ASPEN AEROGELS INC, 10-K filed on 3/4/2016
Annual Report
Document and Entity Information (USD $)
In Millions, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2015
Mar. 1, 2016
Jun. 30, 2015
Document And Entity Information [Abstract]
 
 
 
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Dec. 31, 2015 
 
 
Document Fiscal Year Focus
2015 
 
 
Document Fiscal Period Focus
FY 
 
 
Trading Symbol
ASPN 
 
 
Entity Registrant Name
ASPEN AEROGELS INC 
 
 
Entity Central Index Key
0001145986 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Filer Category
Accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding
 
23,184,852 
 
Entity Public Float
 
 
$ 132.1 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2015
Dec. 31, 2014
Current assets:
 
 
Cash and cash equivalents
$ 32,804 
$ 49,719 
Accounts receivable, net of allowances of $89 and $120
20,624 
17,924 
Inventories
6,532 
4,897 
Prepaid expenses and other current assets
1,687 
836 
Total current assets
61,647 
73,376 
Property, plant and equipment, net
78,322 
71,492 
Other long-term assets
105 
175 
Total assets
140,074 
145,043 
Current liabilities:
 
 
Capital leases, current portion
67 
76 
Accounts payable
10,684 
14,202 
Accrued expenses
5,568 
5,588 
Deferred revenue
681 
292 
Other current liabilities
409 
50 
Total current liabilities
17,409 
20,208 
Capital leases, excluding current portion
40 
89 
Other long-term liabilities
151 
1,030 
Total liabilities
17,600 
21,327 
Commitments and contingencies (Note 12)
   
   
Stockholders' equity:
 
 
Preferred Stock, $0.00001 par value; 5,000,000 shares authorized, no shares issued or outstanding at December 31, 2015 or December 31, 2014
   
   
Common stock, $0.00001 par value; 125,000,000 shares authorized, 23,184,852 shares issued and outstanding at December 31, 2015; 22,992,273 shares issued and outstanding at December 31, 2014
Additional paid-in capital
527,975 
522,800 
Accumulated deficit
(405,501)
(399,084)
Total stockholders' equity
122,474 
123,716 
Total liabilities, convertible preferred stock and stockholders' equity
$ 140,074 
$ 145,043 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2015
Dec. 31, 2014
Statement of Financial Position [Abstract]
 
 
Allowance for doubtful accounts
$ 89 
$ 120 
Preferred stock, par value
$ 0.00001 
$ 0.00001 
Preferred stock, shares authorized
5,000,000 
5,000,000 
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value
$ 0.00001 
$ 0.00001 
Common stock, shares authorized
125,000,000 
125,000,000 
Common stock, shares issued
23,184,852 
22,992,273 
Common stock, shares outstanding
23,184,852 
22,992,273 
Consolidated Statements of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
Revenue:
 
 
 
Product
$ 120,532 
$ 99,259 
$ 82,057 
Research services
1,986 
3,140 
4,037 
Total revenue
122,518 
102,399 
86,094 
Cost of revenue:
 
 
 
Product
96,865 
83,677 
73,399 
Research services
1,005 
1,642 
1,964 
Gross profit
24,648 
17,080 
10,731 
Operating expenses:
 
 
 
Research and development
5,253 
5,980 
5,159 
Sales and marketing
10,562 
10,290 
9,271 
General and administrative
15,068 
16,853 
12,833 
Write-off of construction in progress
 
 
3,440 
Total operating expenses
30,883 
33,123 
30,703 
Income (loss) from operations
(6,235)
(16,043)
(19,972)
Other income (expense):
 
 
 
Interest expense
(182)
(50,281)
(30,599)
Gain on extinguishment of convertible notes
 
 
8,898 
Loss on exchange of convertible notes
 
 
(5,697)
Costs associated with postponed public offering
 
 
(241)
Total other income (expense), net
(182)
(50,281)
(27,639)
Net income (loss)
(6,417)
(66,324)
(47,611)
Net income (loss) attributable to common stockholders
$ (6,417)
$ (66,324)
$ 1,338 
Net income (loss) attributable to common stockholders per common share:
 
 
 
Basic
$ (0.28)
$ (5.37)
$ 426.52 
Diluted
$ (0.28)
$ (5.37)
$ 410.56 
Weighted-average common shares outstanding:
 
 
 
Basic
22,986,931 
12,349,456 
3,137 
Diluted
22,986,931 
12,349,456 
3,259 
Consolidated Statements of Stockholders' Equity (Deficit) (USD $)
In Thousands, except Share data
Total
USD ($)
Preferred Stock 0.00001 Par Value [Member]
USD ($)
Common Stock 0.00001 Par Value [Member]
USD ($)
Additional Paid-in Capital [Member]
USD ($)
Accumulated Deficit [Member]
USD ($)
IPO [Member]
USD ($)
IPO [Member]
Common Stock 0.00001 Par Value [Member]
IPO [Member]
Additional Paid-in Capital [Member]
USD ($)
Series C Convertible Preferred Stock 0.00001 Par Value [Member]
USD ($)
Series B Convertible Preferred Stock 0.00001 Par Value [Member]
USD ($)
Series A Convertible Preferred Stock 0.00001 Par Value [Member]
USD ($)
Beginning balance at Dec. 31, 2012
$ (120,795)
 
 
$ 164,354 
$ (285,149)
 
 
 
 
 
 
Beginning balance, shares at Dec. 31, 2012
 
 
3,137 
 
 
 
 
 
 
 
 
Net income (loss)
(47,611)
 
 
 
(47,611)
 
 
 
 
 
 
Stock compensation expense
4,426 
 
 
4,426 
 
 
 
 
 
 
 
Dividends on redeemable convertible preferred stock
(996)
 
 
(996)
 
 
 
 
 
 
 
Changes in redemption value of redeemable convertible preferred stock at extinguishment
86,161 
 
 
86,161 
 
 
 
 
 
 
 
Reclassification of redeemable convertible preferred stock from temporary to permanent equity
1,085 
 
 
1,085 
 
 
 
 
 
 
 
Reclassification of redeemable convertible preferred stock from temporary to permanent equity, shares
 
 
 
 
 
 
 
 
 
1,601,053 
5,284,347 
Issuance of stock, shares
 
 
 
 
 
 
 
 
20,000 
 
 
Issuance of stock
15,764 
 
 
15,764 
 
 
 
 
 
 
 
Ending balance at Dec. 31, 2013
(61,966)
 
 
270,794 
(332,760)
 
 
 
 
 
 
Ending balance, shares at Dec. 31, 2013
 
 
3,137 
 
 
 
 
 
20,000 
1,601,053 
5,284,347 
Net income (loss)
(66,324)
 
 
 
(66,324)
 
 
 
 
 
 
Stock compensation expense
8,781 
 
 
8,781 
 
 
 
 
 
 
 
Issuance of stock, shares
 
 
31 
 
 
 
7,500,000 
 
 
 
 
Issuance of stock
 
 
 
74,712 
 
74,712 
 
 
 
Net cashless exercise of Series C warrants
 
 
 
Net cashless exercise of Series C warrants, shares
 
 
 
 
 
 
 
 
86,997,362 
 
 
Conversion of convertible preferred stock to common stock
 
 
 
Conversion of convertible preferred stock to common stock, shares
 
 
115,982 
 
 
 
 
 
(87,017,362)
(1,601,053)
(5,284,347)
Conversion of convertible debt to common stock
168,510 
 
 
168,510 
 
 
 
 
 
 
 
Conversion of convertible debt to common stock, shares
 
 
15,319,034 
 
 
 
 
 
 
 
 
Issuance of restricted stock
 
 
 
Issuance of Restricted Stock, shares
 
 
61,816 
 
 
 
 
 
 
 
 
Forfeiture of restricted stock
 
 
 
Forfeiture of Restricted Stock, shares
 
 
(7,727)
 
 
 
 
 
 
 
 
Ending balance at Dec. 31, 2014
123,716 
 
 
522,800 
(399,084)
 
 
 
 
 
 
Ending balance, shares at Dec. 31, 2014
 
 
22,992,273 
 
 
 
 
 
 
 
 
Net income (loss)
(6,417)
 
 
 
(6,417)
 
 
 
 
 
 
Stock compensation expense
5,413 
 
 
5,413 
 
 
 
 
 
 
 
Issuance of restricted stock
 
 
 
Issuance of Restricted Stock, shares
 
 
132,130 
 
 
 
 
 
 
 
 
Vesting of restricted stock units
(238)
 
 
(238)
 
 
 
 
 
 
 
Vesting of restricted stock units, shares
 
 
60,449 
 
 
 
 
 
 
 
 
Ending balance at Dec. 31, 2015
$ 122,474 
 
 
$ 527,975 
$ (405,501)
 
 
 
 
 
 
Ending balance, shares at Dec. 31, 2015
 
 
23,184,852 
 
 
 
 
 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
Cash flows from operating activities:
 
 
 
Net income (loss)
$ (6,417)
$ (66,324)
$ (47,611)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
9,887 
10,183 
10,061 
Write-off of construction in progress
 
 
3,440 
Loss on disposal of assets
 
119 
230 
Debt issuance costs and noncash interest expenses
 
47 
998 
Write-off of costs associated with postponed public offering
 
 
241 
Accretion of debt to fair value
 
50,011 
18,696 
Gain on extinguishment of convertible notes
 
 
(8,898)
Loss on exchange of convertible notes
 
 
5,697 
Issuance of Series C preferred stock warrants in connection with senior convertible notes
 
