Description of Business and Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2013 |
Description of Business and Summary of Significant Accounting Policies | ' |
Reclassifications | ' |
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Reclassifications |
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Certain prior-year amounts have been reclassified in order to conform to the current-year presentation. The reclassification is related to gains or losses on inventory purchase commitments from accrued liabilities into the applicable caption on the statements of cash flows. This reclassification had no effect on the previously reported net cash (used in) provided by operating activities. |
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Basis of Presentation | ' |
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Basis of Presentation |
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The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in the consolidated financial statements. |
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Initial Public Offering | ' |
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Initial Public Offering |
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On August 7, 2013, the Company completed its initial public offering ("IPO") of common stock in which the Company sold and issued 4,600,000 shares of common stock at a price of $16.00 per share. As a result of the IPO, the Company raised a total of $73.6 million in gross proceeds, or approximately $65.6 million in net proceeds after deducting underwriting discounts and commissions of $5.2 million and offering expenses of approximately $2.8 million. |
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Stock Split | ' |
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Stock Split |
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In July 2013, the Company's board of directors and stockholders approved an amendment to the Company's amended and restated certificate of incorporation. The amendment provided for a 1-for-5.2 reverse stock split of the outstanding common stock and outstanding convertible preferred stock (collectively, "Capital Stock"), which became effective on July 18, 2013. Accordingly, (i) every 5.2 shares of Capital Stock have been combined into one share of Capital Stock, (ii) the number of shares of Capital Stock into which each outstanding option or warrant to purchase Capital Stock is exercisable, as the case may be, have been proportionately decreased on a 5.2-for-1 basis, and (iii) the exercise price for each such outstanding option or warrant to purchase Capital Stock has been proportionately increased on a 1-for-5.2 basis. All of the share numbers, share prices, and exercise prices have been adjusted within these financial statements, on a retroactive basis, to reflect this 1-for-5.2 reverse stock split. |
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Segment Reporting | ' |
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Segment Reporting |
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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, the Chief Executive Officer, in making decisions regarding resource allocation and accessing performance. To date, the Company has viewed its operations and manages its business as one operating segment. |
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Concentrations of Risk | ' |
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Concentrations of Risk |
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The Company's accounts receivable are derived from revenue earned from dealers and distributors primarily located in the United States and Canada. The Company's sales to dealers and distributors located outside the United States are generally denominated in United States dollars, except for sales to dealers and distributors located in the United Kingdom, which are denominated in pounds sterling. There were no individual account balances greater than 10% of total accounts receivable at December 31, 2012 and December 31, 2013. |
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No dealer or distributor accounted for more than 10% of total revenue for the years ended December 31, 2011, 2012 and 2013. |
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The Company relies on a limited number of suppliers for its contract manufacturing. A significant disruption in the operations of these manufacturers would impact the production of the Company's products for a substantial period of time, which could have a material adverse effect on the Company's business, financial condition and results of operations. |
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Geographic Information | ' |
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Geographic Information |
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The Company's revenue includes amounts earned through sales to dealers and distributors located outside of the United States. With the exception of Canada, no single foreign country accounted for more than 10% of total revenue for the years ended December 31, 2011, 2012 and 2013. The following table sets forth revenue from the U.S., Canadian and all other international dealers and distributors combined (in thousands): |
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| | Years Ended December 31, | |
| | 2011 | | 2012 | | 2013 | |
Revenue-United States | | $ | 63,625 | | $ | 69,957 | | $ | 85,525 | |
Revenue-Canada | | | 10,480 | | | 12,453 | | | 14,079 | |
Revenue-all other international sources | | | 19,271 | | | 27,102 | | | 28,907 | |
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Total revenue | | $ | 93,376 | | $ | 109,512 | | $ | 128,511 | |
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International revenue (excluding Canada) as a percent of total revenue | | | 21 | % | | 25 | % | | 22 | % |
Use of Accounting Estimates | ' |
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Use of Accounting Estimates |
