See accompanying notes to unaudited Condensed Consolidated Financial Statements
See accompanying notes to unaudited Condensed Consolidated Financial Statements
See accompanying notes to unaudited Condensed Consolidated Financial Statements
See accompanying notes to unaudited Condensed Consolidated Financial Statements
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, 2018, as filed with the SEC on March 8, 2019. 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 months ended March 31, 2019 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, 2018 is derived from the audited Consolidated Financial Statements.
Agreement and Plan of Merger
On May 6, 2019, the Company, entered into an Agreement and Plan of Merger (the Merger Agreement) with EMD Group Holding II, Inc., a Delaware corporation and an indirect wholly owned subsidiary of Merck KGaA, Darmstadt, Germany (Parent) and EMD Performance Materials Semiconductor Services Corp., a Delaware corporation and a wholly owned subsidiary of Parent (Merger Sub), providing for the merger of Merger Sub with and into the Company (the Merger), with the Company surviving the Merger as a wholly owned subsidiary of Parent (the Surviving Corporation). The Merger Agreement was unanimously approved by the Company’s Board of Directors and the Executive Board of Merck KGaA, Darmstadt, Germany.
Pursuant to the terms and subject to the conditions of the Merger Agreement, at the effective time of the Merger (the Effective Time), each share of the Company’s common stock, par value $0.001 per share (each such share, a Company Share and collectively the Company Shares), that is outstanding immediately prior to the Effective Time (excluding (i) any shares owned by the Company, Parent or Merger Sub or any direct or indirect wholly owned subsidiary of the Company, Parent or Merger Sub (which will be canceled) and (ii) any shares with respect to which appraisal rights have been properly exercised under Delaware law (Dissenting Company Shares)) will be canceled and automatically converted into the right to receive $1.20 in cash, without interest thereon (the Merger Consideration).
Pursuant to the terms and subject to the conditions of the Merger Agreement, effective as of immediately prior to the Effective Time, (i) the vesting of each option to purchase Company Shares (each a Company Option) that remains outstanding and unvested as of immediately prior to the Effective Time shall be accelerated in full, (ii) each Company Option that remains outstanding as of immediately prior to the Effective Time shall be canceled and terminated as of the Effective Time and (iii) the holder of each such Company Option shall be paid an amount in cash (without interest), if any, equal to the product obtained by multiplying (x) the aggregate number of Company Shares underlying such Company Option immediately prior to the Effective Time, by (y) the amount, if any, by which the Merger Consideration exceeds the per share exercise price of such Company Option.
Pursuant to the terms and subject to the conditions of the Merger Agreement, effective as of immediately prior to the Effective Time, (i) the vesting of each award of restricted stock units or performance stock units (each a Company RSU Award) that remains outstanding as of immediately prior to the Effective Time shall be accelerated in full (with any applicable performance criteria being deemed achieved at the maximum possible level of achievement for such performance criteria), (ii) each Company RSU Award that remains outstanding as of immediately prior to the Effective Time shall be canceled and terminated as of the Effective Time and (iii) the holder of each such Company RSU Award shall be entitled to be paid an amount in cash (without interest) equal to the product obtained by multiplying (x) the aggregate number of Company Shares underlying such Company RSU Award immediately prior to the Effective Time, by (y) the Merger Consideration.
7
The total Merger Consideration represents an equity value of approximately $62.
3
million and an enterprise value of approximately $34.9 million, after
accounting for the acceleration of equity awards and the Company’s net cash of approximately $27.4 million at the end of the first quarter of 2019
The consummation of the Merger is also subject to the satisfaction (or waiver, if applicable) of various customary conditions, including (i) adoption of the Merger Agreement by the requisite vote of the Company’s stockholders (the Company Stockholder Approval), (ii) review and clearance by the Committee on Foreign Investment in the United States, (iii) the absence of any law or governmental order making illegal or prohibiting the Merger, (iv) the accuracy of the representations and warranties of each party contained in the Merger Agreement (subject to certain materiality qualifications), (v) each party’s compliance with or performance of the covenants and agreements in the Merger Agreement in all material respects and (vi) other customary closing conditions.
In connection with the Merger Agreement, certain executive officers, directors and stockholders of the Company (solely in their respective capacities as stockholders of the Company) holding approximately 31.0% of the outstanding Company Shares as of the date of the Merger Agreement have entered into support agreements with Parent to vote all of their Company Shares in favor of the adoption of the Merger Agreement and approval of the Merger (the Support Agreements). The Support Agreements include covenants with respect to the voting of such Company Shares in favor of approving the Merger and against any competing acquisition proposals and place certain restrictions on the transfer of the Company Shares held by the respective signatories thereto.
The Merger Agreement contains certain termination rights for the Company and Parent. Upon termination of the Merger Agreement under specified circumstances, including in connection with the Company’s entry into a definitive agreement providing for the consummation of a superior proposal as permitted under the Merger Agreement, the Company will be required to pay Parent a termination fee of $2.3 million.
The foregoing description of the Merger Agreement and the Support Agreements does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, which was filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on May 6, 2019, and the Support Agreements, executed in substantially the form which was filed as Exhibit 2.2 to the Company’s Current Report on Form 8-K filed on May 6, 2019.
During the three months ended March 31, 2019, the Company recorded acquisition-related costs of $0.4 million within its condensed consolidated statements of operations.
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
Adoption of ASC 842
On January 1, 2019, the Company adopted FASB Accounting Standards Codification (ASC) Topic 842,
Leases
(ASC 842), which requires the recognition of the right-of-use assets and related operating and finance lease liabilities on the balance sheet. As permitted by ASC 842, the Company elected the adoption date of January 1, 2019, which is the date of initial application. As a result, the
8
consolidated balance sheet prior to January 1, 2019 was not restated, continues to be reported under ASC Topic 840,
Leases
(ASC 840), which did not require the recognition of operating lease liabilities on the balance sheet, a
nd is not comparative. Under ASC 842, all leases are required to be recorded on the balance sheet and are classified as either operating leases or finance leases. The lease classification affects the expense recognition in the income statement. Operating l
ease charges are recorded entirely in operating expenses. Finance lease charges are split, where amortization of the right-of-use asset is recorded in operating expenses and an implied interest component is recorded in interest expense. The expense recogni
tion for operating leases and finance leases under ASC 842 is substantially consistent with ASC 840. As a result, there is no significant difference in the Company’s results of operations presented in its consolidated income statement and consolidated stat
ement of comprehensive income for each period presented.
The Company adopted ASC 842 using a modified retrospective approach for all leases existing at January 1, 2019. The adoption of ASC 842 had a substantial impact on the Company’s balance sheet. The most significant impact was the recognition of the operating lease right-of-use assets and the liability for operating leases. The Company did not have any finance leases as December 31, 2018 and March 31, 2019. Accordingly, upon adoption, leases that were classified as operating leases under ASC 840 were classified as operating leases under ASC 842, and the Company recorded an adjustment of $11.6 million to operating lease right-of-use assets and the related lease liability. The lease liability is based on the present value of the remaining minimum lease payments, determined under ASC 840, discounted using the Company’s secured incremental borrowing rate at the effective date of January 1, 2019, using the original lease term as the tenor. As permitted under ASC 842, the Company elected several practical expedients that permit us to not reassess (1) whether a contract is or contains a lease, (2) the classification of existing leases, and (3) whether previously capitalized costs continue to qualify as initial indirect costs. The application of the practical expedients did not have a significant impact on the measurement of the operating lease liability.
The impact of the adoption of ASC 842 on the balance sheet at December 31, 2018 was (in thousands):
|
|
As Reported December 31, 2018
|
|
|
Adoption of ASC 842 Increase (Decrease)
|
|
|
Balance at January 1, 2019
|
|
Condensed Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use lease assets - operating
|
|
$
|
—
|
|
|
$
|
11,628
|
|
|
$
|
11,628
|
|
Total assets
|
|
$
|
43,393
|
|
|
$
|
11,628
|
|
|
$
|
55,021
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
1,234
|
|
|
$
|
(271
|
)
|
|
$
|
963
|
|
Current portion of lease obligation - operating
|
|
|
—
|
|
|
|
1,801
|
|
|
|
1,801
|
|
Total current liabilities
|
|
|
6,342
|
|
|
|
1,530
|
|
|
|
7,872
|
|
Deferred rent, net of current portion
|
|
|
2,667
|
|
|
|
(2,667
|
)
|
|
|
—
|
|
Long term lease obligation - operating
|
|
|
—
|
|
|
|
12,765
|
|
|
|
12,765
|
|
Total liabilities
|
|
|
9,009
|
|
|
|
11,628
|
|
|
|
20,637
|
|
Total liabilities and stockholders' equity
|
|
$
|
43,393
|
|
|
$
|
11,628
|
|
|
$
|
55,021
|
|
Revenue Recognition
The Company derives its revenue from two principal sources: 1) program services and 2) licensing and royalty revenues, which consist of technology licensing and royalty fees. Product sales have been made historically, but are not a principal source of revenue.
Program revenue -
The Company enters into development programs and other research and development service agreements with customers under which the Company conducts research and development activities with customers. The agreements specify minimum levels of research effort required to be performed by the Company. Payments received under the agreements are not refundable if the research effort is not successful. In some contracts, the Company retains rights to certain elements of technology developed in the course of its performance, which the customer has an option to license in the future under the terms defined in the agreement. The Company generates a significant portion of its program revenue from certain research and development service contracts delivered over a specific period of time. These contracts require reliable estimation of costs to perform obligations and the overall scope of each engagement. Revenue from contracts is recognized using the following five steps:
a) Identify the contract(s) with a customer
9
b) Identify the perform
ance obligations in the contract
c) Determine the transaction price
d) Allocate the transaction price to the performance obligations in the contract
e) 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 the Company 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. The Company uses 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 when the 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.
Output method
: The Company uses the output method based on results achieved and delivered to the customer, where revenue is calculated based on the deliverables transferred to the customers as a percentage of total deliverables to be transferred to the customer at completion of the contract. The output method is reasonable when the deliverables best reflect the Company’s efforts toward satisfying the performance obligation over time.
Licensing and royalty revenue -
The Company recognizes revenue for licenses to intellectual property when earned pursuant to the terms of the agreements. Time-based license revenue is recognized ratably over the license term. Licensing and royalty revenue that becomes triggered by specific customer actions, such as exercise of a license option or by sales volume, is based on estimated end-market sales of products that incorporate the Company’s intellectual property. Revenue on the sale of intellectual property is recognized in full when title transfers if there are no remaining deliverables related to the intellectual property purchase.
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 the Company’s contracts, amounts are billed at periodic intervals, such as on monthly basis. Generally, contract assets results from revenue
10
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 f
ollowing table provides information about contract assets and contract liabilities from contracts with customers (in thousands):
|
|
Balance at March 31, 2019
|
|
|
Balance at
December 31, 2018
|
|
Receivables, which are included in Accounts receivable
|
|
$
|
1,723
|
|
|
$
|
2,258
|
|
Contract assets
|
|
|
728
|
|
|
|
1,091
|
|
Contract liabilities
|
|
$
|
333
|
|
|
$
|
917
|
|
All of the contract liability balance of $0.9 million as of December 31, 2018 was recognized as revenue for the three months ended March 31, 2019.
Practical Expedients and Exemptions
The Company generally expenses sales commissions when incurred if the amortization period is one year or less. These costs are recorded within sales and marketing expenses.
The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. As of March 31, 2019 there are no outstanding contracts with an original expected length of more than one year.
Materials Inventory
Materials inventory consists of raw materials in the amount of $2.6 million as of March 31, 2019 and December 31, 2018.
Accounts Receivable and Allowance for Doubtful Accounts
The Company did not have any allowance for doubtful accounts as of March 31, 2019 and December 31, 2018.
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, 2018.
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
March 31,
|
|
|
As of March 31,
|
|
|
As of December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Customer A
|
|
49%
|
|
|
*
|
|
|
37%
|
|
|
26%
|
|
Customer B
|
|
18%
|
|
|
58%
|
|
|
*
|
|
|
*
|
|
Customer C
|
|
13%
|
|
|
28%
|
|
|
12%
|
|
|
10%
|
|
Customer D
|
|
12%
|
|
|
*
|
|
|
16%
|
|
|
26%
|
|
Customer E
|
|
*
|
|
|
*
|
|
|
11%
|
|
|
12%
|
|
Customer F
|
|
*
|
|
|
*
|
|
|
*
|
|
|
17%
|
|
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments
(ASU 2016-13), which changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019 and early adoption is permitted for annual and interim periods beginning after December 15, 2018. The Company will adopt ASU 2016-13 on January 1, 2020. The Company doesn’t expect material impact on its results of operations or financial position due to adaption of the standard
.
11
In June 2
018, the FASB issued ASU 2018-07 Compensation-Stock Compensation (Topic 718), to simplify the accounting for share–based payments granted to nonemployees by aligning the accounting with the requirements for employee share–based compensation. ASU 2018-07 is
effective for the Company beginning in fiscal 2019, including interim periods within that fiscal year. Early adoption is permitted but no earlier than a company's adoption of ASC 606. The Company does not expect the adoption of ASU 2018-07 to have any imp
act on its consolidated financial statements and associated disclosures
.
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 March 31, 2019
|
|
|
|
Fair Value
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
2,035
|
|
|
$
|
2,035
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Corporate debt securities and commercial paper
|
|
|
23,613
|
|
|
|
—
|
|
|
|
23,613
|
|
|
|
—
|
|
Total assets measured at fair value
|
|
$
|
25,648
|
|
|
$
|
2,035
|
|
|
$
|
23,613
|
|
|
$
|
—
|
|
|
|
As of December 31, 2018
|
|
|
|
Fair Value
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
5,383
|
|
|
$
|
5,383
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Corporate debt securities and commercial paper
|
|
|
22,098
|
|
|
|
—
|
|
|
|
22,098
|
|
|
|
—
|
|
Total assets measured at fair value
|
|
$
|
27,481
|
|
|
$
|
5,383
|
|
|
$
|
22,098
|
|
|
$
|
—
|
|
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 September 30, 2018 (in thousands):
|
|
As of March 31, 2019
|
|
|
|
Amortized Cost
|
|
|
Unrealized Gains
|
|
|
Unrealized Losses
|
|
|
Estimated
Fair Value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,781
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,781
|
|
Money market funds
|
|
|
2,035
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,035
|
|
Corporate debt securities and commercial paper
|
|
|
23,620
|
|
|
|
7
|
|
|
|
—
|
|
|
|
23,613
|
|
Total cash, cash equivalents and investments
|
|
$
|
27,436
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
27,429
|
|
As of December 31, 2018, the Company had $28,000 of unrealized losses.
3. Property and Equipment
Property and equipment, net, consist of the following (in thousands):
|
|
As of
|
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Lab equipment and machinery
|
|
$
|
59,645
|
|
|
$
|
59,413
|
|
Leasehold improvements
|
|
|
6,429
|
|
|
|
6,420
|
|
Computer equipment and software
|
|
|
4,516
|
|
|
|
4,512
|
|
Furniture and fixtures
|
|
|
221
|
|
|
|
221
|
|
Construction in progress
|
|
|
1,030
|
|
|
|
1,025
|
|
Total property and equipment
|
|
|
71,841
|
|
|
|
71,591
|
|
Less accumulated depreciation
|
|
|
(68,716
|
)
|
|
|
(68,159
|
)
|
Property and equipment, net
|
|
$
|
3,125
|
|
|
$
|
3,432
|
|
12
The following table
presents depreciation expense included in the Condensed Consolidated Statement
s
of Operations and includes amortization of leasehold improvements (in thousands):
|
|
Three Months Ended March 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Depreciation expense
|
|
$
|
557
|
|
|
$
|
1,236
|
|
|
4. Intangible Assets
Intangible assets, net, consist of the following (in thousands):
|
|
As of
|
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Patents issued
|
|
$
|
2,791
|
|
|
$
|
2,847
|
|
Patents pending
|
|
|
47
|
|
|
|
89
|
|
Trademarks
|
|
|
40
|
|
|
|
40
|
|
Total intangible assets
|
|
|
2,878
|
|
|
|
2,976
|
|
Less patent amortization
|
|
|
(899
|
)
|
|
|
(901
|
)
|
Intangible assets, net
|
|
$
|
1,979
|
|
|
$
|
2,075
|
|
The following table presents patent amortization expense included in the Condensed Consolidated Statements of Operations (in thousands):
|
|
Three Months Ended March 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Amortization expense
|
|
$
|
43
|
|
|
$
|
69
|
|
|
5. Commitments and Contingencies
Leases
The Company has operating leases for real estate and certain office equipment. Operating lease expense was $0.6 million for the three months ended March 31, 2019.
Supplemental cash flow information, as of March 31, 2019, related to operating leases was as follows (in thousands):
|
|
Three Months Ended March 31, 2019
|
|
Cash paid within operating cash flows
|
|
$
|
572
|
|
Right-of-use assets recognized in exchange for new obligations
|
|
$
|
—
|
|
Supplemental balance sheet information, as of March 31, 2019, related to operating leases was as follow:
Weighted average remaining lease term
|
|
3.9 Years
|
|
Weighted average discount rate
|
|
|
6.1
|
%
|
As of March 31, 2019, the maturities of the Company’s operating lease liabilities are as follow (in thousands):
Fiscal Year
|
|
Amount
|
|
2019
|
|
$
|
1,928
|
|
2020
|
|
|
2,620
|
|
2021
|
|
|
2,648
|
|
2022
|
|
|
2,714
|
|
2023
|
|
|
2,782
|
|
2024 and thereafter
|
|
|
4,308
|
|
Total lease payments
|
|
$
|
17,000
|
|
Less imputed interest
|
|
|
(2,921
|
)
|
Present value of operating lease liabilities
|
|
$
|
14,079
|
|
13
In December 2015, the Company signed a sublease to lease out a portion of its office space. The term of the sublease was three years and annual gross rent was approximately $0.3 million. The sublease commenced during the second quarter of 2016 and terminated during the first quarter of 2019. The Company received $0.1 million in rent payments under the agreement for the three months ended March 31, 2019 and 2018, respectively.
6. Stockholders’ Equity
The following represents the activities in the Company’s Stockholders’ Equity, by quarter, for the three months ended March 31, 2019 and 2018 (in thousands, except share data):
|
|
Three Months Ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
|
|
|
Total
|
|
|
|
Common stock
|
|
|
|
|
|
|
Additional
|
|
|
Accumulated
|
|
|
comprehensive
|
|
|
stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
paid-in capital
|
|
|
deficit
|
|
|
loss
|
|
|
equity
|
|
Balances as of December 31, 2018
|
|
|
49,752,516
|
|
|
|
50
|
|
|
|
216,034
|
|
|
|
(181,672
|
)
|
|
|
(28
|
)
|
|
|
34,384
|
|
Issuance of common stock from
option exercises
|
|
|
5,708
|
|
|
|
—
|
|
|
|
5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5
|
|
Vesting of restricted stock units
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
463
|
|
|
|
—
|
|
|
|
—
|
|
|
|
463
|
|
Other comprehensive income (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35
|
|
|
|
35
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,262
|
)
|
|
|
—
|
|
|
|
(2,262
|
)
|
Balances as of March 31, 2019
|
|
|
49,758,224
|
|
|
$
|
50
|
|
|
$
|
216,502
|
|
|
$
|
(183,934
|
)
|
|
$
|
7
|
|
|
$
|
32,625
|
|
|
|
Three Months Ended March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
|
|
|
Total
|
|
|
|
Common stock
|
|
|
|
|
|
|
Additional
|
|
|
Accumulated
|
|
|
comprehensive
|
|
|
stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
paid-in capital
|
|
|
deficit
|
|
|
loss
|
|
|
equity
|
|
Balances as of December 31, 2017
|
|
|
49,569,721
|
|
|
|
50
|
|
|
|
214,796
|
|
|
|
(178,738
|
)
|
|
|
(35
|
)
|
|
|
36,073
|
|
Issuance of common stock from option exercises
|
|
|
16,387
|
|
|
|
—
|
|
|
|
16
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16
|
|
Vesting of restricted stock units
|
|
|
15,265
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
270
|
|
|
|
—
|
|
|
|
—
|
|
|
|
270
|
|
Other comprehensive income (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(24
|
)
|
|
|
(24
|
)
|
ASC 606 Adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
476
|
|
|
|
—
|
|
|
|
476
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(623
|
)
|
|
|
—
|
|
|
|
(623
|
)
|
Balances as of March 31, 2018
|
|
|
49,601,373
|
|
|
$
|
50
|
|
|
$
|
215,082
|
|
|
$
|
(178,885
|
)
|
|
$
|
(59
|
)
|
|
$
|
36,188
|
|
Stock-Based Compensation
The fair value of the employee stock options granted during the period was estimated based on the respective grant date using a Black-Scholes-Merton option-pricing model with the following weighted-average assumptions:
|
|
Three Months Ended March 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Expected term (in years)
|
|
|
6.1
|
|
|
|
6.0
|
|
|
Risk-free interest rate
|
|
|
2.3
|
%
|
|
|
2.6
|
%
|
|
Expected volatility
|
|
|
57.4
|
%
|
|
|
54.2
|
%
|
|
Expected dividend rate
|
|
|
—
|
%
|
|
|
—
|
%
|
|
14
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 March 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Cost of revenue
|
|
$
|
46
|
|
|
$
|
53
|
|
|
Research and development
|
|
|
113
|
|
|
|
55
|
|
|
Sales and marketing
|
|
|
53
|
|
|
|
30
|
|
|
General and administrative
|
|
|
251
|
|
|
|
132
|
|
|
Total stock-based compensation
|
|
$
|
463
|
|
|
$
|
270
|
|
|
The following table presents stock-based compensation expense, net of estimated forfeitures, by grant type (in thousands):
|
|
Three Months Ended March 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Stock options
|
|
$
|
230
|
|
|
$
|
215
|
|
|
Restricted stock awards and restricted stock units (RSUs)
|
|
|
233
|
|
|
|
55
|
|
|
Total stock-based compensation
|
|
$
|
463
|
|
|
$
|
270
|
|
|
The following table presents unrecognized compensation expense, net of estimated forfeitures, related to the Company’s equity compensation plans as of March 31, 2019, which is expected to be recognized over the following weighted-average periods (in thousands):
|
|
Unrecognized
|
|
|
Weighted-
|
|
|
|
Compensation
|
|
|
Average Period
|
|
|
|
Expense
|
|
|
(in years)
|
|
Stock options
|
|
$
|
1,304
|
|
|
|
2.4
|
|
RSUs
|
|
$
|
1,241
|
|
|
|
1.6
|
|
The following table presents details on grants made by the Company for the following periods:
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
March 31, 2018
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Average Grant
|
|
|
|
|
|
|
Average Grant
|
|
|
|
Shares Granted
|
|
|
Date Fair Value
|
|
|
Shares Granted
|
|
|
Date Fair Value
|
|
Stock options
|
|
|
36,000
|
|
|
$
|
0.95
|
|
|
|
395,000
|
|
|
$
|
0.72
|
|
RSUs
|
|
|
—
|
|
|
$
|
—
|
|
|
|
345,000
|
|
|
$
|
1.35
|
|
The total intrinsic value of stock options exercised during the three months ended March 31, 2019 and 2018 was $1,000 and $8,000, respectively.
RSUs that vested during the three months ended March 31, 2019 and 2018 had fair values of $0 and $30,000, respectively, as of the applicable vesting date.
Common Stock
As of March 31, 2019 and December 31, 2018, the Company had reserved shares of common stock for issuance as follows:
|
|
As of March 31, 2019
|
|
|
As of December 31, 2018
|
|
Number of stock options outstanding
|
|
|
6,156,932
|
|
|
|
6,329,737
|
|
Number of RSUs outstanding
|
|
|
1,845,000
|
|
|
|
1,845,000
|
|
Shares available for future grant
|
|
|
13,686,637
|
|
|
|
11,280,677
|
|
Total shares reserved
|
|
|
21,688,569
|
|
|
|
19,455,414
|
|
15
7. Net
Earnings
(
Loss
)
per Share
The following outstanding shares of common stock equivalents were excluded from the computation of diluted net earnings (loss) per share for the periods presented due to their antidilutive effect:
|
|
Three Months Ended March 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Stock options to purchase common stock
|
|
|
6,156,932
|
|
|
|
8,367,253
|
|
|
RSUs
|
|
|
1,845,000
|
|
|
|
848,750
|
|
|
8. Income Taxes
The Company incurred no income tax expense for the first quarter operations of 2019. The Company maintained a valuation allowance as of March 31, 2019, against all of its deferred tax assets. The Company intends to maintain a full valuation allowance until sufficient positive evidence exists to support its reduction.
9. Related Party Transactions
During the quarter ended March 31, 2019, two of our board members ceased employment with an investment firm that is a beneficial owner of approximately 29.6% of the Company’s common stock. The Company incurred director fees of $11,000 and $21,000 to the investment firm for the three months ended March 31, 2019 and 2018, respectively.
10. Information about Geographic Areas
Revenue
Revenue by geography is based on the billing address of the customer. The following table sets forth revenue by geographic area (in thousands):
|
|
Three Months Ended March 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
United States
|
|
$
|
4,502
|
|
|
$
|
1,232
|
|
|
Asia-Pacific (excluding Japan)
|
|
|
2,149
|
|
|
|
8,443
|
|
|
Total
|
|
$
|
6,651
|
|
|
$
|
9,675
|
|
|
Long-Lived Assets
All of the Company’s long-lived assets are located in the U.S.
16