NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.
BASIS OF PRESENTATION
The
accompanying financial information has been prepared by Aehr Test
Systems, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission, or SEC. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles in the United States (GAAP) have been condensed or
omitted pursuant to such rules and regulations.
In
the opinion of management, the unaudited condensed consolidated
financial statements for the interim periods presented have been
prepared on a basis consistent with the May 31, 2016 audited
consolidated financial statements and reflect all adjustments,
consisting of normal recurring adjustments, necessary for a fair
presentation of the condensed consolidated financial position and
results of operations as of and for such periods indicated. These
unaudited condensed consolidated financial statements and notes
thereto should be read in conjunction with the condensed
consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended May
31, 2016. Results for the interim periods presented herein are not
necessarily indicative of results which may be reported for any
other interim period or for the entire fiscal year.
PRINCIPLES
OF CONSOLIDATION. The condensed consolidated financial statements
include the accounts of Aehr Test Systems and its subsidiaries
(collectively, the "Company," "we," "us," and "our"). All
significant intercompany balances have been eliminated in
consolidation. For our majority owned subsidiary, Aehr Test Systems
Japan K.K., we reflected the noncontrolling interest of the portion
we do not own on our Condensed Consolidated Balance Sheets in
Shareholders’ Equity (Deficit) and in the Condensed
Consolidated Statements of Operations.
ACCOUNTING
ESTIMATES. The preparation of financial statements in conformity
with 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 the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Estimates are used to account
for sales and revenue allowances, the allowance for doubtful
accounts, inventory valuations, income taxes, stock-based
compensation expenses, and product warranties, among others. We
base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the
circumstances. Actual results could differ materially from those
estimates.
SIGNIFICANT
ACCOUNTING POLICIES. The Company’s significant accounting
policies are disclosed in the Company’s Annual Report on Form
10-K for the year ended May 31, 2016.
There have been no
changes in our significant accounting policies during the six
months ended November 30, 2016.
2.
STOCK-BASED COMPENSATION
Stock-based
compensation expense consists of expenses for stock options,
restricted stock units, or RSUs, and employee stock purchase plan,
or ESPP, purchase rights. Stock-based compensation cost for stock
options and ESPP purchase rights are measured at each grant date,
based on the fair value of the award using the Black-Scholes option
valuation model, and is recognized as expense over the
employee’s requisite service period. This model was developed
for use in estimating the value of publicly traded options that
have no vesting restrictions and are fully transferable. The
Company’s employee stock options have characteristics
significantly different from those of publicly traded options. For
RSUs, stock-based compensation cost is based on the fair value of
the Company’s common stock at the grant date. All of the
Company’s stock-based compensation is accounted for as an
equity instrument. See Notes 10 and 11 in the Company’s
Annual Report on Form 10-K for fiscal 2016 filed on August 29, 2016
for further information regarding the 2006 Equity Incentive Plan
and the 2006
Employee Stock Purchase
Plan.
In
October 2016, the Company’s 2016 Equity Incentive Plan and
the Amended and Restated Employee Stock Purchase Plan were approved
by the Company’s shareholders. The 2016 Equity Incentive Plan
replaces our 2006 Equity Incentive Plan, which was scheduled to
expire in October 2016, and will continue in effect until 2026. A
total of 2,238,467 shares of common stock have been reserved for
issuance under the Company’s 2016 Equity Incentive Plan. The
Amended and Restated 2006 Employee Stock Purchase Plan extends the
term of the ESPP indefinitely. See the Registration Statement on
Form S-8 filed on November 14, 2016 for further information
regarding the 2016 Equity Incentive Plan and the ESPP.
