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(1) Description of Business
Nature of Business
Aspen Aerogels, Inc. (the Company) is an aerogel technology company that designs, develops and manufactures innovative, high-performance aerogel insulation used primarily in the energy infrastructure and building materials markets. The Company also conducts research and development related to aerogel technology supported by funding from several agencies of the U.S. government and other institutions in the form of research and development contracts.
The Company maintains its corporate offices in Northborough, Massachusetts. The Company has three wholly owned subsidiaries: Aspen Aerogels Rhode Island, LLC, Aspen Aerogels Germany, GmbH and Aspen Aerogels Georgia, LLC .
On June 18, 2014, the Company completed an initial public offering (IPO) of 7,500,000 shares of its common stock at a public offering price of $11.00 per share. The Company received net proceeds of $74.7 million after deducting underwriting discounts and commissions of $4.3 million and offering expenses of approximately $3.5 million. Upon the closing of the offering, all of the Company’s then-outstanding (i) warrants to purchase Series C preferred stock, (the “Series C warrants”) were subject to an automatic net cashless exercise, (ii) convertible preferred stock (including the shares of Series C preferred stock issued upon the automatic net cashless exercise of Series C warrants) automatically converted into 115,982 shares of common stock, and (iii) convertible notes automatically converted into 15,319,034 shares of common stock.
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(2) Summary of Basis of Presentation and Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP), include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements requires the Company to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include allowances for doubtful accounts, sales returns and allowances, product warranty costs, inventory valuation, the carrying amount of property and equipment, stock-based compensation and deferred income taxes. The Company evaluates its estimates and assumptions on an on-going basis using historical experience and other factors, including the current economic environment, which are believed to be reasonable under the circumstances. Management adjusts such estimates and assumptions when facts and circumstances dictate. Illiquid credit markets, volatile equity markets and declines in business investment increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.
Cash & Cash Equivalents
Cash equivalents include short-term, highly liquid instruments, which consist of money market accounts. All cash and cash equivalents are maintained with major financial institutions in North America. Deposits with these financial institutions may exceed the amount of insurance provided on such deposits; however, these deposits typically may be redeemed upon demand and, therefore, bear minimal risk.
Marketable Securities
Marketable securities consisted primarily of marketable debt securities which are classified as available-for-sale and are carried at fair value. The Company held no marketable securities as of December 31, 2016 or 2015. During the year ended December 31, 2015, the Company purchased $2.5 million of marketable securities which matured during the same period. The unrealized gains and losses on available-for-sale securities are recorded in accumulated other comprehensive income (loss). The Company considers all highly liquid investments with maturities of 90 days or less at the time of purchase to be cash equivalents, and investments with maturities of greater than 90 days at the time of purchase to be marketable securities. When a marketable security incurs a significant unrealized loss for a sustained period of time, the Company will review the instrument to determine if it is other-than-temporarily impaired. If it is determined that an instrument is other-than-temporarily impaired, the Company will record the unrealized loss in the consolidated statement of operations.
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) consisted of changes in the fair market value of available-for-sale securities. As of December 31, 2016 and 2015, the Company held no marketable securities.
Fair Value of Financial Instruments
Fair value is an exit price that represents the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. Accordingly, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The Company discloses the manner in which fair value is determined for assets and liabilities based on a three-tiered fair value hierarchy. The hierarchy ranks the quality and reliability of the information used to determine the fair values. The three levels of inputs described in the standard are:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Observable inputs, other than Level 1 prices, for the assets or liabilities, either directly or indirectly, for substantially the full term of the assets or liabilities.
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Under the Fair Value Option Subsections of Financial Accounting Standards Board (FASB) ASC Subtopic 825-10, Financial Instruments — Overall, the Company has the irrevocable option to report most financial assets and financial liabilities at fair value on an instrument by instrument basis, with changes in fair value reported in earnings each reporting period. As a result of electing this option, the Company recorded its Subordinated Notes, Senior Convertible Notes and Convertible Notes at fair value in order to measure these liabilities at amounts that more accurately reflect the economics of these instruments during the year ended December 31, 2014.
At December 31, 2016 and 2015, no financial assets or liabilities were measured at fair value.
During the year ended December 31, 2014 (prior to the completion of the Company’s IPO on June 18, 2014), the Company valued its then outstanding debt instruments utilizing Level 3 inputs.
During the year ended December 31, 2015, the Company purchased $2.5 million of marketable securities which matured during the same period. During this period, the instruments were valued utilizing Level 1 inputs. As of December 31, 2016 and December 31, 2015, the Company held no marketable securities.
Concentration of Credit Risk
Financial instruments, which potentially expose the Company to concentrations of credit risk, consist principally of accounts receivable. The Company’s customers are primarily insulation distributors, insulation contractors, insulation fabricators and select end-users located throughout the world. The Company performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral to secure accounts receivable. The Company maintains an allowance for doubtful accounts based on its assessment of the collectability of accounts receivable. The Company reviews the allowance for doubtful accounts quarterly. The Company has not experienced any meaningful non-payment or write-offs of accounts receivable. Accordingly, the allowance for doubtful accounts was zero at December 31, 2016 and 2015. The Company does not have any off-balance-sheet credit exposure related to its customers.
For the year ended December 31, 2016, two customers represented 25% and 15% of total revenue, respectively. For the year ended December 31, 2015, two customers represented 14% and 12% of total revenue, respectively. For the year ended December 31, 2014, two customers represented 13% and 12% of total revenue, respectively.
At December 31, 2016, the Company had three customers that accounted for 31%, 17% and 10% of accounts receivable, respectively. At December 31, 2015, the Company had three customers that accounted for 17%, 14% and 13% of accounts receivable, respectively.
Inventories
Inventory consists of finished products and raw materials. Inventories are carried at lower of cost, determined using the first-in, first-out (FIFO) method, or market. Cost includes materials, labor and manufacturing overhead. Manufacturing overhead is allocated to the costs of conversion based on normal capacity of the Company’s production facility. Abnormal freight, handling costs and material waste is expensed in the period it occurs.
The Company periodically reviews its inventories and makes provisions as necessary for estimated excess, obsolete or damaged goods to ensure values approximate the lower of cost or market. The amount of any such provision is equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand, selling prices and market conditions.
Property, Plant and Equipment, Net
Property, plant and equipment are stated at cost. Assets held under capital leases are stated at the lesser of the present value of future minimum payments, using the Company’s incremental borrowing rate, or the fair value of the property at the inception of the lease. Expenditures for maintenance and repairs are charged to expense as incurred, whereas major betterments are capitalized as additions to property, plant and equipment.
Interest expense capitalization commences at the time a capital project begins construction and concludes when the project is completed. The Company has capitalized interest costs as part of the historical cost of constructing its manufacturing facilities. The Company capitalized $0.0 million, $0.0 million and $0.1 million in interest costs related to the build-out of the East Providence facility during the years ended December 31, 2016, 2015 and 2014, respectively.
Depreciation on plant and equipment is calculated on the straight-line method over the estimated useful lives of the assets. Assets related to capital leases are amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset.
Assets utilized in the Company’s operations that are taken out of service with no future use are charged to cost of sales or operating expenses, depending on the department in which the asset was utilized. Write-offs of construction in progress are charged to operating expenses upon the determination of no future use.
Other Assets
Other assets primarily include long-term deposits.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recognition and measurement of a potential impairment is performed on assets grouped with other assets and liabilities at the lowest level where identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to future undiscounted net cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset or asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset or asset group exceeds the fair value of the asset or asset group. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.
Asset Retirement Obligations
The Company records asset retirement obligations associated with its lease obligations and the retirement of tangible long-lived assets. The Company reviews legal obligations associated with the retirement of long-lived assets that result from contractual obligations or the acquisition, construction, development and/or normal use of the assets. If it is determined that a legal obligation exists, regardless of whether the obligation is conditional on a future event, the fair value of the liability for an asset retirement obligation is recognized in the period in which it is incurred, if a reasonable estimate of fair value can be made. An amount equal to the fair value of the liability is also recorded as a long-term asset that is depreciated over the estimated life of the asset. The difference between the gross expected future cash outflow and its present value is accreted over the life of the related lease as an operating expense. The Company fully satisfied its asset retirement obligation during the year ended December 31, 2016.
Deferred Revenue
The Company records deferred revenue for product sales when (i) the Company has delivered products but other revenue recognition criteria have not been satisfied, (ii) payments have been received in advance of products being delivered, or (iii) subject to customer rebate agreements.
Deferred Rent
For leases that contain fixed increases in the minimum annual lease payment during the original term of the lease, the Company recognizes rental expense on a straight-line basis over the lease term, and records the difference between rent expense and the amount currently payable as deferred rent. Lease incentives for allowances for qualified leasehold improvements received from landlords are amortized on a straight-line basis over the lease term. Deferred rent is included in other long-term liabilities on the consolidated balance sheet.
Revenue Recognition
The Company recognizes revenue from the sale of products and performance of research and development services. Revenue is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, the price to the buyer is fixed or determinable, delivery has occurred or services have been provided, and collectability is reasonably assured.
Product Revenue
Product revenue is recognized upon transfer of title and risk of loss, which is upon shipment or delivery. The Company’s customary shipping terms are free on board shipping point.
Sales returns are recorded based on historical sales and return information. Products that exhibit unusual sales return patterns due to quality or other manufacturing matters are specifically investigated and analyzed as part of the sales return accrual. The sales return accrual represents a reserve for products that may be returned due to quality concerns or authorized for destruction in the field. Sales return reserves are recorded at full original sales value. The Company rarely exchanges products from inventory for returned products. Sales return reserves were $0.1 million at December 31, 2016 and 2015.
For initial shipments of products where the Company is unsure of meeting the customer’s specifications, the Company will defer the recognition of product revenue and related costs until written customer acceptance is obtained.
