Significant Accounting Policies

6 Months Ended

Jun. 30, 2024

Significant Accounting Policies

Significant Accounting Policies

3. Significant Accounting Policies

Basis of Measurement

The condensed consolidated financial statements have been prepared on the historical cost basis except as otherwise noted.

Business Combinations

We account for business combinations in accordance with ASC 805, Business Combinations (“ASC 805”), if the acquired assets assumed and liabilities incurred constitute a business.  We consider acquired companies to constitute a business if the acquired net assets and processes have the ability to create outputs in the form of revenue.  For acquired companies constituting a business, we recognize the identifiable assets acquired and liabilities assumed at their acquisition-date fair values and recognize any excess of total consideration paid over the fair value of the identifiable net assets as goodwill.

Estimates and Assumptions

In preparing these condensed financial statements, management was required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses.  These estimates and assumptions are based on our historical experience, the terms of existing contracts, our evaluation of trends in the industry, information provided by our customers and suppliers and information available from other outside sources, as appropriate.  These estimates and assumptions are subject to an inherent degree of uncertainty.  We are not presently aware of any events or circumstances that would require us to update such estimates and assumptions or revise the carrying value of our assets or liabilities.  Our estimates may change, however, as new events occur, and additional information is obtained. As a result, actual results may differ significantly from our estimates, and any such differences may be material to our financial statements.

Functional and Reporting Currencies

The functional currency for Canada and our subsidiaries in the United States and Switzerland is U.S. dollars, which is also our reporting currency.  The functional currency, as determined by management, for our Japanese subsidiary is Japanese Yen.  Japanese Yen is translated for financial reporting purposes, with translation gains and losses recorded as a component of other comprehensive income or loss.  In respect of transactions denominated in currencies other than the Company’s and its wholly owned operating subsidiaries’

functional currencies, the monetary assets and liabilities are remeasured at the period end rates.  Revenue and expenses are measured at rates of exchange prevailing on the transaction dates.  All exchange gains or losses resulting from these transactions are recognized in the consolidated statements of operations.

Comparative Figures

To provide further clarity on how we present our operating expenses, we have broken down our selling, general and administrative spend into distinct and separate “General and administrative” and “Selling and marketing” line items on the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2024.  The consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2023 have been adjusted to conform to the current year presentation of operating expenses.  The change in presentation had no effect on the reported results of operations and does not affect previously reported cash flows from operating activities in the consolidated statements of cash flows.

To better align with the way we track our business, we’ve combined construction in progress into property and equipment, net, for the six months ended June 30, 2024.  The consolidated balance sheets for the year ended December 31, 2023 have been adjusted to conform to the current year presentation of property and equipment, net.  The change in presentation had no effect on the reported results in our balance sheets and does not affect previously reported cash flows from investing activities in the consolidated statements of cash flows.

To further enhance the transparency of our financial reporting, we have reclassified “Accounts payable” as its own line item, separating it from “Accounts payable and accrued liabilities.” Furthermore, we combined the accrued liabilities portion of “Accounts payable and accrued liabilities” with amounts previously included in “Other current liabilities” into a new line item, “Accrued expenses and other current liabilities”, to provide a comprehensive view of these obligations as of June 30, 2024. This presentation is supported by the footnote “Accrued Expenses and Other Current Liabilities” in the “Notes to the Condensed Consolidated Financial Statements.” The consolidated balance sheets for the year ended December 31, 2023, have been adjusted to align with the current presentation. The change in presentation had no impact on the reported results in our balance sheets and does not affect previously reported cash flows from operating activities in the consolidated statements of cash flows. Refer to Note 10 for further details.

Recently Adopted Accounting Pronouncements

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.  This ASU improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.  The key amendments include: (a) introducing a new requirement to disclose significant segment expenses regularly provided to the chief operating decision maker (“CODM”), (b) extending certain annual disclosures to interim periods, (c) clarifying that single reportable segment entities must apply ASC 280 in its entirety, (d) permitting more than one measure of segment profit or loss to be reported under certain conditions, and (e) requiring disclosure of the title and position of the CODM.  This ASU is effective for public entities with fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.  Early adoption is permitted.  The Company is in the process of reviewing the impact of this ASU and has not yet determined the impact of the adoption of this ASU on its consolidated financial statements.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures.  This ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid.  The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions.  This ASU is effective for public entities with fiscal years beginning after December 15, 2024.  The guidance will be applied on a prospective basis with the option to apply the standard retrospectively.  Early adoption is permitted.  The Company is in the process of reviewing the impact of this ASU and has not yet determined the impact of the adoption of this ASU on its consolidated financial statements.

Segment Reporting

The Company reports segment information based on the “management” approach.  The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments.  The Company’s reportable segments consist of Diagnostics and Therapeutic Devices.

