| Summary of Significant Accounting Policies | (1) Summary of Significant Accounting
Policies
(a) Nature of Operations and Use of Estimates
iCAD, Inc. and subsidiaries (the “Company” or
“iCAD”) is a provider of advanced image analysis,
workflow solutions and radiation therapy for the early
identification and treatment of cancer.
The Company has grown primarily through acquisitions to become a
broad player in the oncology market. Its solutions include advanced
image analysis and workflow solutions that enable healthcare
professionals to better serve patients by identifying pathologies
and pinpointing the most prevalent cancers earlier, a comprehensive
range of high-performance, upgradeable Computer-Aided Detection
(CAD) systems and workflow solutions for mammography, MRI and CT,
and the Xoft eBx system which is an isotope-free cancer treatment
platform technology. CAD is reimbursable in the U.S. under federal
and most third-party insurance programs.
The Company intends to continue the extension of its image analysis
and clinical decision support solutions for mammography, MRI and CT
imaging. iCAD believes that advances in digital imaging techniques
should bolster its efforts to develop additional commercially
viable CAD/advanced image analysis and workflow products. The
Company’s management believes that early detection in
combination with earlier targeted intervention will provide
patients and care providers with the best tools available to
achieve better clinical outcomes resulting in a market demand that
will drive top line growth.
The Company’s headquarters are located in Nashua, New
Hampshire, with manufacturing and contract manufacturing facilities
in New Hampshire and Massachusetts, and, an operations, research,
development, manufacturing and warehousing facility in San Jose,
California.
The Company operates in two segments: Cancer Detection
(“Detection”) and Cancer Therapy
(“Therapy”). The Detection segment consists of advanced
image analysis and workflow products, and the Therapy segment
consists of radiation therapy products. The Company sells its
products throughout the world through its direct sales organization
as well as through various OEM partners, distributors and
resellers. See Note 7 for segment, major customer and geographical
information.
The preparation of financial statements in conformity with
generally accepted accounting principles in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ
from those estimates. It is reasonably possible that changes may
occur in the near term that would affect management’s
estimates with respect to assets and liabilities.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries: Xoft, Inc. and Xoft
Solutions, LLC. All material inter-company transactions and
balances have been eliminated in consolidation.
(c) Cash and cash equivalents
The Company defines cash and cash equivalents as all bank accounts,
money market funds, deposits and other money market instruments
with original maturities of 90 days or less, which are unrestricted
as to withdrawal. Cash and cash equivalents are maintained at
financial institutions and, at times, balances may exceed federally
insured limits. The Company has never experienced any losses
related to these balances. Insurance coverage is $250,000 per
depositor at each financial institution, and the Company’s
non-interest bearing cash balances exceed federally insured limits.
Interest-bearing amounts on deposit in excess of federally insured
limits at December 31, 2015 approximated $14.5 million.
(d) Financial instruments
Financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, and notes payable. Due to
their short term nature and market rates of interest, the carrying
amounts of the financial instruments approximated fair value as of
December 31, 2015 and 2014.
(e) Accounts Receivable and Allowance for Doubtful
Accounts
Accounts receivable are customer obligations due under normal trade
terms. Credit limits are established through a process of reviewing
the financial history and stability of each customer. The Company
performs continuing credit evaluations of its customers’
financial condition and generally does not require collateral.
The Company’s policy is to maintain allowances for estimated
losses from the inability of its customers to make required
payments. The Company’s senior management reviews accounts
receivable on a periodic basis to determine if any receivables may
potentially be uncollectible. The Company includes any accounts
receivable balances that it determines may likely be uncollectible,
along with a general reserve for estimated probable losses based on
historical experience, in its overall allowance for doubtful
accounts. An amount would be written off against the allowance
after all attempts to collect the receivable had failed. Based on
the information available, the Company believes the allowance for
doubtful accounts as of December 31, 2015 and 2014 is
adequate.
