iots_Current_Folio_10Q

Table of Contents

 

 

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 March 31, 2018

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, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act:

 

 

 

 

 

 

Large accelerated filer ☐

    

 

     

Accelerated filer

 ☒

 

 

 

 

 

 

Non-accelerated filer   ☐

 

(Do not check if a smaller reporting company)

 

Smaller reporting company

 ☐

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

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 May 2, 2018

 

Common Stock, $0.0001 par value per share

 

21,454,826 shares

 

 

 

 

 

 


 

Table of Contents

ADESTO TECHNOLOGIES CORPORATION

QUARTERLY REPORT ON FORM 10‑Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2018

INDEX

 

PART I FINANCIAL INFORMATION

 

Item 1. 

Condensed Consolidated Financial Statements (unaudited)

3

 

Unaudited Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017

3

 

Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017

4

 

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2018 and 2017

5

 

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017

6

 

Notes to Condensed Consolidated Financial Statements (unaudited)

7

Item 2. 

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

27

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

36

Item 4. 

Controls and Procedures

36

 

PART II OTHER INFORMATION

 

Item 1. 

Legal Proceedings

37

Item 1A. 

Risk Factors

37

Item 1B. 

Unresolved Staff Comments

55

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

55

Item 3. 

Defaults Upon Senior Securities

56

Item 4. 

Mine Safety Disclosures

56

Item 5. 

Other Information

56

Item 6. 

Exhibits

57

Signatures 

 

59

 

 

 

 


 

Table of Contents

PART I: FINANCIAL INFORMATION

Item 1.Financial Statements

ADESTO TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

 

 

 

2018

 

2017

 

 

 

(unaudited)

 

(1)

 

Assets

 

 

  

 

 

  

 

Current assets:

 

 

  

 

 

  

 

Cash and cash equivalents

 

$

29,546

 

$

30,078

 

Accounts receivable, net

 

 

12,188

 

 

8,668

 

Inventories

 

 

7,554

 

 

5,814

 

Prepaid expenses

 

 

1,153

 

 

993

 

Other current assets

 

 

55

 

 

52

 

Total current assets

 

 

50,496

 

 

45,605

 

Property and equipment, net

 

 

7,632

 

 

7,183

 

Intangible assets, net

 

 

6,808

 

 

7,102

 

Other non-current assets

 

 

1,029

 

 

900

 

Goodwill

 

 

22

 

 

22

 

Total assets

 

$

65,987

 

$

60,812

 

Liabilities and Stockholders' Equity

 

 

  

 

 

  

 

Current liabilities:

 

 

  

 

 

  

 

Accounts payable

 

$

7,845

 

$

7,075

 

Accrued compensation and benefits

 

 

2,819

 

 

2,614

 

Accrued expenses and other current liabilities

 

 

2,506

 

 

2,359

 

Price adjustments and other revenue reserves

 

 

4,545

 

 

 —

 

Line of credit, current

 

 

1,500

 

 

1,500

 

Term loan, current

 

 

1,929

 

 

926

 

Total current liabilities

 

 

21,144

 

 

14,474

 

Term loan, non-current

 

 

9,924

 

 

10,908

 

Other non-current liabilities

 

 

75

 

 

75

 

Deferred rent, non-current

 

 

2,294

 

 

2,404

 

Deferred tax liability, non-current

 

 

 2

 

 

 1

 

Total liabilities

 

 

33,439

 

 

27,862

 

Commitments and contingencies (See Note 8)

 

 

  

 

 

  

 

Stockholders' equity:

 

 

  

 

 

  

 

Common stock, $0.0001 par value, 100,000,000 shares authorized; 21,409,292 and 21,291,833 shares issued and outstanding as of March 31, 2018 and December 31, 2017 respectively

 

 

 2

 

 

 2

 

Additional paid-in capital

 

 

133,804

 

 

133,087

 

Accumulated other comprehensive loss

 

 

(312)

 

 

(295)

 

Accumulated deficit

 

 

(100,946)

 

 

(99,844)

 

Total stockholders' equity

 

 

32,548

 

 

32,950

 

Total liabilities and stockholders’ equity

 

$

65,987

 

$

60,812

 


(1)

The condensed consolidated balance sheet as of December 31, 2017 was derived from the audited consolidated financial statements as of that date.

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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ADESTO TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

    

2018

    

2017

    

Revenue, net

 

$

15,302

 

$

11,307

 

Cost of revenue

 

 

8,122

 

 

5,753

 

Gross profit

 

 

7,180

 

 

5,554

 

Operating expenses:

 

 

  

 

 

  

 

Research and development

 

 

3,665

 

 

3,372

 

Sales and marketing

 

 

2,752

 

 

2,600

 

General and administrative

 

 

1,713

 

 

2,135

 

Total operating expenses

 

 

8,130

 

 

8,107

 

Loss from operations

 

 

(950)

 

 

(2,553)

 

Other (expense):

 

 

  

 

 

  

 

Interest expense, net

 

 

(141)

 

 

(213)

 

Other income, net

 

 

10

 

 

18

 

Total other (expense), net

 

