UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2015
OR
|
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
COMMISSION FILE NUMBER: 000-29440
IDENTIV, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
|
DELAWARE |
|
77-0444317 |
|
(STATE OR OTHER JURISDICTION OF |
|
(I.R.S. EMPLOYER |
2201 Walnut Avenue, Suite 310
Fremont, California 94538
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
(949) 250-8888
(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)
N/A
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No þ
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
|
Large accelerated filer ¨ |
|
Accelerated filer ¨ |
|
Non-accelerated filer ¨ |
|
Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
At March 6, 2016, 10,746,911 shares of common stock were outstanding.
Identiv, Inc. is filing this Quarterly Report on Form 10-Q late due to an investigation undertaken by a special committee of the Board of Directors, which investigation was completed in late 2015. For more information, please see Note 14, Subsequent Events, included in Item 1. Unless otherwise indicated, the information in this Quarterly Report on Form 10-Q is as of as June 30, 2015.
2
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Page |
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Item 1. |
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4 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
25 |
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Item 3. |
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37 |
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Item 4. |
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37 |
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Item 1. |
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39 |
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Item 1A. |
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39 |
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Item 2. |
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39 |
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Item 6. |
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39 |
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40 |
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41 |
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3
IDENTIV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited; in thousands, except par value)
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2015 |
|
|
2014 |
|
||
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash |
$ |
30,846 |
|
|
$ |
36,547 |
|
|
Accounts receivable, net of allowances of $301 and $156 as of June 30, 2015 and December 31, 2014, respectively |
|
13,004 |
|
|
|
13,612 |
|
|
Inventories |
|
12,475 |
|
|
|
9,254 |
|
|
Prepaid expenses |
|
1,215 |
|
|
|
1,002 |
|
|
Other current assets |
|
3,527 |
|
|
|
1,200 |
|
|
Total current assets |
|
61,067 |
|
|
|
61,615 |
|
|
Property and equipment, net |
|
4,954 |
|
|
|
5,311 |
|
|
Goodwill |
|
7,783 |
|
|
|
8,853 |
|
|
Intangible assets, net |
|
8,003 |
|
|
|
8,730 |
|
|
Other assets |
|
1,126 |
|
|
|
1,371 |
|
|
Total assets |
$ |
82,933 |
|
|
$ |
85,880 |
|
|
LIABILITIES AND STOCKHOLDERS´ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
$ |
8,732 |
|
|
$ |
8,372 |
|
|
Earn-out liability |
|
— |
|
|
|
3,510 |
|
|
Current portion - payment obligation |
|
659 |
|
|
|
635 |
|
|
Deferred revenue |
|
4,235 |
|
|
|
508 |
|
|
Accrued compensation and related benefits |
|
2,113 |
|
|
|
2,139 |
|
|
Other accrued expenses and liabilities |
|
5,000 |
|
|
|
4,471 |
|
|
Total current liabilities |
|
20,739 |
|
|
|
19,635 |
|
|
Long-term payment obligation |
|
5,218 |
|
|
|
5,545 |
|
|
Long-term financial liabilities |
|
18,017 |
|
|
|
13,938 |
|
|
Other long-term liabilities |
|
485 |
|
|
|
630 |
|
|
Total liabilities |
|
44,459 |
|
|
|
39,748 |
|
|
Commitments and contingencies (see Note 12) |
|
|
|
|
|
|
|
|
Stockholders´ equity: |
|
|
|
|
|
|
|
|
Identiv, Inc. stockholders' equity: |
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value: 10,000 shares authorized; none issued and outstanding |
|
— |
|
|
|
— |
|
|
Common stock, $0.001 par value: 130,000 shares authorized; 11,365 and 10,884 shares issued and 11,056 and 10,640 shares outstanding as of June 30, 2015 and December 31, 2014, respectively |
|
11 |
|
|
|
11 |
|
|
Additional paid-in capital |
|
394,312 |
|
|
|
389,401 |
|
|
Treasury stock, 308 and 244 shares as of June 30, 2015 and December 31, 2014, respectively |
|
(5,222 |
) |
|
|
(4,572 |
) |
|
Accumulated deficit |
|
(351,597 |
) |
|
|
(338,670 |
) |
