imi-10q_20180630.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 June 30, 2018

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 001-35348

Intermolecular, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

 

20-1616267

(State or Other Jurisdiction of
Incorporation or Organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

3011 N. First Street
San Jose, California

 

95134

(Address of Principal Executive Offices)

 

(Zip Code)

 

(408) 582-5700

(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  

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, a 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. (Check one):

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller 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  

Shares outstanding of the registrant’s common stock:

 

Class

 

Outstanding as of August 2, 2018

Common stock, $0.001 par value

 

49,741,944

 

 

 

 

 


INTERMOLECULAR, INC.

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2018

TABLE OF CONTENTS

 

 

 

 

Page

 

PART I — FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements (Unaudited)

 

3

 

Condensed Consolidated Balance Sheets

 

3

 

Condensed Consolidated Statements of Operations

 

4

 

Condensed Consolidated Statements of Comprehensive Loss

 

5

 

Condensed Consolidated Statements of Cash Flows

 

6

 

Notes to Condensed Consolidated Financial Statements

 

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

23

Item 4.

Controls and Procedures

 

23

 

PART II — OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

 

24

Item 1A.

Risk Factors

 

24

Item 6.

Exhibits

 

25

 

Signatures

 

26

 

2


PART I — FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

INTERMOLECULAR, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

 

 

 

June 30, 2018

 

 

December 31, 2017

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,347

 

 

$

6,090

 

Short-term investments

 

 

25,662

 

 

 

18,060

 

Accounts receivable

 

 

1,920

 

 

 

5,519

 

Prepaid expenses and other current assets

 

 

725

 

 

 

1,069

 

Total current assets

 

 

32,654

 

 

 

30,738

 

Long-term investments

 

 

1,283

 

 

 

1,657

 

Materials inventory

 

 

2,836

 

 

 

2,781

 

Property and equipment, net

 

 

4,171

 

 

 

5,913

 

Intangible assets, net

 

 

2,382

 

 

 

2,620

 

Other assets

 

 

551

 

 

 

600

 

Total assets

 

$

43,877

 

 

$

44,309

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

145

 

 

$

928

 

Accrued liabilities

 

 

1,054

 

 

 

865

 

Accrued compensation and employee benefits

 

 

2,494

 

 

 

2,535

 

Deferred revenue

 

 

309

 

 

 

941

 

Total current liabilities

 

 

4,002

 

 

 

5,269

 

Deferred rent

 

 

2,808

 

 

 

2,939

 

Other long-term liabilities

 

 

 

 

 

28

 

Total liabilities

 

 

6,810

 

 

 

8,236

 

Commitments and contingencies (note 5)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, par value $0.001 per share—200,000,000 shares authorized;

   49,736,705 and 49,569,721 shares issued and outstanding as of June 30, 2018

   and December 31, 2017, respectively

 

 

50

 

 

 

50

 

Additional paid-in capital

 

 

215,449

 

 

 

214,796

 

Accumulated other comprehensive loss

 

 

(43

)

 

 

(35

)

Accumulated deficit

 

 

(178,389

)

 

 

(178,738

)

Total stockholders’ equity

 

 

37,067

 

 

 

36,073

 

Total liabilities and stockholders’ equity

 

$

43,877

 

 

$

44,309

 

 

See accompanying notes to unaudited Condensed Consolidated Financial Statements

 

 

3


INTERMOLECULAR, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(In thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Program revenue

 

$

9,365

 

 

$

6,480

 

 

$

18,621

 

 

$

13,291

 

 

Licensing and royalty revenue

 

 

437

 

 

 

1,609

 

 

 

856

 

 

 

4,742

 

 

Total revenue

 

 

9,802

 

 

 

8,089

 

 

 

19,477

 

 

 

18,033

 

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of program revenue

 

 

2,856

 

 

 

2,545

 

 

 

6,231

 

 

 

5,242

 

 

Cost of licensing and royalty revenue

 

 

3

 

 

 

2

 

 

 

4

 

 

 

292

 

 

Total cost of revenue

 

 

2,859

 

 

 

2,547

 

 

 

6,235

 

 

 

5,534

 

 

Gross profit

 

 

6,943

 

 

 

5,542

 

 

 

13,242

 

 

 

12,499

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

4,056

 

 

 

5,385

 

 

 

8,087

 

 

 

12,494

 

 

Sales and marketing

 

 

858

 

 

 

931

 

