Intermolecular, Inc.
INTERMOLECULAR INC (Form: 10-Q, Received: 11/02/2017 16:25:51)

 

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 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 October 30, 2017

Common stock, $0.001 par value

 

49,559,701

 

 

 

 

 


INTERMOLECULAR, INC.

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2017

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

 

14

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

21

Item 4.

Controls and Procedures

 

21

 

PART II — OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

 

22

Item 1A.

Risk Factors

 

22

Item 6.

Exhibits

 

23

 

Signatures

 

24

 

2


PART I — FINANCI AL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

INTERMOLECULAR, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

 

 

 

September 30, 2017

 

 

December 31, 2016

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

9,887

 

 

$

5,759

 

Short-term investments

 

 

14,852

 

 

 

20,035

 

Accounts receivable

 

 

3,476

 

 

 

5,063

 

Prepaid expenses and other current assets

 

 

1,017

 

 

 

1,397

 

Total current assets

 

 

29,232

 

 

 

32,254

 

Long-term investments

 

 

2,409

 

 

 

1,995

 

Materials inventory

 

 

2,995

 

 

 

3,357

 

Property and equipment, net

 

 

7,096

 

 

 

10,964

 

Intangible assets, net

 

 

3,081

 

 

 

4,001

 

Other assets

 

 

577

 

 

 

597

 

Total assets

 

$

45,390

 

 

$

53,168

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,014

 

 

$

309

 

Accrued liabilities

 

 

1,046

 

 

 

1,451

 

Accrued compensation and employee benefits

 

 

2,564

 

 

 

1,663

 

Deferred revenue

 

 

2,018

 

 

 

1,533

 

Total current liabilities

 

 

6,642

 

 

 

4,956

 

Deferred rent

 

 

2,994

 

 

 

3,149

 

Other long-term liabilities

 

 

28

 

 

 

67

 

Total liabilities

 

 

9,664

 

 

 

8,172

 

Commitments and contingencies (note 5)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

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

   49,559,701 and 49,513,528 shares issued and outstanding as of September 30, 2017

   and December 31, 2016, respectively

 

 

50

 

 

 

50

 

Additional paid-in capital

 

 

214,538

 

 

 

213,313

 

Accumulated other comprehensive loss

 

 

(9

)

 

 

(32

)

Accumulated deficit

 

 

(178,853

)

 

 

(168,335

)

Total stockholders’ equity

 

 

35,726

 

 

 

44,996

 

Total liabilities and stockholders’ equity

 

$

45,390

 

 

$

53,168

 

 

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Program revenue

 

$

6,869

 

 

$

8,844

 

 

$

20,160

 

 

$

30,857

 

Licensing and royalty revenue

 

 

1,753

 

 

 

1,730

 

 

 

6,495

 

 

 

5,964

 

Total revenue

 

 

8,622

 

 

 

10,574

 

 

 

26,655

 

 

 

36,821

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of program revenue

 

 

2,864

 

 

 

3,431

 

 

 

8,106

 

 

 

12,284

 

Cost of licensing and royalty revenue

 

 

11

 

 

 

25

 

 

 

303

 

 

 

100

 

Total cost of revenue

 

 

2,875

 

 

 

3,456

 

 

 

8,409

 

 

 

12,384

 

Gross profit

 

 

5,747

 

 

 

7,118

 

 

 

18,246

 

 

 

24,437

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

4,835

 

 

 

8,451

 

 

 

17,328

 

 

 

22,279

 

Sales and marketing

 

 

874

 

 

 

1,792

 

 

 

3,285

 

 

 

5,866

 

General and administrative

 

 

2,000

 

 

 

2,667

 

 

 

7,225

 

 

 

7,936

 

Restructuring charges

 

 

 

 

 

1,120

 

 

 

1,351

 

 

 

1,120

 

Total operating expenses

 

 

7,709

 

 

 

14,030

 

 

 

