10-Q 1 iots-10q_20160930.htm IOTS-Q3-20160930 iots-10q_20160930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 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, 2016

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: 001-37582

 

ADESTO TECHNOLOGIES CORPORATION

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

16-1755067

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

Adesto Technologies Corporation

3600 Peterson Way

Santa Clara, CA 95054

(408) 400-0578

(Address and telephone number of Registrant’s executive offices)

 

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 such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuance 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 and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

 

Non-accelerated filer

    (Do not check if a smaller reporting company)

 

Smaller reporting company

 

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

 

Class

 

 

 

Outstanding at November 7, 2016

 

Common Stock, $0.0001 par value per share

 

15,489,951 shares

 

 

 

 


ADESTO TECHNOLOGIES CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2016

INDEX

 

 

 

PART I: FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Condensed Consolidated Financial Statements (unaudited)

 

3

 

 

 

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015

 

3

 

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and September 30, 2015

 

4

 

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2016 and September 30, 2015

 

5

 

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for nine months ended September 30, 2016 and September 30, 2015

 

6

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

7

 

 

 

 

 

Item 2.

 

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

 

26

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

34

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

34

 

 

 

 

 

 

 

PART II: OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

35

 

 

 

 

 

Item 1A.

 

Risk Factors

 

35

 

 

 

 

 

Item 1B.

 

Unresolved Staff Comments

 

51

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

51

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

51

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

51

 

 

 

 

 

Item 5.

 

Other Information

 

51

 

 

 

 

 

Item 6.

 

Exhibits

 

52

 

 

 

 

 

Signatures

 

53

 

 

 

 

 

Exhibit Index

 

54

 

 

 

 


PART I: FINANCIAL INFORMATION

Item 1.

Financial Statements

Adesto Technologies Corporation

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

 

 

(unaudited)

 

 

(1)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,377

 

 

$

23,089

 

Accounts receivable, net

 

 

5,008

 

 

 

6,536

 

Inventories

 

 

7,907

 

 

 

7,368

 

Prepaid expenses

 

 

436

 

 

 

1,155

 

Other current assets

 

 

1,216

 

 

 

1,186

 

Total current assets

 

 

35,944

 

 

 

39,334

 

Property and equipment, net

 

 

6,218

 

 

 

909

 

Intangible assets, net

 

 

8,632

 

 

 

9,559

 

Other non-current assets

 

 

218

 

 

 

114

 

Goodwill

 

 

22

 

 

 

22

 

Total assets

 

$

51,034

 

 

$

49,938

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

7,804

 

 

$

9,680

 

Income taxes payable

 

 

95

 

 

 

52

 

Accrued compensation and benefits

 

 

1,341

 

 

 

893

 

Accrued expenses and other current liabilities

 

 

1,718

 

 

 

1,413

 

Term loan, current

 

 

6,456

 

 

 

5,606

 

Total current liabilities

 

 

17,414

 

 

 

17,644

 

Line of credit

 

 

2,000

 

 

 

-

 

Term loan

 

 

11,395

 

 

 

7,814

 

Deferred rent, non-current

 

 

2,924

 

 

 

 

Deferred tax liability, non-current

 

 

2

 

 

 

1

 

Total liabilities

 

 

33,735

 

 

 

25,459

 

Commitments and contingencies (See Note 7)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value, 100,000,000 shares authorized; 15,056,034 and 14,974,718 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively

 

 

2

 

 

 

2

 

Additional paid-in capital

 

 

109,913

 

 

 

107,167

 

Accumulated other comprehensive loss

 

 

(182

)

 

 

(146

)

Accumulated deficit

 

 

(92,434

)

 

 

(82,544

)

Total stockholders' equity

 

 

17,299

 

 

 

24,479

 

Total liabilities and stockholders' equity

 

$

51,034

 

 

$

49,938

 

 

(1)

The condensed consolidated balance sheet as of December 31, 2015 was derived from the audited consolidated financial statements as of that date.

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

3


Adesto Technologies Corporation

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenue

 

$

11,180

 

 

 

11,143

 

 

$

31,638

 

 

 

31,433

 

Cost of revenue

 

 

5,803

 

 

 

6,110

 

 

 

16,531

 

 

 

18,346

 

Gross profit

 

 

5,377

 

 

 

5,033

 

 

 

15,107

 

 

 

13,087

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

4,390

 

 

 

3,217

 

 

 

12,527

 

 

 

9,313

 

Sales and marketing

 

 

2,870

 

 

 

2,126

 

 

 

8,315

 

 

 

6,189

 

General and administrative

 

 

1,586

 

 

 

919

 

 

 

4,984

 

 

 

2,589

 

Gain from settlement with former foundry supplier

 

 

-

 

 

 

-

 

 

 

(1,962

)

 

 

-

 

Total operating expenses

 

 

8,846

 

 

 

6,262

 

 

 

23,864

 

 

 

18,091

 

Loss from operations

 

 

(3,469

)

 

 

(1,229

)

 

 

(8,757

)

 

 

(5,004

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(576

)

 

 

(336

)

 

 

(1,058

)

 

 

(822

)

Other income (expense), net

 

 

(18

)

 

 

494

 

 

 

(29

)

 

 

783

 