 

 

1,654

 

 

 

2,412

 

 

General and administrative

 

 

1,748

 

 

 

2,217

 

 

 

4,034

 

 

 

5,225

 

 

Restructuring charges

 

 

 

 

 

3

 

 

 

 

 

 

1,350

 

 

Total operating expenses

 

 

6,662

 

 

 

8,536

 

 

 

13,775

 

 

 

21,481

 

 

Income (Loss) from operations

 

 

281

 

 

 

(2,994

)

 

 

(533

)

 

 

(8,982

)

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

140

 

 

 

58

 

 

 

245

 

 

 

113

 

 

Other income (expense), net

 

 

75

 

 

 

82

 

 

 

162

 

 

 

179

 

 

Total other income (expense), net

 

 

215

 

 

 

140

 

 

 

407

 

 

 

292

 

 

Income (Loss) before provision for income taxes

 

 

496

 

 

 

(2,854

)

 

 

(126

)

 

 

(8,690

)

 

Provision for income taxes

 

 

 

 

 

 

 

 

1

 

 

 

1

 

 

Net income (loss)

 

$

496

 

 

$

(2,854

)

 

$

(127

)

 

$

(8,691

)

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.01

 

 

$

(0.06

)

 

$

(0.00

)

 

$

(0.18

)

 

Diluted

 

$

0.01

 

 

$

(0.06

)

 

$

(0.00

)

 

$

(0.18

)

 

Weighted-average number of shares used in computing earnings (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

49,672,739

 

 

 

49,554,701

 

 

 

49,627,584

 

 

 

49,537,074

 

 

Diluted

 

 

50,059,639

 

 

 

49,554,701

 

 

 

49,627,584

 

 

 

49,537,074

 

 

 

Related Party Transactions

The Condensed Consolidated Statements of Operations include the following related party transactions:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Licensing and royalty revenue

 

$

 

 

$

 

 

$

 

 

$

383

 

 

Total revenue

 

$

 

 

$

 

 

$

 

 

$

383

 

 

Cost of Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of licensing and royalty revenue

 

$

 

 

$

 

 

$

 

 

$

1

 

 

Total cost of revenue

 

$

 

 

$

 

 

$

 

 

$

1

 

 

 

See accompanying notes to unaudited Condensed Consolidated Financial Statements

 

 

4


Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

Net income (loss)

 

$

496

 

 

$

(2,854

)

 

$

(127

)

 

$

(8,691

)

 

Change in unrealized gain (loss) on available-for-sale-

   securities, net of tax

 

 

16

 

 

 

 

 

 

(7

)

 

 

12

 

 

Other comprehensive income (loss)

 

 

16

 

 

 

 

 

 

(7

)

 

 

12

 

 

Comprehensive income (loss), net of income tax

 

$

512

 

 

$

(2,854

)

 

$

(134

)

 

$

(8,679

)

 

 

See accompanying notes to unaudited Condensed Consolidated Financial Statements

 

 

5


INTERMOLECULAR, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(127

)

 

$

(8,691

)

Adjustments to reconcile net loss to net cash used in operating

   activities:

 

 

 

 

 

 

 

 

Depreciation, amortization, and accretion

 

 

2,693

 

 

 

3,597

 

Stock-based compensation

 

 

482

 

 

 

978

 

Gain on disposal of property and equipment

 

 

 

 

 

(7

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

4,074

 

 

 

2,221

 

Prepaid expenses and other assets

 

 

393

 

 

 

515

 

Materials inventory

 

 

(134

)

 

 

373

 

Accounts payable

 

 

(750

)

 

 

743

 

Accrued and other liabilities

 

 

(67

)

 

 

4

 

Deferred revenue

 

 

(633

)

 

 

211

 

Net cash (used in) provided by operating activities

 

 

5,931

 

 

 

(56

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of investments

 

 

(19,367

)

 

 

(11,897

)

Redemption of investments

 

 

12,010

 

 

 

13,215

 

Purchase of property and equipment

 

 

(489

)

 

 

(521

)

Proceeds from sale of equipment

 

 

 

 

 

10

 

Net cash (used in) provided by investing activities

 

 

(7,846

)

 

 

807

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Principal payment under capital leases obligations

 

 

 

 

 

(11

)

Proceeds from exercise of common stock options

 

 

172

 

 

 

 

Net cash (used in) provided by financing activities

 

 

172

 

 

 

(11

)

