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Note 2 - Basis of Presentation and Summary of Significant Accounting Policies
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Mar. 31, 2013
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| Basis of Presentation and Significant Accounting Policies [Text Block] |
2.
Basis
of Presentation and Summary of Significant Accounting
Policies
Basis
of Presentation and Use of Estimates
In
the opinion of management, the accompanying unaudited
condensed financial statements (“condensed financial
statements”) have been prepared on a basis consistent
with the Company’s December 31, 2012 audited financial
statements and include all adjustments, consisting of only
normal recurring adjustments, necessary to fairly state the
information set forth therein. The condensed financial
statements have been prepared in accordance with Securities
and Exchange Commission (“SEC”) rules for interim
financial information, and, therefore, omit certain
information and footnote disclosure necessary to present the
statements in accordance with generally accepted accounting
principles in the United States (“GAAP”). The
preparation of the financial statements in conformity with
GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities,
revenues, expenses, and the related disclosures at the date
of the financial statements and during the reporting period.
Actual results could materially differ from these estimates.
These condensed financial statements should be read in
conjunction with the audited financial statements and notes
thereto included in the Company’s Annual Report on Form
10-K for the year ended December 31, 2012. The
accompanying condensed balance sheet as of December 31, 2012
has been derived from the audited financial statements at
that date, but does not include all information and footnotes
required by GAAP for complete financial statements. The
results of operations for the three month period ended March
31, 2013 may not be indicative of the results to be expected
for the entire year or any future periods.
Fair
Value Measurements
Carrying
amounts of the Company’s cash and cash equivalents,
accounts receivable and accounts payable and accrued
liabilities approximate their fair values due to their short
maturities.
The
table below reflects the carrying values and the estimated
fair values of the Company’s outstanding notes payable
at March 31, 2013:
The
difference between the carrying value of the related party
BSC convertible notes payable, which is equal to the face
value due to troubled debt restructuring accounting, and the
estimated fair value is attributable to the fact that no
interest is charged per the terms of the convertible notes
payable, which is below market. The difference between the
carrying value and the fair value of the junior secured notes
payable relates primarily to an unamortized debt discount.
This discount resulted from the relative fair value assigned
to the junior secured notes payable at the time of issuance,
as the notes were issued in connection with a unit offering,
with the units consisting of a note payable and shares of the
Company’s common stock.
The
Company measures certain financial assets and liabilities at
fair value on a recurring basis. GAAP provides a fair value
hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value. The hierarchy gives the highest
priority to quoted prices in active markets for identical
assets and liabilities (“Level 1”), the next
priority is given to quoted prices for similar assets or
liabilities in active markets or quoted prices for identical
or similar assets or liabilities in markets that are not
active, that is, markets in which there are few transactions
for the asset or liability (“Level 2”), and the
lowest priority to unobservable inputs (“Level
3”). See Note 5 for fair value information related to
the Company’s derivative liabilities, which are the
only assets or liabilities carried at fair value by the
Company on a recurring basis at March 31,
2013. The table below reflects the level of the
inputs used in the Company’s fair value calculation for
instruments carried at fair value.
Inventory
Inventory
is carried at the lower of cost (first-in, first-out method)
or net realizable value. All items included in inventory
relate to the Company’s ClearPoint system. Software
license inventory that is not expected to be utilized within
the next twelve months is classified as a non-current
asset. The Company periodically reviews its
inventory for obsolete items and provides a reserve upon
identification of potential obsolete items.
Revenue
Recognition
The
Company’s revenues arise from: (1) the sale of
ClearPoint system reusable components, including associated
installation services; (2) sales of ClearPoint disposable
products; and (3) license and development arrangements. The
Company recognizes revenue, in accordance with the Financial
Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) 605-10-S99,
“Revenue Recognition,” when persuasive evidence
of an arrangement exists, the selling price or fee is fixed
or determinable, collection is probable and risk of loss has
transferred to the customer. For all sales, the Company
requires either a purchase agreement or a purchase order as
evidence of an arrangement.
(1) Sale of
ClearPoint system reusable components –
Generally, revenues related to ClearPoint system sales are
recognized upon installation of the system and the completion
of training of at least one of the customer’s
physicians, which typically occurs concurrently with the
ClearPoint system installation. ClearPoint system reusable
components include software. This software is integral to the
utility of the ClearPoint system as a whole, and as such, the
provisions of FASB ASC 985-605, “Software Revenue
Recognition,” are not applicable. Sales of reusable
components that have stand-alone value to the customer are
recognized when risk of loss passes to the customer. Sales of
reusable components to a distributor that has been trained to
perform ClearPoint system installations are recognized at the
time risk of loss passes to the distributor.
(2)
Sales
of
ClearPoint disposable products – Revenues from
the sale of ClearPoint disposable products utilized in
procedures performed using the ClearPoint system are
recognized at the time risk of loss passes, which is
generally at shipping point or upon delivery to the
customer’s location, depending upon the specific terms
agreed upon with each customer.
(3) License
and
development arrangements - The Company analyzes
revenue recognition on an agreement by agreement basis as
discussed below.
The
Company defers recognition of non-refundable upfront license
fees if there are continuing performance obligations without
which the technology, know-how, rights, products or services
conveyed in conjunction with the non-refundable fees have no
utility to the licensee that could be considered separate and
independent of the Company’s performance under other
elements of the arrangement. Since the Company had continuing
involvement through research and development services that
were required because the Company’s know-how and
expertise related to the technology were proprietary, such
upfront fees were deferred and recognized over the estimated
period of continuing involvement on a straight-line basis.
The Company recognized $650,000 in related party license fee
revenue during the three months ended March 31, 2013 and
2012, and there were no remaining amounts recorded as
deferred related party license revenue at March 31, 2013 as
the Company’s period of continuing involvement
ended.
Amounts
to be received related to substantive, performance-based
milestones in research and development arrangements under the
agreement will be recognized upon receipt. Future product
royalty income related to the agreement will be recognized as
the related products are sold and amounts are payable to the
Company.
Net
Loss Per Share
The
Company calculates net loss per share in accordance with FASB
ASC 260, “Earnings per Share.” Basic earnings per
share (“EPS”) is calculated by dividing the net
income or loss attributable to common stockholders by the
weighted average number of common shares outstanding for the
period, without giving consideration to common stock
equivalents. Diluted EPS is computed by dividing the net
income or loss attributable to common stockholders by the
weighted average number of common shares outstanding for the
period plus the weighted average number of dilutive common
stock equivalents outstanding for the period determined using
the treasury stock method when net income is reported. For
all periods presented, since such periods resulted in net
losses, diluted net loss per share is the same as basic net
loss per share. The following table sets forth potential
shares of common stock that are not included in the
calculation of diluted net loss per share because to do so
would be anti-dilutive as of the end of each period
presented:
New
Accounting Pronouncements
In
February 2013, the FASB issued guidance that requires an
entity to disclose information showing the effect of items
reclassified from accumulated other comprehensive income on
the line items of net income. The provisions of this new
guidance were effective prospectively as of the beginning of
our 2013 fiscal year. The adoption of this standard update is
not expected to have an impact on the Company’s
financial statements.
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