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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

COMMISSION FILE NUMBER: 000-29440

 

IDENTIV, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

 

 

DELAWARE

 

77-0444317

(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)

 

(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)

39300 Civic Center Drive, Suite 160

Fremont, California 94538

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)

(949) 250-8888

(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 þ    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 þ    No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  ¨

  

Accelerated filer ¨

  

Non-accelerated filer ¨

  

Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ¨ No  þ

At August 8, 2014, 8,071,046 shares of common stock were outstanding, excluding 61,840 shares held in treasury.

 

 

 

 

 


TABLE OF CONTENTS

 

 

 

 

2


PART I: FINANCIAL INFORMATION

 

Item 1. Financial Statements

IDENTIV, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

 

 

June 30,

 

 

December 31,

 

 

2014

 

 

2013 (A)

 

ASSETS

(unaudited)

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash

$

12,525

 

 

$

5,095

 

Accounts receivable, net of allowances of $65 and $131 as of June 30, 2014 and December 31, 2013, respectively

 

13,061

 

 

 

13,289

 

Inventories

 

10,168

 

 

 

8,995

 

Prepaid expenses

 

1,154

 

 

 

957

 

Other current assets

 

1,416

 

 

 

1,766

 

Current assets of discontinued operations

 

96

 

 

 

2,727

 

Total current assets

 

38,420

 

 

 

32,829

 

Property and equipment, net

 

5,566

 

 

 

5,888

 

Goodwill

 

8,980

 

 

 

8,991

 

Intangible assets, net

 

9,458

 

 

 

10,184

 

Other assets

 

1,150

 

 

 

867

 

Total assets

$

63,574

 

 

$

58,759

 

LIABILITIES AND STOCKHOLDERS´ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

10,093

 

 

$

9,353

 

Liability to related party

 

1,043

 

 

 

1,073

 

Financial liabilities

 

833

 

 

 

2,971

 

Deferred revenue

 

523

 

 

 

729

 

Accrued compensation and related benefits

 

2,789

 

 

 

3,383

 

Other accrued expenses and liabilities

 

4,256

 

 

 

5,239

 

Current liabilities of discontinued operations

 

 

 

 

1,630

 

Total current liabilities

 

19,537

 

 

 

24,378

 

Long-term liability to related party

 

5,413

 

 

 

5,648

 

Long-term financial liabilities

 

14,801

 

 

 

3,051

 

Other long-term liabilities

 

681

 

 

 

938

 

Total liabilities

 

40,432

 

 

 

34,015

 

Commitments and contingencies (see Note 14)

 

 

 

 

 

 

 

Stockholders´ equity:

 

 

 

 

 

 

 

Identiv, Inc. stockholders' equity:

 

 

 

 

 

 

 

Preferred stock, $0.001 par value: 10,000 shares authorized; none issued and outstanding

 

 

 

 

 

Common stock, $0.001 par value: 130,000 shares authorized;

 

 

 

 

 

 

 

8,069 and 7,507 shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively

 

8

 

 

 

8

 

Additional paid-in capital

 

354,908

 

 

 

348,912

 

Treasury stock, 62 shares as of June 30, 2014 and December 31, 2013

 

(2,777

)

 

 

(2,777

)

Accumulated deficit

 

(328,620

)

 

 

(320,876

)

Accumulated other comprehensive income

 

1,394

 

 

 

1,227

 

Total Identiv, Inc. stockholders' equity

 

24,913

 

 

 

26,494

 

Noncontrolling interest

 

(1,771

)

 

 

(1,750

)

Total stockholders´ equity

 

23,142

 

 

 

24,744

 

Total liabilities and stockholders´ equity

$

63,574

 

 

$

58,759

 

 

(A)

The condensed consolidated balance sheet has been derived from the audited consolidated financial statements at December 31, 2013 but does not include all the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.

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

 

 

3


IDENTIV, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended

June, 30

 

 

Six Months Ended

June, 30

 

 

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

 

Net revenue

 

$

22,301

 

 

$

18,182

 

 

$

39,155

 

 

$

33,836

 

 

Cost of revenue

 

 

13,371

 

 

 

10,134

 

 

 

23,623

 

 

 

19,074

 

 

Gross profit

 

 

8,930

 

 

 

8,048

 

 

 

15,532

 

 

 

14,762

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

1,731

 

 

 

1,870

 

 

 

3,233

 

 

 

3,563

 

 

Selling and marketing

 

 

5,731

 

 

 

4,764

 

 

 

10,766

 

 

 

9,445

 

 

General and administrative

 

 

2,867

 

 

 

3,281

 

 

 

5,910

 

 

 

7,157

 

 

Restructuring and severance

 

 

612

 

 

 

 

 

 

1,049

 

 

 

 

 

Total operating expenses

 

 

10,941

 

 

 

9,915

 

 

 

20,958

 

 

 

20,165

 

 

Loss from operations

 

 

(2,011

)

 

 

(1,867

)

 

 

(5,426

)

 

 

(5,403

)

 

Interest expense, net

 

 

(506

)

 

 

(624

)

 

 

(2,590

)

 

 

(1,216

)

 

Foreign currency (loss) gain, net

 

 

(159

)

 

 

355

 

 

 

(252

)

 

 

177

 

 

Loss from continuing operations before income taxes and noncontrolling interest

 

 

(2,676

)

 

 

(2,136

)

 

 

(8,268

)

 

 

(6,442

)

 

Income tax benefit (provision)

 

 

9

 

 

 

(7

)

 

 

(55

)

 

 

107

 

 

Loss from continuing operations before noncontrolling interest

 

 

(2,667

)

 

 

(2,143

)

 

 

(8,323

)

 

 

(6,335

)

 

Income (loss) from discontinued operations, net of income taxes

 

 

57

 

 

 

(963

)

 

 

544

 

 

 

(1,727

)

 

Consolidated net loss

 

 

(2,610

)

 

 

(3,106

)

 

 

(7,779

)

 

 

(8,062

)

 

Less: (Income) loss attributable to noncontrolling interest

 

 

(6

)

 

 

211

 

 

 

35

 

 

 

386

 

 

Net loss attributable to Identiv, Inc. stockholders´ equity

 

$

(2,616

)

 

$

(2,895

)

 

$

(7,744

)

 

$

(7,676

)

 

Basic and diluted net loss per share attributable to Identiv, Inc. stockholders´ equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(0.34

)

 

$

(0.31

)

 

$

(1.07

)

 

$

(0.97

)

 

Income (loss) from discontinued operations

 

 

0.01

 

 

 

(0.16

)

 

 

0.07

 

 

 

(0.28

)

 

Net loss

 

$

(0.33

)

 

$

(0.47

)

 

$

(1.00

)

 

$

(1.25

)

 

Weighted average shares used to compute basic and diluted loss per share

 

 

7,907

 

 

 

6,225

 

 

 

7,739

 

 

 

6,125

 

 

 

 

 

 

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

 

 

 

4


IDENTIV, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(unaudited)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

 

Consolidated net loss

 

$

(2,610

)

 

$

(3,106

)

 

$

(7,779

)

 

$

(8,062

)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on defined benefit plans

 

 

 

 

 

18

 

 

 

 

 

 

37

 

 

Foreign currency translation adjustment

 

 

72

 

 

 

(276

)

 

 

181

 

 

 

(459

)

 

Total other comprehensive income (loss), net of income taxes of nil

 

 

72

 

 

 

(258

)

 

 

181

 

 

 

(422

)

 

Consolidated comprehensive loss

 

 

(2,538

)

 

 

(3,364

)

 

 

(7,598

)

 

 

(8,484

)

 

Less: Comprehensive (income) loss attributable to noncontrolling interest

 

 

(18

)

 

 

214

 

 

 

21

 

 

 

452

 

 

Comprehensive loss attributable to Identiv, Inc. stockholders´ equity

 

$

(2,556

)

 

$

(3,150

)

 

$

(7,577

)

 

$

(8,032

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

5


IDENTIV, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

Six Months Ended June 30, 2014

(In thousands)

(unaudited)

 

 

 

Identiv, Inc. Stockholders´ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Accumulated 
Other

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Treasury

 

 

Accumulated

 

 

Comprehensive

 

 

Noncontrolling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Deficit

 

 

Income

 

 

Interest

 

 

Equity

 

Balances, December 31, 2013

 

 

7,507

 

 

$

8

 

 

$

348,912

 

 

$

(2,777

)

 

$

(320,876

)

 

$

1,227

 

 

$

(1,750

)

 

$

24,744

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,744

)

 

 

 

 

 

(35

)

 

 

(7,779

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

167

 

 

 

14

 

 

 

181

 

Issuance of common stock in connection with capital raise

 

 

503

 

 

 

 

 

 

4,171

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,171

 

Issuance of common stock in connection with ESPP

 

 

7

 

 

 

 

 

 

35

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

35

 

Issuance of common stock in connection with stock bonus and incentive plans

 

 

42

 

 

 

 

 

 

356

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

356

 

Stock options grants in connection with stock bonus and incentive plans

 

 

 

 

 

 

 

 

37

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

37

 

Issuance of common stock in connection with exercise of options and warrants

 

 

5

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11

 

Stock-based compensation expense

 

 

5

 

 

 

 

 

 

562

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

562

 

Issuance of warrants in connection with secured debt facility

 

 

 

 

 

 

 

 

824

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

824

 

Balances, June 30, 2014

 

 

8,069

 

 

$

8

 

 

$

354,908

 

 

$

(2,777

)

 

$

(328,620

)

 

$

1,394

 

 

$

(1,771

)

 

$

23,142

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

6


IDENTIV, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

 

 

 

Six Months Ended

 

 

 

 

June 30,

 

 

 

 

2014

 

 

2013

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(7,779

)

 

$

(8,062

)

 

Gain on sale of discontinued operations

 

 

(449

)

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Deferred income taxes

 

 

 

 

 

(101

)

 

Depreciation and amortization

 

 

1,495

 

 

 

2,070

 

 

Accretion of interest to related party liability

 

 

290

 

 

 

333

 

 

Amortization of debt issuance costs

 

 

1,877

 

 

 

278

 

 

Stock-based compensation expense

 

 

457

 

 

 

841

 

 

Pension charges

 

 

 

 

 

206

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(562

)

 

 

2,663

 

 

Inventories

 

 

(1,207

)

 

 

(2,944

)

 

Prepaid expenses and other assets

 

 

(115

)

 

 

676

 

 

Accounts payable

 

 

1,558

 

 

 

187

 

 

Liability to related party

 

 

(555

)

 

 

(550

)

 

Deferred revenue

 

 

(185

)

 

 

402

 

 

Accrued expenses and other liabilities

 

 

(1,386

)

 

 

567

 

 

Net cash used in operating activities

 

 

(6,561

)

 

 

(3,434

)

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(544

)

 

 

(944

)

 

Proceeds from sale of business

 

 

1,286

 

 

 

 

 

Net cash provided by (used in) investing activities

 

 

742

 

 

 

(944

)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

Proceeds from issuance of debt, net of issuance costs

 

 

16,000

 

 

 

 

 

Proceeds from capital raise, net of issuance costs

 

 

4,171

 

 

 

2,486

 

 

Proceeds from issuance of common stock under ESPP and exercise of stock options and warrants

 

 

46

 

 

 

56

 

 

Payments on financial liabilities

 

 

(7,211

)

 

 

(1,619

)

 

Net cash provided by financing activities

 

 

13,006

 

 

 

923

 

 

Effect of exchange rates on cash and cash equivalents

 

 

227

 

 

 

(233

)

 

Net increase (decrease) in cash and cash equivalents

 

 

7,414

 

 

 

(3,688

)

 

Cash and cash equivalents of continuing operations, at beginning of period

 

 

5,095

 

 

 

6,109

 

 

Add: Cash and cash equivalents of discontinued operations, at beginning of period

 

 

16

 

 

 

1,269

 

 

Less: Cash and cash equivalents of discontinued operations, at end of period

 

 

 

 

 

164

 

 

Cash and cash equivalents of continuing operations, at end of period

 

$

12,525

 

 

$

3,526

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

 

Leasehold improvements funded by lease incentives

 

$

 

 

$

492

 

 

Common stock issued in connection with stock bonus and incentive plans

 

$

356

 

 

$

55

 

 

Stock option grants issued in connection with stock bonus and incentive plans

 

$

37

 

 

$

48

 

 

Property and equipment subject to accounts payable

 

$

86

 

 

$

395

 

 

 

 

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

 

 

 

7


IDENTIV, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014

 

1. Organization and Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements of Identiv, Inc. (“Identiv” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, including normal recurring adjustments, considered necessary for a fair presentation of the Company’s unaudited condensed consolidated financial statements have been included. The results of operations for the six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014 or any future period. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors,” “Quantitative and Qualitative Disclosures About Market Risk,” and the Consolidated Financial Statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. The preparation of unaudited condensed consolidated financial statements necessarily requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the condensed consolidated balance sheet dates and the reported amounts of revenues and expenses for the periods presented. The Company may experience significant variations in demand for its products quarter to quarter and typically experiences a stronger demand cycle in the second half of its fiscal year. As a result, the quarterly results may not be indicative of the full year results.

Reverse Stock Split — On May 22, 2014, the shareholders approved, and the Company filed a certificate of amendment to its Amended and Restated Certificate of Incorporation with the Secretary of the State of Delaware effecting, a one-for-ten reverse split of the Company's common stock, par value $0.001 (the “Reverse Stock Split”). The Reverse Stock Split did not change the par value of the Company’s common stock, the Company’s authorized shares of common stock or preferred stock. Upon the effectiveness of the Reverse Stock Split, the Company’s issued and outstanding shares of common stock decreased from approximately 80 million to approximately 8 million shares, all with a par value of $0.001. The Company has no outstanding shares of preferred stock. All share, per share and stock option information in the accompanying unaudited condensed consolidated financial statements and the notes thereto have been restated for all periods to reflect the reverse stock split.

Discontinued Operations — Financial information related to certain divested businesses of the Company is reported as discontinued operations for all periods presented as discussed in Note 2, Discontinued Operations. Reclassifications of prior period amounts related to discontinued operations have been made to conform to the current period presentation.

Going Concern — The accompanying unaudited condensed consolidated financial statements have been prepared under the assumption that the Company will continue as a going concern. Such assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has historically incurred operating losses and has a total accumulated deficit of $329 million as of June 30, 2014. This factor, among others, including the ongoing effects of the U.S. Government budget uncertainty on certain parts of its business, have raised substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

The ability to continue as a going concern is contingent upon the Company’s ability to generate sufficient revenues and cash flows to meet its obligations on a timely basis and its ability to raise cash through financing or by disposing of certain noncore assets as required. The Company’s plans may be adversely impacted if it fails to realize its assumed levels of revenues and expenses or savings from its cost reduction activities. If events, such as federal budget related reductions in spending cause a significant adverse impact on its revenues or expenses, the Company may need to delay, reduce the scope of, or eliminate one or more of its development programs or obtain funds through collaborative arrangements with others that may require the Company to relinquish rights to certain of its technologies, or programs that the Company would otherwise seek to develop or commercialize itself, and to reduce personnel related costs. The Company may resort to contingency plans to make needed cost reductions upon determination that funds will not be available in a timely matter. These contingency plans include consolidating certain functions or disposing of non-core or underperforming assets. As stated in Note 2, Discontinued Operations, the Company has sold certain non-core or underperforming businesses and may continue to do so in the future, if needed. The Company may also need to raise additional funds through public or private offerings of additional debt or equity securities from time to time as it may deem appropriate, which might cause dilution to existing stockholders. However, there can be no assurance that the Company will be able to raise such funds if and when they are required. Failure to obtain future funding when needed or on acceptable terms would adversely affect the Company’s ability to fund operations.

8


Correction of Prior Period Errors  In connection with the preparation of its unaudited condensed consolidated financial statements for the quarter ended September 30, 2013, the Company identified an error related to the classification of cash paid for interest on financial liabilities in the condensed consolidated statements of cash flows. The cash paid for interest on financial liabilities was presented as cash outflows from financing activities, which should have been presented as cash outflows from operating activities in the condensed consolidated statements of cash flows in the Company’s Form 10-Q filing for the six months ended June 30, 2013. As a result, cash used in operating activities was understated and cash used in financing activities was overstated for the six months ended June 30, 2013 by $0.8 million. The amounts for the six months ended June 30, 2013 have been adjusted to correct the impact of such error. Using both quantitative and qualitative measures, the Company believes that the impact of this error is immaterial, individually and in aggregate, to the unaudited condensed consolidated financial statements for the six months ended June 30, 2013 and therefore an amendment to the Form 10-Q for the six months ended June 30, 2013 is not considered necessary.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 “Revenue from Contracts with Customers" (“ASU 2014-09”), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. It is effective for annual periods beginning on or after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). Early adoption is not permitted. We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our condensed consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2017.

In April 2014, the FASB issued ASU No. 2014-08 (“ASU 2014-08”) “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." ASU 2014-08 raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. It is effective for annual periods beginning on or after December 15, 2014. Early adoption is permitted but only for disposals that have not been reported in financial statements previously issued. We are currently in the process of evaluating the impact of the adoption on our condensed consolidated financial statements.

In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”). ASU 2013-11 provides guidance on financial statement presentation of an unrecognized tax benefit when a net operating loss (“NOL”) carryforward, a similar tax loss, or a tax credit carryforward exists. The updated accounting standard requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for an NOL or tax credit carryforward whenever the NOL or tax credit carryforward would be available to reduce the additional taxable income or tax due if the tax position is disallowed. The ASU’s amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, with early adoption permitted. The amendments should be applied to all unrecognized tax benefits that exist as of the effective date, and may be applied retrospectively. The Company adopted this standard in the first quarter of 2014. The adoption did not result in a change to the tax provision and it did not have a significant impact to the presentation of long-term taxes payable or deferred tax assets.

 

2. Discontinued Operations

During the fourth quarter of 2013, the Company’s Board of Directors (the “Board”), after reviewing strategic options, committed to a plan designed to simplify the Company’s business structure and to focus on high-growth technology trends within the security market including cloud-based services and mobility. In December 2013, the Company completed the sale of its Swiss Multicard AG subsidiary, its German payment solution AG subsidiary and its Dutch Multicard Nederland BV subsidiary to Sandpiper Assets SA, an international holding company (“Sandpiper”), pursuant to a share purchase agreement whereby the Company agreed to sell its holdings in these subsidiaries to Sandpiper for total negative cash consideration of $0.5 million, which was paid to Sandpiper in February 2014 subsequent to the close of the transaction. The sale of Multicard AG and payment solution AG closed on December 19, 2013 and sale of Multicard Nederland BV closed on December 31, 2013. In addition, the Company completed the sale of its German Multicard GmbH subsidiary to an employee for the sum of one euro on December 30, 2013. Based on the carrying value of the assets and the liabilities attributed to these businesses on the date of sale, and the estimated costs and expenses incurred in connection with the sale, the Company recorded a gain of $4.8 million, net of tax of nil, during the fourth quarter of fiscal 2013 in the consolidated statements of operations for the year ended December 31, 2013, which is included in the loss from discontinued operations, net of income taxes line.

9


In addition, during the fourth quarter of 2013, the Company committed to sell its Rockwest Technology Group, Inc. d/b/a/ Multicard US (“Multicard US”) subsidiary to George Levy, Matt McDaniel and Hugo Garcia (the “Buyers”), the founders and former owners of the Multicard US business. The sale of the Multicard US subsidiary was completed on February 4, 2014 and was made pursuant to a Share Purchase Agreement dated January 21, 2014 between the Company and the Buyers whereby the Company agreed to sell 80.1% of the shares of its holdings in Multicard US, to the Buyers for cash consideration of $1.2 million. Based on the carrying value of the assets and the liabilities attributed to Multicard US on the date of sale, and the estimated costs and expenses incurred in connection with the sale, the Company recorded a gain of $0.5 million, net of income taxes of nil, in the condensed consolidated statement of operations for the six months ended June 30, 2014, which is included in income (loss) from discontinued operations, net of income taxes.

On June 30, 2014, the Company entered into an Asset Purchase agreement with a former employee to sell certain non-core assets consisting of inventory, some prepaid items, certain fully depreciated office equipment and certain intellectual property (“Non-Core Assets”) relating to one of its subsidiaries for cash consideration of $0.1 million. The Company measured these Non-Core Assets at the lower of their carrying amount or fair value less cost to sell as stated in the table below. The sale of these Non-Core Assets was completed on July 7, 2014.  

In accordance with ASC Topic 205-20, Discontinued Operations (“ASC 205”), for the three and six months ended June 30, 2014 and 2013, the results of these businesses have been presented as discontinued operations in the condensed consolidated statements of operations and all prior periods have been reclassified to conform to this presentation. The assets and liabilities of discontinued operations have been reclassified and are segregated as assets and liabilities of discontinued operations in the condensed consolidated balance sheets as of June 30, 2014 and December 31, 2013.

The key components of income (loss) from discontinued operations consist of the following (in thousands):

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Net revenues

$

441

 

 

$

5,413

 

 

$

1,276

 

 

$

10,823

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations, net of income taxes of nil

$

60

 

 

$

(963

)

 

$

95

 

 

$

(1,727

)

Adjustments to amounts reported previously for gain on sale of discontinued operations, net of income taxes of nil

 

(3

)

 

 

 

 

 

(54

)

 

 

 

Gain on sale of discontinued operations, net of income taxes of nil

 

 

 

 

 

 

 

503

 

 

 

 

Income (loss) from discontinued operations, net of income taxes

$

57

 

 

$

(963

)

 

$

544

 

 

$

(1,727

)

The following table summarizes the assets and liabilities of discontinued operations (in thousands):

 

 

 

June 30,
2014

 

December 31,
2013

 

Assets:

 

 

 

 

 

 

Cash and cash equivalents

$

 

$

16

 

Accounts receivable, net

 

 

 

787

 

Inventories

 

94

 

 

574

 

Other current assets

 

2

 

 

27

 

Property and equipment

 

 

 

13

 

Goodwill

 

 

 

1,310

 

Total assets of discontinued operations

$

96

 

$

2,727

 

Liabilities:

 

 

 

 

 

 

Accounts payable

 

 

 

418

 

Deferred revenue

 

 

 

966

 

Accrued expenses and other liabilities

 

 

 

246

 

Total liabilities of discontinued operations

$

 

$

1,630

 

 

 

10


3. Fair Value Measurements

The Company determines the fair values of its financial instruments based on a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The classification of a financial asset or liability within the hierarchy is based upon the lowest level input that is significant to the fair value measurement. Under ASC Topic 820, Fair Value Measurement and Disclosures (“ASC 820”), the fair value hierarchy prioritizes the inputs into three levels that may be used to measure fair value:

Level 1 – Quoted prices (unadjusted) for identical assets and liabilities in active markets;

Level 2 – Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly; and

Level 3 – Unobservable inputs.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of June 30, 2014 and December 31, 2013, there were no assets that are measured and recognized at fair value on a recurring basis. There were no cash equivalents as of June 30, 2014 and December 31, 2013.

The Company’s liability measured at fair value on a recurring basis includes contingent consideration related to the acquisition of idOnDemand. The sellers of idOnDemand are eligible to receive limited earn-out payments (“Contingent Consideration”) in the form of shares of common stock subject to certain lock-up periods under the terms of the acquisition agreement. The fair value of the Contingent Consideration is based on achieving certain revenue and profit targets as defined under the acquisition agreement. These contingent payments are probability weighted and are discounted to reflect the restriction on the resale or transfer of such shares. The valuation of the Contingent Consideration is classified as a Level 3 measurement because it is based on significant unobservable inputs and involves management judgment and assumptions about achieving revenue and profit targets and discount rates. The unobservable inputs used in the measurement of Contingent Consideration are highly sensitive to fluctuations and any changes in the inputs or the probability weighting thereof could significantly change the measured value of the Contingent Consideration at each reporting period. The fair value of the Contingent Consideration is classified as a liability and is re-measured each reporting period in accordance with ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”). As of June 30, 2014 and December 31, 2013, the maximum possible amounts payable for Contingent Consideration related to the April 2011 acquisition of idOnDemand was $5.0 million; however, the earn-out liability remains zero at June 30, 2014 and December 31, 2013 as there is no future expectation of earn-out payments and there were no significant changes in the range of outcomes for such contingent consideration.

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

Certain of the Company's assets, including intangible assets, goodwill, and privately-held investments, are measured at fair value on a nonrecurring basis if impairment is indicated.

Privately-held investments, which are normally carried at cost, are measured at fair value due to events and circumstances that the Company identified as significantly impacting the fair value of investments. The Company estimates the fair value of its privately-held investments using an analysis of the financial condition and near-term prospects of the investee, including recent financing activities and the investee's capital structure. Purchased intangible assets are measured at fair value primarily using discounted cash flow projections.

As of June 30, 2014 and December 31, 2013, the Company had $0.3 million and zero, respectively, of privately-held investments measured at fair value on a nonrecurring basis and were classified as Level 3 assets due to the absence of quoted market prices and inherent lack of liquidity. The Company reviews its investments to identify and evaluate investments that have an indication of possible impairment. The Company adjusts the carrying value for its privately-held investments for any impairment if the fair value is less than the carrying value of the respective assets on an other-than-temporary basis. During the three months ended June 30, 2014, the Company determined that no privately-held investments were impaired. The amount of privately-held investments is included in other assets in the accompanying condensed consolidated balance sheets.

As of June 30, 2014 and December 31, 2013, there were no liabilities that are measured and recognized at fair value on a non-recurring basis.

Assets and Liabilities Not Measured at Fair Value

The carrying amounts of the Company's accounts receivable, prepaid expenses and other current assets, and accounts payable, and other accrued liabilities approximate fair value due to their short maturities.

 

 

11


4. Stockholders’ Equity of Identiv, Inc.

Reverse Stock Split

On May 22, 2014, the shareholders approved, and the Company filed a certificate of amendment to its Amended and Restated Certificate of Incorporation with the Secretary of the State of Delaware effecting, a one-for-ten reverse split of the Company's common stock, par value $0.001 (the “Reverse Stock Split”). The Reverse Stock Split did not change the par value of the Company’s common stock or the Company’s authorized shares of common stock and its authorized shares of preferred stock. Upon the effectiveness of the Reverse Stock Split, the Company’s issued and outstanding shares of common stock decreased from approximately 80 million to approximately 8 million shares, all with a par value of $0.001. The Company has no outstanding shares of preferred stock.

Private Placement

On August 14, 2013, in a private placement, the Company issued 834,847 shares of its common stock at a price of $8.50 per share and warrants to purchase an additional 834,847 share of its common stock at an exercise price of $10.00 per share (the “2013 Private Placement warrants”) to accredited and other qualified investors (the “Investors”). Aggregate gross consideration was $7.1 million and $0.8 million in issuance costs were recorded in connection with the private placement. The private placement was made pursuant to definitive subscription agreements between the Company and each Investor. The sale was made to Investors in the United States and internationally in reliance upon available exemptions from the registration requirements of the U.S. Securities Act of 1933, as amended (the “Securities Act”) including Section 4(a) (2) thereof and Regulation D and Regulation S thereunder, as well as comparable exemptions under applicable state and foreign securities laws. The Company engaged a placement agent in connection with private placement outside the United States. As compensation at closing, the Company paid $0.6 million in cash and issued 100,000 shares of common stock to the placement agent on the same terms as those sold to Investors in the offering. In addition, the placement agent was issued warrants to purchase 100,000 shares of common stock at an exercise price of $10.00 per share as bonus compensation. The securities were issued to the placement agent in reliance upon available exemptions from the registrations requirements of the Securities Act, including Regulation S thereunder. As agreed, in September 2013 the Company filed a registration statement on Form S-3 (Registration No. 333-19105076) with the SEC to register the resale of the shares of common stock and any shares of common stock issuable upon exercise of the warrants.

The 2013 Private Placement warrants have a term of four years and were exercisable beginning six months following the date of issuance. Any 2013 Private Placement warrants, or portion thereof, not exercised prior to the expiration date will become void and of no value and such warrants shall be terminated and no longer outstanding. The number of shares issuable upon exercise of the 2013 Private Placement warrants is subject to adjustment for any stock dividends, stock splits or distributions by the Company, or upon any merger or consolidation or sale of assets of the Company, tender or exchange offer for the Company’s common stock, or a reclassification of the Company’s common stock. The Company calculated the fair value of the 2013 Private Placement warrants using the Black-Scholes option pricing model using the following assumptions: estimated volatility of 91.57%, risk-free interest rate of 1.08%, no dividend yield, and an expected life of four years. The fair value of the 2013 Private Placement warrants was determined to be $4.0 million. The 2013 Private Placement warrants are classified as equity in accordance with ASC Topic 505, Equity (“ASC 505”) as the warrants, if exercised, will be settled in shares and are within the control of the Company. During the six months ended June 30, 2014, the Company issued 3,529 shares of its common stock upon cashless exercise of 58,824 2013 Private Placement warrants.

Sale of Common Stock

On April 16, 2013, the Company entered into a purchase agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”), pursuant to which the Company has the right to sell to LPC up to $20.0 million in shares of the Company’s common stock, subject to certain limitations and conditions set forth in the Purchase Agreement. As consideration for entering into the Purchase Agreement, the Company agreed to issue to LPC 25,180 shares of common stock and is required to issue up to 32,374 additional shares of common stock on a pro rata basis for any additional purchases the Company requires LPC to make under the Purchase Agreement over its duration (together the “Commitment Shares”). The Company will not receive any cash proceeds from the issuance of the Commitment Shares.

12


Pursuant to the Purchase Agreement, upon the satisfaction of all of the conditions to the Company’s right to commence sales under the Purchase Agreement, LPC initially purchased $2.0 million in shares of common stock at $11.40 per share on April 17, 2013. Thereafter, on any business day and as often as every other business day over the 36-month term of the Purchase Agreement, the Company has the right, from time to time, at its sole discretion and subject to certain conditions to direct LPC to purchase up to 10,000 shares of common stock, up to an aggregate amount of an additional $18.0 million (subject to certain limitations). The purchase price of shares of common stock pursuant to the Purchase Agreement will be based on prevailing market prices of common stock at the time of sales without any fixed discount, and the Company will control the timing and amount of any sales of common stock to LPC, but in no event will shares be sold to LPC on a day the common stock closing price is less than $5.00 per share, subject to adjustment. In addition, the Company may direct LPC to purchase additional amounts as accelerated purchases if on the date of a regular purchase the closing sale price of the common stock is not below $7.50 per share. The Company used the net proceeds from this offering for working capital and other general corporate purposes.

All shares of common stock to be issued and sold to LPC under the Purchase Agreement will be issued pursuant to the Company’s effective shelf registration statement on Form S-3 (Registration No. 333-195702), filed with the SEC in accordance with the provisions of the Securities Act of 1933, as amended, and declared effective on May 14, 2014, and the prospectus supplement thereto dated May 20, 2014. The Purchase Agreement contains customary representations, warranties and agreements of the Company and LPC, limitations and conditions to completing future sale transactions, indemnification rights and other obligations of the parties. There is no upper limit on the price per share that LPC could be obligated to pay for common stock under the Purchase Agreement. The Company has the right to terminate the Purchase Agreement at any time, at no cost or penalty. Actual sales of shares of common stock to LPC under the Purchase Agreement will depend on a variety of factors to be determined by the Company from time to time, including, among others, market conditions, the trading price of the common stock and determinations by the Company as to available and appropriate sources of funding for the Company and its operations.

On April 17, 2013, LPC initially purchased 175,438 shares of common stock at $11.40 per share for a net consideration of $1.5 million after recording $0.5 million in underwriting discounts, legal fees and issuance costs. As stipulated in the Purchase Agreement, the Company issued 28,417 shares of common stock consisting of 25,180 Commitment Shares and 3,237 additional pro-rated shares of common stock as Commitment Shares. Subsequent to the initial purchase, the Company directed LPC to purchase 250,000 shares of common stock from April 17, 2013 through December 31, 2013 for a net consideration of $1.9 million and 496,500 shares of common stock from January 1, 2014 through June 30, 2014 for a net consideration of $4.2 million and issued total of 9,723 additional pro-rated shares as Commitment Shares.

Common Stock Warrants

In connection with the Company’s entry into a credit agreement with Opus Bank (“Opus”) as discussed in Note 9, Financial Liabilities, the Company issued Opus a warrant to purchase up to 100,000 shares of the Company’s common stock at a per share exercise price of $9.90 (the “Opus warrant”). The Opus warrant is immediately exercisable for cash or by net exercise and will expire 5 years after the date of issuance, which is March 31, 2019. The shares issuable upon exercise of the Opus warrant are to be registered at the request of Opus pursuant to the Registration Rights Agreement, entered into on March 31, 2014 by the Company and Opus. As of June 30, 2014, none of the Opus warrants have been exercised.

As consideration for the third amendment of the Loan and Security Agreement dated October 30, 2012 with Hercules Technology Growth Capital, Inc. (“Hercules”) as discussed in Note 9, Financial Liabilities, the Company issued warrants to purchase 99,208 shares of its common stock at an exercise price of $7.10 per share to Hercules on August 7, 2013 (the “Hercules warrants”). The Hercules warrants were issued in reliance upon exemptions from the registration requirements under the Securities Act of 1933, as amended, in accordance with Section 4(a)(2) thereof. The term of the Hercules warrants is five years and contains usual and customary terms. As of June 30, 2014, none of the Hercules warrants have been exercised.

The Company issued warrants to purchase 409,763 shares of its common stock at an exercise price of $26.50 per share in a private placement to accredited and other qualified investors in November 2010 (the “2010 Private Placement warrants”). The 2010 Private Placement warrants are exercisable beginning on the date of issuance and ending on the fifth anniversary of the date of issuance. During the year ended December 31, 2011, the Company issued 40,594 shares of its common stock upon exercise of certain 2010 Private Placement warrants.

As part of the consideration paid by the Company in connection with the acquisition of Hirsch Electronics Corporation (“Hirsch”) on April 30, 2009, the Company issued 473,543 warrants to purchase shares of the Company’s common stock at an exercise price of $30.00, in exchange for the outstanding capital stock of Hirsch. Also, as part of the Hirsch transaction, the Company issued 16,538 warrants to purchase shares of the Company’s common stock in exchange for outstanding Hirsch warrants at exercise prices in the range between $24.20 and $30.30, with a weighted average exercise price of $27.90. All warrants issued in connection with the Hirsch transaction became exercisable for a period of two years on April 30, 2012. These warrants expired unexercised on April 30, 2014.

13


Below is the summary of outstanding warrants issued by the Company as of June 30, 2014:

 

Warrant Type

 

Warrants
Outstanding

 

 

Weighted Average Exercise
Price

 

 

Issue Date

 

 

Expiration Date

 

Opus

 

 

100,000

 

 

$

9.90

 

 

 

March 31, 2014

 

 

 

March 31, 2019

 

2013 Private Placement

 

 

876,023

 

 

 

10.00

 

 

 

August 14, 2013

 

 

 

August 14, 2017

 

Hercules

 

 

99,208

 

 

 

7.10

 

 

 

August 7, 2013

 

 

 

August 7, 2018

 

2010 Private Placement

 

 

369,169

 

 

 

26.50

 

 

 

November 14, 2010

 

 

 

November 14, 2015

 

Total

 

 

1,444,400

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2011 Employee Stock Purchase Plan  

In June 2011, Identiv’s stockholders approved the 2011 Employee Stock Purchase Plan (the “ESPP”). Initially, 200,000 shares of common stock are reserved for issuance over the term of the ESPP, which is ten years. In addition, on the first day of each fiscal year commencing with fiscal year 2012, the aggregate number of shares reserved for issuance under the ESPP is automatically increased by a number equal to the lowest of (i) 75,000 shares, (ii) two percent of all shares outstanding at the end of the previous year, or (iii) an amount determined by the Board. Under the ESPP, eligible employees may purchase shares of common stock at 85% of the lesser of the fair market value of the Company’s common stock at the beginning of or end of the applicable offering period and each offering period lasts for six months. The plan contains an automatic reset feature under which if the fair market value of a share of common stock on any exercise date (except the final scheduled exercise date of any offering period) is lower than the fair market value of a share of common stock on the first trading day of the offering period in progress, then the offering period in progress shall end immediately following the close of trading on such exercise date, and a new offering period shall begin on the next subsequent January 1 or July 1, as applicable, and shall extend for a 24-month period ending on December 31 or June 30, as applicable. As of January 1, 2013 and 2012, respectively, the total shares reserved for issuance under the ESPP were automatically increased by 75,000 shares each in accordance with the terms of the plan. As of June 30, 2014, there are 293,888 shares reserved for future grants under the ESPP. On December 18, 2013, the Compensation Committee of the Board suspended the ESPP effective January 1, 2014. No additional shares will be authorized and no shares will be issued under the ESPP until further notice.

Since the ESPP was suspended effective January 1, 2014, there was no stock-based compensation expense resulting from the ESPP included in the condensed consolidated statements of operations for the three and six months ended June 30, 2014. The following table illustrates stock-based compensation expense resulting from the ESPP included in the condensed consolidated statements of operations for the three and six months ended June 30, 2013 (in thousands):

 

 

 

 

Three Months Ended
June 30, 2013

 

 

Six Months Ended
June 30, 2013

 

 

 

 

  

 

 

 

 

Cost of revenue

 

$

12

 

 

$

28

 

Research and development

 

 

9

 

 

 

21

 

Selling and marketing

 

 

14

 

 

 

33

 

General and administrative

 

 

14

 

 

 

31

 

Total

 

$

49

 

 

$

113

 

 

Inducement Grant

The Company granted 50,000 Restricted Stock Units (“RSUs”) and options to purchase 300,000 shares of the Company's common stock as an inducement grant to its Chief Executive Officer (“CEO”) in connection with entering into an employment agreement on March 13, 2014 (the “Inducement Grant”). The RSUs will vest 25 percent after one year, with the remaining shares vesting over three years in 12 equal quarterly installments. The stock options have an exercise price equal to the closing price of the Company's common stock on The NASDAQ Stock Market on the date of grant, vest 25 percent after one year with the remaining options vesting over three years in 36 equal monthly installments, and have a term of ten years. The stock options and RSUs granted to the CEO were made outside of the Company's existing equity compensation plans in reliance upon NASDAQ Rule 5635(c)(4). The Company will subsequently file a Registration Statement on Form S-8 to register the shares underlying the Inducement Grants. The fair value of stock options issued to the CEO was calculated using a weighted average risk-free interest rate of 1.53%, weighted average expected volatility of 90%, dividend yield of 0% and a weighted average expected term of 4.9 years. The fair value of the Company’s RSUs is calculated based upon the fair market value of the Company’s stock at the date of grant. As of June 30, 2014, there was $0.4 million of total unrecognized compensation cost related to unvested RSUs granted and $1.7 million of total unrecognized compensation cost related to unvested stock options related to the Inducement Grant. Unrecognized compensation cost for the Inducement Grant is expected to be recognized over a weighted average period of 4 years.

14


Stock-Based Compensation Plans

The Company has various stock-based compensation plans to attract, motivate, retain and reward employees, directors and consultants by providing its Board or a committee of the Board the discretion to award equity incentives to these persons. The Company’s stock-based compensation plans consist of the Director Option Plan, 1997 Stock Option Plan, 2000 Stock Option Plan, 2007 Stock Option Plan (the “2007 Plan”), the 2010 Bonus and Incentive Plan (the “2010 Plan”) and the 2011 Incentive Compensation Plan (the “2011 Plan”), as amended.

Stock Bonus and Incentive Plans

In June 2010, Identiv’s stockholders approved the 2010 Plan, under which cash and equity-based awards may be granted to executive officers, including the CEO, Chief Financial Officer (“CFO”), and other key employees (the “Participants”) of the Company and its subsidiaries and members of the Company’s Board, as designated from time to time by the Compensation Committee of the Board. An aggregate of 300,000 shares of the Company’s common stock was reserved for issuance under the 2010 Plan as equity-based awards, including shares, nonqualified stock options, restricted stock or deferred stock awards. These awards provide the Company´s executives and key employees with the opportunity to earn shares of common stock depending on the extent to which certain performance goals are met. Since the adoption of the 2011 Plan (described below), the Company utilizes shares from the 2010 Plan only for performance-based awards to Participants and all equity awards granted under the 2010 Plan are issued pursuant to the 2011 Plan.  

On June 6, 2011, Identiv’s stockholders approved the 2011 Plan, which is administered by the Compensation Committee of the Board. The 2011 Plan provides that stock options, stock units, restricted shares, and stock appreciation rights may be granted to officers, directors, employees, consultants, and other persons who provide services to the Company or any related entity. The 2011 Plan serves as a successor plan to the Company’s 2007 Plan. The Company reserved 400,000 shares of common stock under the 2011 Plan, plus 459,956 shares of common stock that remained available for delivery under the 2007 Plan and the 2010 Plan as of June 6, 2011. In aggregate, as of June 6, 2011, 859,956 shares were available for future grants under the 2011 Plan, including shares rolled over from 2007 Plan and 2010 Plan. In May 2014, Identiv’s stockholders approved an amendment to the 2011 Plan to increase the number of shares reserved for future issuance by 1.0 million.  

Stock Option Plans

The Company’s stock option plans are generally time-based and expire seven to ten years from the date of grant. Vesting varies, with some grants vesting 25% each year over four years; some vesting 25% after one year and monthly thereafter over three years; some vesting 100% on the date of grant; some vesting 1/12th per month over one year; some vesting 100% after one year; and some vesting monthly over four years. The Director Option Plan and 1997 Stock Option Plan both expired in March 2007. The 2000 Stock Option Plan expired in December 2010 and as noted above, the 2007 Plan was discontinued in June 2011 in connection with the approval of the 2011 Plan. As a result, options will no longer be granted under any of these plans except the 2011 Plan.

As of June 30, 2014, an aggregate of 17,917 options were outstanding under the Director Option Plan and 1997 Stock Option Plan, 19,248 options were outstanding under the 2000 Stock Option Plan, 85,066 options were outstanding under the 2007 Plan, and 651,371 options were outstanding under the 2011 Plan. These outstanding options remain exercisable in accordance with the terms of the original grant agreements under the respective plans.

15


A summary of the activity under the Company’s stock-based compensation plans for the six months ended June 30, 2014 and for the year ended December 31, 2013 follows:

 

 

 

 

 

Stock Options

 

 

Stock Awards 

 

 

Shares
Available
for Grant

 

 

Number
Outstanding

 

 

Average
Exercise
Price
per share

 

  

Average
Intrinsic
Value

 

  

Remaining
Contractual
Life (in years)

 

  

Number
Granted

 

  

Fair
Value

 

Balance at January 1, 2013

 

777,217

 

 

 

404,538

 

 

$

19.38

 

 

$

825,309

 

 

 

7.43

 

 

 

 

 

 

 

 

 

Authorized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

(227,668

)

 

 

211,570

 

 

$

7.57

 

 

 

 

 

 

 

 

 

 

 

16,098

 

 

$

135,600

 

Cancelled or Expired

 

(164,092

)

 

 

(69,592

)

 

$

18.68

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

— 

 

 

 

(18

)

 

$

7.57

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2013

 

385,457

 

 

 

546,498

 

 

$

14.90

 

 

$

49,016

 

 

 

6.93

 

 

 

 

 

 

 

 

 

Authorized

 

1,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

(373,968

)

 

 

283,663

 

 

$

8.77

 

 

 

 

 

 

 

 

 

 

 

47,305

 

 

$

414,812

 

Cancelled or Expired

 

43,443

 

 

 

(55,090)

 

 

$

17.65

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

— 

 

 

 

(1,469)

 

 

$

7.20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2014

 

1,054,932

 

 

 

773,602

 

 

$

12.47

 

 

$

1,536,489

 

 

 

7.42

 

 

 

 

 

 

 

 

 

Vested or expected to vest at June 30, 2014

 

 

 

 

 

675,116

 

 

$

13.08

 

 

$

1,244,018

 

 

 

7.14

 