Total other income (expense), net

 

 

(594

)

 

 

158

 

 

 

(1,087

)

 

 

(39

)

Loss before provision for  income taxes

 

 

(4,063

)

 

 

(1,071

)

 

 

(9,844

)

 

 

(5,043

)

Provision for  income taxes

 

 

15

 

 

 

5

 

 

 

46

 

 

 

76

 

Net loss

 

$

(4,078

)

 

 

(1,076

)

 

$

(9,890

)

 

 

(5,119

)

Net loss per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.27

)

 

$

(1.90

)

 

$

(0.66

)

 

$

(9.11

)

Weighted average number of shares used in computing net loss per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

15,034,475

 

 

 

564,896

 

 

 

14,997,417

 

 

 

562,110

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

4


Adesto Technologies Corporation

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net loss

 

$

(4,078

)

 

$

(1,076

)

 

$

(9,890

)

 

$

(5,119

)

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(19

)

 

 

45

 

 

 

(36

)

 

 

(143

)

Comprehensive loss, net of tax

 

$

(4,097

)

 

$

(1,031

)

 

$

(9,926

)

 

$

(5,262

)

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

5


Adesto Technologies Corporation

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(9,890

)

 

$

(5,119

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

2,508

 

 

 

197

 

Depreciation and amortization

 

 

684

 

 

 

1,173

 

Amortization of intangible assets

 

 

927

 

 

 

927

 

Amortization of debt discount

 

 

606

 

 

 

355

 

Deferred income taxes

 

 

1

 

 

 

9

 

Gain from settlement with former foundry supplier

 

 

(1,962

)

 

 

 

Changes in fair value of preferred stock warrant liability

 

 

 

 

 

(522

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

1,528

 

 

 

(2,516

)

Inventories

 

 

(539

)

 

 

472

 

Prepaid expenses and other assets

 

 

619

 

 

 

(1,521

)

Accounts payable

 

 

(1,037

)

 

 

1,644

 

Income taxes payable

 

 

43

 

 

 

 

Accrued compensation and benefits

 

 

448

 

 

 

102

 

Accrued expenses, other liabilities, and deferred rent

 

 

703

 

 

 

633

 

Net cash used in operating activities

 

 

(5,361

)

 

 

(4,166

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Acquisition of property and equipment

 

 

(2,358

)

 

 

(388

)

Net cash used in investing activities

 

 

(2,358

)

 

 

(388

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

     Proceeds from issuance of common stock

 

 

238

 

 

10

 

      Proceeds from term loan, net of fees

 

 

17,825

 

 

 

14,903

 

Proceeds (payments) on revolving line of credit

 

 

2,000

 

 

 

(4,273

)

Payments on term loan

 

 

(14,000

)

 

 

(6,600

)

Net cash provided by financing activities

 

 

6,063

 

 

 

4,040

 

Effect of exchange rates on cash and equivalents

 

 

(56

)

 

 

(121

)

Net decrease in cash and cash equivalents

 

 

(1,712

)

 

 

(635

)

Cash and cash equivalents - beginning of period

 

 

23,089

 

 

 

5,972

 

Cash and cash equivalents - end of period

 

$

21,377

 

 

$

5,337

 

Supplemental disclosures of other cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest expense

 

$

494

 

 

$

521

 

Supplemental disclosures of non-cash investing information:

 

 

 

 

 

 

 

 

Purchase of property and equipment included in accounts payable

 

$

1,123

 

 

$

863

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

6


 

Adesto Technologies Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

Note 1. Organization and Summary of Significant Accounting Policies.

Organization and Nature of Operations.

Adesto Technologies Corporation (together with its subsidiaries; “Adesto”, “we”, “our”, “us” or the “Company”) was incorporated in the state of California in January 2006 and reincorporated in Delaware in October 2015. We are a leading provider of application-specific and ultra-low power non-volatile memory (“NVM”) products. Our corporate headquarters are located in Santa Clara, California.

On September 28, 2012, we purchased certain flash memory product assets from Atmel Corporation and our financial results include the operating results of those assets from the date of acquisition.

The Company completed its initial public offering (“IPO”) of common stock on October 30, 2015. The Company sold 5,192,184 shares, including 192,184 shares for the underwriters’ option to purchase additional shares. The shares were sold at an initial public offering price of $5.00 per share for net proceeds of $22.1 million to the Company, after deducting underwriting discounts and commissions and offering expenses.

Basis of Presentation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP to complete annual financial statements. In the opinion of our management, all adjustments (consisting of normal recurring adjustments) considered necessary to present fairly the financial position of the Company and its results of operations and cash flows for the interim periods presented have been included. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016, for any other interim period or for any other future year.

The condensed consolidated balance sheet as of December 31, 2015 was derived from the audited consolidated financial statements as of that date, but does not include all of the disclosures required by U.S. GAAP. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on March 30, 2016.

The condensed consolidated financial statements include the results of our operations, and the operations of our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

There have been no material changes to our significant accounting policies described in Note 1, Organization and Summary of Significant Accounting Policies, in Notes to Consolidated Financial Statements in Item 8 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2015 that have had a material impact on our condensed consolidated financial statements and related notes, except as described below.

Reverse Stock Split.

