NOTE

3—BALANCE

SHEET DETAIL

Inventories

Valuation adjustments for excess and obsolete inventory, reflected as a reduction of inventory at

December 31, 2019

and

2018,

were

$2.5

million and

$1.8

million, respectively. Inventories, net of these adjustments, consist of the following (in thousands):

	December 31,
	201 9		201 8
Raw materials	$	17,935	$	16,991
Work in process		2,016		2,306
Finished goods		13,970		8,717
Total	$	33,921	$	28,014

Property and Equipment, net

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

	December 31,
	201 9		201 8
Leasehold improvements	$	867	$	660
Office equipment and furniture		3,110		2,835
Machinery and equipment		7,805		7,304
		11,782		10,799
Less: Accumulated depreciation		(8,965)		(8,127)
Property and equipment, net	$	2,817	$	2,672

Included in machinery and equipment are financed vehicles used by the Company’s sales employees. As of

December 31, 2019

and

2018,

the gross capitalized value of the leased vehicles was

$2.0

million and

$1.9

million and the related accumulated depreciation was

$1.1

million and

$1.1

million, respectively. Included in Property and equipment as of

December 31, 2019,

is construction in progress of

$0.4

million that is yet to be depreciated.

Goodwill and Other Intangible Assets

Goodwill and other intangible assets comprise a patent sublicense acquired from Palomar in

2006,

intangible assets and goodwill related to the acquisition of Iridex’s aesthetic business unit, and, customer relationships in the Benelux countries acquired from a former distributor in

2013.

The components of intangible assets at

December 31, 2019

and

2018

were as follows (in thousands):

	Gross Carrying Amount		Accumulated Amortization & Impairment Amount		Net Amount
December 31, 201 9
Patent sublicense	$	1,218	$	1,218	$	-
Customer relationship intangible related to acquisition		2,510		2,510		-
Other identified intangible assets related to acquisition		780		780		-
Other intangible		155		155		-
Goodwill		1,339		-		1,339
Total	$	6,002	$	4,663	$	1,339
December 31, 2018
Patent sublicense	$	1,218	$	1,218	$	-
Customer relationship intangible related to acquisition		2,510		2,510		-
Other identified intangible assets related to acquisition		780		780		-
Other intangible		155		155		-
Goodwill		1,339		-		1,339
Total	$	6,002	$	4,663	$	1,339

The Company did

not

incur any amortization expense for intangible assets in

2019.

Amortization expense in the

2018

and

2017

fiscal years for intangible assets was

and

$2,000,

respectively. Intangible assets were fully amortized and there were

additions as of

December 31, 2019.

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

	December 31,
	201 9		201 8
Accrued payroll and related expenses	$	14,341	$	9,377
Sales and marketing accruals		2,527		2,379
Accrued sales tax		3,922		2,935
Warranty liability		4,401		4,666
Other accrued liabilities		5,116		3,943
Total	$	30,307	$	23,300

Product Remediation Liability

During the

fourth

quarter of

2018,

the Company recognized a liability for a product remediation plan related to of

one

of its legacy systems. This was related to a voluntary action initiated by the Company to replace a component in

one

of the Company’s legacy products. The developed remediation plan consists primarily of replacement of a component in the system. The accrued liability consisted of cost of materials and labor costs to replace the component in all units that are under the Company's standard warranty or are covered under existing extended warranty contracts. The Company recorded approximately

$5.0

million related to this remediation, of which

$1.1

million was utilized in the year ended

December 31, 2018.

As of

December 31, 2019

and

2018,

approximately

$0.5

million and

$0.7

million, respectively, of the total product remediation liability balance was accrued as a component of the Company’s product warranty and included in accrued liabilities, and

$2.0

million and

$3.2

million, respectively, was separately recorded as Extended warranty liabilities. Total costs incurred related to product warranty and Extended warranty liabilities during the

twelve

months in

December 31, 2019

were

$0.2

million and

$1.1

million, respectively.