Significant accounting policies and supplemental financial information | 12 Months Ended |
Dec. 31, 2014 |
Accounting Policies [Abstract] | |
Significant accounting policies and supplemental financial information | 3. Significant accounting policies and supplemental financial information |
Cash and cash equivalents – The Company considers all highly liquid, short-term investments with original maturities of three months or less to be cash and cash equivalents. |
Accounts receivable – The Company establishes an allowance for doubtful accounts based on a customer's ability and likelihood to pay. There was no allowance at either December 31, 2013 or December 31, 2014. |
The Company does not accrue interest on past due amounts. Past due accounts are determined based on customer terms, the policy for write-offs and collection efforts is based upon individual account circumstances. |
Inventories – Inventories are valued at the lower of cost or market using the weighted-average cost method. The weighted-average method examines total production volume and total labor and overhead over an appropriate historical period and establishes a weighted-average value of materials, overhead and labor to be assigned to each unit of finished goods inventory. |
Inventory includes finished goods that may be used by the Company’s research and development, technical services and marketing groups. When such products are consumed internally they are expensed at their inventoried cost to the appropriate department. |
Provisions, when required, for slow moving, excess and obsolete inventories are recorded to reduce inventory values from cost to their estimated net realizable values, based on product life cycle, development plans, product expiration and quality issues. |
Inventories at December 31, 2013 and December 31, 2014, consisted of the following: |
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(Dollars in thousands) | December 31, | | December 31, | | | | | |
2013 | 2014 | | | | | |
Raw materials | $ | 1,658 | | | $ | 1,598 | | | | | | |
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Work in process | 547 | | | 436 | | | | | | |
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Finished goods | 1,679 | | | 2,422 | | | | | | |
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Total | $ | 3,884 | | | $ | 4,456 | | | | | | |
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Prepaid expenses and other current assets – Prepaid expenses and other current assets consist of insurance premiums, annual maintenance contracts and other miscellaneous payments and deposits. |
Property and equipment – Property and equipment are recorded at cost and are depreciated using the straight-line method over the useful life of the assets, which is three to seven years. Leasehold improvements are depreciated over the shorter of their estimated useful life or the lease term. |
Property and equipment at December 31, 2013 and December 31, 2014, consisted of the following: |
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(Dollars in thousands) | December 31, | | December 31, | | | | | |
2013 | 2014 | | | | | |
Leasehold improvements | $ | 451 | | | $ | 835 | | | | | | |
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Production and lab equipment | 4,815 | | | 7,274 | | | | | | |
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Office and computer equipment | 546 | | | 1,354 | | | | | | |
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Construction-in-progress | 932 | | | 162 | | | | | | |
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| 6,744 | | | 9,625 | | | | | | |
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Less accumulated depreciation and amortization | (4,692 | ) | | (5,793 | ) | | | | | |
Total | $ | 2,052 | | | $ | 3,832 | | | | | | |
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Impairment of long-lived assets – The Company reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset may not be fully recoverable. An impairment loss would be recognized when the estimated future cash flows from the use of the asset are less than the carrying amount of that asset. No impairment losses were recorded in either 2013 or 2014. |
Goodwill – The entire balance of goodwill resulted from the 2008 acquisition of two companies and represents the purchase price in excess of identifiable assets and in-process research and development acquired in that transaction. Goodwill is not amortized. The Company has a single reporting unit and all goodwill relates to that unit. |
Goodwill, which has an indefinite useful life, represents the excess of cost over fair value of net assets acquired. Goodwill is reviewed for impairment at least annually during the fourth quarter, or more frequently if an event occurs indicating the potential for impairment. The Company conducts an assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines that it is more likely than not that the fair value of its reporting unit is less than its carrying amount, it then conducts a two-part test for impairment of goodwill. The qualitative factors which the Company may assess during the qualitative approach include, but are not limited to, macroeconomic conditions, industry and market considerations, the overall financial performance of the Company, and the excess of prior year estimates of fair value compared to carrying value. Based on this qualitative assessment, management concluded that as of the 2014 annual impairment test date, it was more likely than not that the fair value of the reporting unit was greater than its carrying value, and no further testing was performed. |