 

(131)

 

 

(195)

 

Loss before provision for income taxes

 

 

(1,081)

 

 

(2,748)

 

Provision for income taxes

 

 

21

 

 

27

 

Net loss

 

$

(1,102)

 

$

(2,775)

 

Net loss per share:

 

 

  

 

 

  

 

Basic and diluted

 

$

(0.05)

 

$

(0.18)

 

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

 

 

  

 

 

  

 

Basic and diluted

 

 

21,370,927

 

 

15,642,286

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

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ADESTO TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

    

2018

    

2017

    

Net loss

 

$

(1,102)

 

$

(2,775)

 

Other comprehensive loss, net of tax:

 

 

 

 

 

  

 

Foreign currency translation adjustment

 

 

(17)

 

 

(22)

 

Comprehensive loss

 

$

(1,119)

 

$

(2,797)

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

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ADESTO TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

    

2018

    

2017

    

Cash flows from operating activities:

 

 

  

 

 

  

 

Net loss

 

$

(1,102)

 

$

(2,775)

 

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

 

 

 

 

 

  

 

Stock-based compensation expense

 

 

443

 

 

824

 

Depreciation and amortization

 

 

488

 

 

304

 

Amortization of intangible assets

 

 

294

 

 

309

 

Amortization of debt discount

 

 

19

 

 

24

 

Deferred income taxes

 

 

 1

 

 

 —

 

Gain on sale of equipment

 

 

(18)

 

 

 —

 

Changes in fair value of preferred stock warrant liability

 

 

 

 

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

  

 

Accounts receivable

 

 

(3,520)

 

 

49

 

Inventories

 

 

(1,740)

 

 

886

 

Prepaid expenses and other current assets

 

 

(163)

 

 

(194)

 

Other non-current assets

 

 

(129)

 

 

(79)

 

Accounts payable

 

 

125

 

 

225

 

Accrued compensation and benefits

 

 

205

 

 

187

 

Accrued expenses and other current liabilities

 

 

147

 

 

24

 

Price adjustments and other revenue reserves

 

 

4,545

 

 

 —

 

Deferred rent

 

 

(110)

 

 

(101)

 

Net cash used in operating activities

 

 

(515)

 

 

(317)

 

Cash flows from investing activities:

 

 

  

 

 

  

 

Acquisition of property and equipment

 

 

(293)

 

 

(605)

 

Net cash used in investing activities

 

 

(293)

 

 

(605)

 

Cash flows from financing activities:

 

 

  

 

 

  

 

Proceeds from exercise of stock options and employee stock purchase plan

 

 

329

 

 

258

 

Tax withholdings related to net share settlement of restricted stock units

 

 

(55)

 

 

 —

 

Proceeds from revolving line of credit

 

 

1,500

 

 

11,374

 

Payments on revolving line of credit

 

 

(1,500)

 

 

(11,283)

 

Payments on term loan

 

 

 —

 

 

(1,636)

 

Net cash provided by (used in )financing activities

 

 

274

 

 

(1,287)

 

Effect of exchange rates on cash and equivalents

 

 

 2

 

 

(13)

 

Net decrease in cash and cash equivalents

 

 

(532)

 

 

(2,222)

 

Cash and cash equivalents - beginning of period

 

 

30,078

 

 

19,719

 

Cash and cash equivalents - end of period

 

$

29,546

 

$

17,497

 

Supplemental disclosures of other cash flow information:

 

 

  

 

 

  

 

Cash paid for interest expense

 

$

137

 

$

199

 

Supplemental disclosures of non-cash investing and financing information:

 

 

  

 

 

  

 

Purchase of property and equipment included in accounts payable

 

$

1,065

 

$

219

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

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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.

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 consolidated 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 months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018, for any other interim period or for any other future year.

The condensed consolidated balance sheet as of December 31, 2017 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, 2017, filed with the Securities and Exchange Commission on March 13, 2018.

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, 2017 that have had a material impact on our condensed consolidated financial statements and related notes, except as described below.

Recent Accounting Pronouncements.

In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This ASU is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. The Company expects that the adoption will not have a material impact on its consolidated financial statements. 

In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU eliminates Step 2 from the goodwill impairment test. Instead, an entity should recognize an impairment charge for the amount by which the carrying value exceeds the reporting unit’s

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

fair value, not to exceed the total amount of goodwill allocated to that reporting unit. This ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently evaluating the effect of the adoption of this ASU, but anticipates that the adoption will not have a material impact on its consolidated financial statements.

 In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU requires instruments measured at amortized cost to be presented at the net amount expected to be collected. Entities are also required to record allowances for available-for-sale debt securities rather than reduce the carrying amount. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company expects that the adoption will not have a material impact on its consolidated financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. For operating leases, a lessee is required to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is evaluating the effect that the adoption of this ASU will have on its financial statements. The Company currently expects that most of its operating lease commitments will be subject to the new standard and recognized as right-of-use assets and operating lease liabilities upon the adoption of ASU 2016-02, which will increase the total assets and total liabilities that it reports relative to such amounts prior to adoption.

