EX-99.3 4 v242195_ex99-3.htm EXHIBIT 99.3

 

 

 

 

 

 

CONSOLIDATED FINANCIAL STATEMENTS

 

December 31, 2011

 

 

 

 

March 1, 2012

 

(Date Issued)

 

 

 

 

IMRIS Inc.        
100-1370 Sony Place TF.   1.888.304.0114    
Winnipeg, Manitoba   T. 204.480.7070    
Canada R3T 1N5 F. 204.480.7071 www.imris.com

 

 
 

 

Report of Independent Registered Chartered Accountants

On Internal Control Over Financial Reporting

 

 

To the Shareholders of IMRIS Inc.

 

We have audited the internal control over financial reporting of IMRIS Inc. (the “Company”) as of December 31, 2011, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management report. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

 

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

We have also audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2011 of the Company and our report dated March 1, 2012 expressed an unqualified opinion on those financial statements.

 

 

/s/ Deloitte & Touche LLP

 

Independent Registered Chartered Accountants

Winnipeg, Canada

March 1, 2012

 

 
 

 

Report of Independent Registered Chartered Accountants

 

 

To the Shareholders of IMRIS Inc.

 

We have audited the accompanying consolidated financial statements of IMRIS Inc. and subsidiaries (the “Company”), which comprise the consolidated balance sheets as at December 31, 2011 and December 31, 2010, and the consolidated statements of operations, shareholders' equity and comprehensive loss and of cash flows for each of years then ended and a summary of significant accounting policies and other explanatory information.

 

Management's Responsibility for the Consolidated Financial Statements

 

Management is responsible for the preparation and fair presentation of these consolidated financial statements and financial statement schedule in accordance with accounting principles generally accepted in the United States of America, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditor's Responsibility

 

Our responsibility is to express an opinion on these consolidated financial statements and based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

 

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of IMRIS Inc. and subsidiaries as at December 31, 2011 and December 31, 2010 and the results of their operations and cash flows for each of years then ended in accordance with accounting principles generally accepted in the United States of America.

 

Other Matter

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2012 expressed an unqualified opinion on the Company’s internal control over financial reporting.

 

 

/s/ Deloitte & Touche LLP

 

Independent Registered Chartered Accountants

Winnipeg, Canada

March 1, 2012

 

 
 

   

IMRIS INC.        
Consolidated Balance Sheets        
Expressed in US $000’s except share and per share data,        
and except as otherwise indicated        
         
         
   2011   2010 
         
          (Note 2) 
Assets          
Current assets          
 Cash and cash equivalents (note 5)  $40,425   $60,773 
 Accounts receivable (note 6)   13,968    15,874 
 Unbilled receivables   7,069    7,152 
 Inventory (note 7)   5,168    5,283 
 Prepaid expenses   2,678    2,013 
    69,308    91,095 
           
Other assets   1,641    - 
           
Property, plant, and equipment (note 8)   6,049    6,424 
           
Goodwill   6,498    6,498 
Intangibles (note 9)   10,794    10,936 
    17,292    17,434 
           
Total assets  $94,290   $114,953 
           
Liabilities and Shareholders' equity          
           
Current liabilities          
 Accounts payable and accrued liabilities (note 10)  $12,584   $15,100 
 Deferred revenue   7,147    6,888 
    19,731    21,988 
           
Shareholders' equity          
Share capital (note 11)          
Common Shares, unlimited number of voting common shares authorized; 44,975,109 and 44,113,783 issued and outstanding at December 31, 2011 and December 31, 2010 respectively   144,410    143,050 
Additional paid-in capital   4,291    3,176 
Deficit   (73,984)   (53,059)
Accumulated other comprehensive loss   (158)   (202)
    74,559    92,965 
           
 Commitments and contingencies (note 14)          
           
 Total liabilities and shareholders' equity  $94,290   $114,953 

 

Approved on behalf of the Board of Directors  
   
   
/s/ H. David Graves /s/ David A. Leslie
H. David Graves David A. Leslie, F.C.A
Chairman Chair, Audit Committee
   
See accompanying notes  

 

 
 

 

IMRIS INC.        
Consolidated Statements of Operations        
Expressed in US $000’s except share and per share data,        
and except as otherwise indicated        
         
         
   2011   2010 
         
       (Note 2) 
         
Sales  $51,797   $70,280 
Cost of sales  34,123   39,609 
Gross profit   17,674    30,671 
           
Operating expenses          
 Administrative   9,596    7,527 
 Sales and marketing   9,227    8,878 
 Customer support and operations   6,887    5,690 
 Research and development   9,013    6,123 
 Amortization   3,517    3,434 
Total operating expenses   38,240    31,652 
           
Operating loss before the following   (20,566)   (981)
           
Other income (expense)          
 Foreign exchange   (26)   (808)
 Interest   33    91 
 Embedded derivative   -    (68)
Total other income (expense)   7    (785)
           
Loss before taxes   (20,559)   (1,766)
           
Income taxes (note 12(a))   366    - 
           
Loss for the year  $(20,925)  $(1,766)
           
Weighted average number of common shares outstanding   44,675,390    33,990,295 
           
Basic and diluted loss per share (note 11(d))  $(0.47)  $(0.05)

  

See accompanying notes

 

 
 

 

IMRIS INC. 
Consolidated Statements of Shareholders' Equity and Comprehensive Loss 
Expressed in US $000’s except share and per share data, 
and except as otherwise indicated 
                         
                         
                   Accumulated     
           Additional       Other     
   Common Shares   Paid-in       Comprehensive     
   Shares   Amount   Capital   Deficit   Loss   Total 
                         
Balances at January 1, 2010   31,082,377   $82,894   $2,158   $(51,293)  $(3,819)  $29,940 
                               
Issuance of stock on exercise of employee stock options   331,406    517                   517 
                               
Stock issued on acquisition of NASL   1,600,000    9,680                   9,680 
                               
Stock issued for cash   11,100,000    49,959                   49,959 
                               
Stock based compensation expense for the year             1,086              1,086 
                               
Amount credited to share capital related to options issued             (68)             (68)
                               
Loss for the year                  (1,766)        (1,766)
                               
Currency translation adjustment                       3,617    3,617 
                               
Balances at December 31, 2010   44,113,783   $143,050   $3,176   $(53,059)  $(202)  $92,965 
                               
Issuance of stock on exercise of employee stock options   861,326    1,360                   1,360 
                               
Stock based compensation expense for the year             1,381              1,381 
                               
Amount credited to share capital related to options issued             (266)             (266)
                               
Loss for the year                  (20,925)        (20,925)
                               
Currency translation adjustment                       44    44 
                               
Balances at December 31, 2011   44,975,109   $144,410   $4,291   $(73,984)  $(158)  $74,559 

 

Total comprehensive loss for the year ended December 31, 2011 is $20,880, which is comprised of a loss of $20,925 from operations and a currency translation adjustment of $44. Total comprehensive income for the previous year is $1,851, which is comprised of a loss of $1,766 from operations and a currency translation adjustment of $3,617.

