The Company and Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2013 |
Accounting Policies [Abstract] | ' |
Basis of Presentation | ' |
Basis of presentation |
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation. The accompanying notes are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). |
The board of directors of the Company and its stockholders approved a 1-for-6 reverse stock split of the Company’s common and preferred shares that was effected on March 26, 2012. All share and per share information included in the accompanying consolidated financial statements have been adjusted to reflect this reverse stock split. |
Consolidation | ' |
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation. |
Use of Estimates | ' |
Use of estimates |
The preparation of financial statements in conformity with GAAP requires the Company 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 revenue and expense during the reporting periods. The estimates include, but are not limited to, revenue recognition, warranty reserves, inventory reserves, stock-based compensation expense, provisions for income taxes and contingencies. Actual results could differ from these estimates, and such differences could be material to the Company’s financial position and results of operations. |
Cash, Cash Equivalents and Short-term Investments | ' |
Cash, cash equivalents and short-term investments |
The Company’s cash equivalents and short-term investments consist of money market funds, commercial paper, U.S. government agency notes, U.S. Treasury notes, municipal debt and corporate debt. These investments are classified as available-for-sale securities and are carried at fair value with the unrealized gains and losses reported as a component of stockholders’ equity. Management determines the appropriate classification of its investments at the time of purchase and re-evaluates the available-for-sale designations as of each balance sheet date. Investments with an original purchase maturity of less than three months are classified as cash equivalents, all those with longer maturities are classified as short-term investments, which are available-for-sale. |
Restricted Cash | ' |
Restricted cash |
Restricted cash was $0.3 million at December 31, 2013 and 2012, respectively, the majority of which is security for a corporate travel card facility and credit card processing services. All restricted cash is classified as current, under prepaids and other current assets on the consolidated balance sheet, based on the underlying terms of the arrangements. |
Allowance for Doubtful Accounts | ' |
Allowance for doubtful accounts |
The allowance for doubtful accounts reflects the Company’s best estimate of probable losses inherent in the Company’s receivables portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available evidence. The Company has not experienced significant credit losses from its accounts receivable. The Company performs a regular review of its customers’ payment histories and associated credit risks as it does not require collateral from its customers. |
The following table presents the changes in the allowance for doubtful accounts: |
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| | Years ended December 31, |
(in thousands) | | 2013 | | 2012 | | 2011 |
Allowance—beginning of period | | $ | — | | | $ | — | | | $ | (10 | ) |
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Provisions for bad debts | | (29 | ) | | — | | | — | |
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Provisions charged to other accounts | | — | | | — | | | — | |
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Recoveries from bad debts | | 13 | | | — | | | 10 | |
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Write-offs and other | | 10 | | | — | | | — | |
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Allowance—end of period | | $ | (6 | ) | | $ | — | | | $ | — | |
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Inventories | ' |
Inventories |
Inventories are valued at the lower of standard cost (which approximates actual cost on a first-in, first-out basis) or market (net realizable value or replacement cost). The Company assesses the valuation of inventory and periodically writes down the value for estimated excess and obsolete inventory based upon assumptions about future demand and market conditions. |
Concentration of credit risk and other risks and uncertainties | ' |
Concentration of credit risk and other risks and uncertainties |
Financial instruments that subject the Company to concentration of credit risk consist primarily of cash, cash equivalents and short-term investments. The Company’s cash and cash equivalents are primarily deposited with high quality financial institutions and in money market funds. Deposits at these institutions and funds may, at times, exceed federally insured limits. Management believes that these financial institutions and funds are financially sound and, accordingly, that minimal credit risk exists. The Company has not experienced any losses on its deposits of cash and cash equivalents. Marketable securities are stated at fair value, and accounted for as available-for-sale within short-term investments. The counterparties to the agreements relating to the Company’s investment securities consist of major corporations, financial institutions and government agencies of high credit standing. |
