NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Summary of Significant Accounting Policies.
Organization and Nature of Operations.
Adesto Technologies Corporation (together with its subsidiaries; “Adesto”, “we”, “our”, “us” or the “Company”) was incorporated in the state of California in January 2006 and reincorporated in Delaware in October 2015. We are a leading provider of application-specific and ultra-low power non-volatile memory (“NVM”) products. Our corporate headquarters are located in Santa Clara, California.
On September 28, 2012, we purchased certain flash memory product assets from Atmel Corporation and our financial results include the operating results of those assets from the date of acquisition.
The Company completed its initial public offering (“IPO”) of common stock on October 30, 2015. The Company sold 5,192,184 shares, including 192,184 shares for the underwriters’ option to purchase additional shares. The shares were sold at an initial public offering price of $5.00 per share for net proceeds of $22.1 million to the Company, after deducting underwriting discounts and commissions and offering expenses.
Liquidity.
Since inception we have funded our operations primarily through sales of common and preferred stock and borrowing arrangements. As of December 31, 2016, our principal sources of liquidity consisted of cash and cash equivalents of $19.7 million and $0.2 million of additional borrowing capacity under our revolving line of credit. In addition, we have incurred net losses since our inception, and as of December 31, 2016 have an accumulated deficit of approximately $94.2 million. We expect to continue to incur operating losses and negative cash flows from operations through March 31, 2018.
Borrowings under our term loan are subject to certain restrictive covenants and we were not in compliance with those covenants during the months of August, September, October and November 2016. In February 2017, we entered into a First Business Financing Modification agreement with Western Alliance Bank which as of December 31, 2016 (i) waived the Company’s default as a result of the non-compliance referred to above and (ii) reduced the ratio of unrestricted cash deposited at the financial institution to the term debt outstanding to not less than 1.00 to 1.00 (see Note 5. Borrowings and Note 15. Subsequent Events.). We believe that our existing cash and cash equivalents, together with available resources from our revolving line of credit and our forecasted operating results, will be sufficient to fund our operations and provide adequate working capital for the next twelve months.
In the future, we expect to require additional capital to fund our ongoing operations, respond to business opportunities, challenges, acquisitions or unforeseen circumstances and may decide to engage in equity or debt financings or enter into credit facilities; however, we may not be able to timely secure additional debt or equity financing or raise additional capital in the public markets on favorable terms or at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited.
Basis of Presentation.
The consolidated financial statements include the results of our operations, and the operations of our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.
Reverse Stock Split.
On October 1, 2015, we effected a 1-for-33 reverse stock split of our common stock and convertible preferred stock (collectively, “Capital Stock”). On the effective date of the reverse stock split, (i) each 33 shares of outstanding Capital Stock were reduced to one share of Capital Stock; (ii) the number of shares of Capital Stock into which each outstanding warrant or option to purchase Capital Stock is exercisable were proportionately reduced on a 33-to-1 basis; (iii) the exercise price of each outstanding warrant or option to purchase Capital Stock were proportionately increased on a 1-to-33 basis; and (iv) each 33 shares of authorized Capital Stock were reduced to one share of Capital Stock. All of the share numbers, share prices, and exercise prices have been adjusted, on a retroactive basis, to reflect this 1-for-33 reverse stock split. The par value of the common stock and convertible preferred stock were not adjusted as a result of the reverse stock split.
44
Use of Estimates.
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates, judgments and assumptions that affect the reported amount of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate those estimates, including those related to allowances for doubtful accounts, reserves for sales, warranty accrual, inventory write-downs, valuation of long-lived assets, including property and equipment and identifiable intangible assets and goodwill, loss on purchase commitments, valuation of deferred taxes and contingencies. In addition, we use assumptions when employing the Black-Scholes option-pricing model to calculate the fair value of stock options granted and to estimate the carrying value of our convertible preferred stock warrant liability. We base our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, when these carrying values are not readily available from other sources. Actual results could differ from these estimates.
Revenue Recognition and Accounts Receivable Allowances.
We recognize revenue from product sales when persuasive evidence of an arrangement exists, the selling price is fixed or determinable, transfer of title occurs, and the collectibility of the resulting receivable is reasonably assured. Due to the historical immaterial level of product returns under warranty, we do not record a reserve for estimated returns under warranty at the time of revenue recognition.
Generally, we meet product sale revenue recognition conditions upon shipment because, in most cases, title and risk of loss passes to the customer at that time. In addition, we estimate and record provisions for future returns and other charges against revenue at the time of shipment, consistent with the terms of sale. We sell products to distributors at the price listed in our distributor price book. At the time of sale, we record a sales reserve for ship from stock and debits (“SSDs”), stock rotation rights and any special programs approved by management. We offset the sales reserve against recorded revenues, producing the revenue amount reported in our consolidated statements of operations.
The market price for our products can differ significantly from the book price at which we sold the product to the distributor. When the market price of a particular distributor’s sales opportunity to their customers would result in low or negative margins for the distributor, as compared to our original book price, we negotiate SSDs with the distributor. Management analyzes our SSD history to develop current SSD rates that form the basis of the SSD revenue reserve recorded each period. We obtain the historical SSD rates from the distributor’s records and our internal records.
We typically grant payment terms of between 30 and 60 days to our customers. Our customers generally pay within those terms. Distributors are invoiced for shipments at listed book price. When the distributors pay the invoice, they may claim debits for SSDs previously authorized by us when appropriate. Once claimed, we process the requests against prior authorizations and adjust reserves previously established for that customer.
The revenue we record for sales to our distributors is net of estimated provisions for these programs. Determining net revenue requires significant judgments and estimates on our part. We base our estimates on historical experience rates, the levels of inventory held by our distributors, current trends and other related factors. Because of the inherent nature of estimates, there is a risk actual amounts may differ materially from our estimates. Our consolidated financial condition and operating results depend on our ability to make reliable estimates. We believe that such estimates are reasonable.
We also monitor collectibility of accounts receivable primarily through review of our accounts receivable aging. When facts and circumstances indicate the collection of specific amounts or from specific customers is at risk, we assess the impact on amounts recorded for bad debts and, if necessary, record a charge in the period such determination is made. As of December 31, 2016 and 2015, there was no allowance for doubtful accounts.
Shipping Costs.
We charge shipping costs to cost of revenue as incurred.
Product Warranty.
Our products are sold with a limited warranty for a period of one year, warranting that the product conforms to specifications and is free from material defects in design, materials and workmanship. To date, we have had insignificant returns of any defective production parts. During the year ended December 31, 2015, we recorded $250,000 for a specific potential warranty claim. As of December 31, 2016, approximately $41,000 has been incurred relating to this potential warranty claim. As of December 31, 2016 and
45
2015
, the warranty accrual was $209,000
and $250,000, respectively, and is included in accrued expenses and other current liabilities on the consolidated balance sheets
.
Income Taxes.
We account for income taxes using an asset and liability approach, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements, but have not been reflected in our taxable income. Valuation allowances are established to reduce deferred tax assets as necessary when in management’s estimate, based on available objective evidence, it is more likely than not that we will not generate sufficient taxable income in future periods to realize the benefit of our deferred tax assets. We include interest and penalties related to unrecognized tax benefits in income tax expense. We recognize in our consolidated financial statements the impact of a tax position that based on its technical merits is more likely than not to be sustained upon examination.
Foreign Currency Translation.
The functional currency of our foreign subsidiaries is the local currency. In consolidation, we translate assets and liabilities at exchange rates in effect at the consolidated balance sheet date. We translate revenue and expense accounts at the average exchange rates during the period in which the transaction takes place. Net gains or losses from foreign currency translation of assets and liabilities were a loss of $0.1 million, a loss of $0.1 million, and a gain of $0.1 million for the years ended December 31, 2016, 2015, and 2014, respectively, and are included in the cumulative translation adjustment component of accumulated other comprehensive loss, net of tax, a component of stockholders’ equity (deficit). Net losses arising from transactions denominated in currencies other than the functional currency were $0.1 million, $0.1 million, and $0.1 million for the years ended December 31, 2016, 2015, and 2014, respectively, and are included in other income (expense), net in the consolidated statements of operations.
Cash and Cash Equivalents.
We consider all highly liquid investments with an initial maturity of 90 days or less at the date of purchase to be cash equivalents. We maintain such funds in overnight cash deposits.
Property and Equipment.
Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets or the term of the related lease, whichever is shorter. Estimates of useful lives are as follows:
|
|
Estimated useful lives
|
Machinery and equipment
|
|
2-5 years
|
Furniture and fixtures
|
|
3 years
|
Leasehold improvements
|
|
Shorter of lease term or 7 years
|
Computer software
|
|
3 years
|
Inventories.
We record inventories at the lower of standard cost (which generally approximates actual cost on a first-in, first-out basis) or market value. On a quarterly basis, we analyze inventories on a part-by-part basis. The carrying value of inventory is adjusted for excess and obsolete inventory based on the forecast of demand over a specific future period. At the point of loss recognition, a new lower cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that new cost basis. The semiconductor markets that we serve are volatile and actual results may vary from forecast or other assumptions, potentially affecting our assessment of excess and obsolete inventory which could have a material effect on our results of operations.