The following table summarizes the allowance for doubtful accounts
for the three years ended December 31, 2015 (in
thousands):
2015 2014 2013
Balance at beginning of period $ 203 $ 73 $ 48
Additions charged to costs and expenses 383 167 35
Reductions (350 ) (37 ) (10 )
Balance at end of period $ 236 $ 203 $ 73
(f) Inventory
Inventory is valued at the lower of cost or market value, with cost
determined by the first-in, first-out method. The Company regularly
reviews inventory quantities on hand and records an allowance for
excess and/or obsolete inventory primarily based upon the estimated
usage of its inventory as well as other factors. At
December 31, 2015 and 2014, inventories consisted of the
following (in thousands):
As of
December 31,
2015 2014
Raw materials $ 2,900 $ 955
Work in process 154 54
Finished Goods 1,261 1,205
Inventory $ 4,315 $ 2,214
(g) Property and Equipment
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the assets
or the remaining lease term, if shorter, for leasehold improvements
(see below).
Estimated life
Equipment
3-5 years
Leasehold improvements 3-5 years
Furniture and fixtures 3-5 years
Marketing assets 3-5 years
(h) Long Lived Assets
In accordance with FASB ASC Topic 360, “Property, Plant and
Equipment”, (“ASC 360”), the Company assesses
long-lived assets for impairment if events and circumstances
indicate it is more likely than not that the fair value of the
asset group is less than the carrying value of the asset group.
ASC 360-10-35 uses “events and circumstances” criteria
to determine when, if at all, an asset (or asset group) is
evaluated for recoverability. Thus, there is no set interval or
frequency for recoverability evaluation. In accordance with ASC
360-10-35-21, the following factors are examples of events or
changes in circumstances that indicate the carrying amount of an
asset (asset group) may not be recoverable and thus is to be
evaluated for recoverability.
• A significant decrease in the market
price of a long-lived asset (asset group);
• A significant adverse change in the
extent or manner in which a long-lived asset (asset group) is being
used or in its physical condition;
• A significant adverse change in legal
factors or in the business climate that could affect the value of a
long-lived asset (asset group), including an adverse action or
assessment by a regulator;
• An accumulation of costs
significantly in excess of the amount originally expected for the
acquisition or construction of a long-lived asset (asset
group);
• A current period operating or cash
flow loss combined with a history of operating or cash flow losses
or a projection or forecast that demonstrates continuing losses
associated with the use of a long-lived asset (asset group).
As a result of external factors and general uncertainty related to
reimbursement for the treatment of non-melanoma skin cancer, the
Company evaluated the long-lived assets of the Therapy segment and
reviewed them for potential impairment. The Company determined the
“Asset Group” to be the assets of the Therapy segment,
which the Company considered to be the lowest level for which the
identifiable cash flows were largely independent of the cash flows
of other assets and liabilities.
In accordance with ASC 360-10-35-17, if the carrying amount of an
asset or asset group (in use or under development) is evaluated and
found not to be fully recoverable (the carrying amount exceeds the
estimated gross, undiscounted cash flows from use and disposition),
then an impairment loss must be recognized. The impairment loss is
measured as the excess of the carrying amount over the
asset’s (or asset group’s) fair value.
In connection with the preparation of the financial statements for
the second quarter ended June 30, 2015, the Company completed
its analysis pursuant to ASC 360-10-35-17 and determined that the
carrying value of the Asset Group was approximately $36.8 million,
which exceeded the undiscounted cash flows by approximately $2.8
million. Accordingly the Company completed the Step 2 analysis to
determine the fair value of the asset group. The Company recorded
long-lived asset impairment charges of approximately $13.4 million
in the second quarter ended June 30, 2015 and as a result the
long lived assets in the Asset Group were recorded at their current
fair values.
A considerable amount of judgment and assumptions are required in
performing the impairment tests, principally in determining the
fair value of the Asset Group. While the Company believes the
judgments and assumptions are reasonable, different assumptions
could change the estimated fair values, and, therefore additional
impairment charges could be required. Significant negative industry
or economic trends, disruptions to the Company’s business,
loss of significant customers, inability to effectively integrate
acquired businesses, unexpected significant changes or planned
changes in use of the assets may adversely impact the assumptions
used in the fair value estimates and ultimately result in future
impairment charges.