Net increase (decrease) in cash and cash equivalents

 

 

(1,743

)

 

 

740

 

Cash and cash equivalents at beginning of period

 

 

6,090

 

 

 

5,759

 

Cash and cash equivalents at end of period

 

$

4,347

 

 

$

6,499

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

 

 

 

5

 

Cash paid for income taxes, net of refunds received

 

$

1

 

 

 

1

 

Noncash investing/operating activities:

 

 

 

 

 

 

 

 

Transfer of property and equipment to materials inventory

 

$

63

 

 

$

218

 

Transfer of materials inventory to property and equipment

 

$

142

 

 

$

232

 

Additions to property, equipment and intangible assets not paid at the end of the

   period

 

$

79

 

 

$

147

 

 

See accompanying notes to unaudited Condensed Consolidated Financial Statements

 

 

6


INTERMOLECULAR, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

 

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying Condensed Consolidated Financial Statements of Intermolecular, Inc. and subsidiaries (the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, certain information and disclosures normally included in complete financial statements prepared in accordance with GAAP have been condensed or omitted. The information in this report should be read in conjunction with the Company’s audited Consolidated Financial Statements and notes thereto included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as filed with the SEC on March 2, 2018. Certain amounts in the prior year’s presentations have been reclassified to conform to the current presentation. These reclassifications had no effect on previously reported net income.

In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. The operating results for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for any other future interim period or full year. The Condensed Consolidated Balance Sheet as of December 31, 2017 is derived from the audited Consolidated Financial Statements. 

Use of Estimates

The preparation of the accompanying Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenue and expenses. Management uses estimates and judgments in determining recognition of revenues, valuations of accounts receivable, inventories, intangible assets, warrants and assumptions used in the calculation of income taxes and stock-based compensation, among others. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, and adjusts such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash, cash equivalents, investments and accounts receivable. The Company’s cash, cash equivalents and investments consist of demand deposits, money market accounts, certificates of deposit, corporate bonds and commercial paper maintained with high quality financial institutions. The Company's accounts receivable consists of non-interest bearing balances due from credit-worthy customers.

 

Significant Accounting Policies

Adoption of New Accounting Standard

In November 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-18 (ASU 2016-18), Restricted Cash, which requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. The Company adopted ASU 2016-18 in the first quarter of 2018 and there was no impact on the Company’s Condensed Consolidated Financial Statements as the Company had no restricted cash balances as of June 30, 2018 and December 31, 2017.

 

On January 1, 2018, we adopted the new accounting standard ASC Topic 606, “Revenue from Contracts with Customers” (ASC 606), and all the related amendments (the new revenue standard) to all contracts which were not completed as of January 1, 2018 using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

7


Revenue Recognition

The Company’s principal sources of revenue are from program services and to a lesser extent from royalty revenue from customers who license our intellectual property.

 

Revenue from contracts with customers is recognized using the following five steps:

1) Identify the contract(s) with a customer;

2) Identify the performance obligations in the contract;

3) Determine the transaction price;

4) Allocate the transaction price to the performance obligations in the contract; and

5) Recognize revenue when (or as) the Company satisfies a performance obligation.

 

A contract contains a promise (or promises) to transfer goods or services to a customer. A performance obligation is a promise (or a group of promises) that is distinct. The transaction price is the amount of consideration a Company expects to be entitled from a customer in exchange for providing the goods or services.  

 

The unit of account for revenue recognition is a performance obligation (a good or service).  A contract may contain one or more performance obligations.  Performance obligations are accounted for separately if they are distinct. A good or service is distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and the good or service is distinct in the context of the contract. Otherwise performance obligations are combined with other promised goods or services until the Company identifies a bundle of goods or services that is distinct.

 

The transaction price is allocated to all the separate performance obligations in an arrangement. It reflects the amount of consideration to which the Company expects to be entitled in exchange for transferring goods or services, which may include an estimate of variable consideration to the extent that it is probable of not being subject to significant reversals in the future based on the Company’s experience with similar arrangements. The transaction price also reflects the impact of the time value of money if there is a significant financing component present in an arrangement. The transaction price excludes amounts collected on behalf of third parties, such as sales taxes.

 

Revenue is recognized when the Company satisfies each performance obligation by transferring control of the promised goods or services to the customer. Goods or services can transfer at a point in time or over time depending on the nature of the arrangement.