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The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates including those related to revenue recognition, sales returns, provisions for doubtful accounts, product warranty, inventory obsolescence, litigation, determination of fair value of stock options, deferred tax asset valuation allowances and income taxes. Actual results may differ from those estimates. |
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Product Warranty | ' |
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Product Warranty |
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The Company provides its customers a limited product warranty of two years, which requires the Company to repair or replace (at its option) defective products during the warranty period at no cost to the customer. The Company estimates the costs that may be incurred to replace or repair defective products and records a reserve at the time revenue is recognized. Factors that affect the Company's warranty liability include the number of installed systems, the Company's historical experience and management's judgment regarding anticipated rates of product warranty returns, net of refurbished products. The Company assesses the adequacy of its recorded warranty liability each period and makes adjustments to the liability as necessary. Warranty costs accrued includes amounts accrued for products at the time of shipment, adjustments for changes in estimated costs for warranties on products shipped in the period, and changes in estimated costs for warranties on products shipped in prior periods. It is not practicable for the Company to determine the amounts applicable to each of these components. |
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The following table presents the changes in the product warranty liability (in thousands): |
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| | Years Ended December 31, | |
| | 2011 | | 2012 | | 2013 | |
Balance at the beginning of the period | | $ | 775 | | $ | 1,030 | | $ | 1,155 | |
Warranty costs accrued | | | 727 | | | 1,050 | | | 1,025 | |
Warranty claims | | | (472 | ) | | (925 | ) | | (967 | ) |
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Balance at the end of the period | | $ | 1,030 | | $ | 1,155 | | $ | 1,213 | |
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Fair Value of Financial Instruments | ' |
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Fair Value of Financial Instruments |
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The carrying amounts reported in the accompanying consolidated financial statements for cash and cash equivalents, accounts payable and accrued liabilities approximate their fair value because of the short-term nature of the accounts. The fair value of the notes payable approximates its carrying value based on the variable nature of interest rates and current market rates available to the Company. |
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Net Income (Loss) Per Share | ' |
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Net Income (Loss) Per Share |
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Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted-average number of common shares outstanding and potentially dilutive common shares outstanding during the period that have a dilutive effect on net income per share. Potentially dilutive common shares result from the assumed exercise of outstanding stock options and the assumed conversion of outstanding convertible preferred stock and warrants using the if-converted method. In a net loss position, diluted net loss per share is computed using only the weighted-average number of common shares outstanding during the period, as any additional common shares would be anti-dilutive. |
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The following table presents the reconciliation of the numerator and denominator used in the calculation of basic and diluted net income (loss) per share (in thousands): |
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| | Years Ended December 31, | |
| | 2011 | | 2012 | | 2013 | |
Numerator: | | | | | | | | | | |
Net income (loss) | | $ | (3,885 | ) | $ | (3,723 | ) | $ | 3,503 | |
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Denominator: | | | | | | | | | | |
Weighted average common stock outstanding for basic net income (loss) per common share | | | 1,923 | | | 2,360 | | | 10,609 | |
Effect of dilutive securities—stock options, convertible preferred stock, and warrants to purchase common stock and preferred stock | | | — | | | — | | | 11,654 | |
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Weighted average common shares and dilutive securities outstanding | | | 1,923 | | | 2,360 | | | 22,263 | |
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The following weighted-average common stock equivalents were anti-dilutive and therefore were excluded from the calculation of diluted net income (loss) per share (in thousands): |
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| | Years Ended December 31, | |
| | 2011 | | 2012 | | 2013 | |
Convertible preferred stock | | | 15,257 | | | 15,294 | | | — | |
Options to purchase common stock | | | 3,953 | | | 4,317 | | | 356 | |
Warrants to purchase common stock | | | 510 | | | 541 | | | 1 | |
Warrants to purchase preferred stock | | | 194 | | | 194 | | | — | |
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Total | | | 19,914 | | | 20,346 | | | 357 | |
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Revenue Recognition | ' |
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Revenue Recognition |
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The Company sells its products through a network of independent dealers, regional and national retailers and distributors. These dealers, retailers and distributors generally sell the Company's products to the end consumer as part of a bundled sale, which typically includes other third-party products and related services, project design and installation services and on-going support. |
