UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2017
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 incorporation or organization) |
(I.R.S. Employer |
|
|
2201 Walnut Avenue, Suite 100 Fremont, California |
94538 |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (949) 250-8888
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 ☐
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 ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
|
☐ |
|
Accelerated filer |
|
☐ |
|
|
|
|
|||
Non-accelerated filer |
|
☐ (Do not check if a small reporting company) |
|
Small reporting company |
|
☒ |
|
|
|
|
|
|
|
Emerging growth company |
|
☐ |
|
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of August 4, 2017, the registrant had 14,068,272 shares of common stock, $0.001 par value per share, outstanding.
|
|
|
Page |
|
|||
Item 1. |
|
3 |
|
|
|
Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016 |
3 |
|
|
4 |
|
|
|
5 |
|
|
|
Condensed Consolidated Statement of Equity for the Six Months Ended June 30, 2017 |
6 |
|
|
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016 |
7 |
|
|
Notes to Unaudited Condensed Consolidated Financial Statements |
8 |
Item 2. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
20 |
Item 3. |
|
29 |
|
Item 4. |
|
29 |
|
|
|
||
|
|||
Item 1. |
|
32 |
|
Item 1A. |
|
33 |
|
|
|
|
|
Item 6. |
|
33 |
|
|
|
||
34 |
|||
35 |
2
IDENTIV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except par value)
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2017 |
|
|
2016 |
|
||
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
17,968 |
|
|
$ |
9,116 |
|
Accounts receivable, net of allowances of $301 and $307 as of June 30, 2017 and December 31, 2016, respectively |
|
|
10,636 |
|
|
|
9,430 |
|
Inventories |
|
|
12,520 |
|
|
|
11,596 |
|
Prepaid expenses and other current assets |
|
|
1,898 |
|
|
|
1,510 |
|
Total current assets |
|
|
43,022 |
|
|
|
31,652 |
|
Property and equipment, net |
|
|
2,005 |
|
|
|
2,416 |
|
Intangible assets, net |
|
|
5,092 |
|
|
|
5,820 |
|
Other assets |
|
|
725 |
|
|
|
712 |
|
Total assets |
|
$ |
50,844 |
|
|
$ |
40,600 |
|
LIABILITIES AND STOCKHOLDERS´ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
8,500 |
|
|
$ |
6,024 |
|
Current portion - payment obligation |
|
|
844 |
|
|
|
786 |
|
Current portion - financial liabilities, net of discount and debt issuance costs of $461 and $180, respectively |
|
|
8,570 |
|
|
|
8,119 |
|
Deferred revenue |
|
|
1,137 |
|
|
|
1,085 |
|
Accrued compensation and related benefits |
|
|
1,412 |
|
|
|
1,520 |
|
Other accrued expenses and liabilities |
|
|
3,425 |
|
|
|
5,032 |
|
Total current liabilities |
|
|
23,888 |
|
|
|
22,566 |
|
Long-term payment obligation |
|
|
3,533 |
|
|
|
3,987 |
|
Long-term financial liabilities, net of discount and debt issuance costs of $1,792 and $221, respectively |
|
|
7,047 |
|
|
|
9,779 |
|
Other long-term liabilities |
|
|
196 |
|
|
|
335 |
|
Total liabilities |
|
|
34,664 |
|
|
|
36,667 |
|
Commitments and contingencies (see Note 11) |
|
|
|
|
|
|
|
|
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: 50,000 shares authorized; 14,830 and 11,836 shares issued and 14,073 and 11,109 shares outstanding as of June 30, 2017 and December 31, 2016, respectively |
|
|
14 |
|
|
|
11 |
|
Additional paid-in capital |
|
|
415,105 |
|
|
|
400,266 |
|
Treasury stock, 757 and 727 shares as of June 30, 2017 and December 31, 2016, respectively |
|
|
(6,862 |
) |
|
|
(6,708 |
) |
Accumulated deficit |
|
|
(394,100 |
) |
|
|
(391,509 |
) |
Accumulated other comprehensive income |
|
|
2,196 |
|
|
|
2,053 |
|
Total Identiv, Inc. stockholders' equity |
|
|
16,353 |
|
|
|
4,113 |
|
Noncontrolling interest |
|
|
(173 |
) |
|
|
(180 |
) |
Total stockholders´ equity |
|
|
16,180 |
