inve-10q_20170930.htm

 

 

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 September 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
Identification No.)

 

 

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 November 3, 2017, the registrant had 14,245,138 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 

 


TABLE OF CONTENTS

 

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

Item 1.

 

Financial Statements (Unaudited)

3

 

 

Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016

3

 

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017 and 2016

4

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2017 and 2016

5

 

 

Condensed Consolidated Statement of Equity for the Nine Months Ended September 30, 2017

6

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 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.

 

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

 

Controls and Procedures

31

 

 

PART II. OTHER INFORMATION

 

Item 1.

 

Legal Proceedings

33

Item 1A.

 

Risk Factors

34

 

 

 

 

Item 6.

 

Exhibits

34

 

 

SIGNATURES

35

 

 

 

2


PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

IDENTIV, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except par value)

 

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

15,741

 

 

$

9,116

 

Accounts receivable, net of allowances of $459 and $307 as of September 30, 2017

   and December 31, 2016, respectively

 

 

10,642

 

 

 

9,430

 

Inventories

 

 

13,396

 

 

 

11,596

 

Prepaid expenses and other current assets

 

 

2,492

 

 

 

1,510

 

Total current assets

 

 

42,271

 

 

 

31,652

 

Property and equipment, net

 

 

2,117

 

 

 

2,416

 

Intangible assets, net

 

 

4,728

 

 

 

5,820

 

Other assets

 

 

722

 

 

 

712

 

Total assets

 

$

49,838

 

 

$

40,600

 

LIABILITIES AND STOCKHOLDERS´ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

7,552

 

 

$

6,024

 

Current portion -  payment obligation

 

 

877

 

 

 

786

 

Current portion -  financial liabilities, net of discount and debt issuance costs of $596

   and $181, respectively

 

 

9,957

 

 

 

8,119

 

Deferred revenue

 

 

1,143

 

 

 

1,085

 

Accrued compensation and related benefits

 

 

1,639

 

 

 

1,520

 

Other accrued expenses and liabilities

 

 

2,978

 

 

 

5,032

 

Total current liabilities

 

 

24,146

 

 

 

22,566

 

Long-term payment obligation

 

 

3,281

 

 

 

3,987

 

Long-term financial liabilities, net of discount and debt issuance costs of $1,463 and

   $221, respectively

 

 

6,474

 

 

 

9,779

 

Other long-term liabilities

 

 

181

 

 

 

335

 

Total liabilities

 

 

34,082

 

 

 

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; 15,082 and 11,836 shares

   issued and 14,234 and 11,109 shares outstanding as of September 30, 2017 and

   December 31, 2016, respectively

 

 

14

 

 

 

11

 

Additional paid-in capital

 

 

415,776

 

 

 

400,266

 

Treasury stock, 848 and 727 shares as of September 30, 2017 and December 31, 2016,

   respectively

 

 

(7,302

)

 

 

(6,708

)

Accumulated deficit

 

 

(395,131

)

 

 

(391,509

)

Accumulated other comprehensive income

 

 

2,556

 

 

 

2,053

 

Total Identiv, Inc. stockholders' equity

 

 

15,913

 

 

 

4,113

 

Noncontrolling interest

 

 

(157

)

 

 

(180

)

Total stockholders´ equity

 

 

15,756

 

 

 

3,933

 

Total liabilities and stockholders´equity

 

$

49,838

 

 

$

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net revenue

 

$

15,432

 

 

$

15,560

 

 

$

43,664

 

 

$

41,521

 

Cost of revenue

 

 

9,571

 

 

 

8,640

 

 

 

26,423

 

 

 

24,038

 

Gross profit

 

 

5,861

 

 

 

6,920

 

 

 

17,241

 

 

 

17,483

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

1,597

 

 

 

1,480

 

 

 

4,584

 

 

 

4,997

 

Selling and marketing

 

 

3,448

 

 

 

3,312

 

 

 

10,142

 

 

 

10,807

 

General and administrative

 

 

1,247

 

 

 

2,115

 

 

 

5,119

 

 

 

9,674

 

Restructuring and severance

 

 

(49

)

 

 

160

 

 

 

(49

)

 

 

3,100

 

Total operating expenses

 

 

6,243

 

 

 

7,067

 

 

 

19,796

 

 

 

28,578

 

Loss from operations

 

 

(382

)

 

