Business and Significant Accounting Policies

PDF Solutions, Inc. (the “Company” or “PDF”), provides infrastructure technologies and services to improve yield and optimize performance of integrated circuits. The Company’s approach includes manufacturing simulation and analysis, combined with yield improvement methodologies to increase product yield and performance.

Basis of Presentation

— The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after the elimination of all significant intercompany balances and transactions.

Use of Estimates

— The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“U.S. 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 during the reporting period. Significant estimates in these financial statements include revenue recognition for fixed-price solution implementation service contracts, stock-based compensation expense and accounting for income taxes. Actual results could differ from those estimates.

Concentration of Credit Risk

— Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents with what it considers high credit quality financial institutions.

The Company primarily sells its technologies and services to companies in Asia, Europe and North America within the semiconductor industry. As of

December

31,

2016,

two

customers accounted for

55%

of the Company’s gross accounts receivable and

two

customers accounted for

52%

of the Company’s revenues for

2016.

As of

December

31,

2015,

one

customer accounted for

65%

of the Company’s gross accounts receivable and

two

customers accounted for

65%

of the Company’s revenues for

2015.

See Note

for further details. The Company does not require collateral or other security to support accounts receivable. To reduce credit risk, management performs ongoing credit evaluations of its customers’ financial condition. The Company maintains allowances for potential credit losses. The allowance for doubtful accounts, which was based on management’s best estimates, could be adjusted in the near term from current estimates depending on actual experience. Such adjustments could be material to the consolidated financial statements.

Cash, Cash Equivalents and Short-term Investments

— The Company considers all highly liquid investments with an original maturity of

days or less to be cash equivalents. Investments with original maturities greater than

three

months and less than

one

year are classified as short-term investments.

Property and Equipment

— Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the related asset as follows:

Long-lived Assets

— The Company’s long-lived assets, excluding goodwill, consist of property and equipment and intangible assets. The Company periodically reviews its long-lived assets for impairment

For assets to be held and used, the Company initiates its review whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset group

may

not be recoverable. Recoverability of an asset group is measured by comparison of its carrying amount to the expected future undiscounted cash flows that the asset group is expected to generate. If it is determined that an asset group is not recoverable, an impairment loss is recorded in the amount by which the carrying amount of the asset group exceeds its fair value.

Goodwill

— The Company records goodwill when the purchase consideration of an acquisition exceeds the fair value of the net tangible and identified intangible assets as of the date of acquisition. The Company performs an annual impairment assessment of its goodwill during the

fourth

quarter of each calendar year or more frequently if required to determine if any events or circumstances exist, such as an adverse change in business climate or a decline in the overall industry demand, that would indicate that it would more likely than not reduce the fair value of a reporting unit below its carrying amount, including goodwill. If events or circumstances do not indicate that the fair value of a reporting unit is below its carrying amount, then goodwill is not considered to be impaired and no further testing is required. If further testing is required, the Company performs a

two

-step process. The

first

step involves comparing the fair value of its reporting unit to its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fair value, the

second

step of the test is performed by comparing the carrying value of the goodwill in the reporting unit to its implied fair value. An impairment charge is recognized for the excess of the carrying value of goodwill over its implied fair value. For the purpose of impairment testing, the Company has determined that it has

one

reporting unit. There has been no impairment of goodwill for any periods presented.

Revenue Recognition

— The Company derives revenue from

two

sources: Design-to-silicon-yield solutions and Gainshare performance incentives.

Design-to-silicon-yield solutions — Revenues that are derived from Design-to-silicon-yield solutions come from services and software and hardware licenses. The Company recognizes revenue for each element of Design-to-silicon-yield solutions as follows:

The Company generates a significant portion of its Design-to-silicon-yield solutions revenue from fixed-price solution implementation service contracts delivered over a specific period of time. These contracts require reliable estimation of costs to perform obligations and the overall scope of each engagement. Revenue under project–based contracts for solution implementation services is recognized as services are performed using percentage of completion method of contract accounting based on costs or labor-hours input method, whichever is the most appropriate measure of the progress towards completion of the contract. Losses on fixed-price solution implementation contracts are recognized in the period when they become probable. Revisions in profit estimates are reflected in the period in which the conditions that require the revisions become known and can be estimated (cumulative catch-up method). During the year ended

December

31,

2016,

the Company recognized changes in

one

of its project’s profitability from revisions in estimates due to the scope changes that resulted in favorable changes of net income of

$0.9

million or

$0.03

per diluted share. Revenue under time and materials contracts for solution implementation services are recognized as the services are performed.