Long-Lived Assets.
We evaluate our long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. We recognize an impairment loss when the net book value of such assets exceeds the estimated future undiscounted cash flows attributable to the asset. If impairment is indicated, we write the asset down to its estimated fair value. For all periods presented, we have not recognized any impairment losses on our long-lived assets.
46
Purchased Intangible Assets.
Purchased intangible assets are amortized over their useful lives unless these lives are determined to be indefinite. Purchased intangible assets with definite lives are carried at cost less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of the respective assets as follows:
|
|
|
Years
|
Developed technology
|
10
|
Customer relationships
|
12
|
Customer backlog
|
1
|
Non-compete agreement
|
5
|
Goodwill.
Goodwill represents the excess of the cost of an acquisition over the sum of the amounts assigned to tangible and identifiable intangible assets acquired less liabilities assumed.
We evaluate our goodwill, at a minimum, on an annual basis and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We perform our annual goodwill impairment test as of November 1 of each year.
When evaluating goodwill for impairment, we may initially perform a qualitative assessment which includes a review and analysis of certain quantitative factors to estimate if a reporting units’ fair value significantly exceeds its carrying value. When the estimate of a reporting unit’s fair value appears more likely than not to be less than its carrying value based on this qualitative assessment, we continue to the first step of two steps impairment test. The first step requires a comparison of the fair value of the reporting unit to its net book value, including goodwill. The fair value of the reporting units is determined based on a weighting of income and market approaches. Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows. Under the market approach, we estimate the fair value based on market multiples of revenue or earnings for comparable companies. Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, and future economic and market conditions and determination of appropriate market comparables. We base these fair value estimates on reasonable assumptions but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. A potential impairment exists if the fair value of the reporting unit is lower than its net book value. The second step of the process is only performed if a potential impairment exists, and it involves determining the difference between the fair values of the reporting unit’s net assets, other than goodwill, and the fair value of the reporting unit, and, if the difference is less than the net book value of goodwill, an impairment charge is recorded. In the event that we determine that the value of goodwill has become impaired, we record a charge for the amount of impairment during the fiscal quarter in which the determination is made. We operate in one reporting unit. We conducted our annual goodwill impairment analysis in the fourth quarters of 2016, 2015, and 2014 and no goodwill impairment was indicated.
Research and Development Expenses.
Research and development expenditures are expensed as incurred.
Stock-based Compensation.
We account for stock-based compensation using the fair value method. We determine fair value for stock options awarded to employees at the grant date using the Black-Scholes option-pricing model, which requires us to make various assumptions, including the fair value of the underlying common stock, expected future share price volatility and expected term. We determine the fair value of stock options awarded to non-employees at each vesting date using the Black-Scholes option-pricing model, and re-measure fair value at each reporting period until the services required under the arrangement are completed. Fair value is recognized as an expense on a straight-line basis over the requisite service period, which is generally the vesting period. We are required to estimate the expected forfeiture rate and only recognize expense for those stock-based awards expected to vest. We estimate the forfeiture rate based on historical experience of our stock-based awards that are granted, exercised and cancelled. If the actual forfeiture rate is materially different from our estimate, stock-based compensation expense in future periods could be significantly different from what was recorded in the current period.
Concentration of Risk.
Our products are primarily manufactured, assembled and tested by third-party foundries and other contractors in Asia and we are heavily dependent on a single foundry in Taiwan for the manufacture of wafers and a single contractor in the Philippines for assembly
47
and testing of our products. We do not have long-term agreements with either of these suppliers. A significant disruption in the
operations of these parties would adversely impact the production of our products for a substantial period of time, which could have a material adverse effect on our business, financial condition, operating results and cash flows.
Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents and accounts receivables. We place substantially all of our cash and cash equivalents on deposit with a reputable, high credit quality financial institution in the United States of America. We believe that the bank that holds substantially all of our cash and cash equivalents is financially sound and, accordingly, subject to minimal credit risk. Deposits held with the bank may exceed the amount of insurance provided on such deposits.
We generally do not require collateral or other security in support of accounts receivable. We periodically review the need for an allowance for doubtful accounts by considering factors such as historical experience, credit quality, the age of the accounts receivable balances and current economic conditions that may affect a customer’s ability to pay. As a result of our favorable collection experience and customer concentration, there was no allowance for doubtful accounts as of December 31, 2016 and 2015.
Customer concentrations as a percentage of total revenue were as follows:
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Customer A
|
|
|
14
|
%
|
|
|
17
|
%
|
|
|
20
|
%
|
Customer B
|
|
|
11
|
%
|
|
|
12
|
%
|
|
*
|
|
Customer C
|
|
*
|
|
|
|
11
|
%
|
|
|
20
|
%
|
Customer D
|
|
*
|
|
|
*
|
|
|
|
14
|
%
|
Customer concentrations as a percentage of gross accounts receivable were as follows:
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Customer A
|
|
|
18
|
%
|
|
|
16
|
%
|
|
|
20
|
%
|
Customer B
|
|
*
|
|
|
|
14
|
%
|
|
*
|
|
Customer C
|
|
|
13
|
%
|
|
|
13
|
%
|
|
|
10
|
%
|
Customer D
|
|
*
|
|
|
|
10
|
%
|
|
*
|
|
Net Loss per Share.
Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and potentially dilutive common stock equivalents outstanding for the period determined using the treasury-stock and if-converted methods. For purposes of the diluted net loss per share calculation, convertible preferred stock, common stock options, restricted stock units, and warrants are considered to be potentially dilutive securities.
Loss Contingencies.
We are or have been subject to claims arising in the ordinary course of business. We evaluate contingent liabilities, including threatened or pending litigation, for potential losses. If the potential loss from any claim or legal proceedings is considered probable and the amount can be estimated, we accrue a liability for the estimated loss. Because of uncertainties related to these matters, accruals are based upon the best information available. For potential losses for which there is a reasonable possibility (meaning the likelihood is more than remote but less than probable) that a loss exists, we will disclose an estimate of the potential loss or range of such potential loss or include a statement that an estimate of the potential loss cannot be made. As additional information becomes available, we reassess the potential liability related to pending claims and litigation and may revise our estimates, which could materially impact our consolidated financial statements.
Recent Accounting Pronouncements.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2014-09, Revenue from Contracts with Customers, creating Accounting Standards Codification (“ASC”) Topic 606. Upon adoption, this topic supersedes
48
the existing guidance under ASC 605 and aims to simplify the number of requirements to follow for rev
enue recognition and make revenue recognition more comparable across various entities, industries, jurisdictions and capital markets. There are five core principles: 1. Identify the contract(s) with a customer. 2. Identify the performance obligations in th
e contract. 3. Determine the transaction price. 4. Allocate the transaction price to performance obligations in the contract. 5. Recognize revenue when (or as) the entity satisfies a performance obligation. Additional considerations under this update inclu
de: accounting for costs to obtain or fulfill a contract with a customer and additional quantitative and qualitative disclosures. We plan to adopt this guidance effective for periods beginning after December 15, 2017 (including interim reporting periods wi
thin those periods), or the first quarter of 2018, and are currently evaluating the impact on our consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertanties About an Entity’s Ability to Continue as a Going Concern. The amendments require management to perform interim and annual assessments of an entity’s ability to continue as a going concern and provide guidance on determining when and how to disclose going concern uncertainties in the financial statements. ASU 2014-15 applies to all entities and is effective for annual and interim reporting periods ending after December 15, 2016, with early adoption permitted. Adesto adopted this guidance effective December 31, 2016.
In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs”, which simplifies the presentation of debt issuance costs. ASU 2015-03 is effective for annual reporting periods beginning after December 15, 2015 and interim periods within those years, with early adoption permitted. Adesto adopted this guidance effective January 1, 2016.
In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, amending ASC 330. Upon adoption, this topic supersedes the existing guidance under ASC 330 and aims to simplify the subsequent measurement of inventory. Currently, inventory can be measured at the lower of cost or market, which could result in several potential outcomes, as market could be replacement cost, net realizable value or net realizable value less an approximately normal profit margin. The major amendments would be as follows: 1. Inventory should be measured at the lower of cost or net realizable value. 2. Net realizable value is the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. 3. The amendment does not apply to inventory measured under LIFO or the retail inventory method. 4. The amendment does apply to all other inventory, which includes inventory measured via FIFO or average cost. We plan to adopt this guidance effective for periods beginning after December 15, 2016 (including interim reporting periods within those fiscal years), or the first quarter of 2017, and do not expect it to have a material effect on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases. This ASU requires lease assets and lease liabilities arising from leases, including operating leases, to be recognized on the balance sheet, ASU 2016-02 will become effective for the Company on January 1, 2019. Adesto is currently evaluating the impact of this guidance on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation, ASC Topic 718: Improvements to Employee Share-Based Payment Accounting. Under this ASU, several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. We plan to adopt this guidance effective for periods beginning after December 15, 2016 (including interim reporting periods within those periods), or the first quarter of 2017, and are currently evaluating the impact on our consolidated financial statements.
