probable.

(f)    Conversion Rights

        Each share of convertible preferred stock, at the option of the holder, is convertible at any time into the number of shares of common stock (adjusted to reflect stock dividends, stock splits and recapitalization) that results from dividing the original issue price by the conversion price in effect at the time of the conversion. The initial per share conversion price of the Series A, Series B and C convertible preferred stock is $2.75, $20.49 and $14.671 per share, respectively, and subject to adjustment in accordance with antidilution provisions contained in the Company's Articles of Incorporation.

        If not previously converted at the option of the holder, the conversion of the convertible preferred stock is automatic and will be converted at the then applicable conversion prices upon the earlier of any of the following events: (i) affirmative election of the holders of at least 65% of the then outstanding shares of the convertible preferred stock on an as-if converted basis, or (ii) the closing of a firm commitment underwritten public offering based on an effective registration statement under the Securities Act of 1933 for the issuance of common stock. The per-share price must be at least 200% of the Series C purchase price resulting in the aggregate proceeds raised from the offering of at least greater than $35,000 or (iii) consent of holders of at least 65% of the then outstanding shares of the convertible preferred stock, on an as-if converted basis, in connection with any mandatory conversion, as prescribed in the Certificate of Incorporation, in which the current fair market value of the Company's Common Stock exceeds the Series C purchase price or (iv) upon the consent of the holders of at least 65% of the then outstanding shares of the convertible preferred stock, on an as-if converted basis, including the consent of all stockholders that hold in excess of 19% of the then outstanding shares of the preferred stock of the Company.

(g)   Stock Option Plan

        In April 2007, the Company adopted the 2007 Equity Incentive Plan, or 2007 Plan. The 2007 Plan provides for the granting of stock options to employees, directors and consultants of the Company. Options granted under the 2007 Plan may either be incentive stock options or nonstatutory stock options. Incentive stock options, or ISO, may be granted only to Company employees. Nonstatutory stock options, or NSO, may be granted to all eligible recipients. A total of 1,690,448 shares of the Company's common stock were reserved for issuance for the 2007 Plan.

        Options under the 2007 Plan may be granted for periods of up to ten years as determined by the Board of Directors, provided, however, that (i) the exercise price of an ISO shall not be less than 100% of the estimated fair value of the shares on the date of grant, and (ii) the exercise price of an ISO granted to a more than 10% shareholder shall not be less than 110% of the estimated fair value of the shares on the date of grant. An NSO has no such exercise price limitations. The options generally vest on a straight-lined basis over the requisite service period of four years for the award. The vesting provisions of individual options may vary but provide for vesting of at least 25% per year.

        As of December 31, 2014, pursuant to the 2007 Plan, there were 1,631,922 shares of common stock reserved and no shares of common stock available for future grants.

        Our board of directors adopted our 2014 Equity Incentive Plan, or 2014 Plan, in July 2014, and our stockholders approved the 2014 Plan in October 2014. The 2014 Plan became effective upon completion of the IPO, at which time the Company ceased making awards under the 2007 Plan. Under the 2014 Plan, the Company may issue ISO, NSOs, stock appreciation rights, restricted stock awards, restricted stock unit awards and other forms of stock awards, or collectively, stock awards, all of which may be granted to employees, including officers, non-employee directors and consultants of us and our affiliates. ISOs may be granted only to employees. A total of 1,027,500 shares of common stock were initially reserved for issuance under the 2014 Plan, subject to certain annual increases.

        Options under the 2014 Plan may be granted for periods of up to ten years as determined by the Board of Directors, provided, however, that (i) the exercise price of an ISO shall not be less than 100% of the estimated fair value of the shares on the date of grant, and (ii) the exercise price of an ISO granted to a more than 10% shareholder shall not be less than 110% of the estimated fair value of the shares on the date of grant and the option is not exercisable after the expiration of five years from the date of grant. An NSO has no such exercise price limitations. The options generally vest on a straight-lined basis over the requisite service period of four years for the award. The vesting provisions of individual options may vary but provide for vesting of at least 25% per year.

