0001564590-17-017545.txt : 20170814 0001564590-17-017545.hdr.sgml : 20170814 20170814104446 ACCESSION NUMBER: 0001564590-17-017545 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 74 CONFORMED PERIOD OF REPORT: 20170630 FILED AS OF DATE: 20170814 DATE AS OF CHANGE: 20170814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIRGAIN INC CENTRAL INDEX KEY: 0001272842 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 200281763 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-37851 FILM NUMBER: 171028126 BUSINESS ADDRESS: STREET 1: 3611 VALLEY CENTRE DRIVE STREET 2: SUITE 150 CITY: SAN DIEGO STATE: CA ZIP: 92130 BUSINESS PHONE: (760) 579-0200 MAIL ADDRESS: STREET 1: 3611 VALLEY CENTRE DRIVE STREET 2: SUITE 150 CITY: SAN DIEGO STATE: CA ZIP: 92130 10-Q 1 airg-10q_20170630.htm 10-Q airg-10q_20170630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2017

OR

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: 001-37851

 

AIRGAIN, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

95-4523882

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

3611 Valley Centre Drive, Suite 150

San Diego, CA

 

92130

(Address of Principal Executive Offices)

 

(Zip Code)

(760) 579-0200

(Registrant’s Telephone Number, Including Area Code)

 

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

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller 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 registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes    No

As of August 7, 2017, the registrant had 9,544,260 shares of Common Stock (par value $0.0001) outstanding.

 

 

 


 

AIRGAIN, INC.

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

 

Item 1. Financial Statements

 

3

Unaudited Condensed Balance Sheets as of June 30, 2017 and December 31, 2016

 

3

Unaudited Condensed Statements of Operations for the Three and Six Months Ended June 30, 2017 and 2016

 

4

Unaudited Condensed Statement of Stockholders’ Equity for the Six Months Ended June 30, 2017

 

5

Unaudited Condensed Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016

 

6

Notes to Unaudited Condensed Financial Statements

 

7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

17

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

25

Item 4. Controls and Procedures

 

25

PART II. OTHER INFORMATION

 

 

Item 1. Legal Proceedings

 

27

Item 1A. Risk Factors

 

27

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

 

27

Item 3. Defaults Upon Senior Securities

 

27

Item 4. Mine Safety Disclosures

 

28

Item 5. Other Information

 

28

Item 6. Exhibits

 

28

SIGNATURES

 

29

 

 

 

 


 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Airgain, Inc.

Unaudited Condensed Balance Sheets

 

 

 

June 30, 2017

 

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

36,582,992

 

 

$

45,161,403

 

Trade accounts receivable, net

 

 

8,097,808

 

 

 

5,154,996

 

Inventory

 

 

609,240

 

 

 

146,815

 

Prepaid expenses and other current assets

 

 

401,774

 

 

 

349,550

 

Total current assets

 

 

45,691,814

 

 

 

50,812,764

 

Property and equipment, net

 

 

1,157,517

 

 

 

807,086

 

Goodwill

 

 

2,740,447

 

 

 

1,249,956

 

Customer relationships, net

 

 

3,941,418

 

 

 

2,822,918

 

Intangible assets, net

 

 

2,406,415

 

 

 

286,719

 

Other assets

 

 

195,264

 

 

 

84,060

 

Total assets

 

$

56,132,875

 

 

$

56,063,503

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,153,498

 

 

$

3,949,005

 

Accrued bonus

 

 

1,198,950

 

 

 

1,748,551

 

Accrued liabilities

 

 

1,246,430

 

 

 

1,072,242

 

Deferred purchase price

 

 

1,000,000

 

 

 

1,000,000

 

Current portion of long-term notes payable

 

 

1,333,333

 

 

 

1,388,563

 

Current portion of deferred rent obligation under operating lease

 

 

81,332

 

 

 

81,332

 

Total current liabilities

 

 

9,013,543

 

 

 

9,239,693

 

Long-term notes payable

 

 

666,667

 

 

 

1,333,333

 

Deferred tax liability

 

 

27,497

 

 

 

6,166

 

Deferred rent obligation under operating lease

 

 

390,432

 

 

 

451,909

 

Total liabilities

 

 

10,098,139

 

 

 

11,031,101

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common shares, par value $0.0001, 200,000,000 shares authorized at June 30, 2017 and December 31, 2016; 9,544,250 and 9,275,062 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively

 

 

954

 

 

 

928

 

Additional paid in capital

 

 

89,269,808

 

 

 

88,582,470

 

Accumulated deficit

 

 

(43,236,026

)

 

 

(43,550,996

)

Total stockholders’ equity

 

 

46,034,736

 

 

 

45,032,402

 

Commitments and contingencies (note 12)

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

56,132,875

 

 

$

56,063,503

 

 

See accompanying notes to unaudited condensed financial statements.