Cash and Cash Equivalents

The Company considers all highly liquid securities with an original maturity of three months or less to be cash equivalents.  As of June 30, 2024 and December 31, 2023, the Company's cash balances exceeded federally insured limits by approximately $392 and $1,308.

Investment Securities

Our investment securities, which are comprised of corporate bonds/notes and US treasuries, are accounted for in accordance with ASC 320, Investments – Debt Securities (“ASC 320”).  The Company considers all of its securities for which there is a determinable fair market value, and there are no restrictions on the Company’s ability to sell within the next twelve months, as available for sale.  We classify these securities as both current and non-current depending on their time to maturity.  Available-for-sale securities are carried at fair value, with unrealized gains and losses reported as a component of comprehensive loss.

Accounts Receivable and Allowance for Credit Losses

Accounts receivables are recorded net of an allowance for credit losses and have payment terms of 30 days.  Our policy for determining the allowance is based on factors that affect collectability, including: (a) historical trends of write-offs, recoveries, and credit losses; (b) the credit quality of our customers; and (c) projected economic and market conditions.  As of June 30, 2024 and December 31, 2023, our allowances were $91 and $103, respectively, and were recorded net in trade receivables.  While we believe that our allowance for credit losses is adequate and represents our best estimate as of June 30, 2024, we continue to closely monitor customer liquidity and industry and economic conditions, which may result in changes to these estimates.

Inventories

Inventories are stated at the lower of cost or net realizable value.  The Company utilizes the specific identification and First in, First out ("FIFO") method to track inventory costs.  The Company records reserves, when necessary, to reduce the carrying value of inventory to its net realizable value.  Management considers forecast demand in relation to the inventory on hand, competitiveness of product offerings, market conditions and product life cycles when determining excess and obsolescence and net realizable value adjustments.  At the point of loss recognition, a new, lower-cost basis for that inventory is established, and any subsequent improvements in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

Property and Equipment

Property and equipment are carried at historical cost less accumulated depreciation and any accumulated impairment losses.  Property and equipment acquired in a business combination are recorded at fair value as of the date of acquisition. Maintenance and repair expenditures that do not improve or extend the life are expensed in the period incurred.  Depreciation is recognized so as to write off the cost less their residual values over their useful lives, using the straight-line method.  The estimated useful lives, residual values and depreciation methods are reviewed at the end of each year, with the effect of any changes in estimate accounted for on a prospective basis.  An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

Intangible Assets

Expenditures related to the planning and operation of the Company’s website are expensed as incurred.  Expenditures related to the website application and infrastructure development are capitalized and amortized over the website’s estimated useful life.

Costs related to acquired customer relationships, developed technology, licenses, trademarks, and tradenames are capitalized and amortized over the estimated useful life.  Intangible assets with finite useful lives that are acquired separately are carried at cost, less accumulated amortization and accumulated impairment losses.  Amortization is recognized on a straight-line basis over their estimated useful lives.  The estimated useful lives and amortization methods are reviewed at the end of each year, with the effect of any changes in estimate being accounted for on a prospective basis.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment when events or circumstances indicate that the carrying value of an asset may not be recoverable.  For assets that are to be held and used, impairment is recognized when the sum of estimated undiscounted future cash flows associated with the asset or group of assets is less than its carrying value.  If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value.

Revenue Recognition

The Company enters into agreements which may contain multiple promises where customers purchase products, services, or a combination thereof.  Determining whether products and services are considered distinct performance obligations that should be accounted for separately requires judgment.  We determine the transaction price for a contract based on the total consideration we expect to receive in exchange for the transferred goods or services.

The Company allocates revenue to each performance obligation in proportion to the relative standalone selling prices and recognizes revenue when control of the related goods or services is transferred for each obligation.  We utilize the observable standalone selling price when available, which represents the price charged for the performance obligation when sold separately.  The Company's contracts with customers are generally comprised of purchase orders for the sale of the point of care instrument, consumable products, and extended warranties, or some variation thereof.  The instrument and consumables each represent a single performance obligation when sold separately, that is satisfied at a point in time upon transfer of control of the product to the customer which is typically upon receipt of the goods by the customer.  The extended warranties are also a separate performance obligation, whereby revenue is recognized over time.

The Company also enters into contracts with customers where it receives payment for the consumable products and does not receive additional or separate consideration for the use of the point of care instrument furnished by the Company for the clinical veterinarian’s use.  For these contracts, the Company considers the guidance under ASC 842, Leases (“ASC 842”), in order to determine if the furnishing of the point of care instrument to the customer during the period of use creates an embedded lease.  If the point of care instrument is identified as a lease, it is classified as an operating lease as it does not meet any of the finance lease criteria per ASC 842.  In these arrangements, the consumable products are classified as non-lease components.  The Company allocates revenue to these lease and non-lease components based on standalone selling prices or, if not available, a cost-plus approach.  Revenue related to the lease component is recognized ratably over the term of the contract.  Revenue related to the non-lease components is recognized when control of the product has been transferred to the customer.