 
10,677 
Stock compensation expense
5,413 
8,781 
4,426 
Other
(139)
(31)
(25)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(2,644)
838 
(4,809)
Inventories
(1,635)
1,995 
(547)
Prepaid expenses and other assets
(881)
(129)
(287)
Accounts payable
1,517 
687 
(1,686)
Accrued expenses
(227)
774 
2,297 
Deferred revenue
333 
(303)
(588)
Other liabilities
152 
 
(6,000)
Net cash provided by (used in) operating activities
5,359 
6,648 
(13,688)
Cash flows from investing activities:
 
 
 
Capital expenditures
(21,956)
(13,241)
(3,329)
Purchase of marketable securities
(2,500)
 
 
Maturity and sale of marketable securities
2,500 
 
 
Net cash used in investing activities
(21,956)
(13,241)
(3,329)
Cash flows from financing activities:
 
 
 
Borrowings under line of credit
 
4,500 
19,929 
Repayments under line of credit
 
(5,500)
(20,267)
Proceeds from issuance of long-term debt
 
 
18,500 
Repayment of borrowings under long-term debt
 
(18,849)
 
Financing costs
 
(47)
(872)
Proceeds from initial public offering
 
74,712 
 
Repayment of obligations under capital lease
(80)
(80)
(42)
Payments made for employee restricted stock minimum tax withholdings
(238)
 
 
Proceeds from issuance of common stock
 
 
Net cash (used in) provided by financing activities
(318)
54,738 
17,248 
Net (decrease) increase in cash
(16,915)
48,145 
231 
Cash and cash equivalents at beginning of period
49,719 
1,574 
1,343 
Cash and cash equivalents at end of period
32,804 
49,719 
1,574 
Supplemental disclosures of cash flow information:
 
 
 
Interest paid
198 
223 
228 
Income taxes paid
Supplemental disclosures of non-cash activities:
 
 
 
Conversion of convertible and senior convertible notes to common stock
 
168,510 
 
Accrued dividends on preferred stock
 
 
996 
Changes in redemption value of redeemable convertible preferred stock
 
 
(86,161)
Reclassification of redeemable convertible preferred stock from temporary to permanent equity
 
 
(1,085)
Changes in accrued capital expenditures
(5,332)
6,401 
(523)
Capitalized interest
 
34 
70 
Capital lease
$ 21 
$ 5 
$ 160 
Description of Business
Description of Business

(1) Description of Business

Nature of Business

Aspen Aerogels, Inc. (the Company) is an energy technology company that designs, develops and manufactures innovative, high-performance aerogel insulation. 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 two wholly owned subsidiaries: Aspen Aerogels Rhode Island, LLC and Aspen Aerogels Germany, GmbH.

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 (see note 8) and Senior Convertible Notes (see note 7) automatically converted into 15,319,034 shares of common stock.

Prior to the closing of the offering, the Company completed a 1-for-824.7412544 reverse stock split of its common stock. All common shares and related per share amounts in the financial statements and notes have been adjusted retroactively to reflect the reverse stock split.

Summary of Basis of Presentation and Significant Accounting Policies
Summary of Basis of Presentation and Significant Accounting Policies

(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, inventory valuation, the carrying amount of property and equipment, fair value of debt and capital stock, 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, 2015 or 2014. 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, 2015 and 2014, 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 (see notes 6, 7 and 8).

At December 31, 2015 and 2014, no financial assets or liabilities were measured at fair value.

During the years ended December 31, 2014 (prior to the completion of the Company’s IPO on June 18, 2014) and 2013, the Company valued its then outstanding Subordinated Notes, Senior Convertible Notes and Convertible Notes 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, 2015 and December 31, 2014, 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 consist primarily of insulation distributors, insulation contractors 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, 2015 and 2014. The Company does not have any off-balance-sheet credit exposure related to its customers.

For the year ended December 31, 2015, two customers represented 14% and 12% of total revenue. For the year ended December 31, 2014, two customers represented 13% and 12% of total revenue, respectively. For the year ended December 31, 2013, two customers represented 15% and 11% of total revenue, respectively.

At December 31, 2015, the Company had three customers that accounted for 17%, 14% and 13% of accounts receivable, respectively. At December 31, 2014, the Company had three customers that accounted for 17%, 17% and 11% 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, $0.1 million and $0.1 million in interest costs related to the build-out of the East Providence facility during the years ended December 31, 2015, 2014 and 2013, 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 and patent costs. Patent costs are amortized over the life of the patent.

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.

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) amounts are billed in accordance with contractual terms in advance of products being delivered.

Revenue Recognition

The Company recognizes revenue from the sale of products and delivery 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 generally recognized upon transfer of title and risk of loss, which is generally upon shipment or delivery. The Company’s customary shipping terms are free on board (FOB) shipping point; however, some products are shipped using FOB destination shipping terms. Revenue associated with products shipped FOB destination is recognized when the products reach their specified destination. Products are typically delivered without significant post-sale obligations to customers.

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, 2015 and 2014.

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 one to two years from the date of sale, depending on the type of product purchased. The 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. For the years ended December 31, 2015, 2014 and 2013, warranty claims and charges have been insignificant.

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; (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.

Provision is made for the entire amount of future estimated losses on contracts when the current contract estimate is a loss while claims for additional contract compensation are not reflected in the accounts until the year in which such claims are identifiable and receipt is probable. 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. Adjustments to revenue as a result of audit have been insignificant.

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, 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 restricted stock units is determined using the closing price of the Company’s common stock on the date of grant. All shares underlying awards of restricted stock are restricted in that they 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. Restricted stock units 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 restricted stock units 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 available for issuance under the plan automatically increased to 3,698,257 shares effective January 1, 2015.

Research and Development

Costs incurred in the research and development of the Company’s products are expensed as incurred and include compensation and related costs, services provided by third-party contractors, materials and supplies and are classified as research and development expenses. 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, restricted stock units and warrants. Common equivalent shares are excluded from the computation of diluted net income (loss) per share if their effect is antidilutive.

Prior to the IPO and for the year ended December 31, 2013, net income (loss) per common share was calculated using the two-class method, which is an earnings allocation formula that determines net income (loss) per share for the holders of the Company’s common shares and participating securities. Prior to their conversion to common stock at the time of the Company’s IPO, the Company’s Series A preferred stock, Series B preferred stock, Series C preferred stock and Series C preferred stock warrants contained participation rights in any dividend to be paid by the Company to holders of its common shares and were deemed to be participating securities. Net income (loss) available to common shareholders and participating securities was allocated to each share on an as-if-converted basis as if all of the earnings for the period had been distributed. The participating securities did not include a contractual obligation to share in losses of the Company and were not included in the calculation of net loss per share in the periods that have a net loss.

 

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 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  
     2015      2014      2013  
     (In thousands)  

Revenue:

        

U.S.

   $ 44,553       $ 39,809       $ 30,164   

International

     77,965         62,590         55,930   
  

 

 

    

 

 

    

 

 

 

Total

   $ 122,518       $ 102,399       $ 86,094   
  

 

 

    

 

 

    

 

 

 

Recently Issued Accounting Standards

In February 2016, the FASB issued Accounting Standards Update (“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 not permitted. 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 fiscal years beginning after December 15, 2017. This ASU is to be applied prospectively. Early adoption is permitted as of the beginning of an interim or annual period. 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.

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.

Inventories
Inventories

(3) Inventories

Inventories consist of the following:

 

     December 31  
     2015      2014  
     (In thousands)  

Raw material

   $ 4,432       $ 4,052   

Finished goods

     2,100         845   
  

 

 

    

 

 

 

Total

   $ 6,532       $ 4,897   
  

 

 

    

 

 

 

Property, Plant and Equipment, Net
Property, Plant and Equipment, Net

(4) Property, Plant and Equipment, Net

Property, plant and equipment consist of the following:

 

     December 31       
     2015      2014      Useful life
     (In thousands)       

Construction in progress

   $ 5,138       $ 24,124       —  

Buildings

     23,884         16,303       30 years

Machinery and equipment

     104,658         78,378       3 — 10 years

Computer equipment and software

     6,888         5,556       3 years
  

 

 

    

 

 

    

Total

     140,568         124,361      

Accumulated depreciation and amortization

     (62,246 )      (52,869 )   
  

 

 

    

 

 

    

Property, plant and equipment, net

   $ 78,322       $ 71,492      
  

 

 

    

 

 

    

Plant and equipment under capital leases included in the table above consist of the following:

 

     December 31  
     2015      2014  
     (In thousands)  

Office equipment, at cost

   $ 139       $ 118   

Vehicles, at cost

     288         288   
  

 

 

    

 

 

 

Total assets under capital leases

     427         406   

Accumulated amortization

     (353 )      (265 )
  

 

 

    

 

 

 

Assets under capital leases, net

   $ 74       $ 141   
  

 

 

    

 

 

 

Depreciation expense was $9.8 million, $10.1 million and $10.0 million for the years ended December 31, 2015, 2014 and 2013, respectively. Amortization associated with assets under capital leases was less than $0.1 million, for each of the years ended December 31, 2015, 2014 and 2013.

Construction in progress totaled $5.1 million and $24.1 million, at December 31, 2015 and 2014, respectively. Construction in process at December 31, 2015 related to 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. Construction in process at December 31, 2014 related to costs associated with the construction of a third production line of $19.6 million and certain other capital projects at the East Providence facility.

