UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

(Mark one)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

 

OR

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                to              

 

Commission file number 000-32929

 

MOSYS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

   

77-0291941

(State or other jurisdiction

 

(I.R.S. Employer

of Incorporation or organization)

 

Identification Number)

 

2309 Bering Drive

San Jose, California, 95131

(Address of principal executive office and zip code)

 

(408) 418-7500

(Registrant’s telephone number, including area code)

 

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading symbol(s)

 

Name of each exchange on which registered

 

Common Stock, par value $0.001 per share

MOSY

Nasdaq Capital Market

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days.  YES   NO 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  YES   NO 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer 

 

Accelerated filer 

Non-accelerated filer 

 

Smaller reporting company 

Emerging Growth Company 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No 

 

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 2,177,552 as of November 1, 2019.

 

 

 


 

MOSYS, INC.

 

FORM 10-Q

September 30, 2019

 

TABLE OF CONTENTS

 

PART I —

FINANCIAL INFORMATION

3

 

 

 

Item 1.

Financial Statements (Unaudited):

3

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018

3

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2019 and 2018

4

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2019 and 2018

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

 

 

 

Item 4.

Controls and Procedures

24

 

 

 

PART II —

OTHER INFORMATION

24

 

 

 

Item 1.

Legal Proceedings

24

 

 

 

Item 1A.

Risk Factors

24

 

 

 

Item 6.

Exhibits

25

 

 

 

 

Signatures

26

 

 

 

 

 


 

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

MOSYS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except par value)

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,170

 

 

$

7,104

 

Short-term investments

 

 

650

 

 

 

 

Accounts receivable

 

 

893

 

 

 

1,622

 

Inventories

 

 

1,215

 

 

 

1,148

 

Prepaid expenses and other

 

 

596

 

 

 

923

 

Total current assets

 

 

9,524

 

 

 

10,797

 

Property and equipment, net

 

 

193

 

 

 

279

 

Goodwill

 

 

 

 

 

420

 

Right-of-use lease asset

 

 

203

 

 

 

 

Other

 

 

139

 

 

 

260

 

Total assets

 

$

10,059

 

 

$

11,756

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

131

 

 

$

236

 

Deferred revenue

 

 

146

 

 

 

273

 

Short-term lease liability

 

 

197

 

 

 

 

Accrued expenses and other

 

 

1,249

 

 

 

1,402

 

Total current liabilities

 

 

1,723

 

 

 

1,911

 

Long-term liabilities

 

 

19

 

 

 

17

 

Convertible notes payable

 

 

2,858

 

 

 

2,671

 

Total liabilities

 

 

4,600

 

 

 

4,599

 

Commitments and contingencies (Note 4)

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value; 20,000 shares authorized; none issued and

   outstanding

 

 

 

 

 

 

Common stock, $0.001 par value; 120,000 shares authorized; 2,178 shares

   and 2,148 shares issued and outstanding at September 30, 2019 and

   December 31, 2018, respectively

 

 

2

 

 

 

2

 

Additional paid-in capital

 

 

243,217

 

 

 

243,022

 

Accumulated other comprehensive income

 

 

1

 

 

 

 

Accumulated deficit

 

 

(237,761

)

 

 

(235,867

)

Total stockholders’ equity

 

 

5,459

 

 

 

7,157

 

Total liabilities and stockholders’ equity

 

$

10,059

 

 

$

11,756

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


 

MOSYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except per share data)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

$

1,037

 

 

$

4,056

 

 

$

7,233

 

 

$

11,811

 

Royalty and other

 

 

169

 

 

 

287

 

 

 

559

 

 

 

1,338

 

Total net revenue

 

 

1,206

 

 

 

4,343

 

 

 

7,792

 

 

 

13,149

 

Cost of net revenue

 

 

407

 

 

 

1,948

 

 

 

2,989

 

 

 

5,382

 

Gross profit

 

 

799

 

 

 

2,395

 

 

 

4,803

 

 

 