 

 

 

 

 

 

 

 

Exercisable at June 30, 2014

 

 

 

 

 

320,135

 

 

$

18.27

 

 

$

191,774

 

 

 

4.86

 

 

 

 

 

 

 

 

 

 

The following table summarizes information about options outstanding as of June 30, 2014:

 

 

  

Options Outstanding

 

  

Options Exercisable

 

Range of Exercise Prices

  

Number
Outstanding

 

  

Weighted
Average
Remaining
Contractual
Life (Years)

 

  

Weighted
Average
Exercise
Price

 

  

Number
Exercisable

 

  

Weighted
Average
Exercise
Price

 

$ 5.20 - $ 8.00

 

 

188,763

 

 

 

9.04

 

 

$

6.50

 

 

 

34,124

 

 

$

7.46

 

$8.10 - $ 8.40

 

 

16,496

 

 

 

8.36

 

 

 

8.38

 

 

 

16,413

 

 

 

8.38

 

$ 8.50 - $ 8.80

 

 

266,500

 

 

 

9.70

 

 

 

8.80

 

 

 

333

 

 

 

8.80

 

$ 8.90 - $ 14.40

 

 

158,065

 

 

 

5.76

 

 

 

12.20

 

 

 

129,426

 

 

 

11.88

 

$ 14.50 - $43.40

 

 

143,778

 

 

 

2.81

 

 

 

27.88

 

 

 

139,839

 

 

 

28.01

 

$ 5.20 - $ 43.40

 

 

773,602

 

 

 

7.42

 

 

$

12.47

 

 

 

320,135

 

 

$

18.27

 

 

The weighted-average grant date fair value per option for options granted during the three and six months ended June 30, 2014 was $7.94 and $8.77, respectively. A total of 1,469 options were exercised during the six months ended June 30, 2014.

The weighted-average grant date fair value per option for options granted during the three and six months ended June 30, 2013 was $8.20 and $9.30. A total of 18 options were exercised during the six months ended June 30, 2013.

At June 30, 2014, there was $1.9 million of unrecognized stock-based compensation expense, net of estimated forfeitures related to unvested options, that is expected to be recognized over a weighted-average period of 3.33 years.  

Restricted Stock Units

A summary of RSU activity for the six months ended June 30, 2014 is as follows:

 

Unvested Restricted Stock Units

  

Shares

 

 

Weighted
Average
Grant Date
Fair Value

 

Unvested, beginning of period

 

 

 

$

 

Granted

 

43,000

 

 

 

8.80

 

Vested

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

Unvested, end of period

 

43,000

 

 

$

8.80

 

16


 

The fair value of the Company’s RSUs is calculated based upon the fair market value of the Company’s stock at the date of grant. As of June 30, 2014, there was $0.4 million of total unrecognized compensation cost related to unvested RSUs granted, which is expected to be recognized over a weighted average period of 4 years. As of June 30, 2014, an aggregate of 43,000 RSUs were outstanding under the 2011 Plan.

Stock-Based Compensation Expense

The following table illustrates the stock-based compensation expense related to stock options, RSUs and inducement grant included in the condensed consolidated statements of operations for the three and six months ended June 30, 2014 and 2013 (in thousands):

 

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

2014

 

  

2013

 

 

2014

 

 

2013

 

Cost of revenue

$

6

 

 

$

7

 

 

$

11

 

 

$

11

 

Research and development

 

18

 

 

 

22

 

 

 

36

 

 

 

44

 

Selling and marketing

 

(7

)

 

 

142

 

 

 

44

 

 

 

293

 

General and administrative

 

240

 

 

 

146

 

 

 

366

 

 

 

380

 

Total

$

257

 

 

$

317

 

 

$

457

 

 

$

728

 

 

Common Stock Reserved for Future Issuance

Common stock reserved for future issuance as of June 30, 2014 was as follows:

 

Exercise of outstanding stock options and RSUs

  

1,166,602

 

Employee stock purchase plan

  

293,888

 

Shares of common stock available for grants under 2011 Plan

  

1,054,932

 

Noncontrolling interest in Bluehill ID

  

126,142

 

Warrants to purchase common stock

  

1,444,400

 

Contingent consideration for idOnDemand

  

451,671

 

Purchase agreement with LPC

  

244,509

 

 

  

 

 

Total

  

4,782,144

 

 

Net Loss per Common Share Attributable to Identiv, Inc. Stockholders’ Equity

Basic and diluted net loss per share is based upon the weighted average number of common shares outstanding during the period. For the three and six months ended June 30, 2014 and 2013, common stock equivalents consisting of outstanding stock options, RSUs and warrants were excluded from the calculation of diluted loss per share because these securities were anti-dilutive due to the net loss in the respective periods. The total number of shares excluded from diluted loss per share relating to these securities was 1,961,973 for the six months ended June 30, 2014, and zero for the six months ended June 30, 2013, respectively.

 

5. Inventories

The Company’s inventories are stated at the lower of cost or market. Inventories consist of (in thousands):

 

 

June 30,

 

 

December 31,

 

 

2014

 

 

2013

 

Raw materials

$

3,431

 

 

$

3,464

 

Work-in-progress

 

588

 

 

 

261

 

Finished goods

 

6,149

 

 

 

5,270

 

Total

$

10,168

 

 

$

8,995

 

 

 

17


6. Property and Equipment

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

 

 

June 30,

 

 

December 31,

 

 

2014

 

 

2013

 

Leasehold improvements

$

1,232

 

 

$

1,236

 

Furniture, fixture and office equipment

 

4,363

 

 

 

4,236

 

Machinery

 

6,876

 

 

 

6,843

 

Software

 

2,375

 

 

 

2,094

 

Total

 

14,846

 

 

 

14,409

 

Accumulated depreciation

 

(9,280

)

 

 

(8,521

)

Property and equipment, net

$

5,566

 

 

$

5,888

 

 

The Company recorded depreciation expense of $0.4 million and $0.8 million during the three and six months ended June 30, 2014, respectively, and $0.4 million and $0.8 million during the three and six months ended June 30, 2013, respectively.  

 

7. Goodwill and Intangible Assets

Goodwill

The following table presents goodwill by operating segment as of June 30, 2014 and December 31, 2013 and changes in the carrying amount of goodwill (in thousands):

 

 

Premises

 

 

Credentials

 

 

Identity

 

 

 

All Other

 

 

Total

 

Balance at December 31, 2012

$

21,891

 

 

$

522

 

 

$

1,172