|
|
|
3,933 |
|
Total liabilities and stockholders´equity |
|
$ |
50,844 |
|
|
$ |
40,600 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
IDENTIV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
||||
Net revenue |
|
$ |
14,840 |
|
|
$ |
13,476 |
|
|
$ |
28,232 |
|
|
$ |
25,961 |
|
Cost of revenue |
|
|
9,157 |
|
|
|
8,207 |
|
|
|
16,852 |
|
|
|
15,398 |
|
Gross profit |
|
|
5,683 |
|
|
|
5,269 |
|
|
|
11,380 |
|
|
|
10,563 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
1,511 |
|
|
|
1,432 |
|
|
|
2,988 |
|
|
|
3,517 |
|
Selling and marketing |
|
|
3,315 |
|
|
|
3,279 |
|
|
|
6,694 |
|
|
|
7,495 |
|
General and administrative |
|
|
2,085 |
|
|
|
2,982 |
|
|
|
3,872 |
|
|
|
7,559 |
|
Restructuring and severance |
|
|
— |
|
|
|
201 |
|
|
|
— |
|
|
|
2,940 |
|
Total operating expenses |
|
|
6,911 |
|
|
|
7,894 |
|
|
|
13,554 |
|
|
|
21,511 |
|
Loss from operations |
|
|
(1,228 |
) |
|
|
(2,625 |
) |
|
|
(2,174 |
) |
|
|
(10,948 |
) |
Non-operating income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(678 |
) |
|
|
(519 |
) |
|
|
(1,352 |
) |
|
|
(1,289 |
) |
Gain on extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
977 |
|
|
|
— |
|
Foreign currency gains (losses), net |
|
|
1 |
|
|
|
45 |
|
|
|
(151 |
) |
|
|
274 |
|
Loss before income taxes and noncontrolling interest |
|
|
(1,905 |
) |
|
|
(3,099 |
) |
|
|
(2,700 |
) |
|
|
(11,963 |
) |
Income tax benefit |
|
|
1 |
|
|
|
129 |
|
|
|
119 |
|
|
|
70 |
|
Loss before noncontrolling interest |
|
|
(1,904 |
) |
|
|
(2,970 |
) |
|
|
(2,581 |
) |
|
|
(11,893 |
) |
Less: Income (loss) attributable to noncontrolling interest |
|
|
— |
|
|
|
7 |
|
|
|
(10 |
) |
|
|
5 |
|
Net loss attributable to Identiv, Inc. |
|
$ |
(1,904 |
) |
|
$ |
(2,963 |
) |
|
$ |
(2,591 |
) |
|
$ |
(11,888 |
) |
Basic and diluted net loss per share attributable to Identiv, Inc. |
|
$ |
(0.15 |
) |
|
$ |
(0.27 |
) |
|
$ |
(0.22 |
) |
|
$ |
(1.10 |
) |
Weighted average shares used to compute basic and diluted loss per share |
|
|
12,657 |
|
|
|
10,790 |
|
|
|
12,008 |
|
|
|
10,770 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
IDENTIV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited, in thousands)
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
||||
Net loss |
|
$ |
(1,904 |
) |
|
$ |
(2,970 |
) |
|
$ |
(2,581 |
) |
|
$ |
(11,893 |
) |
Other comprehensive loss, net of income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
(43 |
) |
|
|
(182 |
) |
|
|
140 |
|
|
|
(221 |
) |
Total other comprehensive income (loss), net of income taxes |
|
|
(43 |
) |
|
|
(182 |
) |
|
|
140 |
|
|
|
(221 |
) |
Comprehensive loss |
|
|
(1,947 |
) |
|
|
(3,152 |
) |
|
|
(2,441 |
) |
|
|
(12,114 |
) |
Less: Comprehensive (income) loss attributable to noncontrolling interest |
|
|
(1 |
) |
|
|
12 |
|
|
|
(7 |
) |
|
|
24 |
|
Comprehensive loss attributable to Identiv, Inc. common stockholders |
|
$ |
(1,948 |
) |
|
$ |
(3,140 |
) |
|
$ |
(2,448 |
) |
|
$ |
(12,090 |
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
IDENTIV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
Six Months Ended June 30, 2017
(Unaudited, in thousands)
|
|
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, 2016 |
|
|
11,109 |
|
|
$ |
11 |
|
|
$ |
400,266 |
|
|
$ |
(6,708 |
) |
|
$ |
(391,509 |
) |
|
$ |
2,053 |
|
|
$ |
(180 |
) |
|
$ |
3,933 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,591 |
) |
|
|
— |
|
|
|
10 |
|
|
|
(2,581 |
) |
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
143 |
|
|
|
(3 |
) |
|
|
140 |
|
Issuance of common stock in connection with public offering |
|
|
2,845 |
|
|
|
3 |
|
|
|
12,550 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,553 |
|
Issuance of warrants |
|
|
— |
|
|
|
— |
|
|
|
2,319 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,319 |
