Notes to the Consolidated Financial Statements
1. The Company
Smith Micro Software, Inc. (“Smith Micro,” “Company,” “we,” “us,” and “or”) develops software to simplify and enhance the mobile experience, providing solutions to leading wireless service providers, device manufacturers, and enterprise businesses around the world. From optimizing wireless networks to uncovering customer experience insights, and from streamlining Wi-Fi access to ensuring family safety, our solutions enrich connected lifestyles, while creating new opportunities to engage consumers via smartphones. Our portfolio also includes a wide range of products for creating, sharing, and monetizing rich content, such as visual messaging, video streaming, and 2D/3D graphics applications. With this as a focus, it is Smith Micro’s mission to help our customers thrive in a connected world.
2. Basis of Presentation
The accompanying interim consolidated balance sheet and statement of stockholders’ equity as of June 30, 2017, and the related consolidated statements of operations and comprehensive loss and cash flows for the three and six months ended June 30, 2017 and 2016, are unaudited. The unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, therefore, certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted.
In the opinion of management, the accompanying unaudited consolidated financial statements for the periods presented reflect all adjustments, which are normal and recurring, necessary to fairly state the financial position, results of operations, and cash flows. These unaudited consolidated financial statements should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the SEC.
Intercompany balances and transactions have been eliminated in consolidation.
Operating results for the three and six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending December 31, 2017.
3. Recently Issued Accounting Pronouncements not yet Adopted
In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. The amendments in this ASU provide guidance about which changes to the terms or conditions of share-based payment award require an entity to apply modification accounting in Topic 718. Specifically, an entity should account for the effects of a modification unless all the following are met: (1) The fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification; (2) The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and (3)The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. This ASU is effective for those fiscal years, beginning after December 15, 2017. Early adoption is permitted and should be adopted on a prospective basis. The Company does not expect the adoption of this ASU to have a material impact on our financial statements and related disclosures.
In February 2017, the FASB issued ASU No. 2017-04,
Intangibles-Goodwill and other (Topic 350): Simplifying the Test for Goodwill Impairment
. Currently, Topic 350 requires an entity to perform a two-step test to determine the amount, if any, of goodwill impairment. In Step 1, an entity compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, the entity performs Step 2 and compares the implied fair value of goodwill with the carrying amount of that goodwill for that reporting unit. An impairment charge equal to the amount by which the carrying amount of goodwill for the reporting unit exceeds the implied fair value of that goodwill is recorded, limited to the amount of goodwill allocated to that reporting unit. To address concerns over the cost and complexity of the two-step goodwill impairment test, the amendments in this Update remove the second step of the test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. A public business entity SEC filer should adopt the amendments in this Update for its annual or any interim goodwill
6
impairment tests in fiscal years beginning after December 15, 2019. The Company will be evaluating the impact of this guidance on our con
solidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
, to reduce the existing diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. Amendments in this update are effective for annual periods beginning after December 15, 2017, as well as interim periods within those annual periods. Early adoption is permitted for any entity in any interim or annual period. If an entity early adopts the amendments in an interim 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. The Company will be evaluating the impact of this guidance on our consolidated financial statements.
In March 2016, the FASB issued final guidance in ASU No. 2016-09,
Improvements to Employee Share-Based Payment Accounting
, which will change certain aspects of accounting for share-based payments to employees. The new guidance will require all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It will also allow an employer to repurchase more of an employee’s shares than it currently can for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2016. Early adoption is permitted for all companies in any interim or annual period and must be adopted on a modified prospective approach. Due to the Company applying a full valuation allowance against its deferred tax assets, the nature of the change on the consolidated financial statements is not material.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
, to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of 12 months) on the balance sheet as a lease liability and a right-of-use asset (as defined). The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with earlier application permitted. Upon adoption, the lessee will apply the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the year of adoption. The Company will be evaluating the impact of this guidance on our consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01,
Financial Instruments-Overall (Topic 825-10)
. The Amendments to this Update require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments in this Update also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments in this Update requires disclosure of the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early application by public business entities to financial statements of fiscal years or interim periods that have not yet been issued or, by all other entities, that have not yet been made available for issuance of the following amendments in this Update are permitted as of the beginning of the fiscal year of adoption - an entity should present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk if the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The Company will be evaluating the impact of this guidance on our consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
. The amendments to this Update supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of this Topic is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. This Topic defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In July 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods). Early adoption is permitted to the original effective date of December 15, 2016 (including interim reporting periods within those periods). The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The Company will be evaluating the impact of this guidance on our consolidated financial statements.
7
4. Going Concern Evaluation
In connection with preparing consolidated financial statements for the three and six months ended June 30, 2017, management evaluated whether there were conditions and events, considered in the aggregate, that raised substantial doubt about the Company’s ability to continue as a going concern within one year from the date that the financial statements are issued.
The Company considered the following:
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•
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Operating losses for ten consecutive quarters
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•
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Negative cash flow from operating activities for six consecutive quarters
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•
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Depressed stock price resulting in being non-compliant with NASDAQ listing rules to maintain a stock price of $1.00/share
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•
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Stockholders’ equity being less than $2.5 million at March 31, 2017 and June 30, 2017 resulting in being non-compliant with NASDAQ listing rules
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Ordinarily, conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern relate to the entity’s ability to meet its obligations as they become due.