 

A majority of our program services revenue is recognized as services are performed using percentage of completion method of contract accounting based on the output or input (i.e., units or labor hours) method, whichever is the most appropriate measure of progress towards completion of the contract

 

Input method: The use of the input method requires the Company to make reasonably dependable estimates.  We use the input method based on labor hours, where revenue is calculated based on the percentage of total hours incurred in relation to total estimated hours at completion of the contract.  The input method is reasonable because labor hours best reflect the Company’s efforts toward satisfying the performance obligation over time.  As circumstances change over time, the Company updates its measure of progress to reflect any changes in the outcome of the performance obligation. Such changes to the Company’s measure of progress is accounted for as a change in accounting estimate.

 

License and royalty revenues are recognized based on estimated end-market sales of products that incorporate our intellectual property.

8


 

The cumulative effect of the changes made to our Condensed Consolidated Balance Sheet, as of January 1, 2018, as a result of the adoption of ASC 606 were as follows (in thousands):

 

 

 

Balance at December 31, 2017

 

 

Adjustment Due to ASC 606

 

 

Balance at January 1, 2018

 

Condensed Consolidated Balance Sheet

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

$

5,519

 

 

$

475

 

 

$

5,994

 

Stockholders' equity

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated deficit

 

$

(178,738

)

 

$

475

 

 

$

(178,263

)

 

The impact of ASC 606 adoption on our Condensed Consolidated Statement of Operations and Balance Sheet were as follows (in thousands):

 

 

 

For the three months ended June 30, 2018

 

 

For the six months ended June 30, 2018

 

 

 

As Reported

 

 

Without Adoption of ASC 606

 

 

Effect of Change

Higher/(Lower)

 

 

As Reported

 

 

Without Adoption of ASC 606

 

 

Effect of Change

Higher/(Lower)

 

Condensed Consolidated Statement of Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Licensing and royalty revenue

 

$

437

 

 

$

422

 

 

$

15

 

 

$

856

 

 

$

897

 

 

$

(41

)

Net loss

 

 

496

 

 

 

481

 

 

 

(15

)

 

 

(127

)

 

 

(86

)

 

 

41

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheet

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

1,920

 

 

 

1,483

 

 

 

437

 

 

 

1,920

 

 

 

1,483

 

 

 

437

 

Stockholders' equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated deficit

 

$

(178,389

)

 

$

(178,826

)

 

$

(437

)

 

$

(178,389

)

 

$

(178,826

)

 

$

(437

)

 

Contract balances

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and deferred revenue (contract liabilities) on the Condensed Consolidated Balance Sheet. For our contracts, amounts are billed at periodic intervals, such as on monthly basis. Generally, contract assets results from revenue recognition in advance of billings, and contract liabilities results from billing in advance of revenue recognition. These assets and liabilities are reported on the Condensed Consolidated Balance Sheets at the end of each reporting period. The following table provides information about contract assets and contract liabilities from contracts with customers (in thousands):

 

 

 

Balance at June 30, 2018

 

 

Balance at March 31, 2018

 

Receivable, which are included in Accounts receivable

 

$

1,194

 

 

$

3,589

 

Contract assets

 

 

726

 

 

 

610

 

Contract liabilities

 

$

309

 

 

$

997

 

 

All of the contract liability balance of $1.0 million as of March 31, 2018 was recognized as revenue for the three months ended June 30, 2018.

Practical Expedients and Exemptions

We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within sales and marketing expenses.

 

We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

9


Materials Inventory

Materials inventory consists of raw materials in the amount of $2.8 million as of June 30, 2018 and December 31, 2017.

Accounts Receivable and Allowance for Doubtful Accounts

The Company did not have any allowance for doubtful accounts as of June 30, 2018 and December 31, 2017.

 

There have been no other significant changes to the Company’s accounting policies since it filed its audited Consolidated Financial Statements in its Annual Report on Form 10-K for the year ended December 31, 2017.

