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Note 2 - Summary of Significant Accounting Policies
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Dec. 31, 2012
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| Significant Accounting Policies [Text Block] |
2.
Summary
of Significant Accounting Policies
Basis
of Presentation and Use of Estimates
The
preparation of financial statements in conformity with
accounting principles generally accepted in the United
States (“GAAP”) requires management to make
estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting
period. Actual results could differ from those
estimates.
Concentrations
of Credit Risk and Other Risks and Uncertainties
Financial
instruments that potentially subject the Company to
significant concentrations of credit risk consist
primarily of cash and cash equivalents and accounts
receivable. The Company holds its cash and
cash equivalents on deposit with financial institutions
in the United States insured by the Federal Deposit
Insurance Corporation (“FDIC”). At
December 31, 2012 no amounts on deposit were in excess of
FDIC limits.
The
Company is subject to risks common to emerging companies
in the medical device industry including, but not limited
to: new technological innovations, dependence on key
personnel, dependence on key suppliers, changes in
general economic conditions and interest rates,
protection of proprietary technology, compliance with
changing government regulations and taxes, uncertainty of
widespread market acceptance of products, access to
credit for capital purchases by customers, and product
liability claims. Certain components used in
manufacturing have relatively few alternative sources of
supply and establishing additional or replacement
suppliers for such components cannot be accomplished
quickly. The inability of any of these suppliers to
fulfill the Company’s supply requirements may
negatively impact future operating results.
Receivables
at December 31, 2012 and all product revenues for the
year ended December 31, 2012 relate to sales to a limited
number of customers located in the United States
(“U.S.”) and to one distributor outside of
the U.S. Sales to two of these hospital customers and the
distributor each represented between 14% and 16% of total
product sales, respectively. The Company may perform
credit evaluations of its customers’ financial
condition and, generally, requires no collateral from its
customers. The Company will provide an allowance for
doubtful accounts when collections become doubtful, but
the Company has not experienced any credit losses or
recorded any allowances to date.
Cash
and Cash Equivalents
Cash
and cash equivalents include all highly liquid
investments with an original maturity of three months or
less.
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 December 31, 2012:
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 (see Note 6), 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 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 6 for fair value information related to the
Company’s derivative liability, which is the only
asset or liability carried at fair value by the Company
on a recurring basis at December 31, 2012.
Inventory
Inventory
is carried at the lower of cost (first-in, first-out
(“FIFO”) 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.
Property
and Equipment
Property
and equipment, including loaned ClearPoint systems, are
recorded at cost and are depreciated on a straight-line
basis over their estimated useful lives, principally five
to seven years. Leasehold improvements are depreciated on
a straight-line basis over the lesser of their estimated
useful lives or the life of the related lease.
Impairment
of Long-Lived Assets
The
Company evaluates the recoverability of its long-lived
assets (finite-lived intangible assets and property and
equipment). Whenever events or changes in circumstances
indicate that the carrying amount of such assets may not
be fully recoverable, the expected undiscounted future
cash flows are compared to the net book value of the
related assets. If the net book value of the related
assets exceeds the undiscounted expected future cash
flows of the assets, the carrying amount would be reduced
to the present value of the expected future cash flows
and an impairment loss would be recognized. The Company
has not recorded any impairment losses for the years
ended December 31, 2012, 2011, or 2010.
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.
This
agreement required achievement of specified milestones in
the development of an MRI-safe implantable lead by
December 31, 2012. The agreement provided that, if the
milestones were not achieved by that date and such
failure was not the result of BSC Neuro’s failure
to reasonably cooperate with the Company in pursuing the
milestones, the Company would be required to repay BSC
Neuro certain amounts, including any development expenses
and milestone payments previously made to the Company
under the agreement and any patent prosecution costs
incurred by BSC Neuro with respect to the intellectual
property licensed under the agreement. In drafting that
provision of the agreement, the parties contemplated that
the Company would be the party primarily performing the
lead development activities, with assistance to be
provided by BSC Neuro. However, subsequent to
the execution of the agreement, BSC Neuro assumed
responsibility for the lead development efforts under the
agreement, and, consequently, BSC Neuro wholly controlled
the pace and progress of the development
efforts. The existence of the repayment
provision indicated that the sales price was not fixed or
determinable and all monies received should be deferred
until such time that BSC Neuro acknowledged that the
repayment provision would not be triggered. BSC Neuro
acknowledged that the repayment will not be triggered
and, as such, the related party revenue under this
agreement that had previously been deferred has been
recognized by the Company during the year ended December
31, 2012.