The Company evaluated its ability to meet its obligations as they become due within one year from the date that the financial statements are issued by considering the following:
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•
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The Company raised $4.0 million of debt financing during the year ended December 31, 2016
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•
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The Company has been able to raise capital from short-term loans from insiders
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•
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As a result of the Company’s restructurings that were implemented during the three months ended December 31, 2016, and again during the six months ended June 30, 2017, the Company’s cost structure is now in line with its future revenue projections. See Footnote 5 below for additional details regarding restructurings
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Management believes that the Company will generate enough cash from operations to satisfy its obligations for the next twelve months.
The Company will take the following actions, if it starts to trend unfavorable to its internal profitability and cash flow projections, in order to mitigate conditions or events that would raise substantial doubt about its ability to continue as a going concern:
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•
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Raise additional capital through short-term loans
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•
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Implement additional restructuring and cost reductions
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•
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Raise additional capital through a private placement
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•
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Secure a commercial bank line of credit
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•
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Dispose of one or more product lines
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•
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Sell or license intellectual property
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5. Restructuring
2017 Restructuring
In the first quarter of fiscal 2017, the Board of Directors reviewed an additional restructuring plan intended to further streamline and flatten the Company’s organization, reduce overall headcount by approximately 16%, and reduce its overall cost structure by another $0.9 - $1.0 million per quarter. The restructuring plan resulted in special charges totaling $0.7 million recorded during the six-month period ending June 30, 2017. These charges were primarily related to severance costs and included $0.4
million of non-cash stock-based compensation severance.
2016 Restructuring
In the fourth quarter of fiscal 2016, the Board of Directors approved a plan of restructurings intended to streamline and flatten the Company’s organization, reduce overall headcount by approximately 30%, and reduce its overall cost structure by approximately $2.5
8
million per quarter. The restructuring plan resulted in special charges totaling $0.3 million recorded during the three-month period ended December 31, 2016. These charges were primarily relate
d to severance costs and were all paid out by December 31, 2016.
2014 Restructuring
On May 6, 2014, the Board of Directors approved a plan of restructuring intended to streamline and flatten the Company’s organization, reduce overall headcount by approximately 20%, and reduce its overall cost structure by approximately $2.0 million per quarter. The restructuring plan resulted in special charges totaling $1.8 million recorded during the three-month period ended June 30, 2014. These charges were for non-cash stock-based compensation expense of $1.3 million, severance costs for affected employees of $0.4 million, and other related costs of $0.1 million.
2013 Restructuring
On July 25, 2013, the Board of Directors approved a plan of restructuring intended to bring the Company’s operating expenses better in line with revenues. The restructuring plan involved a realignment of organizational structures, facility consolidations/closures, and headcount reductions of approximately 26% of the Company’s worldwide workforce resulting in annualized savings of approximately $16.0 million. The restructuring plan resulted in special charges totaling $5.6 million recorded in the year ended December 31, 2013. These charges were for lease/rental terminations of $3.3 million, severance costs for affected employees of $1.1 million, equipment, and improvements write-offs as a result of our lease/rental terminations of $1.0 million and other related costs of $0.2 million.
In the year ended December 31, 2014, we increased the reserve by $0.6 million due to changes in our assumptions on future sublease income on our lease terminations of $0.8 million, partially offset by adjustments to our one-time employee termination benefits.
Following is the activity in our restructuring liability for the six months ended June 30, 2017 (in thousands):
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December 31, 2016
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|
|
|
|
|
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June 30, 2017
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Balance
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|
Provision-net
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Usage
|
|
|
Balance
|
|
Lease/rental terminations
|
|
$
|
1,786
|
|
|
$
|
(3
|
)
|
|
$
|
(170
|
)
|
|
$
|
1,613
|
|
One-time employee termination benefits
|
|
|
65
|
|
|
|
805
|
|
|
|
(574
|
)
|
|
|
296
|
|
Datacenter consolidation, other
|
|
|
109
|
|
|
|
(93
|
)
|
|
|
(16
|
)
|
|
|
—
|
|
Total
|
|
$
|
1,960
|
|
|
$
|
709
|
|
|
$
|
(760
|
)
|
|
$
|
1,909
|
|
Of the total $1.9 million balance, $0.6 million is reported in Accrued liabilities and $1.3 million is reported in Deferred rent and other long-term liabilities on the balance sheet.
6. Net Loss Per Share
The Company calculates earnings per share (“EPS”) as required by FASB ASC Topic No. 260,
Earnings Per Share
. Basic EPS is calculated by dividing the net income available to common stockholders by the weighted average number of common shares outstanding for the period, excluding common stock equivalents. Diluted EPS is computed by dividing the net income available to common stockholders by the weighted average number of common shares outstanding for the period, plus the weighted average number of dilutive common stock equivalents outstanding for the period determined using the treasury-stock method. For periods with a net loss, the dilutive common stock equivalents are excluded from the diluted EPS calculation. For purposes of this calculation, common stock subject to repurchase by the Company, options, and warrants are considered to be common stock equivalents and are only included in the calculation of diluted earnings per share when their effect is dilutive.