Research Services Revenue
The Company performs research services under contracts with various government agencies and other institutions. The Company records revenue earned on research services contracts using the percentage-of-completion method in two ways: (1) for firm-fixed-price contracts, the Company accrues that portion of the total contract price that is allocable, on the basis of the Company’s estimates of costs incurred to date to total contract costs; and (2) for cost-plus-fixed-fee contracts, the Company records revenue that is equal to total payroll cost incurred times a stated factor plus reimbursable expenses, to a stated upper limit. The primary cost is the labor effort expended in completing research, and the only deliverable, other than the labor hours expended, is reporting of research results to the customer. Because the input measure of labor hours expended is also reflective of the output measure, it is a reliable means to measure the extent of progress towards completion. Revisions in cost estimates and fees during the course of the contract are reflected in the accounting period in which the facts that require the revisions become known. Contract costs and rates used to allocate overhead to contracts are subject to audit by the respective contracting government agency. Adjustments to revenue as a result of audit are recorded in the period they become known. To date, adjustments to revenue as a result of audit have been insignificant.
Warranty
The Company provides warranties for its products and records the estimated cost within cost of sales in the period that the related revenue is recorded. The Company’s standard warranty period extends to one to two years from the date of shipment. The standard warranties provide that the Company’s products will be free from defects in material and workmanship, and will, under normal use, conform to the specifications for the product. Historically, warranty claims and charges have been insignificant.
The Company’s products may be utilized in systems that may involve new technical demands and new configurations. As such, the Company regularly reviews and assesses whether warranty reserves shall be recorded in the period the related revenue is recorded.
For the year ended December 31, 2016, the Company recorded warranty expense of $0.5 million. This specific reserve was principally related to product warranty claims for specific projects. These claims were outside of the Company’s typical experience. As of December 31, 2016, the Company had satisfied all outstanding warranty claims.
Additionally, during the year ended December 31, 2016, a customer notified the Company of a specific product application issue. The customer continues to request and receive shipment of additional aerogel product and no claim has been made. The Company cannot be certain that it will not be subject to a future warranty claim.
Shipping and Handling Costs
Shipping and handling costs are classified as a component of cost of revenue. Customer payments of shipping and handling costs are recorded as product revenue.
Stock-based Compensation
The Company grants share-based awards to its employees and non-employee directors. All share-based awards granted, including grants of stock options, restricted stock and restricted stock units (RSUs), are recognized in the statement of operations based on their fair value as of the date of grant. Expense is recognized on a straight-line basis over the requisite service period for all awards with service conditions. For performance-based awards, the grant date fair value is recognized as expense when the condition is probable of being achieved, and then on a graded basis over the requisite service period. The Company uses the Black-Scholes option-pricing model to determine the fair value of service-based option awards, which requires a number of complex and subjective assumptions including fair value of the underlying security, the expected volatility of the underlying security, a risk-free interest rate and the expected term of the option.
The fair value of restricted stock and RSUs is determined using the closing price of the Company’s common stock on the date of grant. All shares of restricted stock are not transferable until they vest. Restricted stock is typically issued to non-employee directors and typically vests over a one-year period from the date of issuance. RSUs are issued to employees and typically vest over a three to four year period from the date of issuance. The fair value of restricted stock and RSUs upon which vesting is solely service-based is expensed ratably over the vesting period. If the service condition underlying shares of restricted stock is not met for any reason, the shares of unvested restricted stock will be forfeited and returned to the Company.
For stock options that contain a market condition, the Company uses the Monte-Carlo simulation option-pricing model to determine the fair value of market based awards. The Monte-Carlo simulation option-pricing model takes into account the same input assumptions as the Black-Scholes model; however, it also further incorporates into the fair-value determination, the possibility that the market condition may not be satisfied. Compensation costs related to awards with a market condition are recognized regardless of whether the market condition is satisfied, provided that the requisite service has been provided. Stock-based compensation expense is recognized on a straight-line basis over the requisite service period for each such award.
Pursuant to the evergreen provisions of the 2014 Employee, Director and Consultant Equity Incentive Plan, the number of shares of common stock authorized for issuance under the plan automatically increased by 463,697 shares to 6,069,201 shares effective January 1, 2016.
Research and Development
Costs incurred in the research and development of the Company’s products include compensation and related costs, services provided by third-party contractors, materials and supplies and are classified as research and development expenses as incurred. Research and development costs directly associated with research services revenue are classified as research services in cost of revenue.
Earnings per Share
The Company calculates net income (loss) per common share based on the weighted-average number of common shares outstanding during each period. Potential common stock equivalents are determined using the treasury stock method. The weighted-average number of common shares included in the computation of diluted net income (loss) gives effect to all potentially dilutive common equivalent shares, including outstanding stock options, RSUs and warrants. Common equivalent shares are excluded from the computation of diluted net income (loss) per share if their effect is antidilutive.
Diluted net income (loss) per share is computed using the more dilutive of (a) the two-class method, or (b) the if-converted method. The Company allocates net income (loss) first to preferred stockholders and holders of warrants to purchase preferred stock based on dividend rights and then to common stockholders, preferred stockholders and preferred warrant holders based on ownership interests. The weighted-average number of common shares included in the computation of diluted net income (loss) gives effect to all potentially dilutive common equivalent shares, including outstanding stock options, RSUs and warrants. Common equivalent shares are excluded from the computation of diluted net income (loss) per share if their effect is antidilutive.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. The Company accounts for uncertain tax positions using a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Differences between tax positions taken in a tax return and amounts recognized in the financial statements are recorded as adjustments to income taxes payable or receivable, or adjustments to deferred taxes, or both. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company recognizes penalties and interest related to uncertain tax positions, if any, as a component of income tax expense.
Segments
Operating segments are identified as components of an enterprise about which separate, discrete financial information is available for evaluation by the chief operating decision maker in making decisions on how to allocate resources and assess performance. The Company’s chief operating decision maker is the Chief Executive Officer. The Company’s chief operating decision maker reviews consolidated operating results to make decisions about allocating resources and assessing performance for the entire Company. The Company views its operations and manages its business as one operating segment.
Information about the Company’s revenues, based on shipment destination or research services location, is presented in the following table:
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Year Ended December 31, |
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2016 |
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2015 |
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2014 |
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(In thousands) |
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Revenue: |
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U.S. |
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$ |
35,726 |
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$ |
44,553 |
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$ |
39,809 |
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International |
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|
82,012 |
|
|
|
77,965 |
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|
|
62,590 |
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Total |
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$ |
117,738 |
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$ |
122,518 |
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$ |
102,399 |
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Recently Issued Accounting Standards
In August 2016, the (FASB) issued Accounting Standards Update (ASU) No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (FASB ASU 2016-15). This amendment addresses eight classification issues related to the statement of cash flows. For public business entities, the amendments in FASB ASU 2016-15 are effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. The Company has not yet selected a transition method and is evaluating the effect the updated standard will have on its consolidated financial statements and related disclosures.
In March 2016, the FASB issued FASB ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (FASB ASU 2016-09). The amendment is to simplify several aspects of the accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, the amendments in FASB ASU 2016-09 are effective for interim and annual reporting periods beginning after December 15, 2016. The Company has determined that the adoption of this standard will not have a material impact on its consolidated results of operations and financial condition.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (FASB ASU 2016-02). FASB ASU 2016-02 changes the accounting for leases and includes a requirement to record all leases on the consolidated balance sheets as assets and liabilities. This update is effective for fiscal years beginning after December 15, 2018. Early application is permitted. The Company has not yet selected a transition method and is evaluating the effect the updated standard will have on its consolidated financial statements and related disclosures.
In November 2015, the FASB issued ASU 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes (FASB ASU 2015-17). FASB ASU 2015-17 requires that deferred tax assets and liabilities be classified as noncurrent on the balance sheet. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Earlier adoption is permitted and the standard may be applied either retrospectively or on a prospective basis to all deferred tax assets and liabilities. The Company has elected, as permitted by the standard, to early adopt FASB ASU 2015-17 prospectively, effective for the period ended December 31, 2015. The adoption of this update did not have a material impact on the Company’s consolidated financial statements.
In August 2015, the FASB issued a deferral of ASU 2014-09, Revenue from Contracts with Customers. The standard will eliminate the transaction and industry-specific revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. As a result of the deferral, public entities are required to apply the revenue recognition standard for annual reporting period beginning on or after December 15, 2017, including interim periods within that annual reporting period. Early application is permitted only as of annual and interim periods in fiscal years beginning after December 15, 2016. The Company has not yet selected a transition method and is evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.
In July 2015, the FASB issued ASU 2015-11, which, for entities that do not measure inventory using the last-in, first-out (LIFO) or retail inventory method, changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value. The ASU also eliminates the requirement for these entities to consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory. Public entities are required to apply the new standard for annual reporting periods beginning after December 15, 2016 and interim periods within those fiscal periods. This standard is to be applied prospectively. Early adoption is permitted as of the beginning of an interim or annual period. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements and related disclosures.
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.
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(3) Inventories
Inventories consist of the following:
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December 31, |
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2016 |
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2015 |
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(In thousands) |
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Raw material |
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$ |
3,511 |
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$ |
4,432 |
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Finished goods |
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9,357 |
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2,100 |
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Total |
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$ |
12,868 |
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$ |
6,532 |
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(4) Property, Plant and Equipment, Net
Property, plant and equipment consist of the following:
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December 31, |
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2016 |
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2015 |
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Useful life |
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(In thousands) |
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Construction in progress |
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$ |
11,139 |
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$ |
5,138 |
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— |
Buildings |
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23,901 |
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23,884 |
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30 years |
Machinery and equipment |
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113,659 |
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|
|
104,658 |
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3 — 10 years |
Computer equipment and software |
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7,679 |
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6,888 |
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3 years |
Total |
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156,378 |
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140,568 |
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Accumulated depreciation and amortization |
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(71,984 |
) |
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(62,246 |
) |
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Property, plant and equipment, net |
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$ |
84,394 |
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$ |
78,322 |
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Plant and equipment under capital leases included in the table above was $0.1 million at both December 31, 2016 and 2015.
Depreciation expense was $9.8 million, $9.8 million and $10.1 million for the years ended December 31, 2016, 2015 and 2014, respectively. Amortization associated with assets under capital leases was less than $0.1 million for each of the years ended December 31, 2016, 2015 and 2014.