Accrued Expenses
Accrued Expenses

(5) Accrued Expenses

Accrued expenses consist of the following:

 

     December 31  
     2015      2014  
     (In thousands)  

Employee compensation

   $ 4,184       $ 4,851   

Other accrued expenses

     1,384         737   
  

 

 

    

 

 

 
   $ 5,568       $ 5,588   
  

 

 

    

 

 

 

Subordinated Notes
Subordinated Notes

(6) Subordinated Notes

On December 29, 2010, the Company issued 12% Secured Subordinated Promissory Notes (the Subordinated Notes) for aggregate proceeds of $10.0 million with an original maturity date of December 29, 2015. The Company executed several amendments to the Subordinated Notes prior to September 26, 2012, in which the maturity date of the Subordinated Notes was extended to March 2, 2014 and the interest rate was increased to 12.75% and then to 15% per annum. On September 26, 2012, the terms of the Subordinated Notes were amended (i) to increase the interest rate to 20% per annum and (ii) to add a premium which provided each note holder with additional interest equal to the amount of interest that would have accrued to the date of the amendment if the notes had provided interest at a rate of 20% per annum on the original principal amount and from the initial date of issuance. The applicable premium of $1.4 million of additional interest was due upon maturity. In conjunction with the Company’s March 2013 financing (see note 7), the Company further amended the terms of the Subordinated Notes to extend the maturity date to September 30, 2014.

Subsequent to the amendment dated September 26, 2012, the Company elected the fair value option for the Subordinated Notes and recorded the instrument at fair value. The fair value of the Subordinated Notes was determined by analysis of the amount to be paid on the notes at the occurrence of certain events in which the Subordinated Notes would be repaid to the noteholders in cash. The probability weighted discounted cash flow analysis utilized assumptions related to the probability of the occurrence of each of the various events and appropriate discount rates for each of the scenarios.

At December 31, 2013 the valuations were calculated at an implied discount of approximately 20% and were weighted as follows: repayment prior to maturity on June 30, 2014, 20%; and repayment at maturity on September 30, 2014, 80%. There would not be a material difference if the weightings were increased or decreased by 10%. At December 31, 2013, the aggregate fair value of the Subordinated Notes was determined to be $17.3 million, with an aggregate unpaid principal balance totaling $15.9 million.

Upon the completion of the Company’s IPO discussed in note 1, the Company used a portion of the net proceeds to repay $18.8 million of the original principal balance and accrued interest on the Subordinated Notes. As of June 20, 2014, all obligations under the Subordinated Notes had been paid in full.

The following table presents a roll-forward of the fair value of Level 3 (significant unobservable inputs) Subordinated Notes for the years ended December 31, 2014, and 2013:

 

     Subordinated
Notes
 
     (In thousands)  

Balance at December 31, 2012

   $ 13,535   

Change in fair value included in interest expense

     3,771   
  

 

 

 

Balance at December 31, 2013

     17,306   

Change in fair value included in interest expense

     1,543   

Repayment

     (18,849 )
  

 

 

 

Balance at December 31, 2014

   $ —    
  

 

 

 

Interest expense, inclusive of changes in fair value related to the Subordinated Notes for the years ended December 31, 2014 and 2013 was $1.5 million and $3.8 million, respectively.

Senior Convertible Notes
Senior Convertible Notes

(7) Senior Convertible Notes

Effective March 28, 2013, the Company entered into a Note and Warrant Purchase Agreement (March 2013 NPA) authorizing the issuance of $22.5 million of Senior Subordinated Convertible Notes (the Senior Convertible Notes). At each closing under the March 2013 NPA, the Company issued warrants to purchase shares of a newly created Series C Preferred Stock (the Series C) based on the principal balance of Senior Convertible Notes issued to each purchaser. The Company determined that the Series C warrants, which were subject to net share settlement, were equity classified. Collectively, the warrants issued pursuant to the March 2013 NPA were exercisable for Series C shares equal to 85.7% of the then outstanding capital stock of the Company on a fully diluted basis. The warrants had an exercise price of $0.0001 per share, were immediately exercisable and had an expiration date of March 28, 2023.

 

Pursuant to side letter agreements, in March and May 2013, holders of $7.5 million of Convertible Notes (see note 8) issued in November 2012 and January 2013 (the Initial Notes) exchanged their original principal balance for an equivalent principal amount of Senior Convertible Notes (the Exchanged Notes) and a pro-rata share of Series C warrants issued under the March 2013 NPA. The Company accounted for the warrant as a debt issuance cost and recorded an immediate charge for the fair value of the Series C warrants totaling $5.4 million in interest expense. Given that the terms of the Exchanged Notes were substantially different than the terms of the Initial Notes, the exchange was accounted for as an extinguishment of debt resulting in a loss on exchange totaling $5.7 million. The Company elected to account for all of the issuances of its Senior Convertible Notes and various embedded derivatives in accordance with ASC Topic 825-10, Fair Value Option for Financial Liabilities, whereby the Company initially and subsequently measured this financial instrument in its entirety at fair value, with the changes in fair value recorded each reporting period in other interest expense (income).

In March and May 2013, the Company issued an additional $15.0 million of Senior Convertible Notes. The noteholders received a pro-rata share of Series C warrants for their participation in the financing. The Company accounted for the warrant issuances as a debt issuance cost and recorded an immediate charge for the fair value of the Series C warrants totaling $10.7 million in interest expense (see note 10). In conjunction with the March 2013 NPA, the Company incurred $0.9 million of debt issuance costs, which was allocated between the debt and equity instruments related to the transaction. $0.6 million was allocated to the notes and recorded through interest expense, while the remaining $0.3 million was allocated to the warrants with an offset for additional paid-in capital.

Upon the completion of the Company’s IPO discussed in note 1, the outstanding principal and accrued interest on the Senior Convertible Notes were marked to an aggregate fair value of $39.5 million and automatically converted into 3,591,604 shares of common stock. In addition, all outstanding Series C warrants were automatically net exercised, which, together with the then outstanding shares of Series C preferred stock, converted into 104,734 shares of common stock upon the closing of the Company’s IPO.

Fair Value Measurements

The changes in the fair value of the Senior Convertible Notes during the year ended December 31, 2014 and 2013 was determined by utilizing probability weighted discounted cash flow analyses, which took into consideration market and general economic events, as well as the Company’s financial results and other data available. These analyses determined the amount to be paid on the Senior Convertible Notes in either cash or shares at the occurrence of certain events in which the Senior Convertible Notes would be converted into shares of the Company’s common stock or would be repaid in cash. The probability weighted discounted cash flow

analyses utilized assumptions related to the probability of the occurrence of each of the various events and a weighted average implied discount rate of 41.7% for each of the scenarios as of December 31, 2013 are as follows:

 

Potential exit

scenario event

   Estimated
exit date of
future event
     Estimated
probability of
future event
 

IPO scenario 1

     06/30/14         45 %

IPO scenario 2

     03/31/15         5 %

Sale scenario 1

     06/30/14         15 %

Sale scenario 2

     03/31/15         15 %

Dissolution

     09/30/14         5 %

Private company

     At maturity         15 %

 

The following table presents a roll-forward of the fair value of Level 3 (significant unobservable inputs) Senior Convertible Notes for the years ended December 31, 2014 and 2013:

 

     Senior Convertible
Notes
 
     (In thousands)  

Beginning balance as of December 31, 2012

   $ —    

Issuances of senior convertible notes

     14,971   

Fair value of notes exchanged for senior convertible notes

     7,576   

Conversion of the Senior Convertible Notes

     5,588   
  

 

 

 

Balance at December 31, 2013

     28,135   

Change in fair value included in interest expense

     11,373   

Conversion of Convertible Notes

     (39,508
  

 

 

 

Balance at December 31, 2014

   $ —     
  

 

 

 

Changes in fair value of the Company’s Senior Convertible Notes for the years ended December 31, 2014 and 2013 was $11.4 million and $5.6 million, respectively.

The final conversion amount of the Senior Convertible Notes upon the closing of the Company’s IPO was determined to be $39.5 million.

Convertible Notes
Convertible Notes

(8) Convertible Notes

Commencing in June 2011 and concluding in January 2013, the Company issued a total of $73.4 million of Convertible Notes. Net proceeds from the Convertible Notes were used to fund the completion of the Company’s second production line at the East Providence facility, to begin the construction of a third production line at the East Providence facility, and to fund the Company’s operating cash requirements.

In conjunction with the execution of the March 2013 NPA (see note 7) on March 28, 2013, the holders of all but approximately $0.3 million of original principal amount of the Convertible Notes agreed to extend the original maturity date of their notes by two years. Given that the term of the Convertible Notes, as amended, differed substantially from the original term, the amendment was accounted for as an extinguishment of debt. On March 28, 2013, the Company recognized a gain on extinguishment totaling $8.9 million.

The Company elected to record the Convertible Notes at fair value upon issuance. The aggregate fair value of the notes was $91.9 million at December 31, 2013.

Upon the closing of the Company’s IPO discussed in note 1, the outstanding principal and accrued interest on the Convertible Notes were marked to an aggregate fair value of $129.0 million and automatically converted into 11,727,430 shares of common stock.

Fair Value Measurements

The change in the fair values of the Convertible Notes during the year ended December 31, 2013 was determined by utilizing probability weighted discounted cash flow analyses, which took into consideration market and general economic events, as well as the Company’s financial results and other data available. These analyses determined the amount to be paid on the Convertible Notes in either cash or shares at the occurrence of certain events in which the Convertible Notes would be converted into shares of the Company’s common stock or would be repaid in cash. The probability weighted discounted cash flow analyses utilized assumptions related to the probability of the occurrence of each of the various events and a weighted average implied discount rate of 40% for each of the scenarios.