        As of December 31, 2014, pursuant to the 2014 Plan, there were 1,027,500 shares of common stock reserved and 986,138 shares of common stock available for future grants.

        The following summarizes all option activity under the 2007 and 2014 Plan:

                                                                                                                                                                                    

 

 

Option Shares

 

Weighted
average
exercise price

 

Weighted
average
remaining
contractual
term(years)

 

Balances at December 31, 2012

 

 

1,409,047

 

$

2.67

 

 

 

 

Granted

 

 

26,356

 

 

3.80

 

 

 

 

Exercised

 

 

(3,025

)

 

3.41

 

 

 

 

Forfeited

 

 

(10,063

)

 

3.93

 

 

 

 

​  

​  

Balances at December 31, 2013

 

 

1,422,315

 

$

2.67

 

 

5.76

 

Granted

 

 

266,069

 

 

12.72

 

 

 

 

Exercised

 

 

(12,900

)

 

2.99

 

 

 

 

Forfeited

 

 

(20,578

)

 

5.55

 

 

 

 

Balances at December 31, 2014

 

 

1,654,906

 

$

4.25

 

 

5.48

 

​  

​  

​  

​  

​  

Vested and expected to vest at December 31, 2014

 

 

1,654,906

 

$

4.25

 

 

5.48

 

​  

​  

​  

​  

​  

Vested and exercisable at December 31, 2014

 

 

1,245,505

 

$

2.54

 

 

4.42

 

​  

​  

​  

​  

​  

        The weighted average grant date fair value of stock options granted to employees and directors during the years ended December 31, 2014 and 2013 was $6.82 and $1.90 per share, respectively. Stock-based compensation expense for the years ended December 31, 2014, 2013 and 2012 was $560, $342 and $357, respectively. Tax benefits arising from the disposition of certain shares issued upon exercise of stock options within two years of the date of grant or within one year of the date of exercise by the option holder, or Disqualifying Dispositions, provide the Company with a tax deduction equal to the difference between the exercise price and the fair market value of the stock on the date of exercise. When realized, those excess windfall tax benefits are credited to additional paid-in capital. As of December 31, 2014 and 2013, there were total unrecognized compensation costs of $1,898 and $723, respectively, related to these stock options. The expense is recorded within the operating expense captions in the statement of operations based on the employees receiving the awards. As of December 31, 2014, these costs are expected to be recognized over a weighted average period of 2.84 years.

        The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company's common stock for those stock options that had exercise prices lower than the fair value of the Company's common stock. The aggregate intrinsic value of stock options exercised was $176 and $1 during the years ended December 31, 2014 and 2013, respectively.

        The Company estimated the fair value of stock options using the Black-Scholes option valuation model. The fair value of employee stock options is being amortized on a straight-line basis over the requisite service period of the awards. The fair value of employee stock options was estimated using the following assumptions:

                                                                                                                                                                                    

 

 

Year ended December 31,

 

 

2014

 

2013

Expected term (in years)

 

5.77 to 6.08

 

6.08

Expected volatility

 

52% to 57%

 

56%

Risk-free interest rate

 

1.71% to 2.00%

 

1.00% to 1.76%

Dividend yield

 

 

        The expected term of employee stock options, risk-free interest rate and volatility represents the weighted average, based on grant date period, which the stock options are expected to remain outstanding. The Company utilized the simplified method to estimate the expected term of the options pursuant to ASC Subtopic 718-10 for all option grants to employees. The expected volatility is based upon historical volatilities of an index of a peer group because it is not practicable to make a reasonable estimate of the Company's volatility. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant for periods corresponding with the expected term of the option. The dividend yield assumption is based on the Company's history and expectation of dividend payouts. The Company has never declared or paid any cash dividends on its common stock, and the Company does not anticipate paying any cash dividends in the foreseeable future.

        As stock-based compensation expense recognized in the Company's statement of operations is based on awards ultimately expected to vest, the amount has been reduced for estimated forfeitures. Forfeitures were estimated based on the Company's historical experience and future expectations.