 

 

3


 

Airgain, Inc.

Unaudited Condensed Statements of Operations

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Sales

 

$

13,013,143

 

 

$

9,856,317

 

 

$

24,265,560

 

 

$

18,368,623

 

Cost of goods sold

 

 

6,891,619

 

 

 

5,309,556

 

 

 

12,855,577

 

 

 

10,144,237

 

Gross profit

 

 

6,121,524

 

 

 

4,546,761

 

 

 

11,409,983

 

 

 

8,224,386

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

1,819,288

 

 

 

1,342,403

 

 

 

3,416,087

 

 

 

2,664,090

 

Sales and marketing

 

 

1,792,010

 

 

 

1,383,755

 

 

 

3,420,151

 

 

 

2,624,859

 

General and administrative

 

 

2,637,380

 

 

 

846,555

 

 

 

4,275,419

 

 

 

1,844,795

 

Total operating expenses

 

 

6,248,678

 

 

 

3,572,713

 

 

 

11,111,657

 

 

 

7,133,744

 

Income (loss) from operations

 

 

(127,154

)

 

 

974,048

 

 

 

298,326

 

 

 

1,090,642

 

Other expense (income):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

(53,965

)

 

 

 

 

 

(91,166

)

 

 

 

Interest expense

 

 

26,713

 

 

 

47,294

 

 

 

57,477

 

 

 

99,770

 

Fair market value adjustment - warrants

 

 

 

 

 

(381,455

)

 

 

 

 

 

(460,289

)

Total other income

 

 

(27,252

)

 

 

(334,161

)

 

 

(33,689

)

 

 

(360,519

)

Income (loss) before income taxes

 

 

(99,902

)

 

 

1,308,209

 

 

 

332,015

 

 

 

1,451,161

 

Provision (benefit) for income taxes

 

 

(29,781

)

 

 

(3,000

)

 

 

17,045

 

 

 

800

 

Net income (loss)

 

 

(70,121

)

 

 

1,311,209

 

 

 

314,970

 

 

 

1,450,361

 

Accretion of dividends on preferred convertible stock

 

 

 

 

 

(610,781

)

 

 

 

 

 

(1,214,850

)

Net income (loss) attributable to common stockholders

 

$

(70,121

)

 

$

700,428

 

 

$

314,970

 

 

$

235,511

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.01

)

 

$

0.97

 

 

$

0.03

 

 

$

0.34

 

Diluted

 

$

(0.01

)

 

$

0.15

 

 

$

0.03

 

 

$

(0.32

)

Weighted average shares used in calculating income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

9,520,285

 

 

 

724,979

 

 

 

9,440,368

 

 

 

695,415

 

Diluted

 

 

9,520,285

 

 

 

4,479,505

 

 

 

10,120,998

 

 

 

695,415

 

 

See accompanying notes to unaudited condensed financial statements.

 

 

4


 

Airgain, Inc.

Unaudited Condensed Statement of Stockholders’ Equity

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2016

 

 

9,275,062

 

 

$

928

 

 

$

88,582,470

 

 

$

(43,550,996

)

 

$

45,032,402

 

Stock-based compensation

 

 

 

 

 

 

 

 

249,888

 

 

 

 

 

 

249,888

 

Exercise of stock options

 

 

211,713

 

 

 

21

 

 

 

436,674

 

 

 

 

 

 

436,695

 

Shares issued pursuant to stock awards

 

 

57,475

 

 

 

5

 

 

 

(5

)

 

 

 

 

 

 

Reversal of costs related to secondary offering

 

 

 

 

 

 

 

 

781

 

 

 

 

 

 

781

 

Net income

 

 

 

 

 

 

 

 

 

 

 

314,970

 

 

 

314,970

 

Balance at June 30, 2017

 

 

9,544,250

 

 

$

954

 

 

$

89,269,808

 

 

$

(43,236,026

)

 

$

46,034,736

 

See accompanying notes to unaudited condensed financial statements.

 

 

5


 

Airgain, Inc.