Recently Adopted Accounting Pronouncements.

 

Adoption of ASC 606:

In May 2014, the FASB issued an ASU on revenue from contracts with customers, ASU No. 2014-09, Revenue from Contracts with Customers (“Topic 606”). This standard update outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The guidance is effective for annual reporting periods including interim reporting reports beginning after December 15, 2017. Collectively, we refer to Topic 606, its related amendments and Subtopic 340-40 as the “new standard”.

On January 1, 2018, we adopted the new standard using the modified retrospective method applied to all contracts that are not completed contracts at the date of initial application (i.e., January 1, 2018). Results for reporting periods after January 1, 2018 are presented under the new standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting. There was no impact on the opening accumulated deficit as of January 1, 2018 due to the adoption of the new standard. We reclassified the allowance for ship from stock and debits (“SSDs”), price protection, rights of return and other activities to current liabilities presented as "Price adjustments and other revenue reserves" from the allowance for accounts receivable due to the adoption of the new standard.

We recorded s cumulative effect adjustment to our January 1, 2018 condensed consolidated balance sheet for the impact of the reclassification of the allowance for SSDs, price protection, rights of return and other activities to current liabilities presented as “Price adjustments and other revenue reserves”. The cumulative effect of the changes made to our January 1, 2018 condensed consolidated balance sheet for the adoption of the new revenue standard were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

    

Balance at

    

Adjustments

    

Balance at

 

 

 

December 31, 

 

 

Due to

 

 

January 1,

 

 

2017

 

ASC 606

 

2018

Accounts receivable, net

 

$

8,668

 

$

3,832

 

$

12,500

Price adjustments and other revenue reserves

 

$

 —

 

$

(3,832)

 

$

(3,832)

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

 

In accordance with the new standard requirements, the disclosure of the impact of adoption on select condensed consolidated balance sheet line items was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

    

As of March 31, 2018

 

 

 

As

 

 

Balances without

 

 

Effect of

 

 

Reported

 

ASC 606

 

Change

Accounts receivable, net

 

$

12,188

 

$

7,643

 

$

(4,545)

Price adjustments and other revenue reserves

 

$

4,545

 

$

 —

 

$

4,545

 

Revenue Recognition.

 Revenue is recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Sales of products with alternative use account for the majority of our revenue and are recognized at a point in time, the timing of such recognition remained the same under Topic 606.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by us from a customer and deposited with the relevant government authority, are excluded from revenue. Our revenue arrangements do not contain significant financing components.

Revenue is recognized over a period of time when it is assessed that performance obligations are satisfied over a period rather than at a point in time. When any of the following criteria is fulfilled, revenue is recognized over a period of time:

 

 

(a)

The customer simultaneously receives and consumes the benefits provided by the performance as Adesto performs.

 

 

(b)

Adesto’s performance creates or enhances an asset (for example, work in process) that the customer controls as the asset is created or enhanced.

 

 

(c)

Adesto’s performance does not create an asset with an alternative use, and Adesto has an enforceable right to payment for performance completed to date.

 

If revenue is recognized over a period of time, we would then select an appropriate method for measuring progress toward complete satisfaction of the performance obligation, usually costs incurred to date relative to the total expected costs to the satisfaction of that performance obligation. Typically, our revenue is recognized at a point in time.

Sales to certain distributors are made under arrangements which provide the distributors with price adjustments, price protection, stock rotation and other allowances under certain circumstances. These adjustments and allowances are accounted for as variable consideration. We estimate these amounts based on the expected amount to be provided to customers and reduce revenue recognized. We believe that there will not be significant changes to our estimates of variable consideration.

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

If a customer pays consideration, or Adesto has a right to an amount of consideration that is unconditional before we transfer a good or service to the customer, those amounts are classified as deferred income/ advances received from customers which are included in other current liabilities or other long-term liabilities when the payment is made or it is due, whichever is earlier.

If the arrangement includes variable contingent consideration, we recognize revenue over time if we can reasonably measure its progress, or we are capable of providing reliable information that would be required to apply an appropriate method of measuring progress. To date, we have not had any arrangements incorporating contingent consideration.

Practical Expedients and Elections

 

Sales commissions are owed and are recorded at the time of sell through of our products to end customers. These costs are recorded within sales and marketing expenses.

We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

We have elected to account for shipping and handling costs as fulfillment costs after the customer obtains control of the goods. These costs are recorded in cost of revenue.

Reclassifications.

Certain reclassifications have been made to prior periods’ consolidated financial statements to conform to the current period presentation. These reclassifications did not result in any change in previously reported total assets, stockholders’ equity or net loss.

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 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 and Monte Carlo simulation techniques to value certain restricted stock units with performance-based vesting conditions. 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.

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 years ended December 31, 2017 and 2016, $185,000 and $41,000, respectively, has been incurred relating to this potential warranty claim and during the year ended December 31, 2017

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

we recorded $27,000 for an additional potential warranty claim. As of March 31, 2018 and December 31, 2017, the warranty accrual was $51,000 and is included in accrued expenses and other current liabilities on the condensed consolidated balance sheets.