The primary hardware component of the Company’s products is currently manufactured by a third-party contractor in Mexico. A significant disruption in the operations of this contractor may impact the production of the Company’s products for a substantial period of time, which could harm the Company’s business, financial condition and results of operations. |
Concentration of credit risk with respect to trade accounts receivable is considered to be limited due to the diversity of the Company’s customer base and geographic sales areas. At December 31, 2013 and 2012, no customer accounted for 10% or more of accounts receivable. For the years ended December 31, 2013, 2012 and 2011, no customer represented 10% or more of revenue. |
Property and Equipment | ' |
Property and equipment |
Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful economic lives of the assets. Assets generally have useful economic lives of three years except for leasehold improvements, which are amortized using the straight-line method over the shorter of the remaining lease term or the estimated useful life of the related assets. Purchased or developed software also generally has a three year useful economic life, except for major ERP implementations, for which the Company assumes a five year useful economic life. Upon retirement or sale, the cost and related accumulated depreciation and amortization are removed from the consolidated balance sheet and the resulting gain or loss is reflected in operations. Maintenance and repairs which are not considered improvements and do not extend the useful life of the assets are charged to operations as incurred. |
The Company periodically reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset is impaired or the estimated useful lives are no longer appropriate. Fair value is estimated based on discounted future cash flows. If indicators of impairment exist and the undiscounted projected cash flows associated with such assets are less than the carrying amount of the asset, an impairment loss is recorded to write the asset down to its estimated fair values. To date, the Company has not recorded any impairment charges. |
Software Development Costs | ' |
Software development costs. |
For internal-use software, the Company capitalizes certain internal and external costs incurred in its acquisition and creation. Capitalized internal-use software is included in property and equipment when development is complete and is amortized on a straight-line basis over the estimated useful life of the related asset, generally three years, except that five years is assumed for major ERP implementations. Per the authoritative guidance, costs incurred either before or after the period satisfying the capitalization criteria, together with costs incurred for training and maintenance, are expensed as incurred. For the years ended December 31, 2013, 2012 and 2011, the Company capitalized costs of $2.1 million, $1.1 million and $0.3 million, respectively. |
Goodwill and Intangible Assets | ' |
Goodwill and intangible assets |
The Company allocates the purchase price of any acquisitions to tangible assets and liabilities and identifiable intangible assets acquired. Any residual purchase price is recorded as goodwill. The allocation of the purchase price requires management to make significant estimates in determining the fair values of assets acquired and liabilities assumed, especially with respect to intangible assets. These estimates are based on information obtained from management of the acquired companies and historical experience. These estimates can include, but are not limited to, the cash flows that an asset is expected to generate in the future, and the cost savings expected to be derived from acquiring an asset. These estimates are inherently uncertain and unpredictable, and if different estimates were used the purchase price for the acquisition could be allocated to the acquired assets and liabilities differently from the allocation that the Company has made. In addition, unanticipated events and circumstances may occur which may affect the accuracy or validity of such estimates. If such events occur we may be required to record a charge against the value ascribed to an acquired asset or an increase in the amounts recorded for assumed liabilities. |
Goodwill |
Goodwill is tested for impairment at the reporting unit level at least annually or more often if events or changes in circumstances indicate the carrying value may not be recoverable. As of December 31, 2013, no changes in circumstances indicate that goodwill carrying values may not be recoverable. Application of the goodwill impairment test requires judgment. Circumstances that could affect the valuation of goodwill include, among other things, a significant change in the Company's business climate and the buying habits of the Company's customers along with changes in the costs to provide the Company's products and services. The Company has identified two operating segments (Product and Service) which management also considers to be reporting units. For the 2013 goodwill impairment test, the Company used the qualitative assessment permitted under recent accounting guidance, and concluded there was no goodwill impairment, without proceeding to Steps 1 and 2 of the quantitative approach. |
Intangible assets |
