10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2016

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  000-52247

Cyalume Technologies Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware	20-3200738
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

910 SE 17th Street, Suite 300, Fort Lauderdale, Florida	33316
(Address of principal executive offices)	(Zip Code)

(413) 858-2500

(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  x     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  x No  ¨     

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer", "accelerated filer" and "smaller reporting 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  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨     No  x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of May 10, 2016, there were outstanding 21,400,244 shares of the registrant’s Common Stock, par value $.001 per share.

Cyalume Technologies Holdings, Inc.

FORM 10-Q

INDEX

PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of March 31, 2016 (unaudited) and December 31, 2015	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2016 and 2015 (unaudited)	4
	Condensed Consolidated Statements of Changes in Preferred Stock and Stockholders' Equity for the three months ended March 31, 2016 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015 (unaudited)	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	30
Signatures		31

1

PART I—FINANCIAL INFORMATION

The statements contained in this quarterly report on Form 10-Q, including under the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other sections of this quarterly report, include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statements regarding our or our management's expectations, hopes, beliefs, intentions or strategies regarding the future. The words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," "plan" and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. The forward-looking statements contained in this quarterly report are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. Unless the context otherwise requires, all references to "we", "us", the “Company" or “Cyalume" in this quarterly report on Form 10-Q refers to Cyalume Technologies Holdings, Inc.  

2

ITEM 1. Financial Statements

Cyalume Technologies Holdings, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except shares and per share information)

(Unaudited)

	March 31, 2016			December 31, 2015
Assets
Current assets:
Cash	$	1,082		$	1,526
Accounts receivable, net of allowance for doubtful accounts of $11 and $5, respectively		3,732			4,299
Inventories, net		7,601			7,528
Income taxes refundable		216			442
Prepaid expenses and other current assets		1,452			1,388
Total current assets		14,083			15,183
Property, plant and equipment, net		6,720			6,795
Goodwill		7,992			7,992
Other intangible assets, net		5,488			5,691
Total assets	$	34,283		$	35,661
Liabilities and Stockholders’ Equity
Current liabilities:
Line of credit	$	1,000		$	1,000
Current portion of notes payable		385			274
Accounts payable		1,161			947
Accrued expenses		2,110			3,858
Deferred revenue and deferred rent		73			125
Income taxes payable		137			327
Warrants liability		41			54
Total current liabilities		4,907			6,585
Notes payable, net of current portion, unamortized debt discount and unamortized debt issuance costs		14,804			15,207
Deferred income taxes		582			567
Asset retirement obligation		217			214
Other noncurrent liabilities, net of current portion		84			81
Total liabilities		20,594			22,654
Commitments and contingencies (Note 11)
Series C preferred stock, $0.001 par value; 1,000,000 shares of preferred stock authorized; 1,000 shares issued and outstanding at March 31, 2016 and December 31, 2015		2,438			2,367
Series D convertible preferred stock, $0.001 par value; 1,000,000 shares of preferred stock authorized; 10 shares issued and outstanding at March 31, 2016 and December 31, 2015		2,751			2,751
Series A convertible preferred stock, $0.001 par value; 1,000,000 shares authorized; 123,097 and 123,077 shares issued and outstanding at March 31, 2016 and  December 2015, respectively		5,291			5,137
Stockholders' equity:
Series B convertible preferred stock, $0.001 par value; 1,000,000 shares of preferred stock  authorized; 1,000 shares issued and outstanding at March 31, 2016 and December 31, 2015		1,401			1,401
Common stock, $0.001 par value; 150,000,000 shares authorized; 21,400,244 and 21,400,244 issued and outstanding at March 31, 2016 and December 31, 2015, respectively		21			21
Additional paid-in capital		102,484			102,624
Accumulated deficit		(99,836	)		(100,315	)
Accumulated other comprehensive loss		(861	)		(979	)
Total stockholders’ equity		3,209			2,752
Total liabilities and stockholders' equity	$	34,283		$	35,661

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

Cyalume Technologies Holdings, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands, except shares and per share information)

(Unaudited)

	For the Three			For the Three
	Months Ended			Months Ended
	March 31,			March 31,
	2016			2015
Revenues	$	9,242		$	6,942
Cost of revenues		4,512			3,804
Gross profit		4,730			3,138
Other expenses (income):
Sales and marketing		593			546
General and administrative		2,149			1,574
Research and development		391			312
Interest expense, net		729			503
Interest expense – related party		0			63
Amortization of intangible assets		240			239
Change in fair value of warrant liability		(13	)		20
Other (income) expenses, net		26			(137	)
Total other expenses, net		4,115			3,120
Income before income taxes		615			18
Provision for income taxes		136			85
Net income (loss)		479			(67	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		118			(341	)
Other comprehensive income (loss)		118			(341	)
Comprehensive income (loss)	$	597		$	(408	)
Net income (loss)	$	479		$	(67	)
Series A convertible preferred stock dividends		(154	)		(135	)
Series C preferred stock dividends		(71	)		(62	)
Net income (loss) available to common stockholders – basic	$	254		$	(264	)
Series A convertible preferred stock dividends		154			0
Change in fair value of warrant liability		(13	)		0
Net income (loss) available to common stockholders –diluted	$	395		$	(264	)
Income (loss) per common share:
Basic	$	0.02		$	(0.01	)
Diluted	$	0.00		$	(0.01	)
Weighted average shares used to compute net income (loss) per common share:
Basic		21,400,244			21,400,244
Diluted		104,237,394			21,400,244

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

Cyalume Technologies Holdings, Inc.

Condensed Consolidated Statements of Changes in Preferred Stock and Stockholders' Equity

(in thousands, except shares)

(Unaudited)

	Series A Convertible Preferred Stock				Series C Preferred Stock				Series D Convertible Preferred Stock				Series B Preferred Stock				Common Stock				Additional						Accumulated Other			Total
	Number of Shares		Amount		Number of Shares		Amount		Number of Shares		Amount		Number of Shares		Amount		Number of  Shares		Amount		Paid-In Capital			Accumulated Deficit			Comprehensive Income (Loss)			Stockholders’ Equity
Balance at December 31, 2015		123,097	$	5,137		1,000	$	2,367		10	$	2,751		1,000	$	1,401		21,400,244	$	21	$	102,624		$	(100,315	)	$	(979	)	$	2,752
Dividends accrued on Series A and Series C preferred stock		0		154		0		71		0		0		0		0		0		0		(225	)		0			0			(225	)
Share-based compensation		0		0		0		0		0		0		0		0		0		0		85			0			0			85
Net income		0		0		0		0		0		0		0		0		0		0		0			479			0			479
Other comprehensive income		0		0		0		0		0		0		0		0		0		0		0			0			118			118
Balance at March 31, 2016		123,097	$	5,291		1,000	$	2,438		10	$	2,751		1,000	$	1,401		21,400,244	$	21	$	102,484		$	(99,836	)	$	(861	)	$	3,209

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Cyalume Technologies Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

	For the Three			For the Three
	Months Ended			Months Ended
	March 31,			March 31,
	2016			2015
Cash flows from operating activities:
Net income (loss)	$	479		$	(67	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation of property, plant and equipment		220			305
Amortization of intangible assets, debt issuance costs and debt discount		468			300
Non-cash interest expense		0			269
Share-based compensation expense		85			101
Change in fair value of derivatives		0			(29	)
Change in fair value of warrant liability		(13	)		20
Loss on disposal of property, plant and equipment		29			0
Other non-cash expenses		9			2
Changes in operating assets and liabilities:
Accounts receivable		577			73
Inventories		(31	)		(778	)
Prepaid expenses and other current assets		(251	)		(161	)
Restricted cash		153			0
Accounts payable and accrued liabilities		(1,549	)		960
Accrued interest on note payable to related party		0			62
Deferred revenue and deferred rent		(52	)		6
Income taxes payable		42			90
Net cash provided by operating activities		166			1,153
Cash flows from investing activities:
Purchases of long-lived assets		(127	)		(280	)
Payments for intangibles		(7	)		(49	)
Net cash used in investing activities		(134	)		(329	)
Cash flows from financing activities:
Repayments on line of credit		0			(1,150	)
Repayment of long term notes payable		(378	)		(475	)
Principal payments on capital lease obligations		0			(4	)
Repayment of legal settlement promissory note		(107	)		(107	)
Net cash used in financing activities		(485	)		(1,736	)
Effect of exchange rate changes on cash		9			(103	)
Net decrease in cash		(444	)		(1,015	)
Cash, beginning of period		1,526			2,358
Cash, end of period	$	1,082		$	1,343

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Cyalume Technologies Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

1. ORGANIZATION

Cyalume Technologies Holdings, Inc. (the “Company”) was organized as a blank check company under the laws of the State of Delaware on July 19, 2005. At that time, the Company was named Vector Security Intersect Acquisition Corp. On December 19, 2008, the Company acquired Cyalume Technologies, Inc. (“CTI”) and changed the corporate name to the current name. CTI is a Delaware corporation formed on March 27, 1997 with headquarters located in Fort Lauderdale, Florida.

2. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations. The Company believes that the disclosures made are adequate to make the information presented not misleading. All the adjustments which, in the opinion of management, are considered necessary for a fair presentation of the results of operations for the periods shown are of a normal recurring nature and have been reflected in the unaudited condensed consolidated financial statements. Results from operations for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2016. The consolidated balance sheet at December 31, 2015 has been derived from the audited consolidated financial statements at that date. The information included in these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto in our Annual Report on Form 10-K for the year ended December 31, 2015 filed on April 7, 2016.

The preparation of financial statements in conformity with U.S. 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 period. While the Company believes that such estimates are fair when considered in conjunction with the condensed consolidated financial position and results of operations taken as a whole, the actual amount of such estimates, when known, may vary from these estimates.

Reclassification of the Company’s unamortized debt issuance costs have been made to prior period amounts to conform to the current period financial statement presentation.

3. DESCRIPTION OF BUSINESS

These consolidated financial statements and footnotes include the financial position and operations of Cyalume Technologies Holdings, Inc. (“Cyalume”), a holding company that is the sole shareholder of Cyalume Technologies, Inc. (“CTI”), of Cyalume Specialty Products, Inc. (“CSP”) and of CT SAS Holdings, Inc. (“CT SAS Holdings”). CTI is the sole shareholder of Cyalume Realty, Inc. (“CRI”) and Combat Training Solutions, Inc. (“CTS”). CT SAS Holdings is the sole shareholder of Cyalume Technologies, SAS (“CTSAS”). All significant intercompany accounts and transactions have been eliminated in consolidation.

The Company’s primary focus is providing tactical and training solutions to the military of the U.S. and other countries through both products and services.

CTI and CTSAS manufacture and sell chemiluminescent products and reflective and photoluminescent materials to military, ammunition, commercial and public safety markets. CTSAS is located in France and represents us in certain international markets, primarily Europe and the Middle East. CTI sells to customers in all other geographic markets. CTI’s and CTSAS’s business operations constitute the majority, based on revenues and assets, of the Company’s consolidated business operations.