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 losses from foreign currency translation of assets and liabilities were $17,000 and $22,000 for the three months ended March 31, 2018 and 2017, 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 $8,000 and a gain of $13,000 for the three months ended March 31, 2018 and 2017, respectively, and are included in other expense, net in the condensed consolidated statements of operations.

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 March 31, 2018 and December 31, 2017.

Customer concentrations as a percentage of revenue, net were as follows:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

March 31, 

 

 

 

    

 

2018

    

2017

 

    

Customer A

 

 

18

%  

18

%

 

Customer B

 

 

*

 

11

%

 

Customer C

 

 

*

 

11

%

 


*less than 10%

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

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

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

 

    

 

 

2018

 

2017

 

 

Customer A

 

26

%  

31

%

 

Customer B

 

*

 

*

 

 

Customer C

 

*

 

*

 

 


*less than 10%

 

 

Note 2. Balance Sheet Components.

Accounts Receivable, Net.

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

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

 

 

2018

 

2017

Accounts receivable

 

$

12,188

 

$

12,500

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

 

 

 —

 

 

(3,832)

Total accounts receivable, net

 

$

12,188

 

$

8,668

 

As of March 31, 2018 we have no allowance for doubtful accounts on any of our accounts receivable, net.

 

Inventories.

Inventories consisted of the following (in thousands):

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

 

 

2018

 

2017

Raw materials

 

$

1,955

 

$

2,213

Work-in-process

 

 

3,700

 

 

2,408

Finished goods

 

 

1,899

 

 

1,193

Total inventories

 

$

7,554

 

$

5,814

 

For the three months ended March 31, 2018 and 2017, we realized a benefit of $0.4 million and $0.4 million, respectively, from the sales of previously reserved products. Inventory write-downs were primarily associated with products built in excess of customer demand which resulted in excess inventory levels, legacy products for which no demand exists and lower of cost or net realizable value write-downs associated with Conductive Bridging Random Access Memory (“CBRAM”) products for which costs exceeded net realizable value.

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

Property and Equipment, Net.

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

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

 

 

2018

 

2017

Machinery and equipment

 

$

9,850

 

$

9,457

Leasehold improvements

 

 

4,252

 

 

4,252

Computer software

 

 

675

 

 

675

TowerJazz license

 

 

350

 

 

350

Furniture and fixtures

 

 

83

 

 

83

Construction in progress

 

 

1,301

 

 

1,301

Property and equipment, at cost

 

 

16,511

 

 

16,118

Accumulated depreciation and amortization

 

 

(8,879)

 

 

(8,935)

Property and equipment, net

 

$

7,632

 

$

7,183

 

The Company incurs costs for the fabrication of masks used by its foundry partners to manufacture its products. Beginning the first fiscal quarter of 2017, the Company capitalizes mask costs that are expected to be utilized in production manufacturing as the Company’s product development process has become more predictable and thus supports capitalization of the mask. The capitalized mask costs begin depreciating to cost of revenue once the products go into production. Depreciation is computed using the straight-line method over a three year period which is the expected useful life of the mask. Previously mask sets were expensed to research and development.

Depreciation and amortization expense of property and equipment for the three months ended March 31, 2018 and 2017 was $0.5 million and $0.3 million, respectively.

Accrued Expenses and Other Current Liabilities.

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

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

 

 

2018

 

2017

Accrued sales commission payable

 

$

273

 

$

310

Accrued manufacturing expenses

 

 

310

 

 

265

Deferred rent, current portion

 

 

431

 

 

422

Liabilities to certain customers

 

 

732

 

 

468

Other accrued liabilities

 

 

760

 

 

894

Total accrued expenses and other current liabilities

 

$

2,506

 

$

2,359

 

 

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 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.

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Table of Contents

ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

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

 

    

 

 

    

Significant

    

 

 

    

 

 

 

 

Quoted Prices in

 

Other

 

Significant

 

 

 

 

 

Active Markets

 

Observable

 

Unobservable

 

 

 

 

 

for Identical

 

Inputs

 

Inputs

 

 

 

 

 

Assets (Level 1)

 

(Level 2)

 

(Level 3)

 

Total

 

 

(in thousands)

As of March 31, 2018

 

 

  

 

 

  

 

 

  

 

 

  

Assets:

 

 

  

 

 

  

 

 

  

 

 

  

Money market funds

 

$

11,511

 

$

 —

 

$

 —

 

$

11,511

 

 

 

  

 

 

  

 

 

  

 

 

  

As of December 31, 2017

 

 

  

 

 

  

 

 

  

 

 

  

Assets:

 

 

  

 

 

  

 

 

  

 

 

  

Money market funds

 

$

11,501

 

$

 —

 

$

 —

 

$

11,501

 

As of March 31, 2018 and December 31, 2017, we had no financial liabilities measured at fair value on a recurring basis.

 

Note 4. Intangible Assets, net.

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.