Intangible assets subject to amortization consist primarily of
patents, technology, customer relationships and trade names
purchased in the Company’s previous acquisitions. These
assets, which include assets from the acquisition of the assets of
VuComp, DermEbx and Radion and the acquisition of Xoft, Inc., are
amortized on a straight-line basis consistent with the pattern of
economic benefit over their estimated useful lives of 5 to 15
years. A summary of intangible assets for 2015 and 2014 are as
follows (in thousands):
2015 2014 Weighted
Gross Carrying Amount
Patents and licenses $ 579 $ 767 5 years
Technology 14,075 25,639 10 years
Customer relationships 268 5,548 7 years
Tradename 248 288 10 years
Total amortizable intangible assets 15,170 32,242
Accumulated Amortization
Patents and licenses $ 451 $ 517
Technology 9,996 13,076
Customer relationships 201 896
Tradename 248 249
Total accumulated amortization 10,896 14,738
Total amortizable intangible assets, net $ 4,274 $ 17,504
Amortization expense related to intangible assets was approximately
$1,768, $2,270 and $1,724 for the years ended December 31,
2015, 2014, and 2013, respectively. Estimated remaining
amortization of the Company’s intangible assets is as follows
(in thousands):
For the years ended
December 31: Estimated
2016 $ 920
2017 897
2018 676
2019 392
2020 324
Thereafter 1,065
$ 4,274
(i) Goodwill
In accordance with FASB Accounting Standards Codification
(“ASC”) Topic 350-20, “Intangibles -
Goodwill and Other”
Factors the Company considers important, which could trigger an
impairment of such asset, include the following:
• significant underperformance relative
to historical or projected future operating results;
• significant changes in the manner or
use of the assets or the strategy for the Company’s overall
business;
• significant negative industry or
economic trends;
• significant decline in the
Company’s stock price for a sustained period; and
• a decline in the Company’s
market capitalization below net book value.
The Company would record an impairment charge if such an assessment
were to indicate that the fair value of a reporting unit was less
than the carrying value. In evaluating potential impairments
outside of the annual measurement date, judgment is required in
determining whether an event has occurred that may impair the value
of goodwill or intangible assets. The Company utilizes either
discounted cash flow models or other valuation models, such as
comparative transactions and market multiples, to determine the
fair value of reporting units. The Company makes assumptions about
future cash flows, future operating plans, discount rates,
comparable companies, market multiples, purchase price premiums and
other factors in those models. Different assumptions and judgment
determinations could yield different conclusions that would result
in an impairment charge to income in the period that such change or
determination was made.
As a result of external factors and general uncertainty related to
reimbursement for non-melanoma skin cancer and in conjunction with
the long-lived asset impairment testing, the Company performed an
impairment assessment of the Therapy reporting unit as of
June 30, 2015. As a result the Company recorded a goodwill
impairment charge of $14.0 million during the quarter ended
June 30, 2015.
The implied fair value of the Therapy reporting unit was determined
in the same manner as the manner in which the amount of goodwill
recognized in a business combination is determined. The excess of
the fair value of the reporting unit over the amounts assigned to
its assets and liabilities is the implied amount of goodwill. The
Company identified the intangible assets that were valued during
this process, including technology, customer relationships and
trade-names. The allocation process was performed only for purposes
of testing goodwill for impairment.
The Company determined the fair value of the Therapy reporting unit
based on the present value of estimated future cash flows,
discounted at an appropriate risk adjusted rate. This approach was
selected as it measures the income producing assets, primarily
technology and customer relationships. This method estimates the
fair value based upon the ability to generate future cash flows,
which is particularly applicable when future profit margins and
growth are expected to vary significantly from historical operating
results.
The Company uses internal forecasts to estimate future cash flows
and includes an estimate of long-term future growth rates based on
the most recent views of the long-term forecast for the reporting
unit. Accordingly, actual results can differ from those assumed in
the forecasts. The discount rate of approximately 17% is derived
from a capital asset pricing model and analyzing published rates
for industries relevant to the reporting unit to estimate the cost
of equity financing. The Company uses discount rates that are
commensurate with the risks and uncertainty inherent in the
respective businesses and in the internally developed
forecasts.
Other significant assumptions include terminal value margin rates,
future capital expenditures, and changes in future working capital
requirements. While there are inherent uncertainties related to the
assumptions used and to the application of these assumptions to
this analysis, the income approach provides a reasonable estimate
of the fair value of the Therapy reporting unit.
The Step 2 test resulted in an approximate fair value of goodwill
of $5.7 million which resulted in a goodwill impairment loss of
$14.0 million.