7

Cyalume Technologies Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

CSP manufactures and sells specialty chemical products to the defense, pharmaceutical, cosmetic and other markets. CSP’s operations are located in Bound Brook, New Jersey.

CRI previously owned land located in Colorado Springs, Colorado. The land was transferred in connection with a 2013 legal settlement and therefore, this subsidiary no longer has any activity.

CTS provides its customers with battlefield effects simulation products while its services include planning and implementing tactical training exercises simulating real-world experiences. These products allow military and law enforcement professionals to maintain operational readiness through safe, live training and hands-on situational exercises.

The Company’s business is managed and financial results are reported as one segment. The Company’s CEO, who is the Company’s chief operating decision maker, focuses on consolidated results to make strategic and tactical decisions. The Company’s one operating segment consists of three reporting units: Chemical Light (the operations of CTI, CTS and CTSAS), Specialty Products (the operations of CSP) and Other (the operations of CRI and the parent company Cyalume Technologies Holdings, Inc.).

4. INVENTORIES

Inventories consist of the following (all amounts in thousands) :

	March 31, 2016		December 31, 2015
Raw materials	$	4,339	$	4,406
Work-in-process		1,854		1,809
Finished goods		1,408		1,313
	$	7,601	$	7,528

5. CREDIT LINE AND NOTES PAYABLE

Monroe Refinancing

On May 18, 2015, the Company entered into a credit agreement with Monroe Capital Management Advisors, LLC (the “Monroe Credit Agreement”), refinancing its existing senior and subordinated debt (see below). The Monroe Credit Agreement provides for a $25.0 million credit facility consisting of up to: (i) a $5.0 million revolving credit facility (the “Monroe Line of Credit”); (ii) an $18.0 million senior secured term loan (the “Term A Loan”) and (iii) a $2.0 million delayed draw term loan (the “Delayed Draw Loan”). The Delayed Draw Loan was used to satisfy a legal settlement agreement amount.

The Monroe Credit Agreement has a term of five years and bears interest at a rate of the one-month LIBOR plus 9%. The Term A Loan requires quarterly repayments of approximately $113,000 beginning on June 30, 2015 through March 31, 2016; quarterly repayments of approximately $225,000 beginning on June 30, 2016 through March 31, 2017; quarterly repayments of approximately $450,000 beginning on June 30, 2017 through March 31, 2020; and a payment of approximately $11.3 million on the Term A Loan maturity date of May 18, 2020. Accrued interest shall be payable monthly in arrears on the last business day of each calendar month.

8

Cyalume Technologies Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

Pursuant to the terms of the Monroe Credit Agreement, the Company must maintain: (i) a fixed charge coverage ratio of 1.25 to 1.00; (ii) a senior debt to EBITDA ratio of 4.50 to 1.00, decreasing to 1.50 to 1.00 over the term of the loans; and (iii) a twelve month trailing EBITDA, measured quarterly, with the amounts ranging from $4,750,000, increasing up to $7.0 million over the term of the loans. The Company was in compliance with the financial covenants related to these loans as of March 31, 2016.

On August 3, 2015, the Company entered into a First Amendment (the “First Amendment”) to the Monroe Credit Agreement. Pursuant to the First Amendment, the Monroe Credit Agreement was amended to, among other things, reduce the aggregate amount of the Delayed Draw Loan under the Monroe Credit Agreement, which loan commitment was for purposes of funding a final payment due under the a legal settlement agreement, from $2.0 million to $1.5 million. On August 3, 2015, the full amount of the Delayed Draw Loan was funded to the Company, $1.4 million of which was used to make a final legal settlement payment, and the remaining $100,000 of which was paid to Monroe as a deferred closing fee. The First Amendment also modified, for certain periods during the term of the Credit Agreement, (i) the maximum senior debt to EBITDA ratio that the Company is required to maintain and (ii) the applicable limits on the Company’s aggregate permitted capital expenditures pursuant to the terms of the Credit Agreement.

The Delayed Draw Loan, which was drawn on August 3, 2015, provides for quarterly amortization payments on the last day of each calendar quarter in an aggregate principal amount equal to 0.625% of the original principal amount of the Delayed Draw Loan, increasing to 1.25% on March 31, 2016, and increasing to 2.5% on March 31, 2017, with the balance payable on the maturity date of May 18, 2020.

In connection with the execution of the Monroe Credit Agreement, the Company issued 10 shares of Series D convertible preferred stock (the “Series D Convertible Preferred Stock”).  Each share of Series D Convertible Preferred Stock may be converted at any time at the option of the holder into a number of shares of common stock initially equal to 752,807.8 shares of common stock. The relative fair value of the Series D Convertible Preferred Stock was approximately $2.8 million which was recorded as debt issuance costs of approximately $0.4 million and debt discount on the Company’s Term A Loan and Delayed Draw Loan of approximately $2.4 million.

The proceeds from the Monroe Credit Agreement were allocated to the various instruments issued based on their relative fair value.

Line of Credit

The Monroe Line of Credit has a maximum borrowing capacity of $5.0 million, bears interest at a rate of the one-month LIBOR plus 9% and expires on May 18, 2020. The Monroe Line of Credit replaced the Company’s previous line of credit with TD Bank N.A. (“TD Bank”). The amount which may be borrowed under the Monroe Line of Credit is dependent mainly on accounts receivable and inventory balances. Under the terms of the Monroe Credit Agreement, the Company is able to borrow under the Monroe Line of Credit in an amount not to exceed the lesser of: (i) $5.0 million and (ii) the sum of 85% of all eligible accounts receivable plus 60% of all eligible inventory. Interest is payable monthly and the Monroe Line of Credit’s interest rate at March 31, 2016 was 10%. This line of credit is subject to various restrictive covenants and collateral guarantees. At March 31, 2016, approximately $1.0 million was outstanding on the Monroe Line of Credit and additional borrowing availability was approximately $3.5 million.

CTSAS has lines of credit, for borrowing against receivables, with a combined maximum borrowing capacity of €750,000 (or approximately $848,000 as of March 31, 2016). There were no outstanding borrowings at March 31, 2016 or December 31, 2015. The lines’ interest rates are variable, based on the 3-month Euro Interbank Offered Rate. The lines are collateralized by primarily CTSAS accounts receivable. The lines have indefinite termination dates but can be renegotiated periodically.

9

Cyalume Technologies Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

Notes Payable

Outstanding notes payable consist of (all amounts in thousands):  

	March 31,   2016			December 31, 2015
Monroe Term A Loan	$	16,778		$	17,138
Delayed Draw Loan		1,463			1,481
Promissory Note Payable		538			645
Total		18,779			19,264
Less: Unamortized debt discount and unamortized debt issuance costs		(3,590	)		(3,783	)
Less: Current portion of notes payable, including current portion of unamortized debt discount and current portion of unamortized debt issuance costs		(385	)		(274	)
Notes payable, net of current portion	$	14,804		$	15,207

Debt issuance costs and discounts are amortized to interest expense using the effective interest method over the life of the loan. The effective interest rate on the Term A loan is approximately 17% and the effective interest rate on the Delayed Draw Loan is approximately 20%.

Term Loans

In addition to the previous line of credit with TD Bank, CTI previously had two loans payable to TD Bank, a Term Loan and a Real Estate Loan (together, the “Senior Debt”), that were originally entered into on December 19, 2008, and which were amended twice during 2012 to modify certain financial and non-financial covenants required by these loans. The Fourth Amendment to the Amended and Restated Revolving Credit and Term Loan Agreement (the “Senior Amendment”) was entered into on November 19, 2013.

On July 29, 2010, the subordinated term loan of $8.5 million (the “Subordinated Term Loan”) was issued to Granite Creek Partners Agent, LLC (“Granite Creek”) and on November 19, 2013, the Company entered into a Fourth Amendment to the Subordinated Term Loan (the “Subordinated Amendment”) which extended the maturity date to June 30, 2016. Pursuant to the Subordinated Amendment, interest was being accrued in kind monthly at a rate of 11% per annum. No principal payments were required until maturity. The Subordinated Term Loan was convertible at any time by Granite Creek into 2,666,667 shares of common stock at a conversion price of approximately $3.19 per share. No portion of the Subordinated Term Loan was converted to the Company’s common stock. The Company previously determined that the convertible notes’ conversion feature was not a beneficial conversion feature under U.S. GAAP. Simultaneous with the issuance of the Subordinated Term Loan during 2010, the Company issued warrants to repay certain costs of obtaining the convertible notes. These warrants allowed the holder to purchase 160,000 shares of common stock at $1.50 per share through July 19, 2018. A portion of the $8.5 million gross proceeds from the issuance of the loan was allocated to the warrants based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portion of the proceeds so allocated to the warrants was recorded as a debt discount and an increase to additional paid-in capital. The warrant’s fair value was increased in 2012 due to (i) a decrease in the exercise price of the warrants and (ii) an extension of the term of the warrant. The warrants were amended again during 2013 in connection with the Senior Amendment described above. An additional amount was added to debt discount and warrant liability during 2013 relating to (i) another decrease in the exercise price of the warrants to $0.01, (ii) an extension of the term of the warrants, and (iii) an increase to the number of shares of common stock that may be purchased upon exercise of the warrants to 455,514 shares of common stock that may be purchased. The debt discount was being amortized to interest expense using the effective interest method over the life of the convertible notes which had a maturity date of June 30, 2016. As a result of the amendment to the warrants in 2013, the warrants are no longer indexed to the Company’s stock, are considered a derivative and therefore, are being accounted for as a liability. The warrant liability relating to the 455,514 shares of common stock which may be purchased upon exercise of the warrants is approximately $41,000 as of March 31, 2016 (see Note 12).

10

Cyalume Technologies Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

The Company’s Senior Debt and Subordinated Term Loan were refinanced on May 18, 2015.

Upon the consummation of the Monroe Credit Agreement, the Company paid in full all amounts due under (i) the Amended and Restated Revolving Credit and Term Loan Agreement, dated July 29, 2010, as amended (the “Senior Credit Agreement”), by and among the Company, Cyalume Technologies, Inc. (“CTI”), certain of the Company’s other subsidiaries and TD Bank, N.A., as administrative agent and lender, (ii) the Subordinated Term Loan, dated July 29, 2010, as amended (the “Subordinated Loan Agreement”), by and among the Company, CTI, certain of the Company’s other subsidiaries, Granite Creek Flexcap I, L.P., Patriot Capital II, L.P. and Granite Creek Partners Agent, L.L.C., as administrative agent, and (iii) the amended and restated promissory note, dated November 19, 2013, as amended, previously issued by the Company to JFC Technologies, LLC (the “Amended JFC Note”) (see Note 9), such that each of the Senior Credit Agreement, the Subordinated Loan Agreement and the Amended JFC Note was paid in full and the Company has no further financial obligations thereunder. At the time of the refinancing, the Company expensed the remaining unamortized issuance costs relating to the previous Senior Debt and Subordinated Term Loan.

