Annual report pursuant to Section 13 and 15(d)

Note 7 - Balance Sheet Components

v3.6.0.2
Note 7 - Balance Sheet Components
12 Months Ended
Dec. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Balance Sheet Components

Note 7. Balance Sheet Components

 

Inventory

 

Inventory consisted of the following as of December 31, 2016 and 2015 (in thousands):

 

    As of December 31,
    2016   2015
Raw materials   $ —       $ 1,385  
Work-in-process     —         22  
Finished goods     8,568       11,142  
Inventory   $ 8,568     $ 12,549  

 

The Company records charges for obsolete and slow moving inventory based on the age of the product as determined by the expiration date. Products within one year of their expiration dates are considered for write-off purposes. Historically, the Company has had minimal returns with established customers. Other than write-off of inventory during restructuring activities, the Company incurred insignificant inventory write-offs during the years ended December 31, 2016 and 2015. Inventory write-downs, once established, are not reversed as they establish a new cost basis for the inventory.

 

As disclosed further in Note 5, the Company executed a restructuring plan in August 2015 and wrote off inventory related to discontinued products. For the years ended December 31, 2016 and 2015, discontinued inventory of $2.3 million and $2.9 million, respectively, was written off and included as a component of “Cost of revenue” in the accompanying Consolidated Statements of Operations.

 

In May 2016, the Company completed the sale of BioZone, which resulted in a reduction of inventory of $1.8 million. See additional information in Note 4. Additionally, $0.4 million of inventory related to the Arnold Schwarzenegger product line was considered impaired as the inventory had no future value as a result of the contract termination, and included as a component of the “Impairment of assets” in the accompanying Consolidated Statements of Operations for the year ended December 31, 2016. See additional information in Note 10.

 

Property and Equipment

 

Property and equipment consisted of the following as of December 31, 2016 and 2015 (in thousands):

 

    As of December 31,
    2016   2015
Furniture, fixtures and equipment   $ 3,521     $ 3,621  
Leasehold improvements     2,504       3,227  
Manufacturing and lab equipment     3       1,659  
Vehicles     334       1,146  
Displays     483       483  
Website     462       463  
Construction in process     55       54  
Property and equipment, gross     7,362       10,653  
Less: accumulated depreciation and amortization     (4,119 )     (3,960 )
Property and equipment, net   $ 3,243     $ 6,693  

 

Depreciation and amortization expense related to property and equipment was $1.5 million and $1.8 million for the years ended December 31, 2016 and 2015, respectively, which is included in “Selling, general, and administrative” expense in the accompanying Consolidated Statements of Operations.

 

In May 2016, the Company completed the sale of BioZone, which resulted in a reduction of various components of property and equipment of $2.0 million. See additional information in Note 4. As disclosed further in Note 5, the Company executed a restructuring plan in August 2015 and wrote off certain long-lived assets, primarily leasehold improvements, related to the abandonment of certain leased facilities. The write-off of long-lived assets was $0.3 million and $0.4 million for the years ended December 31, 2016 and 2015, respectively, and was included as a component of “Restructuring and other charges” in the accompanying Consolidated Statements of Operations.

 

Intangible Assets

 

Intangible assets included the assets acquired pursuant to the BioZone asset acquisition and MusclePharm’s apparel rights reacquired from Worldwide Apparel as of December 31, 2015. BioZone was sold during the year ended December 31, 2016. Intangible assets consisted of the following (in thousands):

   

As of December 31, 2016

 

   

Gross Value

 

 

Accumulated
Amortization

 

 

Net
Carrying
Value

 

 

Remaining Weighted-
Average
Useful Lives
(years)

 

Amortized Intangible Assets                                
Brand   $ 2,244     $ (606 )   $ 1,638       5.1  
Total intangible assets   $ 2,244     $ (606 )   $ 1,638          

 

   

As of December 31, 2015

 

   

Gross Value

 

 

Accumulated
Amortization

 

 

Net
Carrying
Value

 

 

Weighted-
Average
Useful Lives
(years)

 

Amortized Intangible Assets                                
Customer relationships   $ 3,130     $ (417 )   $ 2,713       15.0  
Non-compete agreements     69       (69 )     —         —    
Patents     2,158       (540 )     1,618       8.0  
Trademarks     933       (133 )     800       6.7  
Brand     4,020       (522 )     3,498       10.5  
Domain name     54       (31 )     23       5.0  
Total intangible assets   $ 10,364     $ (1,712 )   $ 8,652          

 

Intangible assets amortization expense was $0.6 million and $1.1 million for the years ended December 31, 2016 and 2015, respectively, which is included in the “Selling, general, and administrative” expense in the accompanying Consolidated Statements of Operations. Additionally, $1.2 million of capitalized brand and trademark expenses with a net carrying value of $0.8 million related to the Arnold Schwarzenegger product line were considered impaired, and included as a component of the “Impairment of assets” in the accompanying Consolidated Statements of Operations for the year ended December 31, 2016. See additional information in Note 10.

 

 

As of December 31, 2016, the estimated future amortization expense of intangible assets is as follows (in thousands):

 

For the Year Ending December 31,      
2017   $ 321  
2018     321  
2019     321  
2020     321  
2021     321  
Thereafter     33  
Total amortization expense   $ 1,638