In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers, Topic 606. The ASU, among other things: (1) clarifies the objective of the collectability criterion for applying paragraph 606-10-25-7; (2) permits an entity to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price; (3) specifies that the measurement date for noncash consideration is contract inception; (4) provides a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarifies that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application, and (6) clarifies that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. We plan to adopt this guidance effective for periods beginning after December 15, 2017 (including interim reporting periods within those periods), or the first quarter of 2018, and are currently evaluating the impact on our consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, ASC Topic 230. This ASU is a clarification of how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update provides guidance on eight identified issues: 1) debt prepayment or extinguishment costs, 2) settlement of zero-coupon debt, 3) contingent consideration for payments, 4) proceeds from settlement of insurance claims, 5) proceeds from settlement of corporate-owned life insurance policies, 6) distributions from equity method investees, 7) beneficial interests in securitization transactions, and 8) separately identifiable cash flows. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in
49
an interim period. If an entity early adopts the amendments in an inter
im period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period
.
We plan to adopt this guidance effective for
periods beginning after December 15, 2017 (including interim reporting periods within those periods), or the first quarter of 2018, and are currently evaluating the impact on our consolidated financial statements
.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This ASU requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset upon transfer other than inventory, eliminating the current recognition exception. Prior to this ASU, GAAP prohibited the recognition of current and deferred income taxes for the intra-entity asset transfers until the asset was sold to an outside party. For public business entities, the amendments in the ASU are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted and should be applied on a modified retrospective basis though a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Adesto is currently evaluating the impact of this guidance on its consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The amendments in the update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This ASU will become effective for public business entities on December 15, 2017. Adesto is currently evaluating the impact of this guidance on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350). The objective of this ASU is to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Instead, under this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The amendments in this update are effective for a public business entity that is a U.S. Securities and Exchange Commission filer for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The amendments should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.
Note 2. Balance Sheet Components.
Accounts Receivable, Net.
Accounts receivable, net consisted of the following (in thousands):
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Accounts receivable
|
|
$
|
8,800
|
|
|
$
|
10,936
|
|
Allowance for SSDs, price protection, rights of return and
other activities
|
|
|
(2,689
|
)
|
|
|
(4,400
|
)
|
Total accounts receivable, net
|
|
$
|
6,111
|
|
|
$
|
6,536
|
|
Inventories.
Inventories consisted of the following (in thousands):
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Raw materials
|
|
$
|
212
|
|
|
$
|
1,149
|
|
Work-in-process
|
|
|
3,793
|
|
|
|
4,844
|
|
Finished goods
|
|
|
1,177
|
|
|
|
1,375
|
|
Total inventories
|
|
$
|
5,182
|
|
|
$
|
7,368
|
|
For the years ended December 31, 2016 and 2015, we realized a benefit of $1.1 million and $0.9 million, respectively, from sales of previously reserved products. For the year ended December 31, 2014 we recorded inventory write-downs of $3.6 million. Inventory write-downs were primarily associated with products built in excess of customer demand which resulted in excess inventory levels,
50
legacy products for which no demand exists and lower of cost or market write-downs associated with CBRAM products for which costs excee
ded market value.
Other Current Assets.
Other current assets consisted of the following (in thousands):
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Foreign research credit receivable
|
|
$
|
—
|
|
|
$
|
1,063
|
|
Other current assets
|
|
|
105
|
|
|
|
123
|
|
Total other current assets
|
|
$
|
105
|
|
|
$
|
1,186
|
|
Property and Equipment, Net.
Property and equipment, net consisted of the following (in thousands):
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Machinery and equipment
|
|
$
|
7,351
|
|
|
$
|
6,627
|
|
Furniture and fixtures
|
|
|
77
|
|
|
|
77
|
|
Leasehold improvements
|
|
|
4,252
|
|
|
|
141
|
|
Computer software
|
|
|
668
|
|
|
|
668
|
|
Construction in progress
|
|
|
1,098
|
|
|
|
52
|
|
Property and equipment, at cost
|
|
|
13,446
|
|
|
|
7,565
|
|
Accumulated depreciation and amortization
|
|
|
(7,484
|
)
|
|
|
(6,656
|
)
|
Property and equipment, net
|
|
$
|
5,962
|
|
|
$
|
909
|
|
Depreciation and amortization expense of property and equipment for the years ended December 31, 2016, 2015, and 2014 was $1.0 million, $1.5 million, and $1.8 million, respectively.
Accrued Expenses and Other Current Liabilities.
Accrued expenses and other current liabilities consisted of the following (in thousands):
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Accrued sales commission payable
|
|
$
|
366
|
|
|
$
|
300
|
|
Accrued manufacturing expenses
|
|
|
149
|
|
|
|
271
|
|
Deferred rent
|
|
|
388
|
|
|
|
196
|
|
Liabilities to certain customers
|
|
|
663
|
|
|
|
—
|
|
Other accrued liabilities
|
|
|
610
|
|
|
|
698
|
|
Total accrued expenses and other current liabilities
|
|
$
|
2,176
|
|
|
$
|
1,465
|
|
Note 3. Fair Value Measurements.
Fair value is defined as the exchange price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We measure financial assets and liabilities at fair value at each reporting period using a fair value hierarchy which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:
Level 1.
Quoted prices in active markets for identical assets or liabilities.
Level 2
. Quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices which are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments.
51
Level 3.
Unobservable inputs which are supported by little or no market activity and which are significant to the fair value of the assets or liabilities.
Financial liabilities measured at fair value on a recurring basis were as follows:
|
Fair Value Measurement at Reporting Date Using
|
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
|
Total
|
|
|
|
(in thousands)
|
|
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
16,540
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,540
|
|
As of December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
20,007
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
20,007
|
|
As of December 31, 2016 and 2015, we had no financial liabilities measured at fair value on a recurring basis.
The following table sets forth a reconciliation the changes in fair value of preferred stock warrants (in thousands):
Balance as of December 31, 2013
|
|
$
|
262
|
|
Issuance of preferred stock warrants
|
|
|
66
|
|
Change in fair value of preferred stock warrants
|
|
|
(206
|
)
|
Balance as of December 31, 2014
|
|
|
122
|
|
Issuance of preferred stock warrants
|
|
|
863
|
|
Change in fair value of preferred stock warrants
|
|
|
907
|
|
Conversion of warrants upon IPO
|
|
|
(1,892
|
)
|
Balance as of December 31, 2015
|
|
$
|
—
|
|
Note 4. Purchased Intangible Assets.
In 2012, in connection with our purchase of the serial flash memory product line assets from Atmel Corporation, we recorded $16.4 million of intangible assets.
Intangible assets are as follows (in thousands):
|
|
|
|
December 31, 2016
|
|
|
|
Estimated Useful
Life (in Years)
|
|
Gross Carrying
Amount
|
|
|
Accumulated Amortization
|
|
|
Net Carrying
Amount
|
|
Developed technology
|
|
10
|
|
$
|
4,282
|
|
|
$
|
1,820
|
|
|
$
|
2,462
|
|
Customer relationships
|
|
12
|
|
|
9,011
|
|
|
|
3,191
|
|
|
|
5,820
|
|
Customer backlog
|
|
1
|
|
|
2,779
|
|
|
|
2,779
|
|
|
|
—
|
|
Non-compete agreement
|
|
5
|
|
|
282
|
|
|
|
240
|
|
|
|
42
|
|
Total intangible assets subject to amortization
|
|
|
|
$
|
16,354
|
|
|
$
|
8,030
|
|
|
$
|
8,324
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Estimated Useful
Life (in Years)
|
|
Gross Carrying
Amount
|
|
|
Accumulated Amortization
|
|
|
Net Carrying Amount
|
|
Developed technology
|
|
10
|
|
$
|
4,282
|
|
|
$
|
1,392
|
|
|
$
|
2,890
|
|
Customer relationships
|
|
12
|
|
|
9,011
|
|
|
|
2,440
|
|
|
|
6,571
|
|
Customer backlog
|
|
1
|
|
|
2,779
|
|
|
|
2,779
|
|
|
|
—
|
|
Non-compete agreement
|
|
5
|
|
|
282
|
|
|
|
184
|
|
|
|
98
|
|
Total intangible assets subject to amortization
|
|
|
|
$
|
16,354
|
|
|
$
|
6,795
|
|
|
$
|
9,559
|
|
52
We recorded amortization expense related to the acquisition-related intangible assets as follows (in thousands):
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Operating expense category:
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
|
$
|
484
|
|
|
$
|
484
|
|
|
$
|
484
|
|
Sales and marketing
|
|
|
|
|
751
|
|
|
|
752
|
|
|
|
752
|
|
Total
|
|
|
|
$
|
1,235
|
|
|
$
|
1,236
|
|
|
$
|
1,236
|
|
The estimated future amortization expense of acquisition-related intangible assets subject to amortization as of December 31, 2016 is as follows (in thousands):
Year Ended December 31,
|
|
|
|
|
|
2017
|
|
|
|
$
|
1,221
|
|
2018
|
|
|
|
|
1,179
|
|
2019
|
|
|
|
|
1,179
|
|
2020
|
|
|
|
|
1,179
|
|
2021
|
|
|
|
|
1,179
|
|
Thereafter
|
|
|
|
|
2,387
|
|
Total
|
|
|
|
$
|
8,324
|
|
Note 5. Borrowings.
