| Significant Accounting Policies | Note 2 Significant Accounting
Policies
Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all adjustments,
consisting of normal recurring adjustments, necessary for a fair
presentation of the Company’s financial statements for
interim periods in accordance with accounting principles generally
accepted in the United States (“U.S. GAAP”). The
information included in this quarterly report on Form 10-Q
should be read in conjunction with the audited consolidated
financial statements and the accompanying notes included in the
Company’s Annual Report on Form 10-K for the year ended
December 31, 2014 (“2014 Form 10-K”). The
Company’s accounting policies are described in the
“ Notes to Consolidated Financial Statements
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, Corindus, Inc. and
Corindus Security Corporation. Corindus, Inc. is our operating
subsidiary, while Corindus Security Corporation was created solely
to hold and invest the proceeds from issuance of equity. All
intercompany transactions and balances have been eliminated in
consolidation. The functional currency of both wholly-owned
subsidiaries is the U.S. dollar and, therefore, the Company has not
recorded any currency translation adjustments.
Reclassification
Sales and marketing expenses of $1,766 and $3,706 for the three and
six months ended June 30, 2014, respectively, have been
reclassified to selling, general and administrative expenses to
conform to 2015 presentation.
Segment Information
The Company operates in one business segment, which is the
marketing, sales and development of robotic-assisted vascular
interventions.
Use of Estimates
The process of preparing financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of assets and liabilities at the date of the financial
statements. Such management estimates include those relating to
revenue recognition, inventory write-downs to reflect net
realizable value, assumptions used in the valuation of stock-based
awards, and valuation allowances against deferred income tax
assets. Actual results could differ from those estimates.
Significant Customers
The Company had the following customers that accounted for greater
than 10% of its revenues during the three and six month periods
ending June 30, 2014 and 2015:
Three Months ended June 30,
Six Months ended June 30,
2014 2015 2014 2015
Customer % of Revenues % of Revenues % of Revenues % of Revenues
A 73 %
— 44 %
—
B 12 %
— 17 %
—
C
— 18 % 15 % 11 %
D
— 30 %
— 16 %
E
— 29 %
— 16 %
F
—
—
— 13 %
G
—
—
— 13 %
Additionally, Customer D and Customer A accounted for 63% and 18%
of the Company’s accounts receivable balance at June 30,
2015, respectively. The Company had two other customers that
accounted for 27% and 25% of its accounts receivable balance at
December 31, 2014, but neither customer exceeded 10% of its
revenues in either the three or six month periods ending
June 30, 2014 or 2015.
Cash Equivalents
The Company considers highly liquid short-term investments, which
typically have consisted of money market funds, with original
maturity dates of three months or less at the date of purchase to
be cash equivalents. From time to time, the Company’s cash
balances may exceed federal deposit insurance limits. There were no
amounts invested in money market funds at December 31, 2014 or
June 30, 2015.
Inventories
Inventories are valued at the lower of cost or market using the
first-in, first-out (“FIFO”) method. The Company
routinely monitors the recoverability of its inventories and
records lower of cost or market reserves based on current selling
prices and reserves for excess and obsolete inventories based on
historical and forecasted usage, as required. Scrap and excess
manufacturing costs are charged to cost of revenue as incurred and
not capitalized as part of inventories.
Revenue Recognition
The CorPath System is a capital medical device used by hospitals
and surgical centers to perform heart catheterizations. Use of the
CorPath System requires a sterile, single-use cassette (the
“CorPath Cassette”), which are sold separately, for
each procedure. Products are sold to customers with no rights of
return. The Company recognizes revenue on the sale of products when
the following criteria are met:
• Persuasive evidence of an arrangement
exists
• The price to the buyer is fixed or
determinable
• Collectability is reasonably
assured
• Risk of loss transfers and the
product is delivered
In each arrangement, the Company is responsible for installation of
the CorPath System and initial user training, which services are
deemed essential to the functionality of the system. Therefore, the
Company recognizes system revenue when the CorPath System is
delivered, installed, and accepted by the end user customer.