The
following table summarizes the stock-based compensation expense
related to the Company’s stock-based incentive plans for the
three and six months ended November 30, 2016 and 2015 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation in the form of employee stock options, RSUs and ESPP
purchase rights, included in:
|
|
|
|
|
Cost
of sales
|
$
23
|
$
20
|
$
47
|
$
42
|
Selling,
general and administrative
|
141
|
186
|
388
|
424
|
Research
and development
|
51
|
48
|
99
|
107
|
Total
stock-based compensation
|
$
215
|
$
254
|
$
534
|
$
573
|
As
of November 30, 2016 and 2015, there were no stock-based
compensation costs capitalized as part of inventory.
During
the three months ended November 30, 2016 and 2015, the Company
recorded stock-based compensation related to stock options and RSUs
of $185,000 and $233,000, respectively. During the six months ended
November 30, 2016 and 2015, the Company recorded stock-based
compensation related to stock options and RSUs of $464,000 and
$518,000, respectively.
As
of November 30, 2016, the total compensation cost related to
unvested stock-based awards under the Company’s 2006 and 2016
Equity Incentive Plans, but not yet recognized, was approximately
$1,266,000, which is net of estimated forfeitures of $3,000. This
cost will be amortized on a straight-line basis over a weighted
average period of approximately 2.4 years.
During
the three months ended November 30, 2016 and 2015, the Company
recorded stock-based compensation related to the ESPP of $30,000
and $21,000, respectively. During the six months ended November 30,
2016 and 2015, the Company recorded stock-based compensation
related to the ESPP of $70,000 and $55,000,
respectively.
As
of November 30, 2016, the total compensation cost related to
purchase rights under the ESPP but not yet recognized was
approximately $72,000. This cost will be amortized on a
straight-line basis over a weighted average period of approximately
0.9 years.
Valuation Assumptions
Valuation
and Amortization Method. The Company estimates the fair value of
stock options granted using the Black-Scholes option valuation
model and a single option award approach. The fair value under the
single option approach is amortized on a straight-line basis over
the requisite service periods of the awards, which is generally the
vesting period.
Expected
Term. The Company’s expected term represents the period that
the Company’s stock-based awards are expected to be
outstanding and was determined based on historical experience,
giving consideration to the contractual terms of the stock-based
awards, vesting schedules and expectations of future employee
behavior as evidenced by changes to the terms of its stock-based
awards.
Volatility.
Volatility is a measure of the amounts by which a financial
variable such as stock price has fluctuated (historical volatility)
or is expected to fluctuate (expected volatility) during a period.
The Company uses the historical volatility for the past four or
five years, which matches the expected term of most of the option
grants, to estimate expected volatility. Volatility for each of the
ESPP’s four time periods of six months, twelve months,
eighteen months, and twenty-four months is calculated separately
and included in the overall stock-based compensation cost
recorded.
Risk-Free
Interest Rate. The Company bases the risk-free interest rate used
in the Black-Scholes option valuation model on the implied yield in
effect at the time of option grant on U.S. Treasury zero-coupon
issues with a remaining term equivalent to the expected term of the
stock awards including the ESPP.
Fair
Value. The fair value of the Company’s stock options granted
to employees for the three and six months ended November 30, 2016
and 2015 were estimated using the following weighted average
assumptions in the Black-Scholes option valuation
model:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
term (in years)
|
4
|
4
|
4
|
4
|
Volatility
|
0.81
|
0.86
|
0.81
|
0.86
|
Risk-free
interest rates
|
1.10
%
|
1.21
%
|
1.02
%
|
1.21
%
|
Weighted
average grant date fair value
|
$
1.66
|
$
1.38
|
$
1.09
|
$
1.38
|
There
were no RSUs granted to employees for the three months ended
November 30, 2016. During the six months ended November 30, 2016,
RSUs were granted for 138,000 shares. The market value on the date
of the grant was $1.68 per share.
There
were no ESPP purchase rights granted for the three and six months
ended November 30, 2016 and 2015.