Construction in progress totaled $11.1 million and $5.1 million at December 31, 2016 and 2015, respectively. Construction in progress at December 31, 2016 included engineering designs and other pre-construction costs for our planned manufacturing facility in Statesboro, Georgia of $7.2 million and other capital improvement projects at the East Providence facility. Construction in process at December 31, 2015 included engineering designs and other pre-construction costs for our planned manufacturing facility in Statesboro, Georgia of $2.3 million and other capital improvement projects at the East Providence facility.
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(5) Accrued Expenses
Accrued expenses consist of the following:
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December 31, |
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2016 |
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2015 |
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(In thousands) |
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Employee compensation |
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$ |
2,796 |
|
|
$ |
4,184 |
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Other accrued expenses |
|
|
1,191 |
|
|
|
1,384 |
|
|
|
$ |
3,987 |
|
|
$ |
5,568 |
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(6) Revolving Line of Credit
The Company entered into an Amended and Restated Loan and Security Agreement with Silicon Valley Bank (Loan Agreement), on August 31, 2014, which has been subsequently amended from time to time. On January 27, 2017, the Loan Agreement was amended to extend the maturity date of the facility to January 28, 2018. Under the Loan Agreement, the Company may borrow up to $20 million subject to compliance with certain covenants and borrowing base limitations. At the Company’s election, the interest rate applicable to borrowings may be based on the prime rate or LIBOR. Prime rate-based rates vary from prime rate plus 0.75% per annum to prime rate plus 1.75% per annum, while LIBOR-based rates vary from LIBOR plus 3.75% per annum to LIBOR plus 4.25% per annum. In addition, the Company is required to pay a monthly unused line fee of 0.5% per annum of the average unused portion of the facility. Obligations under the Loan Agreement are secured by a first priority security interest in all assets of the Company, including those at the East Providence facility, except for certain exclusions.
At December 31, 2016 and 2015, the Company had no amounts drawn under the Loan Agreement. Under the Loan Agreement, the Company is required to comply with both non-financial and financial covenants, including minimum Adjusted EBITDA and minimum Adjusted Quick Ratio, as defined. At December 31, 2016, the Company was in compliance with all such covenants.
The Company has been required to provide its landlord with letters of credit securing certain obligations. In addition, the Company has been required to provide certain customers with letters of credit securing obligations under commercial contracts. The Company had outstanding letters of credit backed by the revolving credit facility of $2.7 million at December 31, 2016 and 2015, which reduce the funds otherwise available to the Company under the Loan Agreement. Based on the available borrowing base and net of the $2.7 million of outstanding letters of credit, the amount available to the Company under the Loan Agreement at December 31, 2016 was $12.1 million.
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(7) Other Expense, net
For the year ended December 31, 2016, other expense, net of $0.8 million consisted of financing costs and interest expense. During the year, the Company engaged with a third party lender to secure a term loan to fund, in part, the construction of the planned manufacturing facility in Statesboro, Georgia. In 2016, the Company decided, at its sole discretion, to temporarily delay construction of the facility and its related financing to better align the capacity expansion with the Company’s assessment of demand for the 2018 to 2020 period. As a result, the Company recorded a $0.7 million charge for postponed financing costs. The charge included legal fees incurred by the Company itself and on behalf of the potential lender. In addition, the Company recognized interest expense of $0.1 million of commitment and legal fees associated with its Loan Agreement with Silicon Valley Bank.
For the year ended December 31, 2015, other expense, net consisted primarily of commitment and legal fees associated with the Loan Agreement of $0.2 million.
For the year ended December 31, 2014, the Company held debt instruments outstanding that were measured at fair value. The charge recognized as a result of the change in fair value of the debt instruments was $50.0 million for the year ended December 31, 2014. In addition, the Company incurred an aggregate of $0.3 million in interest expense associated with the Loan Agreement and for debt closing costs during the year.
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(8) Other Long-term Liabilities
Other long-term liabilities consist of the following:
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|
December 31, |
|
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|
|
2016 |
|
|
2015 |
|
||
|
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(In thousands) |
|
|||||
Asset retirement obligations (ARO) |
|
$ |
— |
|
|
$ |
397 |
|
Deferred rent |
|
|
1,125 |
|
|
|
163 |
|
|
|
|
1,125 |
|
|
|
560 |
|
Current maturities of other long-term liabilities |
|
|
(154 |
) |
|
|
(409 |
) |
Other long-term liabilities, less current maturities |
|
$ |
971 |
|
|
$ |
151 |
|
As of December 31, 2015, the Company had asset retirement obligations (ARO) of $0.4 million arising from requirements to perform certain asset retirement activities upon the termination of its Northborough, Massachusetts facility lease and upon disposal of certain machinery and equipment.
A summary of ARO activity consists of the following:
|
|
Year Ended December 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
|
|
(In thousands) |
|
|||||
Balance at beginning of period |
|
$ |
397 |
|
|
$ |
1,018 |
|
Accretion of discount expense |
|
|
— |
|
|
|
21 |
|
Settlement costs |
|
|
(397 |
) |
|
|
(642 |
) |
Balance at end of period |
|
$ |
— |
|
|
$ |
397 |
|
During the year ended December 31, 2016, the Company incurred approximately $0.2 million in expenditures in support of completing the restoration of space under the facility lease. This space was vacated and returned to the landlord on July 1, 2016.
On June 29, 2016, the Company executed an agreement to remain at the Northborough, Massachusetts facility through December 31, 2026. As part of the new agreement, the Company’s obligation to restore the remaining space in the Northborough facility was eliminated. The settlement of the remaining reserve balance of approximately $0.2 million was reclassified to other long-term liabilities and will be amortized as a reduction to rent expense over the term of the new lease agreement.
|
(9) Commitments and Contingencies
Capital Leases
The Company has entered into certain capital leases for computer equipment and vehicles. The leases are payable in monthly installments and expire at various dates through 2018. The recorded balance of capital lease obligations as of December 31, 2016 and 2015 was $0.1 million and less than $0.1 million, respectively. Future minimum payments under capital leases at December 31, 2016 are as follows:
Year |
|
Capital Lease Obligations |
|
|
|
|
(In thousands) |
|
|
2017 |
|
$ |
37 |
|
2018 |
|
|
5 |
|
Total |
|
|
42 |
|
Less portion representing interest |
|
|
(3 |
) |
Present value of future minimum payments |
|
|
39 |
|
Current maturities of capital lease payments |
|
|
(35 |
) |
Capital leases, excluding current portion |
|
$ |
4 |
|
Operating Leases
On June 29, 2016, the Company entered into a new agreement to lease approximately 51,650 square feet of office space in Northborough, MA, the location of the Company’s current headquarters. The new lease succeeds the existing lease between the Company and the landlord that expires on December 31, 2016. The lease term commences on January 1, 2017 and expires on December 31, 2026. The annual base rent associated with the lease will be approximately $408,000 during the first year of the lease, and increase by approximately 3% annually for the term of the lease. The lease also provides for the payment by the Company of its pro rata share of real estate taxes and certain other expenses. Prior to the expiration of the lease term, the Company will have the right to extend the lease for an additional term of three years.
Under the terms of the new lease, the landlord will provide the Company with an allowance of up to $1.2 million to be utilized for improvements to the leased premises. These amounts are recorded as a component of deferred rent in determining the minimum lease payments for the property. As of December 31, 2016, the Company had capitalized $0.7 million in leasehold improvement costs.
The Company also leases facilities and equipment under operating leases expiring at various dates through 2021. Under these agreements, the Company is obligated to pay annual rentals, as noted below, plus real estate taxes, and certain operating expenses.
Future minimum lease payments under operating leases at December 31, 2016 are as follows:
Year |
|
Operating Leases |
|
|
|
|
(In thousands) |
|
|
2017 |
|
$ |
1,222 |
|
2018 |
|
|
1,239 |
|
2019 |
|
|
813 |
|
2020 |
|
|
640 |
|
2021 |
|
|
505 |
|
Thereafter |
|
|
2,512 |
|
Total minimum lease payments |
|
$ |
6,931 |
|
The Company incurred rent expense under all operating leases of approximately $1.5 million, $1.6 million and $1.2 million in the years ended December 31, 2016, 2015 and 2014, respectively.
Letters of Credit
The Company has been required to provide certain customers with letters of credit securing obligations under commercial contracts. The Company had letters of credit outstanding for $2.7 million at both December 31, 2016 and 2015, respectively. These letters of credit are secured by the Company’s revolving credit facility (see note 6).
Customer Supply Agreement
During 2016, the Company entered into a supply agreement (the Supply Agreement) and a joint development agreement (the JDA) with BASF SE (BASF). Pursuant to the Supply Agreement, the Company will sell exclusively to BASF the Company’s Spaceloft ® A2 product at annual volumes to be specified by BASF, subject to certain volume limits. The Supply Agreement will terminate on December 31, 2027. Upon expiration of the Supply Agreement, the Company will be subject to a post-termination supply commitment for an additional two years. The JDA is designed to facilitate the collaboration between the parties on the development and commercialization of new products.
In addition, BASF will make a non-interest bearing prepayment to the Company in the aggregate amount of $22 million during the construction of the Company’s planned manufacturing facility in Statesboro, Georgia (Plant Two), subject to the Company’s prior satisfaction of certain preconditions, including securing a debt commitment from a third party lender for at least $30 million. BASF is obligated to pay the prepayment to the Company in eight equal consecutive quarterly installments commencing on the first day of the calendar quarter following the date on which the preconditions are met. Once commenced, BASF’s obligation to make such quarterly payments shall be subject to postponement in the event of delays of three months or more in the projected date of completion of Plant Two by a commensurate number of months.
After October 1, 2018, the Company will, at BASF’s instruction, credit up to 25.3% of any amounts invoiced by the Company for Spaceloft ® A2 product sold to BASF against the prepayment balance. However, BASF has no obligation to purchase products under the Supply Agreement. If any of the prepayment remains uncredited against amounts invoiced by the Company as of September 30, 2023, BASF may request that the Company repay the uncredited amount to BASF in four equal quarterly installments beginning on December 31, 2023. The repayment obligation will be secured by a security interest in real estate, plant and equipment at the Company’s Rhode Island and Georgia manufacturing facilities.