On October 1, 2015, we effected a 1-for-33 reverse stock split of our common stock and convertible preferred stock (collectively, “Capital Stock”). On the effective date of the reverse stock split, (i) each 33 shares of outstanding Capital Stock were reduced to one share of Capital Stock; (ii) the number of shares of Capital Stock into which each outstanding warrant or option to purchase Capital Stock is exercisable were proportionately reduced on a 33-to-1 basis; (iii) the exercise price of each outstanding warrant or option to purchase Capital Stock were proportionately increased on a 1-to-33 basis; and (iv) each 33 shares of authorized Capital Stock were reduced to one share of Capital Stock. All of the share numbers, share prices, and exercise prices have been adjusted, on a retroactive basis, to reflect this 1-for-33 reverse stock split. The par value of the common stock and convertible preferred stock were not adjusted as a result of the reverse stock split.

Use of Estimates.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amount of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate those estimates, including those related to allowances for doubtful

7


Adesto Technologies Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

accounts, reserves for sales, warranty accrual, inventory write-downs, valuation of long-lived assets, including property and equipment and identifiable intangible assets and goodwill, loss on purchase commitments, valuation of deferred taxes and contingencies. In addition, we use assumptions when employing the Black-Scholes option-pricing model to calculate the fair value of stock options granted. We base our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, when these carrying values are not readily available from other sources. Actual results could differ from these estimates.

Revenue Recognition and Accounts Receivable Allowances.

We recognize revenue from product sales when persuasive evidence of an arrangement exists, the selling price is fixed or determinable, transfer of title occurs, and the collectibility of the resulting receivable is reasonably assured. Due to the historical immaterial level of product returns under warranty, we do not record a reserve for estimated returns under warranty at the time of revenue recognition.

Generally, we meet product sale revenue recognition conditions upon shipment because, in most cases, title and risk of loss passes to the customer at that time. In addition, we estimate and record provisions for future returns and other charges against revenue at the time of shipment, consistent with the terms of sale. We sell products to distributors at the price listed in our distributor price book. At the time of sale, we record a sales reserve for ship from stock and debits (“SSDs”), stock rotation rights and any special programs approved by management. We offset the sales reserve against recorded revenues, producing the revenue amount reported in our consolidated statements of operations.

The market price for our products can differ significantly from the book price at which we sold the product to the distributor. When the market price of a particular distributor’s sales opportunity to their customers would result in low or negative margins for the distributor, as compared to our original book price, we negotiate SSDs with the distributor. Management analyzes our SSD history to develop current SSD rates that form the basis of the SSD revenue reserve recorded each period. We obtain the historical SSD rates from the distributor’s records and our internal records.

We typically grant payment terms of between 30 and 60 days to our customers. Our customers generally pay within those terms. Distributors are invoiced for shipments at listed book price. When the distributors pay the invoice, they may claim debits for SSDs previously authorized by us when appropriate. Once claimed, we process the requests against prior authorizations and adjust reserves previously established for that customer.

The revenue we record for sales to our distributors is net of estimated provisions for these programs. Determining net revenue requires significant judgments and estimates on our part. We base our estimates on historical experience rates, the levels of inventory held by our distributors, current trends and other related factors. Because of the inherent nature of estimates, there is a risk actual amounts may differ materially from our estimates. Our consolidated financial condition and operating results depend on our ability to make reliable estimates. We believe that such estimates are reasonable.

We also monitor collectibility of accounts receivable primarily through review of our accounts receivable aging. When facts and circumstances indicate the collection of specific amounts or from specific customers is at risk, we assess the impact on amounts recorded for bad debts and, if necessary, record a charge in the period such determination is made. As of September 30, 2016 and December 31, 2015, there was no allowance for doubtful accounts.

Shipping Costs.

We charge shipping costs to cost of revenue as incurred.

Product Warranty.

Our products are sold with a limited warranty for a period of one year, warranting that the product conforms to specifications and is free from material defects in design, materials and workmanship. To date, we have had insignificant returns of any defective production parts. During the year ended December 31, 2015, we recorded $250,000 for a specific potential warranty claim. During the nine months ended September 30, 2016, approximately $41,000 has been incurred relating to this potential warranty claim. As of September 30, 2016, the warranty accrual was $209,000.

8


Adesto Technologies Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

Income Taxes.

We account for income taxes using an asset and liability approach, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements, but have not been reflected in our taxable income. Valuation allowances are established to reduce deferred tax assets as necessary when in management’s estimate, based on available objective evidence, it is more likely than not that we will not generate sufficient taxable income in future periods to realize the benefit of our deferred tax assets. We include interest and penalties related to unrecognized tax benefits in income tax expense. We recognize in our consolidated financial statements the impact of a tax position that based on its technical merits is more likely than not to be sustained upon examination.

Foreign Currency Translation.