The
following tables summarize the Company’s stock option and
RSU
transactions during
the three and six months ended November 30, 2016 (in
thousands):
|
|
|
|
Balance,
May 31, 2016
|
1,847
|
|
|
Options
granted
|
(318
)
|
RSUs
granted
|
(138
)
|
Shares
cancelled
|
46
|
|
|
Balance,
August 31, 2016
|
1,437
|
|
|
Additional
shares reserved
|
2,238
|
Options
granted
|
(50
)
|
Shares
cancelled
|
1
|
2006
Plan available shares expired
|
(1,438
)
|
|
|
Balance,
November 30, 2016
|
2,188
|
The
following table summarizes the stock option transactions during the
three and six months ended November 30, 2016 (in thousands, except
per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
May 31, 2016
|
3,201
|
$
1.66
|
$
189
|
|
|
|
|
Options
granted
|
318
|
$
1.68
|
|
Options
cancelled
|
(46
)
|
$
1.40
|
|
Options
exercised
|
(91
)
|
$
1.32
|
|
|
|
|
|
Balances,
August 31, 2016
|
3,382
|
$
1.67
|
$
2,694
|
|
|
|
|
Options
granted
|
50
|
$
2.81
|
|
Options
cancelled
|
(1
)
|
$
2.08
|
|
Options
exercised
|
(202
)
|
$
1.22
|
|
|
|
|
|
Balances,
November 30, 2016
|
3,229
|
$
1.72
|
$
4,099
|
|
|
|
|
Options
fully vested and expected to
vest
at November 30, 2016
|
3,185
|
$
1.72
|
$
4,058
|
|
|
|
|
The
options outstanding and exercisable at November 30, 2016 were in
the following exercise price ranges (in thousands, except per share
data):
|
|
|
|
|
|
|
Number
Outstanding Shares
|
Weighted Average
Remaining Contractual Life (Years)
|
Weighted Average
Exercise Price
|
Number
Exercisable Shares
|
Weighted Average
Remaining Contractual Life (Years)
|
Weighted Average
Exercise Price
|
Aggregate
Intrinsic Value
|
$
0.59-$0.97
|
514
|
2.27
|
$
0.66
|
514
|
2.27
|
$
0.66
|
|
$
1.09-$1.40
|
899
|
2.87
|
$
1.28
|
816
|
2.77
|
$
1.28
|
|
$
1.68-$2.06
|
547
|
5.63
|
$
1.77
|
240
|
4.52
|
$
1.88
|
|
$
2.10-$2.81
|
1,269
|
5.03
|
$
2.44
|
738
|
4.90
|
$
2.45
|
|
$
0.59-$2.81
|
3,229
|
4.08
|
$
1.72
|
2,308
|
3.52
|
$
1.58
|
$
3,261
|
The
total intrinsic value of options exercised during the three and six
months ended November 30, 2016 was $359,000 and $411,000,
respectively. The total intrinsic value of options exercised during
the three and six months ended November 30, 2015 was $125,000 and
$185,000, respectively. The weighted average remaining contractual
life of the options exercisable and expected to be exercisable at
November 30, 2016 was 4.08 years.
3.
EARNINGS PER SHARE
Basic
earnings per share is determined using the weighted average number
of common shares outstanding during the period. Diluted earnings
per share is determined using the weighted average number of common
shares and potential common shares (representing the dilutive
effect of stock options, RSUs and ESPP shares) outstanding during
the period using the treasury stock method.