Bridge Bank Loan.
In October 2013, we entered into the Business Financing Agreement (the “BFA”) with Bridge Bank N.A. The agreement consists of both a revolving credit facility under which we may borrow up to 80% of eligible accounts receivable but not to exceed $7.5 million and a term loan in the amount of $9.0 million. Interest on the revolving credit facility accrued at the bank’s prime rate, which under the BFA shall not be less than 3.25%, plus 1.25% while interest on the term loan accrued at the bank’s prime rate plus 3%. Under the term loan, we were required to make interest only payments through April 2014 and principal payments of $300,000 monthly thereafter plus interest. Borrowings under the BFA were secured by all of our assets and are subject to certain financial covenants, including maintaining minimum levels of EBITDA on a quarterly basis and a certain minimum asset coverage ratio based on the ratio of unrestricted cash plus certain accounts receivable to total outstanding under the agreement.
In October 2014, we were not in compliance with certain financial covenants. As a result, in October 2014, we entered into the First Business Financing Modification Agreement (the “BFA Modification”) under which the covenant defaults were waived. The BFA Modification (i) increased the interest rate charged on the term loan from the bank’s prime rate plus 3% to the bank’s prime rate plus 4% and would have declined to the bank’s prime rate plus 3% upon the raising of additional equity of not less than $2.5 million, (ii) required us to continue to maintain certain minimum levels of EBITDA and asset coverage ratios, (iii) required us to maintain unrestricted cash of not less than $4.25 million until that point at which we either receive additional equity of not less than $5.0 million or maintain a debt service coverage ratio of not less than 1.00 to 1.00 (based on the ratio of EBITDA to current portion of total amounts outstanding under the BFA Modification plus period-to-date interest expense payments) for two consecutive quarters.
In addition, under the BFA the bank was paid a facility fee of $82,500 at closing. Under the BFA Modification, the bank was paid an additional facility fee of $50,000 and received a warrant to purchase 1,488 shares of our Series E convertible preferred stock. The facility fees and the value of the warrant, $0.1 million, were recorded as a debt discount and have been amortized over the life of the agreement. Amortization of debt discount was $0.1 million in 2015.
Borrowings of $10.9 million under this facility were repaid in full in April 2015.
Opus Bank Term Loan.
In April 2015, we entered into a three-year $15.0 million credit agreement, or the term loan facility. The agreement provided for a senior secured term loan facility, in an aggregate principal amount of up to $15.0 million to be used for general corporate purposes including working capital, to repay certain indebtedness and for capital expenditures and other expenses. Interest accrued on outstanding borrowings at a rate equal to (a) the higher of (i) the prime rate (as publicly announced from time to time by the Wall Street Journal) and (ii) 3.25% plus (b) (i) 1.00% if our cash equivalents are greater than 125% of the outstanding principal of our borrowings under the term loan facility, or (ii) 2.00% if our cash and cash equivalents are less than or equal to 125% of such borrowings. Indebtedness we incurred under this agreement was collateralized by substantially all of our assets and the agreement
53
contained financial covenants requiring us to mai
ntain a monthly asset coverage ratio after September 30, 2015 of not less than 1.10 to 1.00, and quarterly adjusted EBITDA (measured on a trailing three-month basis) of $1 through
March 31
, 2016 and increasing to higher levels thereafter. Under the
agreement, the quarterly EBITDA covenant was not applicab
le if the asset coverage ratio wa
s met at all times during any particular quarter. The agreement contained customary affirmative and negative covenants, including covenants that limit
ed
or restrict
ed
our ability to, among other things, incur additional indebtedness, grant liens, make investments, repurchase stock, pay dividends, transfer assets, merge or consolidate and make acquisitions. Upon an occurrence of an event of default, we could
have
be
en
r
equired to pay interest on all outstanding obligations under the agreement at a rate of 5% above the otherwise applicable i
nterest rate, and the lender could
accelerate our obligations under the agreement.
Borrowings of $14.0 million under this facility were repaid in full in July 2016.
In connection with the term loan facility, Opus Bank received a warrant to purchase 31,897 shares of Series E convertible preferred stock. Upon the completion of our IPO on October 30, 2015 the preferred stock warrants were converted into 315,282 of our common stock warrants. In addition, we paid financing costs of $0.1 million. The financing costs and the value of the warrant, $1.0 million, were recorded as a debt discount and were being amortized over the life of the agreement. Amortization of debt discount was $0.2 million and $0.4 million for the years ended December 31, 2016 and 2015, respectively. In connection with the repayment of this facility, the remaining unamortized debt discount of $0.4 million was recorded as interest expense in the consolidated statements of operations.
Western Alliance Bank Term Loan.
On July 7, 2016, the Company entered into a business financing agreement (“Credit Facility”) with Western Alliance Bank. The Credit Facility provides for (i) a term loan of up to $18.0 million and (ii) a revolving credit line advance in the aggregate amount of the lower of (x) $2.0 million and (y) 80% of certain of the Company’s receivables. The term loan made pursuant to the Credit Facility bears interest at a rate per annum equal to the greater of the prime rate or 3.5%, plus 0.75% (4.5% on December 31, 2016), and matures in June 2019. The line of credit bears interest at a rate per annual equal to the greater of the prime rate or 3.5% plus 0.50% (4.25% on December 31, 2016), and matures in July 2018.The Company made interest-only payments on the term loan from July 2016 through September 2016 and will make interest payments and principal payments in 33 equal monthly installments starting October 2016. Indebtedness we incur under this agreement is collateralized by substantially all assets of the Company and any domestic subsidiaries, subject to certain customary exceptions. The Company paid a facility fee of $150,000 as well as a $25,000 diligence fee upon entry into the Credit Facility and an additional $10,000 is due on July 7, 2017. These fees have been recorded as a debt discount and are being amortized over the life of the agreement. During the year ended December 31, 2016, amortization of debt discount was $53,000 and the unamortized debt discount was $122,000 as of December 31, 2016.
The Credit Facility contains customary representations and warranties and affirmative and negative covenants. Among other negative covenants, the Company may not permit the ratio of the balance of unrestricted cash deposited at the financial institution to the total amounts owed with respect to the term loan to be less than 1.15 to 1.00. Upon an occurrence of an event of default, we could be required to pay interest on all outstanding obligations under the agreement at a rate of 5% above the otherwise applicable interest rate, and the lender may accelerate our obligations under the agreement. We were not in compliance with the financial covenants to maintain the maximum daily liquidity ratio, as defined in the agreement, during the months of August, September, October and November 2016. On February 13, 2017, the bank waived as of December 31, 2016 the Company’s default under the Credit Facility (see Note 14).
Outstanding borrowings consisted of the following (in thousands):
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Term loan, current
|
|
$
|
6,466
|
|
|
$
|
5,606
|
|
Term loan, non-current
|
|
|
9,775
|
|
|
|
7,814
|
|
Line of credit
|
|
|
1,807
|
|
|
|
—
|
|
Total
|
|
$
|
18,048
|
|
|
$
|
13,420
|
|
54
Future repayments on outstanding borrowings (excluding unamortized discount of $0
.1
million as of December 31, 2016) are as follows: (in thousands)
Year ending December 31,
|
|
|
|
|
2017
|
|
$
|
6,545
|
|
2018
|
|
|
8,352
|
|
2019
|
|
|
3,273
|
|
|
|
$
|
18,170
|
|
Interest expense incurred under our borrowings was $1.3 million, $1.1 million, and $0.8 million for the years ended December 31, 2016, 2015, and 2014, respectively.
Note 6. Segment Information.
We operate in one business segment, application-specific and feature-rich, ultra-low power NVM products. Our chief decision-maker, the President and Chief Executive Officer, evaluates our performance based on company-wide consolidated results. Revenue is evaluated based on product category and by geographic region.
Product revenue from customers is designated based on the geographic region to which the product is delivered. Revenue by geographic region was as follows (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
United States
|
|
$
|
6,301
|
|
|
$
|
8,831
|
|
|
$
|
7,318
|
|
Rest of Americas
|
|
|
483
|
|
|
|
602
|
|
|
|
751
|
|
Europe
|
|
|
5,809
|
|
|
|
4,817
|
|
|
|
7,261
|
|
Asia Pacific
|
|
|
31,051
|
|
|
|
28,711
|
|
|
|
25,885
|
|
Rest of world
|
|
|
324
|
|
|
|
298
|
|
|
|
250
|
|
Total
|
|
$
|
43,968
|
|
|
$
|
43,259
|
|
|
$
|
41,465
|
|
Long-lived assets are attributed to the geographic region were they are located. Long-lived assets by geographic region were as follows (in thousands):
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
United States
|
|
$
|
5,489
|
|
|
$
|
369
|
|
Asia Pacific
|
|
|
472
|
|
|
|
538
|
|
Europe
|
|
|
1
|
|
|
|
2
|
|
Total property and equipment, net
|
|
$
|
5,962
|
|
|
|
909
|
|
Note 7. Commitments and Contingencies.
Operating Leases.