|
Accumulated other comprehensive income |
|
1,119 |
|
|
|
1,699 |
|
|
Total Identiv, Inc. stockholders' equity |
|
38,623 |
|
|
|
47,869 |
|
|
Noncontrolling interest |
|
(149 |
) |
|
|
(1,737 |
) |
|
Total stockholders´ equity |
|
38,474 |
|
|
|
46,132 |
|
|
Total liabilities and stockholders´equity |
$ |
82,933 |
|
|
$ |
85,880 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
IDENTIV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
||||
|
Net revenue |
|
$ |
15,587 |
|
|
$ |
22,301 |
|
|
$ |
30,521 |
|
|
$ |
39,155 |
|
|
Cost of revenue |
|
|
8,941 |
|
|
|
13,371 |
|
|
|
17,791 |
|
|
|
23,623 |
|
|
Gross profit |
|
|
6,646 |
|
|
|
8,930 |
|
|
|
12,730 |
|
|
|
15,532 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
2,340 |
|
|
|
1,731 |
|
|
|
4,332 |
|
|
|
3,233 |
|
|
Selling and marketing |
|
|
5,467 |
|
|
|
5,731 |
|
|
|
10,462 |
|
|
|
10,766 |
|
|
General and administrative |
|
|
5,536 |
|
|
|
2,867 |
|
|
|
8,601 |
|
|
|
5,910 |
|
|
Impairment of goodwill |
|
|
988 |
|
|
|
— |
|
|
|
988 |
|
|
|
— |
|
|
Restructuring and severance |
|
|
21 |
|
|
|
612 |
|
|
|
193 |
|
|
|
1,049 |
|
|
Total operating expenses |
|
|
14,352 |
|
|
|
10,941 |
|
|
|
24,576 |
|
|
|
20,958 |
|
|
Loss from operations |
|
|
(7,706 |
) |
|
|
(2,011 |
) |
|
|
(11,846 |
) |
|
|
(5,426 |
) |
|
Non-operating income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(465 |
) |
|
|
(506 |
) |
|
|
(889 |
) |
|
|
(2,590 |
) |
|
Foreign currency gain (loss), net |
|
|
51 |
|
|
|
(159 |
) |
|
|
(176 |
) |
|
|
(252 |
) |
|
Loss from continuing operations before income taxes and noncontrolling interest |
|
|
(8,120 |
) |
|
|
(2,676 |
) |
|
|
(12,911 |
) |
|
|
(8,268 |
) |
|
Income tax provision |
|
|
(63 |
) |
|
|
9 |
|
|
|
(82 |
) |
|
|
(55 |
) |
|
Loss from continuing operations before noncontrolling interest |
|
|
(8,183 |
) |
|
|
(2,667 |
) |
|
|
(12,993 |
) |
|
|
(8,323 |
) |
|
Income from discontinued operations, net of income taxes |
|
|
— |
|
|
|
57 |
|
|
|
— |
|
|
|
544 |
|
|
Consolidated net loss |
|
|
(8,183 |
) |
|
|
(2,610 |
) |
|
|
(12,993 |
) |
|
|
(7,779 |
) |
|
Less: Loss attributable to noncontrolling interest |
|
|
(1 |
) |
|
|
(6 |
) |
|
|
66 |
|
|
|
35 |
|
|
Net loss attributable to Identiv, Inc. stockholders´ equity |
|
$ |
(8,184 |
) |
|
$ |
(2,616 |
) |
|
$ |
(12,927 |
) |
|
$ |
(7,744 |
) |
|
Basic and diluted net income (loss) per share attributable to Identiv, Inc. stockholders´ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
$ |
(0.75 |
) |
|
$ |
(0.34 |
) |
|
$ |
(1.20 |
) |
|
$ |
(1.07 |
) |
|
Income from discontinued operations |
|
|
— |
|
|
|
0.01 |
|
|
|
— |
|
|
|
0.07 |
|
|
Net loss |
|
$ |
(0.75 |
) |
|
$ |
(0.33 |
) |
|
$ |
(1.20 |
) |
|
$ |
(1.00 |
) |
|
Weighted average shares used to compute basic and diluted loss per share |
|
|
10,912 |
|
|
|
7,907 |
|
|
|
10,804 |
|
|
|
7,739 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
IDENTIV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(unaudited)
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
||||
|
Consolidated net loss |
|
$ |
(8,183 |
) |
|
$ |
(2,610 |
) |
|
$ |
(12,993 |
) |
|
$ |
(7,779 |
) |
|
Other comprehensive income (loss), net of income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
64 |
|
|
|
72 |
|
|
|
(142 |
) |
|
|
181 |
|
|
Foreign currency translation reclassified into net loss upon acquisition of noncontrolling interest |
|
|
— |
|
|
|
— |
|
|
|
(444 |
) |
|
|
— |
|
|
Total other comprehensive income (loss), net of income taxes |
|
|
64 |
|
|
|
72 |
|
|
|
(586 |
) |
|
|
181 |
|
|
Consolidated comprehensive loss |
|
|
(8,119 |
) |
|
|
(2,538 |
) |
|
|
(13,579 |
) |
|
|
(7,598 |
) |
|
Less: Comprehensive (income) loss attributable to noncontrolling interest |
|
|
— |
|
|
|
(18 |
) |
|
|
72 |
|
|
|
21 |
|
|
Comprehensive loss attributable to Identiv, Inc. common stockholders |
|
$ |
(8,119 |
) |
|
$ |
(2,556 |
) |
|
$ |
(13,507 |
) |
|
$ |
(7,577 |
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
IDENTIV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
Six Months Ended June 30, 2015
(In thousands)
(unaudited)
|
|
|
Identiv, Inc. Stockholders´ Equity |
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
Accumulated Other |
|
|
|
|
|
|
|
|
|
||
|
|
|
Common Stock |
|
|
Paid-in |
|
|
Treasury |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Noncontrolling |
|
|
Total |
|
|||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Stock |
|
|
Deficit |
|
|
Income |
|
|
Interest |
|
|
Equity |
|
||||||||
|
Balances, December 31, 2014 |
|
|
10,640 |
|
|
$ |
11 |
|
|
$ |
389,401 |
|
|
$ |
(4,572 |
) |
|
$ |