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The Company's products include embedded software that is essential to the functionality of the hardware. Accordingly, the hardware and embedded software are accounted for as a single deliverable. In 2013, the Company began bundling MyHome software licenses with its new controllers. These software licenses do not include acceptance provisions, rights to updates (e.g., when-and-if-available enhancements or upgrades to the functionality of the software) or post-contract customer support such as technical support. When a software license and controller are sold together, a multiple element arrangement exists and revenue is allocated to each deliverable based on relative selling prices. Typically, delivery of both the product and the software license occurs at the same time. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collection is reasonably assured. Product or licensed software is considered delivered once it has been shipped and title and risk of loss have been transferred. For most of the Company's product sales, these criteria are met at the time the product is shipped. |
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The Company records estimated reductions to revenue for dealer, retailer and distributor incentives, primarily comprised of volume rebates, at the time of the initial sale. The estimated reductions to revenue for rebates are based on the sales terms and the Company's historical experience and trend analysis. The most common incentive relates to amounts paid or credited to dealers and distributors for achieving defined volume levels or growth objectives. |
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Software license revenue represents fees earned from activating applications which allow end consumers to manage and control their automation systems using tablets, smartphones and other third-party devices. Software products such as Composer Home and Media Editions are sold on a limited basis and do not constitute a significant portion of revenue. The Company's perpetual software licenses do not include acceptance provisions, rights to updates or upgrades or post-contract customer support such as technical support; the Company generally recognizes revenue at the time the software license is provided. |
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The Company offers a subscription service that allows consumers to control and monitor their homes remotely and allows the Company's dealers to perform remote diagnostic services. Subscription revenue is deferred at the time of payment and recognized on a straight-line basis over the period the service is provided. |
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Total revenue for subscription services represents less than 10% of total revenue for all periods presented. |
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The Company recognizes revenue net of cost of revenue for third-party products sold through the Company's online ordering system. While the Company assumes credit risk on sales to its dealers and distributors for third-party products, the Company does not determine the product selling price, does not retain associated inventory risks and is not the primary obligor to the end consumer. |
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The Company's agreements with dealers and distributors generally do not include rights of return or acceptance provisions. Even though contractual agreements do not provide return privileges, there are circumstances in which the Company will accept returns. In addition, agreements with certain retail distributors contain price protection and limited rights of return. The Company maintains a reserve for such returns based on the Company's historical return experience. |
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Shipping charges billed to dealers and distributors are included in revenue and related shipping costs are included in cost of revenue. |
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Cost of Revenue | ' |
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Cost of Revenue |
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Cost of revenue includes the following: the cost of inventory sold during the period, inventory write-down costs, payroll and other direct installation services costs, purchasing costs, royalty obligations, shipping expenses to dealers and distributors and warehousing costs, which include inbound freight costs from manufacturers, rent and payroll and benefit costs. |
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Cash and Cash Equivalents | ' |
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Cash and Cash Equivalents |
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The Company considers all highly liquid short-term investments with original maturities of three months or less at the time of purchase to be cash equivalents. Cash equivalents consist primarily of money market funds. |
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Allowance for Doubtful Accounts | ' |
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Allowance for Doubtful Accounts |
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The Company extends credit to the majority of its dealers and distributors, which consist primarily of small, local businesses. Issuance of credit is based on ongoing credit evaluations by the Company of dealers' and distributors' financial condition and generally requires no collateral. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company maintains an allowance for doubtful accounts to reserve for potential uncollectible receivables. The allowance is based upon the creditworthiness of the Company's dealers and distributors, the dealers' and distributors' historical payment experience, the age of the receivables and current market and economic conditions. Provisions for potentially uncollectible accounts are recorded in sales and marketing expenses. The Company writes off accounts receivable balances to the allowance for doubtful accounts when it becomes likely that they will not be collected. |
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The following table presents the changes in the allowance for doubtful accounts (in thousands): |
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| | Years Ended December 31, | |
| | 2011 | | 2012 | | 2013 | |