The functional currency of our foreign subsidiaries is the local currency. In consolidation, we translate assets and liabilities at exchange rates in effect at the consolidated balance sheet date. We translate revenue and expense accounts at the average exchange rates during the period in which the transaction takes place. Net gains or losses from foreign currency translation of assets and liabilities were a loss of $19,000  and a gain of $45,000 for the three months ended September 30, 2016 and 2015, respectively. Net gains or losses from foreign currency translation of assets and liabilities were a loss of $36,000  and a loss of $0.1 million for the nine months ended September 30, 2016 and 2015, respectively, and are included in the cumulative translation adjustment component of accumulated other comprehensive loss, net of tax, a component of stockholders’ equity. Net gains and losses arising from transactions denominated in currencies other than the functional currency were a loss of $18,000 and a loss of $20,000 for the three months ended September 30, 2016 and 2015, respectively. Net gains and losses arising from transactions denominated in currencies other than the functional currency were a loss of $29,000 and a loss of $20,000 for the nine months ended September 30, 2016 and 2015, respectively, and are included in other income (expense), net in the condensed consolidated statements of operations.

Cash and Cash Equivalents.

We consider all highly liquid investments with an initial maturity of 90 days or less at the date of purchase to be cash equivalents. We maintain such funds in overnight cash deposits.

Property and Equipment.

Property and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets or the term of the related lease, whichever is shorter. Estimates of useful lives are as follows:

 

 

 

Estimated useful lives

Machinery and equipment

 

2-5 years

Furniture and fixtures

 

3 years

Leasehold improvements

 

Shorter of lease term or 5 years

Computer software

 

3 years

 

Inventories.

We record inventories at the lower of standard cost (which generally approximates actual cost on a first-in, first-out basis) or market value. On a quarterly basis, we analyze inventories on a part-by-part basis. The carrying value of inventory is adjusted for excess and obsolete inventory based on inventory age, shipment history and the forecast of demand over a specific future period. At the point of loss recognition, a new lower cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that new cost basis. The semiconductor markets that we serve are volatile and actual results may vary from forecast or other assumptions, potentially affecting our assessment of excess and obsolete inventory which could have a material effect on our results of operations.

Long-Lived Assets.

We evaluate our long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. We recognize an impairment loss when the net book value of such assets exceeds the estimated future undiscounted cash flows attributable to the asset. If impairment is indicated, we write the

9


Adesto Technologies Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

asset down to its estimated fair value. For all periods presented, we have not recognized any impairment losses on our long-lived assets.

Purchased Intangible Assets.

Purchased intangible assets are amortized over their useful lives unless these lives are determined to be indefinite. Purchased intangible assets with definite lives are carried at cost less accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets as follows:

 

 

 

Years

 

Developed technology

 

 

10

 

Customer relationships

 

 

12

 

Customer backlog

 

 

1

 

Non-compete agreement

 

 

5

 

 

Goodwill.

Goodwill represents the excess of the cost of an acquisition over the sum of the amounts assigned to tangible and identifiable intangible assets acquired less liabilities assumed.

We evaluate our goodwill, at a minimum, on an annual basis and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We perform our annual goodwill impairment test as of November 1 of each year.  We last conducted our annual goodwill impairment analysis in the fourth quarter of 2015 and no goodwill impairment was indicated.

When evaluating goodwill for impairment, we may initially perform a qualitative assessment which includes a review and analysis of certain quantitative factors to estimate if a reporting unit’s fair value significantly exceeds its carrying value. When the estimate of a reporting unit’s fair value appears more likely than not to be less than its carrying value based on this qualitative assessment, we continue to the first step of two steps impairment test. The first step requires a comparison of the fair value of the reporting unit to its net book value, including goodwill. The fair value of the reporting unit is determined based on a weighting of income and market approaches. Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows. Under the market approach, we estimate the fair value based on market multiples of revenue or earnings for comparable companies. Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, and future economic and market conditions and determination of appropriate market comparables. We base these fair value estimates on reasonable assumptions that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. A potential impairment exists if the fair value of the reporting unit is lower than its net book value. The second step of the process is only performed if a potential impairment exists, and it involves determining the difference between the fair values of the reporting unit’s net assets, other than goodwill, and the fair value of the reporting unit, and, if the difference is less than the net book value of goodwill, an impairment charge is recorded. In the event that we determine that the value of goodwill has become impaired, we record a charge for the amount of impairment during the fiscal quarter in which the determination is made. We operate in one reporting unit.  

Research and Development Expenses.

Research and development expenditures are expensed as incurred.

Stock-based Compensation.

We account for stock-based compensation using the fair value method. We determine fair value for stock options awarded to employees at the grant date using the Black-Scholes option-pricing model, which requires us to make various assumptions, including the fair value of the underlying common stock, expected future share price volatility and expected term. We determine the fair value of stock options awarded to non-employees at each vesting date using the Black-Scholes option-pricing model, and re-measure fair value at each reporting period until the services required under the arrangement are completed. Fair value is recognized as an expense on a straight-line basis over the requisite service period, which is generally the vesting period. We are required to estimate the expected forfeiture rate and only recognize expense for those stock-based awards expected to vest. We estimate the forfeiture rate

10


Adesto Technologies Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

based on historical experience of our stock-based awards that are granted, exercised and cancelled. If the actual forfeiture rate is materially different from our estimate, stock-based compensation expense in future periods could be significantly different from what was recorded in the current period.

 

Concentration of Risk.