The
following table presents the computation of basic and diluted net
loss per share attributable to the Company’s common
shareholders (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
Net loss
|
$
(1,452
)
|
$
(1,048
)
|
$
(2,207
)
|
$
(754
)
|
|
|
|
|
|
Denominator
for basic net loss
per share:
|
|
|
|
|
Weighted
average shares outstanding
|
16,029
|
13,048
|
14,673
|
13,005
|
|
|
|
|
|
Shares
used in basic net loss
per
share calculation
|
16,029
|
13,048
|
14,673
|
13,005
|
Effect
of dilutive securities
|
--
|
--
|
--
|
--
|
|
|
|
|
|
Denominator
for diluted net loss
per
share
|
16,029
|
13,048
|
14,673
|
13,005
|
|
|
|
|
|
Basic
net loss per share
|
$
(0.09
)
|
$
(0.08
)
|
$
(0.15
)
|
$
(0.06
)
|
Diluted
net loss per share
|
$
(0.09
)
|
$
(0.08
)
|
$
(0.15
)
|
$
(0.06
)
|
For
the purpose of computing diluted earnings per share, the weighted
average number of potential common shares does not include stock
options with an exercise price greater than the average fair value
of the Company’s common stock for the period, as the effect
would be anti-dilutive. In the three and six months ended November
30, 2016 and 2015 potential common shares have not been included in
the calculation of diluted net loss per share as the effect would
be anti-dilutive. As such, the numerator and the denominator used
in computing both basic and diluted net loss per share for these
periods are the same. Stock options to purchase 3,229,000 shares of
common stock, RSUs for 72,000 shares and ESPP rights to purchase
246,000 ESPP shares were outstanding as of November 30, 2016, but
were not included in the computation of diluted net loss per share,
because the inclusion of such shares would be anti-dilutive. Stock
options to purchase 3,385,000 shares of common stock and ESPP
rights to purchase 131,000 ESPP shares were outstanding as of
November 30, 2015, but were not included in the computation of
diluted net loss per share, because the inclusion of such shares
would be anti-dilutive.
4. FAIR
VALUE OF FINANCIAL INSTRUMENTS
The
Company’s financial instruments are measured at fair value
consistent with authoritative guidance. This authoritative guidance
defines fair value, establishes a framework for using fair value to
measure assets and liabilities, and disclosures required related to
fair value measurements.
The
guidance establishes a fair value hierarchy based on inputs to
valuation techniques that are used to measure fair value that are
either observable or unobservable. Observable inputs reflect
assumptions market participants would use in pricing an asset or
liability based on market data obtained from independent sources
while unobservable inputs reflect a reporting entity’s
pricing based upon their own market assumptions. The fair value
hierarchy consists of the following three levels:
Level 1
- instrument valuations are obtained from real-time quotes for
transactions in active exchange markets involving identical
assets.
Level 2
- instrument valuations are obtained from readily-available pricing
sources for comparable instruments.
Level 3
- instrument valuations are obtained without observable market
values and require a high level of judgment to determine the fair
value.
The following table summarizes the Company’s financial assets
measured at fair value on a recurring basis as of November 30, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
Money
market funds
|
$
4,001
|
$
4,001
|
$
--
|
$
--
|
Certificate
of deposit
|
50
|
--
|
50
|
--
|
Assets
|
$
4,051
|
$
4,001
|
$
50
|
$
--
|
|
|
|
|
|
The
following table summarizes the Company’s financial assets
measured at fair value on a recurring basis as of May 31, 2016 (in
thousands):
|
|
|
|
|
|
|
|
|
|
Money
market funds
|
$
1
|
$
1
|
$
--
|
$
--
|
Certificate
of deposit
|
50
|
--
|
50
|
--
|
Assets
|
$
51
|
$
1
|
$
50
|
$
--
|
|
|
|
|
|
There
were no financial liabilities measured at fair value as of November
30, 2016 and May 31, 2016.
There
were no transfers between Level 1 and Level 2 fair value
measurements during the three and six months ended November 30,
2016.
The
carrying amounts of financial instruments including cash, cash
equivalents, receivables, accounts payable and certain other
accrued liabilities, approximate fair value due to their short
maturities. Based on the borrowing rates currently available to the
Company for loans with similar terms, the carrying value of the
debt approximates the fair value.
The
Company has, at times, invested in debt and equity of private
companies, and may do so again in the future, as part of its
business strategy.
5.
