NOTE 3 — SUPPLEMENTARY BALANCE SHEET INFORMATION

Accounts Receivable, net:

Accounts receivable is net of allowances for doubtful accounts of approximately $1.2 million and $1.8 million and sales returns of approximately $210,000 and $210,000 at December 31, 2016 and 2015, respectively.

Inventory, net:

Inventory is net of a provision for excess and obsolete inventory totaling approximately $1.7 million and $2.1 million at December 31, 2016 and 2015, respectively.

Property, Plant, and Equipment, net:

The cost basis of assets held under capital lease was $378,000 and the accumulated depreciation related to assets held under capital lease was $227,000 as of December 31, 2016. The cost basis of assets held under capital lease was $590,000 and the accumulated depreciation related to assets held under capital lease was $118,000 as of December 31, 2015.  

Accrued Liabilities:

Deferred Revenue:

In connection with the Company’s initiatives to measure and improve customer satisfaction and concurrent with the launch of Waterlase iPlus 2.0 in February 2015, the Company introduced its exclusive Practice Growth Guarantee, which is a program to assist with growth in the Company’s clients’ dental practices through training on a select number of clinical procedures and with billing and marketing support for dentists included. Consistent with the Company’s standard terms and conditions applicable to all of its products, the Practice Growth Guarantee does not give the customer the right to return purchased laser systems or receive a refund of any amount of the purchase price. However, the Practice Growth Guarantee does provide for additional training opportunities and certain billing and marketing support activities to the customer.  The Company has estimated additional deferred revenue related to the Practice Growth Guarantee for all Waterlase iPlus 2.0 system sales for the year ended December 31, 2016 and 2015 to be approximately $18,000 and $119,000, respectively.

On March 24, 2015 a patent infringement lawsuit against Fotona Proizvodnja Optoelektronskih Naprav D.D. and Fotona LLC (collectively, “Fotona”) was settled whereby the Company was to receive payments totaling $1.4 million. The Company calculated the present value of the settlement amount to be $1.2 million and allocated such amount to each significant element of the settlement on a relative fair value basis. $731,000 and $68,000 were allocated towards the recovery of the Company’s legal expenses and as settlement for the dismissal of the patent infringement lawsuit and are reflected as legal settlement and license fees and royalty revenue, respectively, on the Consolidated Statements of Operations and Comprehensive Loss. The remaining amount of $379,000 was allocated towards the three-year, non-exclusive, paid-up license in the United States and the five-year, non-exclusive, paid-up license in countries outside of the United States which was reflected within other assets and long-term deferred revenue on the Consolidated Balance Sheets.  The deferred revenue is being recognized as license revenue over the terms of the paid-up licenses.  The Company has recorded $119,000 and $119,000 in revenue and has $142,000 and $261,000 in deferred revenue for and as of the year ended December 31, 2016 and 2015, respectively.  For additional information on litigation, see Note 6, Commitments and Contingencies.