As of December 31, 2016, the Company anticipates that the impact of constrained capital investment and low activity levels in the global energy markets will continue into 2017. With this view of the market, the Company has elected to temporarily delay the board approved Plant Two project and its related financing to better align the capacity expansion with the Company’s assessment of demand for the 2018 to 2020 period. As a result, the Company has yet to fulfill the prepayment preconditions and commencement of the quarterly prepayments from BASF will be delayed until the preconditions are satisfied.
Litigation
The Company is, from time to time, a party to litigation that arises in the normal course of its business operations. See Part I, Item 3 (“Legal Proceedings”) of this Annual Report on Form 10-K for a description of certain of the Company’s current legal proceedings. The Company is not presently a party to any litigation for which it believes a loss is probable requiring an amount to be accrued or a possible loss contingency requiring disclosure.
|
(10) Conversion of Redeemable Convertible Preferred Stock
Upon the closing of the Company’s IPO discussed in note 1, the outstanding shares of Series A, Series B and Series C convertible preferred stock converted into 115,982 shares of common stock.
|
(11) Stockholders’ Equity
On June 18, 2014, the Company completed an IPO of 7,500,000 shares of its common stock at a public offering price of $11.00 per share. The Company received net proceeds of $74.7 million after deducting underwriting discounts and commissions of $4.3 million and other offering expenses of approximately $3.5 million. Upon the closing of the offering, all of the Company’s then-outstanding (i) Series C warrants to purchase Series C preferred stock were subject to an automatic net cashless exercise, (ii) convertible preferred stock (including the shares of Series C preferred stock issued upon the automatic net cashless exercise of Series C warrants) automatically converted into 115,982 shares of common stock, and (iii) Convertible Notes and Senior Convertible Notes automatically converted into 15,319,034 shares of common stock.
At December 31, 2016 and 2015, the Company was authorized to issue 130,000,000 shares of stock, of which 125,000,000 shares were designated as common stock and 5,000,000 shares were designated as preferred stock.
|
(12) Employee Benefit Plan
The Company sponsors the Aspen Aerogels, Inc. 401(k) Plan. Under the terms of the plan, the Company’s employees may contribute a percentage of their pretax earnings. During the years ended December 31, 2016 and 2015, the Company provided matching contributions of $0.2 million and $0.1 million, respectively. During the year ended December 31, 2014, the Company did not provided matching contributions nor did it make any contributions to the plan.
|
(13) Employee Stock Ownership Plans
Effective June 12, 2014, upon the pricing of the IPO, the Company adopted the 2014 Employee, Director and Consultant Equity Incentive Plan (the 2014 Equity Plan). Under the 2014 Equity Plan, the Company may grant incentive stock options, non-qualified stock options, restricted stock, RSUs and other stock-based awards. Stock options under the plan are to be granted with an exercise price not less than the fair market value of the Company’s common stock at the date of grant. Equity awards granted to employees generally vest over a service period of three to four years. Restricted stock granted to nonemployee directors vests over a one year service period.
During 2016, the Company issued 75,152 shares of restricted common stock and 103,593 non-qualified stock options (NSOs) to its nonemployee directors with a fair value of $0.4 million and $0.2 million, respectively, vesting over a one year period. The Company also issued 429,803 RSUs and NSOs to purchase 278,440 shares of common stock to employees. The RSUs and NSOs granted to employees during 2016 will vest over a three year period. All awards to nonemployee directors and employees during 2016 were granted under the 2014 Equity Plan.
On December 11, 2015, the Company issued certain equity grants to its chief executive officer which included 78,125 shares of restricted stock, NSOs to purchase 84,745 shares of common stock vesting solely over three years and NSOs to purchase 370,181 shares of common stock vesting subject to certain common stock price target achievements, as defined, over a three to five year period (the CEO Options). Collectively, these equity grants had an aggregate fair value of $2.0 million at the time of grant. The restricted stock award will vest based on achievement of a Company financial performance target for fiscal year 2020.
Stock-based compensation is included in cost of sales or operating expenses, as applicable, and consists of the following:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
|
(In thousands) |
|
|||||||||
Cost of product revenue |
|
$ |
796 |
|
|
$ |
824 |
|
|
$ |
1,121 |
|
Research and development expenses |
|
|
594 |
|
|
|
666 |
|
|
|
1,046 |
|
Sales and marketing expenses |
|
|
1,066 |
|
|
|
1,012 |
|
|
|
1,390 |
|
General and administrative expenses |
|
|
2,857 |
|
|
|
2,911 |
|
|
|
5,224 |
|
Total stock-based compensation |
|
$ |
5,313 |
|
|
$ |
5,413 |
|
|
$ |
8,781 |
|
At December 31, 2016, 2,652,658 shares of common stock were reserved for outstanding stock-based awards granted under the 2014 Equity Plan. In addition, at December 31, 2016, 92,987 shares of common stock were reserved for stock-based awards granted under the Company’s 2001 Equity Incentive Plan, which was replaced by the 2014 Equity Plan. Any cancellations or forfeitures of these awards will become available for future grant under the 2014 Equity Plan. At December 31, 2016, there were 2,817,106 shares available for future grant under the 2014 Equity Plan.
Stock Options Valuation and Amortization Method
Prior to the IPO, the Board of Directors had historically determined the fair value of the Company’s common stock based on the market approach and the income approach to estimate the enterprise value of the business under various liquidity event scenarios, including an IPO by the Company and the sale of the Company. To support the valuations, the Company utilized a probability-weighted expected return under those various liquidity scenarios, public guideline companies, management cash flow projections and other assumptions to derive the enterprise value of the business. The Company then derived the estimated fair value of each class of stock, taking into consideration the rights and preferences of each instrument based on a probability-weighted expected return.
The fair value of each stock option is estimated as of the date of grant using the Black-Scholes option pricing model. Key inputs into this formula included expected term, expected volatility, expected dividend yield and the risk-free rate. Each assumption is set forth and discussed below.
For the performance-based stock options issued during the year ended December 31, 2013, the Company used a Monte Carlo simulation model to estimate the number of options expected to remain outstanding and eligible for vesting upon completion of the Company’s IPO. The simulation model was based on a number of complex assumptions including the terms of the performance condition, the value of our common stock at the time of the Company’s IPO, the expected time from the date of grant to the Company’s IPO and expected volatility. The number of options expected to remain outstanding and eligible for vesting upon completion of the Company’s IPO was estimated to be 96.8% and 97.4% of the options granted at August 7, 2013 and December 20, 2013, respectively. The fair value of each performance-based stock option was determined by multiplying the Black-Scholes estimate of grant date fair value by the percentage of options expected to remain outstanding and eligible for vesting upon completion of the Company’s IPO.
In December 2015, the Company issued NSOs to its chief executive officer to purchase 370,181 shares of common stock which are subject to the achievement of certain common stock price targets and may become exercisable on the third, fourth and fifth anniversary of the grant date. The Company used a Monte Carlo Simulation model to estimate the grant date fair value of awards expected to vest. The simulation model was based on a number of complex assumptions including (i) if the vesting condition is satisfied within the time-vesting periods, and (ii) the date the common stock price target is met per the terms of the agreement.
For stock options with a service condition, the fair value is amortized on a straight-line basis over the requisite service period of the options, which is generally a three- to four-year vesting period from the date of grant. For the performance-based stock options issued during the year ended December 31, 2013, a portion of the fair value was recognized as expense when the IPO performance condition was achieved and the remainder over the requisite service period, which is generally a three- to four-year vesting period from the date of grant.
Expected Term
The expected term represents the period that the Company’s stock-based awards are expected to be outstanding. The Company uses the simplified method as prescribed by FASB ASC 718 to calculate the expected term for options granted, as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term.
Expected Volatility
Due to the Company’s limited historical data, the estimated volatility reflects the incorporation of the historical volatility of comparable companies with publicly available share prices. In 2016, 2015 and 2014, the expected volatility is based on the weighted average volatility of up to 15 companies with business, financial and market attributes that the Company believes are similar to its own.
Expected Dividend
The Company uses an expected dividend yield of zero. The Company does not intend to pay cash dividends on its common stock in the foreseeable future, nor has it paid dividends on its common stock in the past.
Risk-free Interest Rate
The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant.
Estimated Forfeitures
Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent periods, if actual forfeitures differ from those estimates. Forfeitures are estimated based on voluntary termination behavior as well as analysis of actual option forfeitures. Accordingly, share-based compensation expense has been reduced by an estimated annual forfeiture rate for the years ended December 31, 2016, 2015 and 2014.
Assumptions Utilized
The following information relates to the fair value of the option awards estimated by use of the Black-Scholes option pricing model:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
|
(In thousands) |
|
|||||||||
Weighted average assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
Expected term (in years) |
|
|
5.86 |
|
|
|
6.02 |
|
|
|
6.17 |
|
Expected volatility |
|
|
53.56 |
% |
|
|
57.95 |
% |
|
|
50.09 |
% |
Risk free rate |
|
|
1.36 |
% |
|
|
1.79 |
% |
|
|
1.94 |
% |
Expected dividend yield |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
Weighted average fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
Grant-date fair value of options granted |
|
$ |
2.16 |
|
|
$ |
3.82 |
|
|
$ |
5.37 |
|
Grant-date fair value of options vested |
|
$ |
7.58 |
|
|
$ |
11.89 |
|
|
$ |
97.33 |
|
Aggregate intrinsic value of options exercised |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4,816.50 |
|
Outstanding Options
The following table summarizes information about stock options outstanding:
|
|
Number of Shares |
|
|
Weighted Average Grant Date Fair Value Per Share |
|
|
Weighted Average Exercise Price Per Share |
|
|
Weighted Average Remaining Contractual Term (Years) |
|
|
Aggregate Intrinsic Value |
|
|||||
|
|
($ in thousands, except share and per share data) |
|
|||||||||||||||||
Options outstanding at December 31, 2015 |
|
|
1,702,337 |
|
|
$ |
9.60 |
|
|
$ |
13.47 |
|
|
|
9.08 |
|
|
$ |
6,152 |
|
Granted |
|
|
382,033 |
|
|
$ |
2.16 |
|
|
$ |
4.30 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(20,796 |
) |
|
$ |
6.62 |
|
|
$ |
10.58 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
$ |
— |
|
Options outstanding at December 31, 2016 |
|
|
2,063,574 |
|
|
$ |
8.26 |
|
|
$ |
11.80 |
|
|
|
8.30 |
|
|
$ |
36,326 |
|
Exercisable at December 31, 2016 |
|
|
707,260 |
|
|
$ |
17.10 |
|
|
$ |
19.81 |
|
|
|
7.68 |
|
|
$ |
— |
|
Expected to vest at December 31, 2016 |
|
|
1,190,710 |
|
|
$ |
3.58 |
|
|
$ |
6.99 |
|
|
|
8.67 |
|
|
$ |
31,473 |
|
As of December 31, 2016, total unrecognized compensation cost related to nonvested options granted under the 2014 Equity Plan was $3.0 million. The unrecognized compensation cost consisted of $3.0 million relating to service-based awards and less than $0.1 million to performance-based awards. The unrecognized compensation cost for the service-based options and performance-based awards is expected to be recognized over a weighted average period of 1.97 and 0.97 years, respectively.