 

 
 

 

IMRIS INC.

Consolidated Statements of Cash Flows

Expressed in US $000’s except share and per share data,

  and except as otherwise indicated

         
   2011   2012 
         
       (Note 2) 
OPERATING ACTIVITIES          
Loss for the year  $(20,925)  $(1,766)
Adjustments to reconcile net income to net cash          
provided by operating activities:          
Amortization   3,517    3,434 
Stock based compensation   1,381    1,086 
Loss on embedded derivative   -    68 
Revenue from embedded derivative   -    (456)
Advance payment (Note 19)   (1,149)   - 
Other   74    - 
Changes in non-cash working capital items:          
Accounts receivable   1,906    (1,942)
Unbilled receivables   83    (1,880)
Inventory   115    (2,133)
Prepaid expenses   (665)   172 
Accounts payable and accrued liabilities   (2,516)   2,047 
Deferred revenue   259    (13,896)
           
    (17,920)   (15,266)
           
FINANCING ACTIVITIES          
Proceeds from issuance of share capital (net)   1,094    50,391 
    1,094    50,391 
           
INVESTING ACTIVITIES          
Restricted cash   -    348 
Acquisition of property, plant and equipment   (2,052)   (1,083)
Acquisition of intangibles   (838)   (134)
Acquisition of other assets   (780)     
Acquisition costs for asset acquisition (note 13b)   -    (169)
Cash acquired in asset acquisition (note 13b)   -    27 
    (3,670)   (1,011)
           
Foreign exchange translation adjustment on cash   148    1,938 
           
Decrease in cash and cash equivalents   (20,348)   36,052 
           
Cash and cash equivalents, beginning of year   60,773    24,721 
           
Cash and cash equivalents, end of year  $40,425   $60,773 
           
Supplemental disclosure of cash flow information          
Cash paid during the period for:          
Interest  $5   $1 
Income taxes  $16   $- 

 

 See accompanying notes

 

 
 

 

IMRIS Inc.

Notes to the Consolidated Financial Statements

Expressed in US $000’s except share and per share data, and except as otherwise indicated

December 31, 2011

 

1.DESCRIPTION OF BUSINESS

 

IMRIS Inc. (“IMRIS” or the “Company”) designs, manufactures and markets the VISIUS Surgical TheatreTM, a multifunctional surgical environment that provides intraoperative vision to clinicians to assist in decision-making and enhance precision in treatment. Designed to meet each hospital’s specific clinical application needs, the VISIUS Surgical Theatre can incorporate MR imaging, CT imaging and x-ray angiography in a number of configurations to provide intraoperative images of diagnostic quality - without introducing additional patient transport risk and delivering real-time information to clinicians while preserving optimal surgical access and techniques. IMRIS sells the VISIUS Surgical Theatres globally to hospitals that deliver clinical services to patients in the neurosurgical, cerebrovascular and cardiovascular markets. We believe that the primary market for our current product portfolio is comprised of those hospitals having relatively large neurosurgical, cerebrovascular or cardiovascular practices. The Company incorporated on May 18, 2005 under the Canada Business Corporations Act. The Company’s shares are traded on the Toronto Stock Exchange under the symbol “IM” and on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “IMRS”.

 

 

2.CHANGES IN ACCOUNTING POLICIES

 

a)Change in generally accepted accounting principles

 

Effective January 1, 2011, the Company has adopted United States generally accepted accounting principles (“US GAAP”) as its basis of accounting. For comparative purposes, the historical information included in these statements has been restated in accordance with these standards. Certain of the comparative figures have been restated to conform to the current year presentation.

 

b)Change in functional currency

 

Effective January 1, 2011, the functional currency of the Company’s parent and several of its subsidiaries has changed. As at January 1, 2011, the US dollar (USD) is the functional currency of IMRIS Inc. (parent) and IMRIS, Inc., the Euro is the functional currency of IMRIS Europe SPRL and IMRIS Germany GmbH, the rupee is the functional currency of IMRIS India Private Limited and the yen is the functional currency of IMRIS KK. NeuroArm Surgical Limited has retained the Canadian dollar as its functional currency. In accordance with ASC 830 the Company’s assets and liabilities were translated into USD as at January 1, 2011 using the exchange rate in effect on that date. Equity transactions were translated at historical rates. As the change took place on the first day of the fiscal year, there was no income statement or cash flow translation required. Any exchange differences resulting from the translation are included in accumulated other comprehensive income presented in shareholders’ equity.

 

c)Change in reporting currency

 

Effective January 1, 2011, the Company adopted USD as its reporting currency. The Company made this change as a result of its common shares being listed on the NASDAQ and a significant portion of its revenue, expenses, assets and liabilities being denominated in US dollars. Prior to that date the Company’s consolidated financial statements were expressed in Canadian dollars. For comparative purposes, the historical financial information included in these statements has been restated to USD using the current rate method. Under this method, assets and liabilities are translated at the closing rate in effect at the end of these periods, revenues, expenses and cash flows are translated at average rates in effect for these periods and equity transactions are translated at historical rates. Any exchange differences resulting from the translation are included in accumulated other comprehensive income presented in shareholders’ equity.

 

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

These consolidated financial statements have been prepared by management in accordance with US GAAP. The significant accounting policies of the Company include the following:

 

a)Basis of consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: IMRIS, Inc. (United States), IMRIS (Europe) SPRL (Belgium), IMRIS India Private Limited (India), IMRIS KK (Japan), NeuroArm Surgical Limited (Canada) and IMRIS Germany GmbH (Germany). All intercompany transactions and balances are eliminated on consolidation.