As discussed in Note 3, the Company acquired VuComp’s
M-Vu ®
The Company performed an annual impairment assessment at
October 1, 2015 and compared the fair value of each reporting
unit to its carrying value as of this date. The fair value of each
reporting unit exceeded the carrying value by approximately 584%
for the Detection reporting unit and 144% for the Therapy reporting
unit. The carrying values of the reporting units were determined
based on an allocation of our assets and liabilities through
specific allocation of certain assets and liabilities to the
reporting units and an apportionment of the remaining net assets
based on the relative size of the reporting units’ revenues
and operating expenses compared to the Company as a whole. The
determination of reporting units also requires management
judgment.
The Company determined the fair values for each reporting unit
using a weighting of the income approach and the market approach.
For purposes of the income approach, fair value is determined based
on the present value of estimated future cash flows, discounted at
an appropriate risk adjusted rate. The Company used internal
forecasts to estimate future cash flows and includes an estimate of
long-term future growth rates based on the most recent views of the
long-term forecast for each segment. Accordingly, actual results
can differ from those assumed in the forecasts. The discount rate
of approximately 17% is derived from a capital asset pricing model
and analyzing published rates for industries relevant to the
reporting units to estimate the cost of equity financing. The
Company uses discount rates that are commensurate with the risks
and uncertainty inherent in the respective businesses and in the
internally developed forecasts.
In the market approach, the Company uses a valuation technique in
which values are derived based on market prices of publicly traded
companies with similar operating characteristics and industries. A
market approach allows for comparison to actual market transactions
and multiples. It can be somewhat limited in its application
because the population of potential comparable publicly-traded
companies can be limited due to differing characteristics of the
comparative business and ours, as well as market data may not be
available for divisions within larger conglomerates or non-public
subsidiaries that could otherwise qualify as comparable, and the
specific circumstances surrounding a market transaction (e.g.,
synergies between the parties, terms and conditions of the
transaction, etc.) may be different or irrelevant with respect to
the business.
The Company corroborated the total fair values of the reporting
units using a market capitalization approach; however, this
approach cannot be used to determine the fair value of each
reporting unit value. The blend of the income approach and market
approach is more closely aligned to the business profile of the
Company, including markets served and products available. In
addition, required rates of return, along with uncertainties
inherent in the forecast of future cash flows, are reflected in the
selection of the discount rate. In addition, under the blended
approach, reasonably likely scenarios and associated sensitivities
can be developed for alternative future states that may not be
reflected in an observable market price. The Company will assess
each valuation methodology based upon the relevance and
availability of the data at the time the valuation is performed and
weight the methodologies appropriately.
A rollforward of goodwill activity by reportable segment is as
follows:
Detection Therapy Total
Accumulated Goodwill $
— $
— $ 47,937
Accumulated impairment
—
— (26,828 )
Fair value allocation 7,663 13,446
—
Balance at December 31, 2013 7,663 13,446 21,109
Acquisition of DermEbx and Radion
— 6,154 6,154
Balance at December 31, 2014 7,663 19,600 27,263
Acquisition measurement period adjustments
— 116 116
Acquisition of VuComp 800
— 800
Impairment
— (13,981 ) (13,981 )
Balance at December 31, 2015 $ 8,463 $ 5,735 $ 14,198
Accumulated Goodwill 800 6,270 55,007
Fair value allocation 7,663 13,446
—
Accumulated impairment
— (13,981 ) (40,809 )
Balance at December 31, 2015 $ 8,463 $ 5,735 $ 14,198
(j) Revenue Recognition
The Company recognizes revenue primarily from the sale of products,
services and supplies. Revenue is recognized when delivery has
occurred, persuasive evidence of an arrangement exists, fees are
fixed or determinable and collectability of the related receivable
is probable. For product revenue, delivery has occurred upon
shipment provided title and risk of loss have passed to the
customer. Services and supplies revenue are considered to be
delivered as the services are performed or over the estimated life
of the supply agreement.
The Company recognizes revenue from the sale of its digital,
film-based CAD and cancer therapy products and services in
accordance with Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification
(“ASC”) Update No. 2009-13,
“ Multiple-Deliverable Revenue Arrangement Certain Arrangements That Contain Software
Elements “Software” Leases”
The Company uses customer purchase orders that are subject to the
Company’s terms and conditions or, in the case of an Original
Equipment Manufacturer (“OEM”) are governed by
distribution agreements. In accordance with the Company’s
distribution agreements, the OEM does not have a right of return,
and title and risk of loss passes to the OEM upon shipment. The
Company generally ships Free On Board shipping point and uses
shipping documents and third-party proof of delivery to verify
delivery and transfer of title. In addition, the Company assesses
whether collection is probable by considering a number of factors,
including past transaction history with the customer and the
creditworthiness of the customer, as obtained from third party
credit references.