Each CorPath System is sold with a standard one year warranty,
which provides that the CorPath System will function as intended
and during that one year period, the Company will either replace
the product or a portion thereof or provide the necessary repair
service during the Company’s normal service hours. The
Company accrues for the estimated costs of the warranty once the
CorPath System revenue is recognized.
The Company generally enters into multiple element arrangements,
which include the sale of a CorPath System with an initial order of
CorPath Cassettes, and may include either a basic service plan or a
premium service plan. The basic service plan provides for an
extended warranty period and the premium service plan provides for
the extended warranty as well as component upgrades. Deliverables,
which are accounted for as separate units of accounting under
multiple-element arrangements include: (a) the CorPath System,
including delivery installation and initial training, which are
subject to customer acceptance and (b) the initial shipment of
CorPath Cassettes to the customer, and may include either
(c) a basic service plan or (d) a premium service
plan.
The Company recognizes revenue on multiple-element arrangements in
accordance with Accounting Standards Update (“ASU”)
2009-13, Revenue
Recognition (Topic 605): Multiple Deliverable Revenue
Arrangements
The Company uses BESP to determine the selling price of its systems
as well as the basic and premium service plans. BESP is determined
based on estimated costs plus a reasonable margin, and has
generally been consistent with the price charged to the customer
for such products and services. The determination of BESP also
considers the price of the service plans charged to customers when
such services are sold separately in subsequent transactions. The
Company also uses BESP to determine the selling price of the
initial order of cassettes, which considers the price at which it
charges its customers when the cassettes are sold separately.
Revenue related to basic service plans is recognized on a
straight-line basis over the life of the service contract. Revenue
related to premium service plans is recognized over the life of the
service contract, with consideration given to the expected timing
of costs to be incurred related to the delivery of component
upgrades. Revenues from accessories are recorded upon delivery and
services provided by the Company outside of a basic or premium
service contract are recognized as the services are provided.
There are no performance, cancellation, termination, or refund-type
provisions under the Company’s multiple element
arrangements.
On January 21, 2011, the Company entered into a distributor
agreement with Philips Medical Systems Nederland, B.V.
(“Philips”) appointing Philips to be the sole worldwide
distributor for the promotion and sale of the Company’s
CorPath System. Under the agreement, Philips sold the equipment
directly to the end user and the Company was responsible for
installation and initial training. Revenue was recognized on a net
basis based on the amount billed to Philips and upon acceptance of
the system by the end-user customer. This agreement with Philips
expired on August 7, 2014.
The Company also sells CorPath Cassettes under a CorPath
Utilization Program (“CUP”), which is a multi-year
arrangement that involves the placement of a CorPath System at a
customer’s site free of charge and the customer agrees to
purchase a minimum number of CorPath Cassettes each month at a
premium over the regular price. The Company records revenue upon
shipment of the cassettes based on the selling price of the CorPath
Cassettes. The system is capitalized as field equipment in property
and equipment and is depreciated on a straight line basis through
cost of revenue over the estimated useful life of the system, which
generally approximates the length of the CUP program contract,
which is typically 36 months. Revenues under this program have not
been significant to date.
The Company also uses a One-Stent program to demonstrate its
confidence in the CorPath System’s ability to help accurately
measure anatomy and precisely place only one stent per lesion. The
Company provides eligible customers registered under the program a
$1 credit against future CorPath Cassette purchases for a
qualifying CorPath percutaneous coronary intervention
(“PCI”) procedure which uses more than one stent per
lesion. The estimated cost of honoring the potential obligation
under the stent program is recorded as a reduction of revenue at
the time of shipment. These costs have not been significant to
date.
The Company records shipping and handling costs as a selling
expense in the period incurred, and records payments from customers
for shipping costs as a reduction of selling expenses. Such amounts
have not been material in the periods presented. The Company
recorded medical device excise tax in the amount of $5 and $8 for
the three months ended June 30, 2014 and 2015, respectively,
and $21 and $15 for the six months ended June 30, 2014 and
2015, respectively, which is included in selling, general and
administrative expenses.
