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Summary of Significant Accounting Policies | 9 Months Ended
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Sep. 30, 2019
Summary of Significant Accounting Policies |
Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP have been condensed or omitted, and accordingly the balance sheet as of December 31, 2018 has been derived from the audited financial statements at that date but does not include all of the information required by GAAP for complete financial statements. These unaudited interim condensed financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair statement of the Company’s financial information. The results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for any other interim period or for any other future year. The accompanying condensed financial statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2018, included in the Company’s Annual Report on Form 10-K filed with the SEC. Use of Estimates The preparation of the condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, fair value of assets and liabilities, inventory, product warranty reserves, income taxes, and stock-based compensation. The Company believes its estimates and assumptions are reasonable; however, actual results may differ from the Company’s estimates. Accounts receivable, net The Company estimates credits to distributors based on the historical rate of credits provided to distributors relative to sales. At September 30, 2019, the allowance for product returns was $170,000 and there was not an allowance for price concessions. At December 31, 2018, the allowance for product returns and the allowance for price concessions were $144,000 and $569,000, respectively. Accounts receivable, net consisted of the following (in thousands):
|  | September 30, |  | December 31,
|  | 2019 |  | 2018
Trade accounts receivable |  | $ | 5,261 |  | $ | 7,297
Unbilled accounts receivable |  |  | 477 |  |  | 938
Allowance for accounts receivable |  |  | (170) |  |  | (713)
Accounts receivable, net |  | $ | 5,568 |  | $ | 7,522
Concentration of Credit Risk Financial instruments that potentially expose the Company to a concentration of credit risk consist principally of cash and cash equivalents that are held by a financial institution in the United States and accounts receivable. Amounts on deposit with a financial institution may at times exceed federally insured limits. The Company maintains its cash accounts with high credit quality financial institutions and, accordingly, minimal credit risk exists with respect to the financial institutions. Significant customers are those which represent more than 10% of the Company’s total revenue or net accounts receivable balance at each respective balance sheet date. For the purposes of this disclosure, the Company defines “customer” as the entity that is purchasing the products or licenses directly from the Company, which includes the distributors of the Company’s products in addition to end customers that the Company sells to directly. For each significant customer, revenue as a percentage of total revenue and accounts receivable as a percentage of total accounts receivable, net are as follows:
|  | Revenue |  | Revenue |  | Accounts Receivable, net |
|  | Three Months Ended |  | Nine Months Ended |  | As of |
|  | September 30, |  | September 30, |  | September 30, |  | December 31, |
Customers |  | 2019 |  | 2018 |  | 2019 |  | 2018 |  | 2019 |  | 2018 |
Customer A |  | 25 | % | * |  | 19 | % | * |  | 42 | % | 23 | %
Customer B |  | 12 | % | * |  | 12 | % | * |  | * |  | * |
Customer C |  | 10 | % | * |  | * |  | * |  | * |  | 11 | %
Customer D |  | * |  | 10 | % | 12 | % | * |  | * |  | * |
Customer E |  | * |  | 13 | % | 11 | % | 13 | % | * |  | * |
Customer F |  | * |  | * |  | * |  | 14 | % | * |  | * |
Customer G |  | * |  | 13 | % | * |  | 13 | % | * |  | * |
Customer H |  | * |  | * |  | * |  | * |  | * |  | 21 | %
Customer I |  | * |  | * |  | * |  | * |  | * |  | 11 | %
Customer J |  | * |  | 10 | % | * |  | * |  | * |  | * |
*Less than 10% Fair Value of Financial Instruments Fair value is defined as an exit price, representing the amount that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. The framework for measuring fair value provides a three-tier hierarchy prioritizing inputs to valuation techniques used in measuring fair value as follows: Level 1— Observable inputs such as quoted prices for identical assets or liabilities in active markets; Level 2— Inputs, other than quoted prices for identical assets or liabilities in active markets, which are observable either directly or indirectly; and Level 3— Unobservable inputs in which there is little or no market data requiring the reporting entity to develop its own assumptions The carrying value of accounts receivable, accounts payable, and other accruals readily convertible into cash approximate fair value because of the short-term nature of the instruments. As of September 30, 2019, based on Level 2 inputs and the borrowing rates available to the Company for loans with similar terms and consideration of the Company’s credit risk, the carrying value of the Company’s variable interest rate debt, excluding unamortized debt issuance costs, approximates fair value. The Company’s financial instruments consist of Level 1 assets and a Level 3 liability. Where quoted prices are available in an active market, securities are classified as Level 1. Level 1 assets consist of highly liquid money market funds that are included in cash equivalents. The Company’s Level 3 liability consists of a warrant issued in connection with the 2019 Credit Facility (Note 6). The change in the fair value of the warrant during the three months ended September 30, 2019 was immaterial. The following tables sets forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis (in thousands):
|  | September 30, 2019
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Money market funds |  | $ | 14,830 |  | $ | — |  | $ | — |  | $ | 14,830
Total assets measured at fair value |  | $ | 14,830 |  | $ | — |  | $ | — |  | $ | 14,830
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Warrant liability |  | $ | — |  | $ | — |  | $ | 36 |  | $ | 36