7,767

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

1,097

 

 

 

1,023

 

 

 

3,231

 

 

 

3,064

 

Selling, general and administrative

 

 

1,059

 

 

 

919

 

 

 

2,963

 

 

 

3,158

 

Impairment of goodwill

 

 

420

 

 

 

3,159

 

 

 

420

 

 

 

3,159

 

Total operating expenses

 

 

2,576

 

 

 

5,101

 

 

 

6,614

 

 

 

9,381

 

Loss from operations

 

 

(1,777

)

 

 

(2,706

)

 

 

(1,811

)

 

 

(1,614

)

Interest expense

 

 

(54

)

 

 

(104

)

 

 

(164

)

 

 

(531

)

Other income, net

 

 

30

 

 

 

 

 

 

81

 

 

 

 

Loss before income tax provision

 

 

(1,801

)

 

 

(2,810

)

 

 

(1,894

)

 

 

(2,145

)

Income tax provision

 

 

 

 

 

2

 

 

 

 

 

 

4

 

Net loss

 

$

(1,801

)

 

$

(2,812

)

 

$

(1,894

)

 

$

(2,149

)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gains on available-for-sale securities

 

 

 

 

 

 

 

 

1

 

 

 

 

Comprehensive loss

 

$

(1,801

)

 

$

(2,812

)

 

$

(1,893

)

 

$

(2,149

)

Net loss per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.83

)

 

$

(6.83

)

 

$

(0.88

)

 

$

(5.25

)

Shares used in computing net loss per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

2,171

 

 

 

412

 

 

 

2,161

 

 

 

409

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4


 

MOSYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Total

 

Balance as of December 31, 2018

 

 

2,148

 

 

$

2

 

 

$

243,022

 

 

 

 

 

$

(235,867

)

 

$

7,157

 

Issuance of common stock for release of awards

 

 

9

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

(1

)

Stock-based compensation

 

 

 

 

 

 

 

 

(4

)

 

 

 

 

 

 

 

 

(4

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

10

 

Balance as of March 31, 2019

 

 

2,157

 

 

 

2

 

 

 

243,017

 

 

 

 

 

 

(235,857

)

 

 

7,162

 

Issuance of common stock for release of awards

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

119

 

 

 

 

 

 

 

 

 

119

 

Unrealized gain on available-for-sale investments

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(103

)

 

 

(103

)

Balance as of June 30, 2019

 

 

2,162

 

 

 

2

 

 

 

243,136

 

 

 

1

 

 

 

(235,960

)

 

 

7,179

 

Issuance of common stock for release of awards

 

 

16

 

 

 

 

 

 

(3

)

 

 

 

 

 

 

 

 

(3

)

Stock-based compensation

 

 

 

 

 

 

 

 

84

 

 

 

 

 

 

 

 

 

84

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,801

)

 

 

(1,801

)

Balance as of September 30, 2019

 

 

2,178

 

 

$

2

 

 

$

243,217

 

 

$

1

 

 

$

(237,761

)

 

$

5,459

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Total

 

Balance as of December 31, 2017

 

 

404

 

 

$

 

 

$

232,034

 

 

$

 

 

$

(224,688

)

 

$

7,346

 

Cumulative effect of accounting change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

230

 

 

 

230

 

Issuance costs for the sale of common stock

 

 

 

 

 

 

 

 

(12

)

 

 

 

 

 

 

 

 

(12

)

Issuance of common stock for release of awards

 

 

5

 

 

 

 

 

 

(38

)

 

 

 

 

 

 

 

 

(38

)

Stock-based compensation

 

 

 

 

 

 

 

 

93

 

 

 

 

 

 

 

 

 

93

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

348

 

 

 

348

 

Balance as of March 31, 2018

 

 

409

 

 

 

 

 

 

232,077

 

 

 

 

 

 

(224,110

)

 

 

7,967

 

Stock-based compensation

 

 

 

 

 

 

 

 

159

 

 

 

 

 

 

 

 

 