On occasion, the Company licenses its software products as a component of its fixed-price service contracts. In such instances, the software products are licensed to customers over a specified term of the agreement with support and maintenance to be provided, if applicable, over the license term. The amount of product and service revenue recognized in a given period is affected by the Company’s judgment as to whether an arrangement includes multiple deliverables and, if so, the Company’s determination of the fair value of each deliverable. In general, vendor-specific objective evidence of selling price (“VSOE”) does not exist for the Company’s solution implementation services and software products and because the Company’s services and products include our unique technology, the Company is not able to determine

third

-party evidence of selling price (“TPE”). Therefore, in such circumstances the Company uses best estimated selling prices (“BESP”) in the allocation of arrangement consideration. In determining BESP, the Company applies significant judgment as the Company’s weighs a variety of factors, based on the facts and circumstances of the arrangement. The Company typically arrives at BESP for a product or service that is not sold separately by considering company-specific factors such as geographies, internal costs, gross margin objectives, pricing practices used to establish bundled pricing, and existing portfolio pricing and discounting. After fair value is established for each deliverable, the total transaction amount is allocated to each deliverable based upon its relative selling price. Fees allocated to solution implementation services are recognized using the percentage of completion method of contract accounting. Fees allocated to software and related support and maintenance are recognized under software revenue recognition guidance.

In some instances, the Company also licenses its DFI system as a separate component of fixed-price service contracts. The Company allocates revenue to all deliverables based on their relative selling prices. The Company currently does not have VSOE for its DFI system, thus the Company uses either TPE or BESP in the allocation of arrangement consideration.

The Company defers certain pre-contract costs incurred for specific anticipated contracts. Deferred costs consist primarily of direct costs to provide solution implementation services in relation to the specific anticipated contracts. The Company recognizes such costs as a component of cost of revenues, the timing of which is dependent upon persuasive evidence of contract arrangement assuming all other revenue recognition criteria are met. The Company also defers costs from arrangements that required us to defer the revenues, typically due to revenue recognition from multi-element arrangements or from contracts subject to customer acceptance. These costs are recognized in proportion to the related revenue. At the end of the reporting period, the Company evaluates its deferred costs for their probable recoverability. The Company recognizes impairment of deferred costs when it is determined that the costs no longer have future benefits and are no longer recoverable. Deferred costs balance was

$0.5

million and

zero

as of

December

31,

2016

and

December

31,

2015,

respectively. The balance was included in prepaid expenses and other current assets and other non-current assets in the accompanying consolidated balance sheets. During the year ended

December

31,

2014,

the Company impaired

$1.9

million of deferred pre-contract costs for

two

contracts with a customer as it was determined that the costs were no longer recoverable. The impairment charges were recorded in the impairment of deferred costs in the accompanying consolidated statements of operations and comprehensive income.

The Company also licenses its software products separately from solution implementations. For software license arrangements that do not require significant modification or customization of the underlying software, software license revenue is recognized under the residual method when (l) persuasive evidence of an arrangement exists,

(2)

delivery has occurred,

(3)

the fee is fixed or determinable,

(4)

collectability is probable, and

(5)

the arrangement does not require services that are essential to the functionality of the software. When arrangements include multiple elements such as support and maintenance, consulting (other than for fixed price solution implementations), installation, and training, revenue is allocated to each element of a transaction based upon its fair value as determined by the Company's VSOE and such services are recorded as services revenue. VSOE for maintenance is generally established based upon negotiated renewal rates while VSOE for consulting, installation, and training services is established based upon the Company's customary pricing for such services when sold separately. When software is licensed for a specified term, fees for support and maintenance are generally bundled with the license fee over the entire term of the contract. The Company is unable to establish VSOE of fair value for maintenance services that are generally bundled with term licenses. In these cases, the Company recognizes revenue ratably over the term of the contract. For multiple-element arrangements containing non-software services, the Company:

(1)

determines whether each element constitutes a separate unit of accounting;

(2)

determines the fair value of each element using the selling price hierarchy of VSOE, TPE or BESP, as applicable; and

(3)

allocates the total price to each separate unit of accounting based on the relative selling price method. An element constitutes a separate unit of accounting when the delivered item has standalone value and delivery of the undelivered element is probable and within our control. For multiple-element arrangements that contain both software and non-software elements, the Company allocates revenue to software or software-related elements as a group and any non-software elements separately based on the selling price hierarchy of VSOE, TPE or BESP. Once revenue is allocated to software or software-related elements as a group, we recognize revenue in conformance with software revenue accounting guidance. Revenue is recognized when revenue recognition criteria are met for each element.

Revenue from software-as-a-service (SaaS) that allow for the use of a hosted software product or service over a contractually determined period of time without taking possession of software are accounted for as subscriptions and recognized as revenue ratably over the coverage period beginning on the date the service is made available to customers. Revenue for software licenses with extended payment terms is not recognized in excess of amounts due. For software license arrangements that require significant modification or customization of the underlying software, the software license revenue is recognized as services are performed using the percentage of completion method of contract accounting, and such revenue is recorded as services revenue.

Deferred revenues consist substantially of amounts invoiced in advance of revenue recognition and is recognized as the revenue recognition criteria are met. Deferred revenues that will be recognized during the succeeding

month period is recorded as current deferred revenues and the remaining portion is recorded as non- current deferred revenues. Non-current portion of deferred revenue was

$1.5

million and

$0.3

million respectively as of

December

31,

2016

and

2015.

This balance was recorded in the other non-current liabilities in the accompanying consolidated balance sheets.

Gainshare Performance Incentives — When the Company enters into a contract to provide yield improvement services, the contract usually includes

two

components:

(1)

a fixed fee for performance by the Company of services delivered over a specific period of time; and

(2)

a Gainshare performance incentive component where the customer

may

pay a contingent variable fee, usually after the fixed fee period has ended. Revenue derived from Gainshare performance incentives represents profit sharing and performance incentives earned contingent upon the Company’s customers reaching certain defined operational levels established in related solution implementation service contracts. Gainshare performance incentives periods are usually subsequent to the delivery of all contractual services and therefore have virtually no cost to the Company. Due to the uncertainties surrounding attainment of such operational levels, the Company recognizes Gainshare performance incentives revenue (to the extent of completion of the related solution implementation contract) upon receipt of performance reports or other related information from the customer supporting the determination of amounts and probability of collection.

Accounts Receivable

— Accounts receivable include amounts that are unbilled at the end of the period that are expected to be billed and collected within

-month period. Unbilled accounts receivable are determined on an individual contract basis. Unbilled accounts receivable, included in accounts receivable, totaled

$20.8

million and

$11.5

million as of

December

31,

2016,

and

December

31,

2015,

respectively. Unbilled accounts receivable that are not expected to be billed and collected during the succeeding

-month period are recorded in other non-current assets and totaled

$9.8

million and

$0.1

million as of

December

31,

2016

and

2015,

respectively. The Company performs ongoing credit evaluations of its customers’ financial condition. An allowance for doubtful accounts is maintained for probable credit losses based upon the Company’s assessment of the expected collectability of the accounts receivable. The allowance for doubtful accounts is reviewed on a quarterly basis to assess the adequacy of the allowance.