 

 
 

 

IMRIS Inc.

Notes to the Consolidated Financial Statements

Expressed in US $000’s except share and per share data, and except as otherwise indicated

December 31, 2011

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

b)Basis of presentation

 

These consolidated financial statements have been prepared by the Company in USD, unless where otherwise stated, and in accordance with accounting principles generally accepted in the United States.

 

c)Use of estimates

 

The preparation of financial statements in accordance with US GAAP 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Areas where management used subjective judgment include, but are not limited to, the completion percentage applied to VISIUS Surgical Theatre installations, the recognition and measurement of current and deferred income tax assets and liabilities, estimated useful lives of intangible and capital assets, investment tax credits receivable, stock-based compensation costs, assessment of inventory obsolescence and the valuation and recognition of goodwill and impairment assessments. Actual results could differ significantly from those estimates. Changes in estimates are recorded in the accounting period in which these changes are determined.

 

d)Revenue recognition

 

The Company generates revenues from three principal activities: VISIUS Surgical Theatre sales, sales of ancillary products and services, and extended maintenance services.

 

Revenues for VISIUS Surgical Theatre sales are recognized on a percentage of completion basis as theatres are installed. The degree of completion is generally determined by the ratio of actual costs incurred to date to estimated total costs. Actual costs include only those costs that are directly attributable to contract performance with respect to the revenue recognized. Pre-contract costs are expensed unless their costs can be directly associated with a specific anticipated contract and recoverability from that contract is probable. Any projected losses are recognized immediately. Funds received from customers in advance of meeting the criteria for revenue recognition are recorded as deferred revenue until such time as the revenue is recognized. Revenues recognized in advance of the criteria for invoicing to the customer are recorded as unbilled receivables where the collection of the receivable is probable.

 

Revenues from ancillary products and services are recognized where there is persuasive evidence of an arrangement and upon delivery or as the services are rendered, respectively. Revenues from extended maintenance service agreements are recognized ratably over the life of the service agreement. Revenues from both ancillary products and services and extended maintenance service agreements are based on pre-determined or determinable sales prices and are only recognized when the collection of the receivable is reasonably assured.

 

VISIUS Surgical Theatre sales are adjusted for the effects of the foreign currency embedded derivatives. As of December 31, 2011, none of the Company’s outstanding contracts contained foreign currency embedded derivatives. The net reduction to VISIUS Surgical Theatre sales for the year ended December 31, 2011 was $Nil (2010 - $456).

 

e)Cash and cash equivalents

 

Cash and cash equivalents are short-term highly liquid investments that are readily convertible to known amounts of cash with maturities of three months or less at the date of acquisition and generally consist of bank deposits and guaranteed investment certificates. Cash equivalents are carried at cost. For cash equivalents, fair value approximates cost because these instruments are typically subject to an insignificant risk of a change in value.

 

 
 

 

IMRIS Inc.

Notes to the Consolidated Financial Statements

Expressed in US $000’s except share and per share data, and except as otherwise indicated

December 31, 2011

  

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

f)Accounts receivable and allowance for doubtful accounts

 

The accounts receivable balance reflects all amounts invoiced and is presented net of any allowance for doubtful accounts. The Company evaluates the collectability of its accounts receivable on a periodic basis by monitoring the financial condition of its customers, reviewing historical trends and assessing economic circumstances. When collectability becomes uncertain, the Company estimates an allowance for doubtful accounts. Due to the nature of its client base, the Company has not yet had to recognize any allowance for doubtful accounts.

 

g)Inventory

 

Inventories are stated at the lower of cost or market. Cost is determined on an average cost basis and includes the cost of materials plus an allocation of production labor and overhead. Cost of materials is based on the invoiced value of goods. The Company determines an inventory allowance based on an estimate of obsolete inventories.

 

h)Property, plant, and equipment

 

The Company records all property, plant and equipment acquisitions at their original cost. Once the asset is available for use, recorded amounts are amortized over their estimated useful life using the straight-line method at the following rates:

 

Computer equipment 3 years
Office furnishings and equipment 5 years
Assembly & test equipment 2-5 years
Demonstration suite & tradeshow equipment 3-5 years
Leasehold improvements Lesser of their useful life and the term of lease

 

i)Goodwill and intangible assets

  

Goodwill

 

Goodwill represents the excess of the purchase price over fair value of the identifiable net tangible assets and intangible assets purchased at the date of acquisition. Goodwill is not amortized, but rather it is tested for impairment annually or more frequently if an event occurs or circumstances change that indicates that goodwill might be impaired.

 

The impairment test for goodwill is a two-step process. Step one consists of a comparison of the fair value of its reporting units against their carrying amount, including the goodwill. The Company determines the fair value of the reporting unit based on the present value of the estimated future cash flows of the reporting unit. If the carrying amount of the reporting unit is in excess of its fair value, step two requires the comparison of the implied fair value of the reporting unit’s goodwill against the carrying amount of the reporting unit’s goodwill. Any excess of the carrying value of the reporting unit’s goodwill over the implied fair value of the reporting unit’s goodwill is recorded as an impairment loss.

 

Patents

 

Patents are accounted for at cost. Amortization is based on the estimated useful life, which is generally the life of the patent, using the straight-line method. The average remaining life of the patents at the time of acquisition in May 2005 was 11 years. The patents acquired in the NeuroArm Surgical Limited acquisition (note 13) in February 2010 are amortized over the estimated useful lives, which range between 13-18 years.

 

Computer software

 

Computer software is accounted for at cost. Amortization is based on the estimated useful life, which is generally three years, using the straight-line method.

 

 
 

 

IMRIS Inc.

Notes to the Consolidated Financial Statements

Expressed in US $000’s except share and per share data, and except as otherwise indicated

December 31, 2011

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

j)Impairment of long lived and intangible assets

 

Management evaluates the carrying value of its long-lived assets and identifiable intangible assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. To the extent the estimated undiscounted future net cash inflows attributable to the asset are less than the carrying amount, an impairment loss is recognized. The amount of impairment loss to be recorded is the difference between the assets’ carrying value and the net discounted estimated future cash flows.

