INTERMOLECULAR INC

We were founded in 2004 and are headquartered in San Jose, California. Our total revenue decreased to $4.6 million and $11.3 million for the three and six months ended June 30, 2019, from $9.8 million and $19.5 million for the three and six months ended June 30, 2018. For the three months ended June 30, 2019, our net loss increased to $5.3 million compared to a net income of $0.5 million in the same period last year. For the six months ended June 30, 2019, our net loss increased to $7.6 million compared to net loss of $0.1 million in the same period last year. Since inception, we have incurred net losses leading to an accumulated deficit of $189.3 million as of June 30, 2019.

R&D expenses increased by 3%, or $0.3 million, during the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The increase was primarily attributable to a $0.2 million increase in labor and personnel-related expenses, $0.2 million increase in professional fees, $0.3 million increase in materials cost and $0.3 million increase in facilities cost, which were partially offset by $0.6 million reduction in depreciation expense.

Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of internal control will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of the controls must be considered relative to their costs. While our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of their effectiveness, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, will be detected.  These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls.  Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

On June 6, 2019, a putative shareholder class action complaint was filed in the United States District Court for the District of Delaware against us and each member of our board of directors, captioned Franchi v. Intermolecular, Inc. et al., C.A. No. 1:19-cv-01054. On June 11, 2019, two additional complaints were filed in the United States District Court for the Southern District of New York and the Northern District of California, respectively, against us and each member of our board of directors, captioned Najafi v. Intermolecular, Inc. et al., C.A. No. 1:19-cv-05438 and Stein v. Intermolecular, Inc. et al., C.A. No. 5:19-cv-03307. On June 12, 2019, a second putative shareholder class action complaint was filed in the United States District Court for the Southern District of New York against us and each member of our board, captioned Morgan v. Intermolecular, Inc. et al., C.A. No. 1:19-cv-05489. On June 13, 2019, an additional complaint was filed in the United States District Court for the Northern District of California against us and each member of our board, captioned Bedeian v. Intermolecular, Inc. et al., C.A. No. 3:19-cv-03359.  Each of the complaints alleges, among other things, that we and each member of our board violated certain provisions of the federal securities laws and regulations by soliciting stockholder votes in connection with the Merger through a proxy statement that purportedly omits material information necessary to make the statements therein not false or misleading. The complaints seek, among other things, to require us to disseminate a proxy statement that does not contain any untrue statements of material fact and that states all material facts required to make the statements contained therein not misleading, damages, and certain other equitable and injunctive relief.  On July 9, 2019, the court in the Najafi action ordered the case closed having been notified by plaintiff’s counsel that the action is now moot.  

We believe the complaints are without merit, and we will vigorously defend against the complaints. However, litigation is inherently uncertain and there can be no assurance regarding the likelihood that our defense of the actions will be successful.