29,189

 

 

 

37,201

 

Loss from operations

 

 

(1,962

)

 

 

(6,912

)

 

 

(10,943

)

 

 

(12,764

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

70

 

 

 

51

 

 

 

182

 

 

 

123

 

Other income (expense), net

 

 

64

 

 

 

89

 

 

 

243

 

 

 

204

 

Total other income (expense), net

 

 

134

 

 

 

140

 

 

 

425

 

 

 

327

 

Loss before provision for income taxes

 

 

(1,828

)

 

 

(6,772

)

 

 

(10,518

)

 

 

(12,437

)

Provision for income taxes

 

 

 

 

 

3

 

 

 

1

 

 

 

7

 

Net loss

 

$

(1,828

)

 

$

(6,775

)

 

$

(10,519

)

 

$

(12,444

)

Net loss per share, basic and diluted

 

$

(0.04

)

 

$

(0.14

)

 

$

(0.21

)

 

$

(0.25

)

Weighted-average number of shares used in computing net loss

   per share, basic and diluted

 

 

49,554,701

 

 

 

49,466,137

 

 

 

49,543,014

 

 

 

49,366,982

 

 

Related Party Transactions

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

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Program revenue

 

$

 

 

$

 

 

$

 

 

$

267

 

Licensing and royalty revenue

 

 

 

 

 

359

 

 

 

383

 

 

 

1,379

 

Total revenue

 

$

 

 

$

359

 

 

$

383

 

 

$

1,646

 

Cost of Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of program revenue

 

$

 

 

$

 

 

$

 

 

$

102

 

Cost of licensing and royalty revenue

 

 

 

 

 

2

 

 

 

1

 

 

 

27

 

Total cost of revenue

 

$

 

 

$

2

 

 

$

1

 

 

$

129

 

 

See accompanying notes to unaudited condensed consolidated financial statements

 

 

4


Condensed Consolidated State ments of Comprehensive Loss

(In thousands)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net loss

 

$

(1,828

)

 

$

(6,775

)

 

$

(10,519

)

 

$

(12,444

)

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

   securities, net of tax

 

 

12

 

 

 

(24

)

 

 

24

 

 

 

5

 

Other comprehensive income (loss)

 

 

12

 

 

 

(24

)

 

 

24

 

 

 

5

 

Comprehensive loss, net of income tax

 

$

(1,816

)

 

$

(6,799

)

 

$

(10,495

)

 

$

(12,439

)

 

See accompanying notes to unaudited condensed consolidated financial statements

 

 

5


INTERMOLECULAR, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(10,519

)

 

$

(12,444

)

Adjustments to reconcile net loss to net cash used in operating

   activities:

 

 

 

 

 

 

 

 

Depreciation, amortization, and accretion

 

 

5,369

 

 

 

7,708

 

Stock-based compensation

 

 

1,221

 

 

 

2,936

 

(Gain) loss on disposal of property and equipment

 

 

70

 

 

 

(19

)

Gain on disposal of intangible assets

 

 

(1,239

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

1,587

 

 

 

2,524

 

Prepaid expenses and other assets

 

 

402

 

 

 

118

 

Materials inventory

 

 

391

 

 

 

489

 

Accounts payable

 

 

688

 

 

 

(453

)

Accrued and other liabilities

 

 

370

 

 

 

(2,088

)

Deferred revenue

 

 

485

 

 

 

(471

)

Net cash used in operating activities

 

 

(1,175

)

 

 

(1,700

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of investments

 

 

(15,505

)

 

 

(22,361

)

Redemption of investments

 

 

20,014

 

 

 

23,526

 

Purchase of property and equipment

 

 

(705

)

 

 

(2,130

)

Proceeds from sale of equipment

 

 

12

 

 

 

22

 

Proceeds from sale of intangible assets

 

 

1,500

 

 

 

 

Purchased and capitalized intangible assets

 

 

 

 

 

(45

)

Net cash (used in) provided by investing activities

 

 

5,316

 

 

 

(988

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Payment of capital leases

 

 

(13

)

 

 

(7

)

Proceeds from exercise of common stock options

 

 

 

 

 

714

 

Net cash (used in) provided by financing activities

 

 

(13

)

 

 

707

 

Net increase (decrease) in cash and cash equivalents

 

 

4,128

 

 

 

(1,981

)

Cash and cash equivalents at beginning of period

 

 

5,759

 

 

 

11,676

 

Cash and cash equivalents at end of period

 

$

9,887

 

 

$

9,695

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

6

 

 

 

5

 

Cash paid for income taxes, net of refunds received

 

$

1

 

 

 

7

 

Noncash investing/operating activities:

 

 

 

 

 

 

 

 

Transfer of property and equipment to materials inventory

 

$

380

 

 

$

752

 

Transfer of materials inventory to property and equipment

 

$

351

 

 

$

1,335

 

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

   period

 

$

49

 

 

$

72

 

 

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, 2016, as filed with the SEC on March 3, 2017. 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 nine months ended September 30, 2017 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, 2016 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 consist of non-interest bearing balances due from credit-worthy customers.

 

Significant Accounting Policies

 

There has been no 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, 2016. During the first quarter of 2017, in connection with a CDP, the Company recognized revenue on the sale of intellectual property that was developed during the term of the CDP.

Materials Inventory

Materials inventories consist of raw materials in the amount of $3.0 million and $3.4 million as of September 30, 2017 and December 31, 2016, respectively.

Accounts Receivable and Allowance for Doubtful Accounts

The Company did not have any allowance for doubtful accounts as of September 30, 2017 and December 31, 2016.

7


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 September 30,

 

 

Nine Months Ended September 30,

As of  September 30,

 

 

As of December 31,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Customer A

 

 

55%

 

 

 

49%

 

 

 

57%

 

 

 

35%

 

 

 

60%

 

 

 

69%

 

Customer B

 

 

14%

 

 

 

12%

 

 

 

14%

 

 

 

19%

 

 

*

 

 

*

 

Customer C

 

 

12%

 

 

*

 

 

*

 

 

 

13%

 

 

 

22%

 

 

*

 

Customer D

 

*

 

 

 

11%

 

 

*

 

 

*

 

 

*

 

 

*

 

Customer E

 

*

 

 

*

 

 

*

 

 

*

 

 

 

11%

 

 

*

 

Customer F

 

*

 

 

*

 

 

*

 

 

*

 

 

*

 

 

 

14%

 

 

*

less than 10%

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09 (ASU 2014-09) "Revenue from Contracts with Customers." ASU 2014-09 supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605)”, and requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. As currently issued, the standard is effective beginning in the first quarter of fiscal year 2018. The Company has performed an initial evaluation of this standard and its impact on the financial statements. This included tasks such as identifying contracts, identifying performance obligations and reviewing the applicable revenue streams. The Company will continue to assess these new requirements, including the new revenue disclosure requirements, prior to implementation which is expected under the modified retrospective method. The Company expects licensing royalty revenues that are currently recognized on a cash basis will be estimated and recognized when delivery occurs/contract/agreement is finalized. The Company expects this change will not have a material impact on its financial statements.

 

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The new guidance enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. The update to the standard is effective for the Company in the first quarter of fiscal 2018, with early adoption permitted under limited circumstances. The Company is currently evaluating the effect the Standard will have on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases. ASU 2016-02 requires that lease arrangements longer than 12 months result in an entity recognizing an asset and liability. The updated guidance is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. The Company is currently evaluating the effect the Standard will have on its consolidated financial statements.

 

 

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. 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  September 30, 2017

 

 

 

Fair Value

 

 

Level I

 

 

Level II

 

 

Level III

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

4,691

 

 

$

4,691

 

 

$

 

 

$

 

Corporate debt securities and commercial paper

 

 

17,261

 

 

 

 

 

 

17,261

 

 

 

 

Total assets measured at fair value

 

$

21,952

 

 

$

4,691

 

 

$

17,261

 

 

$

 

 

8


 

 

As of December 31, 2016

 

 

 

Fair Value

 

 

Level I

 

 

Level II

 

 

Level III

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

2,669

 

 

$

2,669

 

 

$

 

 

$

 

Corporate debt securities and commercial paper

 

 

22,030

 

 

 

 

 

 

22,030

 

 

 

 

Total assets measured at fair value

 

$

24,699

 

 

$

2,669

 

 

$

22,030

 

 

$

 

 

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 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 September 30, 2017 (in thousands):

 

 

 

As of  September 30, 2017

 

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Estimated

Fair Value

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

5,196

 

 

$

 

 

$

 

 

$

5,196

 

Money market funds

 

 

4,691

 

 

 

 

 

 

 

 

 

4,691

 

Corporate debt securities and commercial paper

 

 

17,252

 

 

 

 

 

 

(9

)

 

 

17,261

 

Total cash, cash equivalents and investments

 

$

27,139

 

 

$

 

 

$

(9

)

 

$

27,148

 

 

As of December 31, 2016, the Company had $32,000 of unrealized losses.

 

 

3. Property and Equipment

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

 

 

 

As of

 

 

 

September 30, 2017

 

 

December 31, 2016

 

Lab equipment and machinery (1)

 

$

58,849

 

 

$

58,289

 

Leasehold improvements

 

 

6,248

 

 

 

6,246

 

Computer equipment and software

 

 

4,855

 

 

 

4,640

 

Furniture and fixtures

 

 

221

 

 

 

219

 

Construction in progress

 

 

274

 

 

 

590

 

Total property and equipment

 

 

70,447

 

 

 

69,984

 

Less accumulated depreciation

 

 

(63,351

)

 

 

(59,020

)

Property and equipment, net

 

$

7,096

 

 

$

10,964

 

 

(1)

Includes $0 and $90,000 (in net book value) of lab equipment and machinery acquired under capital leases, as of September 30, 2017 and December 31, 2016, respectively. See Note 5 for detailed lease information.

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

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Depreciation expense

 

$

1,561

 

 

$

2,415

 

 

$

4,426

 

 

$

5,639

 

 

During the third quarter of 2017, the Company determined that it identified indicators of impairment relating to certain lab equipment. Based on this evaluation, the Company recorded an impairment charge of $96,000 in the third quarter of 2017. Fair value was based on the expected future cash flows using Level 3 inputs under ASC 820, which are cash flows expected to be generated by the market participants, discounted at the risk-free rate of interest. Because of changing market conditions, such as declining usage and rising interest rates, it is reasonably possible that the estimate of expected future cash flows may change in the near term resulting in the need to further adjust our determination of fair value.

 

9


4. Intangible Assets

Intangible assets consist of the following (in thousands):

 

 

 

As of

 

 

 

September 30, 2017

 

 

December 31, 2016

 

Patents issued

 

$

4,272

 

 

$

4,892

 

Patents pending

 

 

165

 

 

 

385

 

Trademarks

 

 

40

 

 

 

40

 

Total intangible assets

 

 

4,477

 

 

 

5,317

 

Less patent amortization

 

 

(1,396

)

 

 

(1,316

)

Intangible assets, net

 

$

3,081

 

 

$

4,001

 

 

The following table presents patent amortization expense included in the Condensed Consolidated Statement of Operations (in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Amortization expense

 

$

79

 

 

$

130

 

 

$

245

 

 

$

394

 

 

During third quarter of 2017, the Company identified certain patents with carrying values deemed to not be recoverable. Based on this evaluation, the Company recorded an impairment charge of $11,000 related to these patents. Fair value was based on expected future cash flows using Level 3 inputs under ASC 820, which are cash flows expected to be generated by the market participants, discounted at the risk-free rate of interest. Because of changing market conditions such as decreased demand and rising interest rates, it is reasonably possible that the estimate of expected future cash flows may change in the near term resulting in the need to further adjust our determination of fair value.

 

 

5. Commitments and Contingencies

Leases

The Company entered into an operating lease agreement in May 2010 for its San Jose headquarters that was subsequently modified in Nov 2013 and May 2015.  The building lease expires in June 2025. Rent expense is being recognized on a straight-line basis over the lease term.

The following table presents rent expense included in the Condensed Consolidated Statement of Operations (in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Rent expense

 

$

567

 

 

$

566

 

 

$

1,685

 

 

$

1,695

 

 

During the third quarter of 2017, the Company made payments of $0.6 million related to this operating lease.

In December 2015, the Company signed a sublease to lease out a portion of office space. The term of the lease is for three years and annual gross rent is approximately $0.3 million. The sublessee moved in during the second quarter of 2016. The Company received $0.1 million in rent payment under the agreement in the third quarter of 2017.

Capital Lease Obligations

During the third quarter of 2016, the Company leased a furnace under a three year lease agreement which was accounted for as a capital lease under ASC 840-30; the underlying asset was included in lab equipment and machinery. The lease agreement contains a cancellation option after 12 months and automatically transfers ownership of the property to the Company, the lessee, at the end of the lease term. The Company terminated the lease in August 2017, recognized a loss of $29,000 and the capital lease obligation of $49,000 was cancelled. The net book value of the underlying asset as of the termination date was $79,000.      

Depreciation expense of the furnace recorded under the capital lease obligations was $2,000 for the three months ended September 30, 2017, and $3,000 for the three months ended September 30, 2016.

 

10


 

6. Stockholders’ Equity

Stock-Based Compensation

The fair value of the employee stock options granted during the period was estimated on the respective grant date using a Black-Scholes option-pricing model with the following weighted-average assumptions: 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Expected term (in years)

 

 

6.1

 

 

 

6.1

 

 

 

6.0

 

 

 

6.0

 

Risk-free interest rate

 

 

2.0

%

 

 

1.3

%

 

 

2.1

%

 

 

1.3

%

Expected volatility

 

 

54

%

 

 

55

%

 

 

55

%

 

 

54

%

Expected dividend rate

 

 

%

 

 

%

 

 

%

 

 

%

 

Stock-based compensation expense, net of estimated forfeitures, was included in the following line items on the Condensed Consolidated Statements of Operations (in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Cost of revenue

 

$

38

 

 

$

101

 

 

$

144

 

 

$

408

 

Research and development

 

 

61

 

 

 

223

 

 

 

306

 

 

 

759

 

Sales and marketing

 

 

28

 

 

 

178

 

 

 

97

 

 

 

568

 

General and administrative

 

 

115

 

 

 

384

 

 

 

674

 

 

 

1,201

 

Total stock-based compensation

 

$

242

 

 

$

886

 

 

$

1,221

 

 

$

2,936

 

 

The following table presents stock-based compensation expense, net of estimated forfeitures, by grant type (in thousands):

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Stock options

 

$

197

 

 

$

770

 

 

$

1,095

 

 

$

2,518

 

Restricted stock awards and restricted stock units (RSUs)

 

 

45

 

 

 

116

 

 

 

126

 

 

 

418

 

Total stock-based compensation

 

$

242

 

 

$

886

 

 

$

1,221

 

 

$

2,936

 

 

The following table presents unrecognized compensation expense, net of estimated forfeitures, related to the Company’s equity compensation plans as of September 30, 2017, which is expected to be recognized over the following weighted-average periods (in thousands, except for weighted-average period): 

 

 

 

Unrecognized

 

 

Weighted-

 

 

 

Compensation

 

 

Average Period