Our products are primarily manufactured, assembled and tested by third-party foundries and other contractors in Asia and we are heavily dependent on a single foundry in Taiwan for the manufacture of wafers and a single contractor in the Philippines for assembly and testing of our products. We do not have long-term agreements with either of these suppliers. A significant disruption in the operations of these parties would adversely impact the production of our products for a substantial period of time, which could have a material adverse effect on our business, financial condition, operating results and cash flows.

Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents and accounts receivables. We place substantially all of our cash and cash equivalents on deposit with a reputable, high credit quality financial institution in the United States of America. We believe that the bank that holds substantially all of our cash and cash equivalents is financially sound and, accordingly, subject to minimal credit risk. Deposits held with the bank may exceed the amount of insurance provided on such deposits.

We generally do not require collateral or other security in support of accounts receivable. We periodically review the need for an allowance for doubtful accounts by considering factors such as historical experience, credit quality, the age of the accounts receivable balances and current economic conditions that may affect a customer’s ability to pay. As a result of our favorable collection experience and customer concentration, there was no allowance for doubtful accounts as of September 30, 2016 and December 31, 2015.

Customer concentrations as a percentage of revenue were as follows:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Customer A

 

 

12

%

 

 

13

%

 

 

14

%

 

 

14

%

Customer B

 

*

 

 

 

11

%

 

 

11

%

 

*

 

Customer C

 

*

 

 

 

12

%

 

*

 

 

*

 

Customer D

 

 

10

%

 

 

12

%

 

 

10

%

 

 

10

%

 

*

less than 10%

Customer concentrations as a percentage of gross accounts receivable were as follows:

 

 

 

 

 

 

 

September 30,

 

 

December 31,

 

 

 

 

 

 

 

2016

 

 

2015

 

Customer A

 

 

 

 

 

 

16

%

 

 

16

%

Customer B

 

 

 

 

 

 

13

%

 

 

13

%

Customer C

 

 

 

 

 

 

12

%

 

*

 

Customer D

 

 

 

 

 

*

 

 

 

14

%

Customer E

 

 

 

 

 

*

 

 

 

10

%

 

*

less than 10%

Net Loss per Share.

Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and potentially dilutive common stock equivalents outstanding for the period

11


Adesto Technologies Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

determined using the treasury-stock and if-converted methods. For purposes of the diluted net loss per share calculation, common stock options, restricted stock units, and warrants are considered to be potentially dilutive securities.

Loss Contingencies.

We are or have been subject to claims arising in the ordinary course of business. We evaluate contingent liabilities, including threatened or pending litigation, for potential losses. If the potential loss from any claim or legal proceedings is considered probable and the amount can be estimated, we accrue a liability for the estimated loss. Because of uncertainties related to these matters, accruals are based upon the best information available. For potential losses for which there is a reasonable possibility (meaning the likelihood is more than remote but less than probable) that a loss exists, we will disclose an estimate of the potential loss or range of such potential loss or include a statement that an estimate of the potential loss cannot be made. As additional information becomes available, we reassess the potential liability related to pending claims and litigation and may revise our estimates, which could materially impact our consolidated financial statements.

Recent Accounting Pronouncements.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2014-09, Revenue from Contracts with Customers, creating ASC Topic 606. Upon adoption, this topic supersedes the existing guidance under ASC 605 and aims to simplify the number of requirements to follow for revenue recognition and make revenue recognition more comparable across various entities, industries, jurisdictions and capital markets. There are five core principles: 1. Identify the contract(s) with a customer. 2. Identify the performance obligations in the contract. 3. Determine the transaction price. 4. Allocate the transaction price to performance obligations in the contract. 5. Recognize revenue when (or as) the entity satisfies a performance obligation. Additional considerations under this update include: accounting for costs to obtain or fulfill a contract with a customer and additional quantitative and qualitative disclosures. We plan to adopt this guidance effective for periods beginning after December 15, 2017 (including interim reporting periods within those periods), or the first quarter of 2018, and are currently evaluating the impact on our consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern. The amendments require management to perform interim and annual assessments of an entity’s ability to continue as a going concern and provide guidance on determining when and how to disclose going concern uncertainties in the financial statements. ASU 2014-15 applies to all entities and is effective for annual and interim reporting periods ending after December 15, 2016, with early adoption permitted. We are currently evaluating the impact that this new guidance will have on our consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which simplifies the presentation of debt issuance costs. ASU 2015-03 is effective for annual reporting periods beginning after December 15, 2015 and interim periods within those years, with early adoption permitted. We adopted this guidance on our consolidated financial statements with no effect in the first quarter of 2016.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, amending ASC 330. Upon adoption, this topic supersedes the existing guidance under ASC 330 and aims to simplify the subsequent measurement of inventory. Currently, inventory can be measured at the lower of cost or market, which could result in several potential outcomes, as market could be replacement cost, net realizable value or net realizable value less an approximately normal profit margin. The major amendments would be as follows: 1. Inventory should be measured at the lower of cost or net realizable value. 2. Net realizable value is the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. 3. The amendment does not apply to inventory measured under LIFO or the retail inventory method. 4. The amendment does apply to all other inventory, which includes inventory measured via FIFO or average cost. We plan to adopt this guidance effective for periods beginning after December 15, 2016 (including interim reporting periods within those fiscal years), or the first quarter of 2017, and do not expect it to have a material effect on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases, Topic 842. This ASU requires lease assets and lease liabilities arising from leases, including operating leases, to be recognized on the balance sheet, ASU 2016-02 will become effective for us on January 1, 2019. We are currently evaluating the impact of this guidance on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation, ASC Topic 718: Improvements to Employee Share-Based Payment Accounting. Under this ASU, several aspects of the accounting for share-based payment award transactions are

12


Adesto Technologies Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. We plan to adopt this guidance effective for periods beginning after December 15, 2016 (including interim reporting periods within those periods), or the first quarter of 2017, and are currently evaluating the impact on our consolidated financial statements.