The Company performed its annual assessment for goodwill impairment in the fourth quarters of 2013 and 2014, noting no impairment in either year. The Company has not recorded any impairment of goodwill since the amount was recorded in 2008. |
Intangible assets – Intangible assets consist of licenses, patents, trade name and a noncompetition agreement with a scientific founder. |
The Company expenses patent related costs as incurred because, even though the Company believes the patents and underlying processes have continuing value, the amount of future benefits to be derived therefrom is uncertain. Purchased patents and licenses are capitalized and amortized on a straight-line basis over the useful life of the patent or license, which range from one to twenty years. When patents reach a mature stage, any associated legal, defense and maintenance costs are expensed as incurred. |
Accrued liabilities – Accrued expenses include accrued payroll, accrued vacation, accrued incentive compensation, accrued royalties, sales and use taxes payable and other various unpaid expenses. |
Accrued liabilities at December 31, 2013 and December 31, 2014, consisted of the following: |
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(Dollars in thousands) | December 31, | | December 31, | | | | | |
2013 | 2014 | | | | | |
Accrued payroll, vacation and employee-related expenses | $ | 1,024 | | | $ | 1,173 | | | | | | |
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Accrued incentive compensation | 1,229 | | | 612 | | | | | | |
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Accrued royalties | 584 | | | 721 | | | | | | |
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Accrued incentives for sales staff | 202 | | | 224 | | | | | | |
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Other | 322 | | | 420 | | | | | | |
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Total | $ | 3,361 | | | $ | 3,150 | | | | | | |
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Deferred revenue – Deferred revenue represents payments received, but not yet earned. |
Deferred revenue at December 31, 2013 and December 31, 2014, consisted of the following: |
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(Dollars in thousands) | 31-Dec-13 | | 31-Dec-14 | | | | | |
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CIRM | $ | 924 | | | $ | 3,142 | | | | | | |
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Coriell | — | | | 189 | | | | | | |
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Lilly | 280 | | | 258 | | | | | | |
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Other | 235 | | | 329 | | | | | | |
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Total | $ | 1,439 | | | $ | 3,918 | | | | | | |
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Debt discounts – The Company recorded the fair value of the warrants issued in connection with the Credit Agreement, see Note 5, as a debt discount. The debt discount is amortized to interest expense over a period ending on the earlier of the maturity date of the notes or the date on which the notes are repaid. |
Revenue recognition – The Company recognizes revenue in accordance with Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition, and Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 605, Revenue Recognition. |
Product sales – The Company recognizes product sales revenue when the following four basic revenue criteria are met: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the fee is fixed or determinable; and (iv) collectability is reasonably assured. Product returns and replacements historically have not been material and are not expected to be material. |
In June 2012, the Company finalized a supply and distribution agreement with Life Technologies Corporation whereby they will manufacture certain cell media for the Company and serve as its sole distributor of these products to third parties. The Company is recognizing this revenue in accordance with ASC 605-45—Revenue Recognition—Principal Agent Consideration. ASC 605-45 specifies various indicators that support the reporting of revenue on a gross basis, including inventory risk, changes to the product and discretion in changing the supplier. The Company does not believe that this agreement includes these characteristics and therefore is recognizing the revenue on a net basis. |
Collaborations, partnerships and other revenues—The Company recognizes revenue from collaborations, services and other arrangements when its contractual services are performed, provided collectability is reasonably assured. Collaborations may include upfront non-refundable payments, development milestone payments and research and development funding. Principal costs under these agreements include the Company’s personnel conducting research and development, supplies consumed in that process and allocated overhead. |
The Company recognizes revenues from non-refundable up-front license fees received under collaboration agreements ratably over the estimated performance period of the collaboration agreement. The estimated performance period is typically based upon detailed project plans completed by the project managers, who establish in regular discussion and collaboration with a counterpart at the customer, key project activities, milestones and resources. If the estimated performance period is subsequently modified, the Company will modify the period over which the up-front license fee is recognized on a prospective basis. |
The Company recognizes revenue from milestone payments received under collaboration agreements when earned, provided that the milestone event is substantive, its achievability was not reasonably assured at the inception of the agreement, the Company has no further performance obligations relating to the event and collectability is reasonably assured. If these criteria are not met, the Company recognizes milestone payments ratably over the remaining period of its performance obligations under the collaboration agreement. |