Intangible assets are amortized over their estimated useful lives. Upon completion of development, acquired in-process research and development assets are generally considered amortizable, finite-lived assets and are amortized over their estimated useful lives. Finite-lived intangible assets consist of customer relationships, developed technology, trademarks and non-compete agreements. The Company evaluates intangible assets for impairment by assessing the recoverability of these assets whenever adverse events or changes in circumstances or business climate indicate that expected undiscounted future cash flows related to such intangible assets may not be sufficient to support the net book value of such assets. An impairment is recognized in the period of identification to the extent the carrying amount of an asset exceeds the fair value of such asset. No impairment of intangible assets was recorded in 2013, 2012 or 2011. |
Significant judgments required in assessing the impairment of goodwill and intangible assets include the identification of reporting units, identifying whether events or changes in circumstances require an impairment assessment, estimating future cash flows, determining appropriate discount and revenue growth rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value as to whether an impairment exists and, if so, the amount of that impairme |
Stockholders' Equity, Policy | ' |
Convertible preferred stock |
Prior to the Company’s IPO, the Company had issued and outstanding six series of convertible preferred stock. As of December, 31, 2011, the proceeds recorded were $53.0 million with liquidation preference of $53.6 million. Each share of preferred stock was convertible, at the option of the holder, into common stock. Series A, Series C, Series D, Series E and Series F had a conversion ratio of 1:1. Series B preferred stock had a conversion ratio of 1:1.8304. In connection with the Company’s IPO, in April 2012, each share of then-outstanding preferred stock automatically converted into common stock at the ratio described above. In the statement of shareholders' equity for the year ended December 31, 2012, this was recorded as non-cash conversion of $53.4 million from preferred stock to common stock. |
Deferred Charges, Policy | ' |
Deferred Costs of Revenue |
When the Company’s products have been delivered, but the product revenue associated with the arrangement has been deferred as a result of not meeting the revenue recognition criteria, the Company also defers the related inventory costs for the delivered items. As of December 31, 2013 and 2012, respectively, the Company included $144,000 and $4,000 of such deferred cost of revenue as part of “Prepaid expenses and other current assets” in the accompanying consolidated balance sheet. |
Revenue Recognition, Policy | ' |
Revenue recognition |
The Company derives revenue from the sales of communication badges, smartphones, perpetual software licenses for software that is essential to the functionality of the communication badges, software maintenance, extended product warranty and professional services. The Company also derives revenue from the sale of licenses for software that is not essential to the functionality of the communication badges. Sales tax is excluded from reported total revenue. |
Revenue is recognized when all of the below criteria are met: |
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• | there is persuasive evidence that an arrangement exists, in the form of a written contract, amendments to that contract, or purchase orders from a third party; | | | | | | | | | | | |
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• | delivery has occurred or services have been rendered; | | | | | | | | | | | |
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• | the price is fixed or determinable after evaluating the risk of concession; and | | | | | | | | | | | |
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• | collectability is reasonably assured based on customer creditworthiness and past history of collection. | | | | | | | | | | | |
A typical sales arrangement involves multiple elements, such as sales of communication badges, perpetual software licenses, professional services and maintenance services which entitle customers to unspecified upgrades, bug fixes, patch releases and telephone support. Revenue from the sale of communication badges and perpetual software licenses is recognized upon shipment or delivery at the customers’ premises as the contractual provisions governing sales of these products do not include any provisions regarding acceptance, performance or general right of return or cancellation or termination provisions adversely affecting revenue recognition. Revenue from the sale of maintenance services on software licenses is recognized over the period during which the services are provided, which is generally one year. Revenue from professional services is recognized either on a fixed fee basis based on milestones or on a time and materials basis as the services are provided, both of which generally take place over a period of two to twelve weeks. |
The Company also derives revenue from the provision of hosted services on a subscription basis and software sold under term licenses. Revenue from the sale of these products and services are not sold as part of multiple element arrangements and such arrangements are recognized ratably over the term of the arrangement. |
Revenue from sales-type leases |