Future
product royalty income related to the agreement will be
recognized as the related products are sold and the
related royalties are payable to the Company.
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 has continuing involvement
through research and development services that is
required because the Company’s know-how and
expertise related to the technology are proprietary to
the Company, such upfront fees are deferred and
recognized over the estimated period of continuing
involvement on a straight-line basis.
Amounts
to be received related to substantive, performance-based
milestones in research and development arrangements 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.
Research
and Development Costs
Costs
related to research, design and development of products
are charged to research and development expense as
incurred. These costs include direct salary and employee
benefit related costs for research and development
personnel, costs for materials used in research and
development activities and costs for outside services.
Since most of the expenses associated with the
Company’s development service revenues relate to
existing internal resources, these amounts are included
in research and development costs.
Costs
of Withdrawn IPO
In
2009, the Company filed a registration statement with the
SEC relating to the initial public offering
(“IPO”) of shares of the Company’s
common stock. In 2010, the Company made the decision to
withdraw its registration statement and to cancel the
planned IPO. Costs which had been deferred totaling
$1,788,609 were recorded as costs of withdrawn IPO in the
statement of operations in 2010.
Other
Income (Expense)
During
2010 the Company recorded other income related to grants
received under the Qualifying Therapeutic Discovery
Project program administered under section 48D of the
Internal Revenue Code. Included in net other
income in 2010 is other income related to the grants of
$415,615, which is net of expenses paid to a service firm
that assisted the Company in completing the grant
applications.
Income
Taxes
The
Company accounts for income taxes under FASB ASC 740,
“Income Taxes.” Deferred income tax assets
and liabilities are recognized for the estimated future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets
and liabilities and their respective income tax basis.
Such assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the
years in which those temporary differences are expected
to be recovered or settled. The effect of a change in tax
rates is recognized in the period that includes the
enactment date.
Due
to uncertainties surrounding the realization of the
deferred income tax assets in future periods, the Company
has recorded a 100% valuation allowance against its net
deferred income tax assets. If it is determined in the
future that it is more likely than not that any deferred
income tax assets are realizable, the valuation allowance
will be reduced by the estimated net realizable
amounts.
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:
Share-Based
Compensation
The
Company accounts for compensation for all arrangements
under which employees and others receive shares of stock
or other equity instruments (including options and
warrants) in accordance with FASB ASC 718,
“Compensation – Stock Compensation.”
Under ASC 718, the fair value of each award is estimated
as of the grant date and amortized as compensation
expense over the requisite vesting period. The fair
values of the Company’s share-based awards are
estimated on the grant dates using the Black-Scholes
valuation model. This valuation model requires the input
of highly subjective assumptions, including the expected
stock volatility, estimated award terms and risk-free
interest rates during the expected terms. To estimate the
expected terms, the Company utilizes the
“simplified” method for “plain
vanilla” options discussed in the SEC’s Staff
Accounting Bulletin 107 (“SAB 107”). The
Company believes that all factors listed within SAB 107
as pre-requisites for utilizing the simplified method
apply to the Company and the Company’s share-based
compensation arrangements. The Company intends to utilize
the simplified method for the foreseeable future until
more detailed information about exercise behavior becomes
available. The Company based its estimate of expected
volatility on the average of historical volatilities of
publicly traded companies it deemed similar to the
Company because the Company lacks its own relevant
historical volatility data. The Company will consistently
apply this methodology until a sufficient amount of
historical information regarding the volatility of the
Company’s own share prices becomes available. The
Company utilizes risk-free interest rates based on a
zero-coupon U.S. treasury instruments, the terms of which
are consistent with the expected terms of the stock
awards. The Company has not paid and does not anticipate
paying cash dividends on its shares of common stock;
therefore, the expected dividend yield is assumed to be
zero.
Fair
Value Determination of Privately-Held Equity
Securities
Determining
the fair value of shares of privately held companies
requires making complex and subjective judgments. Prior
to the time the Company’s common stock was publicly
traded, the Company used the income approach, the market
approach, and the probability weighted expected return
method to estimate the enterprise values for the dates on
which common stock were issued/granted and outstanding.