For a milestone to be considered substantive, the payment associated with its achievement must have all of the following characteristics: |
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• | relate solely to past performance; | | | | | | | | | | | |
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• | be reasonable, relative to all of the elements and payment terms in the arrangement; and | | | | | | | | | | | |
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• | be commensurate with either the Company’s effort required to achieve the milestone or the enhanced value of the delivered item(s) as a result of the milestone achievement. | | | | | | | | | | | |
As of December 31, 2014, the Company has recognized $350,000 of milestone related revenue in association with its contract with Lilly - see Multiple-element arrangements section below. In 2012, the Company sent invoices of $125,000 for milestones achieved. Of the achieved milestones, $25,000 was recognized as revenue in 2012 under the milestone method, while the remaining $100,000, which related to milestones that were not considered substantive, was deferred and accounted for ratably over the remaining period of the Company’s performance obligations under the contract. In 2013 and 2014 the Company recognized $100,000 and $225,000, respectively, of revenue under the milestone method. |
Payments, such as grants or awards, received for the reimbursement of expenses for research and development activities are recorded as revenue at the gross amount of the reimbursement. Costs associated with these reimbursements are reflected as a component of research and development expenses. |
In November, 2013, the Company announced that it had received a Notice of Grant Award (NGA) for $16 million from CIRM to create a human induced pluripotent stem cell biobank from 3,000 individuals. The agreement runs through October 31, 2016. Related to the CIRM grant, in December 2013, the Company announced that it had entered into a four year $6.3 million agreement with Coriell to produce distribution cell banks from the iPSCs produced for CIRM. In accounting for revenue for the agreements mentioned above, the Company will use the Proportional Performance Method whereby revenue will be recognized in proportion to the level of service, as measured by labor and materials cost, provided on a systematic and rational basis. As of December 31, 2014, the Company has received payments totaling $5.8 million from CIRM and has recognized $2.7 million as revenue, resulting in deferred revenue of $3.1 million. As of December 31, 2014, the Company has invoiced Coriell for $651,000 of which $462,000 was recognized as revenue. |
Multiple-element arrangements – Arrangements with customers may include multiple deliverables, including collaborations or agreements that combine products, research and development, participation in joint steering committees and other deliverables. For the Company’s multiple-element arrangements, deliverables are separated into more than one unit of accounting when (i) the delivered element(s) have value to the customer on a stand-alone basis and (ii) delivery of the undelivered element(s) is probable and substantially in the control of the Company. Revenue is then allocated to each unit of accounting based on the relative selling price of each unit of accounting based first on Vendor Specific Objective Evidence (“VSOE”) if it exists, based next on Third Party Evidence (“TPE”) if VSOE does not exist, and, finally, if both VSOE and TPE do not exist, based on Best Estimated Selling Price (“BESP”). |
VSOE—In many instances, products are sold separately in stand-alone arrangements. The Company determines VSOE based on its normal pricing and discounting practices for the specific product when sold separately. |
TPE—When VSOE does not exist, the Company attempts to determine TPE based on competitor prices for similar deliverables when sold separately. Given the novel nature and early stage of the Company’s products, it is difficult to obtain the pricing of similar products with similar functionality sold by other companies on a stand-alone basis. Therefore, the Company is typically not able to determine TPE. |
BESP—The objective of BESP is to determine the price at which the Company would transact a sale if the deliverable were sold on a stand-alone basis. When both VSOE and TPE do not exist, typically in the case of research and development and joint steering committee elements, the Company determines BESP by considering the cost of the activities required by the agreement and the rights of the Company and its customers to the resulting technology. |
After separating the elements of an arrangement into the appropriate units of accounting, revenue is recognized for each separate unit of accounting based on the nature of the revenue as described above. |
In accounting for the multiple-element arrangements, revenue is limited to the lesser of 1) the cumulative amount of payments received or invoiced; or 2) the cumulative amount of revenue earned, as determined using the pro-rata allocation and delivery status or progress of each element. |