159

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

315

 

 

 

315

 

Balance as of June 30, 2018

 

 

409

 

 

 

 

 

 

232,236

 

 

 

 

 

 

(223,795

)

 

 

8,441

 

Issuance of common stock for release of awards

 

 

5

 

 

 

 

 

 

(8

)

 

 

 

 

 

 

 

 

(8

)

Stock-based compensation

 

 

 

 

 

 

 

 

194

 

 

 

 

 

 

 

 

 

194

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,812

)

 

 

(2,812

)

Balance as of September 30, 2018

 

 

414

 

 

$

 

 

$

232,422

 

 

$

 

 

$

(226,607

)

 

$

5,815

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


 

MOSYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(1,894

)

 

$

(2,149

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

148

 

 

 

486

 

Stock-based compensation

 

 

199

 

 

 

446

 

Amortization of intangible assets

 

 

 

 

 

83

 

Impairment of goodwill

 

 

420

 

 

 

3,159

 

Amortization of debt issuance costs

 

 

 

 

 

30

 

Accrued interest

 

 

164

 

 

 

500

 

Other

 

 

(11

)

 

 

 

Changes in assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

729

 

 

 

(822

)

Inventories

 

 

(67

)

 

 

395

 

Prepaid expenses and other assets

 

 

448

 

 

 

782

 

Accounts payable

 

 

(105

)

 

 

(30

)

Deferred revenue and other liabilities

 

 

(257

)

 

 

(2,469

)

Net cash provided by (used in) operating activities

 

 

(226

)

 

 

411

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(62

)

 

 

(45

)

Proceeds from maturities of short-term investments

 

 

925

 

 

 

 

Purchases of short-term investments

 

 

(1,567

)

 

 

 

Net cash used in investing activities

 

 

(704

)

 

 

(45

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Issuance costs for sale of common stock

 

 

 

 

 

(12

)

Taxes paid to net share settle equity awards

 

 

(4

)

 

 

(46

)

Net cash used in financing activities

 

 

(4

)

 

 

(58

)

Net increase (decrease) in cash and cash equivalents

 

 

(934

)

 

 

308

 

Cash and cash equivalents at beginning of period

 

 

7,104

 

 

 

3,868

 

Cash and cash equivalents at end of period

 

$

6,170

 

 

$

4,176

 

Supplemental disclosure:

 

 

 

 

 

 

 

 

Issuance of convertible notes in settlement of accrued interest

 

$

187

 

 

$

846

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6


 

MOSYS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. The Company and Summary of Significant Accounting Policies

MoSys, Inc. (the Company) was incorporated in California in September 1991 and reincorporated in September 2000 in Delaware. The Company’s strategy and primary business objective is to be an IP-rich fabless semiconductor company focused on the development and sale of integrated circuit (IC) and related firmware products. Its Bandwidth Engine ICs combine the Company’s proprietary high-density embedded memory with its high-speed 10 gigabits per second and higher interface technology.

The accompanying condensed consolidated financial statements of the Company have been prepared without audit.  

The condensed consolidated balance sheet as of December 31, 2018 has been derived from the audited consolidated financial statements at that date. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been condensed or omitted in accordance with these rules and regulations of the Securities and Exchange Commission (SEC). The information in this report should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in its most recent annual report on Form 10-K filed with the SEC.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to summarize fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. The operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019 or for any other future period.          

Basis of Presentation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. The Company’s fiscal year ends on December 31 of each calendar year.

 

Reverse Stock Split

On August 27, 2019, the Company filed a certificate of amendment to its amended and restated certificate of incorporation with the Secretary of State of the State of Delaware to effect a 1-for-20 reverse stock split of the Company’s shares of common stock. Such amendment and ratio were previously approved by the Company’s stockholders and board of directors, respectively.