On August 15, 2016, the Company filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation with the Secretary of State of Delaware for the purpose of effecting a reverse stock split (the “Reverse Split”) of the outstanding shares of the Company’s common stock at a ratio of one (1) share for every four (4) shares outstanding, so that every four (4) outstanding shares of common stock before the Reverse Split represents one (1) share of common stock after the Reverse Split. Proportionate adjustments were made to: (i) the aggregate number of shares of Common Stock available for equity-based awards to be granted in the future under our 2015 Omnibus Equity Incentive Plan; (ii) the number of shares that would be owned upon vesting of restricted stock awards and stock options which are outstanding under our 2015 Omnibus Equity Incentive Plan and 2005 Stock Option Plan, and the exercise price of any outstanding stock options, and (iii) the number of shares of Common Stock available for purchase under our Preferred Shares Rights Agreement, dated October 16, 2015, between us and Computershare Trust Company, N.A., as rights agent. We have a total of 100,000,000 authorized shares of common stock which remained unchanged by the reverse stock split. The Reverse Split, which was approved by the Company’s stockholders at the special meeting held on August 15, 2016 and was effective on August 17, 2016. The Company adjusted shareholders' equity to reflect the reverse stock split by reclassifying an amount equal to the par value
9
of the additional shares arising from the split from common stock to the Additional Paid-in Capital during the third quarter of fiscal 2016, resulting in no net impact to shareholders' equity on our consolidated balance sheets.
Fractional shares were rounded down to the nearest whole share. Stockholders received cash in lieu of such fractional shares. All information presented herein has been retrospectively adjusted to reflect the reverse stock split as if it took place as of
the earliest period presented.
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For the Three Months Ended June 30,
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|
|
For the Six Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(unaudited, in thousands, except per share amounts)
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|
(unaudited, in thousands, except per share amounts)
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Numerator:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to
common stockholders
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|
$
|
(2,574
|
)
|
|
$
|
(3,280
|
)
|
|
$
|
(4,806
|
)
|
|
$
|
(6,986
|
)
|
Denominator:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding - basic
|
|
|
13,179
|
|
|
|
11,741
|
|
|
|
12,674
|
|
|
|
11,632
|
|
Potential common shares -
options / warrants
(treasury stock method)
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|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
|
|
—
|
|
Weighted average shares
outstanding - diluted
|
|
|
13,179
|
|
|
|
11,741
|
|
|
|
12,678
|
|
|
|
11,632
|
|
Shares excluded (anti-dilutive)
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|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
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|
Shares excluded due to an exercise
price greater than weighted average
stock price for the period
|
|
|
1,973
|
|
|
|
368
|
|
|
|
1,869
|
|
|
|
368
|
|
Net loss per common share:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Basic
|
|
$
|
(0.20
|
)
|
|
$
|
(0.28
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
(0.60
|
)
|
Diluted
|
|
$
|
(0.20
|
)
|
|
$
|
(0.28
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
(0.60
|
)
|
7. Stock-Based Compensation
Stock Plans
During the six months ended June 30, 2017, the Company granted 87,500 shares of restricted stock with a weighted average grant date fair value of $1.11 per share. These costs will be amortized ratably over a period of 0 to 48 months.
As of June 30, 2017, there were 1.7 million shares available for future grants under the 2015 Omnibus Equity Incentive Plan.
Employee Stock Purchase Plan
The Company’s most recent six-month offering period ended June 30, 2017 and resulted in 2,002 shares being purchased/granted at a fair value of $0.79 per share. The next six-month offering period began on April 1, 2017 and will end on September 30, 2017. These shares will have a fair value of $0.77 per share.
Stock Compensation
The Company accounts for all stock-based payment awards made to employees and directors based on their fair values, which is recognized as compensation expense over the vesting period using the straight-line method over the requisite service period for each award as required by FASB ASC Topic No. 718,
Compensation-Stock Compensation
. Restricted stock is valued using the closing stock price on the date of the grant. Options are valued using a Black-Scholes valuation model.
10
Stock-based non-cash compensation
expense related to stock options, restricted stock grants, and the employee stock purchase plan were recorded in the financial statements as follows (in thousands):
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|
For the Three Months Ended June 30,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Cost of revenues
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2
|
|
Selling and marketing
|
|
|
(36
|
)
|
|
|
84
|
|
|
|
(33
|
)
|
|
|
154
|
|
Research and development
|
|
|
46
|
|
|
|
127
|
|
|
|
125
|
|
|
|
248
|
|
General and administrative
|
|
|
207
|
|
|
|
194
|
|
|
|
344
|
|
|
|
361
|
|
Restructuring expense
|
|
|
171
|
|
|
|
—
|
|
|
|
398
|
|
|
|
—
|
|
Total non-cash stock compensation expense
|
|
$
|
388
|
|
|
$
|
405
|
|
|
$
|
834
|
|
|
$
|
765
|
|
8. Fair Value Measurements
The Company measures and discloses fair value measurements as required by FASB ASC Topic No. 820,
Fair Value Measurements and Disclosures
.
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, the FASB establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
|
•
|
Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets
|
|
•
|
Level 2 - Include other inputs that are directly or indirectly observable in the marketplace
|
|
•
|
Level 3 - Unobservable inputs which are supported by little or no market activity
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The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
As required by FASB ASC Topic No. 820, we measure our cash and cash equivalents at fair value. Our cash equivalents are classified within Level 1 by using quoted market prices utilizing market observable inputs.
As required by FASB ASC Topic No. 820, we measure our warrant liability at fair value. Our warrant liability is classified within Level 3 as some of the inputs to our valuation model are either not observable quoted prices or are not derived principally from or corroborated by observable market data by correlation or other means.