The Company leases office facilities under various non-cancelable operating lease agreements. Certain lease agreements contain free or escalating rent payment provisions. The Company recognizes rent expense under such leases on a straight-line basis over the term of the lease with the difference between the expense and the payments recorded as deferred rent on the consolidated balance sheets. Any reimbursements by the landlord for tenant improvements are considered lease incentives, the balance of which is recorded as a lease incentive obligation within deferred rent on the consolidated balance sheets, and amortized as a reduction of rent expense over the life of the lease. Lease renewal periods are considered on a lease-by-lease basis in determining the lease term.
On November 2, 2015, the Company extended the lease for its headquarters by six months to July 2016 by entering into that certain Amendment to Commercial Sublease, dated November 2, 2015, between the Company and eGain Corporation. The Amendment provided for a base rent during the extension period of $47,000 per month. Subsequently, we extended the lease to August 31, 2016.
Additionally, on November 2, 2015, the Company entered into a lease with Peterson Ridge LLC pursuant to which the Company leased a new headquarters facility, consisting of an aggregate of approximately 34,000 square feet of space in Santa Clara, California.
55
The initial term of the lease commenced on November 2, 2015 and is scheduled to end on July 31, 2023 and may be extended, at the Company’s option, for an additional five-year period following the initi
al lease term.
Pursuant to the lease, monthly base rental payments due under the lease are expected to be approximately $93,000 per month between August 1, 2016 and February 27, 2017, with annual increases of approximately 3% thereafter. The Company must also pay for certain other operating costs under the lease, including operating expenses, taxes, assessments, insurance, utilities, securities and property management fees. Peterson Ridge LLC is obligated to reimburse the Company for up to approximately $2.5 million of the Company’s out-of-pocket costs associated with any tenant improvements, as defined in the lease. The Company was reimbursed for this amount during the year ended December 31, 2016. As of December 31, 2016, the Company recorded a lease incentive obligation of $2.4 million in deferred rent on the consolidated balance sheet.
Rent expense under operating leases for 2016, 2015, and 2014 was $1.6 million, $1.0 million, and $0.7 million, respectively. Future minimum lease payments under operating leases are as follows:
|
|
Total
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
Thereafter
|
|
|
|
(in thousands)
|
|
Operating leases
|
|
$
|
8,219
|
|
|
$
|
1,175
|
|
|
$
|
1,177
|
|
|
$
|
1,213
|
|
|
$
|
1,249
|
|
|
$
|
1,287
|
|
|
$
|
2,118
|
|
Capital Leases.
We have entered into various lease agreements for equipment and software under capital leases with terms of between 24 to 48 months. The equipment and software under the leases are collateral for the lease obligations and are included within property, plant and equipment, net, on the consolidated balance sheets. There are no future minimum commitments for capital leases as of December 31, 2016.
Obligations under capital leases are included in accrued expenses and other current liabilities in the consolidated balance sheets. As of December 31, 2016 we had no obligations under capital leases.
Equipment acquired under capital leases is included in property and equipment, net and consisted of the following (in thousands):
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Computer software
|
|
$
|
108
|
|
|
$
|
108
|
|
Office equipment
|
|
|
49
|
|
|
|
49
|
|
Production equipment
|
|
|
44
|
|
|
|
44
|
|
Total
|
|
|
201
|
|
|
|
201
|
|
Accumulated depreciation and amortization
|
|
|
(201
|
)
|
|
|
(180
|
)
|
Property and equipment, net
|
|
$
|
—
|
|
|
$
|
21
|
|
Purchase Commitments.
As of December 31, 2016, we had purchase commitments with our third-party foundries of $1.9 million due within one year, $0.8 million for a licensing and development agreement, and $7.9 million in conjunction with an agreement with TowerJazz Panasonic Semiconductor Company.
Litigation.
Although we are not currently subject to any litigation, and no litigation is currently threatened against us, we may be subject to legal proceedings, claims and litigation, including intellectual property litigation, arising in the ordinary course of business. Such matters are subject to many uncertainties and outcomes and are not predictable with assurance. We accrue amounts that we believe are adequate to address any liabilities related to legal proceedings and other loss contingencies that we believe will result in a probable loss that is reasonably estimable.
Indemnification.
During the normal course of business, we may make certain indemnities, commitments and guarantees which may include intellectual property indemnities to certain of our customers in connection with the sales of our products and indemnities for liabilities associated with the infringement of other parties’ technology based upon our products. Our exposure under these indemnification provisions is generally limited to the total amount paid by a customer under the agreement. However, certain agreements include indemnification
56
provisions that could potentially expose us to losses in excess of the amount received under the agreement
. In addition, we indemnify our officers, directors and certain key employees while they are serving in good faith in such capacities.
We have not recorded any liability for these indemnities, commitments and guarantees in the accompanying consolidated balance sheets. Where necessary, we accrue for losses for any known contingent liabilities, including those that may arise from indemnification provisions, when future payment is probable.
Note 8. Convertible Preferred Stock and Convertible Preferred Stock Warrants.
Convertible Preferred Stock.
Upon the filing of our Certificate of Amendment to our Restated Certificate of Incorporation on October 23, 2015, the definition of “qualified IPO” was amended such that each share of Series A, Series B, Series C, Series D, and Series D-1 will automatically convert at the then effective conversion rate into shares of common stock upon the closing of a firm commitment underwritten initial public offering pursuant to an effective registration statement under the Securities Act of 1933, with gross proceeds to us of not less than $20 million, and each share of Series E will automatically convert on 1-to-9.8841 basis in the event of such qualified IPO.
In connection with the completion of the Company’s IPO on October 30, 2015 all 4,419,853 of its previously outstanding shares of convertible preferred stock were converted into 9,114,739 shares of common stock.
Preferred Stock Warrants.
As of the dates below, outstanding preferred stock warrants and associated fair values are as follows (fair value in thousands):
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
At Conversion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class of
|
|
of
|
|
|
October 30,
|
|
|
December 31,
|
|
|
Exercise
|
|
|
Issuance
|
|
Expiration
|
Shares
|
|
Shares
|
|
|
2015
|
|
|
2014
|
|
|
Price
|
|
|
Date
|
|
Date
|
Series B
|
|
|
7,378
|
|
|
$
|
53
|
|
|
$
|
6
|
|
|
$
|
12.1968
|
|
|
2010
|
|
2017
|
Series D
|
|
|
74,141
|
|
|
|
109
|
|
|
|
60
|
|
|
$
|
31.3500
|
|
|
2012-2013
|
|
2019
|
Series E
|
|
|
329,995
|
|
|
|
1,730
|
|
|
|
56
|
|
|
$
|
23.5125
|
|
|
2014-2015
|
|
2022-2024
|
|
|
|
411,514
|
|
|
$
|
1,892
|
|
|
$
|
122
|
|
|
|
|
|
|
|
|
|
In connection with a capital lease financing in January 2008, we issued a warrant to purchase 5,411 shares of Series A at $11.088 per share. In January 2015, this warrant expired unexercised.
In connection with a capital lease financing in February 2010, we issued a warrant to purchase 7,378 shares of Series B at $12.1968 per share. The warrants are exercisable any time at the option of the holder and expire at the earlier of February 2017, an initial public offering, or an acquisition. This warrant was initially valued at $57,000 and recorded as a liability.
In connection with a term loan financing with Opus Bank, in September 2012 we issued a warrant to purchase 35,885 shares of Series D at a price per share of $31.35. In addition, in connection with a first amendment of the term loan financing with Opus Bank, on each of March 31, 2013 and June 30, 2013 we issued to Opus Bank a warrant to purchase 17,942 shares of Series D at a price per share of $31.35. The warrants were exercisable any time at the option of the holder and expire at the earlier of September 2019, an initial public offering, or an acquisition. The warrants were initially valued at $1.3 million and recorded as a liability.
In connection with a BFA Modification agreement with Bridge Bank, in October 2014 we issued a warrant to purchase 1,488 shares of Series E at a price per share of $23.5125. The warrant was exercisable any time at the option of the holder and expires at the earlier of October 2024, an initial public offering, or an acquisition. The warrant was initially valued at $0.1 million and recorded as a liability.
In connection with our term loan negotiated with Opus Bank in May 2015 we issued a warrant to purchase 31,897 shares of Series E at a price of $23.5125. The warrant was exercisable any time at the option of the holder and expires at the earlier of October 2022, an initial public offering, or an acquisition. The warrant was initially valued at $0.9 million and was recorded as a liability.
As of December 31, 2014, the fair value of preferred stock warrants was $0.1 million and classified as a long-term liability, as the warrants primarily expire in periods beyond one year from December 31, 2014. The warrants were subject to re-measurement at each balance sheet date with any change in fair value recognized as a component of other income (expense), net in our consolidated statements of operations.
57
Concurrent
with the close of our IPO on October 30, 2015, all preferred stock warrants were converted into warrants to purchase a total of 411,514 shares of common stock and accordingly, the liability of $1,892,000 was reclassified to additional paid-in capital.
During the years ended December 31, 2015 and 2014, we recorded expense of $0.9 million and income of $0.2 million, respectively, for the change in fair value of these warrants.