 

k)Research and development

 

Research and development costs are expensed as incurred. Costs related to the development of software are capitalized beginning when a product’s technological feasibility has been established and ending when the product is available for general release to the customer. Software development costs are capitalized and amortized over the useful life of the technology. To date the Company has expensed all research and development costs.

 

l)Investment tax credits

 

The Company is entitled to non-refundable investment tax credits from both the federal and provincial governments in Canada. Starting in 2011, the Company is also entitled to refundable investment tax credits from the Province of Manitoba. Investment tax credits are earned as a percentage of eligible current and capital research and development expenditures incurred in each taxation year. Investment tax credits are recognized when realization of the tax credits is more likely than not.

 

Non-refundable investment tax credits are included in the determination of the Company’s deferred tax assets. The Company recognizes a corresponding valuation allowance against any deferred asset balance resulting in no impact to the consolidated financial statements. Non-refundable investment tax credits are recognized either as an item on the statement of loss in the Company’s income tax provision or as a reduction in capital assets depending on where the original costs, which gave rise to the tax credits, are recorded.

 

Refundable investment tax credits are included in accounts receivable until they are received. Refundable investment tax credits are recognized either as an item on the statement of loss in the Company’s research and development expense or as a reduction in capital assets depending on where the original costs, which gave rise to the tax credits, are recorded.

 

m)Stock-based compensation

 

The Company measures compensation expense at the date of granting of stock options to employees and recognizes the expense based on their fair values determined in accordance with ASC 718. The fair value of options is determined using the Black-Scholes option-pricing model. The fair value amount is amortized to earnings over the vesting period, with the related credit recorded as additional paid-in capital. Amortization takes into consideration estimated forfeitures, determined on a historic basis, at the time of grant to determine the number of awards that will ultimately vest. Upon exercise of these stock options, amounts previously credited to additional paid-in capital are reversed and credited to share capital.

 

n)Income taxes

 

The Company follows the liability method of accounting for income taxes. Under this method, deferred taxes are recognized based on the expected future tax consequences of differences between the carrying amount of balance sheet items and their corresponding tax basis, using the enacted income tax rates for the years in which the differences are expected to be realized or settled. A valuation allowance is provided to the extent that it is not more likely than not that the deferred tax assets will be realized.

 

 
 

 

IMRIS Inc.

Notes to the Consolidated Financial Statements

Expressed in US $000’s except share and per share data, and except as otherwise indicated

December 31, 2011

 

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

o)Foreign currency translation

 

All monetary assets and liabilities denominated in currencies other than each subsidiary’s functional currency are translated at the applicable period end reporting date exchange rates. Non-monetary assets are translated at the exchange rates prevailing when the asset was acquired. Revenue and expenses are translated at average exchange rates for the period. Exchange gains or losses on translation of foreign currencies transactions are included in the Consolidated Statements of Operations.

 

Translation adjustments occurring as a result of the consolidation of subsidiaries whose functional currency is not USD are recorded as a separate component of accumulated other comprehensive income.

 

p)Derivative financial instruments

 

The Company recognizes an asset or liability representing the fair value of the embedded derivatives when it sells products to customers located in foreign countries and the contract currency is denominated in the functional currency of neither of the contracting parties. The embedded derivative arises on initial execution of the contract and is active until the contract is closed with the fair value being recalculated throughout the life of the contract. Valuation of the embedded derivative is derived using observable forward currency rates combined with estimated timing and magnitude of contractual cash flows pertaining to specific sales contracts. Changes in the fair value of the embedded derivative are recognized in income during the period in which the changes occur. The fair value of the embedded derivative is calculated using the credit adjusted discount rate because contracts can be active for two or more years. As at December 31, 2011 there are no embedded derivative assets or liabilities recognized in the financial statements (2010 - $Nil).

 

4.RECENTLY ISSUED PRONOUNCEMENTS

 

On May 12, 2011, the FASB issued authoritative guidance (ASU 2011-04) for fair value measurement and disclosure. This guidance is the result of joint efforts by the FASB and the International Accounting Standards Board (“IASB”) to develop a single converged fair value framework on how to measure fair value and on what disclosures to provide about fair value measurements. Determining when to measure fair value is not within the scope of this new guidance. The new guidance is largely consistent with existing fair value measurement principles currently included in in US GAAP (ASC 820); however, it does present amendments that clarify existing fair value measurements and disclosure requirements. Amendments include such areas as clarifying the application of the highest and best use and valuation premise concepts and expanded disclosure of quantitative information about the unobservable inputs used in a fair value measurement that is categorized within Level 3 of the fair value hierarchy. The new authoritative guidance is effective for interim and annual periods beginning after December 15, 2011. The Company will adopt the guidance in the first quarter of fiscal 2012. This will not have a material impact to its results of operations, financial condition or disclosures.

 

On June 16, 2011, the FASB issued authoritative guidance (ASU 2011-05), which revises the manner in which entities present comprehensive income in their financial statements. The new guidance removes the presentation options currently included in US GAAP (ASC 220) and requires entities to report components of comprehensive income in either: 1) a continuous statement of comprehensive income or 2) two separate but consecutive statements. The authoritative guidance does not change the items that must be reported in other comprehensive income. The new authoritative guidance is effective for interim and annual periods beginning after December 15, 2011. The Company will adopt the guidance in the first quarter of fiscal 2012.

 

On September 15, 2011, the FASB issued authoritative guidance (ASU 2011-08) on testing goodwill for impairment. The new guidance gives entities the option of performing a qualitative assessment before calculating the fair value of a reporting unit, as required for the first step of the impairment test. If the assessment of qualitative factors indicates it is more likely than not that the fair value is greater than the carrying value, then further testing would not be needed. The new authoritative guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. The Company is not adopting this guidance prior to the effective period. The Company does not expect this guidance to have any material impact on their annual goodwill impairment testing process.

 

 
 

 

IMRIS Inc.

Notes to the Consolidated Financial Statements

Expressed in US $000’s except share and per share data, and except as otherwise indicated

December 31, 2011

 

5.CASH AND CASH EQUIVALENTS

 

   2011   2010 
         
Cash  $40,425   $53,239 
Cash equivalents   -    7,534 
   $40,425   $60,773 

 

Cash equivalents consist of investments in short term bank deposits.