As required by FASB ASC Topic No. 820, we utilize quoted market prices to estimate the fair value of our fixed rate debt, when available. If quoted market prices are not available, we calculate the fair value of our fixed rate debt based on a currently available market rate, assuming the loans are outstanding through maturity and considering the collateral. In determining the current market rate for fixed rate debt, a market spread is added to the quoted yields on federal government treasury securities with similar terms to the debt.
9. Debt and Fair Value of Financial Instruments
The Company analyzes all financial instruments with features of both liabilities and equity under FASB ASC Topic No. 480,
Distinguishing Liabilities From Equity
and FASB ASC Topic No. 815,
Derivatives and Hedging
. Derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives. The effects of interactions between embedded derivatives are calculated and accounted for in arriving at the overall fair value of the financial instruments. In addition, the fair values of freestanding derivative instruments, such as warrant derivatives are valued using the Black-Scholes model.
11
At June 30, 2017 and December 31, 2016, the carrying value and the aggregate fair value of the Company’s warrant liability and long-term debt were as follows (in thousands):
|
|
As of June 30, 2017
|
|
|
As of December 31, 2016
|
|
|
|
Carrying Amount
|
|
|
Fair Value
|
|
|
Carrying Amount
|
|
|
Fair Value
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability, net
|
|
$
|
1,063
|
|
|
$
|
1,063
|
|
|
$
|
1,210
|
|
|
$
|
1,210
|
|
Long-term debt, net
|
|
$
|
2,316
|
|
|
$
|
2,316
|
|
|
$
|
1,934
|
|
|
$
|
1,934
|
|
The warrants were accounted for as liabilities, with changes in the fair value included in net loss for the respective periods. Because some of the inputs to our valuation model were either not observable nor derived principally from or corroborated by observable market data by correlation or other means, the warrant liability is classified as a Level 3 in the fair value hierarchy.
Our stock price can be volatile and there could be material fluctuations in the value of the warrants in future periods.
A roll forward of our warrant liability classified as Level 3 and measured at fair value on a recurring basis is as follows (in thousands):
Balance, December 31, 2016 (audited)
|
|
$
|
1,210
|
|
Change in fair value of warrant liability
|
|
|
(147
|
)
|
Balance, June 30, 2017 (unaudited)
|
|
$
|
1,063
|
|
Warrant Liability
On September 2, 2016, we entered into a Note and Warrant Purchase Agreement with Unterberg Koller Capital Fund L.P. and William W. and Dieva L. Smith (collectively, the “Investors”), pursuant to which the Company issued and sold to the Investors in a private placement senior subordinated promissory notes in the aggregate principal amount of $4,000,000 and five-year warrants to purchase an aggregate of 1,700,000 shares of the Company’s common stock at an exercise price of $2.74 per share that expire five years from the date of issuance. The Company completed the transactions contemplated by the Purchase Agreement and issued the Notes and Warrants on September 6, 2016. We assessed the warrants and concluded that they should be recorded as a liability.
The initial fair value of the warrant liability associated with the Note and Warrant Purchase Agreement was $2.1 million, and the fair value has decreased to $ 1.1 million as of June 30, 2017.
All changes in the fair value of warrants will be recognized in our consolidated statements of operations until they are either exercised or expire. The warrants are not traded in an active securities market and, as such, the estimated fair value as of June 30, 2017 was determined by using an option pricing model (Black-Scholes) with the following assumptions:
|
|
As of
|
|
|
|
June 30, 2017
|
|
Expected term
|
|
4.17
|
|
Common stock market price
|
|
$
|
1.46
|
|
Risk-free interest rate
|
|
|
1.77
|
%
|
Expected volatility
|
|
|
74.7
|
%
|
Resulting fair value (per warrant)
|
|
$
|
0.63
|
|
Expected volatility is based on historical volatility. Historical volatility was computed using monthly pricing observations for recent periods that correspond to the expected term of the warrants. We believe this method produces an estimate that is representative of our expectations of future volatility over the expected term of these warrants. We currently have no reason to believe future volatility over the expected remaining life of these warrants is likely to differ materially from historical volatility. The expected life is based on the remaining contractual term of the warrants. The risk-free interest rate is the U.S. Treasury bond rate as of the valuation date.
Short-Term Debt
On February 7, 2017, the Company entered into a short-term secured borrowing arrangement with William W. and Dieva L. Smith (“Smith”) and on February 8, 2017 entered into a short-term secured borrowing arrangement with Steven L. and Monique P. Elfman (“Elfman”) pursuant to which Smith and Elfman each loaned to the Company $1,000,000 and the Company issued to each of them a Secured Promissory Note (the “Original Notes”) bearing interest at the rate of 18% per annum. The Original Notes were due on
12
March 24, 2
017 and are secured by the Company’s accounts receivable and certain other assets. William W. Smith, Jr. is the Company’s Chairman of the Board, President and Chief Executive Officer. Steven L. Elfman is a director of the Company.
On March 25, 2017, the Company entered into an Amendment to the Original Note issued to Smith that extended the Maturity Date of the Note to June 26, 2017.
On March 31, 2017, the Company entered into a new short-term secured borrowing arrangement with Elfman for $1,000,000 which matured on June 23, 2017.
On June 30, 2017, the Company entered into a new short-term secured borrowing arrangement with each of Smith and Elfman, to refinance the prior Notes with each of them which matured on June 26, 2017 and June 23, 2017, respectively. Under the new borrowing arrangement, the Company issued to each of Smith and Elfman a new Secured Promissory Note (“Amended Notes”) with a principal balance of $1,000,000, bearing interest at the rate of 12% per annum, and maturing on September 25, 2017. The maturity date of the Amended Note entered into with Smith may be extended by up to 180 days upon the mutual consent of the Company and Smith. Each of the Amended Notes are secured by the Company’s accounts receivable and certain other assets.