        For purposes of financial accounting for stock-based compensation, the Company has determined the fair values of its options based in part on the work of a third-party valuation specialist. The determination of stock-based compensation is inherently uncertain and subjective and involves the application of valuation models and assumptions requiring the use of judgment. If the Company had made different assumptions, its stock-based compensation expense, and its net loss could have been significantly different.

(h)   Employee Stock Purchase Plan

        The Company's board of directors adopted the 2014 Employee Stock Purchase Plan, or ESPP, in July 2014, and the stockholders approved the ESPP in October 2014. The ESPP allows eligible employees to purchase shares of the Company's common stock at a discount through payroll deductions of up to 15% of their eligible compensation, subject to any plan limitations. The ESPP provides offering periods not to exceed 27 months, and each offering period will include purchase periods, which will be the approximately six-month period commencing with one exercise date and ending with the next exercise date, except that the first offering period commenced on the first trading day following the effective date of the Company's registration statement. Employees are able to purchase shares at 85% of the lower of the fair market value of the Company's common stock on the first trading day of the offering period or on the exercise date. The number of shares available for sale under the 2014 Employee Stock Purchase Plan will be increased annually on the first day of each fiscal year, equal to the lesser of i) 1% of the total outstanding shares of the Company's common stock as of the last day of the immediately preceding fiscal year; ii) 3,000,000 shares of common stock, or iii) such lesser amount as determined by the Board of Directors.

        At December 31, 2014, no purchase has been made and 255,500 shares were available for future issuance under the ESPP. In 2014, the Company recorded $34 of stock-based expense related to the ESPP.

        The Company estimated the fair value of employee stock purchase rights using the Black-Scholes model. The fair value of employee stock purchase right is being amortized on a straight-line basis over the requisite service period. The fair value of employee stock purchase right was estimated using the following assumptions:

                                                                                                                                                                                    

 

 

Year ended
December 31, 2014

Expected term (in years)

 

0.63 to 2.14

Expected volatility

 

43% to 44%

Risk-free interest rate

 

0.08% to 0.49%

Dividend yield

 

 

Commitments and Contingencies
Commitments and Contingencies

 

(9) Commitments and Contingencies

(a)   Operating Lease Commitment

        In August 2013, the Company entered into a four month warehouse lease in Santa Barbara, California, commencing on September 1, 2013. This operating lease is used for additional general office, warehouse, and research and development. This lease was renewed on December 10, 2013 for an additional six months, and was renewed again in June 2014 for an additional 12 months.

        In March 2014, the Company entered into a 68 month lease agreement in Santa Barbara, California. The operating lease is for general office use only and commenced on July 1, 2014.

        The terms of the facility lease provide for rental payments on a graduated scale. The Company recognizes rent expense on a straight-line basis over the lease term. Rent expense for the years ended December 31, 2014, 2013 and 2012 was $424, $359 and $376, respectively.

        As of December 31, 2014, future minimum lease payments under all non-cancelable operating leases are as follows:

                                                                                                                                                                                    

Years ending December 31:

 

 

 

 

2015

 

$

500 

 

2016

 

 

400 

 

2017

 

 

403 

 

2018

 

 

415 

 

2019 and thereafter

 

 

499 

 

​  

​  

 

 

$

2,217 

 

​  

​  

​  

​  

​  

(b)   Contingencies

        The Company is subject to claims and assessments from time to time in the ordinary course of business. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. There were no contingent liabilities requiring accrual as of December 31, 2014.

        On March 27, 2012, Mentor Worldwide LLC (Mentor), a wholly owned subsidiary of Johnson & Johnson, filed thirteen lawsuits against fifteen employees of the Company (all former Mentor employees) and, on June 8, 2012, filed a fourteenth lawsuit against the Company and an additional employee. In general, these fourteen lawsuits alleged that the former employees of Mentor breached their confidentiality and non-compete agreements when they resigned in favor of employment with the Company; misappropriated confidential Mentor information and trade secrets; and breached their respective duties of loyalty. Although not a party to thirteen employee lawsuits, the Company provided for the defense of its employees in the lawsuits. In the employee lawsuits, all of Mentor's claims for Preliminary Injunctive Relief were denied. Following that, some of the employee lawsuits were dismissed with prejudice and others dismissed without prejudice. On October 3, 2013, the last of the thirteen employee lawsuits was dismissed.