 

6.ACCOUNTS RECEIVABLE

 

   2011   2010 
         
Accounts receivable, trade  $13,530   $15,867 
Commodity taxes receivable   231    - 
Refundable investment tax credit receivable   200    - 
Interest receivable   7    7 
   $13,968   $15,874 

 

The carrying value of the Company’s trade accounts receivable is as noted above. For the year ended December 31, 2011 the Company has not recognized any allowance for doubtful accounts or any corresponding amount to bad debt expense for the period (2010 - $Nil).

 

7.INVENTORY

 

   2011   2010 
         
Materials  $3,447   $4,156 
Customer support inventory   864    688 
Work in progress   857    439 
   $5,168   $5,283 

 

During the year ended December 31, 2011, the Company wrote down $415 (2010 - $Nil) of inventory and recorded an inventory provision for slow moving and obsolete inventory of $291 (2010 - $228).

 

8.PROPERTY, PLANT, AND EQUIPMENT

 

   2011   2010 
   Cost   Accumulated
amortization
   Net book
value
   Cost   Accumulated
amortization
   Net book
value
 
                         
Computer equipment  $1,368   $958   $410   $1,081   $724   $357 
Office furnishings & equipment   726    547    179    685    449    236 
Assembly & test equipment   10,746    6,836    3,910    10,207    5,195    5,012 
Demonstration suite & tradeshow equipment   1,960    1,352    608    1,558    881    677 
Leasehold improvements   677    340    337    423    281    142 
Assets under construction   605    -    605    -    -    - 
   $16,082   $10,033   $6,049   $13,954   $7,530   $6,424 

 

 
 

 

IMRIS Inc.

Notes to the Consolidated Financial Statements

Expressed in US $000’s except share and per share data, and except as otherwise indicated

December 31, 2011

 

8.PROPERTY, PLANT, AND EQUIPMENT (continued)

 

During the year ended December 31, 2011 amortization of $2,538 relating to the property, plant and equipment was charged to operations (2010 - $2,574). As at December 31, 2011, there were no events or changes in circumstances, which would indicate an impairment of property, plant and equipment.

 

9.INTANGIBLES

 

   2011   2010 
   Cost   Accumulated amortization   Net book
value
   Cost   Accumulated amortization   Net book
value
 
                         
Patents  $11,431   $1,633   $9,798   $11,431   $890   $10,541 
Software   841    571    270    842    447    395 
License   726    -    726    -    -    - 
   $12,998   $2,204   $10,794   $12,273   $1,337   $10,936 

 

During the year ended December 31, 2011 amortization of $979 relating to the patents and software was charged to operations (2010 - $860). As at December 31, 2011, there were no events or changes in circumstances, which would indicate an impairment of intangible assets.

 

The aggregated amortization expense related to intangible assets for the next five years is as follows:

 

2012  $1,180 
2013   1,050 
2014   994 
2015   743 
2016   709 
   $4,676 

 

10.ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

   2011   2010 
         
Trade accounts payable  $7,475   $10,964 
Accruals   2,527    2,285 
Payroll related accruals   1,333    1,250 
Warranty   591    601 
Income tax payable   356    - 
Commodity tax payable   302    - 
   $12,584   $15,100 

 

11.SHARE CAPITAL

 

a)Authorized

 

The Company’s share capital consists of an unlimited number of common shares and an unlimited number of preferred shares. As at December 31, 2011 and 2010, there were no preferred shares outstanding.

 

b)Issued and outstanding

 

Pursuant to option exercises, during the year ended December 31, 2010, the Company issued 331,406 common shares to employees for cash consideration of $449. In addition to the cash consideration, $68 was transferred from additional paid-in capital to share capital.

 

 
 

 

IMRIS Inc.

Notes to the Consolidated Financial Statements

Expressed in US $000’s except share and per share data, and except as otherwise indicated

December 31, 2011

 

11.SHARE CAPITAL (continued)

 

b)Issued and outstanding (continued)

 

The Company closed on November 19, 2010 a public offering with a syndicate of underwriters to issue 10,500,000 common shares of IMRIS at US $5.00 per common share for gross proceeds of $52,128. In addition, IMRIS granted the underwriters an option, exercisable in whole or in part for a period of up to 30 days following the offering closing date, to increase the offering by up to 1,650,000 common shares at a price of US $5.00 per common share. This option was partially exercised on November 30, 2010, increasing the aggregate size of the offering to $55,127.

 

Costs relating to the November 19, 2010 offering include underwriter fees (6% of the gross proceeds or US $0.30 per share) plus various legal and professional fees.

 

Pursuant to option exercises, during the year ended December 31, 2011, the Company issued 861,326 common shares to employees for cash consideration of $1,094. In addition to the cash consideration, $266 was transferred from additional paid-in capital to share capital.

 

c)Stock-based compensation plan

 

On May 20, 2005, the Board of Directors approved a stock option plan (the “Plan”) for the employees, directors, officers and consultants of the Company and any of its subsidiaries, which govern all options granted under the Plan. At the 2009 Annual Meeting on May 11, 2010, the shareholders reaffirmed the plan. Under the Plan, options to purchase common shares of the Company may be granted by the Board of Directors. The exercise price of the options granted is established by the Board of Directors based on the fair market value of the common shares, as at the date of the grant. The maximum number of common shares, which may be issued pursuant to options granted under the Plan, is equal to 15% of the common shares of the Company outstanding at any time.

 

Options granted under the Plan generally vest over a four-year period and may be exercised in whole or in part as to any vested options prior to the expiry time as follows: 25% on or after the first anniversary of the grant date, increasing 6.25% per quarter thereafter until fully vested after four years. Options generally expire six years after the date of the grant. The vesting of options granted under the plan ceases upon the death or the termination of employment of the participant or the participant ceases to be a director. The participant thereafter has 90 days to exercise any vested and unexpired options, failing which any unexercised options shall lapse. The Board of Directors, at their discretion, may accelerate the vesting period of individual grants as deemed appropriate.

 

The Board of Directors may accelerate the vesting of all unvested options, in the event of certain change of control transactions, including without limitation a takeover bid, merger or other structured acquisition. The Board may further force the exercise of any and all vested options, and/or may cancel or replace any unvested options in any manner the Board deems reasonable, in its unfettered discretion. The Company can satisfy its obligation from the exercise of options by either issuing treasury shares or repurchasing shares on the market. To date the Company has chosen to issue treasury shares and does not expect to repurchase shares from the market to satisfy expected exercises of stock options.