Restricted Stock Awards and Restricted Stock Units
The Company values restricted stock awards and RSUs based on the closing trading value of our shares on the date of grant. RSUs have time-based vesting conditions and typically vest pro rata over three or four years. Restricted stock awards issued to nonemployee directors generally vest in full one year from the date of grant.
Information related to grants of RSUs during 2016 is as follows:
|
|
Restricted Stock Units |
|
|
Weighted Average Grant Date Fair Value |
|
||
Balance at December 31, 2015 |
|
|
417,126 |
|
|
$ |
9.01 |
|
Granted |
|
|
429,803 |
|
|
|
4.04 |
|
Vested |
|
|
(155,707 |
) |
|
|
9.20 |
|
Forfeited |
|
|
(9,137 |
) |
|
|
9.37 |
|
Balance at December 31, 2016 |
|
|
682,085 |
|
|
$ |
5.83 |
|
Restricted stock awards granted during 2016 are considered issued and outstanding common stock and are excluded from the table above. As of December 31, 2016 there were 153,277 shares of restricted stock outstanding.
The total intrinsic values of restricted stock and RSUs that vested in 2016 and 2015 was $0.6 million and $0.5 million, respectively. No restricted stock or RSUs vested in 2014. As of December 31, 2016, of the total shares of restricted stock and RSUs outstanding, 757,147 will vest upon the fulfillment of service conditions. In addition, 78,125 shares of restricted stock will vest only if certain performance conditions are achieved. As of December 31, 2016, the Company has determined that the performance-based condition was not probable, and no compensation has been recorded to date in conjunction with the award.
As of December 31, 2016, total unrecognized compensation cost related to restricted stock awards and RSUs granted under the 2014 Equity Plan was $0.2 million and $2.3 million, respectively, and is expected to be recognized over a weighted average period of 0.48 and 1.67 years, respectively.
|
(15) Income Taxes
The Company incurred net operating losses and recorded a full valuation allowance against net deferred assets for all periods presented. Accordingly, the Company has not recorded a provision for federal or state income taxes.
The reconciliation between the U.S. statutory income tax rate and the Company’s effective rate consists of the following:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
U.S. federal income tax statutory rate |
|
|
35 |
% |
|
|
35 |
% |
|
|
35 |
% |
Permanent differences |
|
|
(4 |
)% |
|
|
(11 |
)% |
|
|
— |
% |
State tax, net of federal benefit |
|
|
(1 |
)% |
|
|
(6 |
)% |
|
|
— |
% |
Changes in valuation allowance for deferred tax assets |
|
|
(30 |
)% |
|
|
(11 |
)% |
|
|
1 |
% |
Stock-based compensation |
|
|
(1 |
)% |
|
|
(8 |
)% |
|
|
— |
% |
Debt and warrant fair value adjustments |
|
|
— |
% |
|
|
— |
% |
|
|
(26 |
)% |
Write down of losses not previously benefitted |
|
|
— |
% |
|
|
— |
% |
|
|
(11 |
)% |
Other |
|
|
1 |
% |
|
|
1 |
% |
|
|
(1 |
)% |
Effective tax rate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
The tax effects of temporary differences between financial statement and tax accounting that gave rise to significant portions of the Company’s deferred tax assets and deferred tax liabilities at December 31, 2016 and 2015 are presented below:
|
|
December 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
|
|
(In thousands) |
|
|||||
Deferred tax assets: |
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
66,276 |
|
|
$ |
62,671 |
|
Stock-based compensation |
|
|
6,140 |
|
|
|
4,938 |
|
Tax credit carryforwards |
|
|
312 |
|
|
|
323 |
|
Reserves and accruals |
|
|
398 |
|
|
|
140 |
|
Intangible assets and amortization |
|
|
95 |
|
|
|
150 |
|
Total gross deferred tax assets |
|
|
73,221 |
|
|
|
68,222 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
(5,295 |
) |
|
|
(3,841 |
) |
Total deferred tax liabilities |
|
|
(5,295 |
) |
|
|
(3,841 |
) |
Total deferred tax assets and liabilities |
|
|
67,926 |
|
|
|
64,381 |
|
Valuation allowance |
|
|
(67,926 |
) |
|
|
(64,381 |
) |
Net deferred tax asset |
|
$ |
— |
|
|
$ |
— |
|
The net change in the valuation allowance for the year ended December 31, 2016, was an increase of $3.5 million. The Company has recorded a full valuation allowance against its deferred tax assets due to the uncertainty associated with the utilization of the net operating loss carryforwards and other future deductible items. In assessing the realizability of deferred tax assets, the Company considers all available evidence, historical and prospective, with greater weight given to historical evidence, in determining whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the Company’s deferred tax assets generally is dependent upon generation of future taxable income.
At December 31, 2016, the Company has $176.3 million of net operating losses available to offset future federal income, if any, and which expire on various dates through December 31, 2036.
For the year ended December 31, 2014, the Company performed an analysis pursuant to Internal Revenue Code Section 382, as well as similar state provisions, in order to determine whether any limitations might exist on the utilization of net operating losses and other tax attributes. Based on this analysis, the Company has determined that an ownership change occurred as a result of the June 2014 IPO, resulting in an annual limitation on the use of its net operating losses and other tax attributes as of such date. Net operating losses of $113.2 million were determined to be available. The Company also determined that built-in gains of $42.0 million existed at the date of the ownership change. Built-in gains increase the limitation under the Internal Revenue Code to the extent triggered during the five-year period subsequent to the date of change. Absent the disposition of certain built-in gain assets within the five-year period subsequent to the change in ownership, the entire $42.0 million of net operating losses will expire in June 2019.
At December 31, 2016, the Company has $97.1 million of apportioned net operating losses available to offset future state taxable income, if any, and which begin to expire at various dates between 2017 and 2036.
For each of the years ended December 31, 2016, 2015 and 2014, the Company did not have any material unrecognized tax benefits and thus no interest and penalties related to unrecognized tax benefits were recorded. In addition, the Company does not expect that the amount of unrecognized tax benefits will change significantly within the next twelve months.
The Company files a federal income tax return in the United States and income tax returns in various state and foreign jurisdictions. All tax years are open for examination by the taxing authorities for both federal and state purposes.
|
(16) Subsequent Events
The Company has evaluated subsequent events through March 2, 2017, the date of issuance of the consolidated financial statements for the year ended December 31, 2016.
|
QUARTERLY RESULTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
|
|
Three Months Ended |
|
|||||||||||||
|
|
March 31, |
|
|
June 30, |
|
|
Sept 30, |
|
|
Dec 31, |
|
||||
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
32,821 |
|
|
$ |
27,718 |
|
|
$ |
29,560 |
|
|
$ |
27,639 |
|
Gross profit |
|
|
6,527 |
|
|
|
6,653 |
|
|
|
6,402 |
|
|
|
3,729 |
|
Loss from operations |
|
|
(1,758 |
) |
|
|
(1,348 |
) |
|
|
(2,404 |
) |
|
|
(5,710 |
) |
Net loss |
|
|
(1,797 |
) |
|
|
(1,387 |
) |
|
|
(3,097 |
) |
|
|
(5,742 |
) |
Net loss per share basic and diluted common share - basic |
|
$ |
(0.08 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.13 |
) |
|
$ |
(0.25 |
) |
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
23,500 |
|
|
$ |
30,096 |
|
|
$ |
31,539 |
|
|
$ |
37,384 |
|
Gross profit |
|
|
4,514 |
|
|
|
5,109 |
|
|
|
5,172 |
|
|
|
9,852 |
|
Income (loss) from operations |
|
|
(2,745 |
) |
|
|
(2,689 |
) |
|
|
(2,476 |
) |
|
|
1,684 |
|
Net income (loss) |
|
|
(2,790 |
) |
|
|
(2,743 |
) |
|
|
(2,522 |
) |
|
|
1,638 |
|
Net income (loss) per share basic and diluted common share - basic |
|
$ |
(0.12 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.11 |
) |
|
$ |
0.07 |
|
|
Schedule II
VALUATION AND QUALIFYING ACCOUNTS
(in millions)
Description |
|
Balance at Beginning of Year |
|
|
Charges to Costs and Expenses (a) |
|
|
Deductions to Allowances for Uncollectible Accounts (b) |
|
|
Charges to (Deductions from) Other Accounts (c) |
|
|
Balance at End of Year |
|
|||||
Year Ended December 31, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for uncollectible accounts and sales returns and allowances |
|
$ |
89 |
|
|
|
— |
|
|
|
— |
|
|
|
4 |
|
|
$ |
93 |
|
Year Ended December 31, 2015: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for uncollectible accounts and sales returns and allowances |
|
$ |
120 |
|
|
|
— |
|
|
|
— |
|
|
|
(31 |
) |
|
$ |
89 |
|
Year Ended December 31, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for uncollectible accounts and sales returns and allowances |
|
$ |
209 |
|
|
|
— |
|
|
|
— |
|
|
|
(89 |
) |
|
$ |
120 |
|
(a)Represents allowances for uncollectible accounts established through selling, general and administrative expenses.
