| 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, 2015 (“2015 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. 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. In the fourth quarter of 2014, the Company participated in the formation of a not-for-profit, which was established to generate awareness of the health risks linked to the use of fluoroscopy in hospital catheterization. As of June 30, 2016, the Company’s Chief Executive Officer and one of its senior executives represented two of the four voting members of the board of directors of the entity. As a result, under the voting model used for the consolidation of related parties, which are controlled by a company, the Company has consolidated the financial statements of the entity, and recognized expenses of $112 and $40 for the three months ended June 30, 2015 and 2016, respectively, and $217 and $82 for the six months ended June 30, 2015 and 2016, respectively. The entity had assets and liabilities of $32 and $23 respectively, on the Company’s balance sheet at June 30, 2016 and $56 and $75, respectively, on its balance sheet at December 31, 2015. Reclassification Certain amounts as of December 31, 2015 have been reclassified to conform to the current year presentation. As a result of the adoption of ASU 2015-03, Interest – Imputation of Interest, the Company has adopted this guidance retrospectively and reclassified the unamortized deferred financing costs from deposits and other assets to current portion of long-term debt and long-term debt, net of current portion, on the condensed consolidated balance sheets. Segment Information The Company operates in one business segment, which is the development, marketing and sale of robotic-assisted vascular interventions. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker in making decisions regarding resource allocation and assessing performance. To date, the chief operating decision maker has made such decisions and assessed performance at the company level, as one segment. The Company’s chief operating decision maker is the Chief Executive Officer. 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 valuation, 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 table below sets forth the Company’s customers that accounted for greater than 10% of its revenues for the three- and six-month periods ended June 30, 2015 and 2016, respectively:
Three months ended Six months ended
Customer 2015 2016 2015 2016
A 30 % — % 16 % — %
B 29 % 1 % 16 % — %
C 18 % 9 % 11 % 4 %
D — % 11 % 13 % 4 %
E 1 % 2 % 13 % 1 %
F 4 % 31 % 2 % 11 %
G — % — % — % 48 % The Company had two other customers that together accounted for 76% of the Company’s accounts receivable balance at December 31, 2015. Additionally, Customer B and one other customer comprised 41% of the Company’s accounts receivable balance at June 30, 2016. Given the current revenue levels, in a period in which the Company sells a system, that customer is likely to represent a significant customer. Fair Value Measurements In accordance with ASC 820, Fair Value Measurements and Disclosures, the Companygenerally defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company uses a three-tier fair value hierarchy, which classifies the inputs used in measuring fair values. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
● Level 1 —
● Level 2
● Level 3 The following table sets forth the Company’s assets that are measured at fair value on a recurring basis, by measurement category:
December 31, 2015
Total Quoted Significant other observable inputs Significant unobservable inputs
Assets:
Cash equivalents $ 6,356 $ 6,107 $ 249 $ —
Marketable securities
U.S. government treasuries 15,876 15,876 — —
Certificates of deposit 4,648 — 4,648 —
Total assets $ 26,880 $ 21,983 $ 4,897 $ —
June 30, 2016
Total Quoted Significant other observable inputs Significant unobservable inputs
Assets:
Cash equivalents $ 6,107 $ 6,107 $ — $ —
Marketable securities
U.S. government treasuries 2,499 2,499 — —
Certificates of deposit 2,489 — 2,489 —
Total assets $ 11,095 $ 8,606 $ 2,489 $ — The Company’s financial instruments of deposits and notes receivable are carried at cost and approximate their fair values given the liquid nature of such items. The fair value of the Company’s long-term debt is calculated based on discounted cash flow analysis, which includes Level 3 inputs and fair value approximates recorded amounts. Cash Equivalents The Company considers highly liquid short-term investments, which consists of money market funds and certificates of deposits 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. Marketable Securities The Company determines the appropriate classification of marketable securities at the time of purchase and reevaluates such designation at each balance sheet date. The Company has classified all of its marketable securities at June 30, 2016 as “available-for-sale” pursuant to ASC 320, Investments – Debt and Equity Securities. The Company records available-for-sale securities at fair value, with the unrealized gains and losses included in accumulated other comprehensive gain (loss) in stockholders’ equity. The
Company adjusts the cost of available-for-sale debt securities for amortization of premiums and accretion of discounts to maturity.
