|
NOTE 3 - Summary of Significant Accounting Policies
|
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Mar. 31, 2012
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Significant Accounting Policies [Text Block] |
NOTE 3 —
Summary of Significant Accounting Policies
Principles
of Consolidation
The
accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries,
Aquamed Technologies, Inc., Oculus Technologies of Mexico
S.A. de C.V. (“OTM”) and Oculus Innovative
Sciences Netherlands, B.V. (“OIS Europe”). All
significant intercompany accounts and transactions have been
eliminated in consolidation.
Use
of Estimates
The
preparation of consolidated financial statements in
conformity with accounting principles generally accepted in
the United States of America requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent
liabilities at the dates of the consolidated financial
statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ
from these estimates. Significant estimates and assumptions
include reserves and write-downs related to receivables and
inventories, the recoverability of long-lived assets,
deferred taxes and related valuation
allowances, valuation of equity and derivative
instruments, and debt discounts.
Revenue
Recognition
The
Company generates revenue from sales of its products to
hospitals, medical centers, doctors, pharmacies, and
distributors. The Company sells its products directly to
third parties and to distributors through various cancelable
distribution agreements. The Company has also entered into
agreements to license its technology and its products.
The
Company also provides regulatory compliance testing and
quality assurance services to medical device and
pharmaceutical companies.
The
Company records revenue when (i) persuasive evidence of
an arrangement exists, (ii) delivery has occurred,
(iii) the fee is fixed or determinable, and
(iv) collectability of the sale is reasonably
assured.
The
Company requires all of its product sales to be supported by
evidence of a sale transaction that clearly indicates the
selling price to the customer, shipping terms and payment
terms. Evidence of an arrangement generally consists of a
contract or purchase order approved by the customer. The
Company has ongoing relationships with certain customers from
which it customarily accepts orders by telephone in lieu of
purchase orders.
The
Company recognizes revenue at the time in which it receives a
confirmation that the goods were either tendered at their
destination, when shipped “FOB destination,” or
transferred to a shipping agent, when shipped “FOB
shipping point.” Delivery to the customer is deemed to
have occurred when the customer takes title to the product.
Generally, title passes to the customer upon shipment, but
could occur when the customer receives the product based on
the terms of the agreement with the customer.
The
selling prices of all goods that the Company sells are fixed,
and agreed to with the customer, prior to shipment. Selling
prices are generally based on established list prices. The
Company does not customarily permit its customers to return
any of its products for monetary refunds or credit against
completed or future sales. The Company, from time to time,
may replace expired goods on a discretionary basis. The
Company records these types of adjustments, when made, as a
reduction of revenue. Sales adjustments were insignificant
during the years ended March 31, 2012 and 2011.
The
Company evaluates the creditworthiness of new customers and
monitors the creditworthiness of its existing customers to
determine whether events or changes in their financial
circumstances would raise doubt as to the collectability of a
sale at the time in which a sale is made. Payment terms on
sales made in the United States are generally 30 days
and internationally, generally range from 30 days to
90 days.
In
the event a sale is made to a customer under circumstances in
which collectability is not reasonably assured, the Company
either requires the customer to remit payment prior to
shipment or defers recognition of the revenue until payment
is received. The Company maintains a reserve for amounts
which may not be collectible due to risk of credit
losses.
Additionally, the Company’s
treatment for recognizing revenue related to
distributors’ that are unable to provide inventory or
product sell-through reports on a timely basis, is to defer
and recognize revenue when payment is received. The Company
believes the receipt of payment is the best indication of
product sell-through.
50
The
Company has entered into distribution agreements in Europe.
Recognition of revenue and related cost of revenue from
product sales is deferred until the product is sold from the
distributors to their customers.
When
the Company receives letters of credit and the terms of the
sale provide for no right of return except to replace
defective product, revenue is recognized when the letter of
credit becomes effective and the product is shipped.
License
revenue is generated through agreements with strategic
partners for the commercialization of Microcyn®
products. The terms of the agreements sometimes include
non-refundable upfront fees. The Company analyzes multiple
element arrangements to determine whether the elements can be
separated. Analysis is performed at the inception of the
arrangement and as each product is delivered. If a product or
service is not separable, the combined deliverables are
accounted for as a single unit of accounting and recognized
over the performance obligation period.
