Summary Of Significant Accounting Policies (Policy) | 9 Months Ended |
Sep. 30, 2013 |
Summary Of Significant Accounting Policies [Abstract] | ' |
Description Of Business | ' |
Description of Business |
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Scientific Learning Corporation (the “Company”) develops, distributes and licenses technology that accelerates learning by improving the processing efficiency of the brain. |
The Company’s patented products build learning capacity by rigorously and systematically applying neuroscience-based learning principles to improve the fundamental cognitive skills required to read and learn. To facilitate the use of the Company’s products, the Company offers a variety of on-site and remote professional and technical services, as well as phone, email and web-based support. The Company sells primarily to K-12 schools in the United States through a direct sales force. |
All of the Company’s activities are in one operating segment. |
The Company was incorporated in 1995 in the State of California and was reincorporated in 1997 in the State of Delaware. |
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Basis Of Accounting And Liquidity | ' |
Basis of Accounting and Liquidity |
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The Company’s cash and cash equivalents were $2.9 million at September 30, 2013, compared to cash and cash equivalents of $2.3 million at December 31, 2012. In the first nine months of 2013, we have used $2.9 million of cash in operations. |
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The Company expects to continue to fund its operations primarily from its current cash balances and the issuance of subordinated debt and warrants that was completed on April 5, 2013. The Company is also exploring opportunities to monetize a portion of its patent portfolio through sales or licenses of some of its patents, though it may not be successful in doing so. This will require the Company to achieve certain level of booked sales, cash collections and expenses. The Company’s ability to continue as a going concern is dependent upon many factors. If the Company is unable to achieve the needed levels of booked sales and cash collections, it expects to further reduce expenses to ensure that it will have sufficient liquidity to continue to fund its operations through at least September 30, 2014. Reducing expenses substantially below current levels could have a negative impact on the Company’s future growth potential. In addition, the Company may be required to sell assets, issue additional equity securities or incur additional debt. The Company may not be able to accomplish any of these alternatives. |
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On April 5, 2013, the Company issued $4.6 million of subordinated debt securities and warrants to purchase an aggregate of 1,846,940 shares of the Company’s common stock to a group of its current investors. The notes issued pursuant to the subordinated note and warrant purchase agreement bear simple interest at a rate of 12% per annum. From the issuance date through the first anniversary thereof, the Company will pay accrued and unpaid interest quarterly in arrears by increasing the principal amount of each note and thereafter will pay accrued and unpaid interest in cash in arrears on July 31, 2014, November 30, 2014 and April 5, 2015. The notes mature on April 5, 2015. The note and warrant purchase agreements contain customary affirmative and negative covenants, including notification and information covenants and covenants restricting the Company’s ability to merge or liquidate, incur debt, dispose of assets, incur liens, declare dividends or enter into transactions with affiliates. The note and warrant purchase agreements also require the Company to repay the notes upon the occurrence of a change of control (as defined in the note and warrant purchase agreement) at 101% of the principal amount thereof plus accrued and unpaid interest. |
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On August 9, 2013, the Company amended its credit line with Comerica. The Company’s amended line of credit has an effective limit of $4 million. In the amendment, Comerica agreed to waive past covenant violations and agreed not to measure compliance with the minimum bookings covenant until such time as the Company seeks to borrow against the line of credit. The amendment also requires that certain financial covenants be renegotiated prior to the Company borrowing against the line of credit. The Company currently intends to extend its line of credit beyond March 2014 and renegotiate its financial covenants. There is no assurance that the Company would be able to successfully do so. |
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As of September 30, 2013, the Company had no borrowings outstanding on the line of credit. During the months ending January 31, 2013, February 28, 2013, May 31, 2013 and June 30, 2013 the Company was not in compliance with its line of credit covenants. Comerica granted the Company waivers of the covenant violations for these periods. Under the terms of the August 9, 2013 amendment to the line of credit, Comerica is not currently measuring the Company’s compliance with the minimum bookings covenants. As of September 30, 2013, the Company is in compliance with the covenants that are being measured by Comerica. |
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Use Of Estimates | ' |
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Use of Estimates |
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The preparation of consolidated financial statements, in conformity with accounting principles generally accepted in the United States, requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent that there are material differences between these estimates and actual results, the Company’s condensed consolidated financial statements could be affected. |