Note 9. Common Stock, Common Stock Warrants and Stock Option Plan.
Common Stock.
We were authorized to issue 100,000,000 shares of common stock with $0.0001 par value per share as of December 31, 2016 and 2015. Each holder of common stock is entitled to one vote per share. As of December 31, 2016, no dividends have been declared by the Board of Directors, however, the holders of common stock are also entitled to receive dividends, when and if declared by our Board of Directors.
Common Stock Reserved for Future Issuance.
As of December 31, 2016 and 2015, we had reserved shares of common stock for future issuances as follows:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Warrants to purchase common stock
|
|
|
411,514
|
|
|
|
411,514
|
|
Stock option plan:
|
|
|
|
|
|
|
|
|
Options outstanding
|
|
|
991,895
|
|
|
|
796,356
|
|
Restricted stock units outstanding
|
|
|
490,954
|
|
|
|
874,508
|
|
Shares available for future option/RSU grants
|
|
|
1,275,685
|
|
|
|
940,338
|
|
Shares available for ESPP
|
|
|
231,355
|
|
|
|
150,000
|
|
Total
|
|
|
3,401,403
|
|
|
|
3,172,716
|
|
Common Stock Warrants.
The following common stock warrants were outstanding as of December 31, 2016 and 2015 and were the result of a conversion of preferred stock warrants upon the completion of our IPO on October 30, 2015.
Total amount of
securities issuable
under the
outstanding
warrants
|
|
|
Exercise Price
|
|
|
Issuance Date
|
|
Expiration Date
|
|
7,378
|
|
|
$
|
12.20
|
|
|
2010
|
|
2017
|
|
74,141
|
|
|
$
|
31.35
|
|
|
2012-2013
|
|
2019
|
|
329,995
|
|
|
$
|
23.51
|
|
|
2014-2015
|
|
2022-2024
|
|
411,514
|
|
|
|
|
|
|
|
|
|
Common stock warrants are exercisable at the option of the holder any time after the date of issuance into shares of our common stock. The aggregate amount of shares of common stock that would be issued is determined by dividing the exercisable price by the conversion price applicable on the date of conversion multiplied by the number of warrants exercised.
In connection with our IPO on October 30, 2015, 218,618 common stock warrants were net exercised based on the initial public offering price of $5.00 per share, resulting in the issuance of 102,289 shares of our common stock.
Employee Benefit Plans.
2007 Equity Incentive Plan.
In 2007, our Board of Directors and shareholders approved the 2007 Equity Incentive Plan (the “2007 Plan”) under which 272,727 shares of common stock were reserved and available for the issuance of stock options and restricted stock to eligible participants. The 2007 Plan was subsequently amended to increase the number of shares of common stock reserved for issuance under the 2007 Plan to 787,878 and during the year ended December 31, 2015, the number of shares reserved for issuance under the 2007 Plan was increased to 2,651,515. Options and restricted stock awards were granted at a price per share not less than the 85% of the fair value at the date of
58
grant or award, respectively. Restricted stock awarded to persons controlling more tha
n 10% of our stock were granted at a price per share not less than the 100% of the fair value at the date of the award. Options that were granted to new employees generally vest over a four-year period with 25% vesting at the end of one year and the remain
ing to vest monthly thereafter, while options that were granted to existing employees generally vest over a four-year period. Options granted generally are exercisable up to 10 years from the date of grant. As of October 26, 2015, no shares were available
for grant under the 2007 Plan and all outstanding options would continue to be governed and remain outstanding in accordance with their existing terms. In addition, any shares subject to outstanding awards under the 2007 Plan that are issuable upon the exe
rcise of options that expire or become unexercisable for any reason without having been exercised in full will be available for future grant and issuance under the 2015 Plan (as defined below).
2015 Equity Incentive Plan.
In September 2015, our Board of Directors adopted, and in October 2015 our stockholders approved, our 2015 Equity Incentive Plan. The 2015 Equity Incentive Plan became effective on the date immediately prior to the date of our IPO. As a result, 1,813,272 shares of common stock previously reserved but unissued under the 2007 Plan on the effective date of the 2015 Equity Incentive Plan became reserved for issuance under our 2015 Equity Incentive Plan, and we ceased granting awards under our 2007 Plan. The number of shares reserved for issuance under our 2015 Equity Incentive Plan will increase automatically on the 1st day of January of each of 2016 through 2025 by the number of shares equal to 4% of the total outstanding shares of our common stock as of the immediately preceding December 31. However, our Board of Directors may reduce the amount of the increase in any particular year.
Our 2015 Equity Incentive Plan authorizes the award of stock options, restricted stock awards, stock appreciation rights, restricted stock units, performance awards and stock bonuses. No person will be eligible to receive more than 2,000,000 shares in any calendar year under our 2015 Equity Incentive Plan other than a new employee of ours, who will be eligible to receive no more than 4,000,000 shares under the plan in the calendar year in which the employee commences employment. The aggregate number of shares of our common stock that may be subject to awards granted to any one non-employee director pursuant to the 2015 Equity Incentive Plan in any calendar year shall not exceed 300,000. Our 2015 Equity Incentive Plan provides that no more than 25,000,000 shares will be issued as incentive stock options.
2015 Employee Stock Purchase Plan.
In September 2015, our Board of Directors adopted, and in October 2015 our stockholders approved, our 2015 Employee Stock Purchase Plan (“ESPP”). The 2015 Employee Stock Purchase Plan became effective on the date of our IPO. We reserved 150,000 shares of our common stock for issuance under our 2015 Employee Stock Purchase Plan. The number of shares reserved for issuance under our 2015 Employee Stock Purchase Plan will increase automatically on the 1st day of January following the first offering date by the number of shares equal to 1% of the total outstanding shares of our common stock as of the immediately preceding December 31 (rounded to the nearest whole share). However, our Board of Directors may reduce the amount of the increase in any particular year. The aggregate number of shares issued over the term of our 2015 Employee Stock Purchase Plan will not exceed 2,250,000 shares of our common stock.
Under our 2015 Employee Stock Purchase Plan, eligible employees will be able to acquire shares of our common stock by accumulating funds through payroll deductions. Eligible employees will be able to select a rate of payroll deduction up to 15% of their base cash compensation. The purchase price for shares of our common stock purchased under our 2015 Employee Stock Purchase Plan will be 85% of the lesser of the fair market value of our common stock on (i) the first trading day of the applicable offering period and (ii) the last trading day of each purchase period in the applicable offering period. Except for the first offering period, each offering period will run for no more than six months, with purchases occurring every six months. The first offering period began upon the effective date of our IPO and was originally set to end on June 30, 2016. On May 25, 2016, the Board of Directors extended the initial offering period to July 31, 2016. Subsequent purchase periods will be 6 months in duration beginning on August 1, 2016. On July 29, 2016, we issued 68,392 shares of common stock in conjunction with the end date of the initial purchase window.
No participant will have the right to purchase shares of our common stock in an amount that has a fair market value greater than $25,000, determined as of the first day of the applicable purchase period, for each calendar year in which that right is outstanding. In addition, no participant will be permitted to purchase more than 2,500 shares during any one purchase period or a lesser amount determined by our compensation committee.
Our 2015 Employee Stock Purchase Plan will continue until the earlier to occur of its termination by our Board of Directors, the issuance of all shares reserved for issuance under it or the tenth anniversary of its effective date.
