| Significant Accounting Policies | 2. Significant Accounting Policies 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 December 31, 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 $18, $386 and $123 for the years ended December 31, 2014, 2015 and 2016, respectively. The entity had assets and liabilities of $56 and $75, respectively, on its balance sheet at December 31, 2015 and had both assets and liabilities of $23 on its balance sheet at December 31, 2016.
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 Accounting Standards Update (“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 consolidated balance sheets. Segment Information The Company operates in one business segment, which is the development, marketing and sale of robotic-assisted vascular intervention devices. 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. Revenues from domestic customers were $2,068, $2,684 and $1,867 for the years ending December 31, 2014, 2015 and 2016, respectively. Revenues from international customers in Dubai, Israel, and Kuwait, were $915, $45 and $975 for the years ending December 31, 2014, 2015 and 2016, respectively. Use of Estimates The process of preparing financial statements in conformity with accounting principles generally accepted in the United States (“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. Cash Equivalents The Company considers highly liquid short-term investments, which consist of money market funds and certificates of deposit, 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 had classified all of its marketable securities during 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 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 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 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. During 2016, the activity in the Company’s accumulated other comprehensive loss 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 year ended December 31, 2016, and as a result, the Company did not reclassify any amount out of accumulated other comprehensive loss during the year. The Company’s marketable securities matured in accordance with stated terms during 2016, and as a result, the Company did not hold any available-for-sale securities at December 31, 2016. The following table summarizes available-for-sale securities held at December 31, 2015.
Amortized Cost Unrealized Gain Unrealized Loss Fair Value
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 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. Fair Value Measurements In accordance with ASC 820, Fair Value Measurements and Disclosures, the Company generally 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 prices active markets (Level 1) Significant other 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 $ —
December 31, 2016
Total Quoted prices active markets (Level 1) Significant other Significant unobservable inputs
Assets:
Cash equivalents $ 164 $ 164 $ — $ —
Total assets $ 164 $ 164 $ — $ — 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 amounted to $7,715 and $3,759 at December 31, 2015 and 2016, respectively, based on discounted cash flow analysis, which included Level 3 inputs. Concentrations of Credit Risk and Significant Customers The Company had the following customers that accounted for greater than 10% of its revenues for the years ended December 31, 2014, 2015 and 2016, respectively:
For the Year ended December 31,
Customer 2014 2015 2016
A 27 % 2 % 7 %
B 11 % 3 % 4 %
C 11 % 5 % 13 %
D 12 % 1 % 1 %
E 10 % 8 % 4 %
F — % 13 % 1 %
G — % 11 % — %
H — % 10 % 1 %
I — % — % 28 %
J — % — % 12 % Customer F accounted for 38% of the Company’s accounts receivable balance at December 31, 2015. Additionally, the Company had one other customer that also accounted for 38% of its accounts receivable balance at December 31, 2015, but did not exceed 10% of its revenues in 2015. The Company had four other customers that together accounted for 73% of the Company’s accounts receivable balance at December 31, 2016, but none of these customers exceeded 10% of its revenues in 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. The Company has no significant off-balance sheet risk such as foreign exchange contracts, option contracts, or other hedging arrangements. Allowance for Doubtful Accounts The Company evaluates the collectability of accounts receivable on a regular basis. The allowance for doubtful accounts, if any, is based upon various factors including the financial condition and payment history of customers, an overall review of collections experience on other accounts and economic factors or events expected to affect future collections experience. The Company’s accounts receivable consist primarily of amounts due from large, well-capitalized customers and while the Company reviews their creditworthiness, collectability is generally not an issue. The Company records an allowance for doubtful accounts, when necessary, based on the potential for collectability issues within the customer base. The Company’s allowance for doubtful accounts was $0 at December 31, 2015 and 2016. Product Warranty Customers are permitted to return defective products under the Company’s standard product warranty program. For CorPath Systems, the Company’s standard one-year warranty provides for the repair of any product that malfunctions. Return and replacement can only occur if a material breach of the warranty remains uncured for 30 days. A roll-forward of the Company’s warranty liability is as follows:
Balance at December 31, 2014 $ 61
Provision for warranty obligations 58
Settlements (51 )
Balance at December 31, 2015 68
Provision for warranty obligations 67
Settlements (78 )
Balance at December 31, 2016 $ 57 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. Property and Equipment Property and equipment is carried at cost. Major items and betterments are capitalized; maintenance and repairs are charged to expense as incurred. The Company capitalizes certain costs incurred in connection with developing or obtaining internal-use software. Software costs that do not meet capitalization criteria are expensed as incurred. Demonstration equipment represents internally manufactured capital equipment that is used on-site at trade shows and at customer locations to demonstrate the CorPath System. Field equipment represents internally manufactured capital equipment placed at customer locations under a program that involves the placement of a system at the customer’s site and the customer’s agreement to purchase a minimum number of cassettes each month. As of December 31, 2016, the Company had placed six field equipment units and four units for a customer’s evaluation under such arrangements. Depreciation on the demonstration equipment is charged to selling, general and administrative and the depreciation on the field equipment is charged to cost of revenue. Depreciation is computed under the straight-line method over the estimated useful lives of the respective assets. Depreciation is provided over the following estimated asset lives:
Machinery and equipment 5 years
Computer equipment 3 years
Office furniture and equipment 5 years
Leasehold improvements Shorter of life of lease or useful life
Vendor tooling 1.5 - 3 years, based on planned usage
Software 4 years
Demonstration equipment 3 years
Field equipment 3 years Impairment of Long-Lived Assets The Company’s long-lived assets principally
consist of property and equipment. The Company continually monitors events and changes in circumstances that could indicate carrying
amounts of long-lived assets may not be recoverable. An impairment loss is recognized when expected cash flows are less than an
asset’s carrying value. Accordingly, when indicators of impairment are present, the Company evaluates the carrying value
of such assets in relation to the operating performance and estimated future undiscounted cash flows of the underlying assets.
The Company’s policy is to record an impairment loss when it is determined that the carrying amount of the asset may not
be recoverable. There were no such impairment charges in 2014 or 2015. During 2016, the undiscounted estimated cash flows from
certain equipment placed at customer locations was less than the related equipment’s carrying value. As such, the Company
recorded an impairment charge of $125 based on the difference between the estimated fair value of the equipment and its carrying
value. The impairment charge of $88 and $37 is recorded within cost of revenues and selling, general and administrative, respectively,
in the accompanying 2016 consolidated statement of operations. Comprehensive Loss Comprehensive loss is comprised of net loss and changes in the unrealized gains and losses on marketable securities. Accumulated other comprehensive 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 and $0 as of December 31, 2015 and 2016, respectively. 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 period. Deliverables, which are accounted for as separate units of accounting under multiple-element arrangements include: (a) the CorPath System, including 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) an extended warranty or (d) component upgrades. The Company recognizes revenue on multiple-element arrangements in accordance with ASU 2009-13, Revenue Recognition (Topic 605): Multiple Deliverable Revenue Arrangements, based on the estimated selling price of each element. In accordance with ASU 2009-13, the Company uses vendor-specific objective evidence (“VSOE”), if available, to determine the selling price of each element. If VSOE is not available, the Company uses third-party evidence (“TPE”) to determine the selling price. If TPE is not available, the Company uses its best estimate to develop the estimated selling price (“BESP”). 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 and premium service plans is recognized on a straight-line basis over the life of the service contract. Revenue from accessories is recorded upon delivery and services provided by the Company outside of a basic or premium service contract is recognized as the services are provided. If a revenue arrangement contains an undelivered element, such as an unspecified upgrade, revenues are deferred until delivery is complete. There are no performance, cancellation, termination, and 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, there were no amounts outstanding from Philips, while at December 31, 2016, $250 was outstanding. 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. Research and Development Costs for research and development are expensed as incurred. Research and development expense consists primarily of salaries, salary-related expenses and costs of contractors and materials. 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 basis 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. The Company accounts for uncertain tax positions
using a “more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. The evaluation of
uncertain tax positions is based on factors including, but not limited to, changes in tax law, the measurement of tax positions
taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes
in facts or circumstances related to a tax position. The Company evaluates these tax positions on an annual basis. The Company
also accrues for potential interest and penalties related to unrecognized tax benefits in income tax expense. The Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. Stock-Based Compensation The Company recognizes compensation costs resulting from the issuance of service 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 primarily been stock options with service-based vesting periods over two or four years. During 2016, the Company issued certain stock-based awards that contain both performance and service-based vesting conditions which vest over periods of up to 25 months. The Company records expense on these awards when it becomes probable that the performance condition and requisite service will be met. 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. Prior to the completion of the reverse acquisition, the fair value of the common stock was determined by the Board of Directors after considering a broad range of factors, including the results obtained from an independent third-party valuation, the illiquid nature of an investment in the Company’s Common Stock, the Company’s historical financial performance and financial position, the Company’s future prospects and opportunity for liquidity events, and recent sale and offer prices of Common and Preferred Stock in private transactions negotiated at arm’s length. Subsequent to the completion of the reverse acquisition, the fair value of the Common Stock was obtained from quoted market prices on the OTCQB as provided by OTC Market Groups, Inc. In connection with the public offering in May 2015, the Company’s Common Stock was approved for listing on the NYSE MKT, where it commenced trading under the symbol “CVRS”. As such, subsequent to this, the Company utilizes quoted market prices to calculate fair value of stock-based awards. The following assumptions were used to estimate the fair value of stock options granted using the Black-Scholes-Merton option-pricing model (“Black-Scholes Model”).
