Note: Share and per share amounts for the three and six months ended June 30, 2019 have been adjusted to reflect the impact of a 1-for-20 reverse stock split effected in August 2019, as discussed in Note 1.
The accompanying notes are an integral part of these condensed consolidated financial statements.
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, 2019
|
|
|
2,179
|
|
|
$
|
2
|
|
|
$
|
243,281
|
|
|
|
—
|
|
|
$
|
(238,447
|
)
|
|
$
|
4,836
|
|
Issuance of common stock for release of awards
|
|
|
20
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
Exercise of pre-funded warrants
|
|
|
116
|
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
68
|
|
|
|
—
|
|
|
|
—
|
|
|
|
68
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,405
|
)
|
|
|
(1,405
|
)
|
Balance as of March 31, 2020
|
|
|
2,315
|
|
|
|
2
|
|
|
|
243,350
|
|
|
|
—
|
|
|
|
(239,852
|
)
|
|
|
3,500
|
|
Issuance of common stock for release of awards
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Sale of common stock, net of financing costs
|
|
|
1,218
|
|
|
|
1
|
|
|
|
1,618
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,619
|
|
Deemed dividend for warrant exercise price adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
392
|
|
|
|
—
|
|
|
|
(392
|
)
|
|
|
—
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
66
|
|
|
|
—
|
|
|
|
—
|
|
|
|
66
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(639
|
)
|
|
|
(639
|
)
|
Balance as of June 30, 2020
|
|
|
3,534
|
|
|
$
|
3
|
|
|
$
|
245,426
|
|
|
$
|
—
|
|
|
$
|
(240,883
|
)
|
|
$
|
4,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Share and per share amounts for the three and six months ended June 30, 2019 have been adjusted to reflect the impact of a 1-for-20 reverse stock split effected in August 2019, as discussed in Note 1.
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)
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,044
|
)
|
|
$
|
(93
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
82
|
|
|
|
111
|
|
Stock-based compensation
|
|
|
134
|
|
|
|
115
|
|
Accrued interest
|
|
|
112
|
|
|
|
110
|
|
Other
|
|
|
(7
|
)
|
|
|
(7
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
574
|
|
|
|
267
|
|
Inventories
|
|
|
(48
|
)
|
|
|
547
|
|
Prepaid expenses and other assets
|
|
|
221
|
|
|
|
(21
|
)
|
Accounts payable
|
|
|
(170
|
)
|
|
|
(148
|
)
|
Deferred revenue and other liabilities
|
|
|
(19
|
)
|
|
|
(490
|
)
|
Net cash provided by (used in) operating activities
|
|
|
(1,165
|
)
|
|
|
391
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(12
|
)
|
|
|
(55
|
)
|
Proceeds from maturities of short-term investments
|
|
|
300
|
|
|
|
500
|
|
Purchases of short-term investments
|
|
|
—
|
|
|
|
(1,567
|
)
|
Net cash provided by (used in) investing activities
|
|
|
288
|
|
|
|
(1,122
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from PPP note
|
|
|
579
|
|
|
|
—
|
|
Proceeds from sale of common stock, net of financing costs
|
|
|
1,619
|
|
|
|
—
|
|
Net proceeds from exercise of pre-funded warrants
|
|
|
2
|
|
|
|
—
|
|
Taxes paid to net share settle equity awards
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Net cash provided by (used in) financing activities
|
|
|
2,199
|
|
|
|
(1
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
|
1,322
|
|
|
|
(732
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
6,053
|
|
|
|
7,104
|
|
Cash and cash equivalents at end of period
|
|
$
|
7,375
|
|
|
$
|
6,372
|
|
Supplemental disclosure:
|
|
|
|
|
|
|
|
|
Issuance of convertible note in settlement of accrued interest
|
|
$
|
112
|
|
|
$
|
78
|
|
Fair value of warrant exercise price adjustment considered as deemed dividend
|
|
$
|
392
|
|
|
$
|
—
|
|
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 software and firmware products.
The accompanying condensed consolidated financial statements of the Company have been prepared without audit.
The condensed consolidated balance sheet as of December 31, 2019 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 six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 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.
Risks and Uncertainties
The Company is subject to risks from, among other things, competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history and the volatility of public markets.
