Principal Business Activities and Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2011

Business Description and Accounting Policies [Text Block]

1. Principal Business Activities and Summary of Significant Accounting Policies:

Organization and Business

Cascade is a development-stage, medical imaging device company. All medical device operations are being conducted by Cascade’s wholly owned subsidiary, Spectral Molecular Imaging, Inc. (“SMI”). SMI was incorporated on February 25, 2004 in Nevada and to date has not generated any revenues.

The Company’s financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business.

At December 31, 2011, the Company has an accumulated deficit of $3,256,094 and anticipates that it will continue to incur net losses for the foreseeable future in the development and commercialization of its product line. From inception up through the merger, the Company financed operations solely through short-term loans from a stockholder. In conjunction with the merger between Cascade and SMI in March 2010, additional working capital was obtained through the placement of $850,000 in convertible notes ($787,425 net of expenses) received on March 17, 2010.

During 2011 the Company secured $500,000 in proceeds from the placement of additional convertible notes, $400,000 of which were issued pursuant to a Placement Agent Agreement with a financial institution that was deemed finalized as of February 15, 2012. See “Note 12 - Subsequent Event”.

The Company also faces certain risks and uncertainties which are present in many emerging medical device companies regarding product development, future profitability, ability to obtain future capital, protection of patents and property rights, competition, rapid technological change, government regulations, changing health care marketplace, recruiting and retaining key personnel, and third party manufacturing organizations.

Merger with Spectral Molecular Imaging, Inc.

Pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), entered into by and between Spectral Molecular Imaging, Inc. (“SMI”), Cascade Technologies Corp., a Wyoming corporation (“Cascade”), and SMI Merger Sub, a Nevada corporation and a wholly-owned subsidiary of Cascade (“Merger Sub”), dated as of March 8, 2010, Merger Sub merged into SMI effective on March 16, 2010, with SMI being the surviving entity (the “Merger”). As a result of the Merger, SMI became a wholly-owned subsidiary of Cascade. The transaction has been accounted for as a reverse acquisition and the accompanying condensed consolidated financial statements are those of SMI. As required by accounting guidance, authorized shares, issued and outstanding shares and per share amounts have been retroactively restated throughout these consolidated financial statements and the accompanying notes to reflect Cascade’s capital structure.

Business Segments

The Company’s operations are confined to one business segment: the design and development of medical devices utilizing SMI’s patented technology.

Cash and Cash Equivalents

The Company considers all highly liquid investment with a maturity at the date of purchase of three months or less to be cash equivalents.

Property and Equipment

Depreciation of property and equipment is provided for by the straight-line method over the five year estimated useful lives of the related assets. Leasehold improvements are amortized over the lesser of the assets’ useful lives or the remaining term of the lease.

Intangible Assets

Our policy is to protect our intellectual property by licensing or obtaining U.S. and foreign patents to protect technology, inventions, and improvements important to the development of our business. Patents are carried at cost less accumulated amortization which is calculated on a straight-line basis over a period of 15 years.

The Company evaluates intangible assets for impairment, at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. Recoverability of intangible assets and other long-lived assets is measured by comparing their net book value to the related projected undiscounted cash flows from these assets, considering a number of factors including past operating results, budgets, economic projections, market trends, and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss.

Basis of Consolidation

Our consolidated financial statements include the accounts of the company and our wholly-owned subsidiary SMI. All intercompany transactions have been eliminated in consolidation.

Revenue Recognition

The Company has not yet commenced the FDA review process for its products.

Government Research Grants

Government research grants that provide for payments to the Company for work performed are recognized as income when the related expenses are incurred.

Income Taxes

The Company accounts for income taxes using the asset and liability method of accounting for deferred income taxes (see also Note 8).

The provision for income taxes includes federal and state income taxes currently payable and deferred taxes resulting from temporary differences between the financial statement and tax bases of assets and liabilities. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.

With respect to uncertain tax positions, the Company would recognize the tax benefit from an uncertain tax position only if it is more-likely-than-not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The tax benefits to be recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. The Company’s reassessment of its tax positions did not have a material impact on its results of operations and financial position.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates and assumptions by management that affect reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Long-lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An asset is considered to be impaired when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition exceeds its carrying amount. The amount of impairment loss, if any, is measured as the difference between the net book value of the asset and its estimated fair value.

Research and Development

Research and development costs are expensed as incurred. Total research and development costs for the years ended December 31, 2011 and 2010 and the period from February 25, 2004 (inception) to December 31, 2011 were as follows.


	Year ended December 31,		From February 25, 2004 (Inception) through December 31,
	2011	2010	2011
Research and development costs	$ 1,204,121	$1,375,543	$ 2,659,948

Fair Value of Financial Instruments

The Company measures its financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction between market participants at the measurement date. Additionally, the Company is required to provide disclosure and categorize assets and liabilities measured at fair value into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation. Level 1 provides the most reliable measure of fair value while Level 3 generally requires significant management judgment. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. The fair value hierarchy is defined as follows:

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

Level 2 - other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement date,

Level 3 - significant unobservable inputs that reflect management’s best estimate of what market participants would use to price the assets or liabilities at the measurement date.

The following table summarizes fair value measurements by level at December 31, 2011 and 2010 for assets and liabilities measured at fair value on a recurring basis:


	December 31, 2011			December 31, 2010
	Level 1	Level 2	Level 3	Level 1	Level 2	Level 3
Derivative liability	$ -	$ -	$ 515,502	$ -	$ -	$ 295,026

The carrying amount of certain financial instruments, including cash and cash equivalents and accounts payable and accrued expenses, approximates fair value due to the relatively short maturity of such instruments. The fair value of borrowings is not considered to be significantly different than its carry amount because the stated rates for such debt reflect current market rates.

The following table sets forth a summary of changes in the fair value of the Company’s level 3 assets (conversion feature of notes payable) for the years ended December 31, 2011 and 2010.


	Year ended December 31,
Level 3 Assets - Derivative Liability	2011	2010
Beginning Balance	$ 295,026	$ -
Conversion feature issued	-	5,343,960
Changes in derivative liability	272,970	(4,959,811)
Reclassification of derivative liability	(52,494)	(89,123)
Ending balance	$ 515,502	$ 295,026

The Company used the Black-Scholes option pricing model for estimating the fair value of the note conversion feature with the following assumptions: expected remaining life of 5.01 years; risk-free interest rate of 0.88%; dividend yield of 0%; and expected volatility of 237%.

Stock-based compensation

The Company records stock-based compensation in accordance with the provisions of ASC 718 “Compensation - Stock Compensation”.

Net Loss per Common Share

Basic and diluted net loss per share is computed by dividing loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. The number of shares has been retrospectively restated to consider the effect of the stock dividend in March 2010.

CASCADE TECHNOLOGIES CORP 10-K