Unaudited Condensed Statements of Cash Flows

 

 

 

Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

314,970

 

 

$

1,450,361

 

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

 

 

 

 

 

 

 

 

Depreciation

 

 

222,459

 

 

 

236,357

 

Amortization

 

 

321,804

 

 

 

182,666

 

Fair market value adjustment - warrants

 

 

 

 

 

(460,289

)

Stock-based compensation

 

 

249,888

 

 

 

112,168

 

Deferred tax liability

 

 

21,331

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Trade accounts receivable

 

 

(2,358,425

)

 

 

(888,337

)

Inventory

 

 

(29,655

)

 

 

42,509

 

Prepaid expenses and other assets

 

 

(163,428

)

 

 

(93,246

)

Accounts payable

 

 

82,616

 

 

 

827,453

 

Accrued bonus

 

 

(549,601

)

 

 

(539,000

)

Accrued liabilities

 

 

174,188

 

 

 

139,204

 

Deferred obligation under operating lease

 

 

(61,477

)

 

 

(53,366

)

Net cash provided by (used in) operating activities

 

 

(1,775,330

)

 

 

956,480

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Cash paid for acquisition

 

 

(6,348,730

)

 

 

 

Purchases of property and equipment

 

 

(169,931

)

 

 

(47,030

)

Net cash used in investing activities

 

 

(6,518,661

)

 

 

(47,030

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repayment of notes payable

 

 

(721,896

)

 

 

(810,090

)

Deferred costs related to initial public offering

 

 

 

 

 

(247,475

)

Reversal of costs related to initial public offering

 

 

781

 

 

 

 

Proceeds from exercise of stock options

 

 

436,695

 

 

 

72,300

 

Net cash used in financing activities

 

 

(284,420

)

 

 

(985,265

)

Net decrease in cash and cash equivalents

 

 

(8,578,411

)

 

 

(75,815

)

Cash and cash equivalents, beginning of period

 

 

45,161,403

 

 

 

5,335,913

 

Cash and cash equivalents, end of period

 

$

36,582,992

 

 

$

5,260,098

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

Interest paid

 

$

60,934

 

 

$

99,769

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Accretion of Series E, F, and G preferred redeemable convertible stock to redemption

   amount

 

$

 

 

$

1,072,332

 

Conversion of warrants

 

$

 

 

$

249,215

 

See accompanying notes to unaudited condensed financial statements.

 

 

6


 

Airgain, Inc.

Notes to Unaudited Condensed Financial Statements

 

Note 1. Basis of Presentation

Business Description

Airgain, Inc. (the Company) was incorporated in the State of California on March 20, 1995, and reincorporated in the State of Delaware on August 15, 2016. The Company is a leading provider of advanced antenna technologies used to enable high performance wireless networking across a broad range of home, enterprise, and industrial devices. The Company designs, develops, and engineers its antenna products for original equipment and design manufacturers worldwide.  Additionally, the Company designs and manufactures antennas for cellular, Long-Term Evolution (LTE), Multiple Input Multiple Output (MIMO), Global Positioning System (GPS), Wi-Fi and most radio frequencies. The Company’s main office is in San Diego, California with office space and research facilities in San Diego, California, Rancho Santa Fe, California, Poway, California, Melbourne, Florida, Taipei, Taiwan, Shenzhen and Jiangsu, China and Cambridgeshire, United Kingdom and manufacturing plants/facilities in Scottsdale, Arizona and Shullsburg, Wisconsin.

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Interim financial results are not necessarily indicative of results anticipated for the full year. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, from which the balance sheet information herein was derived.  

The condensed balance sheet as of December 31, 2016 included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP.

The condensed statements of operations for the three and six months ended June 30, 2017 and June 30, 2016, and the balance sheet data as of June 30, 2017 have been prepared on the same basis as the audited financial statements.

In the opinion of management, the accompanying unaudited condensed financial statements reflect all adjustments, consisting of normal and recurring adjustments, necessary for a fair presentation of results of the Company’s operations and financial position for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2017 or for any future period.   

 

Inventory

The vast majority of the Company’s products are manufactured by third parties that retain ownership of the inventory until title is transferred to the customer at the shipping point.  In certain instances, shipping terms are delivery at place and the Company is responsible for arranging transportation and delivery of goods ready for unloading at the named place.  The Company bears all risk involved in bringing the goods to the named place and records the related inventory in transit to the customer as inventory on the accompanying balance sheet.  With the acquisition of substantially all of the assets of Antenna Plus, LLC (“Antenna Plus”), in April 2017, the Company began manufacting products at its Scottsdale, Arizona and Shullsburg, Wisconsin locations.  See Note 5 for additional information relating to the Companys acquisition of the Antenna Plus assets.  