In June 2012, the Company finalized a $5 million multiple-element agreement with Lilly that was scheduled to run through December 2014. Under the terms of the agreement, Lilly would order a minimum number of units of iCell products each quarter through the fourth quarter of 2014 at a predetermined price for each year. If Lilly failed to order the minimum number of units, the Company could choose a commercial iCell type for the shortfall and invoice Lilly for the same. In addition, through December 31, 2014, the Company also reprogramed a specified number of donor samples provided by Lilly, and invoiced Lilly for these MyCell products according to predetermined pricing tiers. The agreement also included both periodic and milestone payments related to meetings and decisions of a joint steering committee and the custom development of two different cell types. |
In December 2012, the Company finalized a one year $1.3 million multiple-element agreement with AstraZeneca UK Limited (AstraZeneca). Under the terms of the agreement, AstraZeneca agreed to order a minimum number of units of commercial iCell products, at a predetermined price, prior to December 31, 2013. During the term, the Company was to reprogram donor samples and invoice AstraZeneca for any such MyCell products. The last of the Company's obligations under this agreement were substantially completed in early 2014. In addition, AstraZeneca agreed to provide the Company with payments upon the achievement of certain milestones related to its attempts to develop, manufacture and commercially release a custom cell type. |
Changes in judgments and estimates regarding application of these revenue recognition guidelines as well as changes in facts and circumstances could result in a change in the timing or amount of revenue recognized in future periods. During 2012, 2013 and 2014, the Company did not have any significant changes in estimates related to the agreements discussed above. |
Research and development – Research and development costs are expensed as incurred. Research and development costs primarily consist of salaries and other personnel costs, supplies, amortization of patents and licenses, minimum royalties and royalty payments related to Collaborations, partnerships and other revenues and miscellaneous other expenses for facilities and occupancy costs. Other research and development expenses include fees paid to consultants and outside service providers and finished goods used in research and development. |
Advertising costs – The Company expenses advertising costs as incurred. The Company incurred advertising costs of $110,000 in 2012, $220,000 in 2013 and $212,000 in 2014. |
Stock-based compensation – All share-based payment awards made to employees, consultants (including science advisors) and directors are measured and recognized based on estimated fair values. |
Net loss per share of common stock – The Company’s basic net loss per share of common stock is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period. The diluted net loss per share of common stock is computed by dividing the net loss by the weighted-average number of potential common shares outstanding for the period determined using the treasury-stock method. For purposes of this calculation, the following potential common shares were excluded because including them would have been anti-dilutive: |
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| | December 31, | | | |
| | 2012 | | 2013 | | 2014 | | | |
Preferred series A | | 2,914,187 | | | — | | | — | | | | |
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Preferred series B | | 7,232,092 | | | — | | | — | | | | |
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Common stock warrants | | 8,208 | | | 28,406 | | | 28,406 | | | | |
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Common stock options | | 1,617,875 | | | 2,388,394 | | | 2,759,770 | | | | |
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| | 11,772,362 | | | 2,416,800 | | | 2,788,176 | | | | |
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Comprehensive loss – Comprehensive loss is equal to net loss as presented in the accompanying statements of operations. |
Segment reporting – ASC 280, “Segment Reporting” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. The Company determined it has one operating segment. Disaggregation of the Company’s operating results is impracticable, because the Company’s research and development activities and its assets overlap, and management reviews its business as a single operating segment. Thus, discrete financial information is not available by more than one operating segment. |
Product information – The following table provides Product sales revenue by product: |
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| | December 31, | | | |
(Dollars in thousands) | | 2012 | | 2013 | | 2014 | | | |
iCell Cardiomyocytes | | $2,610 | | $4,787 | | $3,175 | | | |
iCell Neurons | | 2,256 | | | 2,428 | | | 3,317 | | | | |
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MyCell | | — | | | 222 | | | 857 | | | | |
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Other | | 312 | | | 561 | | | 728 | | | | |
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Total | | $5,178 | | $7,998 | | $8,077 | | | |
Collaborations, partnerships and other revenue information - The following table provides Collaborations, partnerships and other revenues by significant agreement or type: |
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| | Year ended |
| | December 31, |
(Dollars in thousands) | | 2012 | | 2013 | | 2014 |
CIRM/Coriell | | $ | — | | | $ | 182 | | | $ | 3,008 | |
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MCOW | | 440 | | | 533 | | | 1,144 | |
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Collaborative cell development | | 728 | | | 1,857 | | | 1,287 | |
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iCell Hepatocytes | | 127 | | | 808 | | | 1,796 | |
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Prototype cells | | — | | | 381 | | | 777 | |