(338,670 |
) |
|
$ |
1,699 |
|
|
$ |
(1,737 |
) |
|
$ |
46,132 |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12,927 |
) |
|
|
— |
|
|
|
(66 |
) |
|
|
(12,993 |
) |
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(136 |
) |
|
|
(6 |
) |
|
|
(142 |
) |
|
Issuance of common stock in connection with settlement of earn-out |
|
|
326 |
|
|
|
— |
|
|
|
3,510 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,510 |
|
|
Issuance of common stock to acquire share of noncontrolling interest |
|
|
95 |
|
|
|
— |
|
|
|
(1,216 |
) |
|
|
— |
|
|
|
— |
|
|
|
(444 |
) |
|
|
1,660 |
|
|
|
— |
|
|
Issuance of common stock in connection with exercise of options and vesting of stock awards |
|
|
58 |
|
|
|
— |
|
|
|
46 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
46 |
|
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
2,571 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,571 |
|
|
Repurchase of common stock |
|
|
(63 |
) |
|
|
— |
|
|
|
— |
|
|
|
(650 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(650 |
) |
|
Balances, June 30, 2015 |
|
|
11,056 |
|
|
$ |
11 |
|
|
$ |
394,312 |
|
|
$ |
(5,222 |
) |
|
$ |
(351,597 |
) |
|
$ |
1,119 |
|
|
$ |
(149 |
) |
|
$ |
38,474 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
IDENTIV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
|
|
|
Six Months Ended |
|
|||||
|
|
|
June 30, |
|
|||||
|
|
|
2015 |
|
|
2014 |
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(12,993 |
) |
|
$ |
(7,779 |
) |
|
Gain on sale of discontinued operations |
|
|
— |
|
|
|
(449 |
) |
|
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,468 |
|
|
|
1,495 |
|
|
Impairment of goodwill and long-lived assets |
|
|
988 |
|
|
|
— |
|
|
Accretion of interest to related party liability |
|
|
265 |
|
|
|
290 |
|
|
Amortization of debt issuance costs |
|
|
324 |
|
|
|
1,877 |
|
|
Stock-based compensation expense |
|
|
2,571 |
|
|
|
457 |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
3,744 |
|
|
|
(562 |
) |
|
Inventories |
|
|
(3,513 |
) |
|
|
(1,207 |
) |
|
Prepaid expenses and other assets |
|
|
(2,566 |
) |
|
|
(115 |
) |
|
Accounts payable |
|
|
512 |
|
|
|
1,558 |
|
|
Payment obligation liability |
|
|
(568 |
) |
|
|
(555 |
) |
|
Deferred revenue |
|
|
406 |
|
|
|
(185 |
) |
|
Accrued expenses and other liabilities |
|
|
529 |
|
|
|
(1,386 |
) |
|
Net cash used in operating activities |
|
|
(8,833 |
) |
|
|
(6,561 |
) |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(410 |
) |
|
|
(544 |
) |
|
Proceeds from sale of business |
|
|
— |
|
|
|
1,286 |
|
|
Net cash (used in) provided by investing activities |
|
|
(410 |
) |
|
|
742 |
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt, net of issuance costs |
|
|
4,000 |
|
|
|
16,000 |
|
|
Proceeds from capital raise, net of issuance costs |
|
|
— |
|
|
|
4,171 |
|
|
Proceeds from issuance of common stock under employee stock purchase plan and options and warrants exercised |
|
|
46 |
|
|
|
46 |
|
|
Payments on financial liabilities |
|
|
— |
|
|
|
(7,211 |
) |
|
Repurchase of common stock |
|
|
(650 |
) |
|
|
— |
|
|
Net cash provided by financing activities |
|
|
3,396 |
|
|
|
13,006 |
|
|
Effect of exchange rates on cash |
|
|
146 |
|
|
|
227 |
|
|
Net (decrease) increase in cash |
|
|
(5,701 |
) |
|
|
7,414 |
|
|
Cash of continuing operations, at beginning of period |
|
|
36,547 |
|
|
|
5,095 |
|
|
Add: Cash of discontinued operations, at beginning of period |
|
|
— |
|
|
|
16 |
|
|
Less: Cash of discontinued operations, at end of period |
|
|
— |
|
|
|
— |
|
|
Cash of continuing operations, at end of period |
|
$ |
30,846 |
|
|
$ |
12,525 |
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
Common stock issued to settle earn-out obligation |
|
$ |
3,510 |
|
|
$ |
— |
|
|
Common stock issued in connection with stock bonus and incentive plans |
|
$ |
— |
|
|
$ |
356 |
|
|
Common stock issued to acquire share of noncontrolling interest |
|
$ |
1,216 |
|
|
$ |
37 |
|
|
Property and equipment included in accounts payable |
|
$ |
51 |
|
|
$ |
86 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
IDENTIV, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2015