 

(147

)

 

 

(2,555

)

 

 

(11,095

)

Non-operating income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(643

)

 

 

(525

)

 

 

(1,995

)

 

 

(1,814

)

Gain on extinguishment of debt

 

 

 

 

 

 

 

 

977

 

 

 

 

Foreign currency (losses) gains, net

 

 

(51

)

 

 

35

 

 

 

(202

)

 

 

309

 

Loss before income taxes and noncontrolling interest

 

 

(1,076

)

 

 

(637

)

 

 

(3,775

)

 

 

(12,600

)

Income tax benefit

 

 

42

 

 

 

(105

)

 

 

161

 

 

 

(35

)

Loss before noncontrolling interest

 

 

(1,034

)

 

 

(742

)

 

 

(3,614

)

 

 

(12,635

)

Less: Income (loss) attributable to noncontrolling interest

 

 

2

 

 

 

(1

)

 

 

(8

)

 

 

4

 

Net loss attributable to Identiv, Inc.

 

$

(1,032

)

 

$

(743

)

 

$

(3,622

)

 

$

(12,631

)

Basic and diluted net loss per share attributable to Identiv, Inc.

 

$

(0.07

)

 

$

(0.07

)

 

$

(0.28

)

 

$

(1.16

)

Weighted average shares used to compute basic and diluted

   loss per share

 

 

14,409

 

 

 

11,024

 

 

 

12,806

 

 

 

10,855

 

 

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net loss

 

$

(1,034

)

 

$

(742

)

 

$

(3,614

)

 

$

(12,635

)

Other comprehensive income (loss), net of income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

378

 

 

 

(64

)

 

 

518

 

 

 

(285

)

Total other comprehensive income (loss), net of income

   taxes

 

 

378

 

 

 

(64

)

 

 

518

 

 

 

(285

)

Comprehensive loss

 

 

(656

)

 

 

(806

)

 

 

(3,096

)

 

 

(12,920

)

Less: Comprehensive (income) loss attributable to

   noncontrolling interest

 

 

(16

)

 

 

11

 

 

 

(23

)

 

 

23

 

Comprehensive loss attributable to Identiv, Inc. common

   stockholders

 

$

(672

)

 

$

(795

)

 

$

(3,119

)

 

$

(12,897

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

5


IDENTIV, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,622

)

 

 

 

 

 

8

 

 

 

(3,614

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

503

 

 

 

15

 

 

 

518

 

Issuance of common stock in

   connection with public

   offering

 

 

2,845

 

 

 

3

 

 

 

12,557

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,560

 

Issuance of warrants

 

 

 

 

 

 

 

 

2,319

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,319

 

Issuance of common stock

   in connection with

   vesting of stock awards

 

 

401

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,916

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,916

 

Shares withheld in payment

   of taxes in connection with

   net share settlement of

   restricted stock units

 

 

(121

)

 

 

 

 

 

 

 

 

(594

)

 

 

 

 

 

 

 

 

 

 

 

(594

)

Cancellation of reacquired

   warrants from

   extinguishment of debt

 

 

 

 

 

 

 

 

(1,282

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,282

)

Balances, September 30, 2017

 

 

14,234

 

 

$

14

 

 

$

415,776

 

 

$

(7,302

)

 

$

(395,131

)

 

$

2,556

 

 

$

(157

)

 

$

15,756

 

 

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)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(3,614

)

 

$

(12,635

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,081

 

 

 

2,492

 

Gain on extinguishment of debt

 

 

(977

)

 

 

 

Accretion of interest on long-term payment obligation

 

 

277

 

 

 

335

 

Amortization of debt issuance costs

 

 

617

 

 

 

633

 

Stock-based compensation expense

 

 

1,916

 

 

 

2,245

 

Loss on disposal of fixed assets

 

 

 

 

 

329

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(1,197

)

 

 

(1,166

)

Inventories

 

 

(1,785

)

 

 

2,741

 

Prepaid expenses and other assets

 

 

(992

)

 

 

(182

)

Accounts payable

 

 

1,531

 

 

 

154

 

Payment obligation liability

 

 

(892

)

 

 

(925

)

Deferred revenue

 

 

58

 

 

 

(370

)

Accrued expenses and other liabilities

 

 

(2,087

)

 

 

155

 

Net cash used in operating activities

 

 

(5,064

)