        In the sole lawsuit against the Company, the Company and its employee prevailed at trial with verdicts of "no liability" rendered by the jury and judge. Final judgment in this case was entered on October 3, 2013 with the plaintiff ordered to reimburse defendants for certain court costs, and in 2014, Mentor waived its right to appeal.

        In 2012, the Company filed a claim with the Hartford Insurance Company (Hartford) for reimbursement of legal costs incurred in connection with litigation with Mentor. The Company holds a D&O insurance policy with Hartford, and the Company and Hartford settled the matter in May 2014. The Company received settlement payments from Hartford of $2,358 and $351 for the years ended December 31, 2014 and 2013, respectively.

Summary of Quarterly Financial Information (Unaudited)
Summary of Quarterly Financial Information (Unaudited)

 

(10) Summary of Quarterly Financial Information (Unaudited)

        The following tables set forth our unaudited quarterly statements of operations data in dollars and as a percentage of revenue and our key metrics for each of the eight quarters ended December 31, 2014. We have prepared the quarterly data on a consistent basis with the audited financial statements included in this report. In the opinion of management, the financial information reflects all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of this data. This information should be read in conjunction with the audited financial statements and related notes included elsewhere in this report. The results of historical periods are not necessarily indicative of the results of operations for a full year or any future period.

                                                                                                                                                                                    

 

 

Quarter Ended

 

2014

 

March 31

 

June 30

 

September 30

 

December 31

 

Net sales

 

$

10,228

 

$

11,719

 

$

10,670

 

$

12,116

 

Gross profit

 

 

7,654

 

 

8,838

 

 

7,838

 

 

8,903

 

Net loss

 

 

(953

)

 

(209

)

 

(1,452

)

 

(3,197

)

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(4.59

)

$

(1.00

)

$

(6.94

)

$

(0.34

)

 

                                                                                                                                                                                    

 

 

Quarter Ended

 

2013

 

March 31

 

June 30

 

September 30

 

December 31

 

Net sales

 

$

8,461

 

$

9,479

 

$

7,981

 

$

9,250

 

Gross profit

 

 

6,486

 

 

7,070

 

 

6,013

 

 

7,010

 

Net loss

 

 

(4,112

)

 

(5,463

)

 

(6,475

)

 

(3,075

)

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(14.85

)

$

(22.65

)

$

(31.45

)

$

(14.85

)

 

Schedule II - Valuation And Qualifying Accounts
Schedule II - Valuation And Qualifying Accounts

 

Sientra, Inc.

Schedule II—Valuation and Qualifying Accounts

December 31, 2014, 2013 and 2012

(In thousands)

                                                                                                                                                                                    

 

 

Balance at
beginning of
period

 

Additions
charged to
costs and
expenses

 

Deductions(1)

 

Balance at
end of
period

 

Year ended December 31, 2012 Allowance for sales returns

 

$

95

 

$

27,884

 

$

(23,645

)

$

4,334

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

Year ended December 31, 2013 Allowance for sales returns

 

$

4,334

 

$

93,768

 

$

(89,832

)

$

8,270

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

Year ended December 31, 2014 Allowance for sales returns

 

$

8,270

 

$

110,033

 

$

(108,285

)

$

10,018

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  


(1)

Amounts represent actual sales returns.

 

Summary of Significant Accounting Policies (Policies)

 

(a)   Basis of Presentation and Use of Estimates

        The preparation of 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 and the disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Assets and liabilities which are subject to significant judgment and use of estimates include the allowance for doubtful accounts, sales return reserves, provision for warranties, valuation of inventories, recoverability of long-lived assets, valuation allowances with respect to deferred tax assets, useful lives associated with property and equipment and finite lived intangible assets, and the valuation and assumptions underlying stock-based compensation and other equity instruments. On an ongoing basis, the Company evaluates its estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities. In addition, the Company engages the assistance of valuation specialists in concluding on fair value measurements in connection with stock-based compensation and other equity instruments.