 

As a result of the reverse stock split, which was effective August 28, 2019, every 20 shares of the Company’s pre-reverse split outstanding common stock were combined and reclassified into one share of common stock. Proportionate voting rights and other rights of common stock holders were not affected by the reverse stock split. No fractional shares were issued in connection with the reverse stock split; stockholders who would otherwise hold a fractional share of the Company’s common stock received cash in an amount equal to the product obtained by multiplying (i) the closing sale price of the common stock on the effective date of the reverse stock split as reported on The Nasdaq Stock Market, by (ii) the number of shares of the common stock held by the stockholder that would otherwise have been exchanged for the fractional share interest. All stock options and restricted stock units outstanding and common stock reserved for issuance under the Company’s equity incentive plans and warrants outstanding immediately prior to the reverse stock split were adjusted by dividing the number of affected shares of common stock by 20 and, as applicable, multiplying the exercise price by 20, as a result of the reverse stock split.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses recognized during the reported period. Actual results could differ from those estimates.

7


 

Cash Equivalents and Investments

The Company invests its excess cash in money market accounts, certificates of deposit, commercial paper, corporate debt, government-sponsored enterprise bonds and municipal bonds and considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Investments with original maturities greater than three months and remaining maturities less than one year are classified as short-term investments. Investments with remaining maturities greater than one year are classified as long-term investments. Management generally determines the appropriate classification of securities at the time of purchase. All securities are classified as available-for-sale. The Company’s available-for-sale short-term investments are carried at fair value, with the unrealized holding gains and losses reported in accumulated other comprehensive income. Realized gains and losses and declines in the value judged to be other than temporary are included in the other income, net line item in the condensed consolidated statements of operations and comprehensive loss. The cost of securities sold is based on the specific identification method.

Fair Value Measurements

The Company measures the fair value of financial instruments using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:

Level 1— Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the reporting date.

Level 2— Pricing is provided by third party sources of market information obtained through the Company’s investment advisors, rather than models. The Company does not adjust for, or apply, any additional assumptions or estimates to the pricing information it receives from advisors. The Company’s Level 2 securities may include cash equivalents and available-for-sale securities, which consist primarily of certificates of deposit, corporate debt, and government agency and municipal debt securities from issuers with high-quality credit ratings. The Company’s investment advisors obtain pricing data from independent sources, such as Standard & Poor’s, Bloomberg and Interactive Data Corporation, and rely on comparable pricing of other securities because the Level 2 securities are not actively traded and have fewer observable transactions. The Company considers this the most reliable information available for the valuation of the securities.

Level 3— Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment are used to measure fair value. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions. The determination of fair value for Level 3 investments and other financial instruments involves the most management judgment and subjectivity.

Allowance for Doubtful Accounts

The Company establishes an allowance for doubtful accounts to ensure that its trade receivables balances are not overstated due to uncollectibility. The Company performs ongoing customer credit evaluations within the context of the industry in which it operates and generally does not require collateral from its customers. A specific allowance of up to 100% of the invoice value is provided for any problematic customer balances. Delinquent account balances are written off after management has determined that the likelihood of collection is remote. The Company grants credit only to customers deemed creditworthy in the judgment of management. There was no allowance for doubtful accounts receivable at either September 30, 2019 or December 31, 2018.

Inventories

The Company values its inventories at the lower of cost, which approximates actual cost on a first-in, first-out basis, or net realizable value. The Company records inventory reserves for estimated obsolescence or unmarketable inventories based upon assumptions about future demand and market conditions. Once a reserve is established, it is maintained until the product to which it relates is sold or otherwise disposed of. If actual market conditions are less favorable than those expected by management, additional adjustment to inventory valuation may be required. Charges for obsolete and slow-moving inventories are recorded based upon an analysis of specific identification of obsolete inventory items and quantification of slow moving inventory items. The Company recorded no material inventory write-downs during the three and nine months ended September 30, 2019 and $0.1 million of inventory write-downs during the three and nine months ended September 30, 2018.