(b)Represents actual write-offs of uncollectible accounts.
(c)Represents net change in allowances for sales returns, recorded as contra-revenue.
|
Nature of Business
Aspen Aerogels, Inc. (the Company) is an aerogel technology company that designs, develops and manufactures innovative, high-performance aerogel insulation used primarily in the energy infrastructure and building materials markets. The Company also conducts research and development related to aerogel technology supported by funding from several agencies of the U.S. government and other institutions in the form of research and development contracts.
The Company maintains its corporate offices in Northborough, Massachusetts. The Company has three wholly owned subsidiaries: Aspen Aerogels Rhode Island, LLC, Aspen Aerogels Germany, GmbH and Aspen Aerogels Georgia, LLC .
On June 18, 2014, the Company completed an initial public offering (IPO) of 7,500,000 shares of its common stock at a public offering price of $11.00 per share. The Company received net proceeds of $74.7 million after deducting underwriting discounts and commissions of $4.3 million and offering expenses of approximately $3.5 million. Upon the closing of the offering, all of the Company’s then-outstanding (i) warrants to purchase Series C preferred stock, (the “Series C warrants”) were subject to an automatic net cashless exercise, (ii) convertible preferred stock (including the shares of Series C preferred stock issued upon the automatic net cashless exercise of Series C warrants) automatically converted into 115,982 shares of common stock, and (iii) convertible notes automatically converted into 15,319,034 shares of common stock.
Principles of Consolidation
The accompanying consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP), include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements requires the Company to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include allowances for doubtful accounts, sales returns and allowances, product warranty costs, inventory valuation, the carrying amount of property and equipment, stock-based compensation and deferred income taxes. The Company evaluates its estimates and assumptions on an on-going basis using historical experience and other factors, including the current economic environment, which are believed to be reasonable under the circumstances. Management adjusts such estimates and assumptions when facts and circumstances dictate. Illiquid credit markets, volatile equity markets and declines in business investment increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.
Cash & Cash Equivalents
Cash equivalents include short-term, highly liquid instruments, which consist of money market accounts. All cash and cash equivalents are maintained with major financial institutions in North America. Deposits with these financial institutions may exceed the amount of insurance provided on such deposits; however, these deposits typically may be redeemed upon demand and, therefore, bear minimal risk.
Marketable Securities
Marketable securities consisted primarily of marketable debt securities which are classified as available-for-sale and are carried at fair value. The Company held no marketable securities as of December 31, 2016 or 2015. During the year ended December 31, 2015, the Company purchased $2.5 million of marketable securities which matured during the same period. The unrealized gains and losses on available-for-sale securities are recorded in accumulated other comprehensive income (loss). The Company considers all highly liquid investments with maturities of 90 days or less at the time of purchase to be cash equivalents, and investments with maturities of greater than 90 days at the time of purchase to be marketable securities. When a marketable security incurs a significant unrealized loss for a sustained period of time, the Company will review the instrument to determine if it is other-than-temporarily impaired. If it is determined that an instrument is other-than-temporarily impaired, the Company will record the unrealized loss in the consolidated statement of operations.
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) consisted of changes in the fair market value of available-for-sale securities. As of December 31, 2016 and 2015, the Company held no marketable securities.
Fair Value of Financial Instruments
Fair value is an exit price that represents the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. Accordingly, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The Company discloses the manner in which fair value is determined for assets and liabilities based on a three-tiered fair value hierarchy. The hierarchy ranks the quality and reliability of the information used to determine the fair values. The three levels of inputs described in the standard are:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Observable inputs, other than Level 1 prices, for the assets or liabilities, either directly or indirectly, for substantially the full term of the assets or liabilities.
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Under the Fair Value Option Subsections of Financial Accounting Standards Board (FASB) ASC Subtopic 825-10, Financial Instruments — Overall, the Company has the irrevocable option to report most financial assets and financial liabilities at fair value on an instrument by instrument basis, with changes in fair value reported in earnings each reporting period. As a result of electing this option, the Company recorded its Subordinated Notes, Senior Convertible Notes and Convertible Notes at fair value in order to measure these liabilities at amounts that more accurately reflect the economics of these instruments during the year ended December 31, 2014.
At December 31, 2016 and 2015, no financial assets or liabilities were measured at fair value.
During the year ended December 31, 2014 (prior to the completion of the Company’s IPO on June 18, 2014), the Company valued its then outstanding debt instruments utilizing Level 3 inputs.
During the year ended December 31, 2015, the Company purchased $2.5 million of marketable securities which matured during the same period. During this period, the instruments were valued utilizing Level 1 inputs. As of December 31, 2016 and December 31, 2015, the Company held no marketable securities.
Concentration of Credit Risk
Financial instruments, which potentially expose the Company to concentrations of credit risk, consist principally of accounts receivable. The Company’s customers are primarily insulation distributors, insulation contractors, insulation fabricators and select end-users located throughout the world. The Company performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral to secure accounts receivable. The Company maintains an allowance for doubtful accounts based on its assessment of the collectability of accounts receivable. The Company reviews the allowance for doubtful accounts quarterly. The Company has not experienced any meaningful non-payment or write-offs of accounts receivable. Accordingly, the allowance for doubtful accounts was zero at December 31, 2016 and 2015. The Company does not have any off-balance-sheet credit exposure related to its customers.
For the year ended December 31, 2016, two customers represented 25% and 15% of total revenue, respectively. For the year ended December 31, 2015, two customers represented 14% and 12% of total revenue, respectively. For the year ended December 31, 2014, two customers represented 13% and 12% of total revenue, respectively.
At December 31, 2016, the Company had three customers that accounted for 31%, 17% and 10% of accounts receivable, respectively. At December 31, 2015, the Company had three customers that accounted for 17%, 14% and 13% of accounts receivable, respectively.
Inventories
Inventory consists of finished products and raw materials. Inventories are carried at lower of cost, determined using the first-in, first-out (FIFO) method, or market. Cost includes materials, labor and manufacturing overhead. Manufacturing overhead is allocated to the costs of conversion based on normal capacity of the Company’s production facility. Abnormal freight, handling costs and material waste is expensed in the period it occurs.
The Company periodically reviews its inventories and makes provisions as necessary for estimated excess, obsolete or damaged goods to ensure values approximate the lower of cost or market. The amount of any such provision is equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand, selling prices and market conditions.
Property, Plant and Equipment, Net
Property, plant and equipment are stated at cost. Assets held under capital leases are stated at the lesser of the present value of future minimum payments, using the Company’s incremental borrowing rate, or the fair value of the property at the inception of the lease. Expenditures for maintenance and repairs are charged to expense as incurred, whereas major betterments are capitalized as additions to property, plant and equipment.
Interest expense capitalization commences at the time a capital project begins construction and concludes when the project is completed. The Company has capitalized interest costs as part of the historical cost of constructing its manufacturing facilities. The Company capitalized $0.0 million, $0.0 million and $0.1 million in interest costs related to the build-out of the East Providence facility during the years ended December 31, 2016, 2015 and 2014, respectively.
Depreciation on plant and equipment is calculated on the straight-line method over the estimated useful lives of the assets. Assets related to capital leases are amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset.
Assets utilized in the Company’s operations that are taken out of service with no future use are charged to cost of sales or operating expenses, depending on the department in which the asset was utilized. Write-offs of construction in progress are charged to operating expenses upon the determination of no future use.
Other Assets
Other assets primarily include long-term deposits.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recognition and measurement of a potential impairment is performed on assets grouped with other assets and liabilities at the lowest level where identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to future undiscounted net cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset or asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset or asset group exceeds the fair value of the asset or asset group. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.
Asset Retirement Obligations
The Company records asset retirement obligations associated with its lease obligations and the retirement of tangible long-lived assets. The Company reviews legal obligations associated with the retirement of long-lived assets that result from contractual obligations or the acquisition, construction, development and/or normal use of the assets. If it is determined that a legal obligation exists, regardless of whether the obligation is conditional on a future event, the fair value of the liability for an asset retirement obligation is recognized in the period in which it is incurred, if a reasonable estimate of fair value can be made. An amount equal to the fair value of the liability is also recorded as a long-term asset that is depreciated over the estimated life of the asset. The difference between the gross expected future cash outflow and its present value is accreted over the life of the related lease as an operating expense. The Company fully satisfied its asset retirement obligation during the year ended December 31, 2016.
Deferred Revenue
The Company records deferred revenue for product sales when (i) the Company has delivered products but other revenue recognition criteria have not been satisfied, (ii) payments have been received in advance of products being delivered, or (iii) subject to customer rebate agreements.
Deferred Rent
For leases that contain fixed increases in the minimum annual lease payment during the original term of the lease, the Company recognizes rental expense on a straight-line basis over the lease term, and records the difference between rent expense and the amount currently payable as deferred rent. Lease incentives for allowances for qualified leasehold improvements received from landlords are amortized on a straight-line basis over the lease term. Deferred rent is included in other long-term liabilities on the consolidated balance sheet.
Revenue Recognition
The Company recognizes revenue from the sale of products and performance of research and development services. Revenue is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, the price to the buyer is fixed or determinable, delivery has occurred or services have been provided, and collectability is reasonably assured.
Product Revenue
Product revenue is recognized upon transfer of title and risk of loss, which is upon shipment or delivery. The Company’s customary shipping terms are free on board shipping point.
Sales returns are recorded based on historical sales and return information. Products that exhibit unusual sales return patterns due to quality or other manufacturing matters are specifically investigated and analyzed as part of the sales return accrual. The sales return accrual represents a reserve for products that may be returned due to quality concerns or authorized for destruction in the field. Sales return reserves are recorded at full original sales value. The Company rarely exchanges products from inventory for returned products. Sales return reserves were $0.1 million at December 31, 2016 and 2015.
For initial shipments of products where the Company is unsure of meeting the customer’s specifications, the Company will defer the recognition of product revenue and related costs until written customer acceptance is obtained.