59
A summary of stock option and restricted stock units activity under the 2007 Plan and the 2015 Equity Incentive Plan is as follows:
|
|
Stock Options
|
|
|
|
Shares
|
|
|
Weighted-Average
Exercise Price
|
|
|
Weighted-Average
Remaining
Contractual Term
(Years)
|
|
|
Aggregrate Intrinsic Value
|
|
|
|
(aggregate intrinsic value in thousands)
|
|
Outstanding as of December 31, 2013
|
|
|
565,265
|
|
|
$
|
3.6
|
|
|
|
5.9
|
|
|
$
|
—
|
|
Granted
|
|
|
110,085
|
|
|
|
1.65
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(20,398
|
)
|
|
|
1.66
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(50,540
|
)
|
|
|
3.96
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2014
|
|
|
604,412
|
|
|
$
|
1.57
|
|
|
|
6.8
|
|
|
$
|
—
|
|
Granted
|
|
|
202,662
|
|
|
|
5.18
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(5,952
|
)
|
|
|
1.67
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(4,766
|
)
|
|
|
2.31
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2015
|
|
|
796,356
|
|
|
$
|
2.49
|
|
|
|
6.5
|
|
|
$
|
4,157
|
|
Granted
|
|
|
230,200
|
|
|
|
3.38
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(13,112
|
)
|
|
|
1.80
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(21,549
|
)
|
|
|
3.73
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2016
|
|
|
991,895
|
|
|
$
|
2.68
|
|
|
|
6.3
|
|
|
$
|
161
|
|
Options vested and expected to vest as of
December 31, 2016
|
|
|
977,217
|
|
|
$
|
2.66
|
|
|
|
6.2
|
|
|
$
|
160
|
|
Options vested and exercisable as of
December 31, 2016
|
|
|
723,692
|
|
|
$
|
2.25
|
|
|
|
5.3
|
|
|
$
|
150
|
|
|
|
Restricted stock units
|
|
|
|
Shares
|
|
|
Weighted-Average
Grant Date Fair
Value
|
|
|
Weighted-Average
Remaining
Contractual Term
(Years)
|
|
|
Aggregrate
Intrinsic Value
|
|
|
|
(aggregate intrinsic value in thousands)
|
|
Outstanding as of December 31, 2014
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
880,072
|
|
|
|
5.95
|
|
|
|
|
|
|
|
|
|
Released
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
(5,564
|
)
|
|
|
5.95
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2015
|
|
|
874,508
|
|
|
$
|
5.95
|
|
|
|
1.8
|
|
|
$
|
6,742
|
|
Granted
|
|
|
69,414
|
|
|
|
4.82
|
|
|
|
|
|
|
|
|
|
Released
|
|
|
(438,086
|
)
|
|
|
5.95
|
|
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
|
(14,882
|
)
|
|
|
5.70
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2016
|
|
|
490,954
|
|
|
$
|
5.80
|
|
|
|
0.5
|
|
|
$
|
908
|
|
Additional information regarding stock options outstanding and vested as of December 31, 2016 is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Vested and
|
|
|
|
Options Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
Weighted-
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
Number of
|
|
|
Average
|
|
|
Average
|
|
|
Shares
|
|
|
Average
|
|
|
|
Stock
|
|
|
Remaining
|
|
|
Exercise
|
|
|
subject
|
|
|
Exercise
|
|
|
|
Options
|
|
|
Contractual
|
|
|
Price per
|
|
|
to Stock
|
|
|
Price per
|
|
Exercise Prices
|
|
Outstanding
|
|
|
Life (Years)
|
|
|
Share
|
|
|
Options
|
|
|
Share
|
|
$0.99
|
|
|
63,696
|
|
|
|
0.1
|
|
|
$
|
0.99
|
|
|
|
63,696
|
|
|
$
|
0.99
|
|
$1.60
|
|
|
12,300
|
|
|
|
9.8
|
|
|
1.60
|
|
|
|
1,966
|
|
|
|
1.60
|
|
$1.65
|
|
|
515,170
|
|
|
5.0
|
|
|
|
1.65
|
|
|
|
472,729
|
|
|
|
1.65
|
|
$3.30
|
|
|
139,246
|
|
|
|
8.2
|
|
|
|
3.30
|
|
|
|
113,165
|
|
|
|
3.30
|
|
$3.48
|
|
|
206,512
|
|
|
|
9.0
|
|
|
|
3.48
|
|
|
|
47,903
|
|
|
|
3.48
|
|
$10.00
|
|
|
54,971
|
|
|
8.7
|
|
|
|
10.00
|
|
|
|
24,233
|
|
|
|
10.00
|
|
$0.99-$10.00
|
|
|
991,895
|
|
|
|
6.3
|
|
|
|
2.68
|
|
|
|
723,692
|
|
|
|
2.25
|
|
60
Note 10. Stock-based Compensation.
We record stock-based compensation based on fair value as of the grant date using the Black-Scholes option-pricing model. We recognize such costs as compensation expense on a straight-line basis over the employee’s requisite service period, which is generally four years. Our valuation assumptions are as follows:
Fair value of common stock
. Prior to our IPO in October 2015, we estimated the fair value of our common stock using various valuation methodologies, including valuation analyses performed by third-party valuation firms. After the initial public offering, we used the publicly quoted price as the fair value of our common stock.
Risk-free interest rate
. We base the risk-free interest rate used in the Black-Scholes option-pricing model on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent expected term of the options for each option group.
Expected term
. The expected term represents the period that our stock-based awards are expected to be outstanding. The expected term assumption is based on the simplified method in which the expected term is equal to the average of the stock-based award’s weighted-average vesting period and its contractual term. We expect to continue using the simplified method until sufficient information about historical behavior is available.
Volatility
. We determine volatility based on the historical stock volatilities of a group of publicly listed guideline companies over a period equal to the expected terms of the options, as we do not have sufficient trading history to determine the volatility of our common stock.
Dividend yield
. We have never declared or paid any cash dividend and do not currently plan to pay a cash dividend in the foreseeable future. Consequently, we used an expected dividend yield of zero.
The following table summarizes the weighted-average assumptions used in the Black-Scholes option-pricing model to determine fair value of stock options:
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Volatility
|
|
|
52
|
%
|
|
|
40
|
%
|
|
|
67
|
%
|
Expected dividend yield
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Risk-free rate
|
|
|
1.34
|
%
|
|
|
1.59
|
%
|
|
|
1.84
|
%
|
Expected term (in years)
|
|
|
6
|
|
|
|
5
|
|
|
|
6
|
|
The following table presents the effects of stock-based compensation for stock options, restricted stock units, and ESPP (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Cost of revenue
|
|
$
|
81
|
|
|
$
|
19
|
|
|
$
|
4
|
|
Research and development
|
|
|
1,038
|
|
|
|
263
|
|
|
|
86
|
|
Sales and marketing
|
|
|
706
|
|
|
|
153
|
|
|
|
30
|
|
General and administrative
|
|
|
1,518
|
|
|
|
352
|
|
|
|
126
|
|
Total
|
|
$
|
3,343
|
|
|
$
|
787
|
|
|
$
|
246
|
|
Stock-based compensation expense capitalized to inventories was not material during the years ended December 31, 2016, 2015 and 2014.
We did not realize any income tax benefit from stock option exercises in either of the periods presented due to recurring losses and valuation allowances.
As of December 31, 2016, the total unrecognized compensation cost related to stock options, net of estimated forfeitures, was approximately $0.5 million, and this amount is expected to be recognized over a weighted-average period of approximately 1.8 years.
61
As of December 31, 2016 the total unrecognized compensation cost related to RSU’s and ESPP was $
2.3
million and $
13,000
, respectively, and these amounts are expected to be recognized over
0
.
9
years and
0.
1
years, respectively.
Stock Option Repricing.
In August 2014, our Board of Directors approved a common stock option repricing program whereby previously granted and unexercised options held by current employees with exercise prices above $1.65 per share were repriced on a one-for-one basis to $1.65 per share which represented the per share fair value of our common stock as of the date of the repricing. There was no other modification to the vesting schedule of the previously issued options. As a result, 387,749 unexercised options originally granted to purchase common stock at prices ranging from $1.98 to $5.61 per share were repriced under this program.
We treated the repricing as a modification of the original awards and calculated additional compensation costs for the difference between the fair value of the modified award and the fair value of the original award on the modification date. The repricing resulted in incremental stock-based compensation expense of $0.2 million. Expense related to vested shares was expensed on the repricing date and expense related to unvested shares is being amortized over the remaining vesting period of such stock options.
Note 11. Income Taxes.
The components of our income (loss) before provision for (benefit from) income taxes are as follows (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
United States
|
|
$
|
(11,843
|
)
|
|
$
|
(9,232
|
)
|
|
$
|
(7,885
|
)
|
Foreign
|
|
|
215
|
|
|
|
788
|
|
|
|
(909
|
)
|
Loss before provision for (benefit from) income
taxes
|
|
$
|
(11,628
|
)
|
|
$
|
(8,444
|
)
|
|
$
|
(8,794
|
)
|
The provision for (benefit from) income taxes consisted of the following (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
State
|
|
|
2
|
|
|
|
3
|
|
|
|
3
|
|
Foreign
|
|
|
(19
|
)
|
|
|
(38
|
)
|
|
|
123
|
|
Total current provision for (benefit from)
income taxes
|
|
|
(17
|
)
|
|
|
(35
|
)
|
|
|
126
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1
|
|
|
|
(26
|
)
|
|
|
14
|
|
State
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total deferred provision for (benefit from)
income taxes
|
|
|
1
|
|
|
|
(26
|
)
|
|
|
14
|
|
Total
|
|
$
|
(16
|
)
|
|
$
|
(61
|
)
|
|
$
|
140
|
|
The reconciliation of the federal statutory income tax to our effective tax is as follows (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Federal tax at statutory rate
|
|
$
|
(3,954
|
)
|
|
$
|
(2,871
|
)
|
|
$
|
(2,989
|
)
|
State taxes
|
|
|
(184
|
)
|
|
|
(155
|
)
|
|
|
(185
|
)
|
Foreign rate differential
|
|
|
(14
|
)
|
|
|
(233
|
)
|
|
|
310
|
|
Nondeductible expenses
|
|
|
(48
|
)
|
|
|
161
|
|
|
|
92
|
|
Research and development credit
|
|
|
(180
|
)
|
|
|
(153
|
)
|
|
|
(481
|
)
|
Stock compensation
|
|
|
784
|
|
|
|
109
|
|
|
|
74
|
|
Change in valuation allowance
|
|
|
3,580
|
|
|
|
3,081
|
|
|
|
3,319
|
|
Total
|
|
$
|
(16
|
)
|
|
$
|
(61
|
)
|
|
$
|
140
|
|
62
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows (in thousands):
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
27,541
|
|
|
$
|
25,814
|
|
Accruals and reserves
|
|
|
4,502
|
|
|
|
3,893
|
|
Amortization of intangible assets
|
|
|
1,248
|
|
|
|
1,198
|
|
Tax credit carryforwards
|
|
|
2,808
|
|
|
|
2,441
|
|
Depreciation
|
|
|
602
|
|
|
|
414
|
|
Other
|
|
|
226
|
|
|
|
181
|
|
Gross deferred tax assets
|
|
|
36,927
|
|
|
|
33,941
|
|
Valuation allowance
|
|
|
(36,333
|
)
|
|
|
(32,753
|
)
|
Total deferred tax assets
|
|
|
594
|
|
|
|
1,188
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Change in tax accounting method for reserves and
allowances
|
|
|
(594
|
)
|
|
|
(1,188
|
)
|
Amortization of intangible assets
|
|
|
(2
|
)
|
|
|
(1
|
)
|
Total deferred tax liabilities
|
|
|
(596
|
)
|
|
|
(1,189
|
)
|
Net deferred tax liability
|
|
$
|
(2
|
)
|
|
$
|
(1
|
)
|
In accordance with ASC 740,
Income Taxes,
a valuation allowance is provided when it is more likely than not that the deferred tax assets will not be realized. Based on our review of both the positive and negative evidence, which includes our historical operating performance, reported cumulative net losses since inception and difficulty in accurately forecasting its results, we have concluded that it is more likely than not that the we will not be able to realize all of our U.S. deferred tax assets. Therefore, we have established a valuation allowance to offset net deferred tax assets as of December 31, 2016, 2015 and 2014 due to the uncertainty of realizing future tax benefits from our net operating loss (“NOL”) carryforwards and other deferred tax assets. The net change in the total valuation allowance for the years ended December 31, 2016, 2015, and 2014 was an increase of approximately $3.6 million, $3.1 million, and $3.3 million, respectively.