 

(b)   Liquidity

        Since inception, the Company has incurred net losses. During the years ended December 31, 2014, 2013, and 2012 the Company incurred net losses of $5,811, $19,125, and $23,433, respectively. The Company provided $450 of cash in operations for the year ended December 31, 2014 and used $25,877 and $29,846 of cash in operations during the years ended December 31, 2013 and 2012, respectively. At December 31, 2014 and 2013 the Company had an accumulated deficit of $134,046 and $128,235, respectively. At December 31, 2014, the Company had cash and cash equivalents of $96,729. The Company's ability to continue to meet its obligations and to achieve its business objectives is dependent upon, amongst other things, generating sufficient revenues. The Company believes that it has the ability to continue as a going concern through at least December 31, 2015.

 

(c)   Cash and Cash Equivalents

        The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents consist primarily of checking accounts.

 

(d)   Concentration of Credit and Supplier Risks

        Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company's cash and cash equivalents are deposited in demand accounts at a financial institution that management believes is creditworthy. The Company is exposed to credit risk in the event of default by this financial institution for cash and cash equivalents in excess of amounts insured by the Federal Deposit Insurance Corporation (FDIC). Management believes that the Company's investments in cash and cash equivalents are financially sound and have minimal credit risk and the Company has not experienced any losses on its deposits of cash and cash equivalents.

        The Company currently purchases all of its Breast Products from one supplier under an exclusivity contract. The supplier and its production facility are located in Brazil. The Company is exposed to risks of foreign regulations in Brazil that could hinder the Company's ability to import goods, as well as halts or limitations in productions due to events outside of the Company's control occurring at the production facility. This could result in the Company not being able to acquire the inventory needed to meet customer demand, which would result in possible loss of sales and affect operating results adversely. Management believes that there is minimal risk of such events occurring.

 

(e)   Fair Value of Financial Instruments

        The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and customer deposits are reasonable estimates of their fair value because of the short maturity of these items. The fair value of the common stock warrant liability is discussed in Note 2(f). The fair value of our long-term debt is based on the amount of future cash flows associated with the instrument discounted using our current market rate. At December 31, 2014, the carrying value of the long-term debt was not materially different from the fair value.

 

(f)    Fair Value Measurements

        Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined 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. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

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

Level 2—Observable inputs (other than Level 1 quoted prices) such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

        The Company's common stock warrant liabilities are carried at fair value determined according to the fair value hierarchy described above. The Company has utilized an option pricing valuation model to determine the fair value of its outstanding common stock warrant liabilities. The inputs to the model include fair value of the common stock related to the warrant, exercise price of the warrant, expected term, expected volatility, risk-free interest rate and dividend yield. Prior to the IPO, the Company determined the fair value per share of the underlying common stock by taking into consideration its most recent sale of its convertible preferred stock as well as additional factors that the Company deems relevant. Subsequent to the IPO, the warrants are valued using the fair value of common stock as of the measurement date. The Company historically has been a private company and lacks company-specific historical and implied volatility information of its stock. Therefore, it estimates its expected stock volatility based on the historical volatility of publicly traded peer companies for a term equal to the remaining contractual term of the warrants. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of the warrants. The Company has estimated a 0% dividend yield based on the expected dividend yield and the fact that the Company has never paid or declared dividends. As several significant inputs are not observable, the overall fair value measurement of the warrants is classified as Level 3.

        The following tables present information about the Company's liabilities that are measured at fair value on a recurring basis as of December 31, 2014 and 2013 and indicate the level of the fair value hierarchy utilized to determine such fair value:

                                                                                                                                                                                    

 

 

Fair Value Measurements as of
December 31, 2014 Using:

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability for common stock warrants

 

$

 

 

 

 

420 

 

 

420 

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

 

                                                                                                                                                                                    

 

 

Fair Value Measurements as of
December 31, 2013 Using:

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability for common stock warrants

 

$

 

 

 

 

90 

 

 

90 

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

        The following table provides a rollforward of the aggregate fair values of the Company's common stock warrants for which fair value is determined by Level 3 inputs:

                                                                                                                                                                                    

Fair value upon issuance during 2013

 

$

44 

 

Increase in fair value through December 31, 2013

 

 

46 

 

​  

​  

Balance, January 1, 2014

 

 

90 

 

Fair value of warrants upon issuance during 2014

 

 

110 

 

Increase in fair value through December 31, 2014

 

 

220 

 

​  

​  

Balance, December 31, 2014

 

$

420 

 

​  

​  

​  

​  

​  

        The company recognized changes in the fair value of these warrants in other (expense) income, net in the statement of operations.