1. Organization and Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements of Identiv, Inc. (“Identiv” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, including normal recurring adjustments, considered necessary for a fair presentation of the Company’s unaudited condensed consolidated financial statements have been included. The results of operations for the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015 or any future period. The information included in this document should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors,” “Quantitative and Qualitative Disclosures About Market Risk,” and the Consolidated Financial Statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. The preparation of unaudited condensed consolidated financial statements necessarily requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the condensed consolidated balance sheet dates and the reported amounts of revenues and expenses for the periods presented. The Company may experience significant variations in demand for its products quarter to quarter and typically experiences a stronger demand cycle in the second half of its fiscal year. As a result, the quarterly results may not be indicative of the full year results. The December 31, 2014 balance sheet was derived from the audited financial statements as of that date.
Concentration of Credit Risk — One customer represented 13% of net revenue for the three months ended June 30, 2015. One customer represented 17% of net revenue for the six months ended June 30, 2015. One customer represented 31% and 24% of net revenue for the three and six months ended June 30, 2014. One customer represented approximately 25% of the Company’s accounts receivable balance, and at December 31, 2014, two customers each accounted for approximately 12% of the Company’s accounts receivable balance.
Discontinued Operations — Financial information related to certain divested businesses of the Company is reported as discontinued operations for all periods presented as discussed in Note 2, Discontinued Operations. Reclassifications of prior period amounts related to discontinued operations have been made to conform to the current period presentation.
Recent Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement” (ASU 2015-05”), which clarifies the circumstances under which a cloud computing customer would account for the arrangement as a license of internal-use software. ASU 2015-05 is effective for interim and annual reporting periods beginning after December 15, 2015. The Company does not expect the adoption of ASU 2015-05 will have a material impact on its condensed consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”), which changes the presentation of debt issuance costs on the balance sheet by requiring entities to present such costs as a direct deduction from the related debt liability rather than as an asset. ASU 2015-03 is effective for interim and annual reporting periods beginning after December 15, 2015. The Company does not expect the adoption of ASU 2015-03 will have a material impact on its condensed consolidated financial statements.
In January 2015, the FASB issued ASU 2015-01, “Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items” (“ASU 2015-01”). Under ASU 2015-01, an entity will no longer be allowed to separately disclose extraordinary items, net of tax, in the income statement after income from continuing operations if an event or transaction is unusual in nature and occurs infrequently. ASU 2015-01 is effective for interim and annual reporting periods beginning after December 15, 2015 with early adoption permitted. Upon adoption, the Company may elect prospective or retrospective application. The Company does not expect the adoption of ASU 2015-01 will have a material impact on its condensed consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties About an Entity's Ability to Continue as a Going Concern”, (“ASU 2014-15”), which requires management to perform interim and annual assessments on whether there are conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year of the date the financial statements are issued and to provide related disclosures, if required. The amendments in ASU 2014-15 are effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. The Company is currently in the process of evaluating the impact of the adoption on its condensed consolidated financial statements.
9
In May 2014, the FASB issued ASU No. 2014-09 “Revenue from Contracts with Customers" (“ASU 2014-09”), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. In August 2015, the FASB issued ASU 2015-14, “Revenue From Contracts With Customers (Topic 606)” (“ASU 2015-14”), which defers the effective date of ASU 2014-09 by one year to annual periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The new guidance is effective for the Company beginning January 1, 2018 and will provide the Company additional time to evaluate the method and impact that ASU 2014-09 will have on its condensed consolidated financial statements.