 

These assumptions as of December 31, 2013 were as follows:

 

     December 31, 2013  

Potential exit scenario event

   Estimated
exit date of
future event
     Estimated
probability
of future
event
 

IPO scenario 1

     06/30/14         45 %

IPO scenario 2

     03/31/15         5 %

Sale scenario 1

     06/30/14         15 %

Sale scenario 2

     03/31/15         15 %

Dissolution

     09/30/14         5 %

Private company

     At maturity         15 %

Given that the valuation of the Convertible Notes utilized several unobservable inputs, the Company determined that the valuation of the Convertible Notes was a Level 3 valuation.

The following table presents a roll-forward of the fair value of Level 3 (significant unobservable inputs) Convertible Notes for the years ended December 31, 2014 and 2013:

 

     Total
Convertible
Notes
 
     (In thousands)  

Balance at December 31, 2012

   $ 95,088   

Issuances of convertible notes

     3,530   

Fair value of notes exchanged for senior convertible notes

     (7,253 )

Gain on extinguishment of convertible notes

     (8,898 )

Change in fair value included in interest expense

     9,407   
  

 

 

 

Balance at December 31, 2013

     91,874   

Change in fair value included in interest expense

     37,128   

Conversion of Convertible Notes

     (129,002 )
  

 

 

 

Balance at December 31, 2014

   $ —    
  

 

 

 

The charge recognized as a result of the change in the fair value of the Company’s Convertible Notes was $37.1 million and $9.4 million for the years ended December 31, 2014 and 2013, respectively (see note 10).

The final payment amount of the Convertible Notes upon the closing of the Company’s IPO was determined to be $129.0 million.

Revolving Line of Credit
Revolving Line of Credit

(9) Revolving Line of Credit

The Company maintains a revolving credit facility with Silicon Valley Bank. On September 3, 2014, the Company amended and restated the loan and security agreement to extend the maturity date of the facility to August 31, 2016 and increase the maximum amount the Company is permitted to borrow, subject to continued covenant compliance and borrowing base requirements, from $10 million to $20 million. At the Company’s election, the interest rate applicable to borrowings under the revolving credit facility 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 revolving line facility fee of 0.5% per annum of the average unused portion of the revolving credit facility. The revolving credit facility is 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 both December 31, 2015 and December 31, 2014, the Company had no amounts drawn on the revolving credit facility. The Company had outstanding letters of credit backed by the revolving credit facility of $2.7 million at December 31, 2015 and $1.4 million at December 31, 2014, respectively, which reduce the funds otherwise available to the Company under the facility. Based on the available borrowing base, the effective amount available to the Company under the revolving credit facility at December 31, 2015 was $12.6 million after consideration of the $2.7 million of outstanding letters of credit (see note 12). Under the revolving credit facility, the Company is required to comply with financial covenants relating to, among other items, minimum Adjusted EBITDA, maximum unfinanced capital expenditures and other non-financial covenants. At December 31, 2015, the Company was in compliance with all such financial covenants.

Interest Expense
Interest Expense

(10) Interest Expense

Interest expense consists of the following:

 

     Year ended December 31  
     2015      2014      2013  
     (In thousands)  

Changes in fair value:

        

Subordinated notes

   $ —        $ 1,543       $ 3,771   

Senior convertible notes

     —          11,373         5,588   

Convertible notes, net of capitalization (1)

     —          37,095         9,337   

Issuance of Series C preferred stock warrants in connection with senior convertible notes

     —          —          10,677   

Debt closing costs

     —          47         585   

Imputed interest on Cabot obligation

     —           —          391   

Other interest

     182         223         250   
  

 

 

    

 

 

    

 

 

 
   $ 182       $ 50,281       $ 30,599   
  

 

 

    

 

 

    

 

 

 

 

(1) The charge recognized as a result of the change in the fair value of the Company’s Convertible Notes is presented net of capitalized interest expense of $0.1 million for the years ended December 31, 2014 and 2013.

Debt closing costs and commitment fees, consisting primarily of legal and related fees, associated with the issuance or modification of the Company’s Subordinated Notes, Senior Convertible Notes, Convertible Notes, and revolving credit facility are amortized over the term of the debt instrument and recorded in interest expense.

Capitalized interest relates primarily to costs associated with the Company’s third production line and significant improvements for the second production line at the East Providence facility.

Other Long-term Liabilities
Other Long-term Liabilities

(11) Other Long-term Liabilities

Other long-term liabilities consist of the following:

 

     December 31  
     2015      2014  
     (In thousands)  

Asset retirement obligations (ARO)

   $ 397       $ 1,018   

Other

     163         62   
  

 

 

    

 

 

 
     560         1,080   

Current maturities of other long-term liabilities

     (409      (50
  

 

 

    

 

 

 

Other long-term liabilities, less current maturities

   $ 151       $ 1,030   
  

 

 

    

 

 

 

 

The Company has asset retirement obligations (ARO) 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. The liability was initially measured at fair value and subsequently adjusted for accretion expense and changes in the amount or timing of the estimated cash flows. The corresponding asset retirement costs are capitalized as part of the carrying amount of the related long-lived asset and depreciated over the asset’s remaining useful life.

A summary of ARO activity consists of the following:

 

       Year Ended December 31  
       2015      2014  
       (In thousands)  

Balance at beginning of period

     $ 1,018       $ 1,009   

Accretion of discount expense

       21         40   

Settlement costs

       (642 )      (31 )
    

 

 

    

 

 

 

Balance at end of period

     $ 397       $ 1,018   
    

 

 

    

 

 

 

In August 2013, the Company extended its Northborough, Massachusetts facility lease to December 31, 2016. As a result, the Company classified the ARO as long term at December 31, 2014.

In September 2015, the Company elected to begin the restoration of 31,577 square feet of space formerly utilized for manufacturing operations in the Northborough facility. At that time, the Company engaged contractors to perform certain restoration services including the decommissioning of the former plant, the demolition and removal of remaining assets and the performance of other services to return the premises to broom-clean condition by December 31, 2015. For the years ended December 31, 2015 and 2014, the Company incurred $0.6 million and less than $0.1 million, respectively, in settlement costs in support of this effort.

The remaining ARO reserve totaling $0.4 million includes $0.2 million of remaining restoration costs to exit the former manufacturing operations completed in January 2016 and $0.2 million for the maximum restoration fee for the remaining facility. The restoration fee would require settlement at the termination of the lease.

Commitments and Contingencies
Commitments and Contingencies

(12) 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, 2015 and 2014 was $0.1 million and $0.2 million, respectively. Future minimum payments under capital leases at December 31, 2015 are as follows:

 

Year

   Capital Lease
Obligations
 
     (In thousands)  

2016

   $ 74   

2017

     38   

2018

     5   
  

 

 

 

Total

     117   

Less portion representing interest

     (10 )
  

 

 

 

Present value of future minimum payments

     107   

Current maturities of capital lease payments

     (67 )
  

 

 

 

Capital leases, excluding current portion

   $ 40   
  

 

 

 

 

Operating Leases

The Company leases facilities and office 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. Some operating leases contain rent escalation clauses whereby the rent payments increase over the term of the lease. In such cases, rent expense is recognized on a straight-line basis over the lease term.

Future minimum lease payments under operating leases at December 31, 2015 are as follows:

 

Year

   Operating
Leases
 
     (In thousands)  

2016

   $ 1,194   

2017

     625   

2018

     626   

2019

     184   

2020

     28   

Thereafter

     7   
  

 

 

 

Total minimum lease payments

   $ 2,664   
  

 

 

 

The Company incurred rent expense under all operating leases of approximately $1.6 million, $1.2 million and $1.2 million in the years ended December 31, 2015, 2014 and 2013, respectively.

Letters of Credit

Pursuant to the terms of its Northborough, Massachusetts facility lease, the Company has been required to provide the lessor 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 letters of credit outstanding for $2.7 million and $1.4 million at December 31, 2015 and 2014, respectively. These letters of credit are secured by the Company’s revolving credit facility (see note 9).

Litigation

The Company is, from time to time, a party to litigation that arises in the normal course of its business operations. 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.

Conversion of Redeemable Convertible Preferred Stock
Conversion of Redeemable Convertible Preferred Stock

(13) 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 converted into 115,982 shares of common stock.

Stockholders' Equity
Stockholders' Equity

(14) 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 (see note 8) and Senior Convertible Notes (see note 7) automatically converted into 15,319,034 shares of common stock.

 

At December 31, 2015 and 2014, 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.

Employee Benefit Plan
Employee Benefit Plan

(15) 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 year ended December 31, 2015, the Company provided matching contributions of $0.1 million. In prior years, the Company had not provided matching contributions nor had it made any contributions to the plan.

Employee Stock Ownership Plans
Employee Stock Ownership Plans

(16) 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, restricted stock units 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 2015, the Company issued 54,005 shares of restricted common stock and 71,596 non-qualified stock options (NSOs) with a fair value of $0.4 million and $0.2 million, respectively, vesting over a period of one year to its non-employee directors under the 2014 Equity Plan. During 2015, the Company issued 232,830 restricted stock units (RSUs) and NSOs to purchase 255,832 shares of common stock to employees under the 2014 Equity Plan. The RSUs and NSOs granted during 2015 will vest over a three year period.

Additionally, 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
 
     2015      2014      2013  
     (In thousands)  

Cost of product revenue

   $ 824       $ 1,121       $ 496   

Research and development expenses

     666         1,046         267   

Sales and marketing expenses

     1,012         1,390         727   

General and administrative expenses

     2,911         5,224         2,936   
  

 

 

    

 

 

    

 

 

 

Total stock-based compensation

   $ 5,413       $ 8,781       $ 4,426   
  

 

 

    

 

 

    

 

 

 

At December 31, 2015, 2,115,335 shares of common stock were reserved for stock-based awards granted under the 2014 Equity Plan. In addition, 93,500 shares of common stock are reserved for stock-based awards granted under the Company’s 2001 Equity Plan, which was replaced by the 2014 Equity Plan. Any cancellations or forfeitures of these awards will become available for grant under the 2014 Equity Plan. At December 31, 2015, there were 2,750,605 shares available for 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.