 

(g)   Property and Equipment

        Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful life of the asset; generally three years. Leasehold improvements are depreciated over the shorter of the lease term or the estimated useful life of the related asset. Upon retirement or sale of an asset, the cost and related accumulated depreciation or amortization are removed from the balance sheet and any resulting gain or loss is reflected in operations in the period realized. Maintenance and repairs are charged to operations as incurred.

 

(h)   Goodwill and Other Intangible Assets

        Goodwill represents the excess of the purchase price over the fair value of net assets of purchased businesses. Goodwill is not amortized, but instead subject to impairment tests on at least an annual basis and whenever circumstances suggest that goodwill may be impaired. The Company's annual test for impairment is performed as of October 1 of each fiscal year. The Company makes a qualitative assessment of whether it is more likely than not that a reporting unit's fair value is less than its carrying amount before applying the two-step goodwill impairment test. If the Company concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it is not required to perform the two-step impairment test for that reporting unit.

        Under the first step of the test, the Company is required to compare the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired and the second step of the test is not performed. If the results of the first step of the impairment test indicate that the fair value of a reporting unit does not exceed its carrying amount, then the second step of the test is required. The second step of the test compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. The impairment loss is measured by the excess of the carrying amount of the reporting unit goodwill over the implied fair value of that goodwill.

        Management evaluates the Company as a single reporting unit for business and operating purposes as all of the Company's revenue streams are generated by the same underlying products via sales in the United States of America. In addition, the majority of the Company's costs are, by their nature, shared costs that are not specifically identifiable to a geography or product line, but relate to all products. As a result, there is a high degree of interdependency among the Company's net sales and cash flows for the entity and identifiable cash flows for a reporting unit separate from the entity are not meaningful.

        Judgments about the recoverability of purchased finite-lived intangible assets are made whenever events or changes in circumstance indicate that impairment may exist. Each fiscal year the Company evaluates the estimated remaining useful lives of purchased intangible assets and whether events or changes in circumstance warrant a revision to the remaining periods of amortization. Recoverability of finite-lived intangible assets is measured by comparison of the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. The intangible asset is amortized to the statement of operations based on estimated cash flows generated from the intangible over its estimated life.

 

(i)    Impairment of Long-Lived Assets

        The Company's management routinely considers whether indicators of impairment of long-lived assets are present. If such indicators are present, management determines whether the sum of the estimated undiscounted cash flows attributable to the assets in question is less than their carrying value. If less, the Company will recognize an impairment loss based on the excess of the carrying amount of the assets over their respective fair values. Fair value is determined by discounted future cash flows, appraisals or other methods. If the assets determined to be impaired are to be held and used, the Company will recognize an impairment charge to the extent the present value of anticipated net cash flows attributable to the asset are less than the asset's carrying value. The fair value of the asset will then become the asset's new carrying value. There have been no impairments of long-lived assets recorded during the years ended December 31, 2014, 2013 and 2012. The Company may record impairment losses in future periods if factors influencing its estimates change.

 

(j)    Revenue Recognition

        The Company sells its product directly to customers in markets where it has regulatory approval. The Company offers a six-month return policy and recognizes revenue net of sales discounts and returns in accordance with the Financial Accounting Standards Board, or FASB, Accounting Standards Codification 605, Revenue Recognition (ASC 605). ASC 605 requires that six basic criteria must be met before revenue can be recognized when a right of return exists:

the seller's price to the buyer is substantially fixed or determinable at the date of sale;

the buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product;

the buyer's obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product;

the buyer acquiring the product for resale has economic substance apart from that provided by the seller;

the seller does not have significant obligations for future performance to directly bring about resale of the product by the buyer; and

the amount of future returns can be reasonably estimated.

