4.	Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements

In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2017-12, Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”), which is intended to allow companies to better align risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results by expanding and refining hedge accounting for both nonfinancial and financial risk components and aligning the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The guidance is effective for fiscal years beginning after December 15, 2018. The Company is evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption. This guidance is effective for the Company beginning with its fiscal year 2020.

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718) - Scope of Modification Accounting (“ASU 2017-09”) which amends the scope of modification accounting for share-based payment arrangements and provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. The guidance is effective prospectively for fiscal years beginning after December 15, 2017, and interim periods within that reporting period. Early adoption is permitted, including adoption in any interim period. The Company does not expect the adoption of this guidance to have a material effect on our financial statements. This guidance will be effective for the Company beginning with its fiscal year 2019.

In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which provides guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures. This guidance will become effective for the Company beginning with its fiscal year 2019.

In February 2016, the FASB issued ASU No. 2016-02 (Topic 842), Leases (“ASU 2016-02”) which requires the identification of arrangements that should be accounted for as leases by lessees. In general, for lease arrangements exceeding a twelve month term, these arrangements must now be recognized as assets and liabilities on the balance sheet of the lessee. Under ASU 2016-02, a right-of-use asset and lease obligation will be recorded for all leases, whether operating or financing, while the statement of operations will reflect lease expense for operating leases and amortization/interest expense for financing leases. The balance sheet amount recorded for existing leases at the date of adoption of ASU 2016-02 must be calculated using the applicable incremental borrowing rate at the date of adoption. In addition, ASU 2016-02 requires the use of the modified retrospective method, which will require adjustment to all comparative periods presented in the consolidated financial statements. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures. This guidance will become effective for the Company beginning with its fiscal year 2020.

Recently Adopted Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), to clarify the principles of recognizing revenue and create common revenue recognition guidance between U.S. GAAP and International Financial Reporting Standards. Under ASU 2014-09, revenue is recognized when a customer obtains control of promised goods or services and is recognized at an amount that reflects the consideration expected to be received in exchange for such goods or services. In addition, ASU 2014-09 requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

The Company adopted Topic 606 on July 1, 2017, using the full retrospective method. This adoption primarily affected the Company’s accounting for distributor and resellers revenues from a primarily “sell-through” model, where revenue is recognized upon the sale from the distribution channel to the end customer, to the “sell-in” method where revenue is recognized upon transfer of control to its customers, including distributors. Under the sell-in method, the Company is required to make estimates at the time of shipment to its distributors of variable consideration as well as estimated returns under stock rotation rights granted to the distributors. Additionally, the Company capitalizes contract acquisition costs such as commissions paid for maintenance services contracts in excess of one year. Following the adoption of ASU 2014-09, the revenue recognition for the Company’s other sales arrangements remained materially consistent with our historical practice.

Upon adoption of Topic 606, we applied the standard’s practical expedients that allows a) an entity to use the transaction price at the date the contract was completed rather than estimating variable consideration amounts in the comparative reporting periods, b) that permits the omission of prior-period information about our performance obligations, and c) that allows the Company to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price to the satisfied and unsatisfied performance obligations.

See the tables at the end of this note for the effects of the adoption of ASU 2014-09 on our condensed consolidated financial statements as of June 30, 2017, and for the three months ended September 30, 2016. See Note 3. “Summary of Significant Accounting Policies” to our condensed consolidated financial statements for further discussion of the effects of the adoption of ASU 2014-09 on our significant accounting policies.

Adjustments to Previously Reported Financial Statements from the Adoption of Accounting Pronouncements

The following table presents the effect of the adoption of ASU 2014-09 on our condensed consolidated balance sheet (unaudited) as of June 30, 2017, (in thousands):

	As of June 30, 2017
	As Reported			Adjustment			As Adjusted
Accounts receivable, net	$	120,770		$	(27,655	)	$	93,115
Inventories		45,880			1,530			47,410
Total current assets		324,967			(26,125	)		298,842
Other assets		22,586			2,479			25,065
Total assets		483,346			(23,646	)		459,700

Accrued warranty		10,007			577			10,584
Other accrued liabilities		36,713			331			37,044
Deferred distributors revenue, net of cost of sales to distributors		43,525			(43,525	)		—
Total current liabilities		255,822			(42,617	)		213,205

Accumulated deficit		(800,257	)		18,971			(781,286	)
Total stockholders’ equity		106,707			18,971			125,678
Total liabilities and stockholders’ equity	$	483,346		$	(23,646	)	$	459,700

The following table presents the effect of the adoption of ASU 2014-09 on our condensed consolidated statements of operations (unaudited) for the three months ended September 30, 2016 (in thousands, except per share amounts):

	Three months ended September 30, 2016
	As Reported			Adjustment			As Adjusted
Net revenues
Product	$	90,131		$	(38	)	$	90,093
Service		32,511			—			32,511
Total net revenues		122,642			(38	)		122,604

Cost of revenues
Product		44,927			(678	)		44,249
Service		12,469			—			12,469
Total cost of revenues		57,396			(678	)		56,718

Gross profit
Product		45,204			640			45,844
Service		20,042			—			20,042
Total Gross profit		65,246			640			65,886

Sales and marketing expenses		36,956			(97	)		36,859
Operating loss		(4,759	)		737			(4,022	)
Net loss before tax		(5,572	)		737			(4,835	)

Net loss	$	(6,479	)	$	737		$	(5,742	)

Basic and diluted net loss per share
Net loss per share - basic	$	(0.06	)				$	(0.05	)
Net loss per share - diluted	$	(0.06	)				$	(0.05	)

Shares used in per share calculation - basic		105,955						105,955
Shares used in per share calculation - diluted		105,955						105,955

The following table presents the effect of the adoption of ASU 2014-09 on our condensed consolidated statement of cash flows (unaudited) for the three months ended September 30, 2016 (in thousands):

	Three months ended September 30, 2016
	As Reported			Adjustment			As Adjusted
Cash flows from operating activities
Net loss	$	(6,479	)	$	737		$	(5,742	)
Changes in operating assets and liabilities, net
Accounts receivable		12,950			3,656			16,606
Inventories		(2,405	)		(907	)		(3,312	)
Prepaid and other assets		1,562			(97	)		1,465
Deferred distributors revenue, net of cost of sales to distributors		3,412			(3,412	)		—
Other current and long term liabilities		(842	)		23			(819	)
Net cash provided by operating activities		9,574			—			9,574
Cash flows from investing activities		(1,635	)		—			(1,635	)
Cash flows from financing activities		166			—			166
Foreign currency effect on cash		38			—			38
Net increase in cash and cash equivalents	$	8,143		$	—		$	8,143