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

Intangible assets, net were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2018

 

    

Estimated Useful
Life (in Years)

Gross Carrying
Amount

    

Accumulated
Amortization

    

Net Carrying
 Amount

Developed technology

 

10

 

$

4,282

 

$

2,355

 

$

1,927

Customer relationships

 

12

 

 

9,011

 

 

4,130

 

 

4,881

Customer backlog

 

1

 

 

2,779

 

 

2,779

 

 

 —

Non-compete agreement

 

5

 

 

282

 

 

282

 

 

 —

Total intangible assets subject to amortization

 

 

 

$

16,354

 

$

9,546

 

$

6,808

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

    

Estimated Useful
Life (in Years)

 

Gross Carrying
Amount

    

Accumulated
Amortization

    

Net Carrying
 Amount

Developed technology

 

10

 

$

4,282

 

$

2,249

 

$

2,033

Customer relationships

 

12

 

 

9,011

 

 

3,942

 

 

5,069

Customer backlog

 

1

 

 

2,779

 

 

2,779

 

 

 —

Non-compete agreement

 

5

 

 

282

 

 

282

 

 

 —

Total intangible assets subject to amortization

 

 

 

$

16,354

 

$

9,252

 

$

7,102

 

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

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

    

2018

    

2017

    

Operating expense category:

 

 

  

 

 

  

 

Research and development

 

$

106

 

$

122

 

Sales and marketing

 

 

188

 

 

187

 

Total

 

$

294

 

$

309

 

 

The estimated future amortization expense of acquisition-related intangible assets subject to amortization after March 31, 2018 is as follows (in thousands):

 

 

 

 

 

Year Ended December 31, 

    

  

 

 

2018 (remaining 9 months)

 

$

885

 

2019

 

 

1,179

 

2020

 

 

1,179

 

2021

 

 

1,179

 

2022

 

 

1,072

 

Thereafter

 

 

1,314

 

Total

 

$

6,808

 

 

 

 

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Table of Contents

ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

Note 5. Investment in Unconsolidated Affiliates.

During 2017 and 2016, we made investments in Semitech Semiconductor Pty. Ltd., an Australian corporation (“Semitech”), as part of a license and development agreement dated April 16, 2016. Semitech has developed Narrowband-Power Line Communications (“N-PLC”) products and market knowledge in the N-PLC devices space and plans to sell its products into the smart grid, solar, smart lighting and industrial space. Investments during 2016 through June 14, 2017 were recorded as notes receivable. On June 15, 2017, $0.4 million of notes receivable and accrued interest were converted into 233,335 shares of preferred stock in Semitech. This investment is recorded at cost in other non-current assets on the condensed consolidated balance sheets as of March 31, 2018. As of March 31, 2018 and 2017, we held investments in notes receivable in the amount of $0.3 million and $0.3 million, respectively, which were classified in other non-current assets on the condensed consolidated balance sheets.

Note 6. Borrowings.

Western Alliance Bank Term Loan.

The Company is a party to that certain Business Financing Agreement dated July 7, 2016, by and between Western Alliance Bank and the Company, as amended (“Credit Facility”). The Credit Facility originally provided for (i) a term loan of up to $18.0 million (the “Term Loan”) and (ii) a revolving credit line advance (the “Line of Credit”) in the aggregate amount of the lower of (x) $2.0 million and (y) 80% of certain of the Company’s receivables. Prior to the Amendment (as defined below), the Term Loan bore interest at a rate per annum equal to the greater of the prime rate or 3.5%, plus 0.75% (5.00% on September 30, 2017), and was scheduled to mature in June 2019.  Prior to the Amendment, the Line of Credit bore interest at a rate per annum equal to the greater of the prime rate or 3.5% plus 0.50% (4.75% on September 30, 2017), and was scheduled to mature in July 2018. Prior to the Amendment, we made interest-only payments on the Term Loan from July 2016 through September 2016 and began making interest payments and principal payments in 33 equal monthly installments starting October 2016. Prior to the Amendment, the Credit Facility provided that any indebtedness we incurred thereunder was collateralized by substantially all assets of the Company and any domestic subsidiaries, subject to certain customary exceptions. We paid a facility fee of $150,000 as well as a $25,000 diligence fee upon entry into the Credit Facility and an additional $10,000 on July 7, 2017. These fees have been recorded as a debt discount and are being amortized over the life of the agreement.

The Credit Facility contains customary representations and warranties and affirmative and negative covenants. Among other negative covenants, prior to the Amendment, the Credit Facility provided that we may not (i) permit the ratio of the balance of unrestricted cash deposited at the financial institution, plus eligible receivables, net of reserve to the total amounts owed with respect to advances under the revolving credit line to be less than 1.50 to 1.00 and (ii) permit cash held at the financial institution in a deposit account to be less than 100% of the term loan outstanding. Upon an occurrence of an event of default, under the Credit Facility 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. Due to the existence of the Lockbox Agreement and the lender’s ability to accelerate our obligations under the Credit Facility upon an event of default, we have classified the line of credit as a current liability.