Inventory is stated at the lower of cost or market.  For items manufactured by the Company, cost is determined using the weighted average cost method.  For items manufactured by third parties, cost is determined using the first-in, first-out method (FIFO).  Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period.  As of June 30, 2017, the Company’s inventories consist primarily of raw materials.  

 

Segment Information

The Company’s operations are located primarily in the United States, and most of its assets are located in San Diego, California and Scottsdale, Arizona. The Company operates in one segment related to the sale of antenna products. The Company’s chief operating decision-maker is its chief executive officer, who reviews operating results on an aggregate basis and manages the Company’s opertions as a single operating segment.

7


 

Initial Public Offering

On August 17, 2016, the Company completed its initial public offering (IPO) in which it issued and sold 1.5 million shares of common stock at a public offering price of $8.00 per share. The Company received net proceeds of approximately $9.5 million after deducting underwriting discounts and commissions of $0.8 million and offering-related transaction costs of approximately $1.7 million. Upon the closing of the IPO, all shares of the Company’s then-outstanding preferred redeemable convertible stock and preferred convertible stock automatically converted into an aggregate of 3,080,733 shares of common stock and the Company issued 1,957,207 shares of common stock in satisfaction of accumulated dividends.  Additionally, the Company reduced the number of preferred shares authorized to a total of 10,000,000 shares.

On August 29, 2016, the underwriters exercised their over-allotment option to purchase an additional 200,100 shares of common stock at the public offering price of $8.00 per share, which resulted in net proceeds to the Company of approximately $1.5 million, after deducting underwriting discounts, commissions and estimated offering-related transaction costs of approximately $0.1 million.

On December 8, 2016, the Company completed a public offering of common stock in which it issued and sold 1,352,941 shares of common stock at a public offering price of $17.00 per share and received gross proceeds of $23.0 million, which resulted in net proceeds to the Company of approximately $20.7 million, after deducting underwriting discounts and commissions of approximately $1.5 million and offering-related transaction costs of approximately $0.8 million.  

On December 14, 2016, the underwriters exercised their over-allotment option to purchase an additional 332,941 shares of common stock at the public offering price of $17.00 per share and the Company received gross proceeds of approximately $5.6 million, which resulted in net proceeds to the Company of approximately $5.3 million, after deducting underwriting discounts and commissions of approximately $0.3 million and offering-related transaction costs.  

Fair Value Measurements

The carrying values of the Company’s financial instruments, including cash, trade accounts receivable, accounts payable, accrued liabilities and debt approximate their fair values due to the short maturity of these instruments.

Fair value measurements are market-based measurements, not entity-specific measurements. Therefore, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. The Company follows a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values. The basis for fair value measurements for each level within the hierarchy is described below:

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.

Level 3: Valuations derived from valuation techniques in which one or more significant inputs are unobservable in active markets.

 

The Company’s accounting policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were no transfers into or out of Level 1, Level 2, or Level 3 for the six months ended June 30, 2017 and for the year ended December 31, 2016.

The following table provides a rollforward of the Company’s Level 3 fair value measurements during the six months ended June 30, 2017 and 2016:

 

 

 

Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

Beginning balance

 

$

 

 

$

709,504

 

Change in fair value of warrant liability

 

 

 

 

 

(460,289

)

Conversion of warrants

 

 

 

 

 

(249,215

)

Ending balance

 

$

 

 

$

 

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

8


 

Significant items subject to such estimates and assumptions include valuation of the stock-based compensation expense, intangible assets and goodwill.

 

 

Note 2. Summary of Significant Accounting Policies

During the three and six months ended June 30, 2017, there have been no material changes to the Company’s significant accounting policies as described in the Annual Report on Form 10-K for the fiscal year ended December 31, 2016.  

Recent Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updated (ASU) No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill. For public entities, ASU 2017-04 is effective for fiscal years beginning after December 15, 2019. For nonpublic entities, ASU 2017-04 is effective for fiscal years beginning after December 15, 2021.  Early adoption is permitted. The Company does not expect the adoption of this guidance to have a material impact on its financial statements.