|
Issuance of common stock in connection with vesting of stock awards |
|
|
149 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
1,252 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,252 |
|
Shares withheld in payment of taxes in connection with net share settlement of restricted stock units |
|
|
(30 |
) |
|
|
— |
|
|
|
— |
|
|
|
(154 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(154 |
) |
Cancellation of reacquired warrants from extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
(1,282 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,282 |
) |
Balances, June 30, 2017 |
|
|
14,073 |
|
|
$ |
14 |
|
|
$ |
415,105 |
|
|
$ |
(6,862 |
) |
|
$ |
(394,100 |
) |
|
$ |
2,196 |
|
|
$ |
(173 |
) |
|
$ |
16,180 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
IDENTIV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
|
|
Six Months Ended |
|
|||||
|
|
June 30, |
|
|||||
|
|
2017 |
|
|
2016 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(2,581 |
) |
|
$ |
(11,893 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,376 |
|
|
|
1,640 |
|
Gain on extinguishment of debt |
|
|
(977 |
) |
|
|
— |
|
Accretion of interest on long-term payment obligation |
|
|
195 |
|
|
|
207 |
|
Amortization of debt issuance costs |
|
|
421 |
|
|
|
503 |
|
Stock-based compensation expense |
|
|
1,252 |
|
|
|
1,382 |
|
Loss on disposal of fixed assets |
|
|
— |
|
|
|
326 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(1,182 |
) |
|
|
(991 |
) |
Inventories |
|
|
(911 |
) |
|
|
1,058 |
|
Prepaid expenses and other assets |
|
|
(401 |
) |
|
|
(137 |
) |
Accounts payable |
|
|
2,491 |
|
|
|
1,266 |
|
Payment obligation liability |
|
|
(591 |
) |
|
|
(578 |
) |
Deferred revenue |
|
|
52 |
|
|
|
(283 |
) |
Accrued expenses and other liabilities |
|
|
(1,829 |
) |
|
|
1,279 |
|
Net cash used in operating activities |
|
|
(2,685 |
) |
|
|
(6,221 |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(264 |
) |
|
|
(341 |
) |
Net cash used in investing activities |
|
|
(264 |
) |
|
|
(341 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of debt, net of issuance costs |
|
|
31,430 |
|
|
|
— |
|
Repayments of debt |
|
|
(32,118 |
) |
|
|
— |
|
Sale of common stock, net of issuance costs |
|
|
12,553 |
|
|
|
— |
|
Taxes paid related to net share settlement of restricted stock units |
|
|
(154 |
) |
|
|
(100 |
) |
Net cash provided by (used in) financing activities |
|
|
11,711 |
|
|
|
(100 |
) |
Effect of exchange rates on cash |
|
|
90 |
|
|
|
(603 |
) |
Net increase (decrease) in cash |
|
|
8,852 |
|
|
|
(7,265 |
) |
Cash at beginning of period |
|
|
9,116 |
|
|
|
16,667 |
|
Cash at end of period |
|
$ |
17,968 |
|
|
$ |
9,402 |
|
Supplemental Disclosures of Cash Flow Information |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
930 |
|
|
$ |
785 |
|
Taxes paid |
|
$ |
65 |
|
|
$ |
101 |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Warrants issued as debt issuance costs in connection with debt agreements |
|
$ |
2,319 |
|
|
$ |
232 |
|
Property and equipment included in accruals |
|
$ |
— |
|
|
$ |
128 |
|
Restricted stock units issued to settle liability |
|
$ |
— |
|
|
$ |
387 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
IDENTIV, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017
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 six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 or any future period. The information included in this Quarterly Report on Form 10-Q 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 audited Consolidated Financial Statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. 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, 2016 balance sheet was derived from the audited financial statements as of that date.