On September 29, 2017, we amended the Credit Facility by entering into that certain Second Business Financing Modification Agreement, dated September 29, 2017 (the “Amendment”) with Western Alliance Bank. The Amendment extended the maturity dates of the Line of Credit and the Term Loan to July 2019 and September 2021, respectively, from July 2018 and June 2019, respectively.  In addition, the Amendment increased the amount available under the Line of Credit in the aggregate amount to $5.0 million.

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Table of Contents

ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

As part of this amendment we incurred additional fees of $125,000. These fees have been recorded as a debt discount and are being amortized over the life of the agreement. During the three months ended March 31, 2018, the amortization of the debt discount was $18,000 and the unamortized debt discount was $0.1 million as of March 31, 2018.

The Amendment also decreased the interest rates under the Term Loan and the Line of Credit and changed the payment schedule under the Term Loan.  The Term Loan bears interest at a rate per annum equal to the greater of the prime rate or 3.5% (4.75% on March 31, 2018). The Line of Credit bears interest at a rate per annum equal to the greater of the prime rate or 3.5% plus 0.25% (5.0% on March 31, 2018). Under the Amendment, we will make interest-only payments on the Term Loan from October 10, 2017 and on the 10th calendar day of each month thereafter, and will make principal and interest payments in 36 equal installments beginning on October 10, 2018, and on the 10th calendar day of each month thereafter, until the maturity date of the Term Loan. Pursuant to the Amendment, our Intellectual Property (as defined in the Amendment) is excluded from the collateral used to secure the indebtedness we incurred under the Credit Facility.

Under the Amendment, we have agreed to modified and additional negative covenants, requiring us to maintain a ratio of at least 1.25 to 1.00 with respect to either of the following: (x) the sum of our cash and certain receivables to our indebtedness under the Credit Facility; or (y) our Adjusted EBITDA (as defined in the Amendment), less certain capital expenditures, to the sum of (a) all principal payments and interest expense that we would have owed to the Lender if the Term Loan’s amortization were to start on September 29, 2017, all measured on a trailing 4-quarter basis, plus (b) all principal payments and interest expense on any of our other debt.  The Amendment also subjects us to the requirement that our quarterly revenues shall not negatively deviate more than 25% from the projections provided to Western Alliance Bank in accordance with the Credit Facility. As of March 31, 2018, we were in compliance with all financial covenants and restrictions. 

Outstanding borrowings consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

 

 

 

2018

 

2017

 

Term loan, current

 

$

1,929

 

$

926

 

Term loan, non-current

 

 

9,924

 

 

10,908

 

Line of credit

 

 

1,500

 

 

1,500

 

Total

 

$

13,353

 

$

13,334

 

 

Future repayments on outstanding borrowings (excluding unamortized discount of $147,000 as of March 31, 2018) are as follows (in thousands):

 

 

 

 

 

Year Ended December 31, 

    

    

 

 

2018 (remaining 9 months)

 

$

1,000

 

2019

 

 

5,500

 

2020

 

 

4,000

 

2021

 

 

3,000

 

 

 

$

13,500

 

 

Interest expense incurred under our borrowings was $154,000 and $223,000 for the three months ended March 31, 2018 and 2017, respectively.

On May 9, 2018 we entered into a new $35 million credit facility and terminated this facility. See Note 14 - Subsequent Events.

 

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Table of Contents

ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

Note 7. Segment Information.

We operate in one business segment, application-specific, 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. All of our revenue results from contracts with customers; we have no additional sources of revenue.

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

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

March 31, 

 

 

 

    

2018

    

2017

    

 

United States

 

$

2,702

 

$

2,809

 

 

Rest of Americas

 

 

135

 

 

61

 

 

Europe

 

 

3,286

 

 

1,868

 

 

Asia Pacific

 

 

9,125

 

 

6,471

 

 

Rest of world

 

 

54

 

 

98

 

 

Total

 

$

15,302

 

$

11,307

 

 

 

Long-lived assets are attributed to the geographic region were they are located. Long-lived assets by geographic region were as follows (in thousands):

 

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

 

 

2018

 

2017

United States

 

$

5,237

 

$

5,424

Asia Pacific

 

 

2,395

 

 

1,759

Europe

 

 

 —

 

 

 —

Total property and equipment, net

 

$

7,632

 

$

7,183

 

 

Note 8. Commitments and Contingencies.

Operating Leases.

The Company leases office facilities under various non-cancelable operating lease agreements. Certain lease agreements contain free or escalating rent payment provisions. The Company recognizes rent expense under such leases on a straight-line basis over the term of the lease with the difference between the expense and the payments recorded as deferred rent on the consolidated balance sheets. Any reimbursements by the landlord for tenant improvements are considered lease incentives, the balance of which is recorded as a lease incentive obligation within deferred rent on the consolidated balance sheets, and amortized as a reduction of rent expense over the life of the lease. Lease renewal periods are considered on a lease-by-lease basis in determining the lease term.

On November 2, 2015, the Company entered into a lease with Peterson Ridge LLC pursuant to which the Company leased a new headquarters facility, consisting of an aggregate of approximately 34,000 square feet of space in Santa Clara, California. The initial term of the lease commenced on November 2, 2015 and is scheduled to end on July 31, 2023 and may be extended, at the Company’s option, for an additional five-year period following the initial lease term.