        Appropriate reserves are established for anticipated sales returns based on historical experience, recent gross sales and any notification of pending returns. The Company recognizes revenue when title to the product and risk of loss transfer to customers, provided there are no remaining performance obligations required of the Company or any written matters requiring customer acceptance. The Company allows for the return of product from customers within six months after the original sale and records estimated sales returns as a reduction of sales in the same period revenue is recognized. Sales return provisions are calculated based upon historical experience with actual returns. Actual sales returns in any future period are inherently uncertain and thus may differ from the estimates. If actual sales returns differ significantly from the estimates, an adjustment to revenue in the current or subsequent period would be recorded. The Company has established an allowance for sales returns of $10,018 and $8,270 as of December 31, 2014 and 2013, respectively, recorded net against accounts receivable in the balance sheet.

        A portion of the Company's revenue is generated from consigned inventory of breast implants maintained at doctor, hospital, and clinic locations. The customer is contractually obligated to maintain a specific level of inventory and to notify the Company upon use. For these products, revenue is recognized at the time the Company is notified by the customer that the product has been implanted. Notification is usually through the replenishing of the inventory and the Company periodically reviews consignment inventories to confirm accuracy of customer reporting. FDA regulations require tracking the sales of all implanted products.

        Shipping and handling charges are largely provided to customers free of charge. The associated costs are viewed as part of the Company's marketing programs and are recorded as a component of sales and marketing expense in the statement of operations. For the years ended December 31, 2014, 2013 and 2012 these costs amounted to $1,305, $1,021 and $354, respectively.

        In other cases, shipping and handling charges may be invoiced to customers based on the amount of products sold. In such cases, shipping and handling fees collected are recorded as revenue and the related expense as a component of cost of goods sold.

 

(k)   Accounts Receivable and Allowance for Doubtful Accounts

        Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability to collect from some of its customers. The allowances for doubtful accounts are based on the analysis of historical bad debts, customer credit-worthiness, past transaction history with the customer, and current economic trends. If the financial condition of the Company's customers were to deteriorate, adversely affecting their ability to make payments, additional allowances may be required. The Company has established an allowance for doubtful accounts of $312 and $273 as of December 31, 2014 and 2013, respectively.

 

(l)    Inventories and Cost of Goods Sold

        Inventories represent finished goods that are recorded at the lower of cost or market on a first-in, first-out basis (FIFO). The Company periodically assesses the recoverability of all inventories to determine whether adjustments for impairment or obsolescence are required. The Company evaluates the remaining shelf life and other general obsolescence and impairment criteria in assessing the recoverability of the Company's inventory.

        The Company recognizes the cost of inventory transferred to the customer in cost of goods sold when revenue is recognized.

        At December 31, 2014 and 2013, approximately $1,989 and $528, respectively, of the Company's inventory was held on consignment at doctors' offices, clinics, and hospitals. The value and quantity at any one location is not significant.

 

(m)  Income Taxes

        The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

        The Company accounts for uncertain tax position in accordance with ASC 740-10, Accounting for Uncertainty in Income Taxes. The Company assesses all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position's sustainability and is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. As of each balance sheet date, unresolved uncertain tax positions must be reassessed, and the Company will determine whether (i) the factors underlying the sustainability assertion have changed and (ii) the amount of the recognized tax benefit is still appropriate. The recognition and measurement of tax benefits requires significant judgment. Judgments concerning the recognition and measurement of tax benefit might change as new information becomes available.

 

(n)   Research and Development Expenditures

        Research and development costs are charged to operating expenses as incurred. Research and development, or R&D, primarily consist of clinical expenses, regulatory expenses, product development, consulting services, outside research activities, quality control, and other costs associated with the development of the Company's products and compliance with Good Clinical Practices, or GCP, requirements. R&D expenses also include related personnel and consultant compensation and stock-based compensation expense.