Promissory Note Payable

On November 19, 2013, the Company entered into a legal settlement agreement. The executed settlement agreement provided for the Company to make a series of payments to Antonio Colon in the amount of $215,000 annually, for a total of $1,075,000 pursuant to the Promissory Note executed on November 19, 2013 (the “Promissory Note”). This Promissory Note bears interest at a rate of 2% annually and requires principal and interest payments each March and September. The Promissory Note has a maturity date of October 15, 2018.

6. PREFERRED STOCK

Series A Convertible Preferred Stock

The Company is authorized to issue 1,000,000 shares of preferred stock in one or more series with such designations, voting and other rights and preferences as may be determined from time to time by our Board of Directors.

On November 19, 2013, the Company entered into a Securities Purchase Agreement (the “Series A Purchase Agreement”) with US VC Partners, L.P. (the “Series A Investor”) for the purchase by the Investor of 123,077 units of securities of the Company for an aggregate purchase price of $4.0 million (or $32.50 per unit). Each security issued is comprised of: 1) one share of Series A Convertible Preferred Stock of the Company, at a par value of $0.001 per share (the “Series A Preferred Stock”); 2) one common stock warrant ( the “Common Warrant”); and 3) one preferred stock warrant (the “Preferred Warrant”).

Each share of Series A Preferred Stock may be converted at any time at the option of the holder into a number of shares of common stock initially equal to 50 shares of common stock, determined by dividing the Liquidation Value per share of Series A Preferred Stock by the applicable conversion price per share of Series A Preferred Stock. The initial conversion price was equal to $0.65, subject to customary adjustments, including for any accrued but unpaid dividends and pursuant to certain anti-dilution provisions. Pursuant to the Series A Certificate of Designation amended on July 30, 2014 (the “Amended Series A Certificate of Designation”), the conversion price per share of Series A Preferred Stock is now equal to $0.13664587. The Series A Preferred Stock is not subject to mandatory conversion at any time.

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Cyalume Technologies Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

Upon voluntary or involuntary liquidation, dissolution or winding up of the Company, each holder of Series A Preferred Stock is entitled to a liquidation preference of $32.50 per share, plus any accrued but unpaid dividends, subject to customary adjustments as set forth in the Certificate of Designation (the “Series A Liquidation Value”).

Dividends on the Series A Preferred Stock accrue (payable in cash or in kind), whether or not declared by the Board and whether or not funds are available for the payment of dividends, at a rate of 12% per annum on the sum of the liquidation preference plus all accrued and accumulated dividends and will be payable quarterly in arrears in a) cash or b) newly issued shares of Series A Preferred Stock having an aggregate liquidation preference equal to the amount of such accrued dividends (“PIK Dividends”) at the option of the Company. All accrued and accumulated dividends on the convertible preferred stock shall be paid prior to and in preference to any other class of securities of the Company.

Each share of Series A Preferred Stock will be entitled to a number of votes equal to the number of shares of common stock into which such share is convertible and shall be entitled to vote with holders of outstanding shares of common stock, voting together as a single class, with respect to any and all matters presented to the stockholders of the Company for their action or consideration.

The requisite holders of the Series A Preferred Stock will have the right to cause the Company to redeem, out of funds legally available, all but not less than all of the then outstanding shares of Series A Preferred Stock, for a price per share equal to the Series A Liquidation Value of such shares from and after the fifth anniversary of the closing date of the Series A Purchase Agreement. Additionally, the Company will have the right to redeem all of the outstanding shares of Series A Preferred Stock from and after the eighth anniversary of the closing date of the Series A Purchase Agreement at a redemption price equal to the Series A Liquidation Value. As a result of the redemption provisions, the Series A Preferred Stock has been classified outside of permanent equity.

Series B Convertible Preferred Stock

On July 30, 2014, the Company entered into a Securities Purchase Agreement (the “Series Band C Purchase Agreement”) with Cova Small Cap Holdings, LLC (“Cova”), Bayonet Capital Fund I, LLC (see Note 9), and another investor (each, an “Investor”) for the purchase by the Investors of an aggregate of 1,000 units of securities of the Company (the “Units”) for an aggregate purchase price of $2.0 million (or $2,000.00 per Unit), with each Unit comprising (1) one share of Series B Convertible Preferred Stock of the Company, par value $0.001 per share (the “Series B Preferred Stock”), and (2) one share of Series C Preferred Stock of the Company, par value $0.001 per share (the “Series C Preferred Stock”). Approximately $1.3 million of the net proceeds from the sale of the Units was used to pay a contingent legal obligation.

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Cyalume Technologies Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

The shares of Series B Preferred Stock have the rights and preferences set forth in the Certificate of Designation of Series B Convertible Preferred Stock, which was amended on May 15, 2015 (the “Amended Series B Certificate of Designation”). Pursuant to the Amended Series B Certificate of Designation, each share of Series B Preferred Stock ranks senior to the Company’s common stock (the “Common Stock”) and the Company’s Series A Preferred Stock with respect to payment of dividends and distribution of assets upon liquidation, dissolution or winding up of the Company. Upon the Company’s liquidation, sale to or merger with another corporation or other “Change of Control” (as such term is defined in the Amended Series B Certificate of Designation), each share of Series B Preferred Stock would be entitled to a liquidation preference in an amount equal to the amount per share that would have been payable had all shares of Series B Preferred Stock been converted into Common Stock immediately prior to such event in accordance with the terms of the Amended Series B Certificate of Designation, excluding for purposes of such calculation the liquidation preference payable to the holders of Series A Preferred Stock. Holders of the Series B Preferred Stock are entitled to convert at any time all or any portion of the shares of Series B Preferred Stock into a number of shares of Common Stock initially equal to 35,713.147 shares of Common Stock per share of Series B Preferred Stock (the “Conversion Number”). The Conversion Number is subject to customary adjustments, including for dividends, stock splits and other reorganizations affecting the Common Stock. In addition, the Conversion Number is subject to anti-dilution protections, subject to certain exceptions, if the Company issues or sells shares of Common Stock or other equity securities for no consideration or for consideration that is based on an equity valuation of the Company of less than $2.0 million in the aggregate (a “Trigger Issuance”). In the event of a Trigger Issuance, the Conversion Number shall be increased as of the close of business on the effective date of the Trigger Issuance to a number calculated as follows: (i) two-thirds of the Common Stock deemed Outstanding (as defined in the Amended Series A Certificate of Designation) immediately following such Trigger Issuance (excluding any Common Stock Deemed Outstanding as a result of the conversion of the Series B Preferred Stock) (ii) divided by 1,000. Each share of Series B Preferred Stock will automatically convert into shares of Common Stock on the tenth anniversary of its original issuance date, at the then-current Conversion Number. Each share of Series B Preferred Stock is entitled to a number of votes equal to the number of shares of Common Stock into which such share is convertible and will be entitled to vote with holders of outstanding shares of Common Stock, voting together as a single class, with respect to any and all matters presented to the stockholders of the Company for their action or consideration. The Series B Preferred Stock has been classified within permanent equity.

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Cyalume Technologies Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

Series C Preferred Stock

The shares of Series C Preferred Stock have the rights and preferences set forth in the Certificate of Designation of Series C Preferred Stock, which was amended on May 15, 2015 (the “Amended Series C Certificate of Designation”). Pursuant to the Amended Series C Certificate of Designation, each share of Series C Preferred Stock ranks senior to the Common Stock, the Series A Preferred Stock, the Series B Preferred Stock and the Series D Preferred Stock with respect to payment of dividends and distribution of assets upon liquidation, dissolution or winding up of the Company. Upon the Company’s liquidation, sale to or merger with another corporation or other “Change of Control” (as such term is defined in the Amended Series C Certificate of Designation), each share of Series C Preferred Stock would be entitled to a liquidation preference equal to the sum of: (1) $3,000 per share (the “Base Liquidation Value”) and the (2) the amount, if any, by which the Base Value exceeds 150% of the purchase price (the “Excess Liquidation Value), plus any accrued but unpaid dividends, in each case subject to customary adjustments as set forth in the Amended Series C Certificate of Designation. Holders of the Series C Preferred Stock are entitled to cumulative quarterly dividends at a rate of 12% per annum, calculated based on an assumed price of $2,000 per share, payable in cash or in kind; provided that to the extent not paid in cash or by issuance of additional shares of Series C Preferred Stock on the last day of each calendar quarter (a “Dividend Payment Date”), all accrued dividends on any outstanding shares of Series C Preferred Stock shall accumulate and compound. In the event the Company has not paid in cash or by the issuance of additional shares of Series C Preferred Stock all accrued dividends on a Dividend Payment Date, at the election of holders of at least 75% of the outstanding shares of Series C Preferred Stock (the “Requisite Holders”), all such dividends accruing on the shares of Series C Preferred Stock will be paid in shares of Series C Preferred Stock. From and after the fifth anniversary of the issuance of the shares of Series C Preferred Stock, the Requisite Holders will have the right to elect to cause the Company to redeem, out of funds legally available therefore, all but not less than all of the then outstanding shares of Series C Preferred Stock, for a price per share equal to the Series C Liquidation Value for such shares. In addition, the Company has the right to redeem at any time, out of funds legally available therefore, all or any portion of the then outstanding shares of Series C Preferred Stock, for a price per share equal to the Series C Liquidation Value for such shares. The Series C Preferred Stock is not convertible into Common Stock or other securities of the Company, and does not have any voting rights. As a result of the redemption provisions, the Series C Preferred Stock has been classified outside of permanent equity. 

Series D Preferred Stock

In connection with the execution of the Monroe Credit Agreement, the Company entered into a Subscription Agreement (the “Subscription Agreement”) with Monroe Capital Corporation, Monroe Capital Senior Secured Direct Loan Fund LP, Monroe Capital Senior Secured Direct Loan Fund (Unleveraged) LP and Monroe Capital Partners Fund II, LP. Pursuant to the Subscription Agreement, the Company issued 10 shares of $0.001 par value per share Series D convertible preferred stock (the “Series D Convertible Preferred Stock”).  Each share of Series D Convertible Preferred Stock may be converted at any time at the option of the holder into a number of shares of common stock initially equal to 752,807.8 shares of common stock. The Series D Convertible Preferred Stock will automatically, without any action on the part of the holder thereof, be converted into that number of fully paid and nonassessable shares of the Company’s common stock equal to the conversion number at the time in effect. The Series D Convertible Preferred Stock has a mandatory conversion date on the tenth anniversary of the issuance date. The Series D Convertible Preferred Stock ranks senior to the Company’s Series A Preferred Stock and the Company’s Series B Preferred Stock. The Company’s Series C Preferred Stock ranks senior to the Series D Convertible Preferred Stock. The shares of Series D Preferred Stock have the rights and preferences set forth in the Certificate of Designation of Series D Convertible Preferred Stock (the “Series D Certificate of Designation”).

