Inventories, Property and Equipment, and Intangible and Other Assets

9 Months Ended

Sep. 30, 2015

Inventories Property And Equipment And Intangible And Other Assets

5. Inventories, Property and Equipment, and Intangible and Other Assets

Inventories consist of:

	September 30,		December 31,
	2015		2014
Raw materials	$	1,198,957	$	1,448,981
Work-in-process		23,832		25,014
Finished goods		702,199		752,984
Total	$	1,924,988	$	2,226,979

Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets.  Property and equipment includes FORE-SIGHT cerebral oximetry monitors primarily located at customer sites within the United States.  Such equipment, categorized as “Equipment at Customers”, is typically held under a no-cost program whereby customers purchase disposable sensors for use with the Company’s FORE-SIGHT equipment.  Under this program, the Company retains title to the monitors shipped to its customers and amortizes the monitors using the straight-line method over their estimated useful lives.  Equipment at Customers includes first-generation FORE-SIGHT cerebral oximeters, the net book value of which was reduced to an estimated fair value during the third quarter of 2013 upon the launch of the Company’s next-generation FORE-SIGHT ELITE monitor.

Intangible assets consist of patents issued, patents pending, trademarks, and purchased technology which are recorded at cost. Patents are amortized on a straight-line basis over 20 years. Capitalized costs are amortized over their estimated useful lives. Deferred financing costs are amortized over the term of the related agreement.

Intangible and other assets consist of the following:

	September 30,			December 31,
	2015			2014
Patents and other assets	$	1,071,043		$	994,266
Patents pending		305,408			282,633
Purchased technology		33,893			33,893
Deferred financing costs		780,810			780,810
		2,191,154			2,091,602
Accumulated amortization		(828,499	)		(622,512	)
Total	$	1,362,655		$	1,469,090

Deferred financing costs consist of $780,810 related to a Loan and Security Agreement (the “Loan Agreement”) consummated with GECC on June 27, 2014, as described in Note 6 below. The deferred financing costs include $300,000 of accrued fees to GECC payable at the maturity of the Loan Agreement or upon repayment of the term loan, warrants to purchase the Company’s common stock valued at $190,840, and other legal- and brokerage-related costs. In connection with the Loan Agreement, the Company’s secured term loan with East West Bank was repaid in full at the closing, and the revolving line-of-credit with East West Bank, which had no outstanding balance, was terminated.  As a result, unamortized deferred financing costs of $92,035 at June 27, 2014, pertaining to the East West Bank agreements, were recorded to interest expense.

Amortization expense of intangible and other assets for the nine months ended September 30, 2015, was $205,987. Estimated amortization expense for the calendar year 2015 is $297,600. Expected amortization expense of intangible and other assets for the next five calendar years and beyond follows:

2016	$	256,600
2017		217,700
2018		109,800
2019		26,600
2020		26,100
Thereafter		554,300
	$	1,191,100

The Company reviews its intangibles and other assets for impairment or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company believes that the carrying amounts of its remaining long-lived assets are fully recoverable.