The nature of the Company’s PulseVet^® business gives rise to variable consideration, including discounts and applicator (“trode”) returns for refurbishment.  Credits are issued for unused shocks on returned trodes, which can be used toward the purchase of replacement trodes.  Discounts and the estimated unused shock credits decrease the transaction price, which reduces revenue.  Variable consideration related to unused shock credits is estimated using the expected value method, which estimates the amount that is expected to be earned.

Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.  Estimates of variable consideration are based upon historical experience and known trends.  These estimated credits are nonrefundable and may only be used towards the purchase of future trode refurbishments.  This practice encourages refurbishment purchase prior to complete utilization of the previous trode, so the customer will always have a trode on hand with ample capacity to perform treatments.

At times, the Company receives consideration prior to when the performance obligation is completed, giving rise to a contract liability.  Sales are recorded net of sales tax.  Sales tax is charged on sales to end users and remitted to the appropriate state authority.

Disaggregated revenue for the three and six months ended June 30, 2024 and 2023 is as follows:

		Three Months Ended June 30,
		Diagnostics				Therapeutic Devices				Consolidated
		2024		2023		2024		2023		2024		2023
Capital	$	125	$	67	$	1,605	$	1,893	$	1,730	$	1,960
Consumables		294		182		4,067		3,849		4,361		4,031
Other		-		-		40		29		40		29
Total revenue	$	419	$	249	$	5,712	$	5,771	$	6,131	$	6,020

		Six Months Ended June 30,
		Diagnostics				Therapeutic Devices				Consolidated
		2024		2023		2024		2023		2024		2023
Capital	$	575	$	284	$	3,379	$	3,386	$	3,954	$	3,670
Consumables		588		364		7,783		7,416		8,371		7,780
Other		-		-		68		52		68		52
Total revenue	$	1,163	$	648	$	11,230	$	10,854	$	12,393	$	11,502

Cost of Revenue

Cost of goods sold consists of overhead, materials, labor, shipping costs, and a portion of depreciation incurred internally to produce and receive the products.  Shipping and handling costs incurred by the Company are included in cost of revenue.

Research and Development

Research and development costs related to continued research and development programs are expensed as incurred.

Stock-based Compensation

The Company calculates stock-based compensation using the fair value method, under which the fair value of the options at the grant date is calculated using the Black-Scholes Option Pricing Model, and subsequently expensed over the vesting period of the option using the graded vesting method.  The provisions of the Company’s stock-based compensation plans do not require the Company to settle any options by transferring cash or other assets, and therefore the Company classifies the awards as equity.  Stock-based compensation expense recognized during the period is based on the value of stock-based payment awards that are ultimately expected to vest.

The Company estimates forfeitures at the time of grant and revises the estimate, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”), on a tax jurisdictional basis.  The Company files income tax returns in Canada and the province of Alberta and its subsidiaries file income tax returns in Switzerland, Japan, the United States and various states within, including in Michigan where the Company’s headquarters are located.  Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax basis of assets and liabilities and their financial statement reported amounts using enacted tax rates and laws in effect in the year in which the differences are expected to reverse.  A valuation allowance is provided against deferred tax assets when it is determined to be more likely than not that the deferred tax asset will not be realized.

The Company assesses the likelihood of the financial statement effect of an uncertain tax position that should be recognized when it is more likely than not that the position will be sustained upon examination by a taxing authority based on the technical merits of the tax position, circumstances, and information available as of the reporting date.  The Company is subject to examination by taxing authorities in the United States, Canada, Japan, and Switzerland.  The Company recognizes tax-related interest and penalties, if any, as a component separate from income tax expense.

Comprehensive Loss

Our comprehensive loss is reported in accordance with ASC 220, Income Statement — Reporting Comprehensive Income (“ASC 220”).  Comprehensive loss is net loss plus certain items that are recorded directly to shareholders’ equity.  The Company has recorded a currency translation adjustment associated with the translation of its Japanese subsidiary to the reporting currency.

Loss Per Share

Basic loss per share (“EPS”) is computed by dividing the loss attributable to common shareholders by the weighted average number of common shares outstanding.  Diluted EPS reflects the potential dilution that could occur from common shares issuable through the exercise or conversion of stock options, restricted stock awards, warrants and convertible securities.  In certain circumstances, the conversion of options is excluded from diluted EPS if the effect of such inclusion would be anti-dilutive.