Concentration of Credit Risk — No customer represented more than 10% of net revenue for either of the three or six months ended June 30, 2017. One customer represented 11% and 10% of net revenue for the three and six months ended June 30, 2016, respectively. No customer represented more than 10% of the Company’s accounts receivable balance at June 30, 2017 or December 31, 2016.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that the Company adopts as of the specified effective date. Unless otherwise discussed, the Company does not believe that the impact of recently issued standards that are not yet effective will have a material impact on its financial position or results of operations upon adoption.
In March 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-09, Compensation – Stock Compensation, which provides guidance to simplify several aspects of accounting for share-based payment transactions, including the accounting for income taxes, forfeitures, statutory tax withholding requirements, as well as classification in the statement of cash flows. The guidance is effective for reporting periods beginning after December 15, 2016. The Company adopted this guidance effective January 1, 2017. The Company's adoption of this standard did not have a significant impact on its condensed consolidated financial statements. No excess income tax benefit or tax deficiencies have been recorded as a result of the adoption and there will be no change to accumulated deficit with respect to previously unrecognized excess tax benefits. The Company is electing to continue to account for forfeitures on an estimated basis. The Company has elected to present the condensed consolidated statements of cash flows on a prospective transition method and no prior periods have been adjusted.
In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”), which amends accounting for leases. Under the new guidance, a lessee will recognize assets and liabilities but will recognize expenses similar to current lease accounting. The guidance is effective for reporting periods beginning after December 15, 2018; however early adoption is permitted. The new guidance must be adopted using a modified retrospective approach to each prior reporting period presented with various optional practical expedients. The Company is currently evaluating the impact of the adoption of this guidance will have on its condensed consolidated financial statements.
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
8
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. The Company is currently evaluating the method and impact that ASU 2014-09 will have on its consolidated financial statements.
2. Fair Value Measurements
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 the Accounting Standards Codification (“ASC”), 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, 2017 and December 31, 2016, 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, 2017 and December 31, 2016.
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. Purchased intangible assets are measured at fair value primarily using discounted cash flow projections. For additional discussion of measurement criteria used in evaluating potential impairment involving goodwill and intangible assets, refer to Note 5, 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, 2017 and December 31, 2016, the Company had $0.3 million of privately-held investments measured at fair value on a nonrecurring basis which were classified as Level 3 assets due to the absence of quoted market prices and inherent lack of 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. The amount of privately-held investments is included in other assets in the accompanying condensed consolidated balance sheets.
As of June 30, 2017 and December 31, 2016, 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.
Preferred Stock
The Company is authorized to issue 10,000,000 shares of preferred stock, 40,000 of which have been designated as Series A Participating Preferred Stock, par value $0.001 per share. No shares of the Company’s preferred stock, including the Series A Participating Preferred Stock, were outstanding as of June 30, 2017 and December 31, 2016. The Company’s board of directors may from time to time, without further action by the Company’s stockholders, direct the issuance of shares of preferred stock in series and may, at the time of issuance, determine the rights, preferences and limitations of each series, including voting rights, dividend rights
9
and redemption and liquidation preferences. Satisfaction of any dividend preferences of outstanding shares of preferred stock would reduce the amount of funds available for the payment of dividends on shares of the Company’s common stock. Holders of shares of preferred stock may be entitled to receive a preference payment in the event of any liquidation, dissolution or winding-up of the Company before any payment is made to the holders of shares of the Company’s common stock. Upon the affirmative vote of the Board, without stockholder approval, the Company may issue shares of preferred stock with voting and conversion rights which could adversely affect the holders of shares of its common stock.