Our foreign deferred tax assets are immaterial and have not been included in the provision calculations. We reassess the need for our valuation allowance on a quarterly basis.
Based on our review discussed above, the realization of deferred tax assets is dependent on improvements over present levels of consolidated pre-tax income. Until we are consistently profitable in the U.S., we will not realize our deferred tax assets. Deferred income taxes have not been provided on the cumulative undistributed earnings of foreign subsidiaries. The amount of such earnings as of December 31, 2016 was $1.0 million. These earnings have been permanently reinvested and we do not plan to initiate any action that would precipitate the payment of income tax thereon. It is not practicable to estimate the amount of additional tax that might be payable on undistributed foreign earnings.
As of December 31, 2016, we had federal and state NOL carryforwards of $72.2 million and $51.5 million available to offset future taxable income. The federal NOL carryforwards will expire at various dates beginning in 2027, if not utilized. The state NOL carryforward will expire at various dates beginning in 2017, if not utilized. In addition, as of December 31, 2016, we had federal and state research and development tax credit carryforwards of $3.2 million and $3.7 million. The federal research and development credit carryforwards will expire beginning in 2027 if not utilized. The state research and development tax credit carryforwards do not expire.
Utilization of NOL carryforwards and credits may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended and similar state provisions. The annual limitation may result in the expiration of NOLs and credits before utilization.
ASC 740-10 clarifies the accounting for uncertainties in income taxes by prescribing guidance for the recognition, de-recognition and measurement in our financial statements of income tax positions taken in previously filed tax returns or tax positions expected to be taken in tax returns, including a decision whether to file or not to file in a particular jurisdiction. ASC 740-10 requires the disclosure of any liability created for unrecognized tax benefits. The application of ASC 740-10 may also affect the tax bases of assets and liabilities and therefore may change or create deferred tax liabilities or assets.
63
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
Balance as of December 31, 2013
|
|
$
|
2,210
|
|
Tax positions related to the current year:
|
|
|
|
|
Additions
|
|
|
774
|
|
Balance as of December 31, 2014
|
|
|
2,984
|
|
Tax positions related to the current year:
|
|
|
|
|
Additions
|
|
|
436
|
|
Tax positions related to the prior year:
|
|
|
|
|
Reductions
|
|
|
(285
|
)
|
Balance as of December 31, 2015
|
|
|
3,135
|
|
Tax positions related to the current year:
|
|
|
|
|
Additions
|
|
|
462
|
|
Tax positions related to the prior year:
|
|
|
|
|
Reductions
|
|
|
(7
|
)
|
Balance as of December 31, 2016
|
|
$
|
3,590
|
|
Our total amounts of unrecognized tax benefits that, if recognized, that would affect its tax rate are $11,000 and $11,000 as of December 31, 2016 and 2015, respectively.
While it is often difficult to predict the final outcome of any particular uncertain tax position, we do not believe it is reasonably possible that the total amount of unrecognized tax benefit as of December 31, 2016 will materially change in the next twelve months.
Our policy is to classify interest and penalties associated with unrecognized tax positions, if any, as components of our income tax provision. Interest and penalties were not significant during the year ended December 31, 2016.
We file federal, state and foreign income tax returns in jurisdictions with varying statutes of limitations. Due to our net operating loss and credit carryforwards, our income tax returns generally remain subject to examination by federal, state and international authorities.
Note 12. Net Loss Per Share.
The following outstanding common stock equivalents were excluded from the computation of diluted net loss per share for the periods presented because including them would have been antidilutive:
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Preferred stock
|
|
|
—
|
|
|
|
—
|
|
|
|
9,114,739
|
|
Stock options
|
|
|
991,895
|
|
|
|
796,356
|
|
|
|
549,906
|
|
Restricted stock units
|
|
|
490,954
|
|
|
|
874,508
|
|
|
|
—
|
|
Preferred stock warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
86,930
|
|
Common stock warrants
|
|
|
411,514
|
|
|
|
411,514
|
|
|
|
218,618
|
|
|
|
|
1,894,363
|
|
|
|
2,082,378
|
|
|
|
9,970,193
|
|
Note 13. Other Income (Expense), Net.
Other income (expense), net consisted of the following (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Revaluation of convertible preferred stock warrant
liability
|
|
$
|
—
|
|
|
$
|
(907
|
)
|
|
$
|
206
|
|
Other income (expense)
|
|
|
(50
|
)
|
|
|
212
|
|
|
|
(92
|
)
|
Other income (expense), net
|
|
$
|
(50
|
)
|
|
$
|
(695
|
)
|
|
$
|
114
|
|
64
Note 14. Related Party Transactions
The Company purchases certain wafers from Altis Semiconductor S.N.C., which was acquired by X-FAB Silicon Foundries in 2016, who is a shareholder of the Company. Total payments made during the years ended December 31, 2016, 2015 and 2014 were $314,000, $446,000 and $1,121,000, respectively. As of December 31, 2016 and 2015, invoices totaling $195,000 and $94,000, respectively, were included within accounts payable on the consolidated balance sheets.
Note 15. Subsequent Events.
On February 13, 2017, the Company entered into a First Business Financing Modification agreement dated as of December 30, 2016 with Western Alliance Bank amending a negative covenant so as not to permit the ratio of (i) the balance of unrestricted cash plus the Company’s eligible receivables, as defined in the agreement, net of reserve to (ii) the aggregate amount of advances, as defined in the agreement, owing from the Company to be less than 1.50 for 1.00 at any time and to reduce the required minimum aggregate balance of cash in a deposit account at the bank from 115% to 100% of the total amounts owing with respect to the term loan. Under the amendment, the bank also waived the Company’s default under the agreement due to its failure to maintain the minimum daily Liquidity Ratio, as defined in the agreement, during the months of August, September, October and November 2016.
Note 16. Selected Unaudited Quarterly Financial Data.
The following tables show a summary of the Company’s unaudited quarterly financial information for each of the four quarters of 2016 and 2015 (in thousands, except per share amounts):
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2016
|
|
|
2016
|
|
|
2016
|
|
Revenue
|
|
$
|
12,330
|
|
|
$
|
11,180
|
|
|
$
|
10,282
|
|
|
$
|
10,176
|
|
Gross profit
|
|
$
|
6,243
|
|
|
$
|
5,377
|
|
|
$
|
4,734
|
|
|
$
|
4,996
|
|
Net loss
|
|
$
|
(1,722
|
)
|
|
$
|
(4,078
|
)
|
|
$
|
(4,272
|
)
|
|
$
|
(1,540
|
)
|
Net loss per share - Basic and diluted
|
|
$
|
(0.11
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2015
|
|
|
2015
|
|
|
2015
|
|
|
2015
|
|
Revenue
|
|
$
|
11,826
|
|
|
$
|
11,143
|
|
|
$
|
10,600
|
|
|
$
|
9,690
|
|
Gross profit
|
|
$
|
5,397
|
|
|
$
|
5,033
|
|
|
$
|
4,194
|
|
|
$
|
3,860
|
|
Net loss
|
|
$
|
(3,264
|
)
|
|
$
|
(1,076
|
)
|
|
$
|
(1,766
|
)
|
|
$
|
(2,277
|
)
|
Net loss per share - Basic and diluted
|
|
$
|
(0.32
|
)
|
|
$
|
(1.90
|
)
|
|
$
|
(3.14
|
)
|
|
$
|
(4.07
|
)
|
65