2. Discontinued Operations
During the fourth quarter of 2013, the Company’s Board of Directors (the “Board”) committed to a plan designed to simplify the Company’s business structure and to focus on high-growth technology trends within the security market. During the fourth quarter of 2013, the Company committed to sell its Rockwest Technology Group, Inc. d/b/a/ Multicard US (“Multicard US”) subsidiary to George Levy, Matt McDaniel and Hugo Garcia (the “Buyers”), the founders and former owners of the Multicard US business. The sale of the Multicard US subsidiary was completed on February 4, 2014 and was made pursuant to a Share Purchase Agreement dated January 21, 2014 between the Company and the Buyers whereby the Company agreed to sell 80.1% of its holdings in Multicard US, to the Buyers for cash consideration of $1.2 million. Based on the carrying value of the assets and the liabilities attributed to Multicard US on the date of sale, and the estimated costs and expenses incurred in connection with the sale, the Company recorded a gain of $0.5 million, net of income taxes of nil, in the condensed consolidated statement of operations for the three months ended March 31, 2014, which was included in income from discontinued operations, net of income taxes.
On June 30, 2014, the Company entered into an asset purchase agreement with a former employee to sell certain non-core assets consisting of inventory, some prepaid items, certain fully depreciated office equipment and certain intellectual property relating to one of its subsidiaries for cash consideration of $0.1 million. The sale of these non-core assets was completed on July 7, 2014.
In accordance with Accounting Standards Codification (“ASC”) 205-20, Discontinued Operations (“ASC 205”) issued by the FASB, the results of these businesses have been presented as discontinued operations in the condensed consolidated statements of operations for the three and six months ended June 30, 2014.
The key components of income from discontinued operations consist of the following (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
||||
|
Net revenue |
$ |
— |
|
|
$ |
441 |
|
|
$ |
— |
|
|
$ |
1,276 |
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of income taxes of nil |
$ |
— |
|
|
$ |
60 |
|
|
$ |
— |
|
|
$ |
95 |
|
|
Adjustments to amounts reported previously for gain on sale of discontinued operations, net of income taxes of nil |
|
— |
|
|
|
(3 |
) |
|
|
— |
|
|
|
(54 |
) |
|
Gain on sale of discontinued operations, net of income taxes of nil |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
503 |
|
|
Income from discontinued operations, net of income taxes |
$ |
— |
|
|
$ |
57 |
|
|
$ |
— |
|
|
$ |
544 |
|
10
The Company determines the fair values of its financial instruments based on a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The classification of a financial asset or liability within the hierarchy is based upon the lowest level input that is significant to the fair value measurement. Under ASC 820, Fair Value Measurement and Disclosures (“ASC 820”), the fair value hierarchy prioritizes the inputs into three levels that may be used to measure fair value:
|
|
● |
Level 1 – Quoted prices (unadjusted) for identical assets and liabilities in active markets; |
|
|
● |
Level 2 – Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly; and |
|
|
● |
Level 3 – Unobservable inputs. |
Assets and Liabilities Measured at Fair Value on a Recurring Basis
As of June 30, 2015 and December 31, 2014, there were no assets that are measured and recognized at fair value on a recurring basis. There were no cash equivalents as of June 30, 2015 and December 31, 2014.
The Company’s only liability measured at fair value on a recurring basis was the contingent consideration related to the acquisition of idOnDemand, Inc. (“idOnDemand”). The sellers of idOnDemand (the “Selling Shareholders”) were eligible to receive limited earn-out payments (“Earn-out Consideration”) in the form of shares of common stock subject to certain lock-up periods under the terms of the Stock Purchase Agreement dated April 29, 2011 between the Company and the Selling Shareholders of idOnDemand (the “SPA”). The fair value of the Earn-out Consideration was based on achieving certain revenue and profit targets as defined under the SPA. The calculation of the Earn-out Consideration fair value for periods prior to the year ended December 31, 2014 was probability weighted and discounted to reflect the restriction on the resale or transfer of such shares. The valuation of the Earn-out Consideration was classified as a Level 3 measurement as it was based on significant unobservable inputs and involves management judgment and assumptions about achieving revenue and profit targets and discount rates. The unobservable inputs used in the measurement of the Earn-out Consideration were highly sensitive to fluctuations and any changes in the inputs or the probability weighting thereof could significantly change the measured value of the Earn-out Consideration at each reporting period. The number of shares issued to settle the obligation was based on the Company’s 30-calendar day average price of the Company’s common stock immediately preceding the settlement date. Thus, in accordance with ASC 480, Distinguishing Liabilities from Equity, the fair value of the Earn-out Consideration is classified as a liability and is re-measured each reporting period through December 31, 2014, once the number of shares to settle the liability was set, the liability was no longer fair valued with the financial value being deemed the fair value of the shares set for settlement.