Allowance for doubtful accounts are summarized below:

	Balance at Beginning of Period		Charged to Costs and Expenses		Deductions/ Write-offs of Accounts		Balance at End of Period
Allowance for doubtful accounts
2016	$	299	$	—	$	99	$	200
2015	$	381	$	—	$	82	$	299
2014	$	354	$	27	$	—	$	381

Software Development Costs

— Internally developed software includes software developed to meet our internal needs to provide solution implementation services to our end-customers. These capitalized costs consist of internal compensation related costs and external direct costs incurred during the application development stage and are amortized over their useful lives, generally

six

years. The costs to develop software that is marketed externally have not been capitalized as we believe our current software development process is essentially completed concurrent with the establishment of technological feasibility. As such, all related software development costs are expensed as incurred and included in research and development expense in our consolidated statements of operations.

Research and Development

— Research and development expenses are charged to operations as incurred.

Stock-Based Compensation

— Stock-based compensation is estimated at the grant date based on the award’s fair value and is recognized on a straight-line basis over the vesting periods, generally

four

years. The Company elected to early adopt

ASU No.

2016

09,

Compensation—Stock Compensation (Topic

718):

Improvements to Employee Share-Based Payment Accounting in the

fourth

quarter of

2016,

which among other items, provides an accounting policy election to account for forfeitures as they occur, rather than to account for them based on an estimate of expected forfeitures. The Company elected to

continue to estimate forfeitures expected to occur to determine the amount of compensation expense to be recognized in each period. As stock-based compensation expense recognized is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company has elected to use the Black-Scholes-Merton option-pricing model, which incorporates various assumptions including volatility, expected life and interest rates. The expected volatility is based on the historical volatility of the Company’s common stock over the most recent period commensurate with the estimated expected life of the Company’s stock options. The expected life of an award is based on historical experience and on the terms and conditions of the stock awards granted to employees. The interest rate assumption is based upon observed Treasury yield curve rates appropriate for the expected life of the Company’s stock options.

Income Taxes

– The Company's provision for income tax comprises its current tax liability and change in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities. The measurement of current and deferred tax assets and liabilities is based on provisions of enacted tax laws; the effect of future changes in tax laws or rates are not anticipated. Valuation allowances are provided to reduce deferred tax assets to an amount that in management’s judgment is more likely than not to be recoverable against future taxable income. No U.S. taxes are provided on earnings of non-U.S. subsidiaries, to the extent such earnings are deemed to be permanently invested. The Company's income tax calculations are based on application of the respective U.S. federal, state or foreign tax laws. The Company’s tax filings, however, are subject to audit by the respective tax authorities. Accordingly, the Company recognizes tax liabilities based upon its estimate of whether, and the extent to which, additional taxes will be due when such estimates are more-likely-than-not to be sustained. An uncertain income tax position will not be recognized if it has less than a

50%

likelihood of being sustained. To the extent the final tax liabilities are different than the amounts originally accrued, the increases or decreases are recorded as income tax expense or benefit in the consolidated statements of operations.

Net Income Per Share

–

Basic net income per share is computed by dividing net income by weighted average number of common shares outstanding for the period (excluding outstanding stock options and shares subject to repurchase). Diluted net income per share is computed using the weighted-average number of common shares outstanding for the period plus the potential effect of dilutive securities which are convertible into common shares (using the treasury stock method), except in cases in which the effect would be anti-dilutive. Dilutive potential common shares consist of incremental common shares issuable upon exercise of stock options, upon vesting of restricted stock units, contingently issuable shares for all periods and assumed issuance of shares under employee stock purchase plan. No dilutive potential common shares are included in the computation of any diluted per share amount when a loss from continuing operations was reported by the Company.

Foreign Currency Translation

— The functional currency of the Company’s foreign subsidiaries is the local currency for the respective subsidiary. The assets and liabilities are translated at the period-end exchange rate, and statements of operations are translated at the average exchange rate during the year. Gains and losses resulting from foreign currency translations are included as a component of other comprehensive income (loss). Gains and losses resulting from foreign currency transactions are included in the consolidated statements of operations and comprehensive income.