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers, Topic 606. The ASU, among other things: (1) clarifies the objective of the collectability criterion for applying paragraph 606-10-25-7; (2) permits an entity to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price; (3) specifies that the measurement date for noncash consideration is contract inception; (4)  provides a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarifies that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application, and (6) clarifies that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. We plan to adopt this guidance effective for periods beginning after December 15, 2017 (including interim reporting periods within those periods), or the first quarter of 2018, and are currently evaluating the impact on our consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, ASC Topic 230.  This ASU is a clarification of how certain cash receipts and cash payments are presented and classified in the statement of cash flows.  This update provides guidance on eight identified issues: 1) debt prepayment or extinguishment costs, 2) settlement of zero-coupon debt, 3) contingent consideration for payments, 4) proceeds from settlement of insurance claims, 5) proceeds from settlement of corporate-owned life insurance policies, 6) distributions from equity method investees, 7) beneficial interests in securitization transactions, and 8) separately identifiable cash flows. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.  Early adoption is permitted, including adoption in an interim period.  If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.  An entity that elects early adoption must adopt all of the amendments in the same period. 

 

 

Note 2. Balance Sheet Components.

Accounts Receivable, Net.

Accounts receivable, net consisted of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Accounts receivable

 

$

7,844

 

 

$

10,936

 

Allowance for SSDs, price protection, rights of return and other activities

 

 

(2,836

)

 

 

(4,400

)

Total accounts receivable, net

 

$

5,008

 

 

$

6,536

 

 

Inventories.

Inventories consisted of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Raw materials

 

$

330

 

 

$

1,149

 

Work-in-process

 

 

6,388

 

 

 

4,844

 

Finished goods

 

 

1,189

 

 

 

1,375

 

Total inventories

 

$

7,907

 

 

$

7,368

 

 

For the three months ended September 30, 2016 and 2015, we realized a benefit of $0.1 million and $0.3 million, respectively, from the sales of previously reserved products.      

13


Adesto Technologies Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

 

For the nine months ended September 30, 2016 and 2015, we realized benefits of $0.8 million and $1.0 million, respectively, from the sales of previously reserved products.

 

Other current assets.

Other current assets consisted of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Foreign research credit receivable

 

$

1,097

 

 

$

1,063

 

Other current assets

 

 

119

 

 

 

123

 

Total other current assets

 

$

1,216

 

 

$

1,186

 

 

Property and Equipment, Net.

Property and equipment, net consisted of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Machinery and equipment

 

$

7,238

 

 

$

6,627

 

Furniture and fixtures

 

 

77

 

 

 

77

 

Leasehold improvements

 

 

4,200

 

 

 

141

 

Computer software

 

 

668

 

 

 

668

 

Construction in progress

 

 

1,247

 

 

 

52

 

Property and equipment, at cost

 

 

13,430

 

 

 

7,565

 

Accumulated depreciation and amortization

 

 

(7,212

)

 

 

(6,656

)

Property and equipment, net

 

$

6,218

 

 

$

909

 

 

Depreciation and amortization expense of property and equipment for the three and nine months ended September 30, 2016 was $0.3 million and $0.7 million, respectively.

 

Depreciation and amortization expense of property and equipment for the three and nine months ended September 30, 2015 was $0.3 million and $1.2 million, respectively.

 

Accrued Expenses and Other Current Liabilities.

Accrued expenses and other current liabilities consisted of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Accrued sales commission payable

 

$

393

 

 

$

300

 

Accrued manufacturing expenses

 

 

64

 

 

 

271

 

Deferred rent

 

 

379

 

 

 

196

 

Other accrued liabilities

 

 

882

 

 

 

646

 

Total accrued expenses and other current liabilities

 

$

1,718

 

 

$

1,413

 

 

 

Note 3. Fair Value Measurements.

Fair value is defined as the exchange price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We

14


Adesto Technologies Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

measure financial assets and liabilities at fair value at each reporting period using a fair value hierarchy which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:

Level 1. Quoted prices in active markets for identical assets or liabilities.

Level 2 . Quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices which are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments.

Level 3. Unobservable inputs which are supported by little or no market activity and which are significant to the fair value of the assets or liabilities.

Financial assets measured at fair value on a recurring basis were as follows:

 

 

Fair Value Measurement at Reporting Date Using

 

 

 

Quoted Prices in

Active Markets

for Identical

Assets (Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

 

Total

 

 

 

(in thousands)

 

As of September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

 

 

$

18,005

 

 

$

 

 

$

18,005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

 

 

$

20,007

 

 

$

 

 

$

20,007

 

 

As of September 30, 2016 and December 31, 2015, we had no financial liabilities measured at fair value on a recurring basis.