 

 

(6,194

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(686

)

 

 

(425

)

Net cash used in investing activities

 

 

(686

)

 

 

(425

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of debt, net of issuance costs

 

 

42,735

 

 

 

 

Repayments of debt

 

 

(42,805

)

 

 

 

Sale of common stock, net of issuance costs

 

 

12,560

 

 

 

 

Taxes paid related to net share settlement of restricted stock units

 

 

(594

)

 

 

(180

)

Net cash provided by (used in) financing activities

 

 

11,896

 

 

 

(180

)

Effect of exchange rates on cash

 

 

479

 

 

 

(685

)

Net increase (decrease) in cash

 

 

6,625

 

 

 

(7,484

)

Cash at beginning of period

 

 

9,116

 

 

 

16,667

 

Cash at end of period

 

$

15,741

 

 

$

9,183

 

Supplemental Disclosures of Cash Flow Information

 

 

 

 

 

 

 

 

Interest paid

 

$

1,379

 

 

$

1,181

 

Taxes paid, net

 

$

96

 

 

$

158

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Warrants issued as debt issuance costs in connection with debt agreements

 

$

2,319

 

 

$

376

 

Liability to be settled in common stock

 

$

250

 

 

$

 

Property and equipment included in accruals

 

$

 

 

$

83

 

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

September 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 three and nine months ended September 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 nine months ended September 30, 2017.  No customer represented more than 10% of net revenue for the three months ended September 30, 2016 and one customer accounted for 10% of net revenue for the nine months ended September 30, 2016, respectively.  No customer represented more than 10% of the Company’s accounts receivable balance at September 30, 2017 or December 31, 2016.  

 

Research and Development — Costs to research, design, and develop the Company’s products are expensed as incurred and consist primarily of employee compensation and fees for the development of prototype products. Software development costs are capitalized beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers. Generally, the Company’s products are released soon after technological feasibility has been established. Costs incurred subsequent to achieving technological feasibility have not been significant and generally have been expensed as incurred. At September 30, 2017, the amount of capitalized software development costs totaled $0.5 million and is included in prepaid expenses and other current assets the accompanying condensed consolidated balance sheet. No software development costs were capitalized in 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.

8


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 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. Companies can elect a full retrospective method to recast prior-period financial statements or a modified retrospective method to recognize the cumulative effect as an adjustment to the retained earnings in the initial year. The Company plans to implement the standard in the first quarter of 2018 on a modified retrospective basis. The Company does not anticipate that this standard will have a material impact on its condensed 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 September 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 September 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, 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 September 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.

9


As of September 30, 2017, the Company had $0.3 million of liabilities measured at fair value on a nonrecurring basis which were classified as Level 1 liabilities due to the settlement provisions being a set amount of shares of the Company’s common stock. There were no share settled liabilities as of December 31, 2016. The share settled liabilities is included in accrued expenses in the accompanying condensed consolidated balance sheet.

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.

 

 

3. Stockholders’ Equity

 

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 September 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 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 September 30, 2017, none of the shares under the 2014 Consultant Warrant had 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. None of the shares under the EWB Warrant had been exercised. 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.

10


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. None of the shares under the 2017 Consultant Warrant had 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 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 had a term of four years and were 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 was 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. On August 14, 2017, the remaining 186,878 warrants expired unexercised.

       

Below is the summary of outstanding warrants issued by the Company as of September 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

Total

 

 

765,000

 

 

 

 

 

 

 

 

 

 

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 2007 Stock Option Plan (the “2007 Plan”) and the 2011 Incentive Compensation Plan (the “2011 Plan”), as amended.

Stock Bonus and Incentive Plans   

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.  

11


Stock Option Plans

A summary of activity for the Company’s stock option plans for the nine months ended September 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

 

(157,456

)

 

 

10.62

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2017

 

675,485

 

 

$

6.29

 

 

 

7.75

 

 

$

151,116

 

Vested or expected to vest at

    September 30, 2017

 

660,599

 

 

$

6.33

 

 

 

7.73

 

 

$

146,195

 

Exercisable at September 30, 2017

 

432,706

 

 

$

7.13

 

 

 

7.32

 

 

$

75,558

 

 

The following table summarizes information about options outstanding as of September 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

 

 

479,810

 

 

 

8.47

 

 

$

4.48

 

 

 

256,300

 