If the terms of the sale include customer acceptance provisions and
compliance with those provisions cannot be demonstrated, all
revenue is deferred and not recognized until such acceptance
occurs. The Company considers all relevant facts and circumstances
in determining when to recognize revenue, including contractual
obligations to the customer, the customer’s post-delivery
acceptance provisions, if any, and the installation process.
The Company has determined that iCAD’s digital and film based
sales generally follow the guidance of FASB ASC Topic 605
“ Revenue Recognition
Revenue from certain CAD products is recognized in accordance with
ASC 985-605. Sales of this product include training, and the
Company has established VSOE for this element. Product revenue is
determined based on the residual value in the arrangement and is
recognized when delivered. Revenue for training is deferred and
recognized when the training has been completed.
The Company recognizes post contract customer support revenue
together with the initial licensing fee for certain MRI products in
accordance with 985-605-25-71.
Sales of the Company’s Therapy segment products typically
include a controller, accessories, source agreements and services.
The Company allocates revenue to the deliverables in the
arrangement based on the BESP in accordance with ASU 2009-13.
Product revenue is generally recognized when the product has been
delivered and service and/or supplies revenue is typically
recognized over the life of the service and/or supplies. The
Company includes in service and supplies revenue the following: the
sale of physics and management services, the lease of electronic
brachytherapy equipment, development fees, supplies and the right
to use the Company’s AxxentHub software. Physics and
management services revenue and development fees are considered to
be delivered as the services are performed or over the estimated
life of the agreement. The Company typically bills items monthly
over the life of the agreement except for development fees, which
are generally billed in advance or over a 12 month period and the
fee for treatment supplies which is generally billed in
advance.
The Company defers revenue from the sale of certain service
contracts and recognizes the related revenue on a straight-line
basis in accordance with ASC Topic 605-20,
“ Services
(k) Cost of Revenue
Cost of revenue consists of the costs of products purchased for
resale, cost relating to service including costs of service
contracts to maintain equipment after the warranty period, inbound
freight and duty, manufacturing, warehousing, material movement,
inspection, scrap, rework, depreciation and in-house product
warranty repairs, amortization of acquired technology and medical
device tax.
(l) Warranty Costs
The Company provides for the estimated cost of standard product
warranty against defects in material and workmanship based on
historical warranty trends, including the cost of product returns
during the warranty period. Warranty provisions and claims for the
years ended December 31, 2015, 2014 and 2013, were as follows
(in thousands):
2015 2014 2013
Beginning accrual balance $ 14 $ 25 $ 36
Warranty provision 54 58 96
Usage (49 ) (69 ) (107 )
Ending accrual balance $ 19 $ 14 $ 25
The warranty accrual above includes long-term warranty obligations
of $2,000, $5,000 and $8,000 for the years ended December 31,
2015, 2014 and 2013, respectively.
(m) Engineering and Product Development Costs
Engineering and product development costs relate to research and
development efforts including Company sponsored clinical trials
which are expensed as incurred.
(n) Advertising Costs
The Company expenses advertising costs as incurred. Advertising
expense for the years ended December 31, 2015, 2014 and 2013
was approximately $950,000, $882,000 and $639,000 respectively.
(o) Net Loss per Common Share
The Company follows FASB ASC 260-10, “Earnings per
Share”, which requires the presentation of both basic and
diluted earnings per share on the face of the statements of
operations. The Company’s basic net loss per share is
computed by dividing net loss by the weighted average number of
shares of common stock outstanding for the period and, if there are
dilutive securities, diluted income per share is computed by
including common stock equivalents which includes shares issuable
upon the exercise of stock options, net of shares assumed to have
been purchased with the proceeds, using the treasury stock
method.