Derivative Financial Instruments

— The Company operates internationally and is exposed to potentially adverse movements in foreign currency exchange rates. The Company enters into foreign currency forwards contracts to reduce the exposure to foreign currency exchange rate fluctuations on certain foreign currency denominated monetary assets and liabilities. The Company does not use foreign currency contracts for speculative or trading purposes. The Company records these forward contracts at fair value. The counterparty to these foreign currency forward contracts is a large global financial institution that the Company believes is creditworthy, and therefore, we believe the credit risk of counterparty non-performance is not significant. These foreign currency forward contracts are not designated for hedge accounting treatment. Therefore, the change in fair value of these derivatives is recorded into earnings as a component of interest and other income (expense), net and offsets the change in fair value of the foreign currency denominated monetary assets and liabilities, which are also recorded in interest and other income (expense), net. The duration of these forward contracts is usually between

two

three

months.

Litigation

— From time to time, the Company is subject to various claims and legal proceedings that arise in the ordinary course of business. The Company accrues for losses related to litigation when a potential loss is probable and the loss can be reasonably estimated in accordance with Financial Accounting Standard Board ("FASB") requirements. As of

December

31,

2016,

the Company is not a party to any material legal proceedings, thus no loss was probable and no amount was accrued.

Recent Accounting Pronouncements

—

March

2016,

the FASB issued Accounting Standards Update No. (“ASU”) No.

2016

09,

Compensation—Stock Compensation (Topic

718):

Improvements to Employee Share-Based Payment Accounting. This standard makes several modifications to Topic

718

related to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. ASU

2016

also clarifies the statement of cash flows presentation for certain components of share-based awards. The update is effective for interim and annual reporting periods beginning after

December

15,

2016,

and interim periods within those annual periods. Early adoption is permitted in any interim or annual period. The Company elected to early adopt this new standard in the

fourth

quarter of

2016,

which required that any adjustments be reflected as of

January

2016,

the beginning of the fiscal year that includes the interim period of adoption.

The primary impact of adoption of ASU

2016

was the recognition of excess tax (benefit) deficiency in our provision for income taxes of

$1,000,

$81,000

and

$(94,000)

for the

three

months ended

March

31,

2016,

June

30,

2016,

and

September

30,

2016,

respectively. The Company also recorded a net cumulative-effect adjustment of

$4.9

million decrease in accumulated deficit as of

January

2016,

mostly related to the recognition of the previously unrecognized excess tax benefits using the modified retrospective method.

Additionally, the Company adopted the change in presentation in the condensed consolidated statement of cash flows related to excess tax benefits on a prospective basis. Accordingly, prior periods have not been adjusted. The Company also reclassified the presentation related to statutory tax withholding requirements from operating activity to financing activity in its consolidated statement of cash flows retrospectively. The Company elected to

continue to estimate forfeitures expected to occur to determine the amount of compensation expense to be recognized in each period.

The adoption of this ASU impacted our previously reported quarterly results during fiscal year

2016

as follows:

	March 31, 2016						June 30, 2016						September 30, 2016
(in thousands)	As reported			As adjusted			As reported			As adjusted			As reported			As adjusted
	(Unaudited)
Consolidated Balance Sheets Data:
Deferred tax assets	$	10,186		$	14,761		$	10,106		$	14,201		$	10,201		$	14,135
Total assets	$	198,217		$	202,792		$	202,233		$	206,328		$	210,152		$	214,086
Common stock and additional paid-in capital	$	269,949		$	269,600		$	272,891		$	272,143		$	277,503		$	276,500
Accumulated deficit	$	(37,718	)	$	(32,794	)	$	(35,504	)	$	(30,661	)	$	(33,614	)	$	(28,677	)
Total stockholders’ equity	$	180,655		$	185,230		$	182,716		$	186,811		$	188,950		$	192,884
Total liabilities and stockholders’ equity	$	198,217		$	202,792		$	202,233		$	206,328		$	210,152		$	214,086