 

 

Note 4. Purchased Intangible Assets.

In 2012, in connection with our purchase of the serial flash memory product line assets from Atmel Corporation, we recorded $16.4 million of intangible assets.

Intangible assets were as follows (in thousands):

 

 

 

September 30, 2016

 

 

 

Gross Carrying Amount

 

 

Accumulated Amortization

 

 

Net Carrying Amount

 

Developed technology

 

$

4,282

 

 

$

1,713

 

 

$

2,569

 

Customer relationships

 

 

9,011

 

 

 

3,003

 

 

 

6,008

 

Customer backlog

 

 

2,779

 

 

 

2,779

 

 

 

 

Non-compete agreement

 

 

282

 

 

 

227

 

 

 

55

 

Total intangible assets subject to amortization

 

$

16,354

 

 

$

7,722

 

 

$

8,632

 

15


Adesto Technologies Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

 

 

 

December 31, 2015

 

 

 

Gross Carrying Amount

 

 

Accumulated Amortization

 

 

Net Carrying Amount

 

Developed technology

 

$

4,282

 

 

$

1,392

 

 

$

2,890

 

Customer relationships

 

 

9,011

 

 

 

2,440

 

 

 

6,571

 

Customer backlog

 

 

2,779

 

 

 

2,779

 

 

 

 

Non-compete agreement

 

 

282

 

 

 

184

 

 

 

98

 

Total intangible assets subject to amortization

 

$

16,354

 

 

$

6,795

 

 

$

9,559

 

 

We recorded amortization expense related to the acquisition-related intangible assets as follows (in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Operating expense category:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

121

 

 

$

121

 

 

$

363

 

 

$

363

 

Sales and marketing

 

 

188

 

 

 

188

 

 

 

564

 

 

 

564

 

Total

 

$

309

 

 

$

309

 

 

$

927

 

 

$

927

 

 

The estimated future amortization expense of acquisition-related intangible assets subject to amortization after September 30, 2016 is as follows (in thousands):

 

Year Ended December 31,

 

 

 

 

2016 (remaining 3 months)

 

$

309

 

2017

 

 

1,221

 

2018

 

 

1,179

 

2019

 

 

1,179

 

2020

 

 

1,179

 

Thereafter

 

 

3,565

 

Total

 

$

8,632

 

 

 

Note 5. Borrowings.

Bridge Bank Loan.

In October 2013, we entered into the Business Financing Agreement (the “BFA”) with Bridge Bank N.A. The BFA consisted of both a revolving credit facility under which we were permitted to borrow up to 80% of eligible accounts receivable but not to exceed $7.5 million and a term loan in the amount of $9.0 million. Interest on the revolving credit facility accrued at the bank’s prime rate, which under the BFA could not have been less than 3.25%, plus 1.25% while interest on the term loan accrues at the bank’s prime rate plus 3%. Under the term loan, we were required to make interest only payments through April 2014 and principal payments of $300,000 monthly thereafter plus interest. Borrowings under the BFA were collateralized by all of our assets and were subject to certain financial covenants, including maintaining minimum levels of EBITDA on a quarterly basis and a certain minimum asset coverage ratio based on the ratio of unrestricted cash plus certain accounts receivable to total outstanding under the agreement.

In October 2014, we were not in compliance with certain financial covenants. As a result, in October 2014, we entered into the First Business Financing Modification Agreement (the “BFA Modification”) under which the covenant defaults were waived. The BFA Modification (i) increased the interest rate charged on the term loan from the bank’s prime rate plus 3% to the bank’s prime rate plus 4% and would have declined to the bank’s prime rate plus 3% upon the raising of additional equity of not less than $2.5 million, (ii) required us to continue to maintain certain minimum levels of EBITDA and asset coverage ratios, (iii) required us to maintain unrestricted cash of not less than $4.25 million until that point at which we either receive additional equity of not less than $5.0 million or maintain a debt service coverage ratio of not less than 1.00 to 1.00 (based on the ratio of EBITDA to current portion of total amounts outstanding under the BFA Modification plus period-to-date interest expense payments) for two consecutive quarters.

16


Adesto Technologies Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

In addition, under the BFA the bank was paid a facility fee of $82,500 at closing. Under the BFA Modification, the bank was paid an additional facility fee of $50,000 and received a warrant to purchase 1,488 shares of our Series E convertible preferred stock. The facility fees and the value of the warrant, $0.1 million, were recorded as a debt discount and have been amortized over the life of the agreement. Amortization of debt discount was $0.1 million in 2015. 

 Borrowings of $10.9 million under this facility were repaid in full in April 2015.

Opus Bank Term Loan.