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Cyalume Technologies Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

In the event of any voluntary or involuntary liquidation, the holders of the Series D Convertible Preferred Stock shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders before any payment shall be made to the holders of junior securities. The Series C Preferred Stockholders would receive the Base Liquidation Value first, and not be entitled to the Excess Liquidation Value (as defined in the Amended Certificate of Designation of the Series C Preferred Stock) until the holders of the Series D Convertible Preferred Stock receive a pro rata Liquidation Value amount in cash. If at any time the Company redeems the outstanding shares of Series A Preferred Stock or Series C Preferred Stock, the holders of the Series D Preferred Stock would have the right to elect to cause the Company to redeem, out of funds legally available therefore, all but not less than all of the then outstanding shares of Series D Preferred Stock, for a price per share equal to the Liquidation Value for such shares; provided that, prior to the Company paying the full redemption price for all outstanding shares of Series D Preferred Stock, the Company would not be permitted to pay (i) any amounts in excess of the Series C Base Liquidation Value upon the redemption of shares of Series C Preferred Stock or (ii) any amounts upon the redemption of shares of Series A Preferred Stock. In the event of a voluntary or involuntary liquidation, each share of Series D Preferred Stock would be entitled to a liquidation preference in an amount equal to the amount per share that would have been payable had all shares of Series D Preferred Stock been converted into Common Stock immediately prior to such event in accordance with the terms of the Series D Certificate of Designation, excluding for purposes of such calculation the liquidation preference payable to the holders of Series A Preferred Stock and the holders of Series B Preferred Stock. The Series D Preferred Stock does not have any voting rights, except that the written consent of the holders of a majority of the then-outstanding Series D Preferred Stock shall be required for the Company to take certain actions, including the amendment of its certificate of incorporation or bylaws in a manner that adversely affects the relative rights, preferences, privileges or powers of holders of Series D Preferred Stock. As a result of the redemption provisions, the Series D Convertible Preferred Stock has been classified outside of permanent equity.

7. STOCKHOLDERS’ EQUITY

Common Stock

The Company is authorized to issue 150,000,000 shares of common stock. Common stockholders are entitled to one vote for each share held of record on all matters to be voted on by stockholders. Common stockholders have no conversion, preemptive or other subscription rights and there are no sinking fund or redemption provisions applicable to the common stock.

Common Stock Purchase Warrants

Common stock purchase warrants accounted for within equity are recorded at their initial fair value and reported in stockholders’ equity as increases to additional paid-in capital. Warrants reported as equity, rather than liabilities (i) may not be net-cash settled, (ii) have contractual limits on the number of shares to be delivered in a net-share settlement and (iii) are supported by sufficient unissued common shares available to settle the outstanding warrants. Subsequent changes in fair value from the warrants’ initial fair value are not recognized as long as the warrants continue to merit classification as equity.

As of March 31, 2016 and December 31, 2015, respectively, warrants to purchase 455,514 shares of the Company’s common stock were outstanding (see Note 12). These warrants are not indexed to the Company’s stock, are considered a derivative and therefore, are being accounted for as a liability.

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Cyalume Technologies Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

Pursuant to the terms of a letter agreement previously entered into between the Company and Dragonfly Capital Partners, LLC (“Dragonfly”) under which Dragonfly provided advisory services to the Company in connection with the Company’s debt financing, the Company paid $820,000 cash to Dragonfly and issued to Dragonfly a warrant on May 18, 2015 to purchase from the Company up to an aggregate of 1,003,744 shares of Common Stock (subject to customary adjustments) at an exercise price of $0.05 per share (the “Dragonfly Warrant”). The Dragonfly warrant is being accounted for within equity at its initial fair value. The Dragonfly Warrant was reflected at its relative fair value of approximately $43,000 in connection with the Monroe refinancing transaction.

Warrants to purchase the Company’s common stock were outstanding as follows as of March 31, 2016:

Warrant Holder	Number of Shares Under Warrant		Number of Shares Exercisable Under Warrant		Exercise Price		Expiration Date
Granite Creek FlexCap I, L.P. (“Granite”)		267,950		267,950	$	0.01	November 19, 2023
Patriot Capital II, L.P. (“Patriot”)		187,564		187,564	$	0.01	November 19, 2023
Dragonfly Capital Partners, LLC (“Dragonfly”)		1,003,744		1,003,744	$	0.05	May 18, 2020

The fair value as of March 31, 2016 of the Granite and Patriot Warrants is estimated using the Black-Scholes pricing model with the following inputs:

	Granite and Patriot Warrants
Stock price of underlying equity	$	0.09
Exercise price	$	0.01
Expected term (years)		7.6
Risk-free interest rate		1.7	%
Estimated dividend yield		None
Volatility		166.9	%

The change in the fair value of the warrants liability during the three months ended March 31, 2016 is as follows (amounts in thousands):

	Granite and Patriot Warrants (see Note 12)
Warrant liability at December 31, 2015	$	54
Change in fair value of warrants		(13	)
Warrant liability at March 31, 2016	$	41

8. INCOME TAXES

During the three months ended March 31, 2016 and 2015, the Company incurred approximately $36,000 and $85,000, respectively, of foreign tax expense on CTSAS’s income. During the three months ended March 31, 2016, the Company incurred approximately $100,000 of U.S. tax expense. The Company has a valuation allowance against its U.S. deferred tax asset. The Company has a valuation allowance of approximately $12.2 million as of March 31, 2016 against deferred tax assets generated primarily as a result of foreign tax credits and net operating losses.

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Cyalume Technologies Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

9. RELATED PARTY TRANSACTIONS

Financing Arrangements with Related Parties

In December 2012, the Company entered into a $2,100,000 unsecured promissory note with JFC Technologies, LLC (“JFC”), an entity controlled by James Schleck, a previous employee of CSP, who is an owner of a significant amount of the Company’s common shares and is a Board member. On November 19, 2013, the unsecured promissory note was amended (the “Amended JFC Note”). Pursuant to the Amended JFC Note, interest accrued at the rate of 12% per annum, retroactive to the date of the original note. On May 18, 2015, the Amended JFC Note of approximately $2.1 million and approximately $0.5 million of accrued interest on the Amended JFC Note were repaid in connection with the Company refinancing its debt. Pursuant to the Amended JFC Note, up to $1.0 million of the principal amount was convertible, at the option of JFC, into the number of shares of Series A Preferred Stock equal to the portion of the principal amount being converted divided by the conversion price of $32.50 per share. On May 18, 2015, $650 was converted into 20 shares of Series A Preferred Stock issued to James Schleck.

CSP leases property in Bound Brook, New Jersey, from Brook Industrial Park, LLC. This lease requires monthly lease payments of approximately $30,000 and ends on August 31, 2016, with extension options available.

Bayonet Capital Fund I, LLC, Brook Industrial Park, LLC and JFC are controlled by James Schleck. On July 30, 2014, 100 units of securities of the Company (the “Units”) were issued to Bayonet Capital Fund I, LLC (see Note 6), with each Unit comprising (1) one share of Series B Convertible Preferred Stock of the Company, par value $0.001 per share (the “Series B Preferred Stock”), and (2) one share of Series C Preferred Stock of the Company, par value $0.001 per share (the “Series C Preferred Stock”).

10. NET INCOME (LOSS) PER COMMON SHARE

Basic earnings (loss) per common share is computed by dividing net income (loss) available to common stockholders by the basic weighted average number of common shares outstanding. Diluted earnings (loss) per common share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares and dilutive potential common share equivalents then outstanding. Potential common share equivalents consist of (i) shares issuable upon the exercise of warrants and options (using the “treasury stock” method), (ii) unvested restricted stock awards (using the “treasury stock” method) and (iii) shares issuable upon conversion of convertible notes and convertible preferred stock using the “if-converted” method.

	(in thousands, except shares and per share information)
	Three Months Ended March 31,
	2016			2015
Numerator (in thousands):
Net income (loss)	$	479		$	(67	)
Series A convertible preferred stock dividends		(154	)		(135	)
Series C preferred stock dividends		(71	)		(62	)
Net income (loss) available to common stockholders – basic	$	254		$	(264	)
Effect of dilutive securities:
Add: Series A convertible preferred stock dividends		154			0
Less: Change in fair value of warrant liability for dilutive warrants income		(13	)		0
Income (loss) available to common stockholders – diluted	$	395		$	(264	)

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Cyalume Technologies Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

	(in thousands, except shares and per share information)
	Three Months Ended March 31,
	2016		2015
Denominator:
Weighted average common shares outstanding – basic		21,400,244		21,400,244
Weighted average effect of dilutive common equivalent shares:
Assumed conversion of Series A convertible preferred stock		38,723,815		0
Assumed conversion of Series B convertible preferred stock		35,713,147		0
Assumed conversion of Series D convertible preferred stock		7,528,078		0
Warrants		862,958		0
Options		9,152		0
Weighted average common shares outstanding – diluted		104,237,394		21,400,244
Income (loss) per common share:
Basic	$	0.02	$	(0.01	)
Diluted	$	0.00	$	(0.01	)

The following potentially dilutive common share equivalents were excluded from the calculation of diluted earnings (loss) per common share because their effect was antidilutive for each of the periods presented:

	Three Months Ended March 31,
	2016		2015
Options		1,258,082		10,347,322
Series A convertible preferred stock		0		33,401,765
Series B convertible preferred stock		0		35,713,147
Amended related party note		0		7,318,187
Convertible notes payable		0		2,666,667
Warrants		0		455,514

11. COMMITMENTS AND CONTINGENCIES

Legal

From time to time and in the ordinary course of business, the Company may be subject to various claims, charges, and litigation. At March 31, 2016 and December 31, 2015, the Company did not have any pending claims, charges or litigation that it expects would have a material adverse effect on its consolidated financial position, results of operations, or cash flows.

12. FAIR VALUES OF ASSETS AND LIABILITIES

Under U.S. GAAP, the Company is required to record certain financial assets and liabilities at fair value and may choose to record other financial assets and financial liabilities at fair value as well. Also under U.S. GAAP, the Company is required to record nonfinancial assets and liabilities at fair value due to events that may or may not recur in the future, such as an impairment event. When required to record such assets and liabilities at fair value, that fair value is estimated using an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. That fair value is determined based on significant inputs contained in a fair value hierarchy as follows:

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Cyalume Technologies Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

Level 1	Quoted prices for identical assets or liabilities in active markets to which we have access at the measurement date.
Level 2	Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3	Unobservable inputs for the asset or liability.

There are three general valuation techniques that may be used to measure fair value, as described below:

Market Approach	Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. Prices may be indicated by pricing guides, sale transactions, market trades, or other sources.
Cost Approach	Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).
Income Approach	Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about the future amounts (includes present value techniques and option-pricing models). Net present value is an income approach where a stream of expected cash flows is discounted at an appropriate market interest rate.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities itemized below were measured at fair value on a recurring basis at March 31, 2016 (all amounts in thousands):

	Level 1 Quoted Prices in Active Markets for Identical Assets		Level 2 Significant Other Observable Inputs		Level 3 Significant Unobservable Inputs			Assets/ (Liabilities) At Fair Value
Warrants (see Note 7) (1)	$	0	$	0	$	(41	)	$	(41	)
	$	0	$	0	$	(41	)	$	(41	)

⁽¹⁾ The Company has classified its warrants liability which could be potentially settled in cash within Level 3 because the fair values are determined using significant unobservable inputs into the Black-Scholes pricing model.