A portion of the Company's sales are made through multi-year lease agreements with customers. When these arrangements are considered sales-type leases, upon delivery of leased products to customers, the Company recognizes revenue for such products in an amount equal to the net present value of the minimum lease payments. Unearned income is recognized as part of product revenue under the effective interest method. The Company recognizes revenue related to executory costs when such executory costs are incurred. |
Proceeds from transfers of sales-type leases to third-party financial companies are allocated between the net investment in sales-type leases and the executory cost component for remaining service obligations based on relative present value. The difference between the amount of proceeds allocated to the net investment in lease and the carrying value of the net investment in lease is included in product revenue. Proceeds allocated to the executory cost component are accounted for as financing liabilities. |
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For the year ended December 31, 2013, the Company transferred $2.2 million of lease receivables, recording an immaterial net gain and $0.8 million of new financing liabilities for future performance of executory service obligations. For the year ended December 31, 2012, the Company transferred $3.8 million of lease receivables, recording an immaterial net gain and $1.1 million of new financing liabilities for future performance of executory service obligations. |
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For lease receivables retained as of December 31, 2013 and 2012, respectively, the Company recorded $1.4 million and $0.5 million of net investment in sales-type leases, equivalent to the minimum lease payments for the delivered product. |
Revenue Recognition, sales type leases | ' |
Revenue from sales-type leases |
A portion of the Company's sales are made through multi-year lease agreements with customers. When these arrangements are considered sales-type leases, upon delivery of leased products to customers, the Company recognizes revenue for such products in an amount equal to the net present value of the minimum lease payments. Unearned income is recognized as part of product revenue under the effective interest method. The Company recognizes revenue related to executory costs when such executory costs are incurred. |
Proceeds from transfers of sales-type leases to third-party financial companies are allocated between the net investment in sales-type leases and the executory cost component for remaining service obligations based on relative present value. The difference between the amount of proceeds allocated to the net investment in lease and the carrying value of the net investment in lease is included in product revenue. Proceeds allocated to the executory cost component are accounted for as financing liabilities. |
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For the year ended December 31, 2013, the Company transferred $2.2 million of lease receivables, recording an immaterial net gain and $0.8 million of new financing liabilities for future performance of executory service obligations. For the year ended December 31, 2012, the Company transferred $3.8 million of lease receivables, recording an immaterial net gain and $1.1 million of new financing liabilities for future performance of executory service obligations. |
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For lease receivables retained as of December 31, 2013 and 2012, respectively, the Company recorded $1.4 million and $0.5 million of net investment in sales-type leases, equivalent to the minimum lease payments for the delivered product. |
Commissions Expense, Policy | ' |
Commissions expense |
Sales commissions are recorded as sales and marketing expense and accrued current liability as orders are recorded; thus no contract acquisition costs are capitalized. |
Shipping and Handling Costs | ' |
Shipping and handling costs |
Shipping and handling costs charged to customers are included in revenue and the associated expense is recorded in cost of products sold in the statements of operations for all periods presented. |
Research and Development Expenditures | ' |
Research and development expenditures |
Research and development costs are charged to operations as incurred. Software development costs incurred prior to the establishment of technological feasibility are included in research and development and are expensed as incurred. After technological feasibility is established, material software development costs up to general availability of the software will be capitalized and amortized on a straight-line basis over the estimated product life, or based on the ratio of current revenues to total projected product revenues, whichever is greater. To date, the time between the establishment of technological feasibility and general availability has been very short and therefore no significant costs have been incurred. Accordingly, the Company has not capitalized any software development costs. |
Advertising Costs | ' |
Advertising costs |
Advertising costs are included in sales and marketing expense and are expensed as incurred. Advertising costs for the years ended December 31, 2013, 2012 and 2011 were immaterial. |
Product Warranties | ' |
Product warranties |