 

$

4.58

 

$7.50 - $11.30

 

 

165,388

 

 

 

6.29

 

 

 

9.26

 

 

 

146,119

 

 

 

9.20

 

$12.00 - $19.70

 

 

17,396

 

 

 

4.75

 

 

 

13.66

 

 

 

17,396

 

 

 

13.66

 

$21.70 - $29.20

 

 

12,891

 

 

 

3.59

 

 

 

25.37

 

 

 

12,891

 

 

 

25.37

 

$4.36 - $29.20

 

 

675,485

 

 

 

7.75

 

 

$

6.29

 

 

 

432,706

 

 

$

7.13

 

 

At September 30, 2017, there was $0.7 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 1.7 years.  

Restricted Stock and Restricted Stock Units

The following is a summary of restricted stock and restricted stock unit (“RSU”) activity for the nine months ended September 30, 2017:

 

 

 

Number

Outstanding

 

 

Weighted Average

Fair Value

 

Unvested at December 31, 2016

 

 

1,973,459

 

 

$

2.80

 

Granted

 

 

338,646

 

 

 

5.12

 

Vested

 

 

(480,764

)

 

 

3.41

 

Forfeited

 

 

(132,441

)

 

 

3.19

 

Unvested at September 30, 2017

 

 

1,698,900

 

 

$

3.06

 

Shares vested but not released

 

 

295,386

 

 

$

2.51

 

 

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 September 30, 2017, there was $4.7 million of unrecognized compensation cost related to unvested RSUs granted, which is expected to be recognized over a weighted average period of 2.8 years. As of September 30, 2017, an aggregate of 1,403,514 RSUs were outstanding under the 2011 Plan.

12


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 nine months ended September 30, 2017 and 2016 (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Cost of revenue

 

$

24

 

 

$

26

 

 

$

71

 

 

$

72

 

Research and development

 

 

130

 

 

 

69

 

 

 

361

 

 

 

205

 

Selling and marketing

 

 

193

 

 

 

148

 

 

 

463

 

 

 

433

 

General and administrative

 

 

317

 

 

 

620

 

 

 

1,021

 

 

 

1,535

 

Total

 

$

664

 

 

$

863

 

 

$

1,916

 

 

$

2,245

 

 

Common Stock Reserved for Future Issuance

Common stock reserved for future issuance as of September 30, 2017 was as follows:

 

Exercise of outstanding stock options and vesting of RSUs

 

 

2,374,385

 

ESPP

 

 

293,888

 

Shares of common stock available for grant under the 2011 Plan

 

 

395,330

 

Noncontrolling interest in Bluehill AG

 

 

10,355

 

Warrants to purchase common stock

 

 

765,000

 

Shares issuable to settle liability

 

 

53,880

 

Total

 

 

3,892,838

 

 

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 nine months ended September 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 3,203,620 common stock equivalents for both the three and nine months ended September 30, 2017, and 3,129,479 common stock equivalents for both the three and nine months ended September 30, 2016, respectively.

Accumulated Other Comprehensive Income  

Accumulated other comprehensive income (“AOCI”) at September 30, 2017 and December 31, 2016 consists of foreign currency translation adjustments totaling $2.6 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):

 

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Raw materials

 

$

4,081

 

 

$

3,346

 

Work-in-progress

 

 

31

 

 

 

285

 

Finished goods

 

 

9,284

 

 

 

7,965

 

Total

 

$

13,396

 

 

$

11,596

 

 

13


Property and equipment, net consists of (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Building and leasehold improvements

 

$

1,863

 

 

$

1,884

 

Furniture, fixtures and office equipment

 

 

1,933

 

 

 

2,002

 

Plant and machinery

 

 

9,319

 

 

 

8,848

 

Purchased software

 

 

1,923

 

 

 

1,717

 

Total

 

 

15,038

 

 

 

14,451

 

Accumulated depreciation

 

 

(12,921

)

 

 

(12,035

)

Property and equipment, net

 

$

2,117

 

 

$

2,416

 

 

The Company recorded depreciation expense of $0.3 million and $0.5 million during the three months ended September 30, 2017 and 2016, respectively, and $1.0 million and $1.4 million during the nine months ended September 30, 2017 and 2016, respectively.  

Other accrued expenses and liabilities consist of (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Accrued restructuring

 

$

 

 

$