COVID-19
The global outbreak of the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by the U.S. government in March 2020. This has negatively affected the U.S. and global economy, disrupted global supply chains, significantly restricted travel and transportation, resulted in mandated closures and orders to “shelter-in-place” and created significant disruption of the financial markets. The full extent of the COVID-19 impact on the Company’s operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by U.S. and foreign government agencies to prevent disease spread, all of which are uncertain, out of the Company’s control, and cannot be predicted.
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.
7
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 and the conversion price of the convertible notes 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.
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. As of June 30, 2020 the Company did not have any short-term investments.
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.
8
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 June 30, 2020 or December 31, 2019.
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 a $0.1 million write down of inventory during the six months ended June 30, 2020 and recorded no material inventory write-downs during the six months ended June 30, 2019.
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.
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 six months ended June 30, 2020, the Company recognized revenue of $0.2 million that had been included in deferred revenue as of December 31, 2019.
See Note 5 for disaggregation of revenue by geography.
9
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.
Warrants
As of June 30, 2020, the Company had the following warrants outstanding to purchase its common stock (share amounts in thousands):
|
|
|
Warrant type
|
|
Number of Shares
|
|
|
Exercise Price
|
|
|
Expiration
|
Common stock
|
|
|
33
|
|
|
$
|
47.00
|
|
|
January 2023
|
Common stock
|
|
|
1,846
|
|
|
$
|
2.40
|
|
|
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 securities outstanding which were excluded from the computation of diluted net income (loss) per share as their inclusion would be anti-dilutive (in thousands):
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Options outstanding to purchase common stock
|
|
|
161
|
|
|
|
82
|
|
Unvested restricted common stock units
|
|
|
81
|
|
|
|
107
|
|
Convertible notes
|
|
|
262
|
|
|
|
240
|
|
Warrants
|
|
|
1,879
|
|
|
|
1,994
|
|
Total
|
|
|
2,383
|
|
|
|
2,423
|
|
Note 2: Fair Value of Financial Instruments
The estimated fair values of financial instruments outstanding were (in thousands):
|
|
June 30, 2020
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Cash and cash equivalents
|
|
$
|
7,375
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,375
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
Cash and cash equivalents
|
|
$
|
6,053
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,053
|
|
Short-term investments
|
|
|
300
|
|
|
|
—
|
|
|
|
—
|
|
|
|
300
|
|
|
|
$
|
6,353
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,353
|
|
10
The following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and investments) (in thousands):
|
|
June 30, 2020
|
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Money market funds
|
|
$
|
3,892
|
|
|
$
|
3,892
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
December 31, 2019
|
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Money market funds
|
|
$
|
4,574
|
|
|
$
|
4,574
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Corporate notes and commercial paper
|
|
$
|
300
|
|
|
$
|
—
|
|
|
$
|
300
|
|
|
$
|
—
|
|
There were no transfers in or out of Level 1 and Level 2 securities during the six months ended June 30, 2020 or 2019.
Note 3. Balance Sheet Detail
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(in thousands)
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Work-in-process
|
|
$
|
567
|
|
|
$
|
746
|
|
Finished goods
|
|
|
449
|
|
|
|
222
|
|
|
|
$
|
1,016
|
|
|
$
|
968
|
|
Note 4. Commitments and Contingencies
Indemnification
In the ordinary course of business, the Company enters into contractual arrangements under which it may agree to indemnify the counterparties from any losses incurred relating to breach of representations and warranties, failure to perform certain covenants, or claims and losses arising from certain events as outlined within the particular contract, which may include, for example, losses arising from litigation or claims relating to past performance. Such indemnification clauses may not be subject to maximum loss clauses. The Company has also entered into indemnification agreements with its officers and directors. No material amounts were reflected in the Company’s condensed consolidated financial statements for the three and six months ended June 30, 2020 or 2019 related to these indemnifications.
The Company has not estimated the maximum potential amount of indemnification liability under these agreements due to the limited history of prior claims and the unique facts and circumstances applicable to each particular agreement. To date, the Company has not made any material payments related to these indemnification agreements.
Legal Matters
The Company is not a party to any legal proceeding that the Company believes is likely to have a material adverse effect on its condensed consolidated financial position or results of operations. From time to time the Company may be subject to legal proceedings and claims in the ordinary course of business. These claims, even if not meritorious, could result in the expenditure of significant financial resources and diversion of management efforts.