Research Services Revenue
The Company performs research services under contracts with various government agencies and other institutions. The Company records revenue earned on research services contracts using the percentage-of-completion method in two ways: (1) for firm-fixed-price contracts, the Company accrues that portion of the total contract price that is allocable, on the basis of the Company’s estimates of costs incurred to date to total contract costs; and (2) for cost-plus-fixed-fee contracts, the Company records revenue that is equal to total payroll cost incurred times a stated factor plus reimbursable expenses, to a stated upper limit. The primary cost is the labor effort expended in completing research, and the only deliverable, other than the labor hours expended, is reporting of research results to the customer. Because the input measure of labor hours expended is also reflective of the output measure, it is a reliable means to measure the extent of progress towards completion. Revisions in cost estimates and fees during the course of the contract are reflected in the accounting period in which the facts that require the revisions become known. Contract costs and rates used to allocate overhead to contracts are subject to audit by the respective contracting government agency. Adjustments to revenue as a result of audit are recorded in the period they become known. To date, adjustments to revenue as a result of audit have been insignificant.
Warranty
The Company provides warranties for its products and records the estimated cost within cost of sales in the period that the related revenue is recorded. The Company’s standard warranty period extends to one to two years from the date of shipment. The standard warranties provide that the Company’s products will be free from defects in material and workmanship, and will, under normal use, conform to the specifications for the product. Historically, warranty claims and charges have been insignificant.
The Company’s products may be utilized in systems that may involve new technical demands and new configurations. As such, the Company regularly reviews and assesses whether warranty reserves shall be recorded in the period the related revenue is recorded.
For the year ended December 31, 2016, the Company recorded warranty expense of $0.5 million. This specific reserve was principally related to product warranty claims for specific projects. These claims were outside of the Company’s typical experience. As of December 31, 2016, the Company had satisfied all outstanding warranty claims.
Additionally, during the year ended December 31, 2016, a customer notified the Company of a specific product application issue. The customer continues to request and receive shipment of additional aerogel product and no claim has been made. The Company cannot be certain that it will not be subject to a future warranty claim.
Shipping and Handling Costs
Shipping and handling costs are classified as a component of cost of revenue. Customer payments of shipping and handling costs are recorded as product revenue.
Stock-based Compensation
The Company grants share-based awards to its employees and non-employee directors. All share-based awards granted, including grants of stock options, restricted stock and restricted stock units (RSUs), are recognized in the statement of operations based on their fair value as of the date of grant. Expense is recognized on a straight-line basis over the requisite service period for all awards with service conditions. For performance-based awards, the grant date fair value is recognized as expense when the condition is probable of being achieved, and then on a graded basis over the requisite service period. The Company uses the Black-Scholes option-pricing model to determine the fair value of service-based option awards, which requires a number of complex and subjective assumptions including fair value of the underlying security, the expected volatility of the underlying security, a risk-free interest rate and the expected term of the option.
The fair value of restricted stock and RSUs is determined using the closing price of the Company’s common stock on the date of grant. All shares of restricted stock are not transferable until they vest. Restricted stock is typically issued to non-employee directors and typically vests over a one-year period from the date of issuance. RSUs are issued to employees and typically vest over a three to four year period from the date of issuance. The fair value of restricted stock and RSUs upon which vesting is solely service-based is expensed ratably over the vesting period. If the service condition underlying shares of restricted stock is not met for any reason, the shares of unvested restricted stock will be forfeited and returned to the Company.
For stock options that contain a market condition, the Company uses the Monte-Carlo simulation option-pricing model to determine the fair value of market based awards. The Monte-Carlo simulation option-pricing model takes into account the same input assumptions as the Black-Scholes model; however, it also further incorporates into the fair-value determination, the possibility that the market condition may not be satisfied. Compensation costs related to awards with a market condition are recognized regardless of whether the market condition is satisfied, provided that the requisite service has been provided. Stock-based compensation expense is recognized on a straight-line basis over the requisite service period for each such award.
Pursuant to the evergreen provisions of the 2014 Employee, Director and Consultant Equity Incentive Plan, the number of shares of common stock authorized for issuance under the plan automatically increased by 463,697 shares to 6,069,201 shares effective January 1, 2016.
Research and Development
Costs incurred in the research and development of the Company’s products include compensation and related costs, services provided by third-party contractors, materials and supplies and are classified as research and development expenses as incurred. Research and development costs directly associated with research services revenue are classified as research services in cost of revenue.
Earnings per Share
The Company calculates net income (loss) per common share based on the weighted-average number of common shares outstanding during each period. Potential common stock equivalents are determined using the treasury stock method. The weighted-average number of common shares included in the computation of diluted net income (loss) gives effect to all potentially dilutive common equivalent shares, including outstanding stock options, RSUs and warrants. Common equivalent shares are excluded from the computation of diluted net income (loss) per share if their effect is antidilutive.
Diluted net income (loss) per share is computed using the more dilutive of (a) the two-class method, or (b) the if-converted method. The Company allocates net income (loss) first to preferred stockholders and holders of warrants to purchase preferred stock based on dividend rights and then to common stockholders, preferred stockholders and preferred warrant holders based on ownership interests. The weighted-average number of common shares included in the computation of diluted net income (loss) gives effect to all potentially dilutive common equivalent shares, including outstanding stock options, RSUs and warrants. Common equivalent shares are excluded from the computation of diluted net income (loss) per share if their effect is antidilutive.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. The Company accounts for uncertain tax positions using a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Differences between tax positions taken in a tax return and amounts recognized in the financial statements are recorded as adjustments to income taxes payable or receivable, or adjustments to deferred taxes, or both. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company recognizes penalties and interest related to uncertain tax positions, if any, as a component of income tax expense.
Segments
Operating segments are identified as components of an enterprise about which separate, discrete financial information is available for evaluation by the chief operating decision maker in making decisions on how to allocate resources and assess performance. The Company’s chief operating decision maker is the Chief Executive Officer. The Company’s chief operating decision maker reviews consolidated operating results to make decisions about allocating resources and assessing performance for the entire Company. The Company views its operations and manages its business as one operating segment.
Information about the Company’s revenues, based on shipment destination or research services location, is presented in the following table:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
|
(In thousands) |
|
|||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
35,726 |
|
|
$ |
44,553 |
|
|
$ |
39,809 |
|
International |
|
|
82,012 |
|
|
|
77,965 |
|
|
|
62,590 |
|
Total |
|
$ |
117,738 |
|
|
$ |
122,518 |
|
|
$ |
102,399 |
|
Recently Issued Accounting Standards
In August 2016, the (FASB) issued Accounting Standards Update (ASU) No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (FASB ASU 2016-15). This amendment addresses eight classification issues related to the statement of cash flows. For public business entities, the amendments in FASB ASU 2016-15 are effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. The Company has not yet selected a transition method and is evaluating the effect the updated standard will have on its consolidated financial statements and related disclosures.
In March 2016, the FASB issued FASB ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (FASB ASU 2016-09). The amendment is to simplify several aspects of the accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, the amendments in FASB ASU 2016-09 are effective for interim and annual reporting periods beginning after December 15, 2016. The Company has determined that the adoption of this standard will not have a material impact on its consolidated results of operations and financial condition.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (FASB ASU 2016-02). FASB ASU 2016-02 changes the accounting for leases and includes a requirement to record all leases on the consolidated balance sheets as assets and liabilities. This update is effective for fiscal years beginning after December 15, 2018. Early application is permitted. The Company has not yet selected a transition method and is evaluating the effect the updated standard will have on its consolidated financial statements and related disclosures.
In November 2015, the FASB issued ASU 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes (FASB ASU 2015-17). FASB ASU 2015-17 requires that deferred tax assets and liabilities be classified as noncurrent on the balance sheet. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Earlier adoption is permitted and the standard may be applied either retrospectively or on a prospective basis to all deferred tax assets and liabilities. The Company has elected, as permitted by the standard, to early adopt FASB ASU 2015-17 prospectively, effective for the period ended December 31, 2015. The adoption of this update did not have a material impact on the Company’s consolidated financial statements.
In August 2015, the FASB issued a deferral of ASU 2014-09, Revenue from Contracts with Customers. The standard will eliminate the transaction and industry-specific revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. As a result of the deferral, public entities are required to apply the revenue recognition standard for annual reporting period beginning on or after December 15, 2017, including interim periods within that annual reporting period. Early application is permitted only as of annual and interim periods in fiscal years beginning after December 15, 2016. The Company has not yet selected a transition method and is evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.
In July 2015, the FASB issued ASU 2015-11, which, for entities that do not measure inventory using the last-in, first-out (LIFO) or retail inventory method, changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value. The ASU also eliminates the requirement for these entities to consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory. Public entities are required to apply the new standard for annual reporting periods beginning after December 15, 2016 and interim periods within those fiscal periods. This standard is to be applied prospectively. Early adoption is permitted as of the beginning of an interim or annual period. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements and related disclosures.
