PRSS 2017 Annual Report

53 Concentration of Credit Risk and Other Risks and Uncertainties We continually monitor our position with, and the credit quality of, the financial institutions that are counterparties to our financial instruments. Our products and services are concentrated in the e-commerce industry, which is highly competitive and rapidly changing. Our net revenue is settled primarily through credit cards, and to a lesser extent, amounts invoiced to fulfillment services customers and group-buying service providers. For all periods presented, the substantial majority of net revenuewere settled through payments by credit card and for the years ended December 31, 2017 and 2016, no customer accounted for more than 10% of total net revenue. Credit card receivables settle relatively quickly, and we maintain allowances for potential credit losses based on historical experience. To date, such losses have not been material and have been within management’s expectations. Our trade accounts receivable is derived primarily from customers located in the United States and consist primarily of amounts due from partners and group-buying service providers. We perform an initial credit evaluation at the inception of a contract and regularly evaluate our ability to collect outstanding customer invoices. No customers accounted for more than 10%of total accounts receivable as of December 31, 2017 and 2016. Our accounts payable is settled based on contractual payment terms with our suppliers. One supplier accounted for 10%of accounts payable as of December 31, 2017 and 2016. Minimum Royalty and Content License Commitments We pay royalties to branded content owners for the use of their content on our products. Royalty-based obligations are generally either paid in advance and capitalized on the balance sheet as prepaid royalties or accrued as incurred and subsequently paid. Royalty-based obligations paid in advance are generally non-refundable. Royalty-based obligations are expensed to cost of net revenue at the contractual royalty rate for the relevant product sales on a per transaction basis. Our contracts with some licensors include minimum guaranteed royalty payments, which are payable regardless of the ultimate volume of sales. When no significant performance remains with the licensor, we initially record each of these guarantees as an asset and as a liability at the contractual amount. We record an asset for the right to use the content on its merchandise because it represents a probable future economic benefit. When significant performance remains with the licensor, we record prepaid royalty payments as an asset when actually paid. We recorded royalty assets of $0.4 million and $0.5 million as of December 31, 2017 and 2016, respectively. We recorded a minimum guaranteed liability of $0.3 million and $0.4 million as of December 31, 2017 and 2016, respectively. We classify accrued minimum royalty obligations as current liabilities to the extent they are contractually due within twelve months. Each quarter, we evaluate the realization of our royalty assets as well as any unrecognized guarantees not yet paid to determine amounts that we deemunlikely to be realized through product sales. We use estimates of future revenue in determining the projected net cash flows to evaluate the future realization of royalty assets and guarantees. This evaluation considers the termof the agreement and current and anticipated sales levels, as well as other qualitative factors such as the success of similar content deals. To the extent that this evaluation indicates that the remaining royalty assets and guaranteed royalty payments may not be recoverable, we record an impairment charge to cost of net revenue in the period impairment is indicated. Cost of Net Revenue Cost of net revenue includes materials, shipping, labor, royalties, depreciation and other fixed overhead costs related to manufacturing facilities, as well as outbound shipping and handling costs, including those related to promotional free shipping and subsidized shipping and handling. Royalty payments or commission expense to content owners for transactions where we act as principal and record revenue on a gross basis are included in cost of net revenue and accrued in the period revenue is recognized. Such royalty and commission payments included in cost of net revenue were $5.1 million and $6.2 million for the years ended December 31, 2017 and 2016, respectively. Technology and Development Technology and development costs consist of costs related to engineering, network operations, and information technology, including personnel expenses of employees involved in these roles. Technology and development costs are expensed as incurred