In August 2016, the FASB, issued ASU, No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which simplifies the way cash receipts and cash payments are presented on the statement of cash flows.  For public entities, ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those annual periods. For nonpublic entities, ASU 2016-15 is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019.  Early adoption is permitted.  The Company is currently evaluating the impact the guidance will have on its financial statements.  

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use assets. For public entities, ASU 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. For nonpublic entities, ASU 2016-02 is effective for fiscal year beginning after December 15, 2019 and interim periods within fiscal years beginning after December 15, 2020.  The Company is evaluating the effect that ASU 2016-02 will have on its financial statements and related disclosures.  The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.  

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory.  ASU 2015-11 requires companies to measure certain inventory at the lower of cost and net realizable value. For public entities, ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, and interim periods within those years on a prospective basis. For nonpublic entities, ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted. The Company is evaluating the effect that ASU 2015-11 will have on its financial statements and related disclosure.  The Company does not expect the adoption of this guidance to have a material impact on its financial statements.  

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The standard will replace most existing revenue recognition guidance in GAAP when it becomes effective. For public entities, ASU 2014-09 is effective for reporting periods beginning after December 15, 2017, including interim periods within that reporting period. For nonpublic entities, ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2018 and interim periods within those periods. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on the Company’s ongoing financial reporting.

 

 

Note 3. Net Income (Loss) Per Share

Basic net income or loss per share is calculated by dividing net income or loss available to common stockholders by the weighted average shares of common stock outstanding for the period. The per share computations reflect the one-for-ten reverse stock split that was effected in July 2016. Diluted net income or loss per share is calculated by dividing net income or loss by the weighted average shares of common stock outstanding for the period plus amounts representing the dilutive effect of securities that are convertible into common stock. Preferred dividends are deducted from net income or loss in arriving at net income or loss attributable to common stockholders. The Company calculates diluted earnings or loss per common share using the treasury stock method and the as-if-converted method, as applicable.

9


 

The following table presents the computation of net income or loss per share:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(70,121

)

 

$

1,311,209

 

 

$

314,970

 

 

$

1,450,361

 

Accretion of dividends on preferred stock

 

 

 

 

 

(610,781

)

 

 

 

 

 

(1,214,850

)

Net income (loss) attributable to common stockholders - basic

 

$

(70,121

)

 

$

700,428

 

 

$

314,970

 

 

$

235,511

 

Accretion of dividends on preferred stock

 

 

 

 

 

354,270

 

 

 

 

 

 

 

Adjustment for change in fair value of warrant liability

 

 

 

 

 

(381,455

)

 

 

 

 

 

(460,289

)

Net income (loss) attributable to common stockholders - diluted

 

$

(70,121

)

 

$

673,243

 

 

$

314,970

 

 

$

(224,778

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

9,520,285

 

 

 

724,979

 

 

 

9,440,368

 

 

 

695,415

 

Diluted

 

 

9,520,285

 

 

 

4,479,505

 

 

 

10,120,998

 

 

 

695,415

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.01

)

 

$

0.97

 

 

$

0.03

 

 

$

0.34

 

Diluted

 

$

(0.01

)

 

$

0.15

 

 

$

0.03

 

 

$

(0.32

)

 

 

Diluted weighted average common shares outstanding for the six months ended June 30, 2017 includes 9,681 warrants and 670,949 options outstanding.

 

Potentially dilutive securities not included in the calculation of diluted net income (loss) per share because to do so would be anti-dilutive are as follows (in common stock equivalent shares):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Preferred redeemable convertible stock, including accumulated

   dividends

 

 

 

 

 

3,858,113

 

 

 

 

 

 

4,998,688

 

Employee stock options

 

 

384,538

 

 

 

952,940

 

 

 

366,732

 

 

 

1,371,666

 

Total

 

 

384,538

 

 

 

4,811,053

 

 

 

366,732

 

 

 

6,370,354

 

 

Note 4. Property and Equipment

Depreciation and amortization of property and equipment is calculated on the straight-line method based on estimated useful lives of six to ten years for tenant improvements and three years for all other property and equipment.  Property and equipment consist of the following:

 

 

June 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Lab equipment

 

$

1,826,233

 

 

$

1,314,060

 

Computer equipment

 

 

165,415

 

 

 

165,415

 

Computer software

 

 

299,227

 

 

 

299,227

 

Furniture and fixtures

 

 

201,717

 

 

 

184,233

 

Tenant improvements

 

 

763,898

 

 

 

763,898

 

Other office equipment

 

 

63,824

 

 

 

20,591

 

 

 

 

3,320,314

 

 

 

2,747,424

 

Less accumulated depreciation

 

 

(2,162,797

)

 

 

(1,940,338

)

 

 

$

1,157,517

 

 

$

807,086

 

Depreciation expense was $107,012 and $118,911 for the three months ended June 30, 2017 and 2016, respectively, and $222,459 and $236,357 for the six months ended June 30, 2017 and 2016, respectively.