The CEO Options issued in December 2015 to purchase 370,181 shares of common stock 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 2015, 2014 and 2013, the expected volatility is based on the weighted average volatility of up to nineteen companies within various industries 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, 2015, 2014 and 2013.

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,  
     2015     2014     2013  
     (In thousands)  

Weighted average assumptions:

      

Expected term (in years)

     6.02        6.17        5.47   

Expected volatility

     57.95     50.09     48.99

Risk free rate

     1.79     1.94     1.69

Expected dividend yield

     0.00     0.00     0.00

Weighted average fair value:

      

Grant-date fair value of options granted

   $ 3.82      $ 5.37      $ 0.12   

Grant-date fair value of options vested

   $ 11.89      $ 97.33      $ 0.18   

Aggregate intrinsic value of options exercised

   $ —        $ 4,816.50      $ —     

Modifications

On August 7, 2013, the Company canceled substantially all options held by Company employees and granted two sets of new options to these employees. Each recipient received a grant of options containing service-based vesting conditions and a second grant of options containing both service and performance-based vesting conditions. The performance-based vesting was met upon the successful completion of the IPO of the Company’s common stock.

On December 20, 2013, the Company canceled all options held by members of the Company’s board of directors and granted two sets of new options to these directors. Each recipient received a grant of options containing service-based vesting conditions and a second grant of options containing both service and performance-based vesting conditions. The performance-based vesting was met upon the successful completion of the IPO of the Company’s common stock.

As a result of the cancellation and concurrent grant of options, the Company accounted for these transactions as modifications in determining the stock-based compensation expense to be recognized over the remaining service period. The total incremental compensation expense resulting from the modification was $7.8 million and $1.0 million for the two grant dates, respectively. The incremental compensation expense associated with the service based awards of $2.0 million will be recognized over the remaining service period of the new options. The Company recorded $0.7 million and $6.4 million associated with the service and performance-based awards, respectively, during the year ended December 31, 2015 and 2014 principally as a result of the IPO in June 2014.

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, 2014

     1,026,510      $ 14.01       $ 18.44         9.63      

Granted

     782,354      $ 3.55       $ 6.74         

Forfeited

     (106,527 )   $ 7.56       $ 11.91         

Exercised

     —        $ —         $ —            $ —     
  

 

 

            

Options outstanding at December 31, 2015

     1,702,337      $ 9.60       $ 13.47         9.08       $ 6,152  
  

 

 

            

Exercisable at December 31, 2015

     330,135      $ 27.97       $ 28.73         8.42       $ —    
  

 

 

            

Expected to vest at December 31, 2015

     1,207,528      $ 5.16       $ 9.08         9.28       $ 5,330  
  

 

 

            

As of December 31, 2015, total unrecognized compensation cost related to nonvested options granted under the Plan was $5.2 million. The unrecognized compensation cost consisted of $5.1 million relating to service-based awards and $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 2.55 and 0.6 years, respectively.

Restricted Stock Awards and Restricted Stock Units

The Company values restricted stock awards and restricted stock units (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 2015 is as follows:

 

     Restricted
Stock
Units
     Weighted
Average
Grant Date
Fair Value
 

Balance at December 31, 2014

     314,640       $ 10.78   

Granted

     232,830         7.44   

Vested

     (89,372 )      10.78   

Forfeited

     (40,972      9.84   
  

 

 

    

 

 

 

Balance at December 31, 2015

     417,126       $ 9.01   
  

 

 

    

 

 

 

Restricted stock awards granted during 2015 are considered issued and outstanding common stock and are excluded from the table above. As of December 31, 2015 there were 132,130 shares of restricted stock outstanding.

The total intrinsic values of restricted stock and restricted stock units that vested in 2015 was $0.5 million. No restricted stock or restricted stock units vested in 2014 or 2013. As of December 31, 2015, of the total shares of restricted stock and restricted stock units outstanding, 471,131 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, 2015, 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, 2015, total unrecognized compensation cost related to restricted stock awards and RSUs granted under the 2014 Equity Plan was $0.7 million and $2.5 million and is expected to be recognized over a weighted average period of 0.46 and 3.56 years, respectively.

Net Income (Loss) Per Share
Net Income (Loss) Per Share

(17) Net Income (Loss) Per Share

The computation of basic and diluted net income (loss) per share attributable to common stockholders consists of the following:

 

     Year ended December 31  
     2015     2014     2013  
     (In thousands, except share and per share data)  

Numerator:

      

Net income (loss)

   $ (6,417 )   $ (66,324 )   $ (47,611

Deemed dividends on participating preferred stock (inclusive of issuance costs and changes in redemption value, including extinguishment):

      

Series B

     —          —          29,622   

Series A

     —          —          55,543   
  

 

 

   

 

 

   

 

 

 

Total preferred stock deemed dividends

     —          —          85,165   

Earnings attributable to participating convertible preferred stock shareholders and Series C preferred stock warrant holders

     —          —          (36,216 )
  

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common stockholders

   $ (6,417   $ (66,324 )   $ 1,338   
  

 

 

   

 

 

   

 

 

 

Denominator:

      

Weighted average shares outstanding, basic

     22,986,931        12,349,456        3,137   

Effect of warrants to purchase common stock

     —          —          122   
  

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding, diluted

     22,986,931        12,349,456        3,259   
  

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common stockholders per common share, basic

   $ (0.28   $ (5.37   $ 426.52   

Effect of warrants to purchase common stock

     —          —          (15.96 )
  

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common stockholders per common share, diluted

   $ (0.28   $ (5.37   $ 410.56   
  

 

 

   

 

 

   

 

 

 

In conjunction with the execution of the March 2013 NPA, the redemption and dividend rights of the Company’s issued and outstanding Series B and Series A were eliminated and the liquidation preference of the Series B and Series A was reduced to an aggregate of $4.0 million. During March 2013, the Company recorded decreases in the redemption value of the Company’s Series B and Series A shares of $30.0 million and $56.1 million, respectively, reflecting the changes in the fair market value of the Series B and Series A shares at the time of the March 2013 Financing. Given that the release of the redemption rights substantially impacted the fair value of the Series B and Series A, the elimination of the rights was accounted for as an extinguishment of the securities. As a result, the Company recorded a gain on extinguishment of Series B and Series A of approximately $86.2 million recorded in additional paid-in capital available to common stockholders. Additionally, the remaining value of the Series B and Series A of $1.1 million subsequent to extinguishment was recorded in additional paid-in capital upon reclassification from temporary to permanent equity.

Potential dilutive common shares that were excluded from the computation of diluted net income (loss) attributable to common stockholders per common share because they were anti-dilutive consist of the following:

 

     Year ended December 31  
     2015      2014      2013  

Common stock options

     1,702,337         1,026,510         21,846   

Restricted common stock units

     417,126         314,640         —     

Common stock warrants

     131         131         —     

Restricted common stock awards

     132,130         —           —     
  

 

 

    

 

 

    

 

 

 

Total

     2,251,724         1,341,281         21,846   
  

 

 

    

 

 

    

 

 

 

 

As of December 31, 2015 and 2014, there was no dilutive impact of the common stock options, restricted common stock units, common stock warrants and restricted stock awards. All other potentially dilutive instruments were converted into shares of common stock upon the closing of the Company’s IPO on June 18, 2014.

Income Taxes
Income Taxes

(18) 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  
     2015     2014     2013  

U.S. federal income tax statutory rate

     35 %     35     35

Permanent differences

     (11 )%     —       —  

State tax, net of federal benefit

     (6 )%      —       —  

Changes in valuation allowance for deferred tax assets

     (11 )%     1     6

Stock-based compensation

     (8 )%     —       —  

Debt and warrant fair value adjustments

     —   %     (26 )%     (16 )%

Write down of losses not previously benefitted

     —   %     (11 )%     (22 )%

Other

     1     1     (3 )%
  

 

 

   

 

 

   

 

 

 

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, 2015 and 2014 are presented below:

 

     December 31  
     2015      2014  
     (In thousands)  

Deferred tax assets:

     

Net operating loss carryforwards

   $ 62,671       $ 61,457   

Stock-based compensation

     4,938         4,479   

Tax credit carryforwards

     323         379   

Reserves and accruals

     140         282   

Intangible assets and amortization

     150         384   

Other

     —           5   
  

 

 

    

 

 

 

Total gross deferred tax assets

     68,222         66,986   

Deferred tax liabilities:

     

Depreciation

     (3,841 )      (3,311 )
  

 

 

    

 

 

 

Total deferred tax liabilities

     (3,841 )      (3,311 )
  

 

 

    

 

 

 

Total deferred tax assets and liabilities

     64,381         63,675   

Valuation allowance

     (64,381 )      (63,675 )
  

 

 

    

 

 

 

Net deferred tax asset

   $ —         $ —     
  

 

 

    

 

 

 

 

The net change in the valuation allowance for the year ended December 31, 2015, was an increase of $0.7 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, 2015, the Company has $165.7 million of net operating losses available to offset future federal income, if any, and which expire on various dates through December 31, 2035.

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, 2015, the Company has $99.5 million of apportioned net operating losses available to offset future state taxable income, if any, and which begin to expire at various dates between 2016 and 2035.