For the year ended December 31, 2014, the maximum amount for the Earn-out Consideration was $5.0 million. For the year ended December 31, 2014, the Company engaged a third party independent valuation firm to assist in the determination of the Earn-out Consideration liability. The Company recorded an earn-out obligation of $3.51 million as of December 31, 2014. The Earn-out Consideration liability of $3.51 million was settled during the quarter ended June 30, 2015 by the issuance of common stock to the Selling Shareholders, including the Company’s former CEO and former CFO. The common shares issued have a lock-up period of 12 months from date of issue.
Assets and Liabilities Measured at Fair Value on a Non-recurring Basis
Certain of the Company's assets, including intangible assets, goodwill, and privately-held investments, are measured at fair value on a nonrecurring basis if impairment is indicated. Goodwill and purchased intangible assets are measured at fair value primarily using discounted cash flow projections. During the quarter ended June 30, 2015, the Company noted certain indicators of impairment, including a sustained decline in its stock price and continued reduced performance in its Identity reporting unit. Based on the results of step one of the goodwill impairment analysis, it was determined that the Company’s net adjusted carrying value exceeded its estimated fair value for the Identity reporting unit. As a result, goodwill relating to the Identity segment was determined to be fully impaired resulting in an impairment charge of $1.0 million which was recorded in the condensed consolidated statements of operations for the period. For additional discussion of measurement criteria used in evaluating potential impairment involving goodwill and intangible assets, refer to Note 6, Goodwill and Intangible Assets.
Privately-held investments, which are normally carried at cost, are measured at fair value due to events and circumstances that the Company identified as significantly impacting the fair value of investments. The Company estimates the fair value of its privately-held investments using an analysis of the financial condition and near-term prospects of the investee, including recent financing activities and the investee's capital structure.
As of June 30, 2015 and December 31, 2014, the Company had $0.3 million of privately-held investments measured at fair value on a nonrecurring basis which were classified as a Level 3 asset due to the absence of quoted market prices and inherent lack of
11
liquidity. The Company reviews its investments to identify and evaluate investments that have an indication of possible impairment. The Company adjusts the carrying value for its privately-held investments for any impairment if the fair value is less than the carrying value of the respective assets on an other-than-temporary basis. During the three months ended June 30, 2015, the Company determined that no privately-held investments were impaired. The amount of privately-held investments is included in other assets in the condensed consolidated balance sheets.
As of June 30, 2015 and December 31, 2014, there were no liabilities that are measured and recognized at fair value on a non-recurring basis.
Assets and Liabilities Not Measured at Fair Value
The carrying amounts of the Company's accounts receivable, prepaid expenses and other current assets, accounts payable, financial liabilities and other accrued liabilities approximate fair value due to their short maturities.
4. Stockholders’ Equity
On May 22, 2014, the stockholders approved, and the Company filed a certificate of amendment to its Amended and Restated Certificate of Incorporation with the Secretary of the State of Delaware effecting a one-for-ten reverse stock split. The reverse stock split did not change the par value of the Company’s common stock or the number of preferred stock authorized for issuance.
Common Stock Warrants
In connection with the Company’s entry into a consulting agreement in August 2014, the Company issued a consultant a warrant to purchase up to 85,000 shares of the Company’s common stock at a per share exercise price of $10.70 (the “Consultant Warrant”). One fourth of the shares under the warrant are exercisable for cash three months from the date the Consultant Warrant was issued and quarterly thereafter. The Consultant Warrant expires on August 13, 2019. In the event of an acquisition of the Company, the Consultant Warrant shall terminate and no longer be exercisable as of the closing of the acquisition. As of June 30, 2015, the Consultant Warrant is not fully vested and has not been exercised.
In connection with the Company’s entry into a credit agreement with Opus Bank (“Opus”) as discussed in Note 8, Financial Liabilities, the Company issued Opus a warrant to purchase up to 100,000 shares of the Company’s common stock at a per share exercise price of $9.90 (the “Opus Warrant”). The Opus Warrant is immediately exercisable for cash or by net exercise and expires on March 31, 2019. The shares issuable upon exercise of the Opus Warrant are to be registered at the request of Opus pursuant to the Registration Rights Agreement, dated March 31, 2014 between the Company and Opus. As of June 30, 2015, the Opus Warrant had not been exercised.