Note 5. Business Segments, Concentration of Credit Risk and Significant Customers
The Company operates in one business segment and uses one measurement of profitability for its business. Net revenue is attributed to the United States and to all foreign countries based on the geographical location of the customer.
11
The Company recognized revenue from shipment of product and licensing of its technologies to customers by geographical location as follows (in thousands):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
North America
|
|
$
|
1,807
|
|
|
$
|
2,587
|
|
|
$
|
2,618
|
|
|
$
|
5,074
|
|
Japan
|
|
|
14
|
|
|
|
346
|
|
|
|
250
|
|
|
|
1,252
|
|
Taiwan
|
|
|
108
|
|
|
|
54
|
|
|
|
247
|
|
|
|
128
|
|
Rest of world
|
|
|
39
|
|
|
|
79
|
|
|
|
113
|
|
|
|
132
|
|
Total net revenue
|
|
$
|
1,968
|
|
|
$
|
3,066
|
|
|
$
|
3,228
|
|
|
$
|
6,586
|
|
Customers who accounted for at least 10% of total net revenue were:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Customer A
|
|
44%
|
|
*%
|
|
32%
|
|
*%
|
Customer B
|
|
29%
|
|
12%
|
|
28%
|
|
13%
|
Customer C
|
|
*%
|
|
29%
|
|
*%
|
|
26%
|
Customer D
|
|
*%
|
|
27%
|
|
*%
|
|
21%
|
*
|
Represents less than 10%
|
Four customers accounted for 99% of accounts receivable as of June 30, 2020. Four customers accounted for 85% of accounts receivable as of December 31, 2019.
Note 6. Income Tax Provision
The Company determines deferred tax assets and liabilities based upon the differences between the financial statement and tax bases of the Company’s assets and liabilities using tax rates in effect for the year in which the Company expects the differences to affect taxable income. A valuation allowance is established for any deferred tax assets for which it is more likely than not that all or a portion of the deferred tax assets will not be realized.
The Company files U.S. federal and state and foreign income tax returns in jurisdictions with varying statutes of limitations. All tax returns from 2014 to 2019 may be subject to examination by the Internal Revenue Service, California and other states. Returns filed in foreign jurisdictions may be subject to examination for the years 2010 to 2019. As of June 30, 2020, the Company has not recorded any liability for unrecognized tax benefits related to uncertain tax positions.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted on March 27, 2020 in the United States. The CARES Act includes several significant provisions for corporations, including the usage of net operating losses and payroll benefits. As a result of the CARES Act, the Company was able to file for and collect a $0.1 million federal tax receivable for a prior-period alternative minimum tax credit.
Note 7. Stock-Based Compensation
The expense relating to stock options is recognized on a straight-line basis over the requisite service period, usually the vesting period, based on the grant-date fair value. The unamortized compensation cost, as of June 30, 2020, was $0.2 million related to stock options and is expected to be recognized as expense over a weighted-average period of approximately 1.9 years. The expense related to restricted stock units (RSUs) is recognized over a three-to-five year vesting period and is based on the fair value of the underlying stock on the dates of grant. The unamortized compensation cost, as of June 30, 2020, was $0.2 million related to RSUs and is expected to be recognized as expense over a weighted-average period of approximately 1.6 years.
12
For the three and six months ended June 30, 2020 and 2019, there were no excess tax benefits associated with the exercise of stock options due to the Company’s historical loss positions.
Valuation Assumptions
There were no awards granted during the six months ended June 30, 2020. The fair value of the Company’s stock options granted during the six months ended June 30, 2019 was estimated on the grant dates using the Black-Scholes valuation option-pricing model with the following assumptions:
|
|
Six Months Ended
|
|
|
|
June 30, 2019
|
|
Risk-free interest rate
|
|
|
2.5
|
%
|
Volatility
|
|
|
128.4
|
%
|
Expected life (years)
|
|
3.0 - 5.0
|
|
Dividend yield
|
|
|
—
|
%
|
The risk-free interest rate was derived from the Daily Treasury Yield Curve Rates, as published by the U.S. Department of the Treasury as of the grant date for terms equal to the expected terms of the options. The expected volatility was based on the historical volatility of the Company’s stock price over the expected term of the options. The expected term of options granted was derived from historical data based on employee exercises and post‑vesting employment termination behavior. A dividend yield of zero is applied because the Company has never paid dividends and has no intention to pay dividends in the near future. The Company accounts for forfeitures as they occur.