ACCOUNTS RECEIVABLE, NET
Accounts receivable
represents customer trade receivables and is presented net of
allowances for doubtful accounts of $20,000 at November 30, 2016
and $8,000 at May 31, 2016. Accounts receivable are derived
from the sale of products throughout the world to semiconductor
manufacturers, semiconductor contract assemblers, electronics
manufacturers and burn-in and test service companies. The
Company’s allowance for doubtful accounts is based upon
historical experience and review of trade receivables by aging
category to identify specific customers with known disputes or
collection issues. Uncollectible receivables are recorded as bad
debt expense when all efforts to collect have been exhausted and
recoveries are recognized when they are received.
6.
INVENTORIES
Inventories
are comprised of the following (in thousands):
|
|
|
|
|
|
Raw
materials and sub-assemblies
|
$
2,495
|
$
2,839
|
Work
in process
|
3,308
|
4,151
|
Finished
goods
|
266
|
43
|
|
$
6,069
|
$
7,033
|
7.
SEGMENT INFORMATION
The
Company operates in one reportable segment: the design, manufacture
and marketing of advanced test and burn-in products to the
semiconductor manufacturing industry.
The
following presents information about the Company’s operations
in different geographic areas. Net sales are based upon ship-to
location (in thousands).
|
|
|
|
|
|
|
|
|
|
Three
months ended November 30, 2016:
|
|
|
|
|
Net
sales
|
$
1,709
|
$
2,256
|
$
251
|
$
4,216
|
Property
and equipment, net
|
740
|
39
|
14
|
793
|
|
|
|
|
|
Six
months ended November 30, 2016:
|
|
|
|
|
Net
sales
|
$
4,873
|
$
4,166
|
$
495
|
$
9,534
|
Property
and equipment, net
|
740
|
39
|
14
|
793
|
|
|
|
|
|
Three
months ended November 30, 2015:
|
|
|
|
|
Net
sales
|
$
507
|
$
3,768
|
$
345
|
$
4,620
|
Property
and equipment, net
|
530
|
33
|
13
|
576
|
|
|
|
|
|
Six
months ended November 30, 2015:
|
|
|
|
|
Net
sales
|
$
1,225
|
$
9,149
|
$
879
|
$
11,253
|
Property
and equipment, net
|
530
|
33
|
13
|
576
|
The
Company’s Japanese and German subsidiaries primarily comprise
the foreign operations. Substantially all of the sales of the
subsidiaries are made to unaffiliated Japanese or European
customers. Net sales from outside the United States include those
of Aehr Test Systems Japan K.K. and Aehr Test Systems
GmbH.
Sales
to the Company’s five largest customers accounted for
approximately 96% and 95% of its net sales in the three and six
months ended November 30, 2016, respectively. Two customers
accounted for approximately 60% and 22% of the Company’s net
sales in the three months ended November 30, 2016. Three customers
accounted for approximately 50%, 19% and 16% of the Company’s
net sales in the six months ended November 30, 2016. Sales to the
Company’s five largest customers accounted for approximately
97% and 96% of its net sales in the three and six months ended
November 30, 2015, respectively. Two customers accounted for
approximately 51% and 36% of the Company’s net sales in the
three months ended November 30, 2015. Two customers accounted for
approximately 54% and 27% of the Company’s net sales in the
six months ended November 30, 2015. No other customers represented
more than 10% of the Company’s net sales in the six months
ended November 30, 2016 and 2015.
8.
PRODUCT WARRANTIES
The
Company provides for the estimated cost of product warranties at
the time revenues are recognized on the products shipped. While the
Company engages in extensive product quality programs and
processes, including actively monitoring and evaluating the quality
of its component suppliers, the Company’s warranty obligation
is affected by product failure rates, material usage and service
delivery costs incurred in correcting a product failure. Should
actual product failure rates, material usage or service delivery
costs differ from the Company’s estimates, revisions to the
estimated warranty liability would be required.
The
standard warranty period is one year for systems and ninety days
for parts and service.
