Based in San Jose, California Intermolecular (proposed IMI) scheduled a $130 million IPO with a market capitalization of $550 million at a price range mid-point of $13 for Friday, November 18, 2011.

SUMMARY

IMI sales increased 34% to $39 million for the nine months ended September 2011, up from $29 million for the comparable year-earlier period. Losses, however, increase to $4.5 million from $2.9 million.

IMI has pioneered a proprietary approach to accelerate research and development, innovation and time-to-market for the semiconductor and clean-energy industries.

VALUATION

IMI does have visible on-going licensing and royalty revenue, and as it matures could be worth considerably more than the mid-price range value of $550 million.

In the meantime, however, IMI’s price to sales ratio of 10.6 seems high for a pioneer which has generated only losses. However, both Groupon and Imperva’s (IMPV) IPO’s shows that the IPO after-market is more forgiving of a losses now than in August of this year.

Valuation Ratios	IPO Mrkt	Price /	Price /	Price /	Price /	% offered
Annualizing Sept 9 mos	Cap (mm)	Sales	Earnings	BookValue	TangibleBV	in IPO
Intermolecular (IMI)	$550	10.6	-46	5.1	5.4	24%

Related party transactions

Also, related party transactions disclosed in financial statements accounted for $15.6 million and $26.0 million, or 40.2% and 61.0%, respectively, of revenue for the nine months ended September 30, 2011 and the year ended December 31, 2010.

BUSINESS

IMI has pioneered a proprietary approach to accelerate research and development, innovation and time-to-market for the semiconductor and clean-energy industries.

Through paid collaborative development programs (CDPs) with customers, IMI develops proprietary technology and intellectual property (IP) for customers focused on advanced materials, processes, integration and device architectures.

IMI’s high productivity combinatorial (HPC) platform increases R&D productivity because it is purpose-built for R&D and utilizes advanced combinatorial processing systems.

IMI provides customers with proprietary technology through various fee arrangements and grants them rights to associated IP, primarily through royalty-bearing licenses.

CUSTOMER BENEFITS

IMI’s developed technology enables customers to bring optimized, high-volume manufacturing-ready integrated devices to market faster and with less risk than traditional approaches to R&D.

IMI’s high productivity combinatorial (HPC) platform allows experiments to be performed at speeds up to 100 times faster than traditional methods.

LICENSING & ROYALTY REVENUE

Licensing and royalty revenue consists of licensing fees and royalties for granting customers rights to IMI proprietary technology and IP.

Specifically, this includes licensing the high productivity combinatorial (HPC) capabilities of workflows, licensing IMI’s informatics and analysis software and licensing fees and royalties on products commercialized by customers that incorporate technology developed through IMI’s CDPs.

In the last three years, licensing and royalty revenue has been the fastest growing element of revenue. Over the long term, IMI expects licensing and royalty revenue to be an increasing and significant component of revenue.

CUSTOMERS

IMI currently targets large, high-volume semiconductor and high-growth emerging clean-energy markets, including DRAM, flash memory, complex logic, flat glass, solar cells, LEDs and other energy-efficient technologies with our HPC platform.

Within these broad markets, IMI has engaged in paid programs for 19 customers, including ATMI (AMTI), Elpida Memory (ELPDF.PK ), GLOBALFOUNDRIES, Guardian Industries, SanDisk (SNDK), Taiwan Semiconductor Manufacturing (TSMC) and Toshiba (TOSBF.PK).

Each of ATMI, Elpida, SanDisk, Toshiba and GLOBALFOUNDRIES accounted for 10% or more of revenue for the nine months ended September 30, 2011. ATMI and Elpida each accounted for 10% or more of revenue for the year ended December 31, 2010.

ATMI and Elpida have commenced shipping products incorporating technology developed through IMI’s collaborative development programs (CDPs) and pay us licensing and royalty fees. To date, IMI has received the majority of revenue from customers in DRAM, flash memory, complex logic and energy-efficient applications in flat glass, and have not yet received a material amount of revenue from customers in solar cells, LEDs and other energy-efficient technologies.

RELATED PARTY TRANSACTIONS

Some of IMI’s customers and other business partners hold a significant stake in IMI’s capital stock. Related party transactions disclosed in financial statements accounted for $15.6 million and $26.0 million, or 40.2% and 61.0%, respectively, of revenue for the nine months ended September 30, 2011 and the year ended December 31, 2010.

ATMI, which beneficially owns 10.6% of IMI’s capital stock as of October 15, 2011, accounted for $11.7 million and $22.1 million, or 30.1% and 51.8%, respectively, of revenue for the nine months ended September 30, 2011 and the year ended December 31, 2010.

COMPETITION

IMI is not aware of any companies that currently compete or have to date competed with IMI in the use of combinatorial methods in research and development applications.

However, IMI does believe that it competes for the R&D resources of customers with equipment suppliers, industry consortia, alliance partnership, university research and third-party IP licensing.

In addition, many customers design, develop, manufacture and market solutions based on their own unique device architectures and develop their own intellectual property in-house.

INTELLECTUAL PROPERTY

As of October 15, 2011, IMI owned or had exclusive rights within its field of use to 622 U.S. patents and patent applications (some of which also have foreign counterparts), which provides IMI with a competitive advantage in the use of combinatorial methods and systems in target markets.

ENGINEERING TEAM

IMI has assembled a multi-disciplinary team of 140 scientists and engineers, of whom approximately 55 have Ph.D.s, with expertise across various disciplines, fields and technologies, including engineering, materials science, process development and integration, equipment, device process technologies and device integration.

USE OF PROCEEDS

IMI expects to net $63 million from selling 57% of the IPO’s stock. Shareholders intend to sell the othe 42%. IPO proceeds are allocated to working capital and other general corporate purposes.

Intermolecular	IMI, C, 7					Post PO shares: 42mm
R&D tool for semiconductors				Sept 9 mos	Sept 9 mos
San Jose, CA	2008	2009	2010	2010	2011	IPO Mkt
Revenues ($mm)	$23	$27	$43	$29	$39	Cap (mm)
Gross Margin % of revenue	45%	52%	51%	51%	53%	$550
Net loss ($mm)	-$9.5	-$5.3	-$1.8	-$2.9	-$4.5	@$13
Net income (loss) % of revenue	-41%	-20%	-4%	-10%	-12%
Valuation Ratios	IPO Mrkt	Price /	Price /	Price /	Price /	% offered
Annualizing Sept 9 mos	Cap (mm)	Sales	Earnings	BookValue	TangibleBV	in IPO
Intermolecular (IMI)	$550	10.6	-46	5.1	5.4	24%
Valuation Ratios	IPO Mrkt	Price /	Price /	Price /	Price /	Stock
Annualizing Sept 9 mos	Cap (mm)	Sales	Earnings	BookValue	TangibleBV	YTD
Intermolecular (IMI)	$550	10.6	-46	5.1	5.4	24%
SCORECARD		Mgt	Market	Market Do-	Proprie-	Total
1-5, 5 is high			Growth	mination	tary	rating
20 is perfect		2	2	1	2	7