Common Stock Options and Restricted Stock
In August 2019, the Company’s stockholders approved the 2019 Stock Incentive Plan (the 2019 Plan), and, as a result, the Amended and Restated 2010 Equity Incentive Plan (the 2010 Plan) was terminated. No future grants of awards will be made under the 2010 Plan, although it will continue to govern prior awards granted thereunder, until all such awards granted have been exercised, forfeited, canceled, expired or otherwise terminated in accordance with their terms. The 2019 Plan authorizes the board of directors or the compensation committee of the board of directors to grant a broad range of awards including stock options, stock appreciation rights, restricted stock, performance-based awards, and restricted stock units. Under the 2019 Plan, 182,500 shares have been reserved for issuance.
The term of all incentive stock options granted to a person who, at the time of grant, owns stock representing more than 10% of the voting power of all classes of the Company’s stock may not exceed five years. The exercise price of stock options granted under the 2019 Plan must be at least equal to the fair market value of the shares on the date of grant. Generally, options granted under the 2019 Plan will vest over a three to four-year period and have a term of 10 years from the date of grant. In addition, the 2019 Plan provides for automatic acceleration of vesting for options granted to non-employee directors upon a change of control of the Company.
A summary of option activity under the 2010 Plan and the 2019 Plan is presented below (in thousands, except exercise price):
|
|
|
|
|
|
Options outstanding
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Shares
|
|
|
|
|
|
|
Average
|
|
|
|
Available
|
|
|
Number of
|
|
|
Exercise
|
|
|
|
for Grant
|
|
|
Shares
|
|
|
Prices
|
|
Balance as of January 1, 2020
|
|
|
88
|
|
|
|
161
|
|
|
$
|
10.85
|
|
Activity
|
|
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Balance as of June 30, 2020
|
|
|
88
|
|
|
|
161
|
|
|
$
|
10.85
|
|
13
A summary of RSU activity under the Plan is presented below (in thousands, except for fair value):
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Grant-Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
Non-vested shares as of January 1, 2020
|
|
|
103
|
|
|
$
|
3.75
|
|
Vested
|
|
|
(21
|
)
|
|
$
|
3.80
|
|
Non-vested shares as of March 31, 2020
|
|
|
82
|
|
|
$
|
3.74
|
|
Cancelled
|
|
|
(1
|
)
|
|
$
|
4.55
|
|
Non-vested shares as of June 30, 2020
|
|
|
81
|
|
|
$
|
3.73
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of the RSUs outstanding as of June 30, 2020 was $0.1 million.
The following table summarizes significant ranges of outstanding and exercisable options as of June 30, 2020 (in thousands, except contractual life and exercise price):
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number
|
|
|
Life
|
|
|
Exercise
|
|
|
Number
|
|
|
Exercise
|
|
|
Intrinsic
|
|
Range of Exercise Price
|
|
Outstanding
|
|
|
(in Years)
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
|
value
|
|
$1.57 - $14.99
|
|
|
144
|
|
|
|
8.76
|
|
|
$
|
2.64
|
|
|
|
43
|
|
|
$
|
3.10
|
|
|
$
|
28
|
|
$15.00 - $25.59
|
|
|
8
|
|
|
|
3.24
|
|
|
$
|
15.00
|
|
|
|
5
|
|
|
$
|
15.00
|
|
|
$
|
—
|
|
$25.60 - $143.99
|
|
|
3
|
|
|
|
3.86
|
|
|
$
|
41.88
|
|
|
|
2
|
|
|
$
|
47.46
|
|
|
$
|
—
|
|
$144.00 - $409.99
|
|
|
5
|
|
|
|
6.15
|
|
|
$
|
144.00
|
|
|
|
5
|
|
|
$
|
144.00
|
|
|
$
|
—
|
|
$410.00 - $924.00
|
|
|
1
|
|
|
|
4.69
|
|
|
$
|
430.64
|
|
|
|
1
|
|
|
$
|
430.64
|
|
|
$
|
—
|
|
$1.57 - $924.00
|
|
|
161
|
|
|
|
8.29
|
|
|
$
|
10.85
|
|
|
|
56
|
|
|
$
|
25.97
|
|
|
$
|
28
|
|
There were no stock options exercised during the six months ended June 30, 2020 or 2019.