 

 

Note 5. Acquisitions

Antenna Plus

10


 

On April 27, 2017, the Company completed the acquisition of substantially all of the assets of Antenna Plus.  Antenna Plus is a supplier of antenna-based solutions for mobile and automotive fleet applications for government, public safety, and Industrial Internet of Things (IOT) markets.  The acquisition provides leverage for the Company’s existing products into several new markets, including the fast-growing automotive fleet and industrial IOT space.

The transaction was completed pursuant to an Asset Purchase Agreement with MCA Financial Group, Ltd., acting as the court-appointed receiver for Antenna Plus.  Upon the closing of the transaction, the Company paid to Antenna Plus total consideration of approximately $6.3 million in cash, net of post-closing working capital adjustments.  In addition, the Company assumed certain contracts and other liabilities of Antenna Plus, as expressly set forth in the Asset Purchase Agreement.

Given the timing of the acquisition in relation to this filing, the Company has not yet finalized the acquisition-date fair value of the total consideration transferred, the acquisition-date fair value of each major class of consideration, useful lives of each major class of consideration or the identification and valuation of indemnification assets.  The following table shows the preliminary allocation of the purchase price for Antenna Plus to the acquired identifiable assets, liabilities assumed and goodwill:

 

Consideration:

 

 

 

 

Cash

 

$

6,383,500

 

Working capital adjustments

 

 

(34,770

)

Fair value of total consideration transferred

 

$

6,348,730

 

Recognized amounts of identifiable assets acquired and liabilities assumed:

 

 

 

 

Accounts receivable

 

$

584,390

 

Inventory

 

 

432,770

 

Fixed assets

 

 

402,958

 

Intangible assets

 

 

3,560,000

 

Current liabilities

 

 

(121,879

)

Total identifiable net assets acquired

 

 

4,858,239

 

Goodwill

 

 

1,490,491

 

Total

 

$

6,348,730

 

Goodwill was primarily attributable to the anticipated synergies and economies of scale expected from the operations of the combined business.  The synergies include certain cost savings, operating efficiencies, and other strategic benefits projected to be achieved as a result of the acquisition.  Goodwill is expected to be deductible for tax purposes.

Revenue associated with the acquired Antenna Plus assets since the date of acquisition was $1.4 million for the three and six months ended June 30, 2017.  Cost of goods sold associated with the acquired Antenna Plus assets since the date of acquisition was $0.7 million for the three and six months ended June 30, 2017.  Net income associated with the acquired Antenna Plus assets since the date of acquisition was net loss of $0.3 million for the three and six months ended June 30, 2017.  

Unaudited Pro Forma Information

The following unaudited pro forma financial information presents combined results of operations for each of the periods presented, as if Antenna Plus had been acquired as of the beginning of the fiscal year 2016.  The pro forma information includes adjustments to amortization and depreciation for intangible assets and property, plant and equipment acquired.  The pro forma data are for informational purposes only and are not necessarily indicative of the consolidated results of operations of the combined business had the acquisition actually occurred at the beginning of fiscal year 2016 or of the results of future operations of the combined business.  Consequently, actual results will differ from the unaudited pro forma information presented below:

  

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Pro forma sales

 

$

13,506,610

 

 

$

12,030,154

 

 

$

26,533,604

 

 

$

22,263,313

 

Pro forma income (loss) from operations

 

$

(130,412

)

 

$

1,386,825

 

 

$

680,581

 

 

$

1,746,412

 

Pro forma net income (loss)

 

$

(73,379

)

 

$

1,723,995

 

 

$

697,231

 

 

$

2,106,169

 

Skycross

11


 

On December 17, 2015, the Company executed and entered into an asset purchase agreement for certain North American assets of Skycross, Inc. (Skycross), a manufacturer of advanced antenna and radio-frequency solutions.  In addition to the $4.0 million paid up front, the purchase price also included a contingent consideration arrangement.  The $1.0 million of deferred consideration is payable upon the later of (i) the expiration of the Transition Services Agreement between the Company and Skycross which defines transition services to be provided by Skycross to the Company and (ii) the date on which the Company has received copies of third party approvals with respect to each customer and program that was purchased. The potential undiscounted amount of all future payments that could be required to be paid under the contingent consideration arrangement is between $0.0 and $1.0 million. The fair value of the contingent consideration was estimated by applying the income approach. The income approach is based on estimating the value of the present worth of future net cash flows.  As of June 30 2017, the contingent consideration was still outstanding.