8


 

  

Revenue Recognition

The Company generates revenue primarily from sales of IC products and licensing of its IP. Revenues are recognized when control is transferred to customers in amounts that reflect the consideration the Company expects to be entitled to receive in exchange for those goods. Revenue recognition is evaluated through the following five steps: (i) identification of the contract, or contracts, with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied.

IC products

 

Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied.

The majority of the Company's contracts have a single performance obligation to transfer products. Accordingly, the Company recognizes revenue when title and risk of loss have been transferred to the customer, generally at the time of shipment of products. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products and is generally based upon a negotiated, formula, list or fixed price. The Company sells its products both directly to customers and through distributors generally under agreements with payment terms typically less than 60 days.

 

The Company may record an estimated allowance, at the time of shipment, for future returns and other charges against revenue consistent with the terms of sale.

 

Royalty and other

The Company’s licensing contracts typically provide for royalties based on the licensee’s use of the Company’s memory technology in its currently shipping commercial products. The Company estimates its royalty revenue in the calendar quarter in which the licensee uses the licensed technology.  Payments are generally received in the subsequent quarter.

 

Contract liabilities – deferred revenue

The Company’s contract liabilities consist of advance customer payments and deferred revenue. The Company classifies advance customer payments and deferred revenue as current or non-current based on the timing of when the Company expects to recognize revenue.

During the nine months ended September 30, 2019, the Company recognized revenue of $0.3 million that had been included in deferred revenue at December 31, 2018.

See Note 5 for disaggregation of revenue by geography.

Cost of Net Revenue

Cost of net revenue consists primarily of direct and indirect costs of IC product sales and engineering personnel costs directly related to maintenance and support services specified in licensing agreements. Maintenance and support typically include engineering support to assist in the commencement of production of a licensee’s products.

Goodwill

The Company determines the amount of potential goodwill impairment by comparing the fair value of the reporting unit with its carrying amount. To the extent the carrying value of a reporting unit exceeds its fair value, a goodwill impairment charge is recognized.

The Company has determined that it has a single reporting unit for purposes of performing its goodwill impairment test. As the Company uses the market approach to determine the step one fair value, the price of its common stock is an important component of the fair value calculation. If the Company’s stock price continues to experience significant price and volume fluctuations, this will impact the fair value of the reporting unit, which can lead to potential impairment in future periods. The Company reviews goodwill for impairment on an annual basis or whenever events or changes in

9


 

circumstances indicate the carrying value of an asset may not be recoverable. The Company first assesses qualitative factors to determine whether it is more-likely-than-not that the fair value of the reporting unit is less than the carrying amount as a basis for determining whether it is necessary to perform an impairment test. If the qualitative assessment warrants further analysis, the Company compares the fair value of the reporting unit to its carrying value. The fair value of the reporting unit is determined using the market approach. If the fair value of the reporting unit exceeds the carrying value of net assets of the reporting unit, goodwill is not impaired. If the carrying value of the reporting unit’s goodwill exceeds its fair value, then the Company must record an impairment charge equal to the difference. The Company performed its annual test for goodwill impairment as of September 1, 2019, and, due to a decrease in the price per share of its common stock, the test results indicated the goodwill carrying value was greater than its implied fair value. Further, the Company concluded a triggering event had occurred due to the sustained decrease in the price per share of its common stock and related reduced market capitalization as of September 30, 2019 and performed an additional test for impairment of its goodwill asset resulting in further indication that the goodwill carrying value was still greater than its implied fair value. As a result of both of these tests, the Company recorded non-cash impairment charges totaling $0.4 million.  As a result of these charges, the Company’s goodwill balance was reduced to zero at September 30, 2019.

 

Warrants

As of September 30, 2019 and December 31, 2018, the Company had the following outstanding warrants to purchase common stock:

 

 

 

Warrant type

 

Number of shares

 

 

Exercise Price

 

 

Expiration date

Pre-funded common stock

 

 

115,538

 

 

$

0.02

 

 

None

Common stock

 

 

33,125

 

 

$

47.00

 

 

January 2023

Common stock

 

 

1,845,540

 

 

$

6.00

 

 

October 2023

 

Per Share Amounts

Basic net income (loss) per share is computed by dividing net income (loss) for the period by the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per share gives effect to all potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of incremental shares of common stock issuable upon the exercise of stock options, vesting of stock awards and shares issuable in conjunction with the outstanding convertible notes.  