	Three months ended March 31, 2016						Three months ended June 30, 2016						Three months ended September 30, 2016
(in thousands, except percentages and per share amounts)	As reported			As adjusted			As reported			As adjusted			As reported			As adjusted
Consolidated Statements of Income Data:	(Unaudited)
Income tax provision	$	1,025		$	1,026		$	1,498		$	1,579		$	1,145		$	1,051
Net income	$	2,062		$	2,061		$	2,214		$	2,133		$	1,890		$	1,984
Effective tax rate		33	%		33	%		40	%		43	%		38	%		35	%
Net income per share:
Basic	$	0.07		$	0.07		$	0.07		$	0.07		$	0.06		$	0.06
Diluted	$	0.07		$	0.07		$	0.07		$	0.07		$	0.06		$	0.06
Weighted average common shares:
Diluted		31,722			31,754			32,023			32,099			32,373			32,578

	Three months ended March 31, 2016				Six months ended June 30, 2016					Nine months ended September 30, 2016						Year ended December 31, 2015						Year ended December 31, 2014
(in thousands)	As reported		As adjusted		As reported		As adjusted			As reported			As adjusted			As reported			As adjusted			As reported		As adjusted
	(Unaudited)															(Audited)						(Audited)
Consolidated Statements of Cash Flows Data:
Net cash provided by (used in) operating activities	$	3,658	$	3,998	$	981	$	2,765		$	(282	)	$	1,829		$	28,526		$	30,336		$	27,089	$	28,666
Net cash provided by (used in) financing activities	$	1,289	$	950	$	95	$	(1,688	)	$	(1,458	)	$	(653	)	$	(7,420	)	$	(9,230	)	$	2,731	$	1,154

August

2014,

the FASB issued ASU No.

2014

15,

“Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. The new standard provides guidance around management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after

December

15,

2016.

Early adoption is permitted. The adoption of this standard is not expected to have a material impact on our financial statements.

May

2014,

the FASB issued ASU No.

2014

09,

Revenue from Contracts with Customers (Topic

606)

as modified by ASU No.

2015

14,

Revenue from Contracts with Customers (Topic

606):

Deferral of the Effective Date, ASU

2016

08,

Revenue from Contracts with Customers (Topic

606):

Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU No.

2016

10,

Revenue from Contracts with Customers (Topic

606):

Identifying Performance Obligations and Licensing,

ASU No.

2016

11,

Revenue Recognition (Topic

605)

and Derivatives and Hedging (Topic

815),

ASU No.

2016

12,

Revenue from Contracts with Customers (Topic

606):

Narrow-Scope Improvements and Practical Expedients, and ASU

2016

20,

Revenue from Contracts with Customers (Topic

606):

Technical Corrections and Improvements.

The new revenue recognition standard provides a

five

-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This new standard is effective for annual periods beginning after

December

15,

2017,

including interim periods within that reporting period. The new standard also permits

two

methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method).

The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

February

2016,

the Financial Accounting Standards Board (or FASB) issued ASU No.

2016

Leases (Topic

842).

The update requires that most leases, including operating leases, be recorded on the balance sheet as an asset and a liability, initially measured at the present value of the lease payments. Subsequently, the lease asset will be amortized generally on a straight-line basis over the lease term, and the lease liability will bear interest expense and be reduced for lease payments. The amendments in this update are effective for public companies’ financial statements issued for fiscal years beginning after

December

15,

2018,

including interim periods within those fiscal years. The Company is still in the process of evaluating the impact of adopting this new accounting standard on its consolidated financial statements and footnote disclosures.

August

2016,

the FASB issued ASU No.

2016

15,

Classification of Certain Cash Receipts and Cash Payments. The purpose of this standard is to clarify the treatment of several cash flow categories. This update is effective for annual periods beginning after

December

15,

2017,

and interim periods within those fiscal years, with early adoption permitted, including adoption in an interim period. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.

January

2017,

the FASB issued ASU No.

2017

04,

Intangibles - Goodwill and Other (Topic

350)

("ASU No.

2017

04").

ASU No.

2017

eliminates step

from the annual goodwill impairment test. This update is effective for annual periods beginning after

December

15,

2019,

and interim periods within those fiscal years, with early adoption permitted, and is to be applied on a prospective basis. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.

Computer equipment (years)

Software (years)

Furniture, fixtures, and equipment (years)

Leasehold improvements

Shorter of estimated useful life or term of lease