On August 14, 2013, in a private placement, the Company issued 834,847 shares of its common stock at a price of $8.50 per share and warrants to purchase an additional 834,847 shares of its common stock at an exercise price of $10.00 per share (the “2013 Private Placement Warrants”) to accredited and other qualified investors (the “Investors”). The 2013 Private Placement Warrants have a term of four years and are exercisable beginning six months following the date of issuance. The number of shares issuable upon exercise of the 2013 Private Placement Warrants is subject to adjustment for any stock dividends, stock splits or distributions by the Company, or upon any merger or consolidation or sale of assets of the Company, tender or exchange offer for the Company’s common stock, or a reclassification of the Company’s common stock.
The Company issued warrants to purchase 409,763 shares of its common stock at an exercise price of $26.50 per share in a private placement to accredited and other qualified investors in November 2010 (the “2010 Private Placement Warrants”). The 2010 Private Placement Warrants are exercisable beginning on the date of issuance and expire on November 14, 2015.
12
Below is the summary of outstanding warrants issued by the Company as of June 30, 2015:
|
Warrant Type |
|
Number of Shares Issuable Upon Exercise |
|
|
Weighted Average Exercise Price |
|
|
Issue Date |
|
Expiration Date |
||
|
Consultant Warrant |
|
|
85,000 |
|
|
$ |
10.70 |
|
|
August 13, 2014 |
|
August 13, 2019 |
|
Opus Warrant |
|
|
100,000 |
|
|
|
9.90 |
|
|
March 31, 2014 |
|
March 31, 2019 |
|
2013 Private Placement Warrants |
|
|
186,878 |
|
|
|
10.00 |
|
|
August 14, 2013 |
|
August 14, 2017 |
|
2010 Private Placement Warrants |
|
|
369,169 |
|
|
|
26.50 |
|
|
November 14, 2010 |
|
November 14, 2015 |
|
Total |
|
|
741,047 |
|
|
|
|
|
|
|
|
|
2011 Employee Stock Purchase Plan
In June 2011, the Company’s stockholders approved the 2011 Employee Stock Purchase Plan (the “ESPP”). On December 18, 2013, the Compensation Committee of the Board suspended the ESPP effective January 1, 2014. No additional shares will be authorized and no shares will be issued under the ESPP until further notice. As of June 30, 2015, there were 293,888 shares reserved for future purchase under the ESPP. Since the ESPP was suspended effective January 1, 2014, there was no stock-based compensation expense resulting from the ESPP included in the condensed consolidated statements of operations for the three and six months ended June 30, 2015 and 2014.
Stock-Based Compensation Plans
The Company has various stock-based compensation plans to attract, motivate, retain and reward employees, directors and consultants by providing its Board or a committee of the Board the discretion to award equity incentives to these persons. The Company’s stock-based compensation plans consist of the Director Option Plan, 1997 Stock Option Plan, 2000 Stock Option Plan, 2007 Stock Option Plan (the “2007 Plan”), the 2010 Bonus and Incentive Plan (the “2010 Plan”) and the 2011 Incentive Compensation Plan (the “2011 Plan”), as amended.
Stock Bonus and Incentive Plans
In June 2010, the Company’s stockholders approved the 2010 Plan which granted cash and equity-based awards to executive officers, directors and other key employees as designated by the Compensation Committee of the Board. An aggregate of 300,000 shares of the Company’s common stock was reserved for issuance under the 2010 Plan as equity-based awards, including shares, nonqualified stock options, restricted stock or deferred stock awards. These awards provide the Company´s executives, directors and other key employees the opportunity to earn shares of common stock depending on the extent to which certain performance goals are met. Since the adoption of the 2011 Plan (described below), the Company utilizes shares from the 2010 Plan only for performance-based awards and all equity awards granted under the 2010 Plan are issued pursuant to the 2011 Plan.
On June 6, 2011, the Company’s stockholders approved the 2011 Plan, which is administered by the Compensation Committee of the Board. The 2011 Plan provides that stock options, stock units, restricted shares, and stock appreciation rights may be granted to executive officers, directors, consultants, and other key employees. The Company reserved 400,000 shares of common stock under the 2011 Plan, plus 459,956 shares of common stock that remained available for delivery under the 2007 Plan and the 2010 Plan as of June 6, 2011. In aggregate, as of June 6, 2011, 859,956 shares were available for future grants under the 2011 Plan, including shares rolled over from the 2007 Plan and 2010 Plan.