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Principles Of Consolidation | ' |
Principles of Consolidation |
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The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries in Shanghai, China and Puerto Rico. All significant intercompany balances and transactions have been eliminated in consolidation. |
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Interim Financial Information | ' |
Interim Financial Information |
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The interim consolidated financial information as of September 30, 2013 and for the three and nine months ended September 30, 2013 and 2012 is unaudited, and includes all necessary adjustments, which consisted only of normal recurring adjustments, for a fair presentation of the Company’s financial position at such dates and the Company’s results of operations and cash flows for those periods. The balance sheet as of December 31, 2012 has been derived from audited consolidated financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles (“GAAP”) for annual financial statements. In addition, the results of operations for the three and nine months ended September 30, 2013 are not necessarily indicative of the results for the entire year ending December 31, 2013, or for any other period. |
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These unaudited, condensed consolidated financial statements and notes should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto and Part II, Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission. |
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Cash Pledge | ' |
Cash Pledge |
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As of September 30, 2013, the Company pledged cash collateral in the amount of $150,000, which relates to a letter of credit issued to American Express Corporation. This pledge is part of the 4th amendment of the Company’s line of credit with Comerica signed on August 9, 2013. See Note 6. |
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Software And Web Site Development Costs | ' |
Software and Web Site Development Costs |
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The Company capitalizes certain software development costs incurred subsequent to the establishment of technological feasibility and amortizes those costs over the estimated lives of the related products. The annual amortization is computed using the straight-line method over the remaining estimated economic life of the product. Technological feasibility is established upon completion of a working model. In the three months ended September 30, 2013, the Company did not capitalize any costs relating to new products that had reached technological feasibility. In the nine months ended September 30, 2013, the Company capitalized $30,000 of costs relating to new products that had reached technological feasibility. In the three and nine months ended September 30, 2012, the Company capitalized zero and $56,000 of costs relating to new products that had reached technological feasibility, respectively. For the three and nine months ended September 30, 2013, the Company recorded amortization expense of $12,000 and $70,000, respectively. For the three and nine months ended September 30, 2012, the Company recorded amortization expense of $44,000 and $127,000, respectively. |
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The Company also capitalizes costs related to internal use software and website application, infrastructure development and content development costs. Costs related to preliminary project activities and post implementation activities are expensed as incurred. Costs incurred during the application development stage are capitalized. Internal-use software is amortized on a straight line basis over its estimated useful life, generally three years. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. The capitalized costs are included in “Property and equipment” in the condensed consolidated balance sheet. In each case the software or website is for internal needs, and the Company does not plan to market the software externally. For the three and nine months ended September 30, 2013, the Company capitalized approximately $14,000 and $156,000 of software and website development costs, respectively. For the three and nine months ended September 30, 2012, the Company capitalized approximately $10,000 and $317,000 of software and website development costs, respectively. For the three and nine months ended September 30, 2013, the Company recorded amortization expense of $175,000 and $519,000, respectively. For the three and nine months ended September 30, 2012, the Company recorded amortization expense of $235,000 and $682,000, respectively. |
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Net Loss Per Share | ' |
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Net Loss Per Share |
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Basic net loss per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net loss per share reflects the potential dilution of securities by adding common stock equivalents (computed using the treasury stock method) to the weighted-average number of common shares outstanding during the period, if dilutive. For the three and nine months ended September 30, 2013, stock options and awards exercisable for 2.2 million and 2.0 million shares of common stock along with common stock warrants exercisable for 4.4 million shares of common stock were excluded from the calculation of diluted net loss per share because their effect is anti-dilutive. |
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Recent Accounting Pronouncements | ' |
Recent Accounting Pronouncements |
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There are no material changes from the pronouncements disclosed in part II, Item 8 – “Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for the year ended December 31, 2012. |
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