Sale of Common Stock
In May 2017, the Company sold an aggregate of 2,845,360 shares of its common stock at a public offering price of $4.85 per share in an underwritten public offering. The Company received net proceeds of approximately $12.6 million from the sale of the common stock in the public offering, after deducting the underwriting discount and other offering related expenses of $1.2 million. The Company intends to use the net proceeds from the offering for working capital and other general corporate purposes. The Company may also use a portion of the net proceeds from the offering to acquire or invest in complementary technologies or other assets.
Common Stock Warrants
On August 13, 2014, in connection with the Company’s entry into a consulting agreement, 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 “2014 Consultant Warrant”). One fourth of the shares under the warrant are exercisable for cash three months from the date the 2014 Consultant Warrant was issued and quarterly thereafter. The 2014 Consultant Warrant expires on August 13, 2019. In the event of an acquisition of the Company, the 2014 Consultant Warrant shall terminate and no longer be exercisable as of the closing of the acquisition. As of June 30, 2017, the 2014 Consultant Warrant has not been exercised.
On February 8, 2017, the Company entered into Loan and Security Agreements with each of East West Bank ("EWB") and Venture Lending & Leasing VII, Inc. and Venture Lending & Leasing VIII, Inc. (collectively referred to as “VLL7 and VLL8”) as discussed in Note 7, Financial Liabilities. In connection with the Company's Revolving Loan Facility and Term Loan, the Company issued to EWB a warrant (the "EWB Warrant") to purchase up to 40,000 shares of the Company's common stock at a per share exercise price of $3.64, and issued to each of VLL7 and VLL8 a warrant to purchase 290,000 shares of the Company's common stock at a per share exercise price of $2.00 (the “VLL7 Warrant” and the “VLL8 Warrant,” respectively). The Company calculated the fair value of the EWB Warrant, the VLL7 Warrant and the VLL8 Warrant using the Black-Scholes pricing model using the following assumptions: estimated volatility of 78.8%, risk-free interest rate of 1.94%, no dividend yield, and an expected life of five years. In accordance with ASC 505-50, Equity-Based Payments to Non-Employees, the fair values of the EWB Warrant, the VLL7 Warrant and the VLL8 Warrant of $125,000, $1,037,500 and $1,037,500, respectively, were classified as equity as the settlement of the warrants will be in shares and is within the control of the Company. Each of the EWB Warrant, the VLL7 Warrant and the VLL8 Warrant is immediately exercisable for cash or by net exercise and will expire five years after its issuance, or on February 8, 2022. In connection with entering into Loan and Security Agreements with EWB and VLL7 and VLL8, warrants to purchase an aggregate of 400,000 shares of common stock issued to the Company’s previous lender, Opus Bank (“Opus”) were cancelled.
In connection with securing of the new credit facility and cancelling of all the warrants previously issued to Opus, the Company issued a warrant to a consultant to purchase 60,000 shares of its common stock at an exercise price of $4.60 per share (the “2017 Consultant Warrant”). The Company calculated the fair value of the 2017 Consultant Warrant using the Black-Scholes pricing model using the following assumptions: estimated volatility of 78.8%, risk-free interest rate of 1.22%, no dividend yield, and an expected life of two years. The fair value of the 2017 Consultant Warrant of $119,000 was classified as equity as the settlement of the warrant will be in shares and is within the control of the Company. The 2017 Consultant Warrant is immediately exercisable for cash or by net exercise and will expire two years after its issuance, or on February 8, 2019.
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 with 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. In addition, the placement agent was issued warrants to purchase 100,000 shares of common stock at an exercise price of $10.00 per share as compensation. Subsequent to issuance, warrants to purchase an aggregate of 747,969 shares were exercised. 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. As of June 30, 2017, 186,878 of the warrants had not been exercised.