Assuming
the elements meet the criteria for separation and all other
revenue requirements for recognition, the revenue recognition
methodology prescribed for each unit of accounting is
summarized below:
When
appropriate, the Company defers recognition of non-refundable
upfront fees. If it has continuing performance obligations
then such up-front fees are deferred and recognized over the
period of continuing involvement.
The
Company recognizes royalty revenues from licensed products
upon the sale of the related products.
Revenue
from consulting contracts is recognized as services are
provided. Revenue from testing contracts is recognized as
tests are completed and a final report is sent to the
customer.
Sales
Tax and Value Added Taxes
The
Company accounts for sales taxes and value added taxes
imposed on its goods and services on a net basis.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with an
original maturity of three months or less when purchased to
be cash equivalents. Cash equivalents may be invested in
money market funds, commercial paper, variable rate demand
instruments, and certificates of deposits.
Concentration
of Credit Risk and Major Customers
Financial
instruments that potentially subject the Company to
concentration of credit risk consist principally of cash,
cash equivalents and accounts receivable. Cash and cash
equivalents are maintained in financial institutions in the
United States, Mexico and the Netherlands. The Company is
exposed to credit risk in the event of default by these
financial institutions for amounts in excess of the Federal
Deposit Insurance Corporation insured limits. Cash and cash
equivalents held in foreign banks are intentionally kept at
minimal levels, and therefore have minimal credit risk
associated with them.
The
Company grants credit to its business customers, which are
primarily located in Mexico, Europe and the United States.
Collateral is generally not required for trade receivables.
The Company maintains allowances for potential credit losses.
At March 31, 2012, one customer represented 13% and two
customers each represented 12% of the net accounts receivable
balance. At March 31, 2011, one customer represented 11% of
the net accounts receivable balance. During the
year ended March 31, 2012, one customer represented 26%
of net revenues. During the year ended
March 31, 2011, one customer represented 17% of net
revenues.
Accounts
Receivable
Trade
accounts receivable are recorded net of allowances for cash
discounts for prompt payment, doubtful accounts, and sales
returns. Estimates for cash discounts and sales returns are
based on analysis of contractual terms and historical
trends.
The
Company’s policy is to reserve for uncollectible
accounts based on its best estimate of the amount of probable
credit losses in its existing accounts receivable. The
Company periodically reviews its accounts receivable to
determine whether an allowance for doubtful accounts is
necessary based on an analysis of past due accounts and other
factors that may indicate that the realization of an account
may be in doubt. Other factors that the Company considers
include its existing contractual obligations, historical
payment patterns of its customers and individual customer
circumstances, an analysis of days sales outstanding by
customer and geographic region, and a review of the local
economic environment and its potential impact on government
funding and reimbursement practices. Account balances deemed
to be uncollectible are charged to the allowance after all
means of collection have been exhausted and the potential for
recovery is considered remote. The allowance for doubtful
accounts at March 31, 2012 and 2011 represents probable
credit losses in the amounts of $52,000 and $62,000,
respectively.
Inventories
Inventories
are stated at the lower of cost, cost being determined on a
standard cost basis (which approximates actual cost on a
first-in, first-out basis), or market.
Due
to changing market conditions, estimated future requirements,
age of the inventories on hand and production of new
products, the Company regularly reviews inventory quantities
on hand and records a provision to write down excess and
obsolete inventory to its estimated net realizable value. The
Company recorded reserves to reduce the carrying amounts of
inventories to their net realizable value in the amounts of
$105,000 and $158,000 at March 31, 2012 and 2011,
respectively.
Fair
Value of Financial Assets and Liabilities
Financial
instruments, including cash and cash equivalents, accounts
payable and accrued liabilities are carried at cost, which
management believes approximates fair value due to the
short-term nature of these instruments. The fair value of
capital lease obligations and equipment loans approximates
their carrying amounts as a market rate of interest is
attached to their repayment.
The
Company measures the fair value of financial assets and
liabilities based on 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. The Company
maximizes the use of observable inputs and minimizes the use
of unobservable inputs when measuring fair value. The Company
uses three levels of inputs that may be used to measure fair
value:
Level 1 —
quoted prices in active markets for identical assets or
liabilities
Level 2 —
quoted prices for similar assets and liabilities in active
markets or inputs that are observable
Level 3 —
inputs that are unobservable (for example cash flow modeling
inputs based on assumptions)
Financial
liabilities measured at fair value on a recurring basis are
summarized below:
Property
and Equipment
Property
and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation of property and
equipment is computed using the straight-line method over the
estimated useful lives of the respective assets. Depreciation
of leasehold improvements is computed using the straight-line
method over the lesser of the estimated useful life of the
improvement or the remaining term of the lease. Estimated
useful asset life by classification is as follows:
Upon
retirement or sale, the cost and related accumulated
depreciation are removed from the consolidated balance sheet
and the resulting gain or loss is reflected in operations.