For each of the years ended December 31, 2015, 2014 and 2013, 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.

Subsequent Events
Subsequent Events

(19) Subsequent Events

The Company has evaluated subsequent events through March 4, 2016, the date of issuance of the consolidated financial statements for the year ended December 31, 2015.

On February 15, 2016, the Company entered into an Inducement Agreement with the Development Authority of Bulloch County, the City of Statesboro, Georgia and Bulloch County, Georgia (collectively, the Entities). Pursuant to the Inducement Agreement, the Entities will provide various incentives to induce the Company to invest at least $70 million in constructing and equipping the Company’s planned second manufacturing facility in Statesboro, Georgia. The Company will also receive statutory incentives for economic development provided by the State of Georgia.

Incentives afforded by the Entities to the Company include, but are not limited to, property tax reductions and utility and site infrastructure improvements. The Development Authority will lease to the Company a 43 acre property for a term of five years, with an option to renew, in consideration for the payment of nominal rent, and grant the Company an option to purchase the property upon the earlier of the expiration or termination of the lease at a nominal price.

 

In addition, the Company entered into a (i) Pilot Agreement with the Entities that sets forth the rights and obligations of the Company with respect to the incentives received pursuant to the Inducement Agreement and (ii) a Performance and Accountability Agreement with other state authorities which provides for a grant of $250,000 to the Company. Pursuant to these agreements, in the event that the Company fails to meet at least 80% of the investment and job creation goals within 36 months following the earlier to occur of (i) the completion and issuance of the certificate of occupancy with respect to the planned second manufacturing facility or (ii) June 30, 2018, the Company may be required to repay portions of property tax savings and other incentives. In addition, the Company must maintain its achievement of 80% of the investment and job creation goals for a period of 84 months.

Quarterly Results of Operations
Quarterly Results of Operations

QUARTERLY RESULTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

     Three Months Ended  
     March 31,     June 30,     Sept 30,     Dec 31,  

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) attributable to common stockholders

     (2,790 )     (2,743 )     (2,522 )     1,638   

Net income (loss) attributable to common stockholders per common share - basic

   $ (0.12 )   $ (0.12 )   $ (0.11 )   $ 0.07   

Net income (loss) attributable to common stockholders per common share - diluted

   $ (0.12 )   $ (0.12 )   $ (0.11 )   $ 0.07   

2014

        

Total revenue

   $ 22,363      $ 26,615      $ 25,437      $ 27,984   

Gross profit

     3,346        3,425        5,072        5,236   

Income (loss) from operations

     (2,898 )     (8,121 )     (2,365 )     (2,658

Net income (loss)

     (19,049 )     (42,148 )     (2,412 )     (2,714

Net income (loss) attributable to common stockholders

     (19,049 )     (42,148 )     (2,412 )     (2,714

Net income (loss) attributable to common stockholders per common share - basic

   $ (6,065.89 )   $ (13.88 )   $ (0.10 )   $ (0.12

Net income (loss) attributable to common stockholders per common share - diluted

   $ (6,065.89 )   $ (13.88 )   $ (0.10 )   $ (0.12

The reported results for 2014 included interest expense comprised of changes in fair value of the subordinated notes, senior convertible notes, convertible notes and debt closing costs and other interest expense of: $16.2 million in the first quarter, $34.0 million in the second quarter, less than $0.1 million in the third quarter and $0.1 million in the fourth quarter. The changes in fair value of the respective notes were calculated based on the expected conversion amounts of the notes into equity at the closing of our initial public offering.

Valuation and Qualifying Accounts
Valuation and Qualifying Accounts

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, 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   

Year Ended December 31, 2013:

           

Allowances for uncollectible accounts and sales returns and allowances

   $ 421         —           —           (212 )   $ 209   

 

(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.
Description of Business (Policies)

Nature of Business

Aspen Aerogels, Inc. (the Company) is an energy technology company that designs, develops and manufactures innovative, high-performance aerogel insulation. 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 two wholly owned subsidiaries: Aspen Aerogels Rhode Island, LLC and Aspen Aerogels Germany, GmbH.

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 (see note 8) and Senior Convertible Notes (see note 7) automatically converted into 15,319,034 shares of common stock.

Prior to the closing of the offering, the Company completed a 1-for-824.7412544 reverse stock split of its common stock. All common shares and related per share amounts in the financial statements and notes have been adjusted retroactively to reflect the reverse stock split.

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, inventory valuation, the carrying amount of property and equipment, fair value of debt and capital stock, 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, 2015 or 2014. 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, 2015 and 2014, 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 (see notes 6, 7 and 8).

At December 31, 2015 and 2014, no financial assets or liabilities were measured at fair value.

During the years ended December 31, 2014 (prior to the completion of the Company’s IPO on June 18, 2014) and 2013, the Company valued its then outstanding Subordinated Notes, Senior Convertible Notes and Convertible Notes 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, 2015 and December 31, 2014, 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 consist primarily of insulation distributors, insulation contractors 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, 2015 and 2014. The Company does not have any off-balance-sheet credit exposure related to its customers.

For the year ended December 31, 2015, two customers represented 14% and 12% of total revenue. For the year ended December 31, 2014, two customers represented 13% and 12% of total revenue, respectively. For the year ended December 31, 2013, two customers represented 15% and 11% of total revenue, respectively.

At December 31, 2015, the Company had three customers that accounted for 17%, 14% and 13% of accounts receivable, respectively. At December 31, 2014, the Company had three customers that accounted for 17%, 17% and 11% 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, $0.1 million and $0.1 million in interest costs related to the build-out of the East Providence facility during the years ended December 31, 2015, 2014 and 2013, 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 and patent costs. Patent costs are amortized over the life of the patent.

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.

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) amounts are billed in accordance with contractual terms in advance of products being delivered.

Revenue Recognition

The Company recognizes revenue from the sale of products and delivery 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 generally recognized upon transfer of title and risk of loss, which is generally upon shipment or delivery. The Company’s customary shipping terms are free on board (FOB) shipping point; however, some products are shipped using FOB destination shipping terms. Revenue associated with products shipped FOB destination is recognized when the products reach their specified destination. Products are typically delivered without significant post-sale obligations to customers.

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, 2015 and 2014.

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 one to two years from the date of sale, depending on the type of product purchased. The 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. For the years ended December 31, 2015, 2014 and 2013, warranty claims and charges have been insignificant.

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; (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.

Provision is made for the entire amount of future estimated losses on contracts when the current contract estimate is a loss while claims for additional contract compensation are not reflected in the accounts until the year in which such claims are identifiable and receipt is probable. 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. Adjustments to revenue as a result of audit have been insignificant.

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, 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 restricted stock units is determined using the closing price of the Company’s common stock on the date of grant. All shares underlying awards of restricted stock are restricted in that they 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. Restricted stock units 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 restricted stock units 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 available for issuance under the plan automatically increased to 3,698,257 shares effective January 1, 2015.

Research and Development

Costs incurred in the research and development of the Company’s products are expensed as incurred and include compensation and related costs, services provided by third-party contractors, materials and supplies and are classified as research and development expenses. 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, restricted stock units and warrants. Common equivalent shares are excluded from the computation of diluted net income (loss) per share if their effect is antidilutive.

Prior to the IPO and for the year ended December 31, 2013, net income (loss) per common share was calculated using the two-class method, which is an earnings allocation formula that determines net income (loss) per share for the holders of the Company’s common shares and participating securities. Prior to their conversion to common stock at the time of the Company’s IPO, the Company’s Series A preferred stock, Series B preferred stock, Series C preferred stock and Series C preferred stock warrants contained participation rights in any dividend to be paid by the Company to holders of its common shares and were deemed to be participating securities. Net income (loss) available to common shareholders and participating securities was allocated to each share on an as-if-converted basis as if all of the earnings for the period had been distributed. The participating securities did not include a contractual obligation to share in losses of the Company and were not included in the calculation of net loss per share in the periods that have a net loss.

 

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 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  
     2015      2014      2013  
     (In thousands)  

Revenue:

        

U.S.

   $ 44,553       $ 39,809       $ 30,164   

International

     77,965         62,590         55,930   
  

 

 

    

 

 

    

 

 

 

Total

   $ 122,518       $ 102,399       $ 86,094   
  

 

 

    

 

 

    

 

 

 

Recently Issued Accounting Standards

In February 2016, the FASB issued Accounting Standards Update (“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 not permitted. 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 fiscal years beginning after December 15, 2017. This ASU is to be applied prospectively. Early adoption is permitted as of the beginning of an interim or annual period. 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.

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.

Summary of Basis of Presentation and Significant Accounting Policies (Tables)
Schedule of Revenues, Based on Shipment Destination or Research Services Location

Information about the Company’s revenues, based on shipment destination or research services location, is presented in the following table:

 

     Year Ended December 31  
     2015      2014      2013  
     (In thousands)  

Revenue:

        

U.S.