Total financial liabilities |  | $ | — |  | $ | — |  | $ | 36 |  | $ | 36
|  | December 31, 2018
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Money market funds |  | $ | 23,478 |  | $ | — |  | $ | — |  | $ | 23,478
Total assets measured at fair value |  | $ | 23,478 |  | $ | — |  | $ | — |  | $ | 23,478
Leases The Company leases office, lab, manufacturing space and equipment in various locations with initial lease terms of up to five years. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. The terms of these leases also include renewal options at the election of the Company to renew or extend the lease for a range of an additional two to five years. These optional periods have not been considered in the determination of the right-of-use-assets (ROU) or lease liabilities associated with these leases as the Company did not consider it reasonably certain it would exercise the options. The Company determines if an arrangement is a lease at inception. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The classification of the Company's leases as operating or finance leases along with the initial measurement and recognition of the associated ROU assets and lease liabilities is performed at the lease commencement date. The measurement of lease liabilities is based on the present value of future lease payments over the lease term. The Company’s uses its incremental borrowing rate, based on the information available at commencement date, to determine the present value of lease payments when its leases do not provide an implicit rate. The Company uses the implicit rate when readily determinable. The ROU asset is based on the measurement of the lease liability, includes any lease payments made prior to or on lease commencement and excludes lease incentives and initial direct costs incurred, as applicable. Lease expense for the Company’s operating leases is recognized on a straight-line basis over the lease term. Amortization expense for ROU assets associated with finance leases is recognized on a straight-line basis over the shorter of the useful life of the asset or the lease term and interest expense associated with finance leases is recognized on the balance of the lease liability using the effective interest method based on the estimated incremental borrowing rate. The Company has lease agreements with lease and non-lease components. The Company has elected to not separate lease and non-lease components for any leases involving real estate and office equipment classes of assets and, as a result, accounts for the lease and non-lease components as a single lease component. The Company will separate lease and non-lease components for any leases involving manufacturing facility classes of assets. Further, the Company elected the short-term lease exception policy, permitting it to not apply the recognition requirements of this standard to leases with terms of 12 months or less (short-term leases) for all classes of assets. As of September 30, 2019, the Company did not have any short-term leases. Operating leases are included in right-of-use assets, lease liabilities, and lease liabilities, net of current portion in the Company’s balance sheet. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities in the Company’s balance sheet. Recently Adopted Pronouncements In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016 02, Leases (Topic 842), which establishes a comprehensive new lease accounting model. The new standard: (a) clarifies the definition of a lease; (b) requires a dual approach to lease classification similar to current lease classifications; and (c) causes lessees to recognize leases on the balance sheet as a lease liability with a corresponding ROU asset for leases with a lease-term of more than 12 months. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2018. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842 Leases and ASU No. 2018-11, Leases (Topic 842) Targeted Improvements. ASU 2018-10 clarifies how to apply certain aspects of ASU 2016-02. The Company adopted this standard on January 1, 2019, using the modified retrospective method. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. Topic 842 permits the application of certain practical expedients, of which the Company elected the “package of three” expedient, that eliminated the requirements to reassess prior conclusions about lease identification, lease classification, and initial direct costs. Further, the Company elected the short-term lease exception policy, permitting it to not apply the recognition requirements of this standard to short-term leases. Upon adoption of Topic 842, on January 1, 2019, the Company recorded an operating lease ROU asset of $3.6 million, operating lease liabilities of $4.0 million, and derecognized the deferred rent liability of $390,000. The accounting for the Company’s finance leases remained substantially unchanged. In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 is intended to reduce the cost and complexity and to improve financial reporting for nonemployee share-based payments. The ASU expands the scope of Topic 718, (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606. The Company adopted this standard on January 1, 2019 and the impact of its adoption on the Company’s financial statements was not material. Recently Issued Pronouncements In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019, and requires a cumulative effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements Financial Instruments-Credit Losses (Topic 326). The new ASU provides narrow-scope amendments to help apply ASU No. 2016-13. The Company is evaluating the impact of the adoption of ASU 2016-13 on its financial statements.

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- Definition The entire disclosure for the basis of presentation and significant accounting policies concepts. Basis of presentation describes the underlying basis used to prepare the financial statements (for example, US Generally Accepted Accounting Principles, Other Comprehensive Basis of Accounting, IFRS). Accounting policies describe all significant accounting policies of the reporting entity. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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