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.
|
Information about the Company’s revenues, based on shipment destination or research services location, is presented in the following table:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
|
(In thousands) |
|
|||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
35,726 |
|
|
$ |
44,553 |
|
|
$ |
39,809 |
|
International |
|
|
82,012 |
|
|
|
77,965 |
|
|
|
62,590 |
|
Total |
|
$ |
117,738 |
|
|
$ |
122,518 |
|
|
$ |
102,399 |
|
|
Inventories consist of the following:
|
|
December 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
|
|
(In thousands) |
|
|||||
Raw material |
|
$ |
3,511 |
|
|
$ |
4,432 |
|
Finished goods |
|
|
9,357 |
|
|
|
2,100 |
|
Total |
|
$ |
12,868 |
|
|
$ |
6,532 |
|
|
Property, plant and equipment consist of the following:
|
|
December 31, |
|
|
|
|||||
|
|
2016 |
|
|
2015 |
|
|
Useful life |
||
|
|
(In thousands) |
|
|
|
|||||
Construction in progress |
|
$ |
11,139 |
|
|
$ |
5,138 |
|
|
— |
Buildings |
|
|
23,901 |
|
|
|
23,884 |
|
|
30 years |
Machinery and equipment |
|
|
113,659 |
|
|
|
104,658 |
|
|
3 — 10 years |
Computer equipment and software |
|
|
7,679 |
|
|
|
6,888 |
|
|
3 years |
Total |
|
|
156,378 |
|
|
|
140,568 |
|
|
|
Accumulated depreciation and amortization |
|
|
(71,984 |
) |
|
|
(62,246 |
) |
|
|
Property, plant and equipment, net |
|
$ |
84,394 |
|
|
$ |
78,322 |
|
|
|
|
Accrued expenses consist of the following:
|
|
December 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
|
|
(In thousands) |
|
|||||
Employee compensation |
|
$ |
2,796 |
|
|
$ |
4,184 |
|
Other accrued expenses |
|
|
1,191 |
|
|
|
1,384 |
|
|
|
$ |
3,987 |
|
|
$ |
5,568 |
|
|
Other long-term liabilities consist of the following:
|
|
December 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
|
|
(In thousands) |
|
|||||
Asset retirement obligations (ARO) |
|
$ |
— |
|
|
$ |
397 |
|
Deferred rent |
|
|
1,125 |
|
|
|
163 |
|
|
|
|
1,125 |
|
|
|
560 |
|
Current maturities of other long-term liabilities |
|
|
(154 |
) |
|
|
(409 |
) |
Other long-term liabilities, less current maturities |
|
$ |
971 |
|
|
$ |
151 |
|
A summary of ARO activity consists of the following:
|
|
Year Ended December 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
|
|
(In thousands) |
|
|||||
Balance at beginning of period |
|
$ |
397 |
|
|
$ |
1,018 |
|
Accretion of discount expense |
|
|
— |
|
|
|
21 |
|
Settlement costs |
|
|
(397 |
) |
|
|
(642 |
) |
Balance at end of period |
|
$ |
— |
|
|
$ |
397 |
|
|
Future minimum payments under capital leases at December 31, 2016 are as follows:
Year |
|
Capital Lease Obligations |
|
|
|
|
(In thousands) |
|
|
2017 |
|
$ |
37 |
|
2018 |
|
|
5 |
|
Total |
|
|
42 |
|
Less portion representing interest |
|
|
(3 |
) |
Present value of future minimum payments |
|
|
39 |
|
Current maturities of capital lease payments |
|
|
(35 |
) |
Capital leases, excluding current portion |
|
$ |
4 |
|
Future minimum lease payments under operating leases at December 31, 2016 are as follows:
Year |
|
Operating Leases |
|
|
|
|
(In thousands) |
|
|
2017 |
|
$ |
1,222 |
|
2018 |
|
|
1,239 |
|
2019 |
|
|
813 |
|
2020 |
|
|
640 |
|
2021 |
|
|
505 |
|
Thereafter |
|
|
2,512 |
|
Total minimum lease payments |
|
$ |
6,931 |
|
|
Stock-based compensation is included in cost of sales or operating expenses, as applicable, and consists of the following:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
|
(In thousands) |
|
|||||||||
Cost of product revenue |
|
$ |
796 |
|
|
$ |
824 |
|
|
$ |
1,121 |
|
Research and development expenses |
|
|
594 |
|
|
|
666 |
|
|
|
1,046 |
|
Sales and marketing expenses |
|
|
1,066 |
|
|
|
1,012 |
|
|
|
1,390 |
|
General and administrative expenses |
|
|
2,857 |
|
|
|
2,911 |
|
|
|
5,224 |
|
Total stock-based compensation |
|
$ |
5,313 |
|
|
$ |
5,413 |
|
|
$ |
8,781 |
|
The following information relates to the fair value of the option awards estimated by use of the Black-Scholes option pricing model:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
|
|
(In thousands) |
|
|||||||||
Weighted average assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
Expected term (in years) |
|
|
5.86 |
|
|
|
6.02 |
|
|
|
6.17 |
|
Expected volatility |
|
|
53.56 |
% |
|
|
57.95 |
% |
|
|
50.09 |
% |
Risk free rate |
|
|
1.36 |
% |
|
|
1.79 |
% |
|
|
1.94 |
% |
Expected dividend yield |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
Weighted average fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
Grant-date fair value of options granted |
|
$ |
2.16 |
|
|
$ |
3.82 |
|
|
$ |
5.37 |
|
Grant-date fair value of options vested |
|
$ |
7.58 |
|
|
$ |
11.89 |
|
|
$ |
97.33 |
|
Aggregate intrinsic value of options exercised |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4,816.50 |
|
The following table summarizes information about stock options outstanding:
|
|
Number of Shares |
|
|
Weighted Average Grant Date Fair Value Per Share |
|
|
Weighted Average Exercise Price Per Share |
|
|
Weighted Average Remaining Contractual Term (Years) |
|
|
Aggregate Intrinsic Value |
|
|||||
|
|
($ in thousands, except share and per share data) |
|
|||||||||||||||||
Options outstanding at December 31, 2015 |
|
|
1,702,337 |
|
|
$ |
9.60 |
|
|
$ |
13.47 |
|
|
|
9.08 |
|
|
$ |
6,152 |
|
Granted |
|
|
382,033 |
|
|
$ |
2.16 |
|
|
$ |
4.30 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(20,796 |
) |
|
$ |
6.62 |
|
|
$ |
10.58 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
$ |
— |
|
Options outstanding at December 31, 2016 |
|
|
2,063,574 |
|
|
$ |
8.26 |
|
|
$ |
11.80 |
|
|
|
8.30 |
|
|
$ |
36,326 |
|
Exercisable at December 31, 2016 |
|
|
707,260 |
|
|
$ |
17.10 |
|
|
$ |
19.81 |
|
|
|
7.68 |
|
|
$ |
— |
|
Expected to vest at December 31, 2016 |
|
|
1,190,710 |
|
|
$ |
3.58 |
|
|
$ |
6.99 |
|
|
|
8.67 |
|
|
$ |
31,473 |
|
Information related to grants of RSUs during 2016 is as follows:
|
|
Restricted Stock Units |
|
|
Weighted Average Grant Date Fair Value |
|
||
Balance at December 31, 2015 |
|
|
417,126 |
|
|
$ |
9.01 |
|
Granted |
|
|
429,803 |
|
|
|
4.04 |
|
Vested |
|
|
(155,707 |
) |
|
|
9.20 |
|
Forfeited |
|
|
(9,137 |
) |
|
|
9.37 |
|
Balance at December 31, 2016 |
|
|
682,085 |
|
|
$ |
5.83 |
|
|
The reconciliation between the U.S. statutory income tax rate and the Company’s effective rate consists of the following:
|
|
Year Ended December 31, |
|
|||||||||
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|||
U.S. federal income tax statutory rate |
|
|
35 |
% |
|
|
35 |
% |
|
|
35 |
% |
Permanent differences |
|
|
(4 |
)% |
|
|
(11 |
)% |
|
|
— |
% |
State tax, net of federal benefit |
|
|
(1 |
)% |
|
|
(6 |
)% |
|
|
— |
% |
Changes in valuation allowance for deferred tax assets |
|
|
(30 |
)% |
|
|
(11 |
)% |
|
|
1 |
% |
Stock-based compensation |
|
|
(1 |
)% |
|
|
(8 |
)% |
|
|
— |
% |
Debt and warrant fair value adjustments |
|
|
— |
% |
|
|
— |
% |
|
|
(26 |
)% |
Write down of losses not previously benefitted |
|
|
— |
% |
|
|
— |
% |
|
|
(11 |
)% |
Other |
|
|
1 |
% |
|
|
1 |
% |
|
|
(1 |
)% |
Effective tax rate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
The tax effects of temporary differences between financial statement and tax accounting that gave rise to significant portions of the Company’s deferred tax assets and deferred tax liabilities at December 31, 2016 and 2015 are presented below:
|
|
December 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
|
|
(In thousands) |
|
|||||
Deferred tax assets: |
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
66,276 |
|
|
$ |
62,671 |
|
Stock-based compensation |
|
|
6,140 |
|
|
|
4,938 |
|
Tax credit carryforwards |
|
|
312 |
|
|
|
323 |
|
Reserves and accruals |
|
|
398 |
|
|
|
140 |
|
Intangible assets and amortization |
|
|
95 |
|
|
|
150 |
|
Total gross deferred tax assets |
|
|
73,221 |
|
|
|
68,222 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
(5,295 |
) |
|
|
(3,841 |
) |
Total deferred tax liabilities |
|
|
(5,295 |
) |
|
|
(3,841 |
) |
Total deferred tax assets and liabilities |
|
|
67,926 |
|
|
|
64,381 |
|
Valuation allowance |
|
|
(67,926 |
) |
|
|
(64,381 |
) |
Net deferred tax asset |
|
$ |
— |
|
|
$ |
— |
|
|
QUARTERLY RESULTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
|
|
Three Months Ended |
|
|||||||||||||
|
|
March 31, |
|
|
June 30, |
|
|
Sept 30, |
|
|
Dec 31, |
|
||||
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
32,821 |
|
|
$ |
27,718 |
|
|
$ |
29,560 |
|
|
$ |
27,639 |
|
Gross profit |
|
|
6,527 |
|
|
|
6,653 |
|
|
|
6,402 |
|
|
|
3,729 |
|
Loss from operations |
|
|
(1,758 |
) |
|
|
(1,348 |
) |
|
|
(2,404 |
) |
|
|
(5,710 |
) |
Net loss |
|
|
(1,797 |
) |
|
|
(1,387 |
) |
|
|
(3,097 |
) |
|
|
(5,742 |
) |
Net loss per share basic and diluted common share - basic |
|
$ |
(0.08 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.13 |
) |
|
$ |
(0.25 |
) |
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
23,500 |
|
|
$ |
30,096 |
|
|
$ |
31,539 |
|
|
$ |
37,384 |
|
Gross profit |
|
|
4,514 |
|
|
|
5,109 |
|
|
|
5,172 |
|
|
|
9,852 |
|
Income (loss) from operations |
|
|
(2,745 |
) |
|
|
(2,689 |
) |
|
|
(2,476 |
) |
|
|
1,684 |
|
Net income (loss) |
|
|
(2,790 |
) |
|
|
(2,743 |
) |
|
|
(2,522 |
) |
|
|
1,638 |
|
Net income (loss) per share basic and diluted common share - basic |
|
$ |
(0.12 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.11 |
) |
|
$ |
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|