The
following is a summary of changes in the Company's liability for
product warranties during the three and six months ended November
30, 2016 and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at the beginning of the period
|
$
90
|
$
219
|
$
155
|
$
137
|
|
|
|
|
|
Accruals
for warranties issued
during
the period
|
11
|
128
|
11
|
237
|
Accruals
and adjustments (change in estimates)
related
to pre-existing warranties during
the
period
|
--
|
--
|
(54
)
|
--
|
Settlement
made during the period
(in
cash or in kind)
|
(29
)
|
(42
)
|
(40
)
|
(69
)
|
|
|
|
|
|
Balance
at the end of the period
|
$
72
|
$
305
|
$
72
|
$
305
|
The
accrued warranty balance is included in accrued expenses on the
accompanying condensed consolidated balance sheets.
9.
INCOME TAXES
Income
taxes have been provided using the liability method whereby
deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and net operating loss and tax credit carryforwards
measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse or the
carryforwards are utilized. Valuation allowances are established
when it is determined that it is more likely than not that such
assets will not be realized.
Since
fiscal 2009, a full valuation allowance was established against all
deferred tax assets as management determined that it is more likely
than not that certain deferred tax assets will not be
realized.
The
Company accounts for uncertain tax positions consistent with
authoritative guidance. The guidance prescribes a “more
likely than not” recognition threshold and measurement
attribute for the financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return.
The Company does not expect any material change in its unrecognized
tax benefits over the next twelve months. The Company recognizes
interest and penalties related to unrecognized tax benefits as a
component of income taxes.
Although
the Company files U.S. federal, various state, and foreign tax
returns, the Company’s only major tax jurisdictions are the
United States, California, Germany and Japan. Tax years 1997 - 2016
remain subject to examination by the appropriate governmental
agencies due to tax loss carryovers from those years.
10.
CUSTOMER DEPOSITS AND DEFERRED REVENUE, SHORT-TERM
Customer
deposits and deferred revenue, short-term (in
thousands):
|
|
|
|
|
|
Customer
deposits
|
$
692
|
$
540
|
Deferred
revenue
|
363
|
1,174
|
|
$
1,055
|
$
1,714
|
11.
LONG-TERM DEBT
On
April 10, 2015, the Company entered into a Convertible Note
Purchase and Credit Facility Agreement (the “Purchase
Agreement”) with QVT Fund LP and Quintessence Fund L.P. (the
“Purchasers”) providing for (a) the Company’s
sale to the Purchasers of $4,110,000 in aggregate principal amount
of 9.0% Convertible Secured Notes due 2017 (the “Convertible
Notes”) and (b) a secured revolving loan facility (the
“Credit Facility”) in an aggregate principal amount of
up to $2,000,000. On August 22, 2016 the Purchase Agreement was
amended to extend the maturity date of the Convertible Notes to
April 10, 2019, decrease the conversion price from $2.65 per share
to $2.30 per share, decrease the forced conversion price from $7.50
per share to $6.51 per share, and allow for additional equity
awards.
The
Convertible Notes bear interest at an annual rate of 9.0% and will
mature on April 10, 2019 unless repurchased or converted prior to
that date. Interest is payable quarterly on March 1, June 1,
September 1 and December 1 of each year. Debt issuance costs of
$356,000, which are being accreted over the term of the original
loan using the effective interest rate method, were offset against
the loan balance. During the three and six months ended November
30, 2016, $44,000 and $89,000, respectively, of amortization costs
were recognized as interest expense. Unamortized debt issuance
costs of $59,000 were offset against the loan balance at November
30, 2016.
The
conversion price for the Convertible Notes is $2.30 per share of
the Company’s common stock and is subject to adjustment upon
the occurrence of certain specified events. Holders may convert all
or any part of the principal amount of their Convertible Notes in
integrals of $10,000 at any time prior to the maturity date. Upon
conversion, the Company will deliver shares of its common stock to
the holder of Convertible Notes electing such conversion. The
Company may not redeem the Convertible Notes prior to
maturity.