   $ 44,553       $ 39,809       $ 30,164   

International

     77,965         62,590         55,930   
  

 

 

    

 

 

    

 

 

 

Total

   $ 122,518       $ 102,399       $ 86,094   
  

 

 

    

 

 

    

 

 

 
Inventories (Tables)
Schedule of Inventories

Inventories consist of the following:

 

     December 31  
     2015      2014  
     (In thousands)  

Raw material

   $ 4,432       $ 4,052   

Finished goods

     2,100         845   
  

 

 

    

 

 

 

Total

   $ 6,532       $ 4,897   
  

 

 

    

 

 

 

Property, Plant and Equipment, Net (Tables)

Property, plant and equipment consist of the following:

 

     December 31       
     2015      2014      Useful life
     (In thousands)       

Construction in progress

   $ 5,138       $ 24,124       —  

Buildings

     23,884         16,303       30 years

Machinery and equipment

     104,658         78,378       3 — 10 years

Computer equipment and software

     6,888         5,556       3 years
  

 

 

    

 

 

    

Total

     140,568         124,361      

Accumulated depreciation and amortization

     (62,246 )      (52,869 )   
  

 

 

    

 

 

    

Property, plant and equipment, net

   $ 78,322       $ 71,492      
  

 

 

    

 

 

    

 

Plant and equipment under capital leases included in the table above consist of the following:

 

     December 31  
     2015      2014  
     (In thousands)  

Office equipment, at cost

   $ 139       $ 118   

Vehicles, at cost

     288         288   
  

 

 

    

 

 

 

Total assets under capital leases

     427         406   

Accumulated amortization

     (353 )      (265 )
  

 

 

    

 

 

 

Assets under capital leases, net

   $ 74       $ 141   
  

 

 

    

 

 

Accrued Expenses (Tables)
Schedule of Accrued Expenses

Accrued expenses consist of the following:

 

     December 31  
     2015      2014  
     (In thousands)  

Employee compensation

   $ 4,184       $ 4,851   

Other accrued expenses

     1,384         737   
  

 

 

    

 

 

 
   $ 5,568       $ 5,588   
  

 

 

    

 

 

 

Subordinated Notes (Tables)

The following table presents a roll-forward of the fair value of Level 3 (significant unobservable inputs) Convertible Notes for the years ended December 31, 2014 and 2013:

 

     Total
Convertible
Notes
 
     (In thousands)  

Balance at December 31, 2012

   $ 95,088   

Issuances of convertible notes

     3,530   

Fair value of notes exchanged for senior convertible notes

     (7,253 )

Gain on extinguishment of convertible notes

     (8,898 )

Change in fair value included in interest expense

     9,407   
  

 

 

 

Balance at December 31, 2013

     91,874   

Change in fair value included in interest expense

     37,128   

Conversion of Convertible Notes

     (129,002 )
  

 

 

 

Balance at December 31, 2014

   $ —    
  

 

 

 

The following table presents a roll-forward of the fair value of Level 3 (significant unobservable inputs) Senior Convertible Notes for the years ended December 31, 2014 and 2013:

 

     Senior Convertible
Notes
 
     (In thousands)  

Beginning balance as of December 31, 2012

   $ —    

Issuances of senior convertible notes

     14,971   

Fair value of notes exchanged for senior convertible notes

     7,576   

Conversion of the Senior Convertible Notes

     5,588   
  

 

 

 

Balance at December 31, 2013

     28,135   

Change in fair value included in interest expense

     11,373   

Conversion of Convertible Notes

     (39,508
  

 

 

 

Balance at December 31, 2014

   $ —     
  

 

 

 


The following table presents a roll-forward of the fair value of Level 3 (significant unobservable inputs) Subordinated Notes for the years ended December 31, 2014, and 2013:

 

     Subordinated
Notes
 
     (In thousands)  

Balance at December 31, 2012

   $ 13,535   

Change in fair value included in interest expense

     3,771   
  

 

 

 

Balance at December 31, 2013

     17,306   

Change in fair value included in interest expense

     1,543   

Repayment

     (18,849 )
  

 

 

 

Balance at December 31, 2014

   $ —    
  

 

 

 

Convertible Notes (Tables)

The probability weighted discounted cash flow analyses utilized assumptions related to the probability of the occurrence of each of the various events and a weighted average implied discount rate of 40% for each of the scenarios.

These assumptions as of December 31, 2013 were as follows:

 

     December 31, 2013  

Potential exit scenario event

   Estimated
exit date of
future event
     Estimated
probability
of future
event
 

IPO scenario 1

     06/30/14         45 %

IPO scenario 2

     03/31/15         5 %

Sale scenario 1

     06/30/14         15 %

Sale scenario 2

     03/31/15         15 %

Dissolution

     09/30/14         5 %

Private company

     At maturity         15 %

The probability weighted discounted cash flow

analyses utilized assumptions related to the probability of the occurrence of each of the various events and a weighted average implied discount rate of 41.7% for each of the scenarios as of December 31, 2013 are as follows:

 

Potential exit

scenario event

   Estimated
exit date of
future event
     Estimated
probability of
future event
 

IPO scenario 1

     06/30/14         45 %

IPO scenario 2

     03/31/15         5 %

Sale scenario 1

     06/30/14         15 %

Sale scenario 2

     03/31/15         15 %

Dissolution

     09/30/14         5 %

Private company

     At maturity         15 %

Interest Expense (Tables)
Summary of Interest Expense

Interest expense consists of the following:

 

     Year ended December 31  
     2015      2014      2013  
     (In thousands)  

Changes in fair value:

        

Subordinated notes

   $ —        $ 1,543       $ 3,771   

Senior convertible notes

     —          11,373         5,588   

Convertible notes, net of capitalization (1)

     —          37,095         9,337   

Issuance of Series C preferred stock warrants in connection with senior convertible notes

     —          —          10,677   

Debt closing costs

     —          47         585   

Imputed interest on Cabot obligation

     —           —          391   

Other interest

     182         223         250   
  

 

 

    

 

 

    

 

 

 
   $ 182       $ 50,281       $ 30,599   
  

 

 

    

 

 

    

 

 

 

 

(1) The charge recognized as a result of the change in the fair value of the Company’s Convertible Notes is presented net of capitalized interest expense of $0.1 million for the years ended December 31, 2014 and 2013.

 

Other Long-term Liabilities (Tables)

Other long-term liabilities consist of the following:

 

     December 31  
     2015      2014  
     (In thousands)  

Asset retirement obligations (ARO)

   $ 397       $ 1,018   

Other

     163         62   
  

 

 

    

 

 

 
     560         1,080   

Current maturities of other long-term liabilities

     (409      (50
  

 

 

    

 

 

 

Other long-term liabilities, less current maturities

   $ 151       $ 1,030   
  

 

 

    

 

 

 

A summary of ARO activity consists of the following:

 

       Year Ended December 31  
       2015      2014  
       (In thousands)  

Balance at beginning of period

     $ 1,018       $ 1,009   

Accretion of discount expense

       21         40   

Settlement costs

       (642 )      (31 )
    

 

 

    

 

 

 

Balance at end of period

     $ 397       $ 1,018   
    

 

 

    

 

 

 

Commitments and Contingencies (Tables)

Future minimum payments under capital leases at December 31, 2015 are as follows:

 

Year

   Capital Lease
Obligations
 
     (In thousands)  

2016

   $ 74   

2017

     38   

2018

     5   
  

 

 

 

Total

     117   

Less portion representing interest

     (10 )
  

 

 

 

Present value of future minimum payments

     107   

Current maturities of capital lease payments

     (67 )
  

 

 

 

Capital leases, excluding current portion

   $ 40   
  

 

 

 

Future minimum lease payments under operating leases at December 31, 2015 are as follows:

 

Year

   Operating
Leases
 
     (In thousands)  

2016

   $ 1,194   

2017

     625   

2018

     626   

2019

     184   

2020

     28   

Thereafter

     7   
  

 

 

 

Total minimum lease payments

   $ 2,664   
  

 

 

 

Employee Stock Ownership Plans (Tables)

Stock-based compensation is included in cost of sales or operating expenses, as applicable, and consists of the following:

 

     Year Ended
December 31
 
     2015      2014      2013  
     (In thousands)  

Cost of product revenue

   $ 824       $ 1,121       $ 496   

Research and development expenses

     666         1,046         267   

Sales and marketing expenses

     1,012         1,390         727   

General and administrative expenses

     2,911         5,224         2,936   
  

 

 

    

 

 

    

 

 

 

Total stock-based compensation

   $ 5,413       $ 8,781       $ 4,426   
  

 

 

    

 

 

    

 

 

 

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,  
     2015     2014     2013  
     (In thousands)  

Weighted average assumptions:

      

Expected term (in years)

     6.02        6.17        5.47   

Expected volatility

     57.95     50.09     48.99

Risk free rate

     1.79     1.94     1.69

Expected dividend yield

     0.00     0.00     0.00

Weighted average fair value:

      

Grant-date fair value of options granted

   $ 3.82      $ 5.37      $ 0.12   

Grant-date fair value of options vested

   $ 11.89      $ 97.33      $ 0.18   

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, 2014

     1,026,510      $ 14.01       $ 18.44         9.63      

Granted

     782,354      $ 3.55       $ 6.74         

Forfeited

     (106,527 )   $ 7.56       $ 11.91         

Exercised

     —        $ —         $ —            $ —     
  

 

 

            

Options outstanding at December 31, 2015

     1,702,337      $ 9.60       $ 13.47         9.08       $ 6,152  
  

 

 

            

Exercisable at December 31, 2015

     330,135      $ 27.97       $ 28.73         8.42       $ —    
  

 

 

            

Expected to vest at December 31, 2015

     1,207,528      $ 5.16       $ 9.08         9.28       $ 5,330  
  

 

 

            

Information related to grants of RSUs during 2015 is as follows:

 

     Restricted
Stock
Units
     Weighted
Average
Grant Date
Fair Value
 

Balance at December 31, 2014

     314,640       $ 10.78   

Granted

     232,830         7.44   

Vested

     (89,372 )      10.78   

Forfeited

     (40,972      9.84   
  

 

 

    

 

 

 

Balance at December 31, 2015

     417,126       $ 9.01   
  

 

 

    

 

 

 

Net Income (Loss) Per Share (Tables)