Maintenance and repairs are charged to operations as
incurred.
Impairment
of Long-Lived Assets
The
Company periodically reviews the carrying values of its
long-lived assets when events or changes in circumstances
would indicate that it is more likely than not that their
carrying values may exceed their realizable values, and
records impairment charges when considered necessary.
Specific potential indicators of impairment include, but are
not necessarily limited to:
When
circumstances indicate that an impairment may have occurred,
the Company tests such assets for recoverability by comparing
the estimated undiscounted future cash flows expected to
result from the use of such assets and their eventual
disposition to their carrying amounts. In estimating these
future cash flows, assets and liabilities are grouped at the
lowest level for which there are identifiable cash flows that
are largely independent of the cash flows generated by other
such groups. If the undiscounted future cash flows are less
than the carrying amount of the asset, an impairment loss,
measured as the excess of the carrying value of the asset
over its estimated fair value, will be recognized. The cash
flow estimates used in such calculations are based on
estimates and assumptions, using all available information
that management believes is reasonable. During the
years ended March 31, 2012 and 2011, the Company had noted no
indicators of impairment.
Research
and Development
Research
and development expense is charged to operations as incurred
and consists primarily of personnel expenses, clinical and
regulatory services and supplies. For the years ended
March 31, 2012 and 2011, research and development
expense amounted to $1,981,000 and $2,046,000,
respectively.
Advertising
Costs
Advertising
costs are expensed are incurred. Advertising costs amounted
to $177,000 and $304,000, for the years ended March 31,
2012 and 2011, respectively. Advertising costs are included
in selling, general and administrative expenses in the
accompanying consolidated statements of operations.
Shipping
and Handling Costs
The
Company classifies amounts billed to customers related to
shipping and handling in sale transactions as product
revenues. Shipping and handling costs incurred are recorded
in cost of product revenues. For the years ended
March 31, 2012 and 2011, the Company recorded revenue
related to shipping and handling costs of $70,000 and
$63,000, respectively.
Foreign
Currency Reporting
The
Company’s subsidiary, OTM uses the local currency
(Mexican Pesos) as its functional currency and OIS Europe
uses the local currency (Euro) as its functional currency.
Assets and liabilities are translated at exchange rates in
effect at the balance sheet date, and revenue and expense
accounts are translated at average exchange rates during the
period. Resulting translation adjustments were recorded in
accumulated other comprehensive loss in the accompanying
consolidated balance sheets at March 31, 2012 and
March 31, 2011.
Foreign
currency transaction gains (losses) relate primarily to trade
payables and receivables between subsidiaries OTM and OIS
Europe. These transactions are expected to be settled in the
foreseeable future. The Company recorded foreign currency
transaction gains of $26,000 and foreign currency transaction
losses of $2,000 for the years ended March 31, 2012 and
2011, respectively. The related net gains were recorded in
other expense, net, in the accompanying consolidated
statements of operations.
Stock-Based
Compensation
The
Company accounts for share-based awards exchanged for
employee services at the estimated grant date fair value of
the award. The Company estimates the fair value of employee
stock awards using the Black-Scholes option pricing model.
The Company amortizes the fair value of employee stock
options on a straight-line basis over the requisite service
period of the awards. Compensation expense includes the
impact of an estimate for forfeitures for all stock
options.
The
Company accounts for equity instruments issued to
non-employees at their fair value on the measurement date.
The measurement of stock-based compensation is subject to
periodic adjustment as the underlying equity instrument vests
or becomes non-forfeitable. Non-employee stock-based
compensation charges are amortized over the vesting period or
as earned.
Income
Taxes
Deferred
tax assets and liabilities are determined based on the
differences between the financial reporting and tax bases of
assets and liabilities and net operating loss and credit
carryforwards using enacted tax rates in effect for the year
in which the differences are expected to impact taxable
income. Valuation allowances are established when necessary
to reduce deferred tax assets to the amounts expected to be
realized.