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Table of Contents

ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

Pursuant to the lease, monthly base rental payments due under the lease were approximately $93,000 per month between August 1, 2016 and February 27, 2017, with annual increases of approximately 3% thereafter. The Company must also pay for certain other operating costs under the lease, including operating expenses, taxes, assessments, insurance, utilities, securities and property management fees. Peterson Ridge LLC is obligated to reimburse the Company for up to approximately $2.5 million of the Company’s out-of-pocket costs associated with any tenant improvements, as defined in the lease. The Company was reimbursed for this amount during the year ended December 31, 2016. As of March 31, 2018 and 2017, the Company recorded a lease incentive obligation of $1.9 million and $2.3 million, respectively, in deferred rent on the condensed consolidated balance sheets.

Rent expense under operating leases was $0.2 million and $0.2 million for the three months ended March 31, 2018 and 2017, respectively.

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

2018

 

2019

 

2020

 

2021

 

2022

 

Thereafter

 

 

 

(in thousands)

 

Operating leases

 

$

6,808

 

$

929

 

$

1,225

 

$

1,249

 

$

1,287

 

$

1,325

 

$

793

 

 

Purchase Commitments.

As of March 31, 2018, we had purchase commitments with our third-party foundries of $4.4 million due within one year, $0.4 million for a licensing and development agreement, and $0.4 million in conjunction with an agreement with TowerJazz Panasonic Semiconductor Company.

Litigation.

We may be subject to legal proceedings, claims and litigation, including intellectual property litigation, arising in the ordinary course of business. Such matters are subject to many uncertainties and outcomes and are not predictable with assurance. We accrue amounts that we believe are adequate to address any liabilities related to legal proceedings and other loss contingencies that we believe will result in a probable loss that is reasonably estimable.

Indemnification.

During the normal course of business, we may make certain indemnities, commitments and guarantees which may include intellectual property indemnities to certain of our customers in connection with the sales of our products and indemnities for liabilities associated with the infringement of other parties’ technology based upon our products. Our exposure under these indemnification provisions is generally limited to the total amount paid by a customer under the agreement. However, certain agreements include indemnification provisions that could potentially expose us to losses in excess of the amount received under the agreement. In addition, we indemnify our officers, directors and certain key employees while they are serving in good faith in such capacities.

We have not recorded any liability for these indemnities, commitments and guarantees in the accompanying condensed consolidated balance sheets. Where necessary, we accrue for losses for any known contingent liabilities, including those that may arise from indemnification provisions, when future payment is probable.

 

Note 9. Common Stock, Common Stock Warrants and Stock Option Plan.

Common Stock.

We are authorized to issue 100,000,000 shares of common stock with $0.0001 par value per share as of March 31, 2018 and December 31, 2017. Each holder of common stock is entitled to one vote per share. As of March 31,

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Table of Contents

ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

2018, no dividends have been declared by the Board of Directors, however, the holders of common stock are also entitled to receive dividends, when and if declared by our Board of Directors.

We completed a follow-on offering of our common stock in June 2017. We sold 5,000,000 shares, including 625,000 shares upon exercise of the underwriters’ option to purchase additional shares. The shares were sold at a public offering price of $4.00 per share for net proceeds of $18.4 million to us, after deducting underwriting discounts, commissions and offering expenses.

Common Stock Reserved for Future Issuance.

As of March 31, 2018 and December 31, 2017, we had reserved shares of common stock for future issuances as follows:

 

 

 

 

 

 

    

March 31, 

    

December 31, 

 

 

2018

 

2017

Warrants to purchase common stock

 

389,423

 

389,423

Stock option plan:

 

 

 

  

Options outstanding

 

1,529,554

 

1,560,453

Restricted stock units outstanding

 

487,110

 

509,894

Shares available for future grants/RSU grants

 

1,415,994

 

580,827

Shares available for ESPP

 

432,699

 

275,587

Total

 

4,254,780

 

3,316,184

 

Common Stock Warrants.

The following common stock warrants were outstanding as of March 31, 2018 and December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total amount of securities issuable

    

 

 

    

 

    

 

under the outstanding warrants

 

Exercise Price

 

Issuance Date

 

 Expiration Date

74,141

 

$

30.35

 

2012-2013

 

2019
315,282

 

$

2.38

 

2014-2015

 

2022-2024

389,423

 

$

7.71

 

  

 

  

 

Common stock warrants are exercisable at the option of the holder any time after the date of issuance into shares of our common stock. During 2017, common stock warrants with an aggregate 7,378 shares of issuable common stock expired and common stock warrants with an aggregate 14,713 shares of issuable common stock were cashless exercised resulting in the issuance of 10,223 shares of common stock.

Employee Benefit Plans.