Balance at beginning of period | | $ | 619 | | $ | 651 | | $ | 643 | |
Provision | | | 283 | | | 184 | | | 159 | |
Deductions | | | (251 | ) | | (192 | ) | | (197 | ) |
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Balance at end of period | | $ | 651 | | $ | 643 | | $ | 605 | |
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Inventories | ' |
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Inventories |
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Inventories consist of hardware and related component parts and are stated at the lower of cost or market using the first-in, first-out method. The Company periodically assesses the recoverability of its inventory and reduces the carrying value of the inventory when items are determined to be obsolete, defective or in excess of forecasted sales requirements. Inventory write-downs for excess, defective and obsolete inventory are recorded as a cost of revenue and totaled $1.3 million, $1.5 million, and $2.3 million for the years ended December 31, 2011, 2012 and 2013, respectively. |
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In December 2012, the Company finalized termination of a sales contract and, as a result of the contract termination, recorded a $1.8 million expense associated with an anticipated loss on firm purchase commitments for components that would have been required to meet the Company's obligations under the terminated contract. The $1.8 million charge has been recorded as Cost of Revenue—Inventory Purchase Commitment in the accompanying consolidated statement of operations during the year ended December 31, 2012. |
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In 2013, the Company recorded a gain related to inventory purchase commitments of approximately $0.4 million, as the proceeds from liquidating the underlying inventory and the Company's ability to consume common components exceeded original estimates. |
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Property and Equipment | ' |
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Property and Equipment |
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Property and equipment are recorded at historical cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the following estimated useful lives: |
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Furniture and fixtures | | 2 - 5 years | | | | | | | | |
Manufacturing tooling and test equipment | | 2 - 3 years | | | | | | | | |
Lab and warehouse equipment | | 2 - 4 years | | | | | | | | |
Computer equipment and software | | 3 - 4 years | | | | | | | | |
Marketing equipment | | 2 - 3 years | | | | | | | | |
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Maintenance and repairs that do not extend the life of or improve the asset are expensed in the year incurred. Leasehold improvements are depreciated over the estimated useful life (usually 3-5 years) or the life of the associated lease, whichever is less. |
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Intangible Assets | ' |
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Intangible Assets |
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Intangible assets primarily consist of acquired technology. The Company amortizes, to cost of revenue, definite-lived intangible assets on a straight-line basis over the life of the technology. |
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Impairment of Long-Lived Assets | ' |
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Impairment of Long-Lived Assets |
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The carrying value of long-lived assets is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. An impairment loss is recognized when the carrying amount of an asset exceeds the estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be recorded is calculated by the excess of the asset's carrying value over its fair value. Fair value is generally determined using a discounted cash flow analysis. |
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Redeemable Convertible Preferred Stock Warrant | ' |
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Redeemable Convertible Preferred Stock Warrant |
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Freestanding warrants and other similar instruments related to shares that are redeemable are accounted for in accordance with ASC 480, "Distinguishing Liabilities and Equity." Under ASC 480, freestanding warrants that relate to the Company's redeemable convertible preferred stock are classified as a liability on the balance sheet. The warrant to purchase Series G-1 redeemable convertible preferred stock was subject to re-measurement at each balance sheet date and any change in fair value was recognized as a component of other income or expense. Fair value was measured using the Black-Scholes option pricing model. The Company continued to adjust the liability for changes in fair value until the closing of its initial public offering, at which time the redeemable convertible preferred stock warrants were exercised and converted into common stock and, accordingly, the liability was reclassified to equity. |
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Foreign Currency Translation | ' |
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Foreign Currency Translation |
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The functional currency of the Company's subsidiaries in England, China, Hong Kong and India are the pound sterling, the Chinese Yuan, the Hong Kong Dollar and the Indian Rupee, respectively. The subsidiary's assets and liabilities have been translated to U.S. dollars using the exchange rates in effect at the balance sheet dates. Statements of operations amounts have been translated using the average exchange rate for each year. Resulting gains or losses from translating foreign currency financial statements are recorded as other comprehensive income (loss). Foreign currency transaction gains (losses) resulting from exchange rate fluctuations on transactions denominated in a currency other than the local currency are included in earnings and have not been material for the years ended December 31, 2011, 2012 or 2013. |