 

Note 6. Goodwill

Changes to the Company’s goodwill balance during the six months ended June 30, 2017 and the year ended December 31, 2016 are as follows:

 

Balance at December 31, 2015

 

$

1,249,956

 

Current period adjustments

 

 

 

Balance at December 31, 2016

 

$

1,249,956

 

Acquisition of Antenna Plus Assets

 

 

1,490,491

 

Balance at June 30, 2017

 

$

2,740,447

 

 

Note 7. Intangible Assets

The following is a summary of the Company’s acquired intangible assets:

 

 

 

June 30, 2017

 

 

 

Weighted

Average

Amortization

Period (years)

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Intangibles, Net

 

Customer relationships

 

 

10

 

 

$

4,450,000

 

 

$

508,582

 

 

$

3,941,418

 

Assembled workforce

 

 

3

 

 

 

1,340,000

 

 

 

74,444

 

 

 

1,265,556

 

Developed technologies

 

 

5

 

 

 

1,080,000

 

 

 

89,784

 

 

 

990,216

 

Tradename

 

 

10

 

 

 

120,000

 

 

 

2,000

 

 

 

118,000

 

Non-compete agreement

 

 

3

 

 

 

67,000

 

 

 

34,357

 

 

 

32,643

 

Total intangible assets, net

 

 

8

 

 

$

7,057,000

 

 

$

709,167

 

 

$

6,347,833

 

 

 

 

December 31, 2016

 

 

 

Weighted

Average

Amortization

Period (years)

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Intangibles, Net

 

Developed technologies

 

 

5

 

 

$

280,000

 

 

$

37,091

 

 

$

242,909

 

Customer relationships

 

 

10

 

 

 

3,150,000

 

 

 

327,082

 

 

 

2,822,918

 

Non-compete agreement

 

 

3

 

 

 

67,000

 

 

 

23,190

 

 

 

43,810

 

Total intangible assets, net

 

 

10

 

 

$

3,497,000

 

 

$

387,363

 

 

$

3,109,637

 

12


 

The estimated annual amortization of intangible assets for the next five years and thereafter is shown in the following table. Actual amortization expense to be reported in future periods could differ from these estimates as a results of acquisitions, divestitures, asset impairments, among other factors. Amortization expense was $224,458 and $91,333 for the three months ended June 30, 2017 and 2016, respectively, and $321,804 and $182,666 for the six months ended June 30, 2017 and 2016, respectively.

 

 

 

Estimated Future Amortization

 

2017 (remaining six months)

 

$

566,693

 

2018

 

 

1,137,195

 

2019

 

 

1,115,718

 

2020

 

 

817,222

 

2021

 

 

652,420

 

Thereafter

 

 

2,058,585

 

Total

 

$

6,347,833

 

 

 

Note 8. Long-term Notes Payable (including current portion) and Line of Credit

In June 2012, the Company amended its line of credit with Silicon Valley Bank. The amended revolving line of credit facility allows for an advance up to $3.0 million. The facility bears interest at the U.S. prime rate (4.25% as of June 30, 2017) plus 1.25%. The revolving facility is available as long as the Company maintains a liquidity ratio of cash and cash equivalents plus accounts receivable to outstanding debt under the facility of 1.25 to 1.00; otherwise, the facility reverts to its previous eligible receivables financing arrangement. The amended facility matures in April 2018. The bank has a first security interest in all the Company’s assets excluding intellectual property, for which the bank has received a negative pledge. There was no balance owed on the line of credit as of June 30, 2017 and December 31, 2016.

In December 2013, the Company further amended its revolving line of credit with Silicon Valley Bank to include a growth capital term loan of up to $750,000. The growth capital term loan required interest only payments through June 30, 2014 at which point it was to be repaid in 32 equal monthly installments of interest and principal. The growth capital term loan matured on February 1, 2017, at which time $55,230 in principal and accrued interest was paid. The growth capital term loan interest rate was 6.5%. As of December 31, 2016, $55,230 was outstanding under this loan.  As of June 30, 2017, there was no balance owed under this loan.

In December 2015, the Company amended its loan and security agreement with Silicon Valley Bank to include a term loan in the amount of $4.0 million. The loan requires 36 monthly installments of interest and principal. The loan matures on December 1, 2018. The loan agreement requires the Company to maintain a liquidity ratio of 1.25 to 1.00 as of the last day of each month and a minimum EBITDA measured as of the last day of each fiscal quarter for the previous six month period (for June 30, 2017 the minimum EBITDA is $750,000). The interest rate is fixed at 5%. As of June 30, 2017 and December 31, 2016, $2,000,000 and $2,666,666 was outstanding under this loan, respectively.

The remaining principal payments on the $4.0 million loan subsequent to June 30, 2017 are as follows:

 

Year ending:

 

 

 

 

2017

 

$

666,667

 

2018

 

 

1,333,333

 

 

 

$

2,000,000

 

 

The Company was in compliance with all financial term loan and line of credit financial covenants as of June 30, 2017.

 

Note 9. Income Taxes

The Company’s effective income tax rate was 29.81% and 5.13% for the three and six months ended June 30, 2017, respectively. The variance from the U.S. federal statutory tax rate of 34% was primarily attributable to the valuation allowance offsetting the Company’s deferred tax assets.    

Management assesses its deferred tax assets quarterly to determine whether all or any portion of the asset is more likely than not unrealizable under Accounting Standards Codification (ASC) 740.  The Company is required to establish a valuation allowance for any portion of the asset that management concludes is more likely than not to be unrealizable.  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become

13


 

deductible.  The Company’s assessment considers all evidence, both positive and negative, including the nature, frequency and severity of any current and cumulative losses, taxable income in carryback years, the scheduled reversal of deferred tax liabilities, tax planning strategies, and projected future taxable income in making this assessment.  At June 30, 2017 and December 31, 2016, the Company has a full valuation allowance against net deferred tax assets, excluding naked credits. Should the Company continue to achieve substantial pre-tax income during 2017 or be better able to forecast taxable income into the future, the Company may need to release a substantial portion of its federal valuation allowance during 2017.

FASB ASC Topic 740, Income Taxes, prescribes a recognition threshold and a measurement criterion for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return.  For those benefits to be recognized, a tax position must be considered more likely than not to be sustained upon examination by taxing authorities.  The Company records interest and penalties related to uncertain tax positions as a component of the provision for income taxes.

 

Note 10. Stockholders’ Equity

Shares Reserved for Future Issuance

The following common stock is reserved for future issuance at June 30, 2017 and December 31, 2016:

 

 

 

June 30, 2017

 

 

December 31, 2016

 

Warrants issued and outstanding

 

 

51,003

 

 

 

51,003

 

Stock option awards issued and outstanding

 

 

1,234,099

 

 

 

1,040,387

 

Authorized for grants under the 2016 Equity Incentive Plan

 

 

289,601

 

 

 

709,750

 

Authorized for grants under the 2016 Employee Stock Purchase Plan

 

 

100,000

 

 

 

100,000

 

 

 

 

1,674,703

 

 

 

1,901,140

 

 

Note 11. Stock Options

The following table summarizes the outstanding stock option activity during the periods indicated:

 

 

 

Number

of shares

 

 

Weighted

average

exercise

price

 

 

Weighted

average

remaining contractual term

 

Balance at December 31, 2015

 

 

756,692

 

 

 

2.10

 

 

 

7.60

 

Granted

 

 

359,319

 

 

 

2.60

 

 

 

9.40

 

Exercised

 

 

(58,155

)

 

 

2.36

 

 

 

3.50

 

Expired/Forfeited

 

 

(17,469

)

 

 

2.13

 

 

 

2.60

 

Balance at December 31, 2016

 

 

1,040,387

 

 

 

2.25

 

 

 

7.80

 

Granted

 

 

420,144

 

 

15.11

 

 

 

9.73

 

Exercised

 

 

(211,713

)

 

2.06

 

 

 

6.14

 

Expired/Forfeited

 

 

(14,719

)

 

 

5.80

 

 

 

0.14

 

Balance at June 30, 2017

 

 

1,234,099

 

 

6.62