On
April 14, 2016, $900,000 drawn against the Credit Facility was
converted to Convertible Notes. On July 17, 2016, $1,100,000 drawn
against the Credit Facility was converted to Convertible Notes. At
November 30, 2016 there was no remaining balance available on the
Credit Facility.
The
Company’s obligations under the Purchase Agreement are
secured by substantially all of the assets of the
Company.
Long-term
debt, net of debt issuance costs (in thousands):
|
|
|
|
|
|
Principal
|
$
6,110
|
$
6,110
|
Unamortized
debt issuance costs
|
(59
)
|
(148
)
|
|
$
6,051
|
$
5,962
|
12.
EQUITY
On August 8, 2016 the Company issued
200,000 shares of its common stock to Semics Inc., a semiconductor
test equipment provider that produces fully automatic wafer probe
systems, in consideration for cancellation of an outstanding
invoice of $323,000 for capital equipment.
On
September 28, 2016, the Company sold 2,721,540 shares of its common
stock in a private placement transaction with certain institutional
and accredited investors. The purchase price per share of the
common stock sold in the private placement was $2.15, resulting in
gross proceeds to the Company of $5,851,000, before offering
expenses. The net proceeds after offering expenses were
$5,299,000.
13.
RECENT ACCOUNTING PRONOUNCEMENTS
In
May 2014, as part of its ongoing efforts to assist in the
convergence of US GAAP and International Financial Reporting
Standards (“IFRS”), the Financial Accounting Standards
Board (“FASB”) issued an accounting standards
update
related to revenue from
contracts with customers. This standard sets forth a new five-step
revenue recognition model which replaces the prior revenue
recognition guidance in its entirety and is intended to eliminate
numerous industry-specific pieces of revenue recognition guidance
that have historically existed in US GAAP. The underlying principle
of the new standard is that a business or other organization will
recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects what it expects in
exchange for the goods or services. The standard also requires more
detailed disclosures and provides additional guidance for
transactions that were not addressed completely in the prior
accounting guidance. The standard provides alternative methods of
initial adoption and will become effective for us beginning in the
first quarter of fiscal 2019. The FASB has issued several updates
to the standard which i) defer the original effective date from
January 1, 2017 to January 1, 2018, while allowing for early
adoption as of January 1, 2017. ii) clarify the application of the
principal versus agent guidance. and iii) clarify the guidance on
inconsequential and perfunctory promises and licensing. In May
2016, the FASB issued an update to address certain narrow aspects
of the guidance including collectibility criterion, collection of
sales taxes from customers, noncash consideration, contract
modifications and completed contracts. This issuance does not
change the core principle of the guidance in the initial topic
issued in May 2014. In December 2016, the FASB issued updated
guidance regarding revenue from contracts with customers. Some
topics that could impact the Company include corrections and
improvements around the following: contract costs impairment
testing, disclosure of remaining performance obligations and prior
period obligations, contract modifications, and contract asset
versus receivable. The Company is currently evaluating the impact
of adopting this new guidance on its consolidated financial
statements.
In
August 2014, the FASB issued authoritative guidance related to
going concern. This guidance requires management to evaluate the
conditions or events that raise substantial doubt about the
entity’s ability to continue as a going concern and whether
or not it is probable that the entity will be unable to meet its
obligations as they become due within one year after the date the
financial statements are issued. This guidance will apply to all
entities and will be effective for us in fiscal year 2017, with
early adoption permitted. The Company is currently evaluating the
impact of adopting this new guidance on its consolidated financial
statements.
In
July 2015, the FASB issued an accounting standards update that
requires management to measure inventory at the lower of cost or
net realizable value. Net realizable value is the estimated selling
prices in the ordinary course of business, less reasonably
predictable costs of completion, disposal, and transportation. This
new standard will be effective for us in fiscal year 2018, with
early adoption permitted. The Company is currently evaluating the
impact of adopting this new guidance on its consolidated financial
statements.