The table below presents reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (all amounts in thousands):

	March 31,   2016			December 31, 2015
Warrants liability:
Balance at the beginning of period	$	54		$	25
Change in fair value of warrants		(13	)		29
Balance at the end of period	$	41		$	54

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Cyalume Technologies Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

The Company has other financial instruments, such as cash, accounts receivable, due from related party, accounts payable, notes payable and a line of credit. The Company believes the carrying amounts of those assets and liabilities approximate their fair value since those carrying amounts have been estimated to approximate the exit price which would be received to sell these assets or pay to transfer these liabilities to a market participant.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

During the three months ended March 31, 2016, none of our assets or liabilities were remeasured at fair value on a nonrecurring basis and no assets were identified as impaired as of March 31, 2016.

13. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash Paid for Interest and Income Taxes (all amounts in thousands):

	Three Months Ended March 31
	2016		2015
Interest	$	505	$	120
Income taxes		98		31

Non-Cash Investing and Financing Activities (all amounts in thousands):

	Three Months Ended March 31,
	2016		2015
Series A Convertible Preferred stock accrued dividend	$	154	$	135
Series C Preferred stock accrued dividend		71		62

14. NEW ACCOUNTING PRONOUNCEMENTS

The following are recent accounting pronouncements that have affected our consolidated financial statements or may affect them in the future.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”). The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. As a result, this guidance is now effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017 and early adoption is permitted only as of annual reporting periods (including interim reporting periods within those reporting periods) beginning after December 15, 2016. Entities have the option of using either a full retrospective or a modified approach to adopt the guidance. The Company is in the process of determining the potential effects on the consolidated financial statements.

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Cyalume Technologies Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Topic 915): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 states that in connection with preparing financial statements for each annual and interim reporting period, an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). ASU 2014-15 will be effective for annual and interim periods beginning on or after December 15, 2016, and will be effective for the Company beginning on January 1, 2017. Early adoption is permitted. The Company is currently evaluating the impact, if any, of the adoption of this update.

In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). ASU 2015-03 states that entities that have historically presented debt issuance costs as an asset, related to a recognized debt liability, are required to present those costs as a direct deduction from the carrying amount of that debt liability. This presentation will result in debt issuance costs being presented the same way debt discounts have historically been handled. ASU 2015-03 does not change the recognition, measurement, or subsequent measurement guidance for debt issuance costs. This guidance was effective for the Company as of January 1, 2016. This new guidance reduced total assets and total long-term debt on its condensed consolidated balance sheets by amounts classified as deferred debt issuance costs relating to the Company’s Term A Loan and Delayed Draw Loan, but did not have any other effect on its condensed consolidated financial statements when adopted.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”). The amendments in ASU 2015-11 require an entity to measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendments do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. This guidance is effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. A reporting entity should apply the amendments prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is in the process of determining the potential effects on the consolidated financial statements.

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740) (“ASU 2015-17”). ASU 2015-17 simplifies the presentation of deferred income taxes by requiring that deferred tax assets and liabilities be classified as noncurrent on the balance sheet instead of separating into current and noncurrent amounts. ASU 2015-17 will be effective for annual periods beginning on or after December 15, 2016 and may be applied either prospectively or retrospectively. Early adoption is permitted. The Company previously elected to early adopt this guidance as of December 31, 2015 on a prospective basis. As a result, the Company reclassified deferred tax assets classified as current to noncurrent and deferred tax liabilities classified as current to noncurrent in the December 31, 2015 consolidated balance sheet. Prior balance sheets were not retrospectively adjusted.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10) (“ASU 2016-01”), which updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01 will be effective for the Company beginning in its first quarter of 2019 and early adoption is not permitted. The Company does not expect the adoption of ASU 2016-01 will have a material impact on its consolidated financial statements.

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Cyalume Technologies Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

In February 2016, the FASB issued ASU 2016-02, Leases   (Topic 842) (“ASU 2016-02”), which requires companies that are lessees to recognize a right-of-use asset and lease liability for most leases that do not meet the definition of a short-term lease. For income statement purposes, leases will continue to be classified as either operating or financing. Classification will be based on criteria that are largely similar to those applied in current lease accounting. This standard will result in extensive qualitative and quantitative disclosure changes. This standard will be effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. The Company is currently evaluating the impact of ASU 2016-02 on its consolidated financial statements.

15. SUBSEQUENT EVENTS

Pursuant to the terms of the Monroe Credit Agreement, the Company made an excess cash payment of approximately $0.5 million on May 10, 2016, which reduced the principal of the Company’s Term A Loan. The excess cash payment is calculated based on the definition of excess cash flow under the Monroe Credit Agreement.

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ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in conjunction with our interim condensed consolidated financial statements and the accompanying notes to those financial statements included elsewhere in this Quarterly Report on Form 10-Q and in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. This discussion contains forward-looking statements that involve risks and uncertainties. Unless the context otherwise requires, all references to "we", "us", the “Company" or “Cyalume" in this Quarterly Report on Form 10-Q refers to Cyalume Technologies Holdings, Inc.

Company Overview

We are a global, technology-based manufacturer primarily providing tactical and training solutions to the military of the U.S. and other select countries, through both products and services. We manufacture chemical light, reflective and battlefield effects simulator products while our services include planning and implementing tactical training exercises simulating real world experiences. In addition, and to a lesser extent, we also sell these products into the law enforcement, commercial public safety and other markets. In addition, we provide specialty chemical products to the defense, pharmaceutical, cosmetic and other markets. We do not sell products as novelties.

We maintain principal executive offices at 910 SE 17^th Street, Suite 300, Fort Lauderdale, Florida 33316. We have two direct U.S.-based subsidiaries: Cyalume Technologies, Inc. (“CTI”) and Cyalume Specialty Products, Inc. (“CSP”). CTI is located in West Springfield, Massachusetts and CSP is located in Bound Brook, New Jersey. CTI has one non-U.S.-based subsidiary, Cyalume Technologies, SAS (“CTSAS”), located in Aix-en-Provence, France, and two U.S.-based subsidiaries, Cyalume Realty, Inc. (“CRI”) and Combat Training Solutions, Inc. (“CTS”), based in West Springfield, Massachusetts. We manufacture products in the West Springfield, Bound Brook, and Aix-en-Provence locations.

Material Changes in Results of Operations – 3 Months Ended March 31, 2016 versus the 3 Months Ended March 31, 2015

Revenues in the three months ended March 31, 2016 and 2015 were as follows:

Category ($ in millions)	2016		2015		Change
Chemical Light	$	5.5	$	4.2	$	1.3
Ammunition		1.1		0.2		0.9
Training and Simulation		0.0		0.1		(0.1	)
Specialty Products		2.6		2.4		0.2
Total	$	9.2	$	6.9	$	2.3

During the first quarter of 2016, Chemical Light revenues increased over the first quarter of 2015 primarily as a result of higher sales to our largest customer LC Industries for distribution to the U.S. Military and also from higher commercial sales in the U.S. Ammunition revenues were approximately $1.1 million during the first quarter of 2016 as sales for military training rounds utilizing our technology resumed during February of 2015. Training and Simulation revenues for the first quarter of 2016, which are generated from CTS devices being purchased, were less than $0.1 million during the first quarter of 2016. Specialty Products revenue during the first quarter of 2016 increased over the first quarter of 2015, primarily as a result of an increase in product sales.

Cost of goods sold for the first quarter of 2016 increased to approximately $4.5 million from the prior year period amount of approximately $3.8 million as a result of the higher revenue levels during 2016. The gross profit for the first quarter of 2016 increased to approximately 51.2% versus 45.0% for the first quarter of 2015. This increase was largely attributable to favorable product mix changes, specifically an increase in higher-margin product sales during the quarter. 

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Sales and marketing expenses for the first quarter of 2016 were approximately $0.6 million versus $0.5 million in the first quarter of 2015. The slight increase was attributable to an increase in sales and marketing payroll expenses and increased advertising expenses for the U.S. commercial market.

General and administrative expenses for the first quarter of 2016 were approximately $2.1 million versus $1.6 million for the prior year, or an increase of approximately $0.6 million. The increase was due to a combination of factors including: increased compensation expense for additional personnel including bonuses being accrued; higher consulting fees for taxes and other financial matters; and other increases in items such as audit and various other corporate-related expenses and fees.

Research and development expenses of approximately $0.4 million for the first quarter of 2016 increased slightly by approximately $0.1 million from the prior year. We had additional research and development initiatives during the first quarter of 2016 versus the same period of the prior year.  

During the three months ended March 31, 2016 and 2015, we incurred approximately $36,000 and $85,000, respectively, of foreign tax expense on CTSAS’s income. During the three months ended March 31, 2016, we incurred approximately $100,000 of U.S. tax expense. We have a valuation allowance against our U.S. deferred tax asset due to management’s assessment that it is more likely than not that a portion of certain deferred tax assets may not be realized.

Material Changes in Financial Condition – March 31, 2016 versus December 31, 2015

Cash was approximately $1.1 million at March 31, 2016, representing a decrease of approximately $0.4 million from December 31, 2015. Combined accounts payable and accrued liabilities decreased by approximately $1.5 million; accounts receivable decreased by approximately $0.6 million; inventories increased by approximately $0.1 million.

Our accounts receivable decreased slightly at March 31, 2016 compared to December 31, 2015 due to timing differences of payments. Our receivables are generally collected within 30 days, thus revenues recorded in the 30-day period preceding the measurement date significantly influence the reported balances.

Accounts payable and accrued expenses combined were approximately $3.3 million at March 31, 2016 versus approximately $4.8 million at December 31, 2015, a decrease of approximately $1.5 million. Payments during 2016 on amounts accrued for at the end of 2015, such as 2015 accrued performance bonus amounts paid during the first quarter of 2016, accounted for most of this decrease. Our line of credit, used to meet temporary working capital needs, was approximately $1.0 million at both March 31, 2016 and December 31, 2015.

The current portion of notes payable, net of the current portion of unamortized debt discount and unamortized debt issuance costs, was approximately $0.4 million at March 31, 2016 compared to approximately $0.3 million at December 31, 2015.

Liquidity and Capital Resources

On May 18, 2015, we entered into a credit agreement with Monroe Capital Management Advisors, LLC as administrative agent and lead arranger (the “Agent”) and the various lenders party thereto (the “Monroe Credit Agreement”). The Monroe Credit Agreement provides for a total borrowing commitment of $25.0 million (the “Monroe Credit Facility”) in the form of (i) a $5.0 million revolving credit facility (the “Monroe Line of Credit”); (ii) an $18.0 million senior secured term loan (the “Term A Loan”) and (iii) a $2.0 million delayed draw term loan (the “Delayed Draw Loan”). 

On August 3, 2015, we entered into a First Amendment (the “First Amendment”) to the Monroe Credit Agreement. Pursuant to the First Amendment, the Monroe Credit Agreement was amended to, among other things, reduce the aggregate amount of the Delayed Draw Loan under the Credit Agreement from $2.0 million to $1.5 million. On August 3, 2015, the full amount of the Delayed Draw Loan was funded to us, $1.4 million of which was used to make a payment in connection with a legal settlement agreement and the remaining $100,000 of which was paid to the Agent as a deferred closing fee. The First Amendment also modified, for certain periods during the term of the Credit Agreement, (i) the maximum senior debt to EBITDA ratio that the Company is required to maintain and (ii) the applicable limits on the Company’s aggregate permitted capital expenditures pursuant to the terms of the Credit Agreement.