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Other | | 109 | | | 125 | | | 603 | |
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Total | | $ | 1,404 | | | $ | 3,886 | | | $ | 8,615 | |
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Geographical information – The following table provides percentage of total revenues by region, based on shipping locations or, in the case of CIRM, the customer location: |
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| | Year ended | | | |
| | December 31, | | | |
| | 2012 | | 2013 | | 2014 | | | |
United States of America | | 66 | % | | 56 | % | | 67 | % | | | |
Europe | | 24 | % | | 38 | % | | 28 | % | | | |
Japan | | 5 | % | | 5 | % | | 4 | % | | | |
Other | | 5 | % | | 1 | % | | 1 | % | | | |
Total | | 100 | % | | 100 | % | | 100 | % | | | |
In 2012 outside of the United States of America, no country accounted for over 10% of revenues. In 2013, sales to customers in the United Kingdom accounted for 12% of total revenue, while sales to customers in Switzerland accounted for 11% of total revenue. In 2014, sales to customers in Switzerland accounted for 15% of total revenue. |
Major customers – During 2012, 2013 and 2014, the Company had several large biopharmaceutical customers that individually accounted for greater than 10% of its total revenue in one or more of the periods. Lilly accounted for 18% and 18% of total revenue for both 2012 and 2013. GlaxoSmithKline plc accounted for 11% of total revenue in 2012. AstraZeneca accounted for 15% of total revenue in 2013. Hoffman-La Roche Inc. (Roche) and CIRM accounted for 10% and 15%, respectively, of total revenue in 2014. |
As of December 31, 2013, receivables from Lilly, AstraZeneca and Roche accounted for 21%, 17% and 11%, respectively, of total accounts receivable. As of December 31, 2014, receivables from Lilly, Roche and the Medical College of Wisconsin (MCOW) accounted for 16%, 15% and 13%, respectively, of total accounts receivable. |
Concentration of credit risk and other risks and uncertainties – As of December 31, 2014 the Company had $24.6 million invested in a 100% U.S. Treasury Securities Money Market Fund and $1.9 million in a U.S. Government Money Market Fund. An investment in a money market fund is not insured or guaranteed. The Company's remaining cash was deposited with one major financial institution. These deposits exceed federally insured limits. The Company has not experienced any losses in such accounts and believes that the Company is not exposed to any significant risk on these balances. |
The Company is currently not profitable and no assurance can be provided that it will ever be profitable. The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, new technological innovations, dependence on key personnel, dependence on key suppliers, protection of proprietary technology, the validity of and continued access to its owned and licensed intellectual property, compliance with government regulations, uncertainty of widespread market acceptance of products and the need to obtain additional financing. The Company's products include materials subject to rapid technological change. Certain materials used in manufacturing have relatively few alternative sources of supply and establishing additional or replacement suppliers for such materials cannot be accomplished quickly. While the Company has ongoing programs to minimize the adverse effect of such uncertainty, and the Company considers technological change in estimating allowances, uncertainty continues to exist. |
The Company believes its cash balance is sufficient to meet its needs in 2015. However, it may need to raise additional capital to expand the commercialization of its products, fund its operations and further its research and development activities. |
Fair value of financial instruments – The carrying amounts of financial instruments, which include cash and cash equivalents, accounts receivable and accounts payable, approximate their respective fair values due to the relatively short-term nature of these instruments. The Company believes the carrying value of long-term debt as of December 31, 2014 is also approximately equal to its fair value. |
ASC Topic 820, Fair Value Measurement, establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include Level 1, defined as observable inputs, such as quoted market prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore, requiring an entity to develop its own assumptions. The Company uses the market approach and Level 1 inputs to value its cash equivalents. |
Recent accounting pronouncements – In August 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entities Ability to Continue as a Going Concern "ASU No. 2014-15", which is included in Accounting Standards Codification 205, Presentation of Financial Statements. ASU No. 2014-15 requires management to assess an entity's ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. ASU No. 2014-15 will be effective for the Company starting in the first quarter of fiscal year 2017. Early application is permitted. The Company is currently evaluating the impact the adoption of ASU No. 2014-15 will have on its financial statements. |
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers "ASU No. 2014-09", which supersedes nearly all accounting standards for revenue recognition. ASU No. 2014-09 requires that an entity recognize revenue upon transferring promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 will be effective for the Company starting in the first quarter of fiscal year 2017. Early application is not permitted. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company is currently evaluating the impact the adoption of ASU No. 2014-09 will have on its financial statements. |