In
November 2015, the FASB issued an accounting standards update
related to deferred tax assets and liabilities. This standard
simplifies the presentation of deferred income taxes to be
classified as noncurrent in the consolidated balance sheet. This
new standard will be effective for us in fiscal year 2018, with
early adoption permitted. The Company is currently evaluating the
impact of adopting this new guidance on its consolidated financial
statements.
In
January 2016, the FASB issued an accounting standards update
related to recognition and measurement of financial assets and
financial liabilities. This standard changes accounting for equity
investments, financial liabilities under the fair value option and
the presentation and disclosure requirements for financial
instruments. In addition, it clarifies guidance related to the
valuation allowance assessment when recognizing deferred tax assets
resulting from unrealized losses on available-for-sale debt
securities. This standard is effective for us in fiscal year 2020.
Early adoption is permitted. The Company is currently evaluating
the impact of this new guidance on its consolidated financial
statements.
In
February 2016, the FASB issued authoritative guidance related to
Leases. This guidance requires management to present all leases
greater than one year on the balance sheet as a liability to make
payments and an asset as the right to use the underlying asset for
the lease term. This new standard will be effective for us in
fiscal year 2020, with early adoption permitted. The Company is
currently evaluating the impact of adopting this new guidance on
its consolidated financial statements.
In
March 2016, the FASB released an accounting standards update that
simplifies several aspects of the accounting for share-based
payment transactions, including the income tax consequences,
forfeitures, classification of awards as either equity or
liabilities, and classification on the statement of cash flows. The
accounting standard will be effective for the Company beginning the
first quarter of fiscal 2018, and early adoption is permitted. The
Company is currently evaluating the impact of this new guidance on
its consolidated financial statements.
In
June 2016, the FASB issued an accounting standard update that
requires measurement and recognition of expected credit losses for
financial assets held based on historical experience, current
conditions, and reasonable and supportable forecasts that affect
the collectibility of the reported amount. The accounting standard
update will be effective for the Company beginning in the first
quarter of fiscal 2021 on a modified retrospective basis, and early
adoption in fiscal 2020 is permitted. The Company is currently
evaluating the impact of this accounting standard update on its
Consolidated Financial Statements.
In
August 2016, the FASB issued authoritative guidance related to the
classification of certain cash receipts and cash payments on the
statement of cash flows. The accounting standard update will be
effective for the Company beginning in the first quarter of fiscal
2019 on a retrospective basis, and early adoption is permitted. The
Company is currently evaluating the impact of this accounting
standard update on its Consolidated Statements of Cash
Flows.
In
October 2016, the FASB issued an accounting standard update that
requires recognition of the income tax consequences of intra-entity
transfers of assets (other than inventory) at the transaction date.
The accounting standard update will be effective for the Company
beginning in the first quarter of fiscal 2019 on a modified
retrospective basis, and early adoption is permitted. The Company
is currently evaluating the impact of this accounting standard
update on its Consolidated Financial Statements.
In
November 2016, the FASB issued authoritative guidance related to
statements of cash flows. This guidance clarifies that amounts
generally described as restricted cash and restricted cash
equivalents should be included with cash and cash equivalents when
reconciling the beginning-of-period and end-of period total amounts
shown on the statement of cash flows. The accounting standard
update will be effective for the Company beginning in the first
quarter of fiscal 2019 on a retrospective basis, and early adoption
is permitted. The Company is currently evaluating the impact of
this accounting standard update on its Consolidated Financial
Statements.
In
December 2016, the FASB issued authoritative guidance related to
technical corrections and improvements. This guidance provides
minor updates on a variety of codification topics and are not
expected to have a significant effect on current accounting
practice. Most of these corrections do not have a transition date
as they are minor in nature.