 

(o)   Advertising

        Expenses related to advertising are charged to sales and marketing expense as incurred. Advertising costs were $1,548, $801 and $510 for fiscal years 2014, 2013 and 2012, respectively.

 

(p)   Stock-Based Compensation

        The Company applies the fair value provisions of ASC 718, Compensation—Stock Compensation (ASC 718). ASC 718 requires the recognition of compensation expense, using a fair-value based method, for costs related to all employee share-based payments, including stock options and the employee stock purchase plan. ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. All option grants valued are being expensed on a straight-line basis over their vesting period.

 

(q)   Product Warranties

        The Company offers a limited warranty and a lifetime product replacement program for the Company's silicone gel breast implants. Under the limited warranty program, the Company will reimburse patients for certain out-of-pocket costs related to revision surgeries performed within ten years from the date of implantation in a covered event. Under the lifetime product replacement program, the Company provides no-charge replacement breast implants under a covered event. The programs are available to all patients implanted with the Company's silicone breast implants after April 1, 2012 and are subject to the terms, conditions, claim procedures, limitations and exclusions. Timely completion of a device tracking and warranty enrollment form by the patient's Plastic Surgeon is required to activate the programs and for the patient to be able to receive benefits under either program.

        The following table provides a rollforward of the accrued warranties:

                                                                                                                                                                                    

 

 

December 31,

 

 

 

2014

 

2013

 

Beginning balance

 

$

515

 

$

123

 

Payment made during the period

 

 

(1

)

 

 

Changes in accrual related to warranties issued during the period

 

 

509

 

 

392

 

Changes in accrual related to pre-existing warranties

 

 

(62

)

 

—  

 

​  

​  

​  

​  

Ending balance

 

$

961

 

$

515

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

 

 

(r)   Deferred Equity Issuance Costs

        Deferred equity issuance costs, primarily consisting of legal, accounting and other direct fees and costs relating to the IPO, were capitalized, as incurred, in other current assets prior to the completion of the IPO. Upon completion of the IPO, $3,178 of issuance costs were capitalized, all of which were reclassified to additional-paid-in capital to offset the IPO proceeds.

 

(s)   Segment Information

        Management has determined that it has one business activity and operates in one segment as it only reports financial information on an aggregate basis to its Chief Executive Officer, who is the Company's chief operating decision maker. All tangible assets are held in the United States.

 

(t)    Net Loss Per Share

        Basic loss per share attributable to common stockholders is computed by dividing net loss by the weighted average number of common shares outstanding during each period. Diluted loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares and dilutive potential common share equivalents then outstanding, to the extent they are dilutive. Potential common shares consist of shares issuable upon the exercise of stock options and warrants (using the treasury stock method), and the weighted average conversion of the convertible preferred stock into shares of common stock (using the if-converted method). Dilutive loss per share is the same as basic loss per share for all periods presented because the effects of potentially dilutive items were anti-dilutive.

                                                                                                                                                                                    

 

 

December 31,

 

 

 

2014

 

2013

 

2012

 

Net loss

 

$

(5,811

)

$

(19,125

)

$

(23,433

)

Weighted average common shares outstanding, basic and diluted

 

 

2,545,371

 

 

232,512

 

 

275,642

 

​  

​  

​  

​  

​  

​  

Net loss per share attributable to common stockholders

 

$

(2.28

)

$

(82.25

)

$

(85.01

)

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

        The Company excluded the following potentially dilutive securities, outstanding as of December 31, 2014, 2013 and 2012 from the computation of diluted net loss per share attributable to common stockholders for the years ended December 31, 2014, 2013 and 2012 because they had an anti-dilutive impact due to the net loss attributable to common stockholders incurred for the periods.

                                                                                                                                                                                    

 

 

December 31,

 

 

 

2014

 

2013

 

2012

 

Stock options to purchase common stock

 

 

1,613,544 

 

 

1,422,315 

 

 

1,409,047 

 

Warrants for the purchase of common stock

 

 

47,710 

 

 

30,670 

 

 

 

Convertible preferred stock (as converted to common stock)

 

 

 

 

8,942,925 

 

 

8,942,925 

 

​  

​  

​  

​  

​  

​