Long-Term Debt
At June 30, 2017, the aggregate fair value and the carrying value of the Company’s long-term debt was as follows (in thousands):
|
|
As of June 30, 2017
|
|
|
As of December 31, 2016
|
|
|
|
Carrying Amount
|
|
|
Fair Value
|
|
|
Carrying Amount
|
|
|
Fair Value
|
|
Long-term debt - related party
|
|
$
|
1,158
|
|
|
$
|
1,158
|
|
|
$
|
967
|
|
|
$
|
967
|
|
Long-term debt
|
|
|
1,158
|
|
|
|
1,158
|
|
|
|
967
|
|
|
|
967
|
|
Total long-term debt
|
|
$
|
2,316
|
|
|
$
|
2,316
|
|
|
$
|
1,934
|
|
|
$
|
1,934
|
|
The carrying value of $2.3 million and $1.9 million are net of debt discount of $1.6 million and $1.9 million and debt issuance costs of $0.1 million and $0.2 million as of June 30, 2017 and December 31, 2016, respectively.
10. Cash and Cash Equivalents
Cash and cash equivalents are primarily held in two financial institutions and are uninsured except for the minimum Federal Deposit Insurance Corporation (“FDIC”) coverage and have original maturity dates of three months or less. As of June 30, 2017 and December 31, 2016, bank balances totaling approximately $2.1 million and $2.1 million, respectively, were uninsured.
11. Accounts Receivable
The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains reserves for estimated credit losses and those losses have been within management’s estimates. Allowances for product returns are included in other adjustments to accounts receivable on the consolidated balance sheets. Product returns are estimated based on historical experience and management estimations.
The Company is utilizing the accounts receivable balances to secure the related party short term notes payable.
12. Impairment or Disposal of Long Lived Assets
Long-lived assets to be held are reviewed for events or changes in circumstances which indicate that their carrying value may not be recoverable. They are tested for recoverability using undiscounted cash flows to determine whether or not impairment to such value has occurred as required by FASB ASC Topic No. 360,
Property, Plant, and Equipment
. The Company determined there was no impairment as of June 30, 2017 and June 30, 2016. The Company determined there was an impairment of its Customer Relationships intangible asset in the amount of $0.4 million as of December 31, 2016.
13. Equipment and Improvements
Equipment and improvements are stated at cost. Depreciation is computed using the straight-line method based on the estimated useful lives of the assets, generally ranging from three to seven years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the lease term.
13
14. Goodwill
In accordance with FASB ASC Topic No. 350,
Intangibles-Goodwill and Other
, we review the recoverability of the carrying value of goodwill at least annually or whenever events or circumstances indicate a potential impairment. The Company’s impairment testing will be done annually at December 31. Recoverability of goodwill is determined by comparing the fair value of the Company’s reporting units to the carrying value of the underlying net assets in the reporting units. If the fair value of a reporting unit is determined to be less than the carrying value of its net assets, goodwill is deemed impaired and an impairment loss is recognized to the extent that the carrying value of goodwill exceeds the difference between the fair value of the reporting unit and the fair value of its other assets and liabilities. The Company determined that there was no goodwill impairment at June 30, 2017 and December 31, 2016.
15. Intangible Assets
The following table sets forth our acquired intangible assets by major asset class as of June 30, 2017 and December 31, 2016 (in thousands except for useful life data):
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
Useful life
|
|
|
|
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
|
|
|
Accumulated
|
|
|
Net book value
|
|
|
Impairment
|
|
|
Net
|
|
|
|
(years)
|
|
|
Gross
|
|
|
amortization
|
|
|
book value
|
|
|
Gross
|
|
|
amortization
|
|
|
before impairment
|
|
|
charge
|
|
|
book value
|
|
Purchased technology
|
|
5-6
|
|
|
$
|
265
|
|
|
$
|
(54
|
)
|
|
$
|
211
|
|
|
$
|
265
|
|
|
$
|
(32
|
)
|
|
$
|
233
|
|
|
$
|
—
|
|
|
$
|
233
|
|
Customer relationships
|
|
3-6
|
|
|
|
528
|
|
|
|
(176
|
)
|
|
|
352
|
|
|
|
999
|
|
|
|
(147
|
)
|
|
|
852
|
|
|
|
(411
|
)
|
|
|
441
|
|
Trademarks/trade names
|
|
|
2
|
|
|
|
38
|
|
|
|
(19
|
)
|
|
|
19
|
|
|
|
38
|
|
|
|
(9
|
)
|
|
|
29
|
|
|
|
—
|
|
|
|
29
|
|
Non-compete
|
|
|
3
|
|
|
|
51
|
|
|
|
(17
|
)
|
|
|
34
|
|
|
|
51
|
|
|
|
(9
|
)
|
|
|
42
|
|
|
|
—
|
|
|
|
42
|
|
Total
|
|
|
|
|
|
$
|
882
|
|
|
$
|
(266
|
)
|
|
$
|
616
|
|
|
$
|
1,353
|
|
|
$
|
(197
|
)
|
|
$
|
1,156
|
|
|
$
|
(411
|
)
|
|
$
|
745
|
|
Intangible assets amortization expense was $0.1 million for the three and six months ended June 30, 2017, respectively, and $0 for the three and six months ended June 30, 2016, respectively.