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Under the terms of the Monroe Credit Agreement, the Company is able to borrow under the Monroe Line of Credit in an amount not to exceed the lesser of: (i) $5.0 million; and (ii) the sum of 85% of all eligible accounts receivable plus 60% of all eligible inventory. Additionally, while the loans are outstanding we must maintain: (a) a fixed charge coverage ratio of 1.25 to 1.00; (b) a senior debt to EBITDA ratio of 4.50 to 1.00, decreasing to 1.50 to 1.00 over the term of the loans; and (c) a twelve month trailing EBITDA, measured quarterly, with the amounts ranging from $4,750,000, increasing up to $7.0 million over the term of the loans.

The Term A Loan provides for quarterly amortization payments on the last day of each calendar quarter, commencing on June 30, 2015, in an aggregate principal amount equal to $112,500, increasing to $225,000 on June 30, 2016, and increasing to $450,000 on June 30, 2017, with the balance payable on the termination date of May 18, 2020 (the “Termination Date”). The Delayed Draw Loan provides for quarterly amortization payments on the last day of each calendar quarter, in an aggregate principal amount equal to 0.625% of the original principal amount of the Delayed Draw Loan, increasing to 1.25% on March 31, 2016, and increasing to 2.5% on March 31, 2017, with the balance payable on the Termination Date. The Monroe Line of Credit is payable on the Termination Date.

As of March 31, 2016 and December 31, 2015, we had approximately $1.1 million and $1.5 million, respectively, of cash on hand. The major sources and uses of cash during 2016 were all in the normal course of business. Our availability under our revolving credit facility was approximately $3.5 million at March 31, 2016 and approximately $4.0 million at December 31, 2015.

Capital expenditures and payments for intangibles were approximately $0.1 million for the three months ended March 31, 2016 and approximately $0.3 million for the three months ended March 31, 2015. We expect to fund capital expenditures for the remainder of 2016 from existing cash and operating cash flows.

We were in compliance with our financial covenants relating to our loans as of March 31, 2016. We expect to meet our financial covenants for 2016 and we also expect that cash provided by the business will be adequate to meet our planned needs.

Pursuant to the terms of the Monroe Credit Agreement, we made excess cash payments of approximately $0.3 million on February 19, 2016 and $0.5 million on May 10, 2016, which reduced the principal of our Term A Loan. The excess cash payment is calculated based on the definition of excess cash flow under the Monroe Credit Agreement and is related to favorable financial performance primarily relating to cash flow generation.

We did not pay a dividend in 2016 and we do not have plans to pay a common dividend in the future. We are accruing dividends in connection with the Series A Convertible Preferred Stock issued on November 19, 2013 and we are accruing dividends in connection with the Series C Preferred Stock issued on July 30, 2014.

Critical Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Estimates are used when accounting for certain items such as reserves for inventory, accounts receivable and deferred tax assets; assessing the carrying value of intangible assets including goodwill; determining the useful lives of property, plant and equipment and intangible assets; determining asset retirement obligations; and determining the fair value of contingent consideration.

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Estimates are based on historical experience, where applicable, and assumptions that we believe are reasonable under the circumstances. Due to the inherent uncertainty involved with estimates, actual results may differ.

Revenue Recognition

Revenue from the sale of products or the providing of services is recognized when the earnings process is complete, the amount of recognizable revenue can be determined, the risks and rewards of ownership have transferred to the customer and collectability is reasonably assured. Depending on the terms of the individual sales arrangement with our customer, product sales are recognized at either the shipping point or upon receipt by the customer. Costs and related expenses to manufacture the products are recorded as costs of goods sold when the related revenue is

recognized. Additionally, if the right of return is granted to the buyer in a product sale, revenue is deferred until enough historical customer data is available to reasonably estimate returns and related costs. 

We have two significant contracts providing for the sale of indefinite quantities of products at fixed per unit prices, subject to adjustment for certain economic factors. Revenue under these contracts is recognized when products ordered under the contracts are received by the customer. Whenever costs change, we review the pricing under these contracts to determine whether they require the sale of products at a loss. To date, we have no loss contracts which would require the accrual of future losses in the current financial statements.

We also provide research and development services for customers for which we earn payments that are contingent upon achieving a specific result (“milestones”). Upon achieving such milestones, revenue is recognized provided the payment is (i) related to past performance, (ii) reasonable relative to all of the deliverables and payment terms within the arrangement with our customer, and (iii) nonrefundable.

Warrants Liability

The Company uses fair values as determined by significant unobservable inputs. These estimated values are significant inputs into the Black Scholes pricing model used to calculate the estimated fair value of warrants potentially settleable in cash, which are recorded as warrants liability. The estimated fair value of the common warrants are determined at each balance sheet date and the change in the estimated fair value of the warrants is reflected within the Company’s statements of comprehensive income. 

Income Taxes

Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are recognized when, based upon available evidence, realization of the assets is more likely than not.

In assessing the realization of long-term deferred income tax assets, we consider whether it is more likely than not that the deferred income tax assets will be realized. The realization of deferred income tax assets depends upon future taxable income in years before net operating loss carryforwards expire. We evaluate the recoverability of deferred income tax assets on a quarterly basis. If we determine that it is more likely than not that deferred income tax assets will not be recovered, we establish a valuation allowance against some or all deferred income tax assets.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefit associated with tax positions taken that exceeds the amount measured as described above, if such a position existed, would be reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. There were no such positions as of March 31, 2016 or December 31, 2015.

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We classify interest on tax deficiencies as interest expense and income tax penalties as other expense.  

In September 2015, the IRS completed an audit of our tax return for the year 2013. There were no adjustments to our 2013 tax return. Our tax return filed for the year 2014 is still open for audit. The tax return for 2014 was filed on September 14, 2015 under a filing extension. The tax return for 2015 is expected to be filed under a filing extension prior to September 15, 2016.

Goodwill

Goodwill is deemed to have an indefinite life and, accordingly, is not subject to amortization. Goodwill is subject to an annual impairment review and, if conditions warrant, interim impairment reviews. Impairment charges, if any, are recorded in the period in which the impairment is determined.

We perform the traditional two-step process for assessing goodwill for impairment.. The first step of the two-step process requires a comparison of our estimated fair value for each reporting unit versus our carrying (book) value. If our carrying value exceeded our fair value, further analysis (step 2 of the two-step process) is required to determine the amount, if any, that our goodwill was impaired. To determine the amount of fair value, we used a discounted cash flow analysis.

Intangible Assets

Intangible assets include developed technologies and patents, customer relationships, customer backlog, non-compete agreements and certain trade names, which are amortized over their estimated useful lives, and other trademarks and trade names, which are considered to have indefinite useful lives and therefore are not amortized. The carrying amounts of intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that those carrying amounts may not be recoverable. Additionally, the carrying amounts of non-amortizing intangible assets are reviewed for impairment annually every August 31. Costs incurred to register new patents or defend existing patents are capitalized while costs to renew or extend the term of intangible assets are expensed when incurred.

Inventories

Inventories are stated at the lower of cost (on a first-in first-out (“FIFO”) method) or net realizable value. We periodically review the realizability of inventory. Provisions are recorded for potential obsolescence which requires management’s judgment. Conditions impacting the realizability of inventory could cause actual write-offs to be materially different than provisions for obsolescence .

Foreign Operations and Currency

Accounts of our foreign subsidiary are recorded using their local currency (the euro) as the functional currency. For consolidation, revenues and expenses are converted to U.S. dollars using the average exchange rate for the month in which they were recorded. Assets and liabilities are converted to U.S. dollars using the exchange rate in effect as of the balance sheet date. Equity transactions are converted to U.S. dollars using the exchange rate in effect as of the date of the transaction. Translation gains and losses are reported as a component of accumulated other comprehensive income or loss. Gains and losses resulting from transactions which are denominated in other than the functional currencies are reported as other income, net in the statement of comprehensive income (loss) in the period the gain or loss occurred.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide information typically disclosed under this item.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls include, without limitation, controls and procedures designed to ensure that information required to be disclosed under the Exchange Act is accumulated and communicated to management, including principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Our management carried out an evaluation, under the supervision of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of March 31, 2016. Based upon that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that the design and operation of our disclosure controls and procedures were effective as of March 31, 2016.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the three months ended March 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A.    RISK FACTORS

As a smaller reporting company, we are not required to provide information typically disclosed under this item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Securities and Use of Proceeds from Registered Securities

None.

Purchases of Equity Securities by the Company and Affiliated Purchasers

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6.    EXHIBITS

Exhibit Number		Description
31.1	*	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	*	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	*	Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	*	XBRL Instance Document
101.SCH	*	XBRL Taxonomy Extension Schema
101.CAL	*	XBRL Taxonomy Extension Calculation Database
101.DEF	*	XBRL Taxonomy Extension Definition Linkbase
101.LAB	*	XBRL Taxonomy Extension Label Linkbase
101.PRE	*	XBRL Taxonomy Extension Presentation Linkbase

* Filed herewith.

30

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Cyalume Technologies Holdings, Inc.
Date: May 18, 2016	By:	/s/ Zivi Nedivi
		Zivi Nedivi, Chief Executive Officer
		(Principal Executive Officer)

Date: May 18, 2016	By:	/s/ Michael Bielonko
		Michael Bielonko, Chief Financial Officer
		(Principal Financial Officer)

31

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Zivi Nedivi, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Cyalume Technologies Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3 Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 18, 2016
	/s/ Zivi Nedivi
	Zivi Nedivi, Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Michael Bielonko, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Cyalume Technologies Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 18, 2016	/s/ Michael Bielonko
	Michael Bielonko, Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION

Each of the undersigned officers of Cyalume Technologies Holdings, Inc. (the "Company") hereby certifies that, to his knowledge, the Company's Quarterly Report on Form 10-Q to which this certification is attached (the "Report"), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 18, 2016	/s/ Zivi Nedivi
	Zivi Nedivi, Chief Executive Officer
	(the Principal Executive Officer)

Date: May 18, 2016
	/s/ Michael Bielonko
	Michael Bielonko, Chief Financial Officer
	(the Principal Financial Officer)

This certification is being furnished and not filed, and shall not be incorporated into any document for any purpose, under the Securities Exchange Act of 1934 or the Securities Act of 1933.

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2016	May. 10, 2016
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q1
Entity Registrant Name	Cyalume Technologies Holdings, Inc.
Entity Central Index Key	0001335293
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Trading Symbol	CYLU
Entity Common Stock, Shares Outstanding		21,400,244

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Current assets:
Cash	$ 1,082	$ 1,526
Accounts receivable, net of allowance for doubtful accounts of $11 and $5, respectively	3,732	4,299
Inventories, net	7,601	7,528
Income taxes refundable	216	442
Prepaid expenses and other current assets	1,452	1,388
Total current assets	14,083	15,183
Property, plant and equipment, net	6,720	6,795
Goodwill	7,992	7,992
Other intangible assets, net	5,488	5,691
Total assets	34,283	35,661
Current liabilities:
Line of credit	1,000	1,000
Current portion of notes payable	385	274
Accounts payable	1,161	947
Accrued expenses	2,110	3,858
Deferred revenue and deferred rent	73	125
Income taxes payable	137	327
Warrants liability	41	54
Total current liabilities	4,907	6,585
Notes payable, net of current portion, unamortized debt discount and unamortized debt issuance costs	14,804	15,207
Deferred income taxes	582	567
Asset retirement obligation	217	214
Other noncurrent liabilities, net of current portion	84	81
Total liabilities	$ 20,594	$ 22,654
Commitments and contingencies (Note 11)
Stockholders' equity:
Series B convertible preferred stock, $0.001 par value; 1,000,000 shares of preferred stock authorized; 1,000 shares issued and outstanding at March 31, 2016 and December 31, 2015	$ 1,401	$ 1,401
Common stock, $0.001 par value; 150,000,000 shares authorized; 21,400,244 and 21,400,244 issued and outstanding at March 31, 2016 and December 31, 2015, respectively	21	21
Additional paid-in capital	102,484	102,624
Accumulated deficit	(99,836)	(100,315)
Accumulated other comprehensive loss	(861)	(979)
Total stockholders’ equity	3,209	2,752
Total liabilities and stockholders' equity	34,283	35,661
Series C Preferred Stock [Member]
Temporary Equity
Temporary Equity	2,438	2,367
Series D Convertible Preferred Stock [Member]
Temporary Equity
Temporary Equity	2,751	2,751
Series A Convertible Preferred Stock [Member]
Temporary Equity
Temporary Equity	$ 5,291	$ 5,137

XML

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)	Mar. 31, 2016	Dec. 31, 2015
Accounts receivable, allowance for doubtful accounts	$ 11	$ 5
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	150,000,000	150,000,000
Common stock, shares issued	21,400,244	21,400,244
Common stock, shares outstanding	21,400,244	21,400,244
Series A Convertible Preferred Stock [Member]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	123,097	123,077
Preferred stock, shares outstanding	123,097	123,077
Series C Preferred Stock [Member]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	1,000	1,000
Preferred stock, shares outstanding	1,000	1,000
Series B convertible preferred stock [Member]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	1,000	1,000
Preferred stock, shares outstanding	1,000	1,000
Series D Convertible Preferred Stock [Member]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	10	10
Preferred stock, shares outstanding	10	10

XML

Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Revenues	$ 9,242	$ 6,942
Cost of revenues	4,512	3,804
Gross profit	4,730	3,138
Other expenses (income):
Sales and marketing	593	546
General and administrative	2,149	1,574
Research and development	391	312
Interest expense, net	729	503
Interest expense - related party	0	63
Amortization of intangible assets	240	239
Change in fair value of warrants liability	(13)	20
Other (income) expenses, net	26	(137)
Total other expenses, net	4,115	3,120
Income before income taxes	615	18
Provision for income taxes	136	85
Net income (loss)	479	(67)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	118	(341)
Other comprehensive income (loss)	118	(341)
Comprehensive income (loss)	597	(408)
Net income (loss)	479	(67)
Net income (loss) available to common stockholders - basic	254	(264)
Series A convertible preferred stock dividends	154	0
Change in fair value of warrant liability	(13)	0
Net income (loss) available to common stockholders - diluted	$ 395	$ (264)
Income (loss) per common share:
Basic (in dollars per share)	$ 0.02	$ (0.01)
Diluted (in dollars per share)	$ 0.00	$ (0.01)
Weighted average shares used to compute net income (loss) per common share:
Basic (in shares)	21,400,244	21,400,244
Diluted (in shares)	104,237,394	21,400,244
Series A Convertible Preferred Stock [Member]
Other comprehensive income (loss), net of tax:
Preferred stock dividends	$ (154)	$ (135)
Series C Preferred Stock [Member]
Other comprehensive income (loss), net of tax:
Preferred stock dividends	$ (71)	$ (62)

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Condensed Consolidated Statements of Changes in Preferred Stock and Stockholders' Equity - 3 months ended Mar. 31, 2016 - USD ($) $ in Thousands	Total	Common Stock [Member]	Additional Paid-In Capital [Member]	Accumulated Deficit [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Preferred Stock [Member] Series A Convertible Preferred Stock [Member]	Preferred Stock [Member] Series C Preferred Stock [Member]	Preferred Stock [Member] Series D Convertible Preferred Stock [Member]	Preferred Stock [Member] Series B Preferred Stock [Member]
Balance at Dec. 31, 2015	$ 2,752	$ 21	$ 102,624	$ (100,315)	$ (979)	$ 5,137	$ 2,367	$ 2,751	$ 1,401
Balance (in shares) at Dec. 31, 2015		21,400,244				123,097	1,000	10	1,000
Dividends accrued on Series A and Series C preferred stock	(225)	$ 0	(225)	0	0	$ 154	$ 71	$ 0	$ 0
Share-based compensation	85	$ 0	85	0	0	$ 0	$ 0	$ 0	$ 0
Share-based compensation (in shares)		0				0	0	0	0
Net income	479	$ 0	0	479	0	$ 0	$ 0	$ 0	$ 0
Other comprehensive loss	118	0	0	0	118	0	0	0	0
Balance at Mar. 31, 2016	$ 3,209	$ 21	$ 102,484	$ (99,836)	$ (861)	$ 5,291	$ 2,438	$ 2,751	$ 1,401
Balance (in shares) at Mar. 31, 2016		21,400,244				123,097	1,000	10	1,000

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Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Cash flows from operating activities:
Net income (loss)	$ 479	$ (67)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation of property, plant and equipment	220	305
Amortization of intangible assets, debt issuance costs and debt discount	468	300
Non-cash interest expense	0	269
Share-based compensation expense	85	101
Change in fair value of derivatives	0	(29)
Change in fair value of warrant liability	(13)	20
Loss on disposal of property, plant and equipment	29	0
Other non-cash expenses	9	2
Changes in operating assets and liabilities:
Accounts receivable	577	73
Inventories	(31)	(778)
Prepaid expenses and other current assets	(251)	(161)
Restricted cash	153	0
Accounts payable and accrued liabilities	(1,549)	960
Accrued interest on note payable to related party	0	62
Deferred revenue and deferred rent	(52)	6
Income taxes payable	42	90
Net cash provided by operating activities	166	1,153
Cash flows from investing activities:
Purchases of long-lived assets	(127)	(280)
Payments for intangibles	(7)	(49)
Net cash used in investing activities	(134)	(329)
Cash flows from financing activities:
Repayments on line of credit	0	(1,150)
Repayment of long term notes payable	(378)	(475)
Principal payments on capital lease obligations	0	(4)
Repayment of legal settlement promissory note	(107)	(107)
Net cash used in financing activities	(485)	(1,736)
Effect of exchange rate changes on cash	9	(103)
Net decrease in cash	(444)	(1,015)
Cash, beginning of period	1,526	2,358
Cash, end of period	$ 1,082	$ 1,343

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ORGANIZATION

3 Months Ended

Mar. 31, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

ORGANIZATION

1. ORGANIZATION

Cyalume Technologies Holdings, Inc. (the “Company”) was organized as a blank check company under the laws of the State of Delaware on July 19, 2005. At that time, the Company was named Vector Security Intersect Acquisition Corp. On December 19, 2008, the Company acquired Cyalume Technologies, Inc. (“CTI”) and changed the corporate name to the current name. CTI is a Delaware corporation formed on March 27, 1997 with headquarters located in Fort Lauderdale, Florida.

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BASIS OF PRESENTATION

3 Months Ended

Mar. 31, 2016

Accounting Policies [Abstract]

BASIS OF PRESENTATION

2. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations. The Company believes that the disclosures made are adequate to make the information presented not misleading. All the adjustments which, in the opinion of management, are considered necessary for a fair presentation of the results of operations for the periods shown are of a normal recurring nature and have been reflected in the unaudited condensed consolidated financial statements. Results from operations for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2016. The consolidated balance sheet at December 31, 2015 has been derived from the audited consolidated financial statements at that date. The information included in these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto in our Annual Report on Form 10-K for the year ended December 31, 2015 filed on April 7, 2016.

The preparation of financial statements in conformity with U.S. 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 period. While the Company believes that such estimates are fair when considered in conjunction with the condensed consolidated financial position and results of operations taken as a whole, the actual amount of such estimates, when known, may vary from these estimates.

Reclassification of the Company’s unamortized debt issuance costs have been made to prior period amounts to conform to the current period financial statement presentation.

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DESCRIPTION OF BUSINESS

3 Months Ended

Mar. 31, 2016

Business Combination, Description [Abstract]

DESCRIPTION OF BUSINESS

3. DESCRIPTION OF BUSINESS

These consolidated financial statements and footnotes include the financial position and operations of Cyalume Technologies Holdings, Inc. (“Cyalume”), a holding company that is the sole shareholder of Cyalume Technologies, Inc. (“CTI”), of Cyalume Specialty Products, Inc. (“CSP”) and of CT SAS Holdings, Inc. (“CT SAS Holdings”). CTI is the sole shareholder of Cyalume Realty, Inc. (“CRI”) and Combat Training Solutions, Inc. (“CTS”). CT SAS Holdings is the sole shareholder of Cyalume Technologies, SAS (“CTSAS”). All significant intercompany accounts and transactions have been eliminated in consolidation.

The Company’s primary focus is providing tactical and training solutions to the military of the U.S. and other countries through both products and services.

CTI and CTSAS manufacture and sell chemiluminescent products and reflective and photoluminescent materials to military, ammunition, commercial and public safety markets. CTSAS is located in France and represents us in certain international markets, primarily Europe and the Middle East. CTI sells to customers in all other geographic markets. CTI’s and CTSAS’s business operations constitute the majority, based on revenues and assets, of the Company’s consolidated business operations.

CSP manufactures and sells specialty chemical products to the defense, pharmaceutical, cosmetic and other markets. CSP’s operations are located in Bound Brook, New Jersey.

CRI previously owned land located in Colorado Springs, Colorado. The land was transferred in connection with a 2013 legal settlement and therefore, this subsidiary no longer has any activity.

CTS provides its customers with battlefield effects simulation products while its services include planning and implementing tactical training exercises simulating real-world experiences. These products allow military and law enforcement professionals to maintain operational readiness through safe, live training and hands-on situational exercises.

The Company’s business is managed and financial results are reported as one segment. The Company’s CEO, who is the Company’s chief operating decision maker, focuses on consolidated results to make strategic and tactical decisions. The Company’s one operating segment consists of three reporting units: Chemical Light (the operations of CTI, CTS and CTSAS), Specialty Products (the operations of CSP) and Other (the operations of CRI and the parent company Cyalume Technologies Holdings, Inc.).