 

 
 

 

IMRIS Inc.

Notes to the Consolidated Financial Statements

Expressed in US $000’s except share and per share data, and except as otherwise indicated

December 31, 2011

 

11.SHARE CAPITAL (continued)

 

c)Stock-based compensation plan (continued)

 

The outstanding options and the activity relating to these options are as follows:

 

   Number of options   Weighted average exercise price
(CDN$)
   Average remaining contractual life in years   Aggregate intrinsic value 
Balance as at January 1, 2011   4,000,649   $3.50           
Granted   1,168,103    4.78           
Exercised   (861,326)   1.25           
Forfeited   (145,365)   6.15           
Balance December 31, 2011   4,162,061   $4.23           
Exercisable as at December 31, 2011   2,558,761   $3.79    1.7   $741 
Vested and expected to vest as at December 31, 2011   3,744,588   $4.20    2.8   $769 

 

The aggregate intrinsic value, in the table above, represents the total pre-tax intrinsic value (the aggregate difference between the closing stock price of the Company’s common shares on December 31, 2011 and the exercise price for the in-the-money options) that would have been received by the option holders if all in-the-money options had been exercised on December 31, 2011. The total intrinsic value of the stock options exercised during year ended December 31, 2011 calculated using the average market price during the period, was $3,967 (2010 - $1,431).

 

The following table summarizes information related to options outstanding and exercisable at December 31, 2011:

 

Year granted  Number of options outstanding   Exercise price range
(CDN$)
   Weighted average exercise price
(CDN$)
   Number of options exercisable   Weighted average exercise price
(CDN$)
   Expiry date 
                               
2006   925,600    1.71 to 2.25   $2.23    925,600   $2.23    2012 
2007   1,006,500    2.25 to 6.00    4.43    1,006,500    4.43    2013 
2008   298,726    2.40 to 5.00    4.58    269,194    4.65    2014 
2009   277,525    2.01 to 5.60    4.61    155,955    4.35    2015 
2010   552,068    5.52 to 6.45    6.00    201,512    6.15    2016 
2011   873,062    2.73 to 7.65    3.96    -    -    2017 
2011   228,580    7.18 to 7.18    7.18    -    -    2018 
    4,162,061    $1.71 to $7.65   $4.23    2,558,761   $3.79      

 

 
 

 

IMRIS INC.

Notes to the Consolidated Financial Statements

Expressed in US $000’s except share and per share data, and except as otherwise indicated

December 31, 2011

 

11.SHARE CAPITAL (continued)

 

c)Stock-based compensation plan (continued)

 

The fair value of option grants issued was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:

 

   2011   2010 
Number of options granted during the year   1,168,103    672,145 
Weighted average grant date fair value of stock options granted during the year (CDN$)  $2.56   $3.05 
Risk-free interest rate   1.97%   2.40%
Dividend yield   0%   0%
Expected life of the options   4.2 years    4.2 years 
Expected volatility of the underlying stock   67.93%   62.41%

 

Expected volatilities are based on the historic volatility of the Company’s shares as this represents the most appropriate basis to determine the expected volatility in future periods.

 

The estimated fair value of the options is expensed on a straight-line basis over the option’s vesting period. During the year ended December 31, 2011, the Company recorded an expense of $1,381 related to stock options (2010 - $1,086) with a corresponding credit to additional paid-in capital. The table below summarizes the effect of recording shared based compensation expense for the period:

 

   2011   2010 
Administrative  $700   $605 
Sales and marketing   236    138 
Customer support and operations   197    159 
Research and development   248    184 
Net decrease in earnings  $1,381   $1,086 

 

The following is a summary of unvested stock options as at December 31, 2011:

 

   Number of options   Weighted average grant date fair value
(CDN$)
 
Balance as at January 1, 2011   1,058,729   $2.66 
Granted during the period   1,168,103    2.56 
Vested during the period   (498,825)   2.49 
Forfeited during the period   (124,707)   3.36 
Balance as at December 31, 2011   1,603,300   $2.59 

 

 
 

 

IMRIS Inc.

Notes to the Consolidated Financial Statements

Expressed in US $000’s except share and per share data, and except as otherwise indicated

December 31, 2011

 

11.SHARE CAPITAL (continued)

 

c)Stock-based compensation plan (continued)

 

As at December 31, 2011, there was $2,658 of unrecognized stock-based compensation expense related to unvested stock options. This will be expensed over the vesting period, which on a weighted-average basis, results in a period of approximately 2.9 years. The total fair value of stock options vested during the year ended December 31, 2011 was $1,255 (2010 - $929).

 

d)Diluted loss per share

 

When the Company is in a loss position, there are no adjustments to the weighted number of shares outstanding for the purposes of calculating diluted loss per share because to do so would be anti-dilutive. As at December 31, 2011, 1,285,610 stock options (2010 – 1,737,018) could potentially dilute basic EPS in the future. These options were not included in the computation of diluted EPS because to do so would have been anti-dilutive for the periods presented.

 

12.INCOME TAXES

 

a)Income tax expense

 

Income tax expense differs from the amount that would be computed by applying the statutory income tax rates to loss before income taxes. An annual reconciliation of income taxes calculated at the statutory rate to the actual tax provision is as follows:

 

   2011   2010 
         
Statutory federal and provincial tax rate   28.50%   30.00%
Expected tax recovery at statutory rate  $(5,859)  $(422)
Foreign income taxed at higher rates   (123)   - 
Permanent differences and other   478    208 
Non taxable foreign exchange   -    109 
           
Benefit of deferred tax assets not recognized   5,870    105 
Income tax expense  $366   $- 

 

The components of the Company’s loss from operations before income taxes, by taxing jurisdiction, were as follows:

 

   2011   2010 
         
Canada  $(18,664)  $135 
United States   (2,787)   (2,267)
Other   892    366 
   $(20,559)  $(1,766)

 

 
 

 

IMRIS Inc.

Notes to the Consolidated Financial Statements

Expressed in US $000’s except share and per share data, and except as otherwise indicated

December 31, 2011

 

12.INCOME TAXES (continued)

 

b)Deferred taxes

 

The Company has not recorded any deferred tax assets in these financial statements because a valuation allowance has been provided against the full amount of the deferred tax assets. The balances of deferred taxes as at December 31, 2011 and December 31, 2010 represents the future benefit of unused tax losses and temporary differences between the tax and accounting bases of assets and liabilities.