Future amortization expense related to intangible assets as of June 30, 2017 are as follows (in thousands):
Year Ending December 31,
|
|
|
|
|
2017 - 6 months remaining
|
|
$
|
129
|
|
2018
|
|
|
249
|
|
2019
|
|
|
143
|
|
2020
|
|
|
47
|
|
2021
|
|
|
40
|
|
Beyond
|
|
|
8
|
|
Total
|
|
$
|
616
|
|
16. Segment, Customer Concentration and Geographical Information
Segment Information
Public companies are required to report financial and descriptive information about their reportable operating segments as required by FASB ASC Topic No. 280,
Segment Reporting
. The Company has two primary business units based on how management internally evaluates separate financial information, business activities and management responsibility. Wireless includes our NetWise®, CommSuite®, SafePath™, and QuickLink® family of products. Graphics includes our consumer-based products: Poser®, Moho™, ClipStudio®, MotionArtist® and StuffIt®.
The Company does not separately allocate operating expenses to these business units, nor does it allocate specific assets. Therefore, business unit information reported includes only revenues.
The following table shows the revenues generated by each business unit (in thousands):
|
|
For the Three Months Ended June 30,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Wireless
|
|
$
|
4,629
|
|
|
$
|
6,303
|
|
|
$
|
8,988
|
|
|
$
|
12,276
|
|
Graphics
|
|
|
1,233
|
|
|
|
1,156
|
|
|
|
2,450
|
|
|
|
2,397
|
|
Total revenues
|
|
$
|
5,862
|
|
|
$
|
7,459
|
|
|
$
|
11,438
|
|
|
$
|
14,673
|
|
14
Customer Concentration Information
A summary of the Company’s customers that represent 10% or more of the Company’s net revenues is as follows:
|
|
For the Three Months Ended June 30,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Wireless:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sprint (& affiliates)
|
|
|
61.8
|
%
|
|
|
64.6
|
%
|
|
|
60.6
|
%
|
|
|
64.8
|
%
|
Graphics:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FastSpring
|
|
|
15.6
|
%
|
|
|
11.1
|
%
|
|
|
14.8
|
%
|
|
|
12.3
|
%
|
The two customers listed above comprised 76% and 81% our accounts receivable as of June 30, 2017 and 2016, respectively.
Geographical Information
During the three months ended June 30, 2017 and 2016, the Company operated in three geographic locations; the Americas, EMEA (Europe, the Middle East, and Africa), and Asia Pacific. Revenues, attributed to the geographic location of the customers’ bill-to address, were as follows (in thousands):
|
|
For the Three Months Ended June 30,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Americas
|
|
$
|
5,763
|
|
|
$
|
7,302
|
|
|
$
|
11,236
|
|
|
$
|
14,444
|
|
EMEA
|
|
|
31
|
|
|
|
103
|
|
|
|
81
|
|
|
|
164
|
|
Asia Pacific
|
|
|
68
|
|
|
|
54
|
|
|
|
121
|
|
|
|
65
|
|
Total revenues
|
|
$
|
5,862
|
|
|
$
|
7,459
|
|
|
$
|
11,438
|
|
|
$
|
14,673
|
|
The Company does not separately allocate specific assets to these geographic locations.
17. Related-Party Transactions
On September 2, 2016, the Company entered into a Note and Warrant Purchase Agreement (the “Purchase Agreement”) with William W. and Dieva L. Smith (collectively, the “Investors”), pursuant to which the Company issued and sold to the Investors in a private placement senior subordinated promissory notes in the aggregate principal amount of $2,000,000 (the “Debt Notes”) and five-year warrants (the “Warrants”) to purchase an aggregate of 850,000 shares of the Company’s common stock at an exercise price of $2.74 per share. The Company completed the transactions contemplated by the Purchase Agreement and issued the Debt Notes and Warrants on September 6, 2016. William W. Smith, Jr. is the Company’s Chairman of the Board, President and Chief Executive Officer. Refer to Note 19 Long Term Debt below for additional details.
On February 7, 2017, the Company entered into a short-term secured borrowing arrangement with William W. and Dieva L. Smith (“Smith”) and on February 8, 2017 entered into a short-term secured borrowing arrangement with Steven L. and Monique P. Elfman (“Elfman”) pursuant to which Smith and Elfman each loaned to the Company $1,000,000 and the Company issued to each of them a Secured Promissory Note (the “Original Notes”) bearing interest at the rate of 18% per annum. The Original Notes were due on March 24, 2017 are secured by the Company’s accounts receivable and certain other assets. Steven L. Elfman is a director of the Company.
On March 25, 2017, the Company entered into an Amendment to the Original Note issued to Smith that extended the Maturity Date of the Note to June 26, 2017.
On March 31, 2017, the Company entered into a new short-term secured borrowing arrangement with Elfman for $1,000,000 which matured on June 23, 2017.
On June 30, 2017, the Company entered into a new short-term secured borrowing arrangement with each Smith and Elfman to refinance the prior with each of them which matured on June 26, 2017 and June 23, 2017, respectively. Under the new borrowing arrangement, the Company issued to each of Smith and Elfman a new Secured Promissory Note (“Amended Notes”) with a principal balance of $1,000,000, bearing interest at the rate of 12% per annum, and maturing on September 25, 2017. The maturity date of the
15
Amended Note entered into with Smith may be extended by up to 1
80 days upon the mutual consent of the Company and Smith. Each of the Amended Notes are secured by the Company’s accounts receivable and certain other assets.