2007 Equity Incentive Plan.

In 2007, our Board of Directors and shareholders approved the 2007 Equity Incentive Plan (the “2007 Plan”) under which 272,727 shares of common stock were reserved and available for the issuance of stock options and restricted stock to eligible participants. The 2007 Plan was subsequently amended to increase the number of shares of common stock reserved for issuance under the 2007 Plan to 787,878 and during the year ended December 31, 2015, the number of shares reserved for issuance under the 2007 Plan was increased to 2,651,515. Options and restricted stock awards were granted at a price per share not less than the 85% of the fair value at the date of grant or award, respectively. Restricted stock awarded to persons controlling more than 10% of our stock were granted at a price per

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

share not less than the 100% of the fair value at the date of the award. Options that were granted to new employees generally vest over a four-year period with 25% vesting at the end of one year and the remaining to vest monthly thereafter, while options that were granted to existing employees generally vest over a four-year period. Options granted generally are exercisable up to 10 years from the date of grant. As of October 26, 2015, no shares were available for grant under the 2007 Plan and all outstanding options would continue to be governed and remain outstanding in accordance with their existing terms. In addition, any shares subject to outstanding awards under the 2007 Plan that are issuable upon the exercise of options that expire or become unexercisable for any reason without having been exercised in full will be available for future grant and issuance under the 2015 Plan (as defined below).

2015 Equity Incentive Plan.

In September 2015, our Board of Directors adopted, and in October 2015 our stockholders approved, our 2015 Equity Incentive Plan. The 2015 Equity Incentive Plan became effective on the date immediately prior to the date of our IPO. As a result, 1,813,272 shares of common stock previously reserved but unissued under the 2007 Plan on the effective date of the 2015 Equity Incentive Plan became reserved for issuance under our 2015 Equity Incentive Plan, and we ceased granting awards under our 2007 Plan. The number of shares reserved for issuance under our 2015 Equity Incentive Plan will increase automatically on the first day of January of each of 2016 through 2025 by the number of shares equal to 4% of the total outstanding shares of our common stock as of the immediately preceding December 31. However, our Board of Directors may reduce the amount of the increase in any particular year.

Our 2015 Equity Incentive Plan authorizes the award of stock options, restricted stock awards, stock appreciation rights, restricted stock units (“RSUs”), performance awards and stock bonuses. No person will be eligible to receive more than 2,000,000 shares in any calendar year under our 2015 Equity Incentive Plan other than a new employee of ours, who will be eligible to receive no more than 4,000,000 shares under the plan in the calendar year in which the employee commences employment. The aggregate number of shares of our common stock that may be subject to awards granted to any one non-employee director pursuant to the 2015 Equity Incentive Plan in any calendar year shall not exceed 300,000. Our 2015 Equity Incentive Plan provides that no more than 25,000,000 shares will be issued as incentive stock options.

2015 Employee Stock Purchase Plan

In September 2015, our Board of Directors adopted, and in October 2015 our stockholders approved, our 2015 Employee Stock Purchase Plan (“ESPP”). The 2015 Employee Stock Purchase Plan became effective on the date of our IPO. We reserved 150,000 shares of our common stock for issuance under our 2015 Employee Stock Purchase Plan. The number of shares reserved for issuance under our 2015 Employee Stock Purchase Plan will increase automatically on the first day of January following the first offering date by the number of shares equal to 1% of the total outstanding shares of our common stock as of the immediately preceding December 31 (rounded to the nearest whole share). However, our Board of Directors may reduce the amount of the increase in any particular year. The aggregate number of shares issued over the term of our 2015 Employee Stock Purchase Plan will not exceed 2,250,000 shares of our common stock.

Under our 2015 Employee Stock Purchase Plan, eligible employees will be able to acquire shares of our common stock by accumulating funds through payroll deductions. Eligible employees will be able to select a rate of payroll deduction up to 15% of their base cash compensation. The purchase price for shares of our common stock purchased under our 2015 Employee Stock Purchase Plan will be 85% of the lesser of the fair market value of our common stock on (i) the first trading day of the applicable offering period and (ii) the last trading day of each purchase period in the applicable offering period. Except for the first offering period, each offering period will run for no more than six months, with purchases occurring every six months. The first offering period began upon the effective date of our IPO and was originally set to end on June 30, 2016. On May 25, 2016, the Board of Directors extended the initial offering period to July 31, 2016. Subsequent purchase periods will be 6 months in duration beginning on August 1, 2016. On July 29, 2016, we issued 68,392 shares of common stock in conjunction with the end date of the initial purchase

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ADESTO TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

window. During 2017, we issued 110,711 shares of common stock pursuant to the ESPP. On January 31, 2018 we issued 55,806 shares of common stock in conjunction with the end date of the latest purchase window.

No participant will have the right to purchase shares of our common stock in an amount that has a fair market value greater than $25,000, determined as of the first day of the applicable purchase period, for each calendar year in which that right is outstanding. In addition, no participant will be permitted to purchase more than 2,500 shares during any one purchase period or a lesser amount as determined by our compensation committee.

Our 2015 Employee Stock Purchase Plan will continue until the earlier to occur of its termination by our Board of Directors, the issuance of all shares reserved for issuance under it or the tenth anniversary of its effective date.

A summary of stock option and RSUs (including performance-based RSU) activity under the 2007 Plan and the 2015 Equity Incentive Plan is as follows: