UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

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

For the quarterly period ended September 30, 2017March 31, 2024

OR

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

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)

DELAWAREDelaware

77-0444317

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

2201 Walnut Avenue, Suite 100

Fremont, California

94538

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (949) (949) 250-8888

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of exchange on which registered

Common Stock, $0.001 par value per share

INVE

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No

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

Large accelerated filer

Accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Non-accelerated filer

  (Do not check if a small reporting company)

Small reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

As of November 3, 2017,May 2, 2024, the registrant had 14,245,13823,382,459 shares of common stock $0.001 par value per share, outstanding.



TABLE OF CONTENTS

Page

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

3

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

3

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

4

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

54

Condensed Consolidated StatementStatements of Stockholders’ Equity for the Nine Months Ended September 30, 2017

65

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016

76

Notes to Unaudited Condensed Consolidated Financial Statements

87

Item 2.

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

2022

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

3132

Item 4.

Controls and Procedures

3132

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

3334

Item 1A.

Risk Factors

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

40

Item 6.5.

ExhibitsOther Information

34

Item 6.

Exhibits

41

SIGNATURES

3542

2


2


PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

IDENTIV, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except par value)

 

September 30,

 

 

December 31,

 

 

2017

 

 

2016

 

 

March 31,
2024

 

 

December 31,
2023

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

15,741

 

 

$

9,116

 

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

and December 31, 2016, respectively

 

 

10,642

 

 

 

9,430

 

Cash and cash equivalents

 

$

21,623

 

 

$

23,312

 

Restricted cash

 

 

811

 

 

 

1,072

 

Accounts receivable, net of allowances of $701 and $2,627 as of March 31, 2024
and December 31, 2023, respectively

 

 

17,811

 

 

 

21,969

 

Inventories

 

 

13,396

 

 

 

11,596

 

 

 

28,460

 

 

 

28,712

 

Prepaid expenses and other current assets

 

 

2,492

 

 

 

1,510

 

 

 

4,159

 

 

 

4,421

 

Total current assets

 

 

42,271

 

 

 

31,652

 

 

 

72,864

 

 

 

79,486

 

Property and equipment, net

 

 

2,117

 

 

 

2,416

 

 

 

8,832

 

 

 

9,320

 

Operating lease right-of-use assets

 

 

4,756

 

 

 

5,214

 

Intangible assets, net

 

 

4,728

 

 

 

5,820

 

 

 

3,995

 

 

 

4,251

 

Goodwill

 

 

10,192

 

 

 

10,218

 

Other assets

 

 

722

 

 

 

712

 

 

 

1,150

 

 

 

1,234

 

Total assets

 

$

49,838

 

 

$

40,600

 

 

$

101,789

 

 

$

109,723

 

LIABILITIES AND STOCKHOLDERS´ EQUITY

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

7,552

 

 

$

6,024

 

 

$

9,564

 

 

$

12,250

 

Current portion - payment obligation

 

 

877

 

 

 

786

 

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

and $181, respectively

 

 

9,957

 

 

 

8,119

 

Financial liabilities, net of debt issuance costs of $106 and $51
as of March 31, 2024 and December 31, 2023, respectively

 

 

9,894

 

 

 

9,949

 

Operating lease liabilities

 

 

1,655

 

 

 

1,714

 

Deferred revenue

 

 

1,143

 

 

 

1,085

 

 

 

1,744

 

 

 

2,341

 

Accrued compensation and related benefits

 

 

1,639

 

 

 

1,520

 

 

 

2,099

 

 

 

2,334

 

Other accrued expenses and liabilities

 

 

2,978

 

 

 

5,032

 

 

 

2,351

 

 

 

2,194

 

Total current liabilities

 

 

24,146

 

 

 

22,566

 

 

 

27,307

 

 

 

30,782

 

Long-term payment obligation

 

 

3,281

 

 

 

3,987

 

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

$221, respectively

 

 

6,474

 

 

 

9,779

 

Long-term operating lease liabilities

 

 

3,309

 

 

 

3,716

 

Long-term deferred revenue

 

 

981

 

 

 

927

 

Other long-term liabilities

 

 

181

 

 

 

335

 

 

 

26

 

 

 

26

 

Total liabilities

 

 

34,082

 

 

 

36,667

 

 

 

31,623

 

 

 

35,451

 

Commitments and contingencies (see Note 11)

 

 

 

 

 

 

 

 

Stockholders´ equity:

 

 

 

 

 

 

 

 

Identiv, Inc. stockholders' equity:

 

 

 

 

 

 

 

 

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

outstanding

 

 

 

 

 

 

Common stock, $0.001 par value: 50,000 shares authorized; 15,082 and 11,836 shares

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

December 31, 2016, respectively

 

 

14

 

 

 

11

 

Commitments and contingencies (see Note 15)

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value: 10,000 shares authorized; 5,000 shares
issued and outstanding as of March 31, 2024 and December 31, 2023

 

 

5

 

 

 

5

 

Common stock, $0.001 par value: 50,000 shares authorized; 25,022 and 24,902 shares
issued and
23,334 and 23,247 shares outstanding as of March 31, 2024 and
December 31, 2023, respectively

 

 

25

 

 

 

25

 

Additional paid-in capital

 

 

415,776

 

 

 

400,266

 

 

 

501,771

 

 

 

500,752

 

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

respectively

 

 

(7,302

)

 

 

(6,708

)

Treasury stock, 1,688 and 1,655 shares as of March 31, 2024 and December 31, 2023,
respectively

 

 

(13,246

)

 

 

(12,969

)

Accumulated deficit

 

 

(395,131

)

 

 

(391,509

)

 

 

(419,428

)

 

 

(414,870

)

Accumulated other comprehensive income

 

 

2,556

 

 

 

2,053

 

 

 

1,039

 

 

 

1,329

 

Total Identiv, Inc. stockholders' equity

 

 

15,913

 

 

 

4,113

 

Noncontrolling interest

 

 

(157

)

 

 

(180

)

Total stockholders´ equity

 

 

15,756

 

 

 

3,933

 

Total liabilities and stockholders´equity

 

$

49,838

 

 

$

40,600

 

Total stockholders' equity

 

 

70,166

 

 

 

74,272

 

Total liabilities and stockholders' equity

 

$

101,789

 

 

$

109,723

 

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

3


3


IDENTIV, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTSSTATEMENTS OF OPERATIONSCOMPREHENSIVE LOSS

(Unaudited, in thousands, except per share data)

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended March 31,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

2024

 

 

2023

 

Net revenue

 

$

15,432

 

 

$

15,560

 

 

$

43,664

 

 

$

41,521

 

 

$

22,494

 

 

$

25,997

 

Cost of revenue

 

 

9,571

 

 

 

8,640

 

 

 

26,423

 

 

 

24,038

 

 

 

14,102

 

 

 

16,786

 

Gross profit

 

 

5,861

 

 

 

6,920

 

 

 

17,241

 

 

 

17,483

 

 

 

8,392

 

 

 

9,211

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

1,597

 

 

 

1,480

 

 

 

4,584

 

 

 

4,997

 

 

 

3,011

 

 

 

2,707

 

Selling and marketing

 

 

3,448

 

 

 

3,312

 

 

 

10,142

 

 

 

10,807

 

 

 

5,302

 

 

 

6,097

 

General and administrative

 

 

1,247

 

 

 

2,115

 

 

 

5,119

 

 

 

9,674

 

 

 

4,252

 

 

 

2,948

 

Restructuring and severance

 

 

(49

)

 

 

160

 

 

 

(49

)

 

 

3,100

 

 

 

22

 

 

 

191

 

Total operating expenses

 

 

6,243

 

 

 

7,067

 

 

 

19,796

 

 

 

28,578

 

 

 

12,587

 

 

 

11,943

 

Loss from operations

 

 

(382

)

 

 

(147

)

 

 

(2,555

)

 

 

(11,095

)

 

 

(4,195

)

 

 

(2,732

)

Non-operating income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(643

)

 

 

(525

)

 

 

(1,995

)

 

 

(1,814

)

 

 

(87

)

 

 

(50

)

Gain on extinguishment of debt

 

 

 

 

 

 

 

 

977

 

 

 

 

Foreign currency (losses) gains, net

 

 

(51

)

 

 

35

 

 

 

(202

)

 

 

309

 

Loss before income taxes and noncontrolling interest

 

 

(1,076

)

 

 

(637

)

 

 

(3,775

)

 

 

(12,600

)

Income tax benefit

 

 

42

 

 

 

(105

)

 

 

161

 

 

 

(35

)

Loss before noncontrolling interest

 

 

(1,034

)

 

 

(742

)

 

 

(3,614

)

 

 

(12,635

)

Less: Income (loss) attributable to noncontrolling interest

 

 

2

 

 

 

(1

)

 

 

(8

)

 

 

4

 

Net loss attributable to Identiv, Inc.

 

$

(1,032

)

 

$

(743

)

 

$

(3,622

)

 

$

(12,631

)

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

 

$

(0.07

)

 

$

(0.07

)

 

$

(0.28

)

 

$

(1.16

)

Weighted average shares used to compute basic and diluted

loss per share

 

 

14,409

 

 

 

11,024

 

 

 

12,806

 

 

 

10,855

 

Foreign currency gains (losses), net

 

 

(256

)

 

 

89

 

Loss before income tax provision

 

 

(4,538

)

 

 

(2,693

)

Income tax provision

 

 

(20

)

 

 

(26

)

Net loss

 

 

(4,558

)

 

 

(2,719

)

 

 

 

 

 

 

Other comprehensive loss:

 

 

 

 

 

 

Foreign currency translation adjustment, net of tax

 

 

(290

)

 

 

120

 

Comprehensive loss

 

$

(4,848

)

 

$

(2,599

)

 

 

 

 

 

 

Net loss per common share:

 

 

 

 

 

 

Basic

 

$

(0.21

)

 

$

(0.13

)

Diluted

 

$

(0.21

)

 

$

(0.13

)

Weighted average shares used in computing net
loss per common share:

 

 

 

 

 

 

Basic

 

 

23,368

 

 

 

22,794

 

Diluted

 

 

23,368

 

 

 

22,794

 

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

4


4


IDENTIV, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSSTOCKHOLDERS’ EQUITY

(Unaudited, in thousands)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net loss

 

$

(1,034

)

 

$

(742

)

 

$

(3,614

)

 

$

(12,635

)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

378

 

 

 

(64

)

 

 

518

 

 

 

(285

)

Total other comprehensive income (loss), net of income

   taxes

 

 

378

 

 

 

(64

)

 

 

518

 

 

 

(285

)

Comprehensive loss

 

 

(656

)

 

 

(806

)

 

 

(3,096

)

 

 

(12,920

)

Less: Comprehensive (income) loss attributable to

   noncontrolling interest

 

 

(16

)

 

 

11

 

 

 

(23

)

 

 

23

 

Comprehensive loss attributable to Identiv, Inc. common

   stockholders

 

$

(672

)

 

$

(795

)

 

$

(3,119

)

 

$

(12,897

)

 

 

Three Months Ended March 31, 2024

 

 

 

Series B
Convertible Preferred Stock

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Treasury

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Deficit

 

 

Income

 

 

Equity

 

Balances, January 1, 2024

 

 

5,000

 

 

$

5

 

 

 

23,247

 

 

$

25

 

 

$

500,752

 

 

$

(12,969

)

 

$

(414,870

)

 

$

1,329

 

 

$

74,272

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,558

)

 

 

 

 

 

(4,558

)

Unrealized income from foreign
   currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(290

)

 

 

(290

)

Issuance of common stock in connection
   with vesting of stock awards

 

 

 

 

 

 

 

 

120

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,019

 

 

 

 

 

 

 

 

 

 

 

 

1,019

 

Shares withheld in payment of taxes in
   connection with net share settlement of
   restricted stock units

 

 

 

 

 

 

 

 

(33

)

 

 

 

 

 

 

 

 

(277

)

 

 

 

 

 

 

 

 

(277

)

Balances, March 31, 2024

 

 

5,000

 

 

$

5

 

 

 

23,334

 

 

$

25

 

 

$

501,771

 

 

$

(13,246

)

 

$

(419,428

)

 

$

1,039

 

 

$

70,166

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2023

 

 

 

Series B
Convertible Preferred Stock

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Treasury

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Deficit

 

 

Income

 

 

Equity

 

Balances, January 1, 2023

 

 

5,000

 

 

$

5

 

 

 

22,623

 

 

$

24

 

 

$

495,818

 

 

$

(12,173

)

 

$

(409,381

)

 

$

1,101

 

 

$

75,394

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,719

)

 

 

 

 

 

(2,719

)

Unrealized loss from foreign
   currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

120

 

 

 

120

 

Issuance of common stock in connection
   with vesting of stock awards

 

 

 

 

 

 

 

 

78

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

990

 

 

 

 

 

 

 

 

 

 

 

 

990

 

Shares withheld in payment of taxes in
   connection with net share settlement of
   restricted stock units

 

 

 

 

 

 

 

 

(24

)

 

 

 

 

 

 

 

 

(184

)

 

 

 

 

 

 

 

 

(184

)

Balances, March 31, 2023

 

 

5,000

 

 

$

5

 

 

 

22,677

 

 

$

24

 

 

$

496,808

 

 

$

(12,357

)

 

$

(412,100

)

 

$

1,221

 

 

$

73,601

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

5


5


IDENTIV, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF EQUITYCASH FLOWS

(Unaudited, in thousands)

 

 

Identiv, Inc. Stockholders´ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Accumulated

Other

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Treasury

 

 

Accumulated

 

 

Comprehensive

 

 

Noncontrolling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Deficit

 

 

Income

 

 

Interest

 

 

Equity

 

Balances, December 31, 2016

 

 

11,109

 

 

$

11

 

 

$

400,266

 

 

$

(6,708

)

 

$

(391,509

)

 

$

2,053

 

 

$

(180

)

 

$

3,933

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,622

)

 

 

 

 

 

8

 

 

 

(3,614

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

503

 

 

 

15

 

 

 

518

 

Issuance of common stock in

   connection with public

   offering

 

 

2,845

 

 

 

3

 

 

 

12,557

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,560

 

Issuance of warrants

 

 

 

 

 

 

 

 

2,319

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,319

 

Issuance of common stock

   in connection with

   vesting of stock awards

 

 

401

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,916

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,916

 

Shares withheld in payment

   of taxes in connection with

   net share settlement of

   restricted stock units

 

 

(121

)

 

 

 

 

 

 

 

 

(594

)

 

 

 

 

 

 

 

 

 

 

 

(594

)

Cancellation of reacquired

   warrants from

   extinguishment of debt

 

 

 

 

 

 

 

 

(1,282

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,282

)

Balances, September 30, 2017

 

 

14,234

 

 

$

14

 

 

$

415,776

 

 

$

(7,302

)

 

$

(395,131

)

 

$

2,556

 

 

$

(157

)

 

$

15,756

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Cash flows used in operating activities

 

 

 

 

 

 

Net loss

 

$

(4,558

)

 

$

(2,719

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

785

 

 

 

623

 

Amortization of debt issuance costs

 

 

26

 

 

 

5

 

Stock-based compensation expense

 

 

1,019

 

 

 

990

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

4,160

 

 

 

3,661

 

Inventories

 

 

234

 

 

 

(1,667

)

Prepaid expenses and other assets

 

 

346

 

 

 

(214

)

Accounts payable

 

 

(2,684

)

 

 

(4,876

)

Deferred revenue

 

 

(543

)

 

 

(210

)

Accrued expenses and other liabilities

 

 

(86

)

 

 

(291

)

Net cash used in operating activities

 

 

(1,301

)

 

 

(4,698

)

Cash flows from investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(232

)

 

 

(1,225

)

Net cash used in investing activities

 

 

(232

)

 

 

(1,225

)

Cash flows from financing activities:

 

 

 

 

 

 

Borrowings under revolving loan facility, net of issuance costs

 

 

5,919

 

 

 

9,936

 

Repayments under revolving loan facility

 

 

(6,000

)

 

 

 

Taxes paid related to net share settlement of restricted stock units

 

 

(277

)

 

 

(184

)

Net cash provided by (used in) financing activities

 

 

(358

)

 

 

9,752

 

Effect of exchange rates on cash, cash equivalents, and restricted cash

 

 

(59

)

 

 

201

 

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

 

(1,950

)

 

 

4,030

 

Cash, cash equivalents, and restricted cash at beginning of period

 

 

24,384

 

 

 

17,137

 

Cash, cash equivalents, and restricted cash at end of period

 

$

22,434

 

 

$

21,167

 

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

 

Interest paid

 

$

94

 

 

$

28

 

Taxes paid, net

 

$

24

 

 

$

27

 

Non-cash investing and financing activities:

 

 

 

 

 

 

Operating lease right-of-use assets obtained in exchange for operating lease liabilities

 

$

 

 

$

323

 

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

6


6


IDENTIV, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(3,614

)

 

$

(12,635

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,081

 

 

 

2,492

 

Gain on extinguishment of debt

 

 

(977

)

 

 

 

Accretion of interest on long-term payment obligation

 

 

277

 

 

 

335

 

Amortization of debt issuance costs

 

 

617

 

 

 

633

 

Stock-based compensation expense

 

 

1,916

 

 

 

2,245

 

Loss on disposal of fixed assets

 

 

 

 

 

329

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(1,197

)

 

 

(1,166

)

Inventories

 

 

(1,785

)

 

 

2,741

 

Prepaid expenses and other assets

 

 

(992

)

 

 

(182

)

Accounts payable

 

 

1,531

 

 

 

154

 

Payment obligation liability

 

 

(892

)

 

 

(925

)

Deferred revenue

 

 

58

 

 

 

(370

)

Accrued expenses and other liabilities

 

 

(2,087

)

 

 

155

 

Net cash used in operating activities

 

 

(5,064

)

 

 

(6,194

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(686

)

 

 

(425

)

Net cash used in investing activities

 

 

(686

)

 

 

(425

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of debt, net of issuance costs

 

 

42,735

 

 

 

 

Repayments of debt

 

 

(42,805

)

 

 

 

Sale of common stock, net of issuance costs

 

 

12,560

 

 

 

 

Taxes paid related to net share settlement of restricted stock units

 

 

(594

)

 

 

(180

)

Net cash provided by (used in) financing activities

 

 

11,896

 

 

 

(180

)

Effect of exchange rates on cash

 

 

479

 

 

 

(685

)

Net increase (decrease) in cash

 

 

6,625

 

 

 

(7,484

)

Cash at beginning of period

 

 

9,116

 

 

 

16,667

 

Cash at end of period

 

$

15,741

 

 

$

9,183

 

Supplemental Disclosures of Cash Flow Information

 

 

 

 

 

 

 

 

Interest paid

 

$

1,379

 

 

$

1,181

 

Taxes paid, net

 

$

96

 

 

$

158

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Warrants issued as debt issuance costs in connection with debt agreements

 

$

2,319

 

 

$

376

 

Liability to be settled in common stock

 

$

250

 

 

$

 

Property and equipment included in accruals

 

$

 

 

$

83

 

Restricted stock units issued to settle liability

 

$

 

 

$

387

 

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

7


IDENTIV, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2017March 31, 2024

1. Basis of Presentation

1. OrganizationThe accompanying unaudited condensed consolidated financial statements include the accounts of Identiv, Inc. and Summary of Significant Accounting Policiesits wholly owned subsidiaries (the “Company”). All intercompany balances and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements of Identiv, Inc. (“Identiv” or the “Company”)Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, includingconsisting of normal recurring adjustments, considered necessary for a fair presentation of the Company’s unaudited condensed consolidated financial statements have been included. The results of operations for the three and nine months ended September 30, 2017March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 20172024 or any future period. The unaudited condensed consolidated balance sheet as of December 31, 2023 has been derived from audited consolidated financial statements at that date, but does not include all disclosures required by U.S. GAAP for complete financial statements. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors,” “Quantitative and Qualitative Disclosures About Market Risk,” and the audited Consolidated Financial Statementsconsolidated financial statements and footnotesnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2023, as amended. The preparation ofaccompanying 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 expensescontain historical financial information for the periods presented. The Company may experiencepresented and do not reflect any impact of the Stock and Asset Purchase Agreement entered into on April 2, 2024 more fully disclosed in Note 16, Subsequent Events.

2. Significant Accounting Policies and Recent Accounting Pronouncements

Significant Accounting Policies

No material changes have been made to the Company's significant variationsaccounting policies disclosed in demand for its products quarter to quarterNote 2, Significant Accounting Policies and typically experiences a stronger demand cycleRecent Accounting Pronouncements, in the second half of its fiscal year. As a result,Company’s Annual Report on Form 10-K for the quarterly results may not be indicative of the full year results. Theended December 31, 2016 balance sheet was derived from the audited financial statements2023, as of that date.amended.

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

Research and Development — Costs to research, design, and develop the Company’s products are expensed as incurred and consist primarily of employee compensation and fees for the development of prototype products. Software development costs are capitalized beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers. Generally, the Company’s products are released soon after technological feasibility has been established. Costs incurred subsequent to achieving technological feasibility have not been significant and generally have been expensed as incurred. At September 30, 2017, the amount of capitalized software development costs totaled $0.5 million and is included in prepaid expenses and other current assets the accompanying condensed consolidated balance sheet. No software development costs were capitalized in 2016.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that the Company adopts as of the specified effective date. Unless otherwise discussed, the Company does not believe that the impact of recently issued standards that are not yet effective will have a material impact on its financial position or results of operations upon adoption.

In March 2016,November 2023, the FASB issued Accounting Standards Update (“ASU”) 2016-09, Compensation – Stock Compensation,No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which provides guidance to simplify several aspectsrequires disclosure of accounting for share-based payment transactions, including the accounting for income taxes, forfeitures, statutory tax withholding requirements, as well as classification in the statement of cash flows. The guidanceincremental segment information on an annual and interim basis. This ASU is effective for reporting periodsfiscal years beginning after December 15, 2016. The Company adopted this guidance effective January 1, 2017. The Company's adoption of this standard did not have a significant impact on its condensed consolidated financial statements. No excess income tax benefit or tax deficiencies have been recorded as a result of the adoption2023, and there will be no change to accumulated deficit with respect to previously unrecognized excess tax benefits. The Company is electing to continue to account for forfeitures on an estimated basis. The Company has elected to present the condensed consolidated statements of cash flows on a prospective transition method and no priorinterim periods have been adjusted.

8


In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”), which amends accounting for leases. Under the new guidance, a lessee will recognize assets and liabilities but will recognize expenses similar to current lease accounting. The guidance is effective for reporting periodswithin fiscal years beginning after December 15, 2018; however early2024, and requires retrospective application to all prior periods presented in the financial statements. Early adoption is permitted. The new guidance must be adopted using a modified retrospective approach to each prior reporting period presented with various optional practical expedients. The Company is currently evaluating the impact of the adoption of this guidance will havenew standard on its condensedthe consolidated financial statements.statements and related disclosures.

In May 2014,December 2023, the FASB issued ASU No. 2014-09 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU is intended to improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The ASU’s amendments are effective for public business entities for annual periods beginning after December 15, 2024. Entities are permitted to early adopt the standard for “annual financial statements that have not yet been issued or made available for issuance.” Adoption is either prospectively or retrospectively, the Company will adopt this ASU on a prospective basis. The Company is currently evaluating the impact of the new standard on the consolidated financial statements and related disclosures.

7


3. Revenue

Revenue from Contracts with Customers (“ASU 2014-09”), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principleRecognition

Revenue is recognized upon transfer of ASU 2014-09 is to recognize revenues whencontrol of promised goodsproducts or services are transferred to customers in an amount that reflects the consideration to which an entitythe Company expects to be entitledreceive in exchange for those products or services. The Company enters into contracts that can include various combinations of its products, software licenses, and services, which are generally capable of being distinct and accounted for as separate performance obligations. For contracts with multiple performance obligations, the Company allocates the transaction price of the contract to each performance obligation, generally on a relative basis using its standalone selling price. The stated contract value is generally the transaction price to be allocated to the separate performance obligations. Revenue is recognized net of any taxes collected from customers that are subsequently remitted to governmental authorities.

Nature of Products and Services

The Company derives revenues from sales of hardware products, software licenses, subscriptions, professional services, software maintenance and support, and extended hardware warranties.

Hardware Product Revenue The Company generally has two performance obligations in arrangements involving the sale of hardware products. The first performance obligation is to transfer the hardware product (which includes software integral to the functionality of the hardware product). The second performance obligation is to provide assurance that the product complies with its agreed-upon specifications and is free from defects in material and workmanship for a period of one to three years (i.e., assurance warranty). The entire transaction price is allocated to the hardware product and is generally recognized as revenue at the time of shipment because the customer obtains control of the product at that point in time. The Company has concluded that control generally transfers at that point in time because the customer has title to the hardware, and a present obligation to pay for the hardware. None of the transaction price is allocated to the assurance warranty component, as the Company accounts for these product warranty costs in accordance with Accounting Standards Codification (“ASC”) 460, Guarantees.

Software License Revenue— The Company’s license arrangements grant customers the perpetual right to access and use the licensed software products at the outset of an arrangement. Technical support and software updates are generally made available throughout the term of the support agreement, which is generally one to three years. The Company accounts for these arrangements as two performance obligations: (1) the software licenses, and (2) the related updates and technical support. The software license revenue is recognized when the license is delivered to the customer or made available for download, while the software updates and technical support revenue is recognized over the term of the support contract.

Subscription RevenueSubscription revenues consist of fees received in consideration for providing customers access to one or more of the Company’s software-as-a-service (“SaaS”) based solutions. These SaaS arrangements include access to the Company’s licensed software and, in certain arrangements, use of various hardware devices over the contract term. These SaaS arrangements do not provide the customer the right to take possession of the software supporting the subscription service, or if applicable, any hardware devices at any time during the contract period, and as such are not considered separate performance obligations. Revenue is recognized ratably on a straight-line basis over the term of the contract beginning when the service is made available to the customer. Subscription contract terms range from month-to-month to six years in length and are billed monthly or annually.

Professional Services RevenueProfessional services revenue consists primarily of programming customization services performed relating to the integration of the Company’s software products with the customers other systems, such as human resources systems. Professional services contracts are generally billed on a time and materials basis and revenue is recognized as the services are performed.

Software Maintenance and Support Revenue— Support and maintenance contract revenue consists of the services provided to support the specialized programming applications performed by the Company’s professional services group. Support and maintenance contracts are typically billed at inception of the contract and recognized as revenue over the contract period, typically over a one-or three-year period.

Extended Hardware Warranties Revenue— Sales of the Company’s hardware products may also include optional extended hardware warranties, which typically provide assurance that the product will continue to function as initially intended. Extended hardware warranty contracts are typically billed at inception of the contract and recognized as revenue over the respective contract period, typically over one-to-two-year periods after the expiration of the original assurance warranty.

8


Performance
Obligation

When Performance Obligation is
Typically Satisfied

When Payment is
Typically Due

How Standalone Selling Price is
Typically Estimated

Hardware products

When customer obtains control of the product (point-in-time)

Within 30-60 days of shipment

Observable in transactions without multiple performance obligations

Software licenses

When license is delivered to customer or made available for download, and the applicable license period has begun (point-in-time)

Within 30-60 days of the beginning of license period

Established pricing practices for software licenses bundled with software maintenance, which are separately observable in renewal transactions

Subscriptions

Ratably over the course of the subscription term (over time)

In advance of subscription term

Contractually stated or list price

Professional services

As services are performed and/or when contract is fulfilled (point-in-time)

Within 30-60 days of delivery

Observable in transactions without multiple performance obligations

Software maintenance
and support services

Ratably over the course of the support contract (over time)

Within 30-60 days of the beginning of the contract period

Observable in renewal transactions

Extended hardware
warranties

Ratably over the course of the support contract (over time)

Within 30-60 days of the beginning of the contract period

Observable in renewal transactions

9


Significant Judgments

The Company’s contracts with customers often include promises to transfer multiple products and services to a customer. For such arrangements, the Company allocates the transaction price to each performance obligation based on its relative standalone selling price (“SSP”).

Judgment is required to determine the SSP for each distinct performance obligation in a contract. For the majority of items, the Company estimates SSP using historical transaction data. The Company uses a range of amounts to estimate SSP when it sells each of the products and services separately and needs to determine whether there is a discount to be allocated based on the relative SSP of the various products and services. In instances where SSP is not directly observable, such as when the product or service is not sold separately, the Company determines the SSP using information that may include market conditions and other observable inputs. The determination of SSP is an ongoing process and information is reviewed regularly in order to ensure SSPs reflect current information or trends.

Disaggregation of Revenue

The Company disaggregates revenue from contracts with customers based on the timing of transfer of goods or services. ASU 2014-09 definesservices to customers (point-in-time or over time) and geographic region based on the shipping location of the customer. The geographic regions that are tracked are the Americas, Europe and the Middle East, and Asia-Pacific regions.

Total net revenue based on the disaggregation criteria described above is as follows (in thousands):

 

Three Months Ended March 31,

 

 

2024

 

 

2023

 

 

Point-in-
Time

 

 

Over Time

 

 

Total

 

 

Point-in-
Time

 

 

Over Time

 

 

Total

 

Americas

$

15,360

 

 

$

1,144

 

 

$

16,504

 

 

$

20,874

 

 

$

754

 

 

$

21,628

 

Europe and the Middle East

 

3,897

 

 

 

101

 

 

 

3,998

 

 

 

2,899

 

 

 

85

 

 

 

2,984

 

Asia-Pacific

 

1,992

 

 

 

 

 

 

1,992

 

 

 

1,385

 

 

 

 

 

 

1,385

 

Total

$

21,249

 

 

$

1,245

 

 

$

22,494

 

 

$

25,158

 

 

$

839

 

 

$

25,997

 

Contract Balances

Amounts invoiced in advance of services being provided are accounted for as deferred revenue. Nearly all of the Company’s deferred revenue balance is related to software maintenance contracts. Payment terms and conditions vary by contract type, although payment is typically due within 30 to 60 days of contract inception. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined its contracts do not include a five step processsignificant financing component. The primary purpose of the Company’s invoicing terms is to achieveprovide customers with simplified and predictable ways of purchasing the Company’s products and services, not to receive financing from its customers.

Changes in deferred revenue during the three months ended March 31, 2024 and 2023 were as follows (in thousands):

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Deferred revenue, beginning of period

 

$

3,268

 

 

$

2,655

 

Deferral of revenue billed in current period, net of recognition

 

 

542

 

 

 

504

 

Recognition of revenue deferred in prior periods

 

 

(1,085

)

 

 

(714

)

Deferred revenue, end of period

 

$

2,725

 

 

$

2,445

 

Amounts recognized as revenue in excess of amounts billed are recorded as unbilled receivables and are included in other current assets on the condensed consolidated balance sheets. As of March 31, 2024 and December 31, 2023, the amount of unbilled receivables was immaterial.

Unsatisfied Performance Obligations

Revenue expected to be recognized in future periods related to remaining performance obligations, excluding revenue pertaining to contracts that have an original expected duration of one year or less, and contracts where revenue is recognized as invoiced, was approximately $1.5 million as of March 31, 2024. Since the Company typically invoices customers at contract inception, this core principle and,amount

10


is included in doing so, more judgment and estimates may be required withinthe deferred revenue balance. As of March 31, 2024, the Company expects to recognize 30% of the revenue recognition process than are required under existing U.S. GAAP. In August 2015,related to these unsatisfied performance obligations during the FASB issued ASU 2015-14, Revenue From Contracts With Customers (Topic 606) (“ASU 2015-14”)remainder of 2024, which defers the effective date of ASU 2014-09 by one year to annual periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The new guidance is effective for the Company beginning January 1, 2018. Companiescanelect a fullretrospectivemethodto recast prior-periodfinancialstatementsor a modifiedretrospectivemethodtorecognizethecumulative effect as an adjustmenttotheretainedearningsintheinitial year. The Company plansto implementthestandardinthefirstquarterof 2018on a modifiedretrospectivebasis. The Company does notanticipatethatthisstandard will have a material impact on its condensed consolidated financial statements.29% during 2025, and 41% thereafter.

2.4. Fair Value Measurements

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

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

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

Level 3 – Unobservable inputs.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of September 30, 2017March 31, 2024 and December 31, 2016, there were no2023, the only assets that are measured and recognized at fair value on a recurring basis. Therebasis were nonominal cash equivalents asequivalents. As of September 30, 2017March 31, 2024 and December 31, 2016.2023, there were no liabilities measured and recognized at fair value on a recurring basis.

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

Certain of the Company's assets, including goodwill, intangible assets, and privately-held investments, are measured at fair value on a nonrecurring basis if impairment is indicated. Purchased intangible assets are measured at fair value primarily using discounted cash flow projections. For additional discussion of measurement criteria used in evaluating potential impairment involving goodwill and intangible assets, refer to Note 5, Goodwill and Intangible Assets.

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

As of September 30, 2017March 31, 2024 and December 31, 2016,2023, the Company had $0.3 million$348,000 of privately-held investments measured at fair value on a nonrecurring basis, which were classified as Level 3 assets due to the absence of quoted market prices and inherent lack of liquidity. The Company reviews its investments to identify and evaluate investments that have an indication of possible impairment. The Company adjusts the carrying value for its privately-held investments for any impairment if the fair value is less than the carrying value of the respective assets on an other-than-temporary basis. The amount of privately-held investments is included in other assets in the accompanying condensed consolidated balance sheets.

9


As of September 30, 2017, the Company had $0.3 million ofMarch 31, 2024 and December 31, 2023, there were no liabilities that are measured and recognized at fair value on a nonrecurring basis which were classified as Level 1 liabilities due to the settlement provisions being a set amount of shares of the Company’s common stock. There were no share settled liabilities as of December 31, 2016. The share settled liabilities is included in accrued expenses in the accompanying condensed consolidated balance sheet.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, accounts payable, financial liabilities and other accrued liabilities approximate fair value due to their short maturities.

3. Stockholders’ Equity

Preferred Stock

The Company is authorized to issue 10,000,000 shares of preferred stock, 40,000 of which have been designated as Series A Participating Preferred Stock, parcarrying value $0.001 per share. No shares of the Company’s preferred stock, including the Series A Participating Preferred Stock, were outstanding as of September 30, 2017 and December 31, 2016. The Company’s board of directors may from time to time, without further action by the Company’s stockholders, direct the issuance of shares of preferred stock in series and may, at the time of issuance, determine the rights, preferences and limitations of each series, including voting rights, dividend rights and redemption and liquidation preferences. Satisfaction of any dividend preferences of outstanding shares of preferred stock would reduce the amount of funds available for the payment of dividends on shares of the Company’s common stock. Holders of shares of preferred stock may be entitled to receive a preference payment in the event of any liquidation, dissolution or winding-up of the Company before any payment is made to the holders of shares of the Company’s common stock. Upon the affirmative vote of the Board, without stockholder approval, the Company may issue shares of preferred stock with voting and conversion rights which could adversely affect the holders of shares of its common stock.

Sale of Common Stock

In May 2017, the Company sold an aggregate of 2,845,360 shares of its common stock at a public offering price of $4.85 per share in an underwritten public offering. The Company received net proceeds of approximately $12.6 million from the sale of the common stock in the public offering, after deducting the underwriting discount and other offering related expenses of $1.2 million. The Company intends to use the net proceeds from the offering for working capital and other general corporate purposes. The Company may also use a portion of the net proceeds from the offering to acquire or invest in complementary technologies or other assets.

Common Stock Warrants

On August 13, 2014, in connection with the Company’s entry into a consulting agreement, the Company issued a consultant a warrant to purchase up to 85,000 shares of the Company’s common stock at a per share exercise price of $10.70 (the “2014 Consultant Warrant”). One fourth of the shares under the warrant are exercisable for cash three months from the date the 2014 Consultant Warrant was issued and quarterly thereafter. The 2014 Consultant Warrant expires on August 13, 2019. In the event of an acquisition of the Company, the 2014 Consultant Warrant shall terminate and no longer be exercisable as of the closing of the acquisition. As of September 30, 2017, none of the shares under the 2014 Consultant Warrant had been exercised.

On February 8, 2017, the Company entered into Loan and Security Agreements with each of East West Bank ("EWB") and Venture Lending & Leasing VII, Inc. and Venture Lending & Leasing VIII, Inc. (collectively referred to as “VLL7 and VLL8”) as discussed in Note 7, Financial Liabilities. In connection with the Company's Revolving Loan Facility and Term Loan, the Company issued to EWB a warrant (the "EWB Warrant") to purchase up to 40,000 shares of the Company's common stock at a per share exercise pricefinancial liabilities approximates fair value based upon borrowing rates currently available to the Company for loans with similar terms.

11


5. Goodwill and Intangible Assets

Goodwill

The following table summarizes the activity in goodwill (in thousands):

 

Identity

 

 

Premises

 

 

Total

 

Balance as of January 1, 2023

 

$

3,554

 

 

$

6,636

 

 

$

10,190

 

Currency translation adjustment

 

 

 

 

 

2

 

 

 

2

 

Balance as of March 31, 2023

 

$

3,554

 

 

$

6,638

 

 

$

10,192

 

 

 

 

 

 

 

 

 

 

 

Balance as of January 1, 2024

 

$

3,554

 

 

$

6,664

 

 

$

10,218

 

Currency translation adjustment

 

 

 

 

 

(26

)

 

 

(26

)

Balance as of March 31, 2024

 

$

3,554

 

 

$

6,638

 

 

$

10,192

 

In accordance with ASC 350, Intangibles – Goodwill and Other, the Company tests goodwill for impairment on an annual basis, in the fourth quarter, or whenever events or changes in circumstances indicate that the carrying amount of $3.64, and issued to each of VLL7 and VLL8 a warrant to purchase 290,000 shares of the Company's common stock at a per share exercise price of $2.00 (the “VLL7 Warrant” and the “VLL8 Warrant,” respectively). these assets may not be recoverable. The Company calculatedperforms an initial assessment of qualitative factors to determine whether the existence of events and circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In performing the qualitative assessment, the Company identifies and considers the significance of relevant key factors, events, and circumstances that affect the fair value of its reporting units. These factors include external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as actual and planned financial performance. If, after assessing the totality of relevant events and circumstances, the Company determines that it is more likely than not that the fair value of the EWB Warrant, the VLL7 Warrantreporting unit exceeds its carrying value and the VLL8 Warrant using the Black-Scholes pricing model using the following assumptions: estimated volatilitythere is no indication of 78.8%, risk-free interest rate of 1.94%,impairment, no dividend yield, and an expected life of five years. In accordance with ASC 505-50, Equity-Based Payments to Non-Employees, the fair values of the EWB Warrant, the VLL7 Warrant and the VLL8 Warrant of $125,000, $1,037,500 and $1,037,500, respectively, were classified as equity as the settlement of the warrants will be in shares andfurther testing is within the control of the Company. Each of the EWB Warrant, the VLL7 Warrant and the VLL8 Warrant is immediately exercisable for cash or by net exercise and will expire five years after its issuance, or on February 8, 2022. None of the shares under the EWB Warrant had been exercised. In connection with entering into Loan and Security Agreements with EWB and VLL7 and VLL8, warrants to purchase an aggregate of 400,000 shares of common stock issued to the Company’s previous lender, Opus Bank (“Opus”) were cancelled.

10


In connection with securing of the new credit facility and cancelling of all the warrants previously issued to Opus,performed; however, if the Company issued a warrant to a consultant to purchase 60,000 shares of its common stock at an exercise price of $4.60 per share (the “2017 Consultant Warrant”).  Theconcludes otherwise, then the Company calculatedwill perform the quantitative impairment test which compares the estimated fair value of the 2017 Consultant Warrant usingreporting unit to its carrying value, including goodwill. If the Black-Scholes pricing model usingcarrying amount of the following assumptions: estimated volatilityreporting unit is in excess of 78.8%, risk-free interest rate of 1.22%, no dividend yield, and an expected life of two years. Theits fair value, of the 2017 Consultant Warrant of $119,000 was classified as equity as the settlement of the warrant willan impairment loss would be in shares and is within the control of the Company.  The 2017 Consultant Warrant is immediately exercisable for cash or by net exercise and will expire two years after its issuance, or on February 8, 2019. None of the shares under the 2017 Consultant Warrant had been exercised.   

On August 14, 2013, in a private placement, the Company issued 834,847 shares of its common stock at a price of $8.50 per share and warrants to purchase an additional 834,847 shares of its common stock with an exercise price of $10.00 per share (the “2013 Private Placement Warrants”) to accredited and other qualified investors (the “Investors”). The 2013 Private Placement Warrants had a term of four years and were exercisable beginning six months following the date of issuance. In addition, the placement agent was issued warrants to purchase 100,000 shares of common stock at an exercise price of $10.00 per share as compensation. Subsequent to issuance, warrants to purchase an aggregate of 747,969 shares were exercised. The number of shares issuable upon exercise of the 2013 Private Placement Warrants was subject to adjustment for any stock dividends, stock splits or distributions by the Company, or upon any merger or consolidation or sale of assets of the Company, tender or exchange offer for the Company’s common stock, or a reclassification of the Company’s common stock. On August 14, 2017, the remaining 186,878 warrants expired unexercised.

Below is the summary of outstanding warrants issued by the Company as of September 30, 2017:

Warrant Type

 

Number of Shares

Issuable Upon

Exercise

 

 

Weighted

Average

Exercise Price

 

 

Issue Date

 

Expiration Date

2014 Consultant Warrant

 

 

85,000

 

 

$

10.70

 

 

August 13, 2014

 

August 13, 2019

East West Bank Warrant

 

 

40,000

 

 

 

3.64

 

 

February 8, 2017

 

February 8, 2022

VLL7 and VLL8 Warrants

 

 

580,000

 

 

 

2.00

 

 

February 8, 2017

 

February 8, 2022

2017 Consultant Warrant

 

 

60,000

 

 

 

4.60

 

 

February 8, 2017

 

February 8, 2019

Total

 

 

765,000

 

 

 

 

 

 

 

 

 

Stock-Based Compensation Plans

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

Stock Bonus and Incentive Plans   

On June 6, 2011, the Company’s stockholders approved the 2011 Plan, which is administered by the Compensation Committee of the Board. The 2011 Plan provides that stock options, stock units, restricted shares, and stock appreciation rights may be granted to executive officers, directors, consultants, and other key employees. The Company reserved 400,000 shares of common stock under the 2011 Plan, plus 459,956 shares of common stock that remained available for delivery under the 2007 Plan and the 2010 Plan as of June 6, 2011. In aggregate, as of June 6, 2011, 859,956 shares were available for future grants under the 2011 Plan, including shares rolled over from 2007 Plan and 2010 Plan. Subsequent to June 6, 2011 through December 31, 2015, the number of shares of common stock authorized for issuance under the 2011 Plan had been increased by 1.0 million shares. On May 12, 2016, the Company’s stockholders approved an amendment and restatement of the 2011 Plan to, among other things, increase the number of shares of common stock authorized for issuance by 2.0 million shares and extend the term of the 2011 Plan.

11


Stock Option Plans

A summary of activity for the Company’s stock option plans for the nine months ended September 30, 2017 follows:

 

Number

Outstanding

 

 

Average Exercise

Price per Share

 

 

Weighted Average

Remaining

Contractual Term

(Years)

 

 

Average Intrinsic

Value

 

Balance at December 31, 2016

 

832,941

 

 

$

7.11

 

 

 

 

 

 

$

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancelled or Expired

 

(157,456

)

 

 

10.62

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2017

 

675,485

 

 

$

6.29

 

 

 

7.75

 

 

$

151,116

 

Vested or expected to vest at

    September 30, 2017

 

660,599

 

 

$

6.33

 

 

 

7.73

 

 

$

146,195

 

Exercisable at September 30, 2017

 

432,706

 

 

$

7.13

 

 

 

7.32

 

 

$

75,558

 

The following table summarizes information about options outstanding as of September 30, 2017:

 

 

Options Outstanding

 

 

Options Exercisable

 

Range of Exercise Prices

 

Number

Outstanding

 

 

Weighted

Average

Remaining

Contractual Life

(Years)

 

 

Weighted

Average Exercise

Price

 

 

Number

Exercisable

 

 

Weighted

Average Exercise

Price

 

$4.36 - $7.20

 

 

479,810

 

 

 

8.47

 

 

$

4.48

 

 

 

256,300

 

 

$

4.58

 

$7.50 - $11.30

 

 

165,388

 

 

 

6.29

 

 

 

9.26

 

 

 

146,119

 

 

 

9.20

 

$12.00 - $19.70

 

 

17,396

 

 

 

4.75

 

 

 

13.66

 

 

 

17,396

 

 

 

13.66

 

$21.70 - $29.20

 

 

12,891

 

 

 

3.59

 

 

 

25.37

 

 

 

12,891

 

 

 

25.37

 

$4.36 - $29.20

 

 

675,485

 

 

 

7.75

 

 

$

6.29

 

 

 

432,706

 

 

$

7.13

 

At September 30, 2017, there was $0.7 million of unrecognized stock-based compensation expense, net of estimated forfeitures related to unvested options, that is expected to be recognized over a weighted-average period of 1.7 years.  

Restricted Stock and Restricted Stock Units

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

 

 

Number

Outstanding

 

 

Weighted Average

Fair Value

 

Unvested at December 31, 2016

 

 

1,973,459

 

 

$

2.80

 

Granted

 

 

338,646

 

 

 

5.12

 

Vested

 

 

(480,764

)

 

 

3.41

 

Forfeited

 

 

(132,441

)

 

 

3.19

 

Unvested at September 30, 2017

 

 

1,698,900

 

 

$

3.06

 

Shares vested but not released

 

 

295,386

 

 

$

2.51

 

The fair value of the Company’s restricted stock awards and RSUs is calculated based upon the fair market value of the Company’s stock at the date of grant. As of September 30, 2017, there was $4.7 million of unrecognized compensation cost related to unvested RSUs granted, which is expected to be recognized over a weighted average period of 2.8 years. As of September 30, 2017, an aggregate of 1,403,514 RSUs were outstanding under the 2011 Plan.

12


Stock-Based Compensation Expense

The following table illustrates all employee stock-based compensation expense related to stock options and RSUs includedrecorded in the condensed consolidated statements of operations for the three and nine months ended September 30, 2017 and 2016 (in thousands):

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Cost of revenue

 

$

24

 

 

$

26

 

 

$

71

 

 

$

72

 

Research and development

 

 

130

 

 

 

69

 

 

 

361

 

 

 

205

 

Selling and marketing

 

 

193

 

 

 

148

 

 

 

463

 

 

 

433

 

General and administrative

 

 

317

 

 

 

620

 

 

 

1,021

 

 

 

1,535

 

Total

 

$

664

 

 

$

863

 

 

$

1,916

 

 

$

2,245

 

Common Stock Reserved for Future Issuance

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

Exercise of outstanding stock options and vesting of RSUs

2,374,385

ESPP

293,888

Shares of common stock available for grant under the 2011 Plan

395,330

Noncontrolling interest in Bluehill AG

10,355

Warrants to purchase common stock

765,000

Shares issuable to settle liability

53,880

Total

3,892,838

Net Loss per Common Share Attributable to Identiv Stockholders’ Equity

Basic and diluted net loss per share is based upon the weighted average number of common shares outstanding during the period. For the three and nine months ended September 30, 2017 and 2016, common stock equivalents consisting of outstanding stock options, RSUs and warrants were excluded from the calculation of diluted net loss per share because these securities were anti-dilutive due to the net loss in the respective periods. The total number of common stock equivalents excluded from diluted net loss per share relating to these securities was 3,203,620 common stock equivalents for both the three and nine months ended September 30, 2017, and 3,129,479 common stock equivalents for both the three and nine months ended September 30, 2016, respectively.

Accumulated Other Comprehensive Income  

Accumulated other comprehensive income (“AOCI”) at September 30, 2017 and December 31, 2016 consists of foreign currency translation adjustments totaling $2.6 million and $2.1 million, respectively.

4. Balance Sheet Components

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

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Raw materials

 

$

4,081

 

 

$

3,346

 

Work-in-progress

 

 

31

 

 

 

285

 

Finished goods

 

 

9,284

 

 

 

7,965

 

Total

 

$

13,396

 

 

$

11,596

 

13


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

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Building and leasehold improvements

 

$

1,863

 

 

$

1,884

 

Furniture, fixtures and office equipment

 

 

1,933

 

 

 

2,002

 

Plant and machinery

 

 

9,319

 

 

 

8,848

 

Purchased software

 

 

1,923

 

 

 

1,717

 

Total

 

 

15,038

 

 

 

14,451

 

Accumulated depreciation

 

 

(12,921

)

 

 

(12,035

)

Property and equipment, net

 

$

2,117

 

 

$

2,416

 

The Company recorded depreciation expense of $0.3 million and $0.5 million duringloss. During the three months ended September 30, 2017March 31, 2024 and 2016, respectively, 2023, the Company noted no indicators of goodwill impairment and $1.0 million and $1.4 million during the nine months ended September 30, 2017 and 2016, respectively.  concluded no further testing was necessary.

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

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Accrued restructuring

 

$

 

 

$

237

 

Accrued professional fees

 

 

1,203

 

 

 

2,371

 

Income taxes payable

 

 

238

 

 

 

334

 

Other accrued expenses

 

 

1,537

 

 

 

2,090

 

Total

 

$

2,978

 

 

$

5,032

 

5. Intangible Assets

The following table summarizes the gross carrying amount and accumulated amortization for intangible assets resulting from acquisitions (in thousands):

 

 

Existing

 

 

Customer

 

 

 

 

 

 

 

Technology

 

 

Relationship

 

 

Total

 

Amortization period (in years)

 

 

11.75

 

 

4.0 – 11.75

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross carrying amount at December 31, 2016

 

$

4,600

 

 

$

10,639

 

 

$

15,239

 

Accumulated amortization

 

 

(2,809

)

 

 

(6,610

)

 

 

(9,419

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangible Assets, net at December 31, 2016

 

$

1,791

 

 

$

4,029

 

 

$

5,820

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross carrying amount at September 30, 2017

 

$

4,600

 

 

$

10,639

 

 

$

15,239

 

Accumulated amortization

 

 

(3,145

)

 

 

(7,366

)

 

 

(10,511

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangible Assets, net at September 30, 2017

 

$

1,455

 

 

$

3,273

 

 

$

4,728

 

 

 

 

 

Developed

 

 

Customer

 

 

 

 

 

Trademarks

 

 

Technology

 

 

Relationships

 

 

Total

 

Amortization period (in years)

 

5

 

 

10 – 12

 

4 – 12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross carrying amount as of March 31, 2024

 

$

760

 

 

$

9,088

 

 

$

15,742

 

 

$

25,590

 

Accumulated amortization

 

 

(760

)

 

 

(7,220

)

 

 

(13,615

)

 

 

(21,595

)

Intangible assets, net as of March 31, 2024

 

$

 

 

$

1,868

 

 

$

2,127

 

 

$

3,995

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross carrying amount as of December 31, 2023

 

$

760

 

 

$

9,098

 

 

$

15,748

 

 

$

25,606

 

Accumulated amortization

 

 

(760

)

 

 

(7,110

)

 

 

(13,485

)

 

 

(21,355

)

Intangible assets, net as of December 31, 2023

 

$

 

 

$

1,988

 

 

$

2,263

 

 

$

4,251

 

Each period, the Company evaluates the estimated remaining useful lives of purchased intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization. If a revision to the remaining period of amortization is warranted, amortization is prospectively adjusted over the remaining useful life of the intangible asset. Intangible assets subject to amortization are amortized on a straight-line basis over their useful lives as shownindicated in the table above. The Company evaluatesperforms an evaluation of its amortizable intangible assets for impairment at the end of each reporting period. The Company did notnot identify any impairment indicators during the three and nine months ended September 30, 2017.March 31, 2024.

12


14


The following table illustratessummarizes the amortization expense included in the condensed consolidated statements of operationscomprehensive income (loss) for the three and nine months ended September 30, 2017March 31, 2024 and 2016, respectively2023 (in thousands):

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Cost of revenue

 

$

110

 

 

$

111

 

Selling and marketing

 

 

130

 

 

 

155

 

Total

 

$

240

 

 

$

266

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Cost of revenue

 

$

112

 

 

$

112

 

 

$

336

 

 

$

336

 

Selling and marketing

 

 

252

 

 

 

252

 

 

 

756

 

 

 

756

 

Total

 

$

364

 

 

$

364

 

 

$

1,092

 

 

$

1,092

 

The estimated annual future amortization expense for purchased intangible assets with definite lives over the next five years as of September 30, 2017 isMarch 31, 2024 was as follows (in thousands):

2024 (remaining nine months)

 

$

721

 

2025

 

 

961

 

2026

 

 

961

 

2027

 

 

961

 

2028

 

 

391

 

Total

 

$

3,995

 

2017 (remaining three months)

 

$

363

 

2018

 

 

1,455

 

2019

 

 

1,455

 

2020

 

 

1,455

 

Thereafter

 

 

 

Total

 

$

4,728

 

6. Balance Sheet Components

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

 

March 31,
2024

 

 

December 31,
2023

 

Raw materials

 

$

14,255

 

 

$

15,122

 

Work-in-progress

 

 

 

 

 

5

 

Finished goods

 

 

14,205

 

 

 

13,585

 

Total

 

$

28,460

 

 

$

28,712

 

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

 

March 31,
2024

 

 

December 31,
2023

 

Building and leasehold improvements

 

$

1,999

 

 

$

2,203

 

Furniture, fixtures and office equipment

 

 

1,064

 

 

 

1,017

 

Plant and machinery

 

 

18,957

 

 

 

18,920

 

Purchased software

 

 

855

 

 

 

836

 

Total

 

 

22,875

 

 

 

22,976

 

Accumulated depreciation

 

 

(14,043

)

 

 

(13,656

)

Property and equipment, net

 

$

8,832

 

 

$

9,320

 

6. Long-Term Payment Obligation

Hirsch Acquisition – Secure Keyboards and Secure Networks. Prior to the 2009 acquisition of Hirsch Electronics Corporation (“Hirsch”) by the Company, effective November 1994, Hirsch had entered into a settlement agreement (the “1994 Settlement Agreement”) with two limited partnerships, Secure Keyboards, Ltd. (“Secure Keyboards”) and Secure Networks, Ltd. (“Secure Networks”). At the time, Secure Keyboards and Secure Networks were related to Hirsch through certain common shareholders and limited partners, including Hirsch’s then President Lawrence Midland, who resigned as President of the Company effective July 31, 2014. Immediately following the acquisition, Mr. Midland owned 30% of Secure Keyboards and 9% of Secure Networks. Secure Networks was dissolved in 2012 and Mr. Midland owned 24.5% of Secure Keyboards upon his resignation from the Company effective July 31, 2014.

On April 8, 2009, Secure Keyboards, Secure Networks and Hirsch amended and restated the 1994 Settlement Agreement to replace the royalty-based payment arrangement under the 1994 Settlement Agreement with a new, definitive installment payment schedule with contractual payments to be made in future periods through 2020 (the “2009 Settlement Agreement”). The Company was not an original party to the 2009 Settlement Agreement as the acquisitionrecorded depreciation expenses of Hirsch occurred subsequent to the 2009 Settlement Agreement being entered into. The Company has, however, provided Secure Keyboards and Secure Networks with a limited guarantee of Hirsch’s payment obligations under the 2009 Settlement Agreement (the “Guarantee”). The 2009 Settlement Agreement and the Guarantee became effective upon the acquisition of Hirsch on April 30, 2009. The Company’s annual payment to Secure Keyboards and Secure Networks in any given year under the 2009 Settlement Agreement is subject to an increase based on the percentage increase in the Consumer Price Index during the previous calendar year.

The final payment to Secure Networks was made on January 30, 2012. The Company’s payment obligations under the 2009 Settlement Agreement to Secure Keyboards will continue through the calendar year ending December 31, 2020, with the final payment due on January 30, 2021, unless the Company elects at any time to satisfy its obligations by making a lump-sum payment to Secure Keyboards. The Company does not intend to make a lump-sum payment and therefore a portion of the payment obligation amount is classified as a long-term liability in the condensed consolidated balance sheets.

The Company included $0.1$0.5 million and $0.3$0.4 million of interest expense during the three and nine months ended September 30, 2017, respectively,March 31, 2024 and $0.1 million2023, respectively.

Other accrued expenses and $0.3 million of interest expense during the three and nine months ended September 30, 2016, respectively, in its condensed consolidated statements of operations for interest accreted on the long-term payment obligation.  

15


The ongoing payment obligation in connection with the Hirsch acquisition as of September 30, 2017 is as follows (in thousands):

2017 (remaining three months)

 

$

300

 

2018

 

 

1,237

 

2019

 

 

1,288

 

2020

 

 

1,433

 

2021

 

 

369

 

Present value discount factor

 

 

(469

)

Total

 

 

4,158

 

Less:  Current portion - payment obligation

 

 

(877

)

Long-term payment obligation

 

$

3,281

 

7. Financial Liabilities

Financial liabilities consist of (in thousands):

 

 

March 31,
2024

 

 

December 31,
2023

 

Accrued professional fees

 

$

449

 

 

$

441

 

Accrued warranties

 

 

301

 

 

 

378

 

Other accrued expenses

 

 

1,601

 

 

 

1,375

 

Total

 

$

2,351

 

 

$

2,194

 

 

September 30,

 

 

December 31,

 

 

2017

 

 

2016

 

Secured term loan

$

10,000

 

 

$

10,000

 

Bank revolving loan facility

 

8,490

 

 

 

8,300

 

Total before discount and debt issuance costs

 

18,490

 

 

 

18,300

 

Less: Current portion of financial liabilities

 

(9,957

)

 

 

(8,119

)

Less: Current portion of unamortized discount and debt issuance costs

 

(596

)

 

 

(181

)

Less: Long-term portion of unamortized discount and debt issuance costs

 

(1,463

)

 

 

(221

)

Long-term financial liabilities

$

6,474

 

 

$

9,779

 

13


7. Financial Liabilities

The Company’s financial liabilities consist of (in thousands):

 

March 31,

 

 

December 31,

 

 

2024

 

 

2023

 

Revolving loan facility

 

$

10,000

 

 

$

10,000

 

Less: Unamortized debt issuance costs

 

 

(106

)

 

 

(51

)

Financial liabilities, net of debt issuance costs

 

$

9,894

 

 

$

9,949

 

Bank Term Loan and Revolving Loan Facility

On March 31, 2014, the Company entered into a credit agreement (the “Credit Agreement”) with Opus. The Credit Agreement provided for a term loan in aggregate principal amount of $10.0 million (“Term Loan”) and an additional $10.0 million revolving loan facility (“Revolving Loan Facility”). On February 8, 2017, the Company entered into newa Loan and Security Agreements. In connectionAgreement (as amended or amended and restated from time to time, the “Loan Agreement”) with the closing of such agreements,East West Bank (“EWB”). Following subsequent amendments, on April 14, 2022, the Company repaid all outstanding amounts under its Creditand EWB amended the Loan Agreement replacing the $20.0 million revolving loan facility subject to a borrowing base with a non-formula revolving loan facility with no borrowing base requirement and a maturity date of February 8, 2023. In addition, the interest rate was lowered from prime to prime minus 0.25% (interest rate as amended, with Opus. In evaluating the transaction, the Company compared the net present value cash flows under the existing Credit Agreementof March 31, 2024 was 8.50%), and the new Loan and Security Agreements to determine whether the terms of the new debt facility and the existing facilitycertain financial covenants were "substantially different." As the net present value of cash flows varied by more than 10%, the Company concluded that the transaction should be accounted for as a debt extinguishment. As a result, the Company recorded a gain on extinguishment of debt totaling $977,000, representing the difference between the reacquisition price of the previous debt facility, net of cancelled warrants previously issued to Opus, and its net carrying amount.

amended. On February 8, 2017,2023, the Company entered into an amendment (the "Fourth Amendment") to the Loan Agreement. The Fourth Amendment amends the Loan Agreement to, among other things, extend the maturity date to February 8, 2025, and Security Agreements with each of EWB and VLL7 and VLL8. amend certain financial covenants.

The Loan and Security Agreement with EWB provides for a $10.0 million revolving loan facility ("Revolving Loan Facility"), and the Loan Security Agreement with VLL7 and VLL8 provides for a term loan in aggregate principal amount of $10.0 million (the "Term Loan"). The obligations of the Company under each of the Revolving Loan Facility and the Term Loan and Security Agreements are secured by substantially all assets of the Company.

The Revolving Loan Facility bears interest at prime rate plus 2.0% and matures and becomes due and payable on February 8, 2019. Interest is payable monthly beginning on March 1, 2017. The Company may voluntarily prepay amounts outstanding under the Revolving Loan Facility, without prepayment charges. In the event the Revolving Loan Facility is terminated prior to its maturity, the Company would be required to pay an early termination fee in the amount of 1.0% of the revolving line, and an additional cash early termination fee of 1.0% if terminated prior to February 8, 2018. Additional borrowing requests under the Revolving Loan Facility are subject to various customary conditions precedent, including satisfaction of a borrowing base test as more fully described in the Revolving Loan Facility.

The Term Loan matures on August 8, 2020. Payments under the Term Loan are interest-only for the first twelve months at a per annum rate of 12.5%, followed by principal and interest payments amortized over the remaining term of the Term Loan. If the Company elects to prepay the Term Loan before its maturity, all accrued and unpaid interest outstanding at the prepayment date will be due and payable, together with all the scheduled interest that would have accrued and been payable through the stated maturity of

16


the Term Loan, provided that at any time after the Company has made at least twelve scheduled amortization payments of principal and interest on the Term Loan the Company shall only be required to pay 80% of the scheduled interest that would have accrued and been payable through the stated maturity of the Term Loan,

The Company is obligated to pay customary fees and expenses, including customary facility fees for credit facilities of this size and type, in the aggregate amount of approximately $120,000, in connection with the closing of the two facilities. An additional facility fee of $40,000 will be payable in connection with the Revolving Loan Facility on February 8, 2018.

Each of the Revolving Loan Facility and the Term Loan containcontains customary representations and warranties and customary affirmative and negative covenants, including, limits or restrictions on the Company'sCompany’s ability to incur liens, incur indebtedness, make certain restricted payments (including dividends), merge or consolidate and dispose of assets.assets, as well as other financial covenants. The Revolving Loan Facility also contains various financial covenants as set forth in the Revolving Loan Facility, including but not limited to a liquidity covenant requiring the Company to maintain at least $4.0 million of cash. In addition, each of the Revolving Loan Facility and the Term Loan contains customary events of default that entitle the EWB or VLL7 and VLL8, as appropriate, to cause any or all of the Company's indebtedness under the Revolving Loan Facility or the Term Loan, respectively, to become immediately due and payable. The events of default (some of which are subject to applicable grace or cure periods), include, among other things, non-payment defaults, covenant defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency defaults and material judgment defaults. Upon the occurrence and during the continuance of an event of default, EWB and VLL7 and VLL8 may terminate their lending commitments and/or declare all or any part of the unpaid principal of all loans, all interest accrued and unpaid thereon and all other amounts payableCompany’s obligations under the Loan and Security Agreements to be immediately due and payable.

AsAgreement are collateralized by substantially all of September 30, 2017, theits assets. The Company was not in compliance with alla financial covenantscovenant under the Revolving Loan Facility and the Term Loan.

The proceeds of the Term Loan and the initial draw under Revolving Loan Facility, after payment of fees and expenses, were used to repay all outstanding amounts under the Credit Agreement with Opus. In connection with the repayment, warrants to purchase an aggregate of 400,000 shares of common stock issued to Opus were cancelled. The proceeds of any additional draws under the Revolving Loan Facility will be used for working capital and other general corporate purposes. 

The following table summarizes the timing of repayment obligations for the Company’s long-term financial liabilities for the next four years under the current terms of the Credit Agreement as amended, at September 30, 2017 (in thousands):of March 31, 2024, which non-compliance was waived by EWB on May 6, 2024.

 

 

2018

 

 

2019

 

 

2020

 

 

2021

 

 

Total

 

Bank term loan

 

$

2,994

 

 

$

4,028

 

 

$

2,978

 

 

$

 

 

$

10,000

 

8. Income Taxes

The Company conducts business globally and, as a result, files federal, state and foreign tax returns. The Company strives to resolve open matters with each tax authority at the examination level and could reach agreement with a tax authority at any time. While the Company has accrued for amounts it believes are the probable outcomes, the final outcome with a tax authority may result in a tax liability that is more or less than that reflected in the condensed consolidated financial statements. Furthermore, the Company may later decide to challenge any assessments, if made, and may exercise its right to appeal.

The Company has no present intention of remitting undistributed retained earnings of any of its foreign subsidiaries. Accordingly, the Company has not established a deferred tax liability with respect to undistributed earnings of its foreign subsidiaries.

The Company applies the provisions of, and accounted for uncertain tax positions, in accordance with ASC 740, Income Taxes (“ASC 740”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. It prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

The Company generally is no longer subject to tax examinations for years prior to 2012.2018. However, if loss carryforwards of tax years prior to 20112017 are utilized in the U.S., these tax years may become subject to investigation by the tax authorities. While timing of the resolution and/or finalization of tax audits is uncertain, the Company does not believe that its unrecognized tax benefits would materially change in the next 12 months.

14


9. Stockholders’ Equity

Series B Convertible Preferred Stock Dividend Accretion

The following table summarizes Series B convertible preferred stock and the accretion of dividend activity for the three months ended March 31, 2024 and 2023 (in thousands):

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Series B Convertible Preferred Stock:

 

 

 

Balance at beginning of period

 

$

26,589

 

$

25,323

 

Cumulative dividends on Series B convertible preferred stock

 

 

248

 

 

313

 

Balance at end of period

 

$

26,837

 

$

25,636

 

Number of Common Shares Issuable Upon Conversion:

 

 

 

Number of shares at beginning of period

 

 

6,647

 

 

6,331

 

Cumulative dividends on Series B convertible preferred stock

 

 

62

 

 

78

 

Number of shares at end of period

 

 

6,709

 

 

6,409

 

Based on the current conversion price, the outstanding shares, including the accretion of dividends, of Series B convertible preferred stock as of March 31, 2024 would be convertible into 6,709,359 shares of the Company’s common stock. However, the conversion rate will be subject to adjustment in certain instances, such as if the Company issues shares of its common stock at a price less than $4.00 per common share, subject to a minimum conversion price of $3.27 per share. As of March 31, 2024, none of the contingent conditions to adjust the conversion rate had been met.

Each share of Series B convertible preferred stock is entitled to a cumulative annual dividend of 5% for the first six years following the issuance of such share and 3% for each year thereafter, with the Company retaining the option to settle each year’s dividend after the 10th year in cash. The dividends accrue and are payable in kind upon such time as the shares convert into the Company’s common stock. In general, the shares are not entitled to vote except in certain limited cases, including in change of control transactions where the expected price per share distributable to the Company’s stockholders is expected to be less than $4.00 per share. The Certificate of Designation with respect to the Series B convertible preferred stock further provides that in the event of, among other things, any change of control, liquidation or dissolution of the Company, the holders of the Series B convertible preferred stock will be entitled to receive, on a pari passu basis with the holders of the common stock, the same amount and form of consideration that the holders of the Company’s common stock receive (on an as-if-converted-to-common-stock basis and without regard to the Beneficial Ownership Limitation (as defined in the Certificate of Designation) applicable to the Series B convertible preferred stock).

Common Stock Reserved for Future Issuance

Common stock reserved for future issuance as of March 31, 2024 was as follows:

Exercise of outstanding stock options, vesting of restricted stock units ("RSUs"), and issuance of RSUs vested but not released

1,304,248

Employee Stock Purchase Plan

293,888

Shares of common stock available for grant under the 2011 Plan

286,899

Shares of common stock issuable upon conversion of Series B convertible preferred stock

7,541,449

Total

9,426,484

15


10. Stock-Based Compensation

Stock Incentive Plan

The Company maintains a stock-based compensation plan, the 2011 Incentive Compensation Plan, as amended (the “2011 Plan”), 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.

Stock Options

A summary of stock option activity for the three months ended March 31, 2024 is as follows:

 

 

Number
Outstanding

 

 

Weighted Average Exercise
Price per Share

 

 

Weighted Average
Remaining
Contractual Term
(Years)

 

 

Aggregate
Intrinsic
Value

 

Balance as of January 1, 2024

 

 

494,960

 

 

$

4.99

 

 

 

2.23

 

 

$

1,725,985

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

Cancelled or Expired

 

 

(7,500

)

 

 

8.97

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2024

 

 

487,460

 

 

$

4.93

 

 

 

2.01

 

 

$

1,583,118

 

Vested or expected to vest as of March 31, 2024

 

 

487,460

 

 

$

4.93

 

 

 

2.01

 

 

$

1,583,118

 

Exercisable as of March 31, 2024

 

 

487,460

 

 

$

4.93

 

 

 

2.01

 

 

$

1,583,118

 

The aggregate intrinsic value in the table above represents the difference between the fair value of the Company’s common stock as of March 31, 2024 and the exercise price of in-the-money stock options multiplied by the number of such stock options.

The following table summarizes information about stock options outstanding as of March 31, 2024:

 

 

Stock Options Outstanding

 

 

Stock Options Exercisable

 

Range of Exercise Prices

 

Number
Outstanding

 

 

Weighted
Average
Remaining
Contractual Life
(Years)

 

 

Weighted
Average
Exercise
Price

 

 

Number
Exercisable

 

 

Weighted
Average
Exercise
Price

 

$4.36 - $7.20

 

 

446,460

 

 

 

2.17

 

 

$

4.37

 

 

 

446,460

 

 

$

4.37

 

$10.93 - $16.40

 

 

41,000

 

 

 

0.25

 

 

 

10.93

 

 

 

41,000

 

 

 

10.93

 

$4.36 - $16.40

 

 

487,460

 

 

 

2.01

 

 

$

4.93

 

 

 

487,460

 

 

$

4.93

 

As of March 31, 2024, there was nounrecognized stock-based compensation expense related to stock options.

Restricted Stock Units

The following is a summary of RSU activity for the three months ended March 31, 2024:

 

 

Number
Outstanding

 

 

Weighted Average
Fair Value

 

Unvested as of January 1, 2024

 

 

730,062

 

 

$

11.17

 

Granted

 

 

127,919

 

 

 

8.63

 

Vested

 

 

(106,761

)

 

 

10.16

 

Forfeited

 

 

 

 

 

 

Unvested as of March 31, 2024

 

 

751,220

 

 

$

10.88

 

RSUs vested but not released

 

 

65,568

 

 

$

10.72

 

16


The fair value of the Company’s RSUs is calculated based upon the fair market value of the Company’s common stock at the date of grant. As of March 31, 2024, there was $7.0 million of unrecognized compensation expense related to unvested RSUs granted, which is expected to be recognized over a weighted average period of 2.3 years. No tax benefit was realized from RSUs for the three months ended March 31, 2024.

Stock-Based Compensation Expense

The following table summarizes stock-based compensation expense related to stock options and RSUs included in the condensed consolidated statements of comprehensive income (loss) for the three months ended March 31, 2024 and 2023 (in thousands):

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Cost of revenue

 

$

47

 

 

$

45

 

Research and development

 

 

182

 

 

 

202

 

Selling and marketing

 

 

264

 

 

 

293

 

General and administrative

 

 

526

 

 

 

450

 

Total

 

$

1,019

 

 

$

990

 

Restricted Stock Unit Net Share Settlements

During the three months ended March 31, 2024 and 2023, the Company repurchased 32,608 and 24,812 shares, respectively, of common stock surrendered to the Company to satisfy tax withholding obligations in connection with the vesting of RSUs issued to employees.

11. Net Loss per Common Share

Basic net loss per common share is computed by dividing net loss available to common stockholders during the period by the weighted average number of common shares outstanding during that period. Diluted net loss per common share is impacted by equity instruments considered to be potential common shares, if dilutive, computed using the treasury stock or the if-converted method of accounting. Dilutive potential common share equivalents are excluded from the computation of net loss per share in loss periods, as their effect would be antidilutive.

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Basic net loss per common share:

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

Net loss

 

$

(4,558

)

 

$

(2,719

)

Less: accretion of Series B convertible preferred stock dividends

 

 

(248

)

 

 

(313

)

Net loss available to common stockholders

 

$

(4,806

)

 

$

(3,032

)

 

 

 

 

 

 

 

Denominator:

 

 

 

Weighted average common shares outstanding - basic and diluted

 

 

23,368

 

 

22,794

 

Net loss per common share - basic and diluted

 

$

(0.21

)

 

$

(0.13

)

The following common stock equivalents have been excluded from diluted net loss per share for the three months ended March 31, 2024 and 2023 because their inclusion would have been anti-dilutive (in thousands):

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Shares of common stock subject to outstanding RSUs

 

 

751

 

 

 

873

 

Shares of common stock subject to outstanding PSUs

 

 

 

 

 

40

 

Shares of common stock subject to outstanding stock options

 

 

487

 

 

 

506

 

Shares of common stock subject to outstanding warrants

 

 

 

 

 

275

 

Shares of common stock issuable upon conversion of Series B
   convertible preferred stock

 

 

6,709

 

 

 

6,409

 

Total

 

 

7,947

 

 

 

8,103

 

17


9.

12. Segment Reporting, and Geographic Information, and Concentration of Credit Risk

Segment Reporting

ASC 280, Segment Reporting (“ASC 280”) establishes standards for the reporting by public business enterprises of information about operating segments, products and services, geographic areas, and major customers. The method for determining what information to report is based on the way management organizes the operating segments within the Company for making operating decisions and assessing financial performance. An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenue and incur expenses and about which separate financial information is available to its chief operating decision makers (“CODM”). The Company’s CODM is its CEO.Chief Executive Officer.

The Company is organized into four reportable operating segments: Physical Access Control Systems (“PACS”), previously referred to as Premises, Identity, Credentials and All Other.

The CODM reviews financial information and business performance for each operating segment. The Company evaluates the performance of its operating segments at the revenue and gross profit levels. The CODMCompany does not reviewreport total assets, capital expenditures or operating expenses or asset information by operating segment as such information is not used by the CODM for purposes of assessing performance or allocating resources.

Net revenue and gross profit information by segment for the three and nine months ended September 30, 2017March 31, 2024 and 2016 is2023 are as follows (in thousands):

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Identity:

 

 

 

 

 

 

Net revenue

 

$

12,835

 

 

$

14,678

 

Gross profit

 

 

2,834

 

 

 

3,079

 

Gross profit margin

 

 

22

%

 

 

21

%

Premises:

 

 

 

 

 

 

Net revenue

 

 

9,659

 

 

 

11,319

 

Gross profit

 

 

5,558

 

 

 

6,132

 

Gross profit margin

 

 

58

%

 

 

54

%

Total:

 

 

 

 

 

 

Net revenue

 

 

22,494

 

 

 

25,997

 

Gross profit

 

 

8,392

 

 

 

9,211

 

Gross profit margin

 

 

37

%

 

 

35

%

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

3,011

 

 

 

2,707

 

Selling and marketing

 

 

5,302

 

 

 

6,097

 

General and administrative

 

 

4,252

 

 

 

2,948

 

Restructuring and severance

 

 

22

 

 

 

191

 

Total operating expenses:

 

 

12,587

 

 

 

11,943

 

Loss from operations

 

 

(4,195

)

 

 

(2,732

)

Non-operating income (expense):

 

 

 

 

 

 

Interest expense, net

 

 

(87

)

 

 

(50

)

Foreign currency gains (losses), net

 

 

(256

)

 

 

89

 

Loss before income tax provision

 

$

(4,538

)

 

$

(2,693

)

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

PACS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

$

6,434

 

 

$

7,253

 

 

$

17,622

 

 

$

17,908

 

Gross profit

 

3,412

 

 

 

4,334

 

 

 

9,556

 

 

 

10,244

 

Gross profit margin

 

53

%

 

 

60

%

 

 

54

%

 

 

57

%

Identity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

3,421

 

 

 

3,508

 

 

 

10,568

 

 

 

8,923

 

Gross profit

 

1,229

 

 

 

1,359

 

 

 

3,666

 

 

 

3,324

 

Gross profit margin

 

36

%

 

 

39

%

 

 

35

%

 

 

37

%

Credentials:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

5,577

 

 

 

4,799

 

 

 

15,471

 

 

 

14,110

 

Gross profit

 

1,220

 

 

 

1,227

 

 

 

4,013

 

 

 

3,654

 

Gross profit margin

 

22

%

 

 

26

%

 

 

26

%

 

 

26

%

All Other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

 

 

 

 

 

 

3

 

 

 

580

 

Gross profit

 

 

 

 

 

 

 

6

 

 

 

261

 

Gross profit margin

 

 

 

 

 

 

 

200

%

 

 

45

%

Total:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

15,432

 

 

 

15,560

 

 

 

43,664

 

 

 

41,521

 

Gross profit

 

5,861

 

 

 

6,920

 

 

 

17,241

 

 

 

17,483

 

Gross profit margin

 

38

%

 

 

44

%

 

 

39

%

 

 

42

%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

1,597

 

 

 

1,480

 

 

 

4,584

 

 

 

4,997

 

Selling and marketing

 

3,448

 

 

 

3,312

 

 

 

10,142

 

 

 

10,807

 

General and administrative

 

1,247

 

 

 

2,115

 

 

 

5,119

 

 

 

9,674

 

Restructuring and severance

 

(49

)

 

 

160

 

 

 

(49

)

 

 

3,100

 

Total operating expenses:

 

6,243

 

 

 

7,067

 

 

 

19,796

 

 

 

28,578

 

Loss from operations

 

(382

)

 

 

(147

)

 

 

(2,555

)

 

 

(11,095

)

Non-operating income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

(643

)

 

 

(525

)

 

 

(1,995

)

 

 

(1,814

)

Gain on extinguishment of debt

 

 

 

 

 

 

 

977

 

 

 

 

Foreign currency (losses) gains, net

 

(51

)

 

 

35

 

 

 

(202

)

 

 

309

 

Loss before income taxes and noncontrolling interest

$

(1,076

)

 

$

(637

)

 

$

(3,775

)

 

$

(12,600

)

18


Geographic Information

18


Geographic net revenue is based on the customer’s ship-to location. Information regarding net revenue by geographic region for the three and nine months ended September 30, 2017March 31, 2024 and 20162023 is as follows (in thousands):

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Americas

 

$

16,504

 

 

$

21,628

 

Europe and the Middle East

 

 

3,998

 

 

 

2,984

 

Asia-Pacific

 

 

1,992

 

 

 

1,385

 

Total

 

$

22,494

 

 

$

25,997

 

 

 

 

 

 

 

 

As percentage of net revenue:

 

 

 

 

 

 

Americas

 

 

73

%

 

 

83

%

Europe and the Middle East

 

 

18

%

 

 

12

%

Asia-Pacific

 

 

9

%

 

 

5

%

Total

 

 

100

%

 

 

100

%

Concentration of Credit Risk

One customer accounted for 11% of net revenue for the three months ended March 31, 2024. No customer accounted for more than 10% of net revenue for the three months ended March 31, 2023. Nocustomer accounted for 10% or more of net accounts receivable as of March 31, 2024 or December 31, 2023.

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Americas

 

$

10,291

 

 

$

9,924

 

 

$

28,894

 

 

$

27,343

 

Europe and the Middle East

 

 

1,771

 

 

 

2,834

 

 

 

5,767

 

 

 

6,654

 

Asia-Pacific

 

 

3,370

 

 

 

2,802

 

 

 

9,003

 

 

 

7,524

 

Total

 

$

15,432

 

 

$

15,560

 

 

$

43,664

 

 

$

41,521

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

 

67

%

 

 

64

%

 

 

66

%

 

 

66

%

Europe and the Middle East

 

 

11

%

 

 

18

%

 

 

13

%

 

 

16

%

Asia-Pacific

 

 

22

%

 

 

18

%

 

 

21

%

 

 

18

%

Total

 

 

100

%

 

 

100

%

 

 

100

%

 

 

100

%

Long-lived assets by geographic location as of September 30, 2017March 31, 2024 and December 31, 20162023 are as follows (in thousands):

 

 

March 31,
2024

 

 

December 31,
2023

 

Property and equipment, net:

 

 

 

 

 

 

Americas

 

$

667

 

 

$

711

 

Europe and the Middle East

 

 

500

 

 

 

519

 

Asia-Pacific

 

 

7,665

 

 

 

8,090

 

Total property and equipment, net

 

$

8,832

 

 

$

9,320

 

 

 

 

 

 

 

 

Operating lease ROU assets:

 

 

 

 

 

 

Americas

 

$

2,623

 

 

$

2,836

 

Europe and the Middle East

 

 

316

 

 

 

371

 

Asia-Pacific

 

 

1,817

 

 

 

2,007

 

Total operating lease right-of-use assets

 

$

4,756

 

 

$

5,214

 

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Property and equipment, net:

 

 

 

 

 

 

 

 

Americas

 

$

877

 

 

$

1,100

 

Europe and the Middle East

 

 

115

 

 

 

162

 

Asia-Pacific

 

 

1,125

 

 

 

1,154

 

Total property and equipment, net

 

$

2,117

 

 

$

2,416

 

10.13. Restructuring and Severance

InDuring the first quarterthree months ended March 31, 2024 and 2023, restructuring expenses consisted of 2016,severance related costs of $22,000 and $191,000, respectively.

19


14. Leases

The Company’s leases consist primarily of operating leases for administrative office space, research and development facilities, manufacturing facilities, and sales offices in various countries around the world. The Company determines if an arrangement is a lease at inception. Some lease agreements contain lease and non-lease components, which are accounted for as a single lease component. Total rent expense was $0.6 million and $0.4 million for the three months ended March 31, 2024 and 2023, respectively.

Initial lease terms are determined at commencement and may include options to extend or terminate the lease when it is reasonably certain the Company implemented a worldwide restructuring plan designedwill exercise the option. Remaining lease terms range from one to refocus the Company’s resourcesfour years, some of which include options to extend for up to five years. Leases with an initial term of 12 months or less are not recorded on its core business segments, including physical access and transponders, and to consolidate its operations in several worldwide locations. The restructuring plan included reducing the Company’s non-manufacturing employee base, reallocating overhead roles into direct business activities and eliminating certain management and executive roles. In the third quarter of 2017, the Company recorded a credit resulting from actual expenditures being less than originally accrued. In the nine months ended September 30, 2016, the Company incurred restructuring and severance costs of $3.1 million.

All unpaid restructuring and severance accruals are included in other accrued expenses and liabilities within current liabilities in the condensed consolidated balance sheetssheets. As the Company’s leases do not provide an implicit rate, the present value of future lease payments is determined using the Company’s incremental borrowing rate based on information available at September 30, 2017the lease commencement date.

The table below reconciles the undiscounted cash flows for the first five years and Decemberthe total of the remaining years to the operating lease liabilities recorded on the condensed consolidated balance sheet as of March 31, 2016. Restructuring2024 (in thousands):

 

March 31,
2024

 

2024 (remaining nine months)

 

$

1,475

 

2025

 

 

1,765

 

2026

 

 

1,347

 

2027

 

 

858

 

2028

 

 

23

 

Total minimum lease payments

 

 

5,468

 

Less: amount of lease payments representing interest

 

 

(504

)

Present value of future minimum lease payments

 

 

4,964

 

Less: current liabilities under operating leases

 

 

(1,655

)

Long-term operating lease liabilities

 

$

3,309

 

As of March 31, 2024, the weighted average remaining lease term for the Company’s operating leases was 3.1 years, and severance activities during the nineweighted average discount rate used to determine the present value of the Company’s operating leases was 7.0%.

Cash paid for amounts included in the measurement of operating lease liabilities was $0.5 millionand $0.4 millionfor the three months ended September 30, 2017March 31, 2024 and 2016 were as follows (in thousands):2023, respectively.

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

Balance at beginning of period

 

$

237

 

 

$

633

 

Restructuring expense incurred for the period

 

 

(49

)

 

 

3,100

 

Payments and non-cash item adjustment during the period

 

 

(188

)

 

 

(3,246

)

Balance at end of period

 

$

 

 

$

487

 

19


11.15. Commitments and Contingencies

The following table summarizes the Company’s principal contractual commitments, excluding operating leases, as of September 30, 2017March 31, 2024 (in thousands):

 

Purchase
Commitments

 

 

Other
Contractual
Commitments

 

 

Total

 

2024 (remaining nine months)

 

$

21,597

 

 

$

151

 

 

$

21,748

 

2025

 

 

5,320

 

 

 

31

 

 

 

5,351

 

2026

 

 

2,729

 

 

 

9

 

 

 

2,738

 

2027

 

 

3,500

 

 

 

1

 

 

 

3,501

 

Total

 

$

33,146

 

 

$

192

 

 

$

33,338

 

 

 

Operating Leases

 

 

Purchase Commitments

 

 

Other Contractual Commitments

 

 

Total

 

2017 (remaining three months)

 

$

318

 

 

$

8,706

 

 

$

42

 

 

$

9,066

 

2018

 

 

1,195

 

 

 

1,048

 

 

 

 

 

 

2,243

 

2019

 

 

1,089

 

 

 

 

 

 

 

 

 

1,089

 

2020

 

 

893

 

 

 

 

 

 

 

 

 

893

 

2021

 

 

636

 

 

 

 

 

 

 

 

 

636

 

Thereafter

 

 

450

 

 

 

 

 

 

 

 

 

450

 

Total

 

$

4,581

 

 

$

9,754

 

 

$

42

 

 

$

14,377

 

20


Purchase commitments for inventories are highly dependent upon forecasts of customer demand. Due to the uncertainty in demand from its customers, the Company may have to change, reschedule, or cancel purchases or purchase orders from its suppliers. These changes may lead to vendor cancellation charges on these purchases or contractual commitments.

The following table summarizes the Company’s warranty accrual account activity during the three months ended March 31, 2024 and 2023:

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Balance at beginning of period

 

$

378

 

 

$

345

 

Credited to costs and expenses

 

 

(77

)

 

 

(5

)

Cost of warranty claims

 

 

 

 

 

1

 

Balance at end of period

 

$

301

 

 

$

341

 

The Company provides warranties on certain product sales for periods ranging from 12 to 2436 months, and allowances for estimated warranty costs are recorded during the period of sale. The determination of such allowances requires the Company to make estimates of product return rates and expected costs to repair or to replace the products under warranty. The Company currently establishes warranty reserves based on historical warranty costs for each product line combined with liability estimates based on the prior 12 months’ sales activities. If actual return rates and/or repair and replacement costs differ significantly from the Company’s estimates, adjustments to recognize additional cost of sales may be required in future periods. Historically, the warranty accrual and the expense amounts have been immaterial.

16. Subsequent Events

On April 2, 2024, the Company entered into a Stock and Asset Purchase Agreement (the “Purchase Agreement”) with Hawk Acquisition, Inc., a Delaware corporation (“Buyer”) and a wholly-owned subsidiary of Vitaprotech SAS, a French société par actions simplifiée and provider of security solutions (“Vitaprotech”). Upon the terms and subject to the conditions set forth in the Purchase Agreement, at the closing of the transactions contemplated thereby, the Company will sell its physical security, access card, and identity reader operations and assets, including all outstanding shares of Identiv Private Limited, its wholly-owned subsidiary (the “Physical Security Business”), to Buyer in exchange for $145.0 million in cash (the “Purchase Price”), subject to customary adjustments set forth in the Purchase Agreement, and the assumption by Buyer of certain liabilities related to the Physical Security Business (collectively, the “Asset Sale”).

The completion of the Asset Sale and the other transactions contemplated by the Purchase Agreement (the “Closing”) is subject to customary conditions, including, (1) the approval of the Asset Sale by the Company’s stockholders, (2) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), (3) the absence of any order that has the effect of enjoining or otherwise prohibiting the completion of the Asset Sale, (4) each party’s representations and warranties being true and correct as of the Closing, (5) each party’s material compliance with agreements, covenants and conditions, (6) obtaining clearance from the Committee on Foreign Investment in the United States (“CFIUS”), (7) obtaining approval under the United Kingdom National Security and Investment Act 2021 (the “NSI Act”), and (8) delivery of the Purchase Price. The Closing is not subject to the approval of Buyer’s stockholders or the receipt of financing by Buyer. Certain of Buyer’s obligations under the Purchase Agreement are guaranteed by Vitaprotech.

The Purchase Agreement includes customary representations, warranties and covenants of the Company and Buyer, including covenants to use their respective reasonable best efforts to consummate the transactions contemplated by the Purchase Agreement. Between the date of execution of the Purchase Agreement and the Closing, the Company has agreed to conduct its and its subsidiaries’ business in the ordinary course of business and in a manner consistent with past practice and to comply with certain operating covenants.

21


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and other parts of this Quarterly Report on Form 10-Q (“Quarterly Report”) contain forward-looking statements, within the meaning of the safe harbor provisions under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. Forward-looking statements providereflect current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “will,” “believe,” “could,” “should,” “would,” “may,” “anticipate,” “intend,” “plan,” “estimate,” “expect,” “project” or the negative of these terms or other similar expressions. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part II, Item 1A of this Quarterly Report and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023, as amended, under the heading “Risk Factors,” which are incorporated herein by reference. The following discussion should be read in conjunction with the audited consolidated financial statements and notes thereto included in Part II, Item 8 inof our Annual Report on Form 10-K for the year ended December 31, 2016.2023, as amended. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Each of the terms the “Company,” “Identiv,” “we”“we,” “us” and “us”“our” as used herein refers collectively to Identiv, Inc. and its wholly-owned subsidiaries, unless otherwise stated.

20


Overview

Identiv is a global securityprovider of secure identification and physical security.

We are leveraging our RFID-enabled physical device-management expertise as well as our physical access, video and analytics solutions to provide leading solutions as our customers, and our customers’ customers, embrace the Internet of Things ("IoT"). Customers in the technology company that secures and manages access to physical places, things and information. Global organizations inmobility, consumer, government, healthcare, education retail, transportation, healthcare and other marketssectors rely upon ouron Identiv’s identification and access solutions. Identiv’s platform encompasses RFID and near-field communication ("NFC"), cybersecurity, and the full spectrum of physical access, video, and audio security. We empower themare bringing the benefits of the IoT to create secure and convenient experiences in schools, government offices, factories, critical infrastructure, transportation, hospitals and virtually every type of facility and for a wide range of products.physical, connected items.

Our operating segments focusIdentiv’s mission is to digitally enable every physical thing and every physical place on the following solutions:

Physical access solutions, securing buildings via an integrated access control system, included in our Premises (“PACS”) segment.

Informationplanet. Our full continuum of security solutions securing enterprise information access across PCs, networks, email, login,is delivered through our platform of RFID-enabled devices, mobile, client/server, cloud, web, dedicated hardware and printers via delivery ofsoftware defined architectures. In doing so, we believe that we will create smart card reader products, included in our Identity segment.

Radio frequency identification (“RFID”) based solutions for use inphysical security and a wide range of applications from asset tracking to product authenticity, product ease-of-use (e.g. pairing), transportation access and other applications sometimes included in the Internet of Things. The RFID devices are embedded into access cards, transponders and other credentials that enable frictionless access to and interaction with thesmarter physical world.

The foundation of our business is our expertise in RFID, smart card technology, and access control, our close customer relationships that allow us to develop customer-relevant products, and our core value of quality.

To deliver these solutions, weSegments

We have organized our operations into fourtwo reportable business segments, principally by productsolution families: PACS, Identity Credentials, and All Other.Premises. Our Identity segment includes products and solutions enabling secure access to information serving the logical access and cyber-security market, and protecting connected objects and information using RFID embedded security. Our Premises segment includes our solutions to address the premises security market for government and enterprise, including access control, video surveillance, analytics, audio, access readers and identities.

PACS

The foundationRecent Developments

Pending Asset Sale

On April 2, 2024, we entered into a Stock and Asset Purchase Agreement (the “Purchase Agreement”) with Hawk Acquisition, Inc., a Delaware corporation (“Buyer”) and a wholly-owned subsidiary of Vitaprotech SAS, a French société par actions simplifiée and provider of security solutions (“Vitaprotech”). Upon the terms and subject to the conditions set forth in the Purchase Agreement, at the closing of the transactions contemplated thereby, we will sell our physical security, access platform iscard, and identity reader operations and assets, including all outstanding shares of Identiv Private Limited, our wholly-owned subsidiary (the “Physical Security Business”), to Buyer in exchange for $145.0 million (the “Purchase Price”), subject to customary adjustments set forth in the Hirsch linePurchase Agreement, and the assumption by Buyer of controllers includingcertain liabilities related to the advanced MX line, Hirsch's Velocity management software and a wide range of integrations that provide Velocity/MX’s unique flexibility across a wide range of industries and implementations.  We have further extended our physical access platform with our Identiv Connected Physical Access Manager (“ICPAM”) software, derived from Cisco’s Physical Access Manager (“CPAM”) system and available in partnership with Cisco.  Both of these platforms are available with our MX multi-door controllers as well as our edge controllers, which are targeted as one to two door installations and leverage existing Ethernet infrastructure (“Power-over-Ethernet”Security Business (collectively, the “Asset Sale”).  Additionally, we sell either individual components or complete bundled solutions which can include any or all among software, edge controllers, multi-door panels, access readers, access cards and other components.

Our modular Hirsch MX controllers are designed to be scalable, allowing customers to start with a small system and expand over time. Hirsch MX controllers can operate autonomously, whether as a single controller or as part of a networked system with Velocity software. The Hirsch Velocity software platform enables centralized management of access and security operations across an organization, including control of doors, gates, turnstiles, elevators and other building equipment, monitoring users as they move around a facility, preventing unwanted access, maintaining compliance and providing a robust audit trail.

To our price/performance/quality-leading commercial offerings, we have added what we believe to be the highest performance, lowest per-door cost access control system for the U.S. federal government security mandate known as the Federal Identity, Credential and Access Management (“FICAM”) architecture.  This brings allcompletion of the advantages above intoAsset Sale and the next generation of physical security forother transactions contemplated by the U.S. government departments and agenciesPurchase Agreement (the “Closing”) is subject to achieve FIPS 201 compliance.

Our TouchSecure (“TS”) door readers provide unique features to support a wide range of security standards. We supportcustomary conditions, including, (1) the majority of legacy card credentials with a robust next-generation platform that can help companies migrate to more secure credentials and technologies, including smart cards, near field communication ("NFC") and government-issued credentials including CAC, PIV, PIV-I and others. Additionally, our Scramblepad readers employ numerical scrambling on the keypad to protect access codes from being stolen as they are entered, and providing both secure two-factor authentication and convenient alternative-factor access.

In addition to our core products, we have a range of product initiatives to leverage leading technology advances across mobile, biometric, machine-learning and other areas, to provide convenient, frictionless, low-cost yet highly secure physical access.   We invest independently and in partnership with other leading technology companies in these emerging aspects of access enabling platforms.

21


Identity

Our Identity products include smart card readers, which includes a broad range of contact, contactless, portable and mobile smart card readers, tokens and terminals that are utilized around the world to enable logical access (i.e., PC, network or data access) and security and identification applications, such as national ID, payment, e-Health and e-Government.

With over 20 years of smart card reader, application and token experience, we are known for our expertise in this complex ecosystem.  We combine our deep technical expertise with an optimized supply chain, to provide what we believe to be the most optimal, cost-effective and high-quality smart card-based products.  Whether Identiv branded products, original equipment manufacturers (“OEM”) branded, or embedded chips or modules, our position is as the trusted business solution provider for all users and issuers of smart cards and embedded-chip applications.

Credentials

Our Credentials segment include NFC and RFID products, including inlays and inlay­based and other cards, labels, tags and stickers, as well as other radio frequency (“RF”) and integrated circuits (“IC”) components and are generally grouped into access cards and transponders. Our TS Cards product line, we believe, is the first complete solution to allow customers to pay only for the most basic low-frequency proximity access technology while having the ability to evolve to the higher-security, high-frequency and highest-security PKI-based access credentials.  This product line exemplifies our values:  we place no burden on our customers, instead providing the most cost-effective solution to their basic needs; and then delivering within this platform the ability for them to move to higher-level needs and capabilities, when they want, when they are ready and when they will realize economic and experience benefits.

Our transponder products span the full range of high frequency (“HF”) and ultra-high frequency (“UHF”) technologies.  Our differentiation is analogous to application-specific integrated circuits (“ASICS”) in the semiconductor market.  We leverage our flexible platform, our deep technical expertise and our infrastructure and supply chain to deliver solutions optimized for our customers’ business goals.  We believe we are more responsive, more flexible, more experienced in business-optimized solutions and have a better track record of sustained delivery of solution-specific, high-quality RFID devices than our competitors.  These products are manufactured in our state-of-the-art facility in Singapore and are used in a diverse range of physical applications, including electronic entertainment such as virtual reality (“VR”), games, loyalty cards, mobile payment systems, transit and event ticketing, brand authenticity from pharmaceuticals to consumer goods, hospital resource management, cold-chain management and many others.  

Leveraging our expertise in RFID, physical access and physical authentication, we are developing new solutions to extend our platforms across a wide variety of physical use cases.  The next major opportunity in our connected world is the Internet of Things, which fundamentally is about physical things.  We believe our core strength in physical access and physical instrumentation (RFID) markets, our well-established platforms and our deep knowledgeapproval of the relevant technologies, position us well in this growth market. 

All Other 

The All Other segment includes legacy product lines, such as Chipdrive and Digital Media readers. The products included inAsset Sale by our stockholders, (2) the All Other segment do not meet the quantitative thresholds for determining reportable segments and therefore have been combined for reporting purposes. No revenues are expected to be generated in 2017.

We primarily conduct sales and marketing activities in eachexpiration or termination of the markets in which we compete, utilizing our own sales and marketing organization to solicit prospective channel partners and customers, provide technical advice and support with respect to products, systems and services, and manage relationships with customers, distributors and/or OEMs. We utilize indirect sales channels that may include OEMs, dealers, systems integrators, value added resellers, resellers or Internet sales, although we also sell directly to end users. In support of our sales efforts, we participate in industry events and conduct sales training courses, targeted marketing programs, and ongoing customer, channel partner and third-party communications programs.

Our corporate headquarters are located in Fremont, California. We maintain research and development facilities in California, Chennai, India, and Munich, Germany, and local operations and sales facilities in Germany, the United Kingdom, Hong Kong, Singapore, India and the United States. We were founded in 1990 in Munich, Germany and incorporated in 1996applicable waiting period under the lawsHart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), (3) the absence of any order that has the effect of enjoining or otherwise prohibiting the completion of the State of Delaware.

For a discussion of our net revenue by segmentAsset Sale, (4) each party’s representations and geographic location, see Note 9, Segment Reportingwarranties being true and Geographic Information in the accompanying notes to our unaudited condensed consolidated financial statements.

22


Trends in Our Business

Geographic net revenue based on each customer’s ship-to location iscorrect as follows (in thousands):

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2017

 

 

2016

 

Americas

 

$

28,894

 

 

$

27,343

 

Europe and the Middle East

 

 

5,767

 

 

 

6,654

 

Asia-Pacific

 

 

9,003

 

 

 

7,524

 

Total

 

$

43,664

 

 

$

41,521

 

Revenues:

 

 

 

 

 

 

 

 

Americas

 

 

66

%

 

 

66

%

Europe and the Middle East

 

 

13

%

 

 

16

%

Asia-Pacific

 

 

21

%

 

 

18

%

Total

 

 

100

%

 

 

100

%

Net Revenue Trends

Net revenue in the nine months ended September 30, 2017 increased 5% compared with the first nine months of 2016. Approximately 40% of our net revenue in the nine months ended September 30, 2017 came from our PACS segment. Net revenue in the PACS segment was $17.6 million and $17.9 million for the nine months ended September 30, 2017 and 2016, respectively. Net revenue in the Identity segment, which represented approximately 24% of total net revenue, was $10.6 million in the nine months ended September 30, 2017 compared to $8.9 million in the prior year period. Net revenue in our Credentials segment represented approximately 35% of our net revenue. Net revenue in the Credentials segment was $15.5 million in the nine months ended September 30, 2017 compared to $14.1 million in the comparable period in 2016.  

Net Revenue in the Americas

Net revenue in the Americas was approximately $28.9 million in the nine months ended September 30, 2017, accounting for 66% of total net revenue, and was up 6% compared to $27.3 million in the nine months of 2016.  Net revenue from our PACS solution for security programs within various U.S. government agencies, as well as RFID and NFC products, inlays and tags represented approximately 55% of our net revenue in the Americas region.  

Net revenue in our PACS segment for the nine months ended September 30, 2017 was comparable to the prior year period primarily due to higher of software products sales, higher sales through our channel partners, and an increase in professional services engagements, offset by lower sales of physical access control solutions attributable to the timing of orders received from federal government customers late or after the end of the third quarter of 2017. Net revenue in our Identity segment decreased in the nine months ended September 30, 2017 compared to the comparable period of the previous year primarily due to lower smart card reader sales. Net revenue in our Credentials segment increased 22% in the nine months ended September 30, 2017 comparedClosing, (5) each party’s material compliance with the same period of the prior year primarily due to higher transponderagreements, covenants and access card sales.

As a general trend, U.S. Federal agencies continue to be subject to security improvement mandates under programs such as Homeland Security Presidential Directive-12 (“HSPD-12”) and reiterated in memorandaconditions, (6) obtaining clearance from the Office of Management and Budget (“OMB M-11-11”). We believe that our solution for trusted physical access is an attractive offering to help federal agency customers move towards compliance with federal directives and mandates. To expand our sales opportunitiesCommittee on Foreign Investment in the United States in general(“CFIUS”), (7) obtaining approval under the United Kingdom National Security and with our U.S. Government customers in particular,Investment Act 2021 (the “NSI Act”), and (8) delivery of the

22


Purchase Price. The Closing is not subject to the approval of Buyer’s stockholders or the receipt of financing by Buyer. Certain of Buyer’s obligations under the Purchase Agreement are guaranteed by Vitaprotech.

The Purchase Agreement includes customary representations, warranties and covenants of us and Buyer, including covenants to use respective reasonable best efforts to consummate the transactions contemplated by the Purchase Agreement. Between the date of execution of the Purchase Agreement and the Closing, we have strengthenedagreed to conduct our U.S. sales organization and our sales presence in Washington D.C.

Net Revenue in Europe, the Middle East, and Asia-Pacific

Net revenue in Europe, the Middle East, and Asia-Pacific was approximately $14.8 millionsubsidiaries’ business in the nine months ended September 30, 2017, accounting for 34%ordinary course of total net revenuebusiness and was up 4% comparedin a manner consistent with past practice and to $14.2 million incomply with certain operating covenants.

Upon the first nine monthsclosing of 2016 primarily as a resultthe Asset Sale, Steven Humphreys, our Chief Executive Officer and certain other members of increased sales inthe our Asia-Pacific region, partially offset by lower sales in our Europe and the Middle East region. Net revenue in these regions are very dependent onsenior management will join Buyer. Following the completion of large projectsthe Asset Sale and the departure of these members of senior management, the senior management of the Company will include Kirsten Newquist, currently President, IoT Solutions, Justin Scarpulla, Chief Financial Officer, Edward Kirnbauer, Vice President, Global Corporate Controller, Dr. Manfred Mueller, Chief Strategy Officer, Amir Khoshniyati, Executive Vice President and General Manager, IoT Solutions, and Boon Yong (BY) Koh, Executive Vice President, Operations. Ms. Newquist joined the Company on April 15, 2024. Upon Mr. Humphreys’ departure, Ms. Newquist will assume the role of Chief Executive Officer of the Company and is expected to serve as a member of the board of directors.

In addition, upon the closing of the Asset Sale, restricted stock units (“RSUs”) relating to unvested shares held by our employees who are employed by the Physical Security Business and remain employed by the Company through the closing of the Asset Sale and, effective immediately following the Asset Sale, become employees of Buyer (or an affiliate of Buyer) will become vested at Closing, while RSUs held by our non-employee directors will remain outstanding and continue to vest according to their terms.

Following the completion of the Asset Sale, we will continue to be a public company operating under the name Identiv, Inc. and will continue to own the assets and liabilities of our business that are not sold to Buyer, which we refer to herein as the “IoT Business”. As of immediately following the closing of the Asset Sale, all of our revenues will be generated by the IoT Business. The IoT Business is developing, manufacturing, and supplying specialty IoT solutions tailored for the healthcare industry and other high-value end markets. Our specialty RFID IoT devices, including NFC, high frequency (HF), dual frequency (DF), ultra-high frequency (UHF) and Bluetooth Low Energy (BLE), are attached to or embedded into physical items, providing those items with a unique digital identity.

Management’s discussion and analysis of financial condition and results of operations addresses historical periods and does not take into account the Asset Sale, which will affect our business on a go-forward basis, assuming the Asset Sale closes. For additional information regarding the risks related to the proposed Asset Sale, see “Risks Related to the Asset Sale” and “Risks Related to the Company’s IoT Business if the Asset Sale is Completed” under “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q.

Factors Affecting Our Performance

Market Adoption

Our financial performance depends on the pace, scope and depth of end-user adoption of our RFID products in multiple industries. That pace, scope and depth has resulted in large fluctuations in our operating results. For example, the end-user adoption of BLE devices, which accelerated in 2023, is expected to pause in 2024 and possibly beyond. As a result, we have experienced a corresponding decrease in utilization in our facilities in Southeast Asia.

We believe significant improvement in chip capabilities at lower costs has accelerated the opportunities for product engineers to integrate RFID into their products to create new and more engaging customer experiences, product reliability and performance. Though we believe the number of opportunities for RFID-based solutions has increased, the evaluation period and customer adoption originally expected has taken longer than we anticipated.

23


We believe the underlying, long-term trend is continued RFID adoption across multiple verticals, but regulated industries like healthcare take longer to optimize the technology and fully understand the benefits. We also believe that expanding use cases fosters adoption across verticals and into other markets.

If RFID market adoption, and adoption of our products specifically, does not meet our expectations then our growth prospects and operating results will be adversely affected. If we are unable to meet end-user or customer volume or performance expectations, then our business prospects may be adversely affected. In contrast, if our RFID sales exceed expectations, then our revenue and profitability may be positively affected.

Given the uncertainties of the specific timing of orders placed by some of our larger customers. Sales of Identity readersnew customer deployments, we cannot assure you that we have appropriate inventory and RFID and NFC products and tags comprise a significant proportion of our net revenue in these regions.

23


Net revenue from our PACS products decreasedcapacity levels or that we will not experience inventory shortfalls or overages in the nine months ended September 30, 2017 fromfuture or acquire inventory at costs to maintain gross margins. We attempt to mitigate those risks by being deeply embedded in our customers’ design cycles, working with our chip partners on long lead time components, managing our limited capital equipment needs within a short cycle and future proofing our facilities to accommodate several scenarios for growth potential.

If end users with sizable projects change or delay them, we may experience significant fluctuation in revenue on a quarterly or annual basis, and we anticipate that uncertainty to continue to characterize our business for the prior year period due to lower sales of physical access control solutions primarily in the Europe and the Middle East region. Net revenue from our Identity products increased by approximately 40% in the nine months ended September 30, 2017 compared with the same period of the prior year, primarily due to higher sales of smart card readers in the Asia-Pacific region. Identity readers comprised approximately 50% of the net revenue in both the Europe and the Middle East and the Asia-Pacific regions in the first nine months of 2017. Net revenue from our Credentials products, which comprised approximately 37% of sales in both the Europe and the Middle East and the Asia-Pacific regions in the first nine months of 2017, decreased 8% compared with the same period of the prior year primarily as a result of lower transponder and access card product sales in the Asia-Pacific region, partially offset by higher transponder product sales in the Europe and the Middle East region.foreseeable future.

Seasonality and Other Factors

In our business overall, we may experience significant variations in demand for our offerings from quarter to quarter, and typically experience a stronger demand cycle in the second half of our fiscal year. Sales of our PACSphysical access control solutions and related products to U.S. Governmentgovernment agencies are subject to annual government budget cycles and generally are highest in the third quarter of each year. However, the usual seasonal trend can be negatively impacted by actions such as government shutdowns and the passing of continuing resolutions which can act to delay the completion of certain projects. Sales of our identity reader chips,readers, many of which are sold to government agencies worldwide, are impacted by testing and complianceproject schedules of government bodiesagencies, as well as roll-out schedules for application deployments, both of which contribute to variability in demand from quarter to quarter.deployments. Further, this business is typically subject to seasonality based on differing commercial and global government budget cycles. Lower sales are expected in the U.S. in the first half, and in particular, the first quarter of the year, with higher sales typically in the second half of each year. In the Asia-Pacific, with fiscal year-ends in March and June, order demand can be higher in the first quarter as customers attempt to complete projects before the end of the fiscal year. Accordingly, our net revenue levels in the first quarter each year often dependsdepend on the relative strength of project completions and sales mix between our U.S. customer base and our international customer base.

Competitive Landscape

We have seen a large increase in global production capacity at several of our RFID competitors. This has resulted in competitive pricing pressure, and, in response, we have begun to exit some of our lowest margin business. This has had, and we expect will continue to have, a negative impact on our operating results. We have also publicly disclosed allegations of anti-competitive business practices by one of our RFID competitors.

Purchasing of our Products and Services for U.S. Federal Government Security Programs

In addition to the general seasonality of demand, overall U.S. GovernmentFederal government expenditure patterns have a significant impacteffect on demand for our products due to the significant portion of revenuesrevenue that areis typically sourced from U.S. GovernmentFederal government agencies. Therefore,Drivers of growth included our technology strength and proven security solutions, and continued strength in investments for security across a number of different agencies. We believe that the success and growth of our business will continue through the U.S. Federal government focus on security and our successful procurement of government business. If there are changes in government purchasing policies or budgetary constraints, there could be implications for our growth prospects and operating results. If we are unable to meet end-user or customer volume or performance expectations, then our business prospects and operating results may be adversely affected.

Impacts of Macroeconomic Conditions and Other Factors on our Business

We conduct operations internationally with sales in the Americas, Europe and the Middle East, and Asia-Pacific regions. Our manufacturing operations and third-party contract manufacturers are located in China, Singapore, and Thailand/Southeast Asia. We purchase certain products and key components from a limited number of sources that depend on the supply chain, including freight, to receive components, transport finished goods and deliver our products across the world. In view of the rapidly changing business environment, we have experienced delays and reductions in customer orders, shifting supply chain availability, component shortages, and other production-related challenges. We are currently unable to determine if there will be any significant reductioncontinued disruption and the extent to which this may have future impact on our business. We continue to monitor the global supply chain challenges and its effect on our financial position, results of operations, and cash flows.

24


More recently, we have also been impacted by other adverse macroeconomic conditions, including but not limited to, inflation, foreign currency fluctuations, and the slowdown of economic activity around the globe. These conditions have also impacted our suppliers, contract manufacturers, logistics providers, and distributors, causing increases in U.S. Government spending couldcost of materials and higher shipping and transportation rates, which then impacted the pricing of our products. Price increases may not successfully offset cost increases or may cause us to lose market share and, in turn, may adversely impact our financial position, results of operations, and could causecash flows.

Anticipated Effects of Pending Asset Sale

Our remaining business will be affected by the Asset Sale, assuming it closes. The pending Asset Sale will include assets and operations representing the majority of our operating resultshistorical revenues, representing approximately 63% of our 2023 revenue, as well as a substantial portion of our assets, representing approximately 43% of our assets as of December 31, 2023. The gross margin profile of the remaining business will be significantly lower than our historical total gross margins and we will continue to fall below any guidancecarry the costs of a publicly traded company across a lower revenue base. As a result, we provideexpect our net loss to increase substantially. From a liquidity and capital resources perspective, the Asset Sale is expected to result in approximately $145 million in proceeds to the market or below the expectations of investors or security analysts.

Operating Expense Trends

Base Operating Expenses  

Our base operating expenses (i.e., researchcompany; excluding transaction costs, taxes and development, selling and marketing, and general and administrative spending) decreased 22% in the first nine months of 2017 comparedother costs associated with the same periodclosing of 2016. Research and development spending decreased by 8% in the first nine months of 2017 compared withAsset Sale.

For additional information regarding the same period of 2016 resulting from restructuring initiatives undertaken in the first quarter of 2016 and additional headcount reductions in 2017. Selling and marketing spending in the first nine months of 2017 decreased by 6% compared with the same period of 2016, due to cost savings initiatives taken in the sales and marketing organization reducing marketing program spending. General and administrative spending in the first nine months of 2017 decreased 47% from the same period in the prior year primarily due to lower legal and professional fees, reimbursements received from an insurance provider for legal fees incurredrisks related to legal proceedings,the proposed Asset Sale, see “Risks Related to the Asset Sale” and credits received from service providers for legal fees invoiced“Risks Related to the Company’s IoT Business if the Asset Sale is Completed” under “Risk Factors” in prior periods.Part II, Item 1A of this Quarterly Report on Form 10-Q.

24


Results of Operations

The following table includes segment net revenue and segment net profit information for our PACS, Identity, Credentials and All Other segmentsby business segment and reconciles gross profit to results of continuing operationsloss before income taxes and noncontrolling interest   (dollars in thousands):tax provision (in thousands, except percentages).

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

 

%
Change

 

Identity:

 

 

 

 

 

 

 

 

 

Net revenue

 

$

12,835

 

 

$

14,678

 

 

 

(13

%)

Gross profit

 

 

2,834

 

 

 

3,079

 

 

 

(8

%)

Gross profit margin

 

 

22

%

 

 

21

%

 

 

 

Premises:

 

 

 

 

 

 

 

 

 

Net revenue

 

 

9,659

 

 

 

11,319

 

 

 

(15

%)

Gross profit

 

 

5,558

 

 

 

6,132

 

 

 

(9

%)

Gross profit margin

 

 

58

%

 

 

54

%

 

 

 

Total:

 

 

 

 

 

 

 

 

 

Net revenue

 

 

22,494

 

 

 

25,997

 

 

 

(13

%)

Gross profit

 

 

8,392

 

 

 

9,211

 

 

 

(9

%)

Gross profit margin

 

 

37

%

 

 

35

%

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

 

3,011

 

 

 

2,707

 

 

 

11

%

Selling and marketing

 

 

5,302

 

 

 

6,097

 

 

 

(13

%)

General and administrative

 

 

4,252

 

 

 

2,948

 

 

 

44

%

Restructuring and severance

 

 

22

 

 

 

191

 

 

 

(88

%)

Total operating expenses:

 

 

12,587

 

 

 

11,943

 

 

 

5

%

Loss from operations

 

 

(4,195

)

 

 

(2,732

)

 

 

54

%

Non-operating income (expense):

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(87

)

 

 

(50

)

 

 

74

%

Foreign currency gains (losses), net

 

 

(256

)

 

 

89

 

 

 

(388

%)

Loss before income tax provision

 

$

(4,538

)

 

$

(2,693

)

 

 

69

%

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

% Change

 

 

2017

 

 

2016

 

 

% Change

 

PACS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

$

6,434

 

 

$

7,253

 

 

 

(11

%)

 

$

17,622

 

 

$

17,908

 

 

 

(2

%)

Gross profit

 

 

3,412

 

 

 

4,334

 

 

 

(21

%)

 

 

9,556

 

 

 

10,244

 

 

 

(7

%)

Gross profit margin

 

 

53

%

 

 

60

%

 

 

 

 

 

 

54

%

 

 

57

%

 

 

 

 

Identity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

 

3,421

 

 

 

3,508

 

 

 

(2

%)

 

 

10,568

 

 

 

8,923

 

 

 

18

%

Gross profit

 

 

1,229

 

 

 

1,359

 

 

 

(10

%)

 

 

3,666

 

 

 

3,324

 

 

 

10

%

Gross profit margin

 

 

36

%

 

 

39

%

 

 

 

 

 

 

35

%

 

 

37

%

 

 

 

 

Credentials:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

 

5,577

 

 

 

4,799

 

 

 

16

%

 

 

15,471

 

 

 

14,110

 

 

 

10

%

Gross profit

 

 

1,220

 

 

 

1,227

 

 

 

(1

%)

 

 

4,013

 

 

 

3,654

 

 

 

10

%

Gross profit margin

 

 

22

%

 

 

26

%

 

 

 

 

 

 

26

%

 

 

26

%

 

 

 

 

All Other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

 

 

 

 

 

 

 

0

%

 

 

3

 

 

 

580

 

 

 

(99

%)

Gross profit

 

 

 

 

 

 

 

 

0

%

 

 

6

 

 

 

261

 

 

 

(98

%)

Gross profit margin

 

 

 

 

 

 

 

 

 

 

 

 

200

%

 

 

45

%

 

 

 

 

Total:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

 

15,432

 

 

 

15,560

 

 

 

(1

%)

 

 

43,664

 

 

 

41,521

 

 

 

5

%

Gross profit

 

 

5,861

 

 

 

6,920

 

 

 

(15

%)

 

 

17,241

 

 

 

17,483

 

 

 

(1

%)

Gross profit margin

 

 

38

%

 

 

44

%

 

 

 

 

 

 

39

%

 

 

42

%

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

1,597

 

 

 

1,480

 

 

 

8

%

 

 

4,584

 

 

 

4,997

 

 

 

(8

%)

Selling and marketing

 

 

3,448

 

 

 

3,312

 

 

 

4

%

 

 

10,142

 

 

 

10,807

 

 

 

(6

%)

General and administrative

 

 

1,247

 

 

 

2,115

 

 

 

(41

%)

 

 

5,119

 

 

 

9,674

 

 

 

(47

%)

Restructuring and severance

 

 

(49

)

 

 

160

 

 

 

(131

%)

 

 

(49

)

 

 

3,100

 

 

 

(102

%)

Total operating expenses:

 

 

6,243

 

 

 

7,067

 

 

 

(12

%)

 

 

19,796

 

 

 

28,578

 

 

 

(31

%)

Loss from operations

 

 

(382

)

 

 

(147

)

 

 

160

%

 

 

(2,555

)

 

 

(11,095

)

 

 

(77

%)

Non-operating income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(643

)

 

 

(525

)

 

 

22

%

 

 

(1,995

)

 

 

(1,814

)

 

 

10

%

Gain on extinguishment of debt

 

 

 

 

 

 

 

 

0

%

 

 

977

 

 

 

 

 

 

0

%

Foreign currency gains (losses), net

 

 

(51

)

 

 

35

 

 

 

(246

%)

 

 

(202

)

 

 

309

 

 

 

(165

%)

Loss before income taxes and noncontrolling interest

 

$

(1,076

)

 

$

(637

)

 

 

69

%

 

$

(3,775

)

 

$

(12,600

)

 

 

(70

%)

25


Net Revenue

TotalGeographic net revenue inbased on each customer’s ship-to location is as follows (in thousands):

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

 

%
Change

 

Americas

 

$

16,504

 

 

$

21,628

 

 

 

(24

%)

Europe and the Middle East

 

 

3,998

 

 

 

2,984

 

 

 

34

%

Asia-Pacific

 

 

1,992

 

 

 

1,385

 

 

 

44

%

Total

 

$

22,494

 

 

$

25,997

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of net revenue:

 

 

 

 

 

 

 

 

 

Americas

 

 

73

%

 

 

83

%

 

 

 

Europe and the Middle East

 

 

18

%

 

 

12

%

 

 

 

Asia-Pacific

 

 

9

%

 

 

5

%

 

 

 

Total

 

 

100

%

 

 

100

%

 

 

 

Net Revenue

Net revenue for the third quarterthree months ended March 31, 2024 was $22.5 million, a decrease of 2017 was $15.4 million, down 1%13% compared with $15.6 million in the third quarter of 2016.  For the nine months ended September 30, 2017, total net revenue was $43.7 million, up 5% compared with $41.5$26.0 million for the comparable period for 2016.  Total netof 2023. Net revenue was higher in the first nineAmericas was $16.5 million for the three months ended March 31, 2024, a decrease of 2017, mainly driven by higher sales24% compared to $21.6 million for the comparable period of 2023. Net revenue in our Europe, the Middle East, and the Asia-Pacific was approximately $6.0 million for the three months ended March 31, 2024, an increase of 37% compared with the comparable period of 2023.

Identity and Credentials segments. A more detailed discussion of net revenue by segment follows below.Segment

Net revenue in our PACSIdentity segment was $6.4$12.8 million infor the third quarter of 2017,three months ended March 31, 2024, a decrease of 11% from $7.313% compared with $14.7 million for the comparable period of 2023. Net revenue in this segment for the three months ended March 31, 2024 represented 57% of our net revenue, compared to 56% in the third quartercomparable period of 2016.2023.

Net revenue in this segment in the Americas for the three months ended March 31, 2024 decreased 30% compared to the three months ended March 31, 2023. The decrease was primarily due to lower sales of physical access control solutions attributableRFID transponder products to the timing of orders received from federal government customers late or after the quarter ended, partially offset by an increase in professional services engagements and higher sales through our channel partners. consumer products contract manufacturers.

Net revenue in this segment in Europe, the nineMiddle East, and the Asia-Pacific for the three months ended September 30, 2017March 31, 2024 increased 42% compared with the comparable period of $17.6 million was comparable to $17.9 million in the nine months ended September 30, 2016.

Net revenue in our Identity segment of $3.4 million in the third quarter of 2017 decreased 2% from $3.5 million in the third quarter of 2016 as a result of higher smart card reader sales in the Asia-Pacific region, offset by lower smart card reader sales in the Americas region. In the nine months ended September 30, 2017, net revenue in our Identity segment was $10.6 million, an increase of

25


18% from $8.9 million in the nine months ended September 30, 2016.2023. The increase was primarily due to higher sales of RFID transponder products, and higher sales of our legacy smart card reader salesreaders to existing customers in the Asia-Pacific region, partially offset by lower smart card reader sales in the Americas region.medical device and library markets.

Premises Segment

Net revenue in our CredentialsPremises segment was $5.6$9.7 million infor the third quarter of 2017, an increase of 16% from $4.8 million in the third quarter of 2016. The increase was primarily a result of higher transponder and access card product sales in the Americas region, partially offset by lower transponder product sales in the Europe and the Middle East region. In the ninethree months ended September 30, 2017, net revenue in our Credentials segment was $15.5March 31, 2024, a decrease of 15% compared with $11.3 million an increasefor the comparable period of 10% from $14.1 million in the nine months ended September 30, 2016. The increase was primarily a result of higher transponder and access card product sales in the Americas and the Europe and the Middle East regions, partially offset by lower transponder and access card product sales in the Asia-Pacific region.

No net revenue was recognized in our All Other segment in the third quarter of 2017 and 2016, respectively.2023. Net revenue in our All OtherPremises segment recognized infor the ninethree months ended September 30, 2017 was negligibleMarch 31, 2024 represented 43% of our net revenue, compared to $0.6 million44% in the comparable period inof the prior year. The decrease is

Net revenue in this segment in the Americas for the three months ended March 31, 2024 decreased 17%, compared with the comparable period of 2023 due to lower sales of Hirsch Velocity hardware, software, and video product offerings across both federal government and commercial businesses.

Net revenue in this segment across Europe, the phasing out of our digital media product linesMiddle East, and the discontinuationAsia-Pacific for the three months ended March 31, 2024 increased 14%, compared with the comparable period of 2023. Net revenue in these regions is primarily project driven and can vary period to period.

As a general trend, U.S. Federal agencies continue to be subject to security improvement mandates under programs such as Homeland Security Presidential Directive-12 (“HSPD-12”) and reiterated in memoranda from the Office of Management and Budget (“OMB M-11-11”). We believe that our Chipdrive product linesolutions for trusted physical access is an attractive offering to help federal agency customers move towards compliance with federal directives and mandates. To address sales opportunities in the fourth quarter of 2016.United States in general and with our U.S. Government customers in particular, we focus on a strong U.S. sales organization and our sales presence in Washington D.C.

If the Asset Sale is completed, we will no longer receive any revenue from our Premises segment.

26


Gross Profit and Gross Margin

Gross profit for the third quarter of 2017three months ended March 31, 2024 was $5.9$8.4 million, or 38%37% of net revenue, compared with $6.9$9.2 million, or 44%35% of net revenue in the third quartercomparable period of 2016.  In the nine months ended September 30, 2017, gross profit was $17.2 million, or 39% of net revenue, compared with $17.5 million, or 42% of net revenue in the nine months ended September 30, 2016.  2023. Gross profit represents net revenue less direct cost of product sales, manufacturing overhead, other costs directly related to preparing the product for sale including freight, scrap, inventory adjustments and amortization, where applicable.

In our PACS segment, gross profit on sales of physical access control solutions, including panels, controllers, and access readers was $3.4 million in the third quarter of 2017 and $4.3 million in the third quarter of 2016, and $9.6 million and $10.2 million in the nine months ended September 30, 2017 and 2016, respectively. Gross profit was lower in the nine months ended September 30, 2017 as a direct result of lower segment sales and higher sales of lower margin products in the PACS segment during the period. Gross profit margins in the PACS segment of 53% were lower in the third quarter of 2017 compared to 60% in the comparable period of 2016 primarily attributable to the impact of a higher proportion of lower margin sales within the segment.Identity Segment

In our Identity segment, gross profit on sales of information readers and modules as well as cloud-based credential provisioning and management servicesin the three months ended March 31, 2024 was $1.2$2.8 million compared with $3.1 million in the third quartercomparable period of 2017 compared to $1.4 million in the third quarter of 2016, and $3.7 million and $3.3 million in the nine months ended September 30, 2017 and 2016, respectively. Gross profit was lower in the nine months ended September 30, 2017 as a direct result of higher sales of lower margin products in the Identity segment during the period.2023. Gross profit margins in the Identity segment for the three months ended March 31, 2024 increased to 22% from 21% in the comparable period of 36% were2023. The increase in gross profit margins was primarily attributable to changes in product mix, with higher sales of higher margin smart card readers, partially offset by lower sales of lower margin RFID transponder products, and increased manufacturing overhead expenses associated with our Thailand operations that began production in the third quarter of 20172023.

Premises Segment

In our Premises segment, gross profit in the three months ended March 31, 2024 was $5.6 million compared to 39%with $6.1 million in the comparable period of 2016 primarily attributable to the delivery of orders to international customers with lower margins.

In our Credentials segment, gross profit on sales of physical access credentials and authenticity and tracking applications was $1.2 million in the third quarter of 2017 compared to $1.2 million in the third quarter of 2016, and $4.0 million and $3.7 million in the nine months ended September 30, 2017 and 2016, respectively. 2023. Gross profit margins in the CredentialsPremises segment were lowerfor the three months ended March 31, 2024 increased to 58% from 54% in the third quartercomparable period of 2017 at 22% compared2023. The increase in gross profit margins was primarily attributable to 26% in the third quarter of 2016 primarily due to the impact of higher a proportion of lower margin sales.freight and logistic costs.

We expect there will be variation in our total gross profit from period to period, as our gross profit has been and will continue to be affected primarily by varying mix among our products. Within each product category, gross margins have tended to be consistent, but over time may be affected by a variety of factors, including, without limitation, competition, product pricing, the volume of sales in any given quarter, manufacturing volumes, product configuration and mix, the availability of new products, product enhancements, software and services, risk of inventory write-downs and the cost and availability of components.

26


Operating Expenses

Information about our operating expenses for the three and nine months ended September 30, 2017March 31, 2024 and 20162023 is set forth below (dollars in thousands).

Research and Development

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended March 31,

 

 

2017

 

 

2016

 

 

% Change

 

 

2017

 

 

2016

 

 

% Change

 

 

2024

 

 

2023

 

 

% Change

 

Research and development

 

$

1,597

 

 

$

1,480

 

 

 

8

%

 

$

4,584

 

 

$

4,997

 

 

 

(8

%)

 

$

3,011

 

 

$

2,707

 

 

 

11

%

as a % of net revenue

 

 

10

%

 

 

10

%

 

 

 

 

 

 

10

%

 

 

12

%

 

 

 

 

 

 

13

%

 

 

10

%

 

 

 

Research and development expenses consist primarily of employee compensation and fees for the development of hardware, software and firmware products. We focus the bulk of our research and development activities on the continued development of existing products and the development of new offerings for emerging market opportunities.

Research and development expenses infor the third quarter of 2017three months ended March 31, 2024 increased compared to the comparable prior year period primarily due to the higher product certificationheadcount and related payroll costs. Research and development expenses decreased in the nine months ended September 30, 2017 compared to the prior year period as a result of the restructuring initiatives undertaken in the first quarter of 2016 and additional headcount reductions in 2017, partially offset by higher product certification costs.

Selling and Marketing

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended March 31,

 

 

2017

 

 

2016

 

 

% Change

 

 

2017

 

 

2016

 

 

% Change

 

 

2024

 

 

2023

 

 

% Change

 

Selling and marketing

 

$

3,448

 

 

$

3,312

 

 

 

4

%

 

$

10,142

 

 

$

10,807

 

 

 

(6

%)

 

$

5,302

 

 

$

6,097

 

 

 

(13

%)

as a % of net revenue

 

 

22

%

 

 

21

%

 

 

 

 

 

 

23

%

 

 

26

%

 

 

 

 

 

 

24

%

 

 

23

%

 

 

 

Selling and marketing expenses consist primarily of employee compensation as well as amortization expense of certain intangible assets, customer lead generation activities, tradeshow participation, advertising and other marketing and selling costs.

Selling and marketing expenses infor the third quarter of 2017 were comparablethree months ended March 31, 2024 decreased compared to the prior year quarter. Selling and marketing expenses in the ninethree months ended September 30, 2017 decreasedMarch 31, 2023 primarily due to a reductionlower headcount and related payroll costs, lower third-party contractor costs as well as lower trade show related costs in marketing program spending2024 compared to the same period in the prior year.2023.

27


General and Administrative

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

Three Months Ended March 31,

 

 

2017

 

 

2016

 

 

% Change

 

 

2017

 

 

2016

 

 

% Change

 

 

2024

 

 

2023

 

 

% Change

 

General and administrative

 

$

1,247

 

 

$

2,115

 

 

 

(41

%)

 

$

5,119

 

 

$

9,674

 

 

 

(47

%)

 

$

4,252

 

 

$

2,948

 

 

 

44

%

as a % of net revenue

 

 

8

%

 

 

14

%

 

 

 

 

 

 

12

%

 

 

23

%

 

 

 

 

 

 

19

%

 

 

11

%

 

 

 

General and administrative expenses consist primarily of compensation expenseexpenses for employees performing administrative functions, as well asand professional fees arising fromincurred for legal, auditing and other professionalconsulting services.

General and administrative expenses decreasedfor the three months ended March 31, 2024 increased compared to the prior year period primarily due to lowerhigher headcount and related payroll costs, and professional services and legal fees including reimbursements of $0.8 million and $1.0 million in the three and nine months ended September 30, 2017, respectively, from our insurance provider for legal feesassociated with strategic review-related activities incurred in connection with matters related to a complaint by a former employee, related investigations, the class and derivative litigation and all related proceedings.2024.

27


Restructuring and Severance Charges

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

% Change

 

 

2017

 

 

2016

 

 

% Change

 

Restructuring and severance

 

$

(49

)

 

$

160

 

 

 

(131

%)

 

$

(49

)

 

$

3,100

 

 

 

(102

%)

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

 

% Change

 

Restructuring and severance

 

$

22

 

 

$

191

 

 

 

(88

%)

InRestructuring expenses for the first quarter of 2016, we implemented a worldwide restructuring plan designed to refocus our resources on our core business segments, including physical access and transponders, and to consolidate our operations in several worldwide locations. The restructuring plan included reducing our non-manufacturing employee base, reallocating overhead roles into direct business activities and eliminating certain management and executive roles. In the third quarter of 2017, we recorded a credit resulting from actual expenditures being less than originally accrued. In the ninethree months ended September 30, 2016, we incurred restructuringMarch 31, 2024, and 2023 consisted of severance related costs of $3.1 million.$22,000 and $191,000, respectively.

See Note 10, RestructuringNon-operating Income (Expense)

Information about our non-operating income (expense) for the three months ended March 31, 2024 and Severance,2023 is set forth below (dollars in the accompanying notes to our unaudited condensed consolidated financial statements for more information.thousands).

Interest Expense, Net and Gain on Extinguishment of Debt

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

 

% Change

 

Interest expense, net

 

$

(87

)

 

$

(50

)

 

 

74

%

Foreign currency gains (losses), net

 

$

(256

)

 

$

89

 

 

 

(388

%)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

% Change

 

 

2017

 

 

2016

 

 

% Change

 

Interest expense, net

 

$

(643

)

 

$

(525

)

 

 

22

%

 

$

(1,995

)

 

$

(1,814

)

 

 

10

%

Gain on extinguishment of debt

 

$

 

 

$

 

 

 

%

 

$

977

 

 

$

 

 

 

%

Interest expense, net consists of interest on financial liabilities and amortization of debt issuance costs. The increase in interest accretion expense for a liability to a long-term payment obligation arising from our acquisition of Hirsch Electronics Corporation. The higher net interest expense in the third quarter of 2017 and the ninethree months ended September 30, 2017 is attributable to higher interest costs related to our debt facility, partially offset by lower debt levelsMarch 31, 2024 compared to the comparable periodsperiod of 2023 was attributable to higher borrowings under our revolving loan facility with our lender in the prior year.2024 compared with 2023.

The gain on extinguishment of debt represents the difference between the reacquisition price of the existing debt facility and its net carrying amount. See Note 7, Financial Liabilities, in the accompanying notes to our unaudited condensed consolidated financial statements for more information.

Foreign Currency Gains (Losses), Net

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

% Change

 

 

2017

 

 

2016

 

 

% Change

 

Foreign currency (losses) gains, net

 

$

(51

)

 

$

35

 

 

 

(246

%)

 

$

(202

)

 

$

309

 

 

 

(165

%)

Changes in currency valuation in the periods mainly were the result of exchange rate movements between the U.S. dollarDollar, the Indian Rupee, the Canadian Dollar, the Thai Baht and the Euro. Accordingly, they are predominantly non-cash items. Our foreign currency gains and losses primarily result from the valuation of current assets and liabilities denominated in a currency other than the functional currency of the respective entity in the local financial statements.

Income TaxesTax Provision

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2017

 

 

2016

 

 

% Change

 

 

2017

 

 

2016

 

 

% Change

 

 

Three Months Ended March 31,

 

Income tax benefit

 

$

42

 

 

$

(105

)

 

 

(140

%)

 

$

161

 

 

$

(35

)

 

 

(560

%)

 

2024

 

 

2023

 

 

% Change

 

Income tax provision

 

$

(20

)

 

$

(26

)

 

 

(23

%)

Effective tax rate

 

 

4

%

 

 

(16

%)

 

 

 

 

 

 

(4

%)

 

 

0

%

 

 

 

 

 

 

(0

%)

 

 

(0

%)

 

 

 

As of September 30, 2017,March 31, 2024, our deferred tax assets are fully offset by a valuation allowance. ASCAccounting Standards Codification (“ASC”) 740, Income Taxes, provides for the recognition of deferred tax assets if realization of such assets is more likely than not. Based upon the weight of available

28


evidence, which includes historical operating performance, reported cumulative net losses since inception and difficulty in accurately forecasting our future results, we provided a full valuation allowance against all of our net U.S. and foreign deferred tax assets. We reassess the need for our valuation allowance on a quarterly basis. If it is later determined that a portion or all of the valuation allowance is not required, it generally will be a benefit to the income tax provision in the period such determination is made.

28


We recorded an income tax benefitprovision during the three and nine months ended September 30, 2017.March 31, 2024. The effective tax rates for the ninethree months ended September 30, 2017March 31, 2024 and 20162023 differ from the federal statutory rate of 34%21% primarily due to a change in valuation allowance, a true-up of prior taxes, changes to uncertain tax positions, and the provision or benefit in certain foreign jurisdictions, which are subject to lowerhigher tax rates.

Liquidity and Capital Resources

As of September 30, 2017,March 31, 2024, our working capital, which we definedefined as current assets less current liabilities, was $18.1$45.6 million, an increasea decrease of $9.0$3.1 million compared to $9.1$48.7 million as of December 31, 2016.2023. As of September 30, 2017,March 31, 2024, our cash and cash equivalents balance was $15.7$21.6 million.

The following summarizes our cash flows forOn February 8, 2017, we entered into a Loan and Security Agreement (as amended or amended and restated from time to time, the nine months ended September 30, 2017“Loan Agreement”) with East West Bank (“EWB”). Following subsequent amendments, on April 14, 2022, we amended and 2016 (in thousands):

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

Net cash used in operating activities

 

$

(5,064

)

 

$

(6,194

)

Net cash used in investing activities

 

 

(686

)

 

 

(425

)

Net cash provided by (used in) financing activities

 

 

11,896

 

 

 

(180

)

Effect of exchange rates on cash

 

 

479

 

 

 

(685

)

Net increase (decrease) in cash

 

 

6,625

 

 

 

(7,484

)

Cash, beginning of period

 

 

9,116

 

 

 

16,667

 

Cash, end of period

 

$

15,741

 

 

$

9,183

 

Significant commitments that will requirerestated the use of cash in future periods include obligations under operating leases, a long-term payment obligation, secured note and revolver, purchase commitments and other obligations. Gross committed operating lease obligations were $4.6Loan Agreement by replacing the $20.0 million the long-term gross payment obligation was $4.6 million, the bank term loan, revolving loan facility subject to a borrowing base with a non-formula revolving loan facility with no borrowing base requirement and a maturity date of February 8, 2023. In addition, the interest related obligationrate was lowered from prime to prime minus 0.25%, and certain financial covenants were $20.7 million,amended. On February 8, 2023, we entered into an amendment (the "Fourth Amendment") to the Loan Agreement. The Fourth Amendment amends the Loan Agreement to, among other things, extend the maturity date to February 8, 2025 and purchase commitments and other obligationsamend certain financial covenants. We were $9.8 million at September 30, 2017. Total commitments due within one year were $22.0 million and due thereafter were $17.7 million at September 30, 2017. These commitment levelsnot in compliance with a financial covenant under our Loan Agreement as of September 30, 2017 are basedMarch 31, 2024, which non-compliance was waived by EWB on existing termsMay 6, 2024.