The Company offers warranties on certain products and records a liability for the estimated future costs associated with warranty claims, which is based upon historical experience and the Company’s estimate of the level of future costs. The Company provides for the estimated costs of hardware warranties at the time the related revenue is recognized. Costs are estimated based on historical and projected product failure rates, historical and projected repair costs, and knowledge of specific product failures (if any). The specific hardware warranty includes parts and labor over a period generally ranging from one to three years. The Company provides no warranty for software. The Company regularly re-evaluates its estimates to assess the adequacy of the recorded warranty liabilities and adjust the amounts as necessary. Warranty costs are reflected in the consolidated statement of operations as cost of sales. |
Product Warranties | ' |
The Company provides for the estimated costs of hardware warranties at the time the related revenue is recognized. Costs are estimated based on historical and projected product failure rates, historical and projected repair costs, and knowledge of specific product failures (if any). The specific hardware warranty includes parts and labor over a period generally ranging from one to three years. The Company provides no warranty for software. The Company regularly re-evaluates its estimates to assess the adequacy of the recorded warranty liabilities and adjust the amounts as necessary. |
A reconciliation of the changes in the Company’s warranty reserve for 2013, 2012 and 2011 is as follows: |
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| | Years ended December 31, |
(in thousands) | | 2013 | | 2012 | | 2011 |
Warranty balance at the beginning of the period | | $ | 297 | | | $ | 983 | | | $ | 605 | |
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Warranty expense accrued for shipments in period | | 1,185 | | | 540 | | | 1,563 | |
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Changes in liability related to pre-existing warranties | | 536 | | | (242 | ) | | 50 | |
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Warranty settlements made | | (1,178 | ) | | (984 | ) | | (1,235 | ) |
Warranty balance at the end of the period | | $ | 840 | | | $ | 297 | | | $ | 983 | |
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Stock-based Compensation | ' |
Stock-based compensation |
For options granted to employees, stock-based compensation is measured at grant date based on the fair value of the award and is expensed on a straight-line basis over the requisite service period. The Company determines the grant date fair value of the options using the Black-Scholes option-pricing model. Restricted stock awards and restricted stock units, first awarded in 2012, result in compensation expense, straightlined over the requisite service period, based on the award date closing stock price. Equity instruments issued to non-employees are recorded at their fair value on the measurement date and are subject to periodic adjustment as the underlying equity instruments vest. The fair value of options granted to non-employees is amortized over the vesting period, on a straight-line basis. |
For stock options issued to employees and non-employees with specific performance criteria, the Company makes a determination at each balance sheet date whether the performance criteria are probable of being achieved. Compensation expense is recognized until such time as the performance criteria are met or when it is probable that the criteria will not be met. |
The Company will only recognize a tax benefit from stock-based awards in additional paid-in capital if an incremental tax benefit is realized after all other tax attributes currently available to the Company have been utilized. In addition, the Company has elected to account for the indirect effects of stock-based awards on other tax attributes, such as the research tax credit, through its statement of operations. |
In 2012, the Company began incorporating restricted stock awards and RSUs as an element of our compensation plans. In 2012, the Company granted certain of its directors restricted stock which vests 50% on the first anniversary of the grant, and 50% on the second anniversary of the grant. In 2013, the Company began granting certain of its directors RSUs which vest 100% on the first anniversary of the grant. In 2012, the Company began granting certain employees RSUs, which vest one third on the first anniversary of the grant, one third on the second anniversary of the grant and one third upon the third anniversary of the grant. |
Income Taxes | ' |
Income taxes |
The Company uses the asset and liability method of accounting for income taxes. Under this method, the Company records deferred income taxes based on temporary differences between the financial reporting and tax bases of assets and liabilities and use enacted tax rates and laws that the Company expects will be in effect when they recover those assets or settle those liabilities, as the case may be, to measure those taxes. In cases where the expiration date of tax carryforwards or the projected operating results indicate that realization is not likely, the Company provides for a valuation allowance. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. |