In April 2015, we entered into a three-year $15.0 million credit agreement, or the term loan facility. The agreement provided for a senior secured term loan facility, in an aggregate principal amount of up to $15.0 million to be used for general corporate purposes including working capital, to repay certain indebtedness and for capital expenditures and other expenses. Interest accrued on outstanding borrowings at a rate equal to (a) the higher of (i) the prime rate (as publicly announced from time to time by the Wall Street Journal) and (ii) 3.25% plus (b) (i) 1.00% if our cash equivalents are greater than 125% of the outstanding principal of our borrowings under the term loan facility, or (ii) 2.00% if our cash and cash equivalents are less than or equal to 125% of such borrowings. Indebtedness we incurred under this agreement was collateralized by substantially all of our assets and the agreement contained financial covenants requiring us to maintain a monthly asset coverage ratio after September 30, 2015 of not less than 1.10 to 1.00, and quarterly adjusted EBITDA (measured on a trailing three-month basis) of $1 through September 30, 2016 and increasing to higher levels thereafter. Under the agreement, the quarterly EBITDA covenant was not applicable if the asset coverage ratio is met at all times during any particular quarter. The agreement contained customary affirmative and negative covenants, including covenants that limit or restrict our ability to, among other things, incur additional indebtedness, grant liens, make investments, repurchase stock, pay dividends, transfer assets, merge or consolidate and make acquisitions. Upon an occurrence of an event of default, we could be required to pay interest on all outstanding obligations under the agreement at a rate of 5% above the otherwise applicable interest rate, and the lender may accelerate our obligations under the agreement.   

Borrowings of $14.0 million under this facility were repaid in full in July, 2016.

In connection with the term loan facility, Opus Bank received a warrant to purchase 31,897 shares of Series E convertible preferred stock. Upon the completion of our IPO on October 30, 2015 the preferred stock warrants were converted into 315,282 of our common stock warrants. In addition, we paid financing costs of $0.1 million. The financing costs and the value of the warrant, $0.9 million, were recorded as a debt discount and were being amortized over the life of the agreement. Amortization of debt discount was $0.2 million for the six months ended in June 30, 2016. In connection with the repayment of this facility, the remaining unamortized debt discount of $0.4 million was recorded as interest expense in the condensed consolidated statements of operations.    

Bridge Bank Term Loan

On July 7, 2016, the Company entered into a business financing agreement (“Credit Facility”) with Bridge Bank N.A. The Credit Facility provides for (i) a term loan of up to $18.0 million and (ii) a revolving credit line advance in the aggregate amount of the lower of (x) $2.0 million and (y) 80% of certain of the Company’s receivables. The term loan made pursuant to the Credit Facility bears interest at a rate per annum equal to the greater of the prime rate or 3.5%, plus 0.75%, and matures in June 2019.  The line of credit bears interest at a rate per annual equal to the greater of the prime rate or 3.5% plus 0.50%, and matures in July 2018.The Company will make interest-only payments on the term loan from July 2016 through September 2016 and will make interest payments and principal payments in 33 equal monthly installments starting October 2016. Indebtedness we incur under this agreement is collateralized by substantially all assets of the Company and any domestic subsidiaries, subject to certain customary exceptions. The Company paid a facility fee of $150,000 upon entry into the Credit Facility and an additional $10,000 is due on July 7, 2017 as well as $25,000 diligence fee. These fees have been recorded as a debt discount and are being amortized over the life of the agreement. During the three and nine months ended September 30, 2016, amortization of debt discount was $26,000 and the unamortized debt discount was $149,000 as of September 30, 2016.    

 

The Credit Facility contains customary representations and warranties and affirmative and negative covenants. Among other negative covenants, the Company may not permit the ratio of the balance of unrestricted cash deposited at the financial institution to the total amounts owed with respect to the term loan to be less than 1.15 to 1.00. Upon an occurrence of an event of default, we could be required to pay interest on all outstanding obligations under the agreement at a rate of 5% above the otherwise applicable interest rate, and the lender may accelerate our obligations under the agreement. As of September 30, 2016, we were in compliance with all financial covenants and restrictions.

17


Adesto Technologies Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

Outstanding borrowings consisted of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Term loan, current

 

$

6,456

 

 

$

5,606

 

Term loan, non-current

 

 

11,395

 

 

 

7,814

 

Line of credit

 

 

2,000

 

 

 

 

Total

 

$

19,851

 

 

$

13,420

 

 

Future repayments on outstanding borrowings (excluding unamortized discount of $149,000 as of September 30, 2016) are as follows (in thousands):

 

Year ending December 31,

 

 

 

 

2016 (remaining 3 months)

 

$

1,636

 

2017

 

 

6,545

 

2018

 

 

8,545

 

2019

 

 

3,274

 

 

 

$

20,000

 

 

Interest expense incurred under our borrowings was $0.6 million and $1.1 million for the three and nine months ended September 30, 2016, respectively.  

 

Interest expense incurred under our borrowings was $0.3 million and $0.8 million for the three and nine months ended September 30, 2015, respectively.

 

Note 6. Segment Information.

We operate in one business segment, application-specific and feature-rich, ultra-low power NVM products. Our chief decision-maker, the President and Chief Executive Officer, evaluates our performance based on company-wide consolidated results. Revenue is evaluated based on product category and by geographic region.

Product revenue from customers is designated based on the geographic region to which the product is delivered. Revenue by geographic region was as follows (in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

United States

 

$

1,873

 

 

$

2,332

 

 

$

4,780

 

 

$

6,313

 

Rest of Americas

 

 

64

 

 

 

178

 

 

 

335

 

 

 

512

 

Europe

 

 

1,466

 

 

 

1,321

 

 

 

4,313

 

 

 

3,846

 

Asia Pacific

 

 

7,730