The income approach was based on estimated future cash
flows which utilized the Company’s forecasts of
revenue and costs. The assumptions underlying the revenue
and cost estimates were consistent with the
Company’s business plan. The market approach was
based on recent sales of the Company’s common stock
in privately negotiated transactions between
stockholders, the once anticipated initial public
offering (“IPO”) price of the Company’s
common stock, or conversion terms negotiated with holders
of convertible securities issued by the Company. When the
Company began the process of preparing for its IPO, it
began to utilize the probability weighted expected return
method, which was based on identifying the most likely
liquidity events for the Company, the probability of each
occurring, and the equity values for each after applying
different percentages to the likelihood of the different
values assigned to each anticipated outcome of those
events. Once the Company’s planned IPO was
withdrawn in the third quarter of 2010, the Company
reverted to using the income and market approaches
previously utilized. The assumptions used in each of the
different valuation methods take into account certain
discounts such as selecting the appropriate discount rate
and control and lack of marketability discounts. The
discount rates used in these valuations ranged from 22%
to 35%. The discounts for lack of marketability ranged
from 15% to 35% and the discounts for lack of control
ranged from 20% to 30%. If different discount rates or
lack of marketability and control discounts had been
used, the valuations would have been different. The
enterprise value under each valuation method was
allocated to preferred and common shares taking into
account the enterprise value available to all
stockholders and allocating that value among the various
classes of stock based on the rights, privileges, and
preferences of the respective classes in order to provide
an estimate of the fair value of a share of the
Company’s common stock. There is inherent
uncertainty in these estimates.
Since
May 21, 2012, the Company’s common stock has been
traded in the over-the-counter market and has been quoted
on the OTC Bulletin Board under the symbol
MRIC. Prior to the time the Company’s
stock became publicly traded, the fair value of the
Company’s common stock, as well as the common stock
underlying options and warrants, granted as compensation,
or issued in connection with the settlement of
liabilities (“stock based transactions”),
were estimated by management, with input from a
third-party valuation specialist from time to time. Since
the Company’s common stock has been publicly
traded, the closing stock price has been used as a key
input in determining the fair value for stock based
transactions.
Derivative
Financial Instruments
The
Company accounts for derivative financial instruments in
accordance with FASB ASC Topic 815, “Derivatives
and Hedging,” which establishes accounting and
reporting standards for derivative instruments and
hedging activities, including certain derivative
instruments embedded in other financial instruments or
contracts and requires recording of all derivatives on
the balance sheet at their fair values (Note 6). Changes
in the fair values of derivatives are recorded each
period as gains or losses in the statements of operations
unless the derivatives qualify for hedge
accounting. At December 31, 2012 and 2011, the
Company did not have any derivative instruments that were
designated as hedges.
New
Accounting Pronouncements
In
June 2011, the FASB issued new accounting guidance
related to the presentation of comprehensive income that
increases comparability between GAAP and International
Financial Reporting Standards (“IFRS”). This
guidance requires companies to present the components of
net income and other comprehensive income either as one
continuous statement or as two consecutive statements,
eliminating the option to present components of other
comprehensive income as part of the statement of changes
in stockholders’ equity. Public entities are
required to apply this guidance for fiscal years and
interim periods within those years, beginning after
December 15, 2011. The Company adopted this guidance
during the year ended December 31, 2012, and the adoption
of this guidance had no impact on the Company’s
results of operations or financial position and is not
expected to have a significant impact on the
Company’s future results of operations or financial
position.
In
May 2011, the FASB issued guidance to provide a
consistent definition of fair value and ensure that the
fair value measurement and disclosure requirements are
similar between GAAP and IFRS. This update changes
certain fair value measurement principles and enhances
the disclosure requirements particularly for Level 3 fair
value measurements. This guidance was effective for
annual periods beginning after December 15, 2011 (the
2012 fiscal year) and applied prospectively. As this
guidance is only disclosure related, it did not have any
effect on the carrying value of the assets or liabilities
on the Company’s balance sheet as of December 31,
2012.
For
the year ended December 31, 2012, the Company adopted the
accounting standard update regarding fair value
measurement. This update was issued to provide a
consistent definition of fair value and ensure that the
fair value measurement and disclosure requirements are
similar between U.S. GAAP and International Financial
Reporting Standards. This standard update also changes
certain fair value measurement principles and enhances
the disclosure requirements particularly for Level 3 fair
value measurements. The adoption of this standard update
did not have a significant impact on the Company’s
financial statements.
In
July 2012, the accounting standard update regarding
testing of intangible assets for impairment was issued.
This standard update allows companies the option to
perform a qualitative assessment to determine whether it
is more likely than not that an indefinite-lived
intangible asset is impaired. An entity is not required
to calculate the fair value of an indefinite-lived
intangible asset and perform the quantitative impairment
test unless the entity determines that it is more likely
than not the asset is impaired. The Company will adopt
this standard update during the first quarter of 2013.
The adoption of this standard update is not expected to
have a significant impact on the Company’s
financial statements.
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