13
A summary of activity for the Company’s stock option plans for the six months ended June 30, 2015 follows:
|
|
Number Outstanding |
|
|
Average Exercise Price per Share |
|
|
Weighted Average Remaining Contractual Term (Years) |
|
|
Average Intrinsic Value |
|
||||
|
Balance at December 31, 2014 |
|
897,115 |
|
|
$ |
12.09 |
|
|
|
|
|
|
$ |
3,425,558 |
|
|
Granted |
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Cancelled or Expired |
|
(70,075 |
) |
|
|
18.14 |
|
|
|
|
|
|
|
|
|
|
Exercised |
|
(5,180 |
) |
|
|
8.01 |
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2015 |
|
821,860 |
|
|
$ |
11.60 |
|
|
|
7.12 |
|
|
$ |
59,279 |
|
|
Vested or expected to vest at June 30, 2015 |
|
763,031 |
|
|
$ |
11.80 |
|
|
|
6.98 |
|
|
$ |
53,864 |
|
|
Exercisable at June 30, 2015 |
|
402,168 |
|
|
$ |
14.04 |
|
|
|
5.62 |
|
|
$ |
22,627 |
|
The following table summarizes information about options outstanding as of June 30, 2015:
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
||||||||||||||
|
Range of Exercise Prices |
|
Number Outstanding |
|
|
Weighted Average Remaining Contractual Life (Years) |
|
|
Weighted Average Exercise Price |
|
|
Number Exercisable |
|
|
Weighted Average Exercise Price |
|
|||||
|
$5.20 - $8.40 |
|
|
164,042 |
|
|
|
8.01 |
|
|
$ |
6.40 |
|
|
|
86,282 |
|
|
$ |
6.75 |
|
|
$8.41 - $8.80 |
|
|
249,385 |
|
|
|
8.62 |
|
|
|
8.80 |
|
|
|
79,232 |
|
|
|
8.80 |
|
|
$8.81 - $10.99 |
|
|
168,476 |
|
|
|
8.88 |
|
|
|
10.85 |
|
|
|
12,644 |
|
|
|
9.90 |
|
|
$11.00 - $24.00 |
|
|
175,150 |
|
|
|
4.21 |
|
|
|
14.52 |
|
|
|
159,298 |
|
|
|
14.59 |
|
|
$24.01 - $43.40 |
|
|
64,807 |
|
|
|
2.11 |
|
|
|
29.61 |
|
|
|
64,712 |
|
|
|
29.61 |
|
|
$5.20 - $43.40 |
|
|
821,860 |
|
|
|
7.12 |
|
|
$ |
11.60 |
|
|
|
402,168 |
|
|
$ |
14.04 |
|
At June 30, 2015, there was $1.8 million of unrecognized stock-based compensation expense, net of estimated forfeitures related to unvested options, that is expected to be recognized over a weighted-average period of 2.64 years.
Restricted Stock and Restricted Stock Units
The following is a summary of restricted stock and restricted stock unit (“RSU”) activity for the six months ended June 30, 2015:
|
|
Number Outstanding |
|
|
Weighted Average Fair Value |
|
|
Weighted Average Remaining Contractual Term (Years) |
|
Average Intrinsic Value |
|
|||
|
Balance at December 31, 2014 |
|
542,342 |
|
|
$ |
13.74 |
|
|
|
|
$ |
7,533,132 |
|
|
Granted |
|
285,247 |
|
|
|
12.34 |
|
|
|
|
|
|
|
|
Vested and settled |
|
(52,421 |
) |
|
|
14.53 |
|
|
|
|
|
|
|
|
Forfeited |
|
(25,000 |
) |
|
|
10.54 |
|
|
|
|
|
|
|
|
Balance at June 30, 2015 |
|
750,168 |
|
|
$ |
13.26 |
|
|
1.52 |
|
$ |
4,418,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding - Vested but not released |
|
31,860 |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding - Unvested |
|
718,308 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2015 |
|
750,168 |
|
|
|
|
|
|
|
|
|
|
|
The fair value of the Company’s restricted stock awards and RSUs is calculated based upon the fair market value of the Company’s stock at the date of grant. As of June 30, 2015, there was $6.5 million of unrecognized compensation cost related to
14
unvested RSUs granted, which is expected to be recognized over a weighted average period of 2.91 years. As of June 30, 2015, an aggregate of 718,308 RSUs were outstanding and unvested under the 2011 Plan.
Stock-Based Compensation Expense
The following table illustrates all employee stock-based compensation expense related to stock options and RSUs included in the condensed consolidated statements of operations for the three and six months ended June 30, 2015 and 2014 (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
||||
|
Cost of revenue |
$ |
35 |
|
|
$ |
6 |
|
|
$ |
64 |
|
|
$ |
11 |
|
|
Research and development |
|
70 |
|
|
|
18 |
|
|
|
139 |
|||||