The computation of basic and diluted net income (loss) per share attributable to common stockholders consists of the following:

 

     Year ended December 31  
     2015     2014     2013  
     (In thousands, except share and per share data)  

Numerator:

      

Net income (loss)

   $ (6,417 )   $ (66,324 )   $ (47,611

Deemed dividends on participating preferred stock (inclusive of issuance costs and changes in redemption value, including extinguishment):

      

Series B

     —          —          29,622   

Series A

     —          —          55,543   
  

 

 

   

 

 

   

 

 

 

Total preferred stock deemed dividends

     —          —          85,165   

Earnings attributable to participating convertible preferred stock shareholders and Series C preferred stock warrant holders

     —          —          (36,216 )
  

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common stockholders

   $ (6,417   $ (66,324 )   $ 1,338   
  

 

 

   

 

 

   

 

 

 

Denominator:

      

Weighted average shares outstanding, basic

     22,986,931        12,349,456        3,137   

Effect of warrants to purchase common stock

     —          —          122   
  

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding, diluted

     22,986,931        12,349,456        3,259   
  

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common stockholders per common share, basic

   $ (0.28   $ (5.37   $ 426.52   

Effect of warrants to purchase common stock

     —          —          (15.96 )
  

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common stockholders per common share, diluted

   $ (0.28   $ (5.37   $ 410.56   
  

 

 

   

 

 

   

 

 

 

Potential dilutive common shares that were excluded from the computation of diluted net income (loss) attributable to common stockholders per common share because they were anti-dilutive consist of the following:

 

     Year ended December 31  
     2015      2014      2013  

Common stock options

     1,702,337         1,026,510         21,846   

Restricted common stock units

     417,126         314,640         —     

Common stock warrants

     131         131         —     

Restricted common stock awards

     132,130         —           —     
  

 

 

    

 

 

    

 

 

 

Total

     2,251,724         1,341,281         21,846   
  

 

 

    

 

 

    

 

 

 

Income Taxes (Tables)

The reconciliation between the U.S. statutory income tax rate and the Company’s effective rate consists of the following:

 

     Year Ended December 31  
     2015     2014     2013  

U.S. federal income tax statutory rate

     35 %     35     35

Permanent differences

     (11 )%     —       —  

State tax, net of federal benefit

     (6 )%      —       —  

Changes in valuation allowance for deferred tax assets

     (11 )%     1     6

Stock-based compensation

     (8 )%     —       —  

Debt and warrant fair value adjustments

     —   %     (26 )%     (16 )%

Write down of losses not previously benefitted

     —   %     (11 )%     (22 )%

Other

     1     1     (3 )%
  

 

 

   

 

 

   

 

 

 

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, 2015 and 2014 are presented below:

 

     December 31  
     2015      2014  
     (In thousands)  

Deferred tax assets:

     

Net operating loss carryforwards

   $ 62,671       $ 61,457   

Stock-based compensation

     4,938         4,479   

Tax credit carryforwards

     323         379   

Reserves and accruals

     140         282   

Intangible assets and amortization

     150         384   

Other

     —           5   
  

 

 

    

 

 

 

Total gross deferred tax assets

     68,222         66,986   

Deferred tax liabilities:

     

Depreciation

     (3,841 )      (3,311 )
  

 

 

    

 

 

 

Total deferred tax liabilities

     (3,841 )      (3,311 )
  

 

 

    

 

 

 

Total deferred tax assets and liabilities

     64,381         63,675   

Valuation allowance

     (64,381 )      (63,675 )
  

 

 

    

 

 

 

Net deferred tax asset

   $ —         $ —     
  

 

 

    

 

 

 
Quarterly Results of Operations (Tables)
Summary of Quarterly Financial Information

QUARTERLY RESULTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

     Three Months Ended  
     March 31,     June 30,     Sept 30,     Dec 31,  

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) attributable to common stockholders

     (2,790 )     (2,743 )     (2,522 )     1,638   

Net income (loss) attributable to common stockholders per common share - basic

   $ (0.12 )   $ (0.12 )   $ (0.11 )   $ 0.07   

Net income (loss) attributable to common stockholders per common share - diluted

   $ (0.12 )   $ (0.12 )   $ (0.11 )   $ 0.07   

2014

        

Total revenue

   $ 22,363      $ 26,615      $ 25,437      $ 27,984   

Gross profit

     3,346        3,425        5,072        5,236   

Income (loss) from operations

     (2,898 )     (8,121 )     (2,365 )     (2,658

Net income (loss)

     (19,049 )     (42,148 )     (2,412 )     (2,714

Net income (loss) attributable to common stockholders

     (19,049 )     (42,148 )     (2,412 )     (2,714

Net income (loss) attributable to common stockholders per common share - basic

   $ (6,065.89 )   $ (13.88 )   $ (0.10 )   $ (0.12

Net income (loss) attributable to common stockholders per common share - diluted

   $ (6,065.89 )   $ (13.88 )   $ (0.10 )   $ (0.12

Description of Business - Additional Information (Detail) (USD $)
0 Months Ended 12 Months Ended
Jun. 18, 2014
Dec. 31, 2015
Subsidiary
Dec. 31, 2014
Basis Of Presentation [Line Items]
 
 
 
Number of Subsidiaries
 
 
Proceeds from initial public offering
 
 
$ 74,712,000 
Reverse stock split of capital stock
Prior to the closing of the offering, the Company completed a 1-for-824.7412544 
 
 
Reverse stock split for each common stock
824.7412544 
 
 
Convertible Preferred Stock [Member]
 
 
 
Basis Of Presentation [Line Items]
 
 
 
Common shares issued upon conversion of securities
115,982 
 
 
Convertible Debt Securities [Member]
 
 
 
Basis Of Presentation [Line Items]
 
 
 
Common shares issued upon conversion of securities
15,319,034 
 
 
IPO [Member]
 
 
 
Basis Of Presentation [Line Items]
 
 
 
Initial public offering, common stock shares
7,500,000 
 
 
Proceeds from initial public offering
74,700,000 
 
 
Underwriting discounts and commissions
4,300,000 
 
 
Other offering expenses
$ 3,500,000 
 
 
Summary of Basis of Presentation and Significant Accounting Policies - Additional Information (Detail) (USD $)
12 Months Ended 1 Months Ended 12 Months Ended 12 Months Ended 12 Months Ended
Dec. 31, 2015
Segment
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2015
Minimum [Member]
Dec. 31, 2015
Restricted Common Stock Units [Member]
Dec. 31, 2015
Restricted Common Stock Units [Member]
Minimum [Member]
Dec. 31, 2015
Restricted Common Stock Units [Member]
Maximum [Member]
Dec. 31, 2015
Total Revenue [Member]
Customer
Dec. 31, 2014
Total Revenue [Member]
Customer
Dec. 31, 2013
Total Revenue [Member]
Customer
Dec. 31, 2015
Accounts Receivable [Member]
Customer
Dec. 31, 2014
Accounts Receivable [Member]
Customer
Dec. 31, 2015
Sales Returns Reserve [Member]
Dec. 31, 2014
Sales Returns Reserve [Member]
Dec. 31, 2015
Customer One [Member]
Total Revenue [Member]
Customer Concentration Risk [Member]
Dec. 31, 2014
Customer One [Member]
Total Revenue [Member]
Customer Concentration Risk [Member]
Dec. 31, 2013
Customer One [Member]
Total Revenue [Member]
Customer Concentration Risk [Member]
Dec. 31, 2015
Customer One [Member]
Accounts Receivable [Member]
Customer Concentration Risk [Member]
Dec. 31, 2014
Customer One [Member]
Accounts Receivable [Member]
Customer Concentration Risk [Member]
Dec. 31, 2015
Customer Two [Member]
Total Revenue [Member]
Customer Concentration Risk [Member]
Dec. 31, 2014
Customer Two [Member]
Total Revenue [Member]
Customer Concentration Risk [Member]
Dec. 31, 2013
Customer Two [Member]
Total Revenue [Member]
Customer Concentration Risk [Member]
Dec. 31, 2015
Customer Two [Member]
Accounts Receivable [Member]
Customer Concentration Risk [Member]
Dec. 31, 2014
Customer Two [Member]
Accounts Receivable [Member]
Customer Concentration Risk [Member]
Dec. 31, 2015
Customers Three [Member]
Accounts Receivable [Member]
Customer Concentration Risk [Member]
Dec. 31, 2014
Customers Three [Member]
Accounts Receivable [Member]
Customer Concentration Risk [Member]
Jan. 1, 2015
2014 Employee Director and Consultant Equity Incentive Plan [Member]
Dec. 31, 2015
2014 Employee Director and Consultant Equity Incentive Plan [Member]
Restricted Common Stock Units [Member]
Minimum [Member]
Dec. 31, 2015
2014 Employee Director and Consultant Equity Incentive Plan [Member]
Restricted Common Stock Units [Member]
Maximum [Member]
Dec. 31, 2015
2014 Employee Director and Consultant Equity Incentive Plan [Member]
Restricted Common Stock [Member]
Summary Of Significant Accounting Policies [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Marketable Securities
$ 0 
$ 0 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Description of impaired investment securities
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. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchase of marketable securities
2,500,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for doubtful accounts
89,000 
120,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of customers
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Concentration risk, percentage
 
 
 
 
 
 
 
 
 
 
 
 
 
 
14.00% 
13.00% 
15.00% 
17.00% 
17.00% 
12.00% 
12.00% 
11.00% 
14.00% 
17.00% 
13.00% 
11.00% 
 
 
 
 
Capitalized interest expense
100,000 
100,000