Concentration of Revenue and Accounts Receivable

Significant customers are those that represent more than 10% of the Company’s total revenue or accounts receivable. For each significant customer, including related parties, revenue as a percentage of total revenue and accounts receivable as a percentage of total accounts receivable are as follows:

 

 

 

Revenue

 

 

Accounts Receivable

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

As of  June 30,

 

 

As of December 31,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Customer A

 

64%

 

 

67%

 

 

61%

 

 

58%

 

 

*

 

 

72%

 

Customer B

 

18%

 

 

*

 

 

23%

 

 

*

 

 

16%

 

 

19%

 

Customer C

 

*

 

 

*

 

 

*

 

 

*

 

 

23%

 

 

*

 

Customer D

 

*

 

 

*

 

 

*

 

 

10%

 

 

*

 

 

*

 

Customer E

 

*

 

 

15%

 

 

*

 

 

14%

 

 

*

 

 

*

 

Customer F

 

*

 

 

*

 

 

*

 

 

*

 

 

18%

 

 

*

 

Customer G

 

*

 

 

*

 

 

*

 

 

*

 

 

22%

 

 

*

 

Customer H

 

*

 

 

*

 

 

*

 

 

*

 

 

15%

 

 

*

 

 

*

less than 10%

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. ASU 2016-02 requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach and early adoption is permitted. The Company will adopt ASU 2016-02 in the first quarter of 2019. Although the Company is in the process of evaluating the impact of adoption of ASU 2016-02 on its Consolidated Financial Statements, the Company currently believes the most significant change will be related to the recognition of right-of-use assets and lease liabilities on the Company's balance sheet for its real estate operating lease.

 

 

2. Fair Value of Financial Instruments

The Company measures and reports its cash equivalents and investments at fair value. The carrying amounts for cash equivalents and investments approximate their fair values due to their short maturities. The following tables set forth the fair value of the Company’s cash equivalents and investments by level within the fair value hierarchy (in thousands):

 

 

 

As of  June 30, 2018

 

 

 

Fair Value

 

 

Level I

 

 

Level II

 

 

Level III

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

182

 

 

$

182

 

 

$

 

 

$

 

Corporate debt securities and commercial paper

 

 

26,945

 

 

 

 

 

 

26,945

 

 

 

 

Total assets measured at fair value

 

$

27,127

 

 

$

182

 

 

$

26,945

 

 

$

 

 

10


 

 

As of December 31, 2017

 

 

 

Fair Value

 

 

Level I

 

 

Level II

 

 

Level III

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

2,279

 

 

$

2,279

 

 

$

 

 

$

 

Corporate debt securities and commercial paper

 

 

19,717

 

 

 

 

 

 

19,717

 

 

 

 

Total assets measured at fair value

 

$

21,996

 

 

$

2,279

 

 

$

19,717

 

 

$

 

 

Debt investments are classified as “available-for-sale” and are carried at fair value based on quoted markets or other readily available market information. The Company's investment policy requires all investments to have a less than twenty four month maturity term and a minimum credit rating of A-. Unrealized gains and losses, net of taxes, are included in accumulated other comprehensive income (loss). Gains and losses are determined using the specific identification method. Cash, cash equivalents, and investments consisted of the following as of June 30, 2018 (in thousands):

 

 

 

As of  June 30, 2018

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Estimated

Fair Value

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

4,165

 

 

$

 

 

$

 

 

$

4,165

 

Money market funds

 

 

182

 

 

 

 

 

 

 

 

 

182

 

Corporate debt securities and commercial paper

 

 

26,988

 

 

 

 

 

 

(43

)

 

 

26,945

 

Total cash, cash equivalents and investments

 

$

31,335

 

 

$

 

 

$

(43

)

 

$

31,292

 

 

As of December 31, 2017, the Company had $36,000 of unrealized losses.

 

 

3. Property and Equipment

Property and equipment consist of the following (in thousands):

 

 

 

As of

 

 

 

June 30, 2018

 

 

December 31, 2017

 

Lab equipment and machinery

 

$

59,273

 

 

$

58,937

 

Leasehold improvements

 

 

6,327

 

 

 

6,248

 

Computer equipment and software

 

 

4,681

 

 

 

4,726

 

Furniture and fixtures

 

 

221

 

 

 

221

 

Construction in progress

 

 

381

 

 

 

282

 

Total property and equipment

 

 

70,883

 

 

 

70,414

 

Less accumulated depreciation

 

 

(66,712

)

 

 

(64,501

)

Property and equipment, net

 

$

4,171

 

 

$

5,913

 

 

The following table presents depreciation expense included in the Condensed Consolidated Statements of Operations and includes amortization of leasehold improvements (in thousands):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

Depreciation expense

 

$

1,099

 

 

$

1,394

 

 

$

2,334

 

 

$

2,865

 

 

 

 

11


4. Intangible Assets

Intangible assets consist of the following (in thousands):

 

 

 

As of