Warrants
The Company had warrants outstanding to purchase shares of Series
A, D and E Redeemable Convertible Preferred Stock, which converted
into warrants to purchase shares of common stock immediately prior
to the Acquisition. The warrant instruments required mark to market
accounting which were recorded in the statements of operations
based on their fair values determined using the Black-Scholes model
and the fair value of underlying preferred stock.
In connection with the Acquisition, the Company exchanged warrants
to purchase 201,178 shares of Corindus, Inc. Series A, D and E
Redeemable Convertible Preferred Stock at an average exercise price
of $26.63 per share to warrants to purchase 5,029,865 shares of the
Company’s common stock at the average exercise price of
$1.07. The value of the warrants to purchase shares of Redeemable
Convertible Preferred Stock were re-measured at each balance sheet
date and any changes in the valuation were expensed in the period
through the date of the Acquisition Agreement, at which point they
were re-measured for the final time and reclassified to
stockholders’ equity.
The Company estimated the fair value of these warrants using the
Black-Scholes option pricing model based on the estimated market
value of the underlying Redeemable Convertible Preferred Stock at
the valuation measurement date, the remaining contractual term of
the warrant, risk-free interest rates, expected dividends and
expected volatility of the price of the underlying redeemable
convertible preferred stock. The Company revalued the warrants to
purchase Series A and D Redeemable Convertible Preferred Stock on
June 30, 2014 using the following assumptions: risk free
interest of 1.00%, dividend yield of zero, expected volatility of
50% and expected years of 3.50.
Recent Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09—Revenue
from Contracts with Customers (Topic 606). ASU 2014-09 supersedes
most of the existing guidance on revenue recognition in Accounting
Standards Codification (“ASC”) Topic 605, Revenue
Recognition. The core principle of the revenue model is that an
entity recognizes revenue to depict the transfer of 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 and services. In applying the revenue
model to contracts within its scope, an entity will need to
(i) identify the contract(s) with a customer
(ii) identify the performance obligations in the contract
(iii) determine the transaction price (iv) allocate the
transaction price to the performance obligations in the contract
and (v) recognize revenue when (or as) the entity satisfies a
performance obligation. ASU No. 2014-09 is effective for
public entities for annual and interim periods beginning after
December 15, 2016. The ASU allows for either full
retrospective adoption, where the standard is applied to all of the
periods presented, or modified retrospective adoption, where the
standard is applied only to the most current period presented in
the financial statements. The Company is currently assessing the
impact of this standard to its consolidated financial statements.
In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic
810) to address financial reporting considerations for the
evaluation as to the requirement to consolidate certain legal
entities. ASU 2015-02 is effective for fiscal years and for interim
periods within those fiscal years beginning after December 15,
2015. The Company is evaluating the impact of ASU 2015-02 and if
early adoption is appropriate in future reporting periods.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties
about an Entity’s Ability to Continue as a Going
Concern.
In January 2015, the FASB issued Financial Accounting Standards
Update—Simplifying Income Statement Presentation by
Eliminating the Concept of Extraordinary Items. Subtopic 225-20,
Income Statement—Extraordinary and Unusual Items, previously
required that an entity separately classify, present, and disclose
extraordinary events and transactions. This update is effective for
fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2015 and may be applied
prospectively or retrospectively to all prior periods presented in
the financial statements. Early adoption is permitted provided that
the guidance is applied from the beginning of the fiscal year of
adoption. The Company is currently assessing the impact of this
standard to its consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03,
Interest—Imputation of Interest (Subtopic 835-30) as part of
the initiative to reduce complexity in accounting standards. The
update requires that debt issuance costs related to a recognized
debt liability be presented in the balance sheet as a direct
deduction from the carrying amount of that debt liability,
consistent with debt discounts. ASU 2015-03 is effective for annual
periods beginning after December 15, 2015 and for interim
periods within those fiscal years. The Company does not expect the
impact of ASU 2015-03 to be material to its consolidated financial
statements. |