The Company has deferred tax assets, resulting from net operating losses, research and development credits and temporary differences that may reduce taxable income in future periods. A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realized. In assessing the need for a valuation allowance, the Company estimates future taxable income, considering the feasibility of ongoing tax-planning strategies and the realizability of tax loss carryforwards. Valuation allowances related to deferred tax assets can be impacted by changes in tax laws, changes in statutory tax rates and future taxable income levels. If the Company were to determine that it would be able to realize its deferred tax assets in the future in excess of the net carrying amounts, it would decrease the recorded valuation allowance through an increase to income in the period in which that determination is made. Due to the history of losses the Company has generated in the past, the Company believes that it is not more likely than not that all of the deferred tax assets in the U.S. and Canada can be realized as of December 31, 2013 and 2012, respectively. Accordingly, the Company has recorded a full valuation allowance on its deferred tax assets for these years. |
At December 31, 2013, the Company had a valuation allowance against net deferred tax assets of $21.0 million. The Company reviews on a quarterly basis its conclusions about the appropriate amount of its deferred income tax asset valuation allowance. In the ordinary course of business there is inherent uncertainty in quantifying the Company’s income tax positions. The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, the Company has recorded the highest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be realizable, no tax benefit has been recognized in the financial statements. |
The Company includes interest and penalties with income taxes in the accompanying statement of operations. All of the Company’s net operating losses and research credit carryforwards prior to 2013 are subject to tax authority adjustment and all years after 2009 are still subject to tax authority examinations. The Company is currently not subject to any income tax audit examinations by tax authorities in any jurisdictions including U.S. federal, state and local or foreign countries. |
Foreign Currency Translation | ' |
Foreign currency translation |
The functional currency of the Company’s foreign subsidiaries is the U.S. dollar. Accordingly, monetary assets and liabilities in non-functional currency of these subsidiaries are remeasured using exchange rates in effect at the end of the period. Revenues and costs in local currency are remeasured using average exchange rates for the period, except for costs related to those consolidated balance sheet items that are remeasured using historical exchange rates. The resulting remeasurement gains and losses are included in the Company’s consolidated statements of operations. Translation gains and losses have not been significant to date |
Segments | ' |
Segments |
Operating segments are components of an enterprise for which separate financial information is available and is evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the Chief Executive Officer. The Company has two operating segments which are both reportable business segments: (i) Product; and (ii) Service. |
Comprehensive Income (Loss) | ' |
Comprehensive income (loss) |
Before 2012, there were no components of comprehensive income which were excluded from net income (loss). For the years ended December 31, 2013 and 2012, the Company had small unrealized gains on available-for-sale securities. There were no other components within other comprehensive income for the years ended December 31, 2013 |
Related Party Transactions Disclosure | ' |
Related party transactions |
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During the years ended December 31, 2013 and 2012, the Company billed a related party, the University of Chicago Medical Center (“UCMC”), $0.5 million in each year for consulting services and technology solutions. One of the Company's board members, Sharon O’Keefe, is the President of UCMC. These transactions were recorded at arms-length prices. There were no material related party transactions for UCMC in the year ended 2011. During the year ended December 31, 2013 the Company billed a related party, the Hewlett-Packard Company, approximately $9,200 for software and support, at arms’ length prices. Through July of 2013, John N. McMullen, one of the Company’s directors, served as Treasurer & Senior Vice President at Hewlett-Packard. There were no material related party transactions for Hewlett-Packard in the years ended December 31, 2012 and 2011. |
Recent Accounting Pronouncements | ' |
Recent accounting pronouncements |
In July 2013, the FASB issued new guidance for the gross versus net presentation of unrecognized tax benefits. The FASB concluded that an unrecognized tax benefit should be presented as a reduction of a deferred tax asset for a net operating loss (“NOL”) or other tax credit carryforward when settlement in this manner is available under the tax law. The new guidance is effective for the Company's first quarter of 2014, applied prospectively. The Company has the option to apply the rule retrospectively and early adoption is permitted. Adoption of this standard is not expected to impact the financial position or results of operations of the Company. |