10
Below is the summary of outstanding warrants issued by the Company as of June 30, 2017:
Warrant Type |
|
Number of Shares Issuable Upon Exercise |
|
|
Weighted Average Exercise Price |
|
|
Issue Date |
|
Expiration Date |
||
2014 Consultant Warrant |
|
|
85,000 |
|
|
$ |
10.70 |
|
|
August 13, 2014 |
|
August 13, 2019 |
East West Bank Warrant |
|
|
40,000 |
|
|
|
3.64 |
|
|
February 8, 2017 |
|
February 8, 2022 |
VLL7 and VLL8 Warrants |
|
|
580,000 |
|
|
|
2.00 |
|
|
February 8, 2017 |
|
February 8, 2022 |
2017 Consultant Warrant |
|
|
60,000 |
|
|
|
4.60 |
|
|
February 8, 2017 |
|
February 8, 2019 |
2013 Private Placement Warrants |
|
|
186,878 |
|
|
|
10.00 |
|
|
August 14, 2013 |
|
August 14, 2017 |
Total |
|
|
951,878 |
|
|
|
|
|
|
|
|
|
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, the 1997 Stock Option Plan, the 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 executive officers, directors, and key employees with 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 to participants 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 2007 Plan and 2010 Plan. Subsequent to June 6, 2011 through December 31, 2015, the number of shares of common stock authorized for issuance under the 2011 Plan had been increased by 1.0 million shares. On May 12, 2016, the Company’s stockholders approved an amendment and restatement of the 2011 Plan to, among other things, increase the number of shares of common stock authorized for issuance by 2.0 million shares and extend the term of the 2011 Plan.
Stock Option Plans
A summary of activity for the Company’s stock option plans for the six months ended June 30, 2017 follows:
|
Number Outstanding |
|
|
Average Exercise Price per Share |
|
|
Weighted Average Remaining Contractual Term (Years) |
|
|
Average Intrinsic Value |
|
||||
Balance at December 31, 2016 |
|
832,941 |
|
|
$ |
7.11 |
|
|
|
|
|
|
$ |
— |
|
Granted |
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Cancelled or Expired |
|
(142,629 |
) |
|
|
10.50 |
|
|
|
|
|
|
|
|
|
Exercised |
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Balance at June 30, 2017 |
|
690,312 |
|
|
$ |
6.41 |
|
|
|
7.85 |
|
|
$ |
396,594 |
|
Vested or expected to vest at June 30, 2017 |
|
671,191 |
|
|
$ |
6.46 |
|
|
|
7.83 |
|
|
$ |
380,325 |
|
Exercisable at June 30, 2017 |
|
410,132 |
|
|
$ |
7.44 |
|
|
|
7.27 |
|
|
$ |
173,958 |
|
11
The following table summarizes information about options outstanding as of June 30, 2017:
|
|
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 |
|
|||||
$4.36 - $7.20 |
|
|
480,810 |
|
|
|
8.70 |
|
|
$ |
4.49 |
|
|
|
228,243 |
|
|
$ |
4.62 |
|
$7.50 - $11.30 |
|
|
169,221 |
|
|
|
6.50 |
|
|
|
9.24 |
|
|
|
141,608 |
|
|
|
9.16 |
|
$12.00 - $19.70 |
|
|
27,390 |
|
|
|
3.21 |
|
|
|
13.66 |
|
|
|
27,390 |
|
|
|
13.66 |
|
$21.70 - $29.20 |
|
|
12,891 |
|
|
|
3.86 |
|
|
|
25.37 |
|
|
|
12,891 |
|
|
|
25.37 |
|
$4.36 - $29.20 |
|
|
690,312 |
|
|
|
7.85 |
|
|
$ |
6.41 |
|
|
|
410,132 |
|
|
$ |
7.44 |
|
At June 30, 2017, there was $0.8 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 1.9 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, 2017:
|
|
Number Outstanding |
|
|
Weighted Average Fair Value |
|
||
Unvested at December 31, 2016 |
|
|
1,973,459 |
|
|
$ |
2.80 |
|
Granted |
|
|
120,180 |
|
|
|
5.46 |
|
Vested |
|
|
(212,519 |
) |
|
|
4.51 |
|
Forfeited |
|
|
(127,282 |
) |
|
|
3.21 |
|
Unvesteed at June 30, 2017 |
|
|
1,753,838 |
|
|
$ |
2.74 |
|
Shares vested but not released |
|
|
278,552 |
|
|
$ |
2.35 |
|