Tax
benefits claimed or expected to be claimed on a tax return
are recorded in the Company’s consolidated financial
statements. A tax benefit from an uncertain tax position is
only recognized if it is more likely than not that the tax
position will be sustained on examination by the taxing
authorities, based on the technical merits of the position.
The tax benefits recognized in the financial statements from
such a position are measured based on the largest benefit
that has a greater than fifty percent likelihood of being
realized upon ultimate resolution. Uncertain tax positions
have had no impact on the Company’s consolidated
financial condition, results of operations or cash
flows.
Comprehensive
Loss
Other
comprehensive loss includes all changes in
stockholders’ equity during a period from non-owner
sources and is reported in the consolidated statement of
changes in stockholders’ (deficiency) equity. To date,
other comprehensive loss consists of changes in accumulated
foreign currency translation adjustments. Accumulated other
comprehensive losses at March 31, 2012 and 2011 were
$3,053,000 and $2,901,000, respectively.
Net
Loss Per Share
The
Company computes basic net loss per share by dividing net
loss per share available to common stockholders by the
weighted average number of common shares outstanding for the
period and excludes the effects of any potentially dilutive
securities. Diluted earnings per share, if presented, would
include the dilution that would occur upon the exercise or
conversion of all potentially dilutive securities into common
stock using the “treasury stock” and/or “if
converted” methods as applicable. The computation of
basic loss per share for the years ended March 31, 2012
and 2011 excludes potentially dilutive securities because
their inclusion would be anti-dilutive.
Common
Stock Purchase Warrants and Other Derivative Financial
Instruments
The
Company classifies common stock purchase warrants and other
free standing derivative financial instruments as equity if
the contracts (i) require physical settlement or
net-share settlement or (ii) give the Company a choice
of net-cash settlement or settlement in its own shares
(physical settlement or net-share settlement). The Company
classifies any contracts that (i) require net-cash
settlement (including a requirement to net cash settle the
contract if an event occurs and if that event is outside the
control of the Company), (ii) give the counterparty a
choice of net-cash settlement or settlement in shares
(physical settlement or net-share settlement), or (iii)
contain reset provisions, as either an asset or a liability.
The Company assesses classification of its freestanding
derivatives at each reporting date to determine whether a
change in classification between assets and liabilities is
required. The Company determined that its freestanding
derivatives, which principally consist of warrants to
purchase common stock, satisfied the criteria for
classification as equity instruments at March 31, 2012, other
than certain warrants that contain reset provisions that the
Company classified as derivative liabilities as more fully
described in Note 10.
Subsequent
Events
Management
has evaluated subsequent events or transactions occurring
through the date these consolidated financial statements were
issued (Note 17).
Recent
Accounting Pronouncements
In
May 2011, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”) No. 2011-04, “Fair Value
Measurement (Topic 820) - Amendments to Achieve Common Fair
Value Measurement and Disclosure Requirements in U.S. GAAP
and IFRSs." This ASU addresses fair value measurement and
disclosure requirements within Accounting Standards
Codification (“ASC”) Topic 820 for the purpose of
providing consistency and common meaning between U.S. GAAP
and International Financial Reporting Standards
(“IFRSs”). Generally, this ASU is not intended to
change the application of the requirements in Topic 820.
Rather, this ASU primarily changes the wording to describe
many of the requirements in U.S. GAAP for measuring fair
value or for disclosing information about fair value
measurements. This ASU is effective for periods beginning
after December 15, 2011. It is not expected to have any
impact on the Company’s consolidated financial
statements or disclosures.
In
June 2011, the FASB issued ASU No. 2011-05,
“Comprehensive Income (Topic 220): Presentation of
Comprehensive Income.” This ASU increases the
prominence of other comprehensive income (“OCI”)
in the financial statements and provides companies two
options for presenting OCI, which until now has typically
been placed within the statement of equity. One option allows
an OCI statement to be included with the net income
statement, and together the two will make a statement of
total comprehensive income. Alternately, companies may
present an OCI statement separate from the net income
statement; however, the two statements will have to appear
consecutively within a financial report. This ASU does not
affect the types of items that are reported in OCI, nor does
it affect the calculation or presentation of earnings per
share. For public companies, this ASU is effective for
periods beginning after December 15, 2011. The Company is
evaluating the impact this standard will have on the
Company’s consolidated financial position and results
of operations.
Accounting
standards that have been issued or proposed by the FASB, SEC
and/or other standards-setting bodies that do not require
adoption until a future date are not expected to have a
material impact on the consolidated financial statements upon
adoption.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||