14
Note 8: Stockholders’ Equity
On April 21, 2020, the Company completed a registered direct offering of securities under an effective registration statement filed with the SEC pursuant to the Securities Act of 1933, as amended. In the offering, the Company sold 1,218,000 shares of common stock at a price of $1.56 per share to institutional investors. Net proceeds of the offering, after placement agent and other fees and expenses paid by the Company, were approximately $1.6 million. As a result of the offering, the exercise price of the 1,845,540 outstanding common stock purchase warrants that were issued in October 2018 was reduced from $6.00 per share to $2.40 per share. The Company accounted for the warrant exercise price adjustment in accordance with Accounting Standards Codification Topic 260 and determined that the change in the exercise price results in a deemed dividend of $392,000 that increased the net loss attributable to common stockholders at June 30, 2020.
Note 9. Notes Payable
Convertible Notes
In March 2016, the Company entered into a 10% Senior Secured Convertible Note Purchase Agreement (the Purchase Agreement) with the purchasers of $8,000,000 principal amount of 10% Senior Secured Convertible Notes due August 15, 2018 (the Notes), at par, in a private placement transaction effected pursuant to an exemption from the registration requirements under the Securities Act of 1933, as amended. Pursuant to amendments to the Notes and related documents in February and October 2018, the interest rate was reduced to 8%, the maturity date of the Notes was extended to August 15, 2023, and the optional conversion price was reduced from $170.00 of Note principal per share of common stock to $11.434 of Note principal per share of common stock. The conversion price is subject to adjustment upon certain events, such as stock splits, reverse stock splits, stock dividends and similar kinds of transactions, as set forth in the Purchase Agreement. Pursuant to a security agreement, the Notes are secured by a security interest in all of the assets of the Company.
Accrued interest is payable semi-annually in cash or in kind through the issuance of identical new Notes, or with a combination of the two, at the Company’s option. The Notes are noncallable and nonredeemable by the Company. The Notes are redeemable at the election of the holders if the Company experiences a fundamental change (as defined in the Notes), which generally would occur in the event (i) any person acquires beneficial ownership of shares of common stock of the Company entitling such person to exercise at least 40% of the total voting power of all of the shares of capital stock of the Company entitled to vote generally in elections of directors, (ii) an acquisition of the Company by another person through a merger or consolidation, or the sale, transfer or lease of all or substantially all of the Company’s assets, or (iii) the Company’s current directors cease to constitute a majority of the board of directors of the Company within a 12-month period, disregarding for this purpose any director who voluntarily resigns as a director or dies while serving as a director. Effective February 2018, pursuant to one amendment to the Notes, the redemption price was reduced from 120% to 100% of the principal amount of the Note to be repurchased plus accrued and unpaid interest as of the redemption date.
No Note holder shall be entitled to convert such holder’s Note if effective upon the applicable conversion date (i) the holder would have beneficial ownership of more than 19.9% of the voting capital stock of the Company as determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended, (with exceptions specified in the Purchase Agreement), or (ii) if the shares are being acquired or held with a purpose or effect of changing or influencing control of the Company, or in connection with or as a participant in any transaction having that purpose or effect, as determined in the sole discretion of the board of directors of the Company. There is no required sinking fund for the Notes. The Notes have not been registered for resale, and the holder(s) do not have registration rights.
The Notes restrict the ability of the Company to incur any indebtedness for borrowed money, unless such indebtedness by its terms is expressly subordinated to the Notes in right of payment and to the security interest of the Note holder(s) in respect to the priority and enforcement of any security interest in property of the Company securing such new debt; provided that the Note holder(s) security interest and cash payment rights under the Notes shall be subordinate to a maximum of $5,000,000 of indebtedness for a secured accounts receivable line of credit facility provided to the Company by a bank or institutional lender; and, provided further, that in no event may the amount of indebtedness to which the security interest of the Note holder(s) is subordinated exceed the outstanding balance of accounts receivable less than 90 days old for which the Company has not recorded an allowance for doubtful accounts pledged under such credit facility.
15
The Notes define an event of default generally as any failure by the Company to pay an amount owed under the Notes when due (subject to cure periods), a default with respect to other indebtedness of the Company resulting in acceleration of such indebtedness, the commencement of bankruptcy or insolvency proceedings, or the cessation of business. If an event of default occurs under the Notes, the holder(s) of a majority-in-interest of the outstanding principal amount of the Notes may declare the outstanding principal amount thereof to be immediately due and payable and pursue all available remedies, including taking possession of the assets of the Company and selling them to pay the amount of debt then due, plus expenses, in accordance with applicable laws and procedures.