 

The major items giving rise to deferred tax assets and liabilities are presented below:

 

   2011   2010 
         
Non-capital losses carried forward  $13,414   $9,964 
Capital assets   720    110 
Intangible assets   (2,649)   (2,837)
Research and development expenditures   6,549    5,739 
Reserves not taken for tax purposes   3,142    3,494 
Total deferred tax assets   21,176    16,470 
Valuation allowance   (21,176)   (16,470)
Net deferred tax asset  $-   $- 

 

The net increase in the valuation allowance for the year ended December 31, 2011 was $4,760. The Company’s deferred tax liability for each tax jurisdiction is $Nil for all periods noted above. The Company has non-capital losses of approximately $47,970 to reduce the taxable income of future years, as of December 31, 2011. These losses expire in 2026 and beyond.

 

The company has deductible Scientific Research and Experimental Development expenditures applicable to future years of approximately $24,255. These expenditures have been included in the calculation of deferred taxes above and have no expiry date.

 

The Company has unutilized federal and provincial scientific research and experimental development investment tax credits of approximately $6,400 and $7,200 respectively. These credits expire in 2014 and beyond.

 

The Company has adopted the provisions in ASC 740 related to unrecognized tax benefits. ASC 740 provides specific guidance on the recognition, de-recognition and measurement of income tax positions in financial statements, including the accrual of related interest and penalties recorded in interest expense. First, the tax position is evaluated for recognition. An income tax position is recognized when it is more likely than not that it will be sustained upon examination based on its technical merits. If recognition is warranted the benefit is measured as the largest amount that is greater than 50% likely of being realized upon ultimate settlement. As of December 31, 2011 the Company has no unrecognized tax benefits (2010 – $Nil). As of December 31, 2011 the Company has not accrued any amounts for interest or penalties related to unrealized tax benefits (2010 - $Nil).

 

The Company files tax returns in Australia, Belgium, Canada, India, Japan, Germany and the United States. The years 2007 to 2011 remain subject to examination by tax authorities.

 

 
 

 

IMRIS Inc.

Notes to the Consolidated Financial Statements

Expressed in US $000’s except share and per share data, and except as otherwise indicated

December 31, 2011

  

13.ACQUISITION OF NEUROARM SURGICAL LIMITED

 

a)Overview

 

On February 4, 2010, the Company announced that it entered into a definitive agreement to acquire 100% issued and outstanding common shares of NeuroArm Surgical Limited (“NASL”), a privately held company based in Calgary, Alberta, and its magnetic resonance-compatible neurosurgical robotics system.

 

The transaction, accomplished through the issuance of 1.6 million common shares from treasury, included the technology, patents, and associated intellectual property. The value of the common shares was determined based on the closing trading price of the common shares of the Company on The Toronto Stock Exchange as of the closing of the transaction on February 5, 2010. The Company has issued 20% of the common shares, being 320,000 common shares placed into escrow for a period of 24 months for any claims that could be made against NASL.

 

b)Consideration and Transaction Costs

 

Consideration offered to complete the acquisition was 1.6 million common shares of the Company with a value of $9,695 or $6.06 per share. Transaction costs to complete the acquisition included legal and accounting costs of $169, which brought the total purchase price to $9,864.

 

c)Net Assets Acquired

 

The following estimated fair values were assigned to the net assets of NASL as at February 5, 2010:

 

Cash and cash equivalents  $27 
Intangibles   10,147 
Total Assets   10,174 
      
Accounts payable and accrued liabilities   310 
Total Liabilities   310 
Total purchase price  $9,864 

 

Intangibles include the valuation of the patents tied to the intellectual property acquired. The intangibles are amortized over their estimated useful lives, which range between 13-18 years.

 

The carrying amount of the intangibles is $9,607 as at December 31, 2011 (2010 - $10,305). The associated amortization for the year ended December 31, 2011 was $698 (2010 - $617).

 

14.COMMITMENTS AND CONTINGENCIES

 

a)Operating leases

 

The Company had commitments under operating leases requiring future minimum annual lease payments as follows:

 

   2011 
     
2012  $728 
2013   706 
2014   692 
2015   584 
2016   174 
   $2,884 

 

 
 

 

IMRIS INC.

Notes to the Consolidated Financial Statements

Expressed in US $000’s except share and per share data, and except as otherwise indicated

December 31, 2011

       

14.COMMITMENTS AND CONTINGENCIES (continued)

 

b)Warranty liability

 

The Company records a liability for future warranty costs to repair or replace its products. The warranty term is 12 months. The amount of the liability is determined based on management’s historical experience and the best estimate of probable claims under Company warranties. The Company regularly evaluates the appropriateness of the remaining accrual.

 

The following table details the changes in the warranty accrual.

 

    2011 
      
Balance at beginning of the year  $601 
Accruals   356 
Utilization   (366)
Balance at end of the period  $591 

 

15.SEGMENTED INFORMATION

 

The Company operates as one business segment. The Company develops, assembles and installs VISIUS Surgical Theatres that are used for a variety of medical applications, as well as providing ancillary products and services and extended maintenance services.

 

Revenue attributable to geographic locations, based on the location of the customer, is as follows:

 

   2011   2010 
         
Canada  $6,084   $16,049 
United States   25,442    39,420 
Europe and Middle East   8,761    4,242 
Asia Pacific   11,510    10,569 
   $51,797   $70,280 

 

During 2011, revenues from two customers totalled $18,030 or 35% of total revenue for the period. During 2010, four customers accounted for 42% or $29,705 of total revenues. The revenues from each of these customers individually accounted for more than 10% of the total revenue for the year ended December 31, 2011 and 2010.

 

Substantially all of the capital assets and all the goodwill and intangibles balances are attributable to the Company’s operations located in Canada.

 

16.RELATED PARTY TRANSACTIONS

 

The Company leases air travel time from a company which is wholly owned by the Chairman of IMRIS Inc. The amount charged to travel, included in Administrative expenses during the year ended December 31, 2011 totaled $357 (2010 – $139). There were no amounts charged to share issuance costs during the year ended December 31, 2011 (2010 - $152). The transactions were priced using an estimated third party comparable cost and were recorded at the exchange amount. There are no receivables or payables outstanding from related parties as at December 31, 2011 (2010 - $Nil).