A summary of the Company’s calculation of net loss per share
is as follows (in thousands, except per share amounts):
2015 2014 2013
Net loss available to common shareholders $ (32,447 ) $ (1,009 ) $ (7,608 )
Basic shares used in the calculation of earnings per share 15,686 14,096 10,842
Effect of dilutive securities:
Stock options
—
—
—
Restricted stock
—
—
—
Diluted shares used in the calculation of earnings per share 15,686 14,096 10,842
Net loss per share:
Basic $ (2.07 ) $ (0.07 ) $ (0.70 )
Diluted $ (2.07 ) $ (0.07 ) $ (0.70 )
The following table summarizes the number of shares of common stock
for securities, warrants and restricted stock that were not
included in the calculation of diluted net loss per share because
such shares are antidilutive:
2015 2014 2013
Common stock options 1,571,998 1,417,887 1,334,955
Warrants
—
— 550,000
Restricted Stock 516,396 309,317 216,250
2,088,394 1,727,204 2,101,205
Restricted common stock can be issued to directors, executives or
employees of the Company and are subject to time-based vesting.
These potential shares were excluded from the computation of basic
loss per share as these shares are not considered outstanding until
vested.
(p) Income Taxes
The Company follows the liability method under ASC Topic 740,
“Income Taxes”, (“ASC 740”). The primary
objectives of accounting for taxes under ASC 740 are to
(a) recognize the amount of tax payable for the current year
and (b) recognize the amount of deferred tax liability or
asset for the future tax consequences of events that have been
reflected in the Company’s financial statements or tax
returns. The Company has provided a full valuation allowance
against its deferred tax assets at December 31, 2015 and 2014,
as it is more likely than not that the deferred tax asset will not
be realized. Any subsequent changes in the valuation allowance will
be recorded through operations in the provision (benefit) for
income taxes.
ASC 740-10 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements and
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. ASC 740-10
also provides guidance on de-recognition, classification, interest
and penalties, disclosure and transition.
(q) Stock-Based Compensation
The Company maintains stock-based incentive plans, under which it
provides stock incentives to employees, directors and contractors.
The Company may grant to employees, directors and contractors,
options to purchase common stock at an exercise price equal to the
market value of the stock at the date of grant. The Company may
grant restricted stock to employees and directors. The underlying
shares of the restricted stock grant are not issued until the
shares vest, and compensation expense is based on the stock price
of the shares at the time of grant. The Company follows FASB ASC
Topic 718, “Compensation – Stock Compensation”
(“ASC 718”), for all stock-based compensation. Under
this application, the Company is required to record compensation
expense over the vesting period for all awards granted.
The Company uses the Black-Scholes option pricing model to value
stock options which requires extensive use of accounting judgment
and financial estimates, including estimates of the expected term
participants will retain their vested stock options before
exercising them, the estimated volatility of its common stock price
over the expected term, the risk free rate, expected dividend
yield, and the number of options that will be forfeited prior to
the completion of their vesting requirements. Fair value of
restricted stock is determined based on the stock price of the
underlying option on the date of the grant. Application of
alternative assumptions could produce significantly different
estimates of the fair value of stock-based compensation and
consequently, the related amounts recognized in the Consolidated
Statements of Operations.
(r) Fair Value Measurements
The Company follows the provisions of FASB ASC Topic 820,
“Fair Value Measurement and Disclosures” (“ASC
820”). This topic defines fair value, establishes a framework
for measuring fair value under generally accepted accounting
principles and enhances disclosures about fair value measurements.
Fair value is defined under ASC 820 as the exchange price that
would be received for an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market
participants on the measurement date. Valuation techniques used to
measure fair value under ASC 820 must maximize the use of
observable inputs and minimize the use of unobservable inputs. The
standard describes a fair value hierarchy based on three levels of
inputs, of which the first two are considered observable and the
last unobservable, that may be used to measure fair value which are
the following:
• Level 1 - Quoted prices in active
markets for identical assets or liabilities.
• Level 2 - Inputs other than Level 1
that are observable, either directly or indirectly, such as quoted
prices for similar assets or liabilities; quoted prices in markets
that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full
term of the assets or liabilities.
• Level 3 - Unobservable inputs that
are supported by little or no market activity and that are
significant to the fair value
A financial instrument’s level within the fair value
hierarchy is based on the lowest level of any input that is
significant to the fair value measurement.
The Company’s assets that are measured at fair value on a
recurring basis relate to the Company’s money market
accounts. The Company’s liabilities that are measured at fair
value on a recurring basis relate to contingent consideration
resulting from the acquisition of Xoft and the warrants issued in
connection with the financing arrangement.
The money market funds are included in cash and cash equivalents in
the accompanying balance sheet, and are considered a level 1
investment as they are valued at quoted |