On May 16, 2017, the Company entered into subscription agreement with Andrew Arno in a private placement pursuant to which the Company issued and sold 50,000 shares of its common stock at a price per share of $1.10. Andrew Arno is a director of the Company.
18. Commitments and Contingencies
Leases
The Company leases its buildings under operating leases that expire on various dates through 2022. Future minimum annual lease payments under such leases as of June 30, 2017 are as follows (in thousands):
Year Ending December 31,
|
|
Operating
|
|
2017 - 6 months remaining
|
|
$
|
1,194
|
|
2018
|
|
|
2,417
|
|
2019
|
|
|
2,020
|
|
2020
|
|
|
1,719
|
|
2021
|
|
|
1,721
|
|
2022
|
|
|
33
|
|
Total
|
|
$
|
9,104
|
|
As of June 30, 2017, $3.6 million of the remaining lease commitments expense has been accrued as part of the 2013 Restructuring Plan, partially offset by future estimated sublease income of $1.9 million.
Rent expense under operating leases was $0.6 million and $0.5 million for the three months ended June 30, 2017 and 2016, respectively. Rent expense under operating leases was $1.0 million and $0.8 million for the six months ended June 30, 2017 and 2016, respectively.
As a condition of our Pittsburgh lease that was signed in November 2010, the landlord agreed to incentives of $40.00 per square foot, or a total of $2.2 million, for improvements to the space. These costs have been included in deferred rent in our long-term liabilities and are being amortized over the ten-year lease term.
Pennsylvania Opportunity Grant Program
On September 19, 2016, we entered into a Settlement and Release Agreement with the Commonwealth of Pennsylvania, acting by and through the Department of Community and Economic Development (“DCED”) to repay $0.3 million of the original $1.0 million grant. Per the agreement, the total amount due of $0.3 million is at 0% interest and is payable in twenty equal quarterly installments commencing on January 31, 2017 and ending on October 31, 2021. The balances were $0.3 million as of June 30, 2017 and December 31, 2016 and are reported in Accrued liabilities and Deferred rent and other long-term liabilities on the balance sheet.
Litigation
The Company may become involved in various legal proceedings arising from its business activities. While management does not believe the ultimate disposition of these matters will have a material adverse impact on the Company’s consolidated results of operations, cash flows, or financial position, litigation is inherently unpredictable, and depending on the nature and timing of these proceedings, an unfavorable resolution could materially affect the Company’s future consolidated results of operations, cash flows, or financial position in a particular period.
Other Contingent Contractual Obligations
During its normal course of business, the Company has made certain indemnities, commitments, and guarantees under which it may be required to make payments in relation to certain transactions. These include: intellectual property indemnities to the Company’s customers and licensees in connection with the use, sale, and/or license of Company products; indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease; indemnities to vendors and service providers pertaining to claims based on the negligence or willful misconduct of the Company; indemnities involving the accuracy of representations and warranties in certain contracts; and, indemnities to directors and officers of the Company to the maximum extent permitted under the laws of the State of Delaware. In addition, the Company has made contractual commitments to employees
16
providing for severance payments upon the occurrence of certain prescribed events. The Company may also issue a
guarantee in the form of a standby letter of credit as security for contingent liabilities under certain customer contracts. The duration of these indemnities, commitments, and guarantees varies, and in certain cases, may be indefinite. The majority of th
ese indemnities, commitments, and guarantees may not provide for any limitation of the maximum potential for future payments the Company could be obligated to make. The Company has not recorded any liability for these indemnities, commitments, and guarante
es in the accompanying consolidated balance sheets.
19. Long Term Debt
On September 2, 2016, the Company entered into a Note and Warrant Purchase Agreement (the “Purchase Agreement”) with Unterberg Koller Capital Fund L.P. and William W. and Dieva L. Smith (collectively, the “Investors”), pursuant to which the Company issued and sold to the Investors in a private placement senior subordinated promissory notes in the aggregate principal amount of $4,000,000 (the “Debt Notes”) and five-year warrants (the “Warrants”) to purchase an aggregate of 1,700,000 shares of the Company’s common stock (the “Warrant Shares”) at an exercise price of $2.74 per share. The Company completed the transactions contemplated by the Purchase Agreement and issued the Notes and Warrants on September 6, 2016.
The Debt Notes mature three years following the issuance date, or September 6, 2019, and bear interest at the rate of 10% of the outstanding principal balance of the Debt Notes, payable quarterly in cash or shares of the Company’s common stock at a conversion price equal to the greater of (i) the five-day volume weighted average closing price of the common stock on the Nasdaq Stock Market, measured on the third trading day prior to the date that interest is due, or, (ii) the minimum price so that payment of interest for such installment in the form of common stock shall not constitute “equity compensation” to an officer, director, employee or consultant of the Company for purposes of Rule 5635(c) of the Nasdaq Stock Market or a private placement that, combined with the other securities issued or issuable under the Purchase Agreement, would require shareholder approval by the Company under Rule 5635(d) of the Nasdaq Stock Market. The Debt Notes are subordinate and junior in right of payment to the prior payment in full of all claims, whether now existing or arising in the future, of holders of senior debt of the Company, as described in the Debt Notes.