For the Year ended December 31,
2014 2015 2016
Risk-free interest rate 1.89-2.01 % 1.54-1.97 % 1.27-2.45 %
Expected term in years 6.25 6.08 6.08-10.00
Expected volatility 50 % 50 % 48-64 %
Expected dividend yield 0 % 0 % 0 % The risk-free interest rate assumption is based upon observed U.S. government security interest rates with a term that is consistent with the expected term of the Company’s employee stock options. The expected term is based on the average of the vesting period and contractual term of the Company’s options given the lack of historical data available. The Company does not pay a dividend, and is not expected to pay a dividend in the foreseeable future. Due to a lack of a public market for the Company’s Common Stock for an extended period of time, the Company utilized comparable public companies’ volatility rates as a proxy of its expected volatility for purposes of the Black-Scholes Model. Stock-based compensation expense is recorded net of estimated forfeitures and is adjusted periodically for actual forfeitures. The Company uses historical data to estimate forfeiture rates. For the years ended December 31, 2014, 2015 and 2016, forfeitures were estimated to be 6.0%, 5.0%, and 5.0%, respectively. Warrant Liability 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 met these criteria and therefore required liability-classification. 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. 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 estimated the fair value of these warrants at issuance and each balance sheet date thereafter using the Black-Scholes Model as described in the stock-based compensation section above, 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 fair value of the Redeemable Convertible Preferred Stock was determined by the Board of Directors after considering a broad range of factors, including the results obtained from an independent third-party valuation, the illiquid nature of an investment in the Company’s Redeemable Convertible Preferred Stock, the Company’s historical financial performance and financial position, the Company’s future prospects and opportunity for liquidity events, and recent sale and offer prices of Common and Preferred Stock in private transactions negotiated at arm’s length. 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 at the date of the Acquisition. Prior to the Acquisition, the warrant instruments required mark-to-market accounting which was 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. The warrant instruments were re-valued for the last time at the date of the Acquisition and reclassified into stockholders’ equity in 2014, and at December 31, 2015 and 2016, the Company did not have a warrant liability. Related-Party Transactions On January 21, 2011, the Company entered into a distributor agreement with Philips appointing Philips to be the sole distributor for the promotion and sale of the Company’s CorPath System. The agreement was terminated 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. For the years ended December 31, 2014, 2015 and 2016, the Company recorded revenues of $315, $125 and $375, respectively, from shipments to Philips under the distribution agreement. At December 31, 2015, there were no amounts outstanding from Philips, resulting from selling activity under the agreement. At December 31, 2016, amounts due from Philips resulting from selling activity under this agreement totaled $250. Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards
Board ("FASB") issued ASU 2014-09—Revenue from Contracts with Customers, which amends Accounting Standards Codification
Topic 606. ASU 2014-09 provides a single, comprehensive revenue recognition model for all contracts with customers. This standard
contains principles for the determination of the measurement of revenue and the timing of when such revenue is recognized. Revenue
recognition will reflect the transfer of goods or services to customers at an amount that is expected to be earned in exchange
for those goods or services. ASU 2014-09 was scheduled to be effective for annual reporting periods beginning after December 15,
2016, and early adoption was not permitted. In August 2015, the FASB issued ASU No. 2015-14—Revenue from Contracts with
Customers: Deferral of Effective Date, which defers the effective date of ASU 2014-09 by one year. ASU 2014-09 is now effective
for annual periods after December 15, 2017 including interim periods within that reporting period. Early adoption is permitted,
but not before the original effective date. The Company is currently assessing the impact of this standard to its consolidated
financial statements. 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 is effective for annual
periods ending after December 15, 2016, and all annual and interim periods thereafter. The Company adopted this standard
at December 31, 2016 and has concluded that substantial doubt about its ability to continue as a going concern does not exist. In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. Under this accounting guidance, inventory will be measured at the lower of cost and net realizable value and other options that currently exist for market value will be eliminated. ASU 2015-11 defines net realizable value as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. No other changes were made to the current guidance on inventory measurement. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after Decem |