As our previously unremitted earnings have been subjected to U.S. federal income tax, we expect any repatriation of our operating leases, obligations with suppliers, a liability to a former related party and an existing credit agreement.

Cash used in operating activities for the nine months ended September 30, 2017 was primarily duethese earnings to the net loss of $3.6 million and by decreases in cash from net changes in operating assets and liabilities of $5.4 million, partially offset by adjustments for certain non-cash items of $3.9 million, consisting primarily of a gain on extinguishment of debt, depreciation, amortization, amortization of debt issuance costs, and stock-based compensation. For the nine months ended September 30, 2016, cash used in operating activities was primarily due to the net loss of $12.6 million, partially offset by an increase in cash from net changes in operating assets and liabilities of $0.4 million and by adjustments for certain non-cash items of $6.0 million.

Cash used in investing activities for the nine months ended September 30, 2017 and 2016 was $0.7 million and $0.4 million, respectively, andU.S. would not incur significant additional taxes related to capital expenditures.

Cash provided by financing activities during the nine months ended September 30, 2017 relatedsuch amounts. However, our estimates are provisional and subject to borrowings of debt, net of issuance costs, of $42.7 million, and proceeds from the sale of our common stock, net of issuance costs of $12.6 million, offset by repayments of debt of $42.8 million and taxes paid related to net share settlement of restricted stock units of $0.6 million. Cash used in financing activities during the nine months ended September 30, 2016 was attributable to taxes paid related to net share settlement of restricted stock units of $0.2 million.

29


We consider the undistributed earnings of our foreign subsidiaries, if any, as of September 30, 2017, to be indefinitely reinvested and, accordingly, no U.S. income taxes have been provided thereon.further analysis. Generally, most of our foreign subsidiaries have accumulated deficits and cash positionsand cash equivalents that are held outside the U.S. andUnited States are typically not cash generated from earnings that would be subject to tax upon repatriation if transferred to the U.S.United States. We have access to the cash held outside the United States to fund domestic operations and obligations without any material income tax consequences. As of September 30, 2017,March 31, 2024, the amount of cash heldincluded at such subsidiaries was $0.9$5.3 million. We have not, nor do we currently anticipate the need to, repatriate funds to the U.S.United States to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements.

On February 8, 2017, we entered into Loan and Security Agreements with East West Bank, and Venture Lending & Leasing VII, Inc., or VLL7, and Venture Lending & Leasing VIII, Inc., or VLL8. The Loan and Security Agreement with East West Bank provides for a $10.0 million revolving loan facility, and the Loan and Security Agreement with VLL7 and VLL8 provides for a term loan in aggregate principal amount of $10.0 million. In connection with the closing of both Loan and Security Agreements, we repaid all outstanding amounts under our Credit Agreement with Opus Bank. See Note 7, Financial Liabilities, in the accompanying notes to our condensed consolidated financial statements for more information.

We have historically incurred operating losses and negative cash flows from operating activities. As of September 30, 2017, we have a total accumulated deficit of $395.1 million. During the nine months ended September 30, 2017, we had a consolidated net loss of $3.6 million. Although we have,activities, and expect to continue, to realize benefits of our restructuring initiatives implemented in 2016, we may continue to incur losses in the future. As of March 31, 2024, we had an accumulated deficit of $419.4 million. During the three months ended March 31, 2024, we had a net loss of $4.6 million.

We believe our existing cash balance,and cash equivalents, together with cash generated from operations and available credit under our Loan and Security Agreements,Agreement will be sufficient to satisfy our working capital needs to fund operations for the next twelve12 months. We may also use cash to acquire or invest in complementary businesses, technologies, services or products that would change our cash requirements. We may also choose to finance our cash requirementsbusiness through public or private equity offerings, debt financings or other arrangements. However, there can be no assurance that additional capital if required, will be available to us or that such capital will be available to us on acceptable terms. If we raise funds by issuing equity securities, dilution to stockholders could result. AnyDebt or any equity securities issued also may provide for rights, preferences or privileges senior to those of holders of our common stock. The terms of debt securities issued or borrowingsloans could impose significant restrictions on our operations. The incurrence of additional indebtedness or the issuance of certain debt or equity securities could result in increased fixed payment obligations and could also result in restrictive covenants, such as limitations on our ability to incur additional debt or issue additional equity, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely affect our ability to conduct our business. Our Loan and Security Agreements imposeAgreement imposes restrictions on our operations, increases our fixed payment obligations and havehas restrictive covenants. In addition, the issuance of additional equity securities by us, or the possibility of such issuance, may cause the market price of our common stock to decline. If we are not able to secure additional funding when needed, we may have to curtail or reduce the scope of our business or forgo potential business opportunities.

The following summarizes our cash flows for the three months ended March 31, 2024 and 2023 (in thousands):

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Net cash used in operating activities

 

$

(1,301

)

 

$

(4,698

)

Net cash used in investing activities

 

 

(232

)

 

 

(1,225

)

Net cash provided by (used in) financing activities

 

 

(358

)

 

 

9,752

 

Effect of exchange rates on cash, cash equivalents, and restricted cash

 

 

(59

)

 

 

201

 

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

 

(1,950

)

 

 

4,030

 

Cash, cash equivalents, and restricted cash at beginning of period

 

 

24,384

 

 

 

17,137

 

Cash, cash equivalents, and restricted cash at end of period

 

$

22,434

 

 

$

21,167

 

29


Cash flows from operating activities

Cash used in operating activities for the three months ended March 31, 2024 of $1.3 million, was primarily due to net loss of $4.6 million, offset by an increase in cash from net changes in operating assets and liabilities of $1.4 million and adjustments for certain non-cash items of $1.8 million, consisting primarily of depreciation, amortization and stock-based compensation.

Cash used in operating activities for the three months ended March 31, 2023 of $4.7 million, was primarily due to net loss of $2.7 million, a decrease in cash from net changes in operating assets and liabilities of $3.6 million, which included $1.7 million in strategic inventory purchases, partially offset by adjustments for certain non-cash items of $1.6 million, consisting primarily of depreciation, amortization and stock-based compensation.

Cash flows from investing activities

Cash used in investing activities for the three months ended March 31, 2024 and 2024 were $0.2 million and $1.2 million, respectively, which related primarily to capital investment expenditures in our manufacturing facility in Thailand.

Cash flows from financing activities

Cash used in financing activities during the three months ended March 31, 2024 was $0.4 million, which consisted primarily of net share settlements of RSUs. Cash used in financing activities during the three months ended March 31, 2023 consisted of net borrowings of $9.9 million under our revolving loan facility with our lender, partially offset by net share settlements of RSUs of $0.2 million.

Contractual Obligations

We lease facilities, certain equipment, and automobiles under non-cancelable operating lease agreements. See Note 14, Leases, in the accompanying notes to our condensed consolidated financial statements.

Purchases for inventories are highly dependent upon forecasts of customer demand. Due to the uncertainty in demand from our customers, we may have to change, reschedule, or cancel purchases or purchase orders from our suppliers. These changes may lead to vendor cancellation charges on these orders or contractual commitments. See Note 15, Commitments and Contingencies, in the accompanying notes to our condensed consolidated financial statements.

Our other long-term liabilities include gross unrecognized tax benefits, and related interest and penalties. At this time, we are unable to make a reasonably reliable estimate of the timing of payments in individual years in connection with these tax liabilities.

30


Off-Balance Sheet Arrangements

We have not entered into off-balance sheet arrangements, or issued guarantees to third parties.

Climate Change

We believe that neither climate change, nor governmental regulations related to climate change, have had a material effect on our business, financial condition or results of operations.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).America. The preparation of these condensed consolidated financial statements requires management to establish accounting policies that contain estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. These policies relate to revenue recognition, inventory, income taxes, goodwill, intangible and long-lived assets and stock-based compensation. We have other important accounting policies and practices; however, once adopted, these other policies either generally do not require us to make significant estimates or assumptions or otherwise only require implementation of the adopted policy and not a judgment as to the policy itself. Management bases its estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Despite our intention to establish accurate estimates and assumptions, actual results may differ from these estimates under different assumptions or conditions.

During the three months ended September 30, 2017,March 31, 2024, management believes there have been no significant changes to the items that we disclosed within our critical accounting policies and estimates in Management’s“Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations” in our Annual Report on Form 10-K for the year ended December 31, 2016.2023, as amended.

30


Recent Accounting Pronouncements

See Note 1, Organization and Summary of Significant2, Significant Accounting Policies and Recent Accounting Pronouncements, in the accompanying notes to our unaudited condensed consolidated financial statements in Item 1 of Part I of this Quarterly Report for a description of recent accounting pronouncements, which is incorporated herein by reference.

31


Item 3. Quantitative and Qualitative Disclosures About Market Risk

ThereWe are primarily exposed to changes in currency exchange rates as certain of our operations are conducted in foreign currencies such as the Indian Rupee, the Canadian Dollar, the Thai Baht and the Euro.

Economic Exposure

We transact business in various foreign currencies and have significant international revenues, as well as costs denominated in foreign currencies. This exposes us to the risk of fluctuations in foreign currency exchange rates. Our objective is to identify material foreign currency exposures and to manage these exposures to minimize the potential effects of currency fluctuations on our condensed consolidated financial statements.

Transaction Exposure

Our exposure to foreign currency transaction gains and losses is the result of assets and liabilities (including inter-company transactions) that are denominated in currencies other than the relevant entity’s functional currency. In certain circumstances, changes in the functional currency value of these assets and liabilities create fluctuations in our condensed consolidated financial statements. We have performed sensitivity analyses as of March 31, 2024 and December 31, 2023 using a modeling technique that evaluated the hypothetical impact of a 10% movement in the value of the U.S. Dollar compared to the functional currency of the foreign subsidiary, with all other variables held constant, to determine the incremental transaction gains or losses that would have been no significant changesincurred. The foreign exchange rates used were based on market rates in effect at each of March 31, 2024 and December 31, 2023. The results of these sensitivity analyses indicated that the impact on a hypothetical 10% movement in foreign currency exchange rates would result in increased foreign currency gains or losses of $0.7 million as of March 31, 2024 and $0.7 million as of December 31, 2023.

Translation Exposure

We are also exposed to foreign exchange rate fluctuations as we convert the financial statements of our foreign subsidiaries into U.S. Dollars in consolidation. If there is a change in foreign currency exchange rates, the conversion of the foreign subsidiaries’ financial statements into U.S. Dollars results in a gain or loss which is recorded as a component of accumulated other comprehensive income (loss) in our exposurecondensed consolidated statements of stockholders’ equity.

With respect to market riskour international operations, we have re-measured accounts which are denominated in the non-functional currencies into the functional currency of the subsidiary and recorded the resulting gains (losses) within foreign currency gains (losses), net in our condensed consolidated statements of comprehensive loss. We re-measure all monetary assets and liabilities at the current exchange rate at the end of the period, non-monetary assets and liabilities at historical exchange rates, and revenue and expenses at average exchange rates in effect during the three months ended September 30, 2017. For discussion of our exposure to market risk, refer to Item 7A, Quantitative and Qualitative Disclosures About Market Risk, contained in our Annual Report on Form 10-K for the year ended December 31, 2016.periods.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the three months ended September 30, 2017, as required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation under the supervision and with the participation of members of our senior management, including our CEO and CFO, of the effectiveness of the design and operation of the Company’s disclosureWe maintain “disclosure controls and procedures, (as” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act). Disclosure controls and procedures are those controls and other proceduresAct of 1934, or Exchange Act, that are designed to provide reasonable assuranceensure that the information required to be disclosed by us in our SEC reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and (ii)that such information is accumulated and communicated to our management, including our CEOChief Executive Officer and CFO,Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our evaluation, our management, including our CEOChief Executive Officer and CFO,Chief Financial Officer have concluded that, as of September 30, 2017,such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Management’s Report on Internal Control over Financial Reporting32


Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. GAAP. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and or directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the interim or annual consolidated financial statements.

A control system, no matter how well designed and operated, can only provide reasonable assurance that the objectives of the control system are met. Because there are inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been or will be detected.

A deficiency in internal control over financial reporting exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

In connection with the audit of the Company’s financial statements as of and for the year ended December 31, 2015, management identified a material weakness in internal control over financial reporting during 2015, and the material weakness was ongoing. Management determined that the design and operating effectiveness of the Company’s controls over the financial statement close process related to the application of our accounting policies and the presentation of disclosures in the financial statements had been inadequate.  Specifically, this material weakness arose from insufficient review and oversight of the recording of complex and non-routine transactions, including revenue transactions, due to an insufficient number of accounting personnel with appropriate knowledge, experience or training in U.S. GAAP.

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A number of remediation actions and organizational changes were enacted to address specific control weaknesses identified in our revenue and expenditure cycles. During the course of 2016, as part of our restructuring initiatives announced in the first quarter of 2016, we streamlined our global operations, transitioned to a single accounting system across substantially all our businesses, and strengthened our global accounting and finance function in Orange County, California. In 2017, we implemented procedures and controls over the financial statement close process, reallocated worldwide accounting resources, and continued to strengthen our accounting and finance team by hiring additional personnel with U.S. GAAP experience. We believe these initiatives allow for the necessary review and oversight of the recording complex and non-routine transactions. Management has determined that with the remediation measures undertaken in 2016 and through June 30, 2017, the material weakness has been fully remediated as of June 30, 2017. Our conclusion has not been reviewed by our independent registered public accounting firm.

Our management, including our CEO and CFO, assessed our internal control over financial reporting as of September 30, 2017.  In making the assessment of internal control over financial reporting, our management based its assessment on the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in “Internal Control — Integrated Framework of 2013.” Our management’s assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. This assessment is supported by testing and monitoring performed by our internal accounting and finance organization, but has not been reviewed by our independent registered public accounting firm.

Based on management’s assessment, management has concluded that the Company’s internal control over financial reporting was effective as of September 30, 2017.

Changes in Internal Controls over Financial Reporting

Other than, the items noted above, weWe have made no changes to our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the three months ended September 30, 2017March 31, 2024, that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

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PART II: OTHEROTHER INFORMATION

On December 16, 2015, weWe are and certain of our present and former officers and directors were named as defendants in a putative class action lawsuit filed in the United States District Court for the Northern District of California, entitled Rok v. Identiv, Inc., et al., Case No. 15-cv-05775, alleging violations of Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act of 1934. On May 3, 2016, the court-appointed lead plaintiff Thomas Cunningham in the Rok lawsuit filed an amended complaint and a notice of dismissal without prejudice of all current or former officers and directors other than Jason Hart and Brian Nelson. On June 6, 2016, each of us, Jason Hart, and Brian Nelson filed a motion to dismiss for failure to state a claim upon which relief can be granted in the Rok lawsuit; on August 5, 2016, the court granted those motions with leave for the lead plaintiff to file a second amended complaint. On September 12, 2016, the lead plaintiff in the Rok lawsuit filed a second amended complaint. On October 10, 2016, each of us, Jason Hart, and Brian Nelson filed a motion to dismiss that second amended complaint for failure to state a claim upon which relief can be granted in the Rok lawsuit; on January 4, 2017, the court granted those motions with prejudice and entered judgment for us and the other defendants and against the lead plaintiff.  On February 6, 2017, the lead plaintiff initiated an appeal of the court’s decision in the Ninth Circuit Court of Appeals.  Following the lead plaintiff’s routine request to extend filing deadlines, which the Court of Appeals approved, the lead plaintiff’s opening appellate brief was filed on June 14, 2017. Following Jason Hart’s routine request to extend filing deadlines, which the Court of Appeals approved, the answering briefs of the Company and the other defendants were filed on August 14, 2017. Following the lead plaintiff’s routine request to extend filing deadlines, which the Court of Appeals approved, the lead plaintiff’s optional reply brief was filed on October 5, 2017.  The Ninth Circuit Court of Appeals has not yet scheduled oral argument or entered a ruling on the lead plaintiff’s appeal. In addition, three shareholder derivative actions were filed between January and February 2016.  On January 1, 2016, certain of our present and former officers and directors were named as defendants, and we were named as nominal defendant, in a shareholder derivative lawsuit filed in the United States District Court for the Northern District of California, entitled Oswald v. Humphreys, et al., Case No. 16-cv-00241-CRB, alleging breach of fiduciary duty and waste claims.  On January 25, 2016, certain of our present and former officers and directors were named as defendants, and we were named as nominal defendant, in a shareholder derivative lawsuit filed in the Superior Court of the State of California, County of Alameda, entitled Chopra v. Hart, et al., Case No. RG16801379, alleging breach of fiduciary duty claims.  On February 9, 2016, certain of our present and former officers and directors were named as defendants, and we were named as nominal defendant, in a shareholder derivative lawsuit filed in the Superior Court of the State of California, County of Alameda, entitled Wollnik v. Wenzel, et al., Case No. HG16803342, alleging breach of fiduciary duty, corporate waste, gross mismanagement, and unjust enrichment claims.  These lawsuits generally allege that we made false and/or misleading statements and/or failed to disclose information in certain public filings and disclosures between 2013 and 2015.  Each of the lawsuits seeks one or more of the following remedies: unspecified compensatory damages, unspecified exemplary or punitive damages, restitution, declaratory relief, equitable and injunctive relief, and reasonable costs and attorneys’ fees.  On May 2, 2016, the court in the Chopra lawsuit entered an order staying proceedings in the Chopra lawsuit in favor of the Oswald lawsuit, based on a stipulation to that effect filed by the parties in the Chopra lawsuit on April 28, 2016.  Similarly, on June 28, 2016, the court in the Wollnik lawsuit entered a stipulated order staying proceedings in the Wollnik lawsuit in favor of the Oswald lawsuit.  On June 17, 2016, the plaintiff in the Oswald lawsuit filed an amended complaint.  On August 1, 2016, we filed a motion to dismiss for failure by plaintiff to make a pre-lawsuit demand on our board of directors, which motion was heard on October 14, 2016. The judge in the Oswald lawsuit issued an order on November 7, 2016 granting our motion to dismiss, without prejudice.  In addition, the court stayed the case so that plaintiff could exercise whatever rights he had under Section 220 of the Delaware General Corporation Law.  On or around November 30, 2016, the plaintiff purported to serve a books and records demand under Section 220 of the Delaware General Corporation Law. We have responded to that demand. On March 21, 2017, we and the plaintiff in the Oswald lawsuit filed a stipulation and proposed order lifting the stay of the case, granting the plaintiff leave to amend, and setting a briefing schedule.  That stipulation proposed that the judge’s stay of the case entered November 7, 2016 be lifted, that a stay of proceedings as to the individual defendants that the judge previously entered remain in place, that the plaintiff may file a second amended complaint on or before April 10, 2017, that we may file a motion to dismiss that second amended complaint on or before May 12, 2017, that the plaintiff’s opposition to such a motion to dismiss shall be filed on or before June 12, 2017, that our reply in support of such a motion shall be filed on or before June 30, 2017, and that the hearing on such a motion to dismiss shall be held on August 11, 2017 or such other date as the court may order.  On March 22, 2017, the court entered an order approving that stipulation.  The plaintiff in the Oswald lawsuit filed his second amended complaint on April 10, 2017. We then filed a motion to dismiss that second amended complaint on May 12, 2017, the plaintiff filed an opposition to that motion to dismiss on June 12, 2017, and we filed a reply in support of the motion on June 30, 2017. The hearing on that motion to dismiss was rescheduled by stipulation of the parties to September 22, 2017 and then further rescheduled by the court to October 6, 2017. The hearing on that motion to dismiss was held on October 6, 2017, and that day the court entered a minute entry indicating the motion is denied and the court will issue an order to that effect. The court has not yet issued that order. On October 18, 2017, the court in the Wollnik lawsuit conducted a case management conference, at the conclusion of which the court scheduled a complex determination hearing for November 28, 2017 and, if the complex determination is denied, a further case management conference in July 2018. We intend to vigorously defend against these lawsuits.  We cannot currently predict the impact or resolution of each of these lawsuits or reasonably estimate a range of possible loss, if any, which could be material, and the resolution of these lawsuits may harm our business and have a material adverse impact on our financial condition.

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Fromfrom time to time, we couldmay become subject to various legal proceedings and claims arising in the ordinary course of business or could be named a defendant in additionalother lawsuits. Legal proceedings could result in material costs, occupy significant management resources and entail penalties, even if we prevail. The outcome of such claims or other proceedings cannot be predicted with certainty and may have a material effect on our financial condition, results of operations or cash flows.

Other than as described below, we were not a party to any material legal proceedings as of March 31, 2024 or as of the date of this report.

Tageos SAS

We have initiated multiple legal proceedings in Europe in response to business practices of Tageos SAS (“Tageos”) that we allege to be anti-competitive, including the misappropriation of trade secrets and confidential information. A hearing at the regional court in Munich, Germany is currently scheduled for the middle of May 2024.

Item 1A. Risk Factors

Our business and results of operations are subject to numerous risks, uncertainties, and other factors that you should be aware of. You should carefully review and consider the information regarding certain factors that could materially affect our business, financial condition or future results set forth in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as amended, under the heading “Risk Factors.” There have been no material changes from the risk factors disclosed in our 2023 Annual Report on Form 10-K, as amended, other than as set forth below.The risks, uncertainties and other factors described in thesethe risk factors are not the only ones facing our company. Additional risks, uncertainties and other factors not presently known to us or that we currently deem immaterial may also impair our business operations. Any of the risks, uncertainties and other factors could have a materially adverse effect on our business, financial condition, results of operations, cash flows or product market share and could cause the trading price of our common stock to decline substantially.

Risks Related to Our Intellectual Property, and Litigation

We may not be able to protect our intellectual property rights, which could make us less competitive and cause us to lose market share.

Our future success will depend, in part, upon our intellectual property rights and our ability to protect these rights. We rely on a combination of patent, copyright, trademark and trade secret laws, nondisclosure agreements and other contractual provisions to establish, maintain and protect our proprietary rights. From time to time, we may be required to use litigation to protect our proprietary technology. As a result, we may incur substantial costs and we may not be successful in any such litigation. For example, in April 2024, we initiated legal proceedings in Germany against Tageos for the alleged possession and misappropriation of our trade secrets and confidential information. Despite our efforts to protect our proprietary rights, unauthorized third parties may copy aspects of our products, obtain and use information that we regard as proprietary, or infringe upon our patents. In addition, the laws of some foreign countries do not protect proprietary and intellectual property rights to the same extent as do the laws in the U.S. Because many of our products are sold and a significant portion of our business is conducted outside the U.S., our exposure to intellectual property risks may be higher. Our efforts to protect our proprietary and intellectual property rights may not be adequate. Additionally, there is a risk that our competitors will independently develop similar technology or duplicate our products or design around patents or other intellectual property rights. If we are unsuccessful in protecting our intellectual property or our products or technologies are duplicated by others, our competitive position could be harmed and we could lose market share.