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, 2017, there was $4.2 million of unrecognized compensation cost related to unvested RSUs granted, which is expected to be recognized over a weighted average period of 2.9 years. As of June 30, 2017, an aggregate of 1,475,286 RSUs were outstanding 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, 2017 and 2016 (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
||||
Cost of revenue |
|
$ |
23 |
|
|
$ |
23 |
|
|
$ |
47 |
|
|
$ |
46 |
|
Research and development |
|
|
116 |
|
|
|
52 |
|
|
|
231 |
|
|
|
136 |
|
Selling and marketing |
|
|
110 |
|
|
|
78 |
|
|
|
270 |
|
|
|
285 |
|
General and administrative |
|
|
412 |
|
|
|
292 |
|
|
|
704 |
|
|
|
915 |
|
Total |
|
$ |
661 |
|
|
$ |
445 |
|
|
$ |
1,252 |
|
|
$ |
1,382 |
|
12
Common Stock Reserved for Future Issuance
Common stock reserved for future issuance as of June 30, 2017 was as follows:
Exercise of outstanding stock options and vesting of RSUs |
|
|
2,722,701 |
|
ESPP |
|
|
293,888 |
|
Shares of common stock available for grant under the 2011 Plan |
|
|
503,346 |
|
Noncontrolling interest in Bluehill AG |
|
|
10,355 |
|
Warrants to purchase common stock |
|
|
951,878 |
|
Total |
|
|
4,482,168 |
|
Net Loss per Common Share Attributable to Identiv Stockholders’ Equity
Basic and diluted net loss per share is based upon the weighted average number of common shares outstanding during the period. For the three and six months ended June 30, 2017 and 2016, common stock equivalents consisting of outstanding stock options, RSUs and warrants were excluded from the calculation of diluted net loss per share because these securities were anti-dilutive due to the net loss in the respective periods. The total number of common stock equivalents excluded from diluted net loss per share relating to these securities was 3,406,382 common stock equivalents for both the three and six months ended June 30, 2017, and 2,130,423 common stock equivalents for both the three and six months ended June 30, 2016, respectively.
Accumulated Other Comprehensive Income
Accumulated other comprehensive income (“AOCI”) at June 30, 2017 and December 31, 2016 consists of foreign currency translation adjustments totaling $2.2 million and $2.1 million, respectively.
4. Balance Sheet Components
The Company’s inventories are stated at the lower of cost or net realizable value. Inventories consist of (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2017 |
|
|
2016 |
|
||
Raw materials |
|
$ |
3,797 |
|
|
$ |
3,346 |
|
Work-in-progress |
|
|
635 |
|
|
|
285 |
|
Finished goods |
|
|
8,088 |
|
|
|
7,965 |
|
Total |
|
$ |
12,520 |
|
|
$ |
11,596 |
|
Property and equipment, net consists of (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2017 |
|
|
2016 |
|
||
Building and leasehold improvements |
|
$ |
1,828 |
|
|
$ |
1,884 |
|
Furniture, fixtures and office equipment |
|
|
2,119 |
|
|
|
2,002 |
|
Plant and machinery |
|
|
8,944 |
|
|
|
8,848 |
|
Purchased software |
|
|
1,878 |
|
|
|
1,717 |
|
Total |
|
|
14,769 |
|
|
|
14,451 |
|
Accumulated depreciation |
|
|
(12,764 |
) |
|
|
(12,035 |
) |
Property and equipment, net |
|
$ |
2,005 |
|
|
$ |
2,416 |
|
The Company recorded depreciation expense of $0.4 million and $0.4 million during the three months ended June 30, 2017 and 2016, respectively, and $0.6 million and $0.9 million during the six months ended June 30, 2017 and 2016, respectively.
13
Other accrued expenses and liabilities consist of (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2017 |
|
|
2016 |
|
||
Accrued restructuring |
|
$ |
64 |
|
|
$ |
237 |
|
Accrued professional fees |
|
|
1,532 |
|
|
|
2,371 |
|
Income taxes payable |
|
|
282 |
|
|