Stereotaxis
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S-1/A
STEREOTAXIS, INC. filed this Form S-1/A on 06/17/2004
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STEREOTAXIS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Information as of March 31, 2004 and for the three months ended
March 31, 2003 and 2004 is unaudited)
 
Use of Estimates

       The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and loss during the reporting period. Actual results could differ from those estimates.

 
Revenue and Costs of Revenue

       The Company recognizes systems revenue from system sales made directly to end users upon installation, provided there are no uncertainties regarding acceptance, persuasive evidence of an arrangement exists, the sales price is fixed or determinable, and collection of the related receivable is reasonably ensured. When installation is required for revenue recognition, the determination of acceptance is made by the Company’s employees based on the system’s availability for clinical use. Revenue from system sales made to distributors is recognized upon delivery since these arrangements do not include an installation element or right of return privileges. If uncertainties exist regarding collectibility, the Company recognizes revenue when those uncertainties are resolved. Amounts collected prior to satisfying the above revenue recognition criteria are reflected as deferred revenue. Revenue from services, whether sold individually or as a separable unit of accounting in a multi-element arrangement, is deferred and amortized over the service period, which is typically one year. The Company recognizes revenue from disposable device sales or accessories upon shipment, and an appropriate reserve for returns is established. Other revenue represents a system sale for which the cost of production was charged to research and development costs in 2001 and 2002.

       Costs of revenue include direct product costs, installation labor, estimated warranty costs, and training and product maintenance costs. The Company also includes in costs of revenue any expected loss related to executed contracts in the period in which the loss becomes known. In the years ended December 31, 2002 and 2003, the Company incurred $33,580 and $278,320, respectively, and in the three month periods ended March 31, 2003 and 2004, incurred $2,663 and $109,004, respectively, for costs in excess of contractual revenues, primarily on certain system sales.

 
Research and Development Costs

       Internal research and development costs, including clinical and regulatory costs incurred prior to receiving Food and Drug Administration approval, are expensed in the period incurred. Directed research performed by hospitals at the Company’s request are expensed in the period such services are provided. Amounts paid for directed research were $3,025, $100,041, and $128,424 in 2001, 2002, and 2003, respectively, and $22,150 and $102,215 for the three months ended March 31, 2003 and 2004, respectively.

 
Stock-Based Compensation

       As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, the Company has elected to follow Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for stock-based employee compensation. Under APB No. 25, if the exercise price of the Company’s employee and director stock options equals or exceeds the estimated fair value of the underlying stock on the date of grant and the number of options is not variable, no compensation expense is recognized. Options are variable if the options

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