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Stock-Based Compensation | ' |
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Stock-Based Compensation |
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The Company recognizes compensation expense for all stock-based awards issued to employees and directors based on estimated grant date fair values. The Company selected the Black-Scholes option-pricing model to determine the estimated fair value at the date of grant for stock options. The Company elected to amortize compensation expense using the straight-line attribution method, under which stock-based compensation expense is recognized on a straight-line basis over the period the employee performs the related services, generally the vesting period of four years, net of estimated forfeitures. The Company has estimated forfeiture rates based on its historical experience and will update the rates, as necessary, in subsequent periods if actual forfeitures differ from initial estimates. |
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The Black-Scholes option-pricing model requires management assumptions regarding various factors that require extensive use of accounting judgment and financial estimates. The Company estimates the expected term for options using the simplified method, which utilizes the weighted average expected life of each tranche of the stock option, determined based on the sum of each tranche's vesting period plus one-half of the period from the vesting date of each tranche to the stock option's expiration, because the Company's options are considered "plain vanilla." The Company computed the expected volatility using multiple peer companies for a period approximating the expected term. The risk-free interest rate was determined using the implied yield on U.S. Treasury issues with a remaining term within the expected life of the award. |
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The Company accounts for stock-based instruments and awards issued to non-employees at fair value using the Black-Scholes option-pricing model. Management believes that the fair value of the stock-based awards is more reliably measured than the fair value of the services received. The fair value of each non-employee award is re-measured each period until a commitment date is reached, which is generally the vesting date. |
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Income Taxes | ' |
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Income Taxes |
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The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to the differences between the financial statement carrying value of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the fiscal year in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. |
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The Company operates in various tax jurisdictions and is subject to audit by various tax authorities. The Company provides for tax contingencies whenever it is deemed probable that a tax asset has been impaired or a tax liability has been incurred for events such as tax claims or changes in tax laws. Tax contingencies are based upon their technical merits, relative tax law and the specific facts and circumstances as of each reporting period. Changes in facts and circumstances could result in material changes to the amounts recorded for such tax contingencies. |
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The Company recognizes uncertain income tax positions taken on income tax returns at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. |
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The Company's policy for recording interest and penalties associated with uncertain tax positions is to record such items as a component of its income tax provision. During the years ended December 31, 2011, 2012 and 2013, we did not record any material interest income, interest expense or penalties related to uncertain tax positions or the settlement of audits for prior periods. |
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Presentation of Certain Taxes | ' |
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Presentation of Certain Taxes |
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The Company collects various taxes from dealers and distributors and remits these amounts to the applicable taxing authorities. The Company's accounting policy is to exclude these taxes from revenue and cost of revenue. |
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Research and Development | ' |
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Research and Development |
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Research and development expenses consist primarily of personnel costs, including incentive compensation, depreciation associated with research and development equipment, contract labor and consulting services, facilities-related costs, and travel-related costs. Research and development costs are expensed as incurred. |
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Recent Accounting Pronouncements | ' |
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Recent Accounting Pronouncements |
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In February 2013, the FASB issued ASU 2013-02, "Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." The amended guidance requires an entity to present the effects on the line items of net income of significant reclassifications out of accumulated other comprehensive income if the amount being reclassified is required under U.S. generally accepted accounting principles to be reclassified in its entirety to net income in the same reporting period. The guidance is effective prospectively for the reporting periods beginning after December 15, 2012. This new guidance was effective for the Company beginning January 1, 2013. The adoption of this guidance did not have an impact on the Company's results of operations, financial position, or cash flows as it relates only to financial statement presentation. |
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