In accordance with the October 2018 amendment to the Notes, the Company used $7.4 million of the proceeds from a public offering of securities effected in October 2018 to repay a portion of the Notes. Semi-annual interest payments have been made in each of February 2019, August 2019 and February 2020 for approximately $78,000, $109,000 and $112,000, respectively, in-kind with the issue of additional notes (Interest Notes) to the Purchasers. The Interest Notes have terms identical to the Notes. As of June 30, 2020, the Notes and Interest Notes could be converted into a maximum of 262,375 shares of common stock at $11.434 per share, excluding the effects of future payments of interest in-kind and a beneficial ownership ceiling of 9.9%. The $3.0 million of outstanding Notes are payable in full in 2023.
PPP Note
On May 7, 2020, the Company entered into a Promissory Note with Wells Fargo Bank, N.A. (the Lender) in an aggregate principal amount of $579,330 (the PPP Note), pursuant to the Paycheck Protection Program (the PPP) under the CARES Act.
The term of the PPP Note is two years. Interest will accrue on the outstanding principal balance of the PPP Note at a fixed rate of 1.0%, which shall be deferred for the first six months of the term of the PPP Note. Monthly payments will be due and payable beginning in November 2020 and continue each month thereafter until maturity of the PPP Note. The Company may prepay principal of the PPP Note at any time in any amount without penalty. The Agreement contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties or provisions of the PPP Note. The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owing from the Company, and/or filing suit and obtaining judgment against the Company.
The Company may apply to the Lender for forgiveness of the PPP Note, under the terms of the PPP. No assurance is provided that the Company will obtain forgiveness of the PPP Note in whole or in part, but the Company intends to use the proceeds in accordance with the PPP. If the PPP Note is not forgiven, principal payments will be due: $49,000 in 2020, $292,000 in 2021, $238,330 in 2022.
Note 10. Leases
Effective January 1, 2019, the Company adopted Accounting Standards Update (ASU) No. 2016-02, as amended, using the alternative transition method, which allowed the Company to initially apply the new lease standard at the adoption date (the “effective date method”). Under the effective date method, comparative periods are presented under previous GAAP, Accounting Standards Codification 840, and do not include any retrospective adjustments to reflect the adoption of ASU No. 2016-02. As an accounting policy, the Company has elected not to apply the recognition requirements to short-term leases and not to separate non-lease components from lease components. The Company also has elected the package of transition provisions available for existing contracts, which allowed the Company to carryforward its historical assessments of (i) whether contracts are or contain leases, (ii) lease classification and (iii) initial direct costs. The adoption did not result in a cumulative-effect adjustment to the opening balance of accumulated deficit. As a result of the adoption, the Company recorded an operating lease right-of-use asset of $0.4 million and corresponding short-term and long-term liabilities of $0.2 million and $0.2 million, respectively, as of January 1, 2019. The adoption of ASU No. 2016-02 did not have a material impact on the Company’s condensed consolidated statement of operations and comprehensive income or cash flows as of the adoption date.
16
The Company identified only one lease to be accounted for under ASU No. 2016-02 pertaining to the lease for its corporate facility, which expires in October 2020. The right-of-use asset and corresponding liability for the facility lease have been measured at the present value of the future minimum lease payments. The discount rate used to measure the lease asset and liability represents the interest rate on the Notes (8%). Lease expense is recognized on a straight-line basis over the lease term, and operating lease expense was $0.1 million for the six months ended June 30, 2020. The Company has an option to extend the lease for an additional 20.5 month period, but, as the renewal is not reasonably certain, it has not included this renewal option in its accounting for the lease.
Our future minimum payments under our facility operating lease as of June 30, 2020 are listed in the table below (in thousands):
|
|
Operating
|
|
Year ending December 31,
|
|
lease
|
|
2020
|
|
$
|
75
|
|
Less: imputed interest
|
|
|
(9
|
)
|
Present value of lease liabilities
|
|
$
|
66
|
|
|
|
|
|
|
Supplemental cash flow information related to the operating lease was as follows (in thousands):
|
|
|
|
|
Six months ended
|
|
|
|
|
|
|
June 30, 2020
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows for lease
|
|
|
|
$
|
112
|
|
17