Techpoint, Inc. and its wholly-owned subsidiaries (the “Company”) was originally incorporated in California in April 2012 and reincorporated into Delaware in July 2017. The Company is a fabless semiconductor company that designs, markets and sells mixed-signal integrated circuits for multiple video applications in the security surveillance and automotive markets. The Company is headquartered in San Jose, California.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, and have been prepared in conformity with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”). All intercompany balances and transactions have been eliminated. The functional currency of each of the Company’s subsidiaries is the U.S. dollar. Foreign currency gains or losses are recorded as other income (expense) in the Condensed Consolidated Statements of Operations.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2018 contained in our Annual Report on Form 10-K filed with the SEC on March 15, 2019.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which only include normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for the interim periods and are not necessarily indicative of the results to be expected for the full fiscal year or for any other future annual or interim periods.

The Company principally sells its products to distributors who, in turn, sell to original design manufacturers, or ODMs, contract manufacturers and design houses. Prior to January 1, 2018, revenue from the sale of the Company’s products was recognized when all of the following criteria were met: (1) persuasive evidence of an arrangement exists; (2) the product has been delivered; (3) the price is fixed or determinable; and (4) collection is reasonably assured. The Company adopted ASC Topic 606, or ASC 606, Revenue from Contracts with Customers on January 1, 2018. Under ASC 606, the Company satisfies its performance obligations and recognizes revenue upon shipment, at which time control of its products is transferred to its customers. The Company applies the following five-step model for recognizing revenue from contracts with customers: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when the performance obligation is satisfied.

Product revenues consist of sales of mixed-signal integrated circuits into the security surveillance and automotive camera markets. The Company generally requires advance payments from customers and records these advance payments, or contract liabilities, as customer deposits on its Consolidated Balance Sheet. Since the Company’s performance obligations relate to contracts with a duration of less than one year, the Company has elected to apply the optional exemption practical expedient provided in ASC 606 and is therefore not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The Company provides product assurance warranty only and does not offer warranties to be purchased separately. The Company does not offer variable consideration or other significant payment terms and allocates the transaction price to each distinct product based on a relative standalone selling price. Revenue is recognized when control of the product is transferred to our customers, upon shipment, at which time the performance obligation is satisfied. The Company’s shipping terms are primarily FOB (free on board) shipping point, whereby legal title, risks and rewards of ownership, and physical possession are transferred to the customer upon shipment. Substantially all of the Company’s customers pay in advance of shipment, and no stock rotation, price protection or return rights are offered.

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Significant estimates included in the condensed consolidated financial statements include inventory valuation, valuation allowance for recorded deferred tax assets, and stock based compensation. These estimates are based upon information available as of the date of the condensed consolidated financial statements. Actual results could differ materially from those estimates.

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and trade receivables. Risks associated with cash and cash equivalents are mitigated by banking with creditworthy institutions. The Company generally requires advance payments from customers. The Company also performs credit evaluations of its customers and provides credit to certain customers in the normal course of business. The Company has not incurred bad debt write-offs during any of the periods presented.

For each significant customer, or distributor, and significant end-customer, revenue as a percentage of total revenue is as follows:

	Three Months Ended
	March 31,
	2019			2018
Customer
Customer A		64	%		84	%
End-Customer
End-Customer A (1)		35	%		67	%
End-Customer B (1)		23	%	*

Less than 10%

(1)	Sales to End-Customer A and End-Customer B primarily occurred through Customer A

Stock Compensation Guidance. In June 2018, the FASB issued ASU No 2018-07, Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting, which amends ASC 718 to include share-based payments issued to nonemployees for goods or services. The amendments in this update are effective for annual periods beginning after December 15, 2018, and interim periods therein. Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606, Revenue from Contracts with Customers. The Company early adopted this guidance on July 1, 2018 during the third quarter of fiscal 2018, which resulted in no impact on its condensed consolidated financial statements.

Lease Guidance. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize all leases with terms in excess of one year on their balance sheet as a right of use asset and a lease liability at the commencement date. The new standard also simplifies the accounting for sale and leaseback transactions. The amendments in this update are effective for annual periods beginning after December 15, 2018, and interim periods therein and must be adopted using a modified retrospective method for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The new standard also requires lessees and lessors to disclose qualitative and quantitative information about their leases and significant judgements made in applying the standard. The Company adopted this guidance on January 1, 2019 in the first quarter of fiscal 2019 under the modified retrospective transition method approach. The Company elected to use the package of practical expedients and did not reassess whether any expired or existing contracts are or contain leases, the lease classification for any expired or existing leases, or initial direct costs for any existing leases, and the practical expedient to not separate lease and non-lease components. Additionally, the Company elected the short-term lease exception and excluded all leases that are twelve or less months in duration. As a result, financial information for reporting periods beginning after January 1, 2019 are reported under the new standard, while comparative financial information has not been adjusted and continues to be reported in accordance with the previous standard. As a result, the Company recognized $0.7 million of lease assets and $0.7 million of lease liabilities, of which $0.1 million is recorded as non-current lease liabilities on the Company’s Condensed Consolidated Balance Sheet as of March 31, 2019. The adoption did not have an impact on the Condensed Consolidated Statement of Operations for the three months ended March 31, 2019 and there was no cumulative effect adjustment to retained earnings upon adoption.

Revenue Recognition Guidance. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, creating ASC 606. Upon adoption, this topic supersedes the existing guidance under ASC Topic 605 – Revenue Recognition 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. Revenue is recognized under a five-step process: 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. ASU 2014-09 became effective for periods beginning after December 15, 2017 (including interim reporting periods within those periods), or the first quarter 2018, and allows for retrospective or modified retrospective application. The Company adopted this guidance in the first quarter of fiscal 2018 under the modified retrospective approach as applied to customer contracts that were not completed as of January 1, 2018. As a result, financial information for reporting periods beginning after January 1, 2018 are reported under the new standard. There was no cumulative impact to adopting the new standard on the Company’s consolidated financial statements.