As an example, the complexity and uncertainty of European patent laws have increased in recent years. In Europe, a new unitary patent system took effect June 1, 2023 which will significantly impact European patents, including those granted before the introduction of such a system. Under the unitary patent system, European applications have the option, upon grant of a patent, of becoming a Unitary Patent which will be subject to the jurisdiction of the Unitary Patent Court (UPC). As the UPC is a new court system, there is no precedent for the court, increasing the uncertainty of any litigation. Patents granted before the implementation of the UPC will have the option of opting out of the jurisdiction of the UPC and remaining as national patents in the UPC countries. Patents that remain under the jurisdiction of the UPC will be potentially vulnerable to a single UPC-based revocation challenge that, if successful, could invalidate the patent in all countries who are signatories to the UPC. We cannot predict with certainty the long-term effects of the unitary patent system and any potential changes.

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Risks Related to the Asset Sale

The proposed Asset Sale is subject to a number of conditions beyond our control. Failure to complete the Asset Sale could materially and adversely affect our future business, results of operations, financial condition and stock price.

The closing of the Asset Sale is conditioned on the receipt of the required stockholder approval, as well as the satisfaction of other closing conditions, including receipt of regulatory approvals and performance in all material respects by each party of its obligations under the Purchase Agreement.

We cannot predict whether and when the conditions will be satisfied. If one or more of these conditions is not satisfied, and as a result, we do not complete the Asset Sale, or in the event the Asset Sale is not completed or is delayed for any other reason, our business, results of operations, financial condition and stock price may be harmed because:

• management’s and our employees’ attention may be diverted from our day-to-day operations as they focus on matters related to the Asset Sale;

• we could potentially lose key employees if such employees experience uncertainty about their future roles with us and decide to pursue other opportunities;

• we could potentially lose customers or vendors, and new customer or vendor contracts could be delayed or decreased;

• we have agreed to restrictions in the Purchase Agreement that limit how we conduct our business prior to the closing of the Asset Sale, including, among other things, restrictions on our ability to make certain capital expenditures, investments and acquisitions, sell, transfer or dispose of our assets, enter into material contracts outside of the ordinary course of business, amend our organizational documents and incur indebtedness; these restrictions may not be in our best interests and may disrupt or otherwise adversely affect our business and our relationships with our customers, prevent us from pursuing otherwise attractive business opportunities, limit our ability to respond effectively to competitive pressures, industry developments and future opportunities, and otherwise harm our business, financial results and operations;

• we have incurred and expect to continue to incur expenses related to the Asset Sale, such as legal, financial advisory and accounting fees, and other expenses that are payable by us whether or not the Asset Sale is completed;

• we may be required to pay a termination fee of $5.075 million to Buyer if the Purchase Agreement is terminated under certain circumstances, the payment of which would negatively affect our financial results and liquidity;

• we have agreed to reimburse Buyer for certain expenses up to $3.0 million in the aggregate if the Purchase Agreement is terminated by Buyer or us for failure to obtain the required stockholder approval, the payment of which would negatively affect our financial results and liquidity;

• activities related to the Asset Sale and related uncertainties may lead to a loss of revenue and market position unrelated to the Asset Sale that we may not be able to regain if the Asset Sale does not occur; and

• the failure to, or delays in, consummating the Asset Sale may result in a negative impression of us with customers, potential customers or the investment community.

The occurrence of these or other events individually or in combination could have a material adverse effect on our business, results of operations, financial condition and stock price.

In addition, our stock price has and may continue to fluctuate significantly based on announcements by us, Buyer or other third parties regarding the Asset Sale or our business.

The Purchase Agreement contains provisions that could discourage a potential competing acquirer.

The Purchase Agreement contains “no solicitation” provisions that restrict our ability to solicit, initiate, or knowingly encourage, facilitate or induce third party proposals for the acquisition of our common stock or to pursue an unsolicited offer, subject to certain limited exceptions. In addition, Buyer has an opportunity to modify or amend the terms of the Asset Sale in response to any unsolicited competing acquisition proposal before the board of directors may withdraw or change its recommendation with respect to the Asset Sale. Upon the termination of the Purchase Agreement to pursue an alternative transaction, including in connection with a Superior Proposal (as defined in the Purchase Agreement), we will be required to pay Buyer $5.075 million as a termination fee. These provisions could discourage a potential third-party acquirer from considering or proposing an acquisition transaction, even if it

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were prepared to pay a higher price than what would be received in the Asset Sale, or propose to acquire our entire company. These provisions might also result in a potential third-party acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable. If the Purchase Agreement is terminated and we determine to seek another purchaser for our Physical Security Business or an alternative transaction, we may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the Asset Sale.

Our executive officers and directors have interests in the Asset Sale that may be different from, or in addition to, the interests of our stockholders generally.

Our executive officers and members of the board of directors may be deemed to have interests in the Asset Sale that may be different from or in addition to those of our stockholders, generally. These interests may create potential conflicts of interest. The board of directors was aware of these potentially differing interests and considered them, among other informationmatters, in evaluating and negotiating the Purchase Agreement and in reaching its decision to approve the Purchase Agreement and the transactions thereunder.

These interests include potential payments to, and the vesting of RSUs held by, our executive officers pursuant to the terms of agreements we previously entered into with those officers. Steven Humphreys, our Chief Executive Officer and a member of our board of directors, and Justin Scarpulla, our Chief Financial Officer, will receive a grant of 365,000 RSUs and 65,000 RSUs, respectively, effective immediately prior to the closing of the Asset Sale, which RSUs will be fully vested on grant and will settle for either stock or cash upon the closing of the Asset Sale.

In addition, Mr. Humphreys and certain other members of the Company’s senior management have agreed to depart from the Company upon the closing of the Asset Sale and to join Buyer. Specifically, Mr. Humphreys has entered into an offer letter with Buyer effective upon the closing of the Asset Sale, pursuant to which he will depart from his positions with the Company and become Deputy Chief Executive Officer of, and a member of the Executive Committee of, Vitaprotech.

Upon the closing of the Asset Sale, RSUs relating to unvested shares held by our employees who are employed by the Physical Security Business and remain employed by the Company through the closing of the Asset Sale and, effective immediately following the Asset Sale, become employees of Buyer (or an affiliate of Buyer) will become vested at Closing, while RSUs held by our non-employee directors will remain outstanding and continue to vest according to their terms.

We will incur significant expenses in connection with the Asset Sale, whether or not it is consummated.

We have and will continue to incur substantial expenses related to the Asset Sale, whether or not it is completed. We recorded transaction-related costs of approximately $1.4 million through March 31, 2024, and we will incur additional costs and expenses until completion of the Asset Sale. In addition, we will incur additional financial advisory fees that are payable upon consummation of the Asset Sale. We may also be required to pay $5.075 million to Buyer if we terminate the Purchase Agreement in certain circumstances. We have also agreed to reimburse Buyer for certain expenses up to $3.0 million in the aggregate in the event that the Purchase Agreement is terminated by Buyer or us for failure to obtain the required stockholder approval. Payment of these expenses if the Asset Sale is not completed would adversely affect our operating results and financial condition, our plans on further investment into the IoT Business, and would likely adversely affect our stock price.

We cannot be sure if or when the Asset Sale will be completed.

The consummation of the Asset Sale is subject to the satisfaction or waiver of various conditions, including:

• obtaining the required stockholder approval of the Asset Sale;

• the filings pursuant to the HSR Act, if any, having been made by each party and any applicable waiting period (and any extension thereof) under the HSR Act having expired or been terminated;

• the absence of any order that has the effect of enjoining or otherwise prohibiting the completion of the Asset Sale;

• each party’s representations and warranties being true and correct to the applicable specified standard as of the closing of the Asset Sale;

• each party’s material compliance with agreements, covenants and conditions;

• Buyer’s receipt of the Seller Closing Certificate (as defined in the Purchase Agreement) and the Company’s receipt of the Buyer Closing Certificate (as defined in the Purchase Agreement);

• obtaining clearance from CFIUS; and

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• obtaining approval under the NSI Act.

We cannot guarantee that the closing conditions set forth in the Purchase Agreement will be satisfied. If we are unable to satisfy the closing conditions in Buyer’s favor or if other mutual closing conditions are not satisfied, Buyer will not be obligated to complete the Asset Sale.

If the Asset Sale is not completed, the board of directors, in discharging its fiduciary obligations, may evaluate other strategic alternatives that may be available, which alternatives may not be as favorable to our stockholders as the Asset Sale. These may include retaining and operating the Physical Security Business or pursuing an alternate sale transaction that would yield reduced consideration or involve significant delays. Any future sale of substantially all of the assets of the Company or other transactions may be subject to further stockholder approval.

We may be subject to litigation related to the Asset Sale, which is expensive and could divert our attention.

We may be subject to litigation in connection with the Asset Sale. Litigation against us could result in substantial costs and divert our management’s attention from closing the Asset Sale, which could harm our business and increase our expenses, which could decrease our net proceeds from the Asset Sale.

Risks Related to the Company’s IoT Business if the Asset Sale is Completed

The growing number of competitors in the RFID industry is posing additional risks to our business.

As the RFID industry continues to grow, there has been an increase in the number of companies entering the market, including from China. Competitors have and may continue to sell products or solutions at low prices in order to gain market share, because they have lower costs than other competitors, or for other reasons. The number of contract manufacturers and the amount of manufacturing capacity has also increased significantly. If the growth of the RFID industry does not keep pace with the increased manufacturing capacity, this Quarterly Report, you should carefully considermay result in downward pressure on pricing and reduced margins, each of which could have a serious adverse impact on our business, financial condition and results of operations.

Our success depends largely on the risk factors previously disclosedcontinued service and availability of key personnel.

Our future success depends on our ability to continue to attract, retain, and motivate our senior management as well as qualified technical personnel in Item 1A to Part Ithe RFID industry. Competition for these employees is intense and many of our Annual Reportcompetitors may have greater name recognition and significantly greater financial resources to better compete for these employees. We have in the past, and may in the future, experience the loss of employees to our competitors. If we are unable to retain our existing personnel, or attract and retain additional qualified personnel, specifically in connection with and following the completion of the Asset Sale, our growth may be limited. Our key employees are employed on Form 10-Kan “at will” basis, meaning either we or the employee may terminate their employment with us at any time. The loss of or inability to hire or replace key employees could slow our product development processes and sales efforts or harm our reputation. Also, if our stock price declines, as it has recently, it may result in difficulty attracting and retaining personnel as equity incentives generally comprise a significant portion of our employee compensation.

The separation of our Physical Security Business following the closing of the Asset Sale may significantly disrupt our operations.

If the Asset Sale is completed, we will separate the Physical Security Business from our operations, and financial reporting and corporate functions, which will require us to reconfigure our current system processes, transactions, data and controls. This transition will require significant management attention, capital and personnel resources, and the coordination of our system providers and internal business teams. We may experience difficulties, including delays and higher than anticipated costs related to capital and personnel resources, as we manage these changes, including loss or corruption of data, delays in finalizing our financial records for each accounting period and related delays in completion of our financial reporting, unanticipated expenses, and lost revenue. In addition, delays in finalizing our records could result in our failure to timely file our periodic reports with the SEC, which could limit our access to the public markets to raise debt or equity capital, restrict our ability to issue equity securities, and result in the delisting of our common stock and/or regulatory sanctions from the SEC or The Nasdaq Stock Market, any of which could have a material adverse impact on our operations. Difficulties in implementing the separation of the Physical Security Business could disrupt our operations, divert management’s attention from key strategic initiatives and have an adverse effect on our results of operations, financial condition and cash flows.

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Failure to expand our IoT Business to penetrate new markets and scale successfully within those markets may negatively impact our revenues and financial condition.

Following the closing of the Asset Sale, our growth strategy for the IoT Business will depend in part on our ability to penetrate emerging markets, such as the medical device market, and scale successfully within those markets. The medical device market and other new markets present distinct and substantial challenges and risks and will likely require us to develop new customized solutions to address the particular requirements of that market. Additionally, these new market opportunities may be outside the scope of our proven expertise or in areas which have unproven market demand, and the utility and value of new products developed by us may not be accepted in the markets served by the new products. Our inability to gain market acceptance of new products could prevent us from scaling successfully within new markets and may harm our future operating results. Our future success also depends on our ability to manufacture new products to meet customer demand in a timely and cost-effective manner. Difficulties or delays in replacing existing products with new products we introduce or in manufacturing improved or new products in sufficient quantities to meet customer demand could diminish future demand for our products and harm our future operating results. In addition, if the medical device market and other new market opportunities for our current and future products are smaller than estimated or do not develop as we expect, our growth may be limited and our business, financial condition and results of operations could be adversely affected. Even if the medical device market and other emerging markets develop as expected, we may not be able to achieve the high gross margins associated with such markets, or, if we do achieve such gross margins, we may not be able to sustain them.

Following the closing of the Asset Sale, we will continue to incur significant expenses and administrative burdens as a public company despite our revenue being significantly lower, which could have an adverse effect on our business, financial condition and results of operations.

Following the closing of the Asset Sale, we will continue to incur significant legal, accounting, administrative and other costs and expenses as a public company. Because our revenue will be significantly reduced as a result of the divestiture of the Physical Security Business, these expenses will represent a larger percentage of our revenue and will have a negative effect on our gross margins. If we are unable to generate sufficient revenue through our IoT Business following the Asset Sale, these increased expenses as a percentage of our revenue may have an adverse effect on our business, financial condition and results of operations.

Uncertainty regarding the use of proceeds from the Asset Sale and our future operations may negatively impact the value and liquidity of our common stock.

We will receive $145.0 million in cash from Buyer, subject to customary adjustments pursuant to the terms of the Purchase Agreement. Our board of directors will have discretion regarding the use of proceeds from the Asset Sale and plans to use a portion of the net proceeds to pursue growth opportunities for the IoT Business. It may also use the funds to pay dividends and distributions on or redeem or repurchase our capital stock; for working capital and other general corporate purposes, which may include sales and marketing activities, research and development, general and administrative matters and capital expenditures; to invest in or acquire complementary businesses, products, services, technologies or assets; or to otherwise execute our growth strategy. Although our board of directors continues to evaluate various alternatives regarding use of the proceeds from the Asset Sale, it has not yet identified any specific plans, investments or acquisitions or committed to making any such decision by a particular date. This uncertainty may negatively impact the value and liquidity of our common stock.

We may use the net proceeds for purposes that do not yield a significant return or any return at all for our stockholders. In addition, pending their use, we may invest the net proceeds from the Asset Sale in a manner that does not produce income or that loses value, or in a manner that stockholders do not agree with. If we do not invest or apply the net proceeds from the Asset Sale in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.

The amount of net proceeds that we receive from the Asset Sale is subject to decrease.

We will receive aggregate cash consideration of $145.0 million subject to certain upward adjustments related to cash and cash equivalents and working capital and certain downward adjustments related to the working capital of the Physical Security Business, indebtedness, and selling expenses. The amount of the working capital of the Physical Security Business at any given point in time is dependent upon a number of factors beyond our control. If the working capital of the Physical Security Business at the closing of the Asset Sale is less than $19.5 million, the net proceeds we will receive in connection with the Asset Sale will be decreased on a dollar-for-dollar basis, in addition to reductions with respect to our indebtedness and selling expenses at the closing of the Asset Sale. There can be no assurance that the closing working capital of the Physical Security Business will be at or above $19.5 million, and that we will receive the full $145.0 million purchase price.

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If the Asset Sale is completed, our business prospects may diminish and our stock price may decline.

If the requisite stockholder vote to approve the Asset Sale is obtained and the Asset Sale closes, we will continue to operate our IoT Business despite the sale of assets that have historically generated a significant portion of our revenue. For example, the Physical Security Business generated approximately 63% of the Company’s revenue for the fiscal year ended December 31, 2016.2023. The divestiture of the Physical Security Business will result in material cash proceeds to the Company and a reduction in operating expenses and liabilities; however, our revenue following the closing of the Asset Sale will be limited to our IoT Business. A failure by us to grow our IoT Business could result in our business prospects diminishing, and the value and liquidity of our common stock could be negatively impacted.

Even if the Asset Sale is completed, we cannot provide any assurances that we will realize the benefits we currently anticipate from the Asset Sale.

We cannot provide any assurances that we will realize the benefits we currently anticipate from the Asset Sale. We expect to focus our resources, capital, and management attention towards expanding our IoT Business. However, we may not be able to realize our goals for the IoT Business. In addition, we will experience a significant decrease in revenue as a result of the sale of the Physical Security Business. Any failure to realize the benefits we currently anticipate from the Asset Sale could have a material adverse impact on our future operating results and financial condition and could materially and adversely affect our stock price or trading volume.

To the extent we pursue acquisitions, strategic alliances, or investments in other businesses, products, services, technologies or assets, we could experience operating difficulties and other consequences that may harm our business, financial condition, and operating results, and we may not be able to successfully consummate favorable transactions or successfully integrate such acquisitions.

We expect to apply a portion of the net proceeds from the Asset Sale to pursue growth opportunities for the IoT Business, including potentially investing in opportunities such as acquisitions of complementary businesses, products, services, technologies or assets. We may also pursue strategic alliances that leverage our core technology and industry experience to expand our IoT offerings or make investments in other companies or technologies.

The identification of suitable acquisition candidates is difficult, and we may not be able to complete acquisitions on favorable terms, if at all. With respect to any future acquisitions, we may not be able to integrate such acquisitions successfully into our existing business, and we could assume unknown or contingent liabilities. Any acquisitions by us also could result in significant write-offs or the incurrence of debt and contingent liabilities, any of which could harm our operating results. Furthermore, the loss of customers, partners or suppliers following the completion of any acquisition could harm our business. Changes in services, sources of revenue, and branding or rebranding initiatives may involve substantial costs and may not be favorably received by customers, resulting in an adverse impact on our financial results, financial condition and stock price. Integration of an acquired company or business also may require management’s time and resources that otherwise would be available for ongoing development of our existing business. We may also need to divert cash from other uses, or issue equity securities in order to fund these integration activities and these new businesses. If the stock price of our common stock is low or volatile, we may not be able to acquire other companies for stock. In addition, our stockholders may experience substantial dilution as a result of additional securities we may issue for acquisitions. Open market sales of substantial amounts of our common stock issued to stockholders of companies we acquire could also depress our stock price.

Ultimately, we may not realize the anticipated benefits of any acquisition, strategic alliance, or investment, or these benefits may take longer to realize than we expected. The occurrence of any of these risks could harm our business, results of operations, and financial condition.

Changes in management following the closing of the Asset Sale may adversely affect the future performance of our IoT Business.

Upon the closing of the Asset Sale, Mr. Humphreys and certain other members of the Company’s senior management will join Buyer. Following the completion of the Asset Sale and the departure of these members of senior management, the senior management of the Company will include Kirsten Newquist, currently President, IoT Solutions, Justin Scarpulla, Chief Financial Officer, Edward Kirnbauer, Vice President, Global Corporate Controller, Dr. Manfred Mueller, Chief Strategy Officer, Amir Khoshniyati, Executive Vice President and General Manager, IoT Solutions, and Boon Yong (BY) Koh, Executive Vice President, Operations. Ms. Newquist joined the Company on April 15, 2024. Upon Mr. Humphreys’ departure, Ms. Newquist will assume the role of Chief Executive Officer of the Company and is expected to serve as a member of the board of directors. In connection with these changes in management and the sale of our Physical Security Business, there will be changes to the Company’s operations and our key strategies and tactical initiatives related to our IoT Business over time. If we do not successfully implement and adapt to these changes, we may be unable to successfully execute our long-term business development plans for our IoT Business, which could adversely affect our financial condition and results of operations. Further, the future performance of our IoT Business will depend, in part, on the

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successful transition of our workforce to our new operating and organizational structure following the Asset Sale, and our inability to successfully manage these transitions could be viewed negatively by our customers, employees, investors and other third-party partners, and could have an adverse impact on our business and results of operations.

We will be subject to five-year non-competition and non-solicitation covenants under the Purchase Agreement, which will prevent us from reentering the Physical Security Business.

Following the closing of the Asset Sale, we will be subject to five-year non-competition and non-solicitation covenants in the Purchase Agreement. During such five-year period, the Company and its controlled affiliates will be restricted from directly or indirectly engaging with, managing or operating, or having any ownership interest in any person that engages with, manages, or operates, a business that is competitive with the Physical Security Business or competes for customers of the Physical Security Business, in each case, with respect to geographies that the Physical Security Business participated in as of the closing of the Asset Sale. In addition, during this five-year period, the Company has agreed, not to directly or indirectly hire, engage, recruit, employ, solicit or otherwise attempt to employ or engage or enter into any business relationship with any Business Employee or Acquired Entity Employee (each as defined in the Purchase Agreement), or induce or attempt to induce any such employee to leave his or her employment with Buyer or Buyer’s affiliates, subject to certain customary limitations. These limitations will prevent us from reentering the Physical Security Business.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended March 31, 2024, we repurchased 32,608 shares of our common stock. The table below sets forth information regarding the Company’s purchases of its common stock during the three months ended March 31, 2024:

 

Issuer Purchases of Equity Securities

 

Period

 

Total number of shares purchased(1)

 

 

Average price paid per share

 

 

Total number of shares purchased as part of publicly announced plans or programs

 

 

Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs

 

January 1, 2024 – January 31, 2024

 

 

11,389

 

 

$

8.15

 

 

 

 

 

 

 

February 1, 2024 – February 29, 2024

 

 

5,034

 

 

 

8.23

 

 

 

 

 

 

 

March 1, 2024 – March 31, 2024

 

 

16,185

 

 

 

8.83

 

 

 

 

 

 

 

Total

 

 

32,608

 

 

$

8.50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Consists of shares surrendered to the Company to satisfy tax withholding obligations in connection with the vesting of restricted stock units issued to employees.

 

Item 5. Other Information

Rule 10b5-1 and Non-Rule 10b5-1 Trading Arrangements

During the quarter ended March 31, 2024, no director or officer adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

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Item 6. Exhibits

Exhibit

Number

Description

  31.1

  10.1

Fifth Amendment to Amended and Restated Loan and Security Agreement between Identiv, Inc. and East West Bank dated as of March 4, 2024 (Incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K filed on March 15, 2024).

  10.2*

Offer Letter dated March 14, 2024 between Identiv, Inc. and Kirsten F. Newquist (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 3, 2024).

  31.1^

Certification of Chief Executive Officer pursuant to Rule 13a-14(a)Section 302 of the Securities Exchange Act of 1934.

  31.2  31.2^

Certification of Chief Financial Officer pursuant to Rule 13a-14(a)Section 302 of the Securities Exchange Act of 1934.

 32*  32#

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document with embedded Linkbase Documents.

101.CAL104

Cover Page Interactive Data File (embedded within the Inline XBRL Taxonomy Extension Calculation Linkbase Documentdocument)

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

* Denotes management compensatory contract or arrangement.

^ Filed herewith.

# Furnished herewith and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates them by reference.

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*

Furnished herewith and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates them by reference.

SIGNATURES

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

IDENTIV, INC.

NovemberMay 9, 20172024

By:

/S/ Steven Humphreys

Steven Humphreys

Chief Executive Officer

(Principal Executive Officer)

NovemberMay 9, 20172024

By:

/S/ Sandra WallachJustin Scarpulla

Sandra WallachJustin Scarpulla

Chief Financial Officer and Secretary

(Principal Financial and Accounting Officer)

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