The following table sets forth the computation of basic and diluted net loss per share for the periods indicated (in thousands, except per share amounts):

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(1,801

)

 

$

(2,812

)

 

$

(1,894

)

 

$

(2,149

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

2,171

 

 

 

412

 

 

 

2,161

 

 

 

409

 

Total shares: basic and diluted

 

 

2,171

 

 

 

412

 

 

 

2,161

 

 

 

409

 

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.83

)

 

$

(6.83

)

 

$

(0.88

)

 

$

(5.25

)

 

 

 

10


 

The following table sets forth securities outstanding which were excluded from the computation of diluted net loss per share as their inclusion would be anti-dilutive (in thousands):

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

 

2019

 

 

2018

 

Options to purchase common stock

 

 

81

 

 

 

17

 

Unvested restricted common stock units

 

 

91

 

 

 

19

 

Convertible debt

 

 

245

 

 

 

118

 

Warrants

 

 

1,994

 

 

 

33

 

Total

 

 

2,411

 

 

 

187

 

Recently Adopted Accounting Standards

In 2016, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases. The standard introduces a new lessee model that requires most leases to be recorded on the balance sheet and eliminates the required use of bright-line tests for determining lease classification. In July 2018, the FASB issued the following standards which clarified ASU No. 2016-02 and have the same effective date as the original standard: ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. ASU No. 2018-11 includes an option to not restate comparative periods in transition and elect to use the effective date of ASU No. 2016-02 as the date of initial application of transition. In March 2019, the FASB issued ASU No. 2019-01, Leases (Topic 842): Codification Improvements, which clarifies ASU No. 2016-02 and is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company adopted ASU No. 2016-02, as amended, on January 1, 2019 using the optional transition method provided by the FASB in ASU No. 2018-11. As the Company did not restate comparative periods, the adoption had no impact on previously reported results. The Company elected to use the practical expedient that allowed it to not reassess: (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases as well as the practical expedient that allows lessees to treat the lease and non-lease components of leases as a single lease component for all asset classes. The adoption of this standard had a material impact on the Company’s condensed consolidated balance sheet due to the recognition of right of use assets and lease liabilities. Upon adoption, the Company recognized right of use assets and lease liabilities of approximately $0.4 million that reflected the present value of future lease payments. The adoption of this standard did not have a material impact on the Company’s condensed consolidated results of operations or cash flows. See Note 9 for further information.

In 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718), Improvements to Employee Share-based Payment Accounting. ASU No. 2016-09 simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company adopted ASU No. 2016-09 effective January 1, 2019, and has applied the effects of the adoption from that date. ASU No. 2016-09 permits entities to make an accounting policy election related to how forfeitures will impact the recognition of compensation cost for stock-based compensation to: estimate the total number of awards for which the requisite service period will not be rendered (as previously required) or account for forfeitures as they occur. Upon the adoption of ASU No. 2016-09, the Company elected to change its accounting policy to account for forfeitures as they occur. Historically, estimated forfeitures were immaterial to the consolidated financial statements. The amendments in the standard that required use of a modified retrospective transition method did not materially impact the Company. Therefore, the Company did not recognize a cumulative-effect adjustment to accumulated deficit upon adoption.

 

 

11


 

Note 2: Fair Value of Financial Instruments

The estimated fair values of financial instruments outstanding were (in thousands):

 

 

 

September 30, 2019

 

 

 

 

 

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Cash and cash equivalents

 

$

6,170

 

 

$

 

 

$

 

 

$

6,170

 

Short-term investments

 

 

649

 

 

 

1

 

 

 

 

 

 

650

 

 

 

$

6,819

 

 

$

1

 

 

$