Under the Debt Notes, if an Acceleration Event occurs and shall be continuing, any Holder of the Debt Notes may by written notice delivered to the Secretary of the Company within ninety days after any occurrence of such Acceleration Event (an “Acceleration Notice”) declare the entire unpaid principal balance of the Debt Note, together with all interest accrued, due and payable without presentment, demand, protest, or notice (except for the delivery of an Acceleration Notice). For purposes of the Debt Notes, an Acceleration Event shall occur if, while the Debt Notes are outstanding, William W. Smith, Jr. (i) is not nominated for re-election as a director of the Company at the normal expiration of his term as director, (ii) is terminated or removed as Chairman of the Board of Directors of the Company, (iii) is terminated or removed as Chief Executive Officer of the Company, or (iv) dies or becomes permanently disabled. An Acceleration Event shall not occur if Mr. Smith consents to any of the events referenced above or voluntarily resigns or retires from any of the positions listed.
We allocated the aggregate proceeds of the senior subordinated promissory notes payable between the warrants and the debt obligations based on their fair values. In accordance with FASB ASC Topics 480 and 815, the warrants were recorded as a liability and are marked to market at each reporting end. The fair value of the warrants was calculated utilizing the Black-Scholes option pricing model. The Black-Scholes option-pricing model incorporates various and highly sensitive assumptions, including expected volatility, expected term, and risk-free interest rates. The expected volatility is based on the historical volatility of the Company’s common stock over the most recent period. The risk-free interest rate for the period within the contractual life of the warrant is based on the U.S. Treasury yield in effect at the time of grant. We are amortizing the fair value of the warrants as a discount of $2.1 million over the term of the loan using the effective interest method, with an effective interest rate of 28.4%.
20. Equity Transactions
On May 16, 2017, the Company entered into subscription agreements with several investors for the issuance and sale of an aggregate of 2,077,000 shares of its common stock, in a registered direct offering at a purchase price of $1.05 per share. The Shares were offered by the Company pursuant to a shelf registration statement on Form S-3 (File No. 333-215786), which was declared effective on February 10, 2017 by the Securities and Exchange Commission (the “SEC”). Also, on May 16, 2017, the Company entered into subscription agreements with four accredited investors in a private placement pursuant to which the Company issued and sold to the Investors an aggregate of 85,000 shares of its unregistered common stock at a price per share of $1.10.
The Company engaged Sutter Securities Incorporated and Chardan Capital Markets, LLC as co-placement agents in connection with the registered direct offering pursuant to engagement letter agreements with each firm. The Company agreed to pay the placement agents a cash placement fee and issued to the placement agents warrants to purchase shares of Common Stock equal to 5% of the number of shares sold through each of them, without duplication, at an exercise price per share equal to $1.21 (Sutter) and $1.155 (Chardan). The warrants have a term of five years and will be exercisable beginning on November 18, 2017.
17
The transactions closed on May 17, 2017 and the Company realized gross proceeds of $2.3 million before deducting transaction fees and other ex
penses.
Offering costs related to the transaction totaled $0.2 million, comprised of $0.1 million of transaction fees and $0.1 million of legal and other expenses, resulting in net proceeds of $2.1 million.
21. Income Taxes
We account for income taxes as required by FASB ASC Topic No. 740,
Income Taxes
. This Topic clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Topic also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Topic requires an entity to recognize the financial statement impact of a tax position when it is more likely than not that the position will be sustained upon examination. The amount recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. In addition, the Topic permits an entity to recognize interest and penalties related to tax uncertainties either as income tax expense or operating expenses. The Company has chosen to recognize interest and penalties related to tax uncertainties as income tax expense.
The Company assesses whether a valuation allowance should be recorded against its deferred tax assets based on the consideration of all available evidence, using a “more likely than not” realization standard. The four sources of taxable income that must be considered in determining whether deferred tax assets will be realized are: (1) future reversals of existing taxable temporary differences (i.e., offset of gross deferred tax liabilities against gross deferred tax assets); (2) taxable income in prior carryback years, if carryback is permitted under the applicable tax law; (3) tax planning strategies; and, (4) future taxable income exclusive of reversing temporary differences and carryforwards.
In assessing whether a valuation allowance is required, significant weight is to be given to evidence that can be objectively verified. A significant factor in the Company’s assessment is that the Company has been in a five-year historical cumulative loss as of the end of fiscal year 2016. These facts, combined with uncertain near-term market and economic conditions, reduced the Company’s ability to rely on projections of future taxable income in assessing the realizability of its deferred tax assets.
After a review of the four sources of taxable income as of December 31, 2016 (as described above), and after consideration of the Company’s continuing cumulative loss position as of December 31, 2016, the Company will continue to reserve its US-based deferred tax amounts, which total $76.3 million, as of June 30, 2017.
The Company is subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. Federal income tax returns of the Company are subject to IRS examination for the 2012 – 2015 tax years. State income tax returns are subject to examination for a period of three to four years after filing. The outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income tax in the period such resolution occurs. We may from time to time be assessed interest or penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to our consolidated financial results. It is the Company’s policy to classify any interest and/or penalties in the consolidated financial statements as a component of income tax expense.
22. Subsequent Events
The Company evaluates and discloses subsequent events as required by FASB ASC Topic No. 855,
Subsequent Events
. The Topic establishes general standards of accounting for and disclosure of events that occur after the balance sheet date, but before the financial statements are issued or are available to be issued.
Subsequent events have been evaluated as of the date of this filing and no further disclosures were required.
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