The Company includes such amortization and accretion in interest and other income (expense). The cost of securities sold is based
on the specific identification method. The Company includes interest income on securities classified as available-for-sale in
interest and other income (expense). The Company reviews marketable securities for other-than-temporary impairment whenever the fair value of a marketable security is less than the amortized cost and evidence indicates that a marketable security’s carrying amount is not recoverable within a reasonable period of time. Other-than-temporary impairments of investments are recognized in the consolidated statements of operations if the Company has experienced a credit loss, has the intent to sell the marketable security, or if it is more likely than not that the Company will be required to sell the marketable security before recovery of the amortized cost basis. At June 30, 2016, the balance in the Company’s accumulated other comprehensive income was composed solely of activity related to the Company’s available-for-sale securities. There were no realized gains or losses recognized on the maturity of available-for-sale securities during the six months ended June 30, 2016, and as a result, the Company did not reclassify any amount out of accumulated other comprehensive income during that same period. The Company did not hold any securities with a fair value in an unrealized loss position as of June 30, 2016. No available-for-sale securities held as of June 30, 2016 have remaining maturities greater than one year. The Company determined that there was no material change in the credit risk of the above investments. As a result, the Company determined it did not hold any investments with an other-than-temporary impairment as of June 30, 2016. The following table summarizes available-for-sale securities held:
Amortized Cost Unrealized Unrealized Fair Value
December 31, 2015
U.S. government treasuries $ 15,885 $ 1 $ (10 ) $ 15,876
Certificates of deposit 4,653 — (5 ) 4,648
Total assets $ 20,538 $ 1 $ (15 ) $ 20,524
Amortized Cost Unrealized Gain Unrealized Loss Fair Value
June 30, 2016
U.S. government treasuries $ 2,499 $ — $ — $ 2,499
Certificates of deposit 2,480 9 — 2,489
Total assets $ 4,979 $ 9 $ — $ 4,988 Certain short-term securities with original maturities of less than 90 days are included in cash and cash equivalents on the consolidated balance sheet at December 31, 2015 and are not included in the table above. 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 inventory and records the lower of cost or market reserves based on current selling prices and reserves for excess and obsolete inventory 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. The Company only capitalizes pre-launch inventories when purchased for commercial use and it deems regulatory approval to be probable. 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 and 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, when and if they become available during the service plan period. Deliverables, which are accounted for as separate units of accounting under multiple-element arrangements include: (a) the CorPath System, including installation and init ial training, which are subject to customer acceptance and (b) the initial shipment of CorPath Cassettes to the customer, and may include either (c) an extended warranty or (d) component upgrades. The Company recognizes revenue on multiple-element arrangements in accordance with Accounting Standards Update (“AS U”) 2009-13, Revenue Recognition (Topic 605): Multiple Deliverable Revenue Arrangements Revenue related to basic and premium service plans is recognized on a straight-line basis over the life of the service contract. 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 continues to sell CorPath Systems through
Philips on a sale by sale basis under a non-exclusive arrangement under mutually agreeable terms, which may include a continued
level of discounted pricing, until such time the Company either executes a new distribution arrangement with Philips or the Company
no longer does business with Philips. At December 31, 2015 and June 30, 2016, there were no amounts outstanding from Philips. 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. 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 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. Warrants The Company reviews the terms of warrants issued in connection with the applicable accounting guidance and classifies warrants as a long-term liability on the consolidated balance sheets if the warrant may conditionally obligate the Company to transfer assets, including repurchase of the Company’s capital stock, at some point in the future. Warrants to purchase shares of redeemable convertible preferred stock had previously met these criteria and therefore required liability-classification. Liability-classified warrants are subject to re-measurement at each balance sheet date, and any change in fair value is recognized as a component of other income (expense) in the consolidated statements of operations. The Company classifies warrants within stockholders’ equity on the consolidated balance sheets if the warrants are considered to be indexed to the Company’s own capital stock, and otherwise would be recorded in stockholders’ equity. During the six months ended June 30, 2016, warrants to purchase 124,160 shares of the Company’s common stock at an exercise price of approximately $0.76 per share were exercised on a cashless basis resulting in the issuance of 93,325 shares of common stock during the year. The table below is a summary of the Company’s warrant activity during the six months ended June 30, 2016:
Number of warrants Weighted-
Outstanding at December 31, 2015 5,207,379 $ 1.08
Granted — —
Exercised (124,160 ) $ 0.76
Expired — —
Outstanding at June 30, 2016 5,083,219 $ 1.08 Stock-Based Compensation The Company recognizes compensation costs resulting from the issuance of stock-based awards to employees and directors as an expense in the consolidated statements of operations over the requisite service period based on a measurement of fair value for each stock award. The awards issued to date have been stock options with service-based vesting periods over two or four years. The Company recognizes compensation costs resulting from the issuance of stock-based awards to non-employees as an expense in the consolidated statements of operations over the service period based on a measurement of fair value for each stock award at each performance date and period end. Income Taxes The
Company accounts for income taxes using the liability method, whereby deferred tax asset and liability account balances are determined
based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax
rates that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary,
to reduce deferred tax assets to amounts that are realizable. Consistent with all prior periods, the Company did not record any
income tax benefit for its operating losses for the three or six months ended June 30, 2015 and 2016 due to uncertainty regarding
future taxable income. Comprehensive Loss Comprehensive loss is comprised of net loss and changes in the unrealized gains and losses on marketable securities. Accumulated other comprehensive income (loss), a component of stockholders’ equity, is comprised of the cumulative unrealized gains and/or losses from the change in fair market value of the Company’s marketable securities. Accumulated other comprehensive loss was $14 at December 31, 2015 and accumulated other comprehensive income was $9 as of June 30, 2016. New Accounting Pronouncements Except
as described below, there have been no new accounting pronouncements or changes to accounting pronouncements during the six months
ended June 30, 2016, as compared to the recent accounting pronouncements described in Note 2 of the Company’s Annual Report
on Form 10-K for the year ended December 31, 2015, that are of significance or potential significance to the Company. In
August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going
Concern. The amendments in this update will explicitly require a company’s management to assess an entity’s
ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. The new
standard will be effective for annual period ending after December 15, 2016, and all annual and interim periods
thereafter. Early application is permitted. The Company faces certain risks and uncertainties, as further described in Note 1,
Nature of Operations. Upon adoption of this update, the Company will be
required to make additional disclosures regarding its forecasts and financing plans. 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. The Company adopted this update in the first quarter of 2016 and it had no impact to its consolidated financial statements or disclosures. 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 adopted this update in the first quarter of 2016 and it had no impact to its consolidated financial statements or disclosures. 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 adopted this update in the first quarter of 2016. The adoption resulted in the reclassification of current and long-term debt issuance costs from deposits and other assets to current portion of long-term debt and long-term debt, net of current portion, at December 31, 2015 and June 30, 2016. In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718), which simplifies several aspects of accounting for share-based payment transactions. It is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016 and, depending on the amendment, must be applied using a prospective transition method, retrospective transition method, modified retrospective transition method, prospectively and/or retroactively, with early adoption permitted. The Company is currently evaluating the impact of this update on its consolidated financial statements. |