 

 
 

 

IMRIS Inc.

Notes to the Consolidated Financial Statements

Expressed in US $000’s except share and per share data, and except as otherwise indicated

December 31, 2011

  

17.DEFINED CONTRIBUTION EMPLOYEE PENSION PLAN

 

The Company contributes to a defined contribution Employee Pension Plan for all its employees. Contributions to this Plan are expensed as incurred. The Company makes a matching contribution equal to 50% of the employee’s contribution, to a maximum of 3% of the employee’s annual remuneration (subject to regulatory maximums). These employer contributions vest immediately with the employee contribution. The expense for the defined contribution plan during the year ended December 31, 2011 totaled $270 (2010 - $232).

 

18.FINANCIAL INSTRUMENTS

 

Effective January 1, 2008, the Company adopted FASB standard ASC 820 which defines fair value, establishes a framework, prescribes methods for measuring fair value and outlines additional disclosure requirements on the use of fair value measurements. Fair value is defined as the exchange price that would be recovered for an asset or paid to transfer a liability (an exit price in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date). Fair value is determined based on the exchange price that would be received for an asset or paid to transfer a liability utilizing a hierarchy of three different valuation techniques, based on the lowest level input that is significant to the fair value measurement in its entirety.

 

Financial instruments measured at fair value should be classified into one of three levels that distinguish fair value measurements by the significance of the inputs used for valuation.

 

Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;

 

Level 2 - Observable inputs other than Level 1 quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable or corroborated by observable market data; and

 

Level 3 - Unobservable inputs that are supported by little or no market activity. Valuation techniques are primarily model-based.

 

The Company’s financial assets and liabilities that are measured at fair value on a recurring basis have been segregated into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value measurement date in the table below. For cash and cash equivalents, fair value approximates cost.

 

Financial assets and liabilities measured at fair value as at December 31, 2011 in the consolidated financial statements on a recurring basis are summarized below:

 

   Level 1   Level 2   Level 3 
             
Cash and cash equivalents  $40,425   $-   $- 
   $40,425   $-   $- 

 

Financial assets and liabilities measured at fair value as at December 31, 2010 in the consolidated financial statements on a recurring basis are summarized below:

 

   Level 1   Level 2   Level 3 
             
Cash and cash equivalents  $60,773   $-   $- 
   $60,773   $-   $- 

 

 
 

 

IMRIS Inc.

Notes to the Consolidated Financial Statements

Expressed in US $000’s except share and per share data, and except as otherwise indicated

December 31, 2011

 

19.COLLABORATIVE ARRANGEMENTS

 

During 2010, IMRIS entered into a collaborative arrangement with a third party to encourage research, education and patient care activities of mutual benefit in the areas of developing diagnostic and functional assessment capabilities of magnetic resonance imaging for mainstream interventional cardiology and neuroscience. As part of the agreement, IMRIS agreed to provide the necessary equipment, maintenance and support staff to achieve the purpose intended by the agreement. The third party has agreed to provide the appropriate clinical validation over a five-year period.

 

Revenue resulting from the arrangement is recognized in accordance with the Company’s current revenue recognition policy. Included in the consolidated statement of operations for the year ended December 31, 2011 is revenue of $2,272 (2010 - $Nil). As at December 31, 2011, the Company has an advance payment of $1,091, which represents the value of the clinical validation projects it will receive in exchange for the equipment, as outlined in the agreement. This amount will be expensed as research and development on a straight-line basis over the five-year life of the agreement. The current portion of this balance is included in prepaid expenses ($230). The long- term portion is included in other assets ($861).

 

Any future payments to the participant of this agreement will be recognized in accordance with the Company’s current expenditure policies. The classification of these, or any future payments between participants pursuant to this collaborative arrangement, will be based on the nature of the arrangement. All future costs or revenue generated from third parties will be recognized in the income statement on a gross basis.

 

During 2011, IMRIS entered into a collaborative arrangement with a third party to conduct clinical research on IMRIS’ MRgRT™ platform.  As part of the agreement, IMRIS will develop and manufacture the MRgRT™ platform using IMRIS’ proprietary MR imaging technology. The third party has agreed to conduct clinical research, which IMRIS can use to clinically validate the system and develop a commercially viable version of the platform.

 

Revenue resulting from the arrangement is recognized in accordance with the Company’s current revenue recognition policy.  Included in the consolidated statement of operations for the year ended December 31, 2011 is revenue of $3,511 (2010 - $Nil). Costs attributable to the VISIUS Surgical Theatre has been classified as cost of sales, as incurred.  Costs attributable to the development of the MRgRT™ platform are being recognized as prepaid expenses and other assets until clinical validation activities can begin, which will occur when installation is complete.  In the period that installation is complete and clinical validation can begin, the amounts on the balance sheet will be recognized as research and development expense.  During the year-ended December 31, 2011, $2,006 was recognized as cost of sales and $1,261 was recognized on the balance sheet under prepaid expenses and other assets ($580 and $681, respectively).  

 

20.GUARANTEES

 

The Company has entered into an agreement, which meets the definition of a guarantee. Under the terms of the agreement, the Company has agreed to be legally bound to pay the obligation. The Company’s maximum obligation under this agreement is $623 and the obligation expires once the Company satisfies the conditions of the original agreement. To offset this arrangement the Company entered into a reciprocal arrangement with a financial institution to cover half the amount of the obligation, should the need arise. The financial institution, involved in the reciprocal arrangement did not require any of the Company’s assets to be pledged as collateral. The Company has not recorded a liability in the year-end statements related to the original arrangement.

 

The Company periodically enters into agreements that include limited intellectual property indemnifications that are customary in the industry. These guarantees generally require the Company to indemnify the other party for certain damages and costs incurred as a result of third party intellectual property claims arising from these transactions. The nature of the intellectual property indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay to its customers and suppliers. The Company has not made any indemnification payments under such agreements and no amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification obligations.

 

21.COMPARATIVE FIGURES

 

The Company reclassified $688 from raw materials to customer support inventory to conform to the current period’s presentation.