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INVENTORIES

3 Months Ended

Mar. 31, 2016

Inventory Disclosure [Abstract]

INVENTORIES

4. INVENTORIES

Inventories consist of the following (all amounts in thousands) :

	March 31, 2016		December 31, 2015
Raw materials	$	4,339	$	4,406
Work-in-process		1,854		1,809
Finished goods		1,408		1,313
	$	7,601	$	7,528

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CREDIT LINE AND NOTES PAYABLE

3 Months Ended

Mar. 31, 2016

Debt Disclosure [Abstract]

CREDIT LINE AND NOTES PAYABLE

5. CREDIT LINE AND NOTES PAYABLE

Monroe Refinancing

On May 18, 2015, the Company entered into a credit agreement with Monroe Capital Management Advisors, LLC (the “Monroe Credit Agreement”), refinancing its existing senior and subordinated debt (see below). The Monroe Credit Agreement provides for a $25.0 million credit facility consisting of up to: (i) a $5.0 million revolving credit facility (the “Monroe Line of Credit”); (ii) an $18.0 million senior secured term loan (the “Term A Loan”) and (iii) a $2.0 million delayed draw term loan (the “Delayed Draw Loan”). The Delayed Draw Loan was used to satisfy a legal settlement agreement amount.

The Monroe Credit Agreement has a term of five years and bears interest at a rate of the one-month LIBOR plus 9%. The Term A Loan requires quarterly repayments of approximately $113,000 beginning on June 30, 2015 through March 31, 2016; quarterly repayments of approximately $225,000 beginning on June 30, 2016 through March 31, 2017; quarterly repayments of approximately $450,000 beginning on June 30, 2017 through March 31, 2020; and a payment of approximately $11.3 million on the Term A Loan maturity date of May 18, 2020. Accrued interest shall be payable monthly in arrears on the last business day of each calendar month.

Pursuant to the terms of the Monroe Credit Agreement, the Company must maintain: (i) a fixed charge coverage ratio of 1.25 to 1.00; (ii) a senior debt to EBITDA ratio of 4.50 to 1.00, decreasing to 1.50 to 1.00 over the term of the loans; and (iii) a twelve month trailing EBITDA, measured quarterly, with the amounts ranging from $4,750,000, increasing up to $7.0 million over the term of the loans. The Company was in compliance with the financial covenants related to these loans as of March 31, 2016.

On August 3, 2015, the Company entered into a First Amendment (the “First Amendment”) to the Monroe Credit Agreement. Pursuant to the First Amendment, the Monroe Credit Agreement was amended to, among other things, reduce the aggregate amount of the Delayed Draw Loan under the Monroe Credit Agreement, which loan commitment was for purposes of funding a final payment due under the a legal settlement agreement, from $2.0 million to $1.5 million. On August 3, 2015, the full amount of the Delayed Draw Loan was funded to the Company, $1.4 million of which was used to make a final legal settlement payment, and the remaining $100,000 of which was paid to Monroe as a deferred closing fee. The First Amendment also modified, for certain periods during the term of the Credit Agreement, (i) the maximum senior debt to EBITDA ratio that the Company is required to maintain and (ii) the applicable limits on the Company’s aggregate permitted capital expenditures pursuant to the terms of the Credit Agreement.

The Delayed Draw Loan, which was drawn on August 3, 2015, provides for quarterly amortization payments on the last day of each calendar quarter in an aggregate principal amount equal to 0.625% of the original principal amount of the Delayed Draw Loan, increasing to 1.25% on March 31, 2016, and increasing to 2.5% on March 31, 2017, with the balance payable on the maturity date of May 18, 2020.

In connection with the execution of the Monroe Credit Agreement, the Company issued 10 shares of Series D convertible preferred stock (the “Series D Convertible Preferred Stock”).  Each share of Series D Convertible Preferred Stock may be converted at any time at the option of the holder into a number of shares of common stock initially equal to 752,807.8 shares of common stock. The relative fair value of the Series D Convertible Preferred Stock was approximately $2.8 million which was recorded as debt issuance costs of approximately $0.4 million and debt discount on the Company’s Term A Loan and Delayed Draw Loan of approximately $2.4 million.

The proceeds from the Monroe Credit Agreement were allocated to the various instruments issued based on their relative fair value.

Line of Credit

The Monroe Line of Credit has a maximum borrowing capacity of $5.0 million, bears interest at a rate of the one-month LIBOR plus 9% and expires on May 18, 2020. The Monroe Line of Credit replaced the Company’s previous line of credit with TD Bank N.A. (“TD Bank”). The amount which may be borrowed under the Monroe Line of Credit is dependent mainly on accounts receivable and inventory balances. Under the terms of the Monroe Credit Agreement, the Company is able to borrow under the Monroe Line of Credit in an amount not to exceed the lesser of: (i) $5.0 million and (ii) the sum of 85% of all eligible accounts receivable plus 60% of all eligible inventory. Interest is payable monthly and the Monroe Line of Credit’s interest rate at March 31, 2016 was 10%. This line of credit is subject to various restrictive covenants and collateral guarantees. At March 31, 2016, approximately $1.0 million was outstanding on the Monroe Line of Credit and additional borrowing availability was approximately $3.5 million.

CTSAS has lines of credit, for borrowing against receivables, with a combined maximum borrowing capacity of €750,000 (or approximately $848,000 as of March 31, 2016). There were no outstanding borrowings at March 31, 2016 or December 31, 2015. The lines’ interest rates are variable, based on the 3-month Euro Interbank Offered Rate. The lines are collateralized by primarily CTSAS accounts receivable. The lines have indefinite termination dates but can be renegotiated periodically.

Notes Payable

Outstanding notes payable consist of (all amounts in thousands):  

	March 31, 2016		December 31, 2015
Monroe Term A Loan	$	16,778	$	17,138
Delayed Draw Loan		1,463		1,481
Promissory Note Payable		538		645
Total		18,779		19,264
Less: Unamortized debt discount and unamortized debt issuance costs		(3,590)		(3,783)
Less: Current portion of notes payable, including current portion of unamortized debt discount and current portion of unamortized debt issuance costs		(385)		(274)
Notes payable, net of current portion	$	14,804	$	15,207

Debt issuance costs and discounts are amortized to interest expense using the effective interest method over the life of the loan. The effective interest rate on the Term A loan is approximately 17% and the effective interest rate on the Delayed Draw Loan is approximately 20%.

Term Loans

In addition to the previous line of credit with TD Bank, CTI previously had two loans payable to TD Bank, a Term Loan and a Real Estate Loan (together, the “Senior Debt”), that were originally entered into on December 19, 2008, and which were amended twice during 2012 to modify certain financial and non-financial covenants required by these loans. The Fourth Amendment to the Amended and Restated Revolving Credit and Term Loan Agreement (the “Senior Amendment”) was entered into on November 19, 2013.

On July 29, 2010, the subordinated term loan of $8.5 million (the “Subordinated Term Loan”) was issued to Granite Creek Partners Agent, LLC (“Granite Creek”) and on November 19, 2013, the Company entered into a Fourth Amendment to the Subordinated Term Loan (the “Subordinated Amendment”) which extended the maturity date to June 30, 2016. Pursuant to the Subordinated Amendment, interest was being accrued in kind monthly at a rate of 11% per annum. No principal payments were required until maturity. The Subordinated Term Loan was convertible at any time by Granite Creek into 2,666,667 shares of common stock at a conversion price of approximately $3.19 per share. No portion of the Subordinated Term Loan was converted to the Company’s common stock. The Company previously determined that the convertible notes’ conversion feature was not a beneficial conversion feature under U.S. GAAP. Simultaneous with the issuance of the Subordinated Term Loan during 2010, the Company issued warrants to repay certain costs of obtaining the convertible notes. These warrants allowed the holder to purchase 160,000 shares of common stock at $1.50 per share through July 19, 2018. A portion of the $8.5 million gross proceeds from the issuance of the loan was allocated to the warrants based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portion of the proceeds so allocated to the warrants was recorded as a debt discount and an increase to additional paid-in capital. The warrant’s fair value was increased in 2012 due to (i) a decrease in the exercise price of the warrants and (ii) an extension of the term of the warrant. The warrants were amended again during 2013 in connection with the Senior Amendment described above. An additional amount was added to debt discount and warrant liability during 2013 relating to (i) another decrease in the exercise price of the warrants to $0.01, (ii) an extension of the term of the warrants, and (iii) an increase to the number of shares of common stock that may be purchased upon exercise of the warrants to 455,514 shares of common stock that may be purchased. The debt discount was being amortized to interest expense using the effective interest method over the life of the convertible notes which had a maturity date of June 30, 2016. As a result of the amendment to the warrants in 2013, the warrants are no longer indexed to the Company’s stock, are considered a derivative and therefore, are being accounted for as a liability. The warrant liability relating to the 455,514 shares of common stock which may be purchased upon exercise of the warrants is approximately $41,000 as of March 31, 2016 (see Note 12).

The Company’s Senior Debt and Subordinated Term Loan were refinanced on May 18, 2015.

Upon the consummation of the Monroe Credit Agreement, the Company paid in full all amounts due under (i) the Amended and Restated Revolving Credit and Term Loan Agreement, dated July 29, 2010, as amended (the “Senior Credit Agreement”), by and among the Company, Cyalume Technologies, Inc. (“CTI”), certain of the Company’s other subsidiaries and TD Bank, N.A., as administrative agent and lender, (ii) the Subordinated Term Loan, dated July 29, 2010, as amended (the “Subordinated Loan Agreement”), by and among the Company, CTI, certain of the Company’s other subsidiaries, Granite Creek Flexcap I, L.P., Patriot Capital II, L.P. and Granite Creek Partners Agent, L.L.C., as administrative agent, and (iii) the amended and restated promissory note, dated November 19, 2013, as amended, previously issued by the Company to JFC Technologies, LLC (the “Amended JFC Note”) (see Note 9), such that each of the Senior Credit Agreement, the Subordinated Loan Agreement and the Amended JFC Note was paid in full and the Company has no further financial obligations thereunder. At the time of the refinancing, the Company expensed the remaining unamortized issuance costs relating to the previous Senior Debt and Subordinated Term Loan.

Promissory Note Payable

On November 19, 2013, the Company entered into a legal settlement agreement. The executed settlement agreement provided for the Company to make a series of payments to Antonio Colon in the amount of $215,000 annually, for a total of $1,075,000 pursuant to the Promissory Note executed on November 19, 2013 (the “Promissory Note”). This Promissory Note bears interest at a rate of 2% annually and requires principal and interest payments each March and September. The Promissory Note has a maturity date of October 15, 2018.

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PREFERRED STOCK

3 Months Ended

Mar. 31, 2016

Preferred Stock, Number of Shares, Par Value and Other Disclosures [Abstract]

PREFERRED STOCK

6. PREFERRED STOCK

Series A Convertible Preferred Stock

The Company is authorized to issue 1,000,000 shares of preferred stock in one or more series with such designations, voting and other rights and preferences as may be determined from time to time by our Board of Directors.

On November 19, 2013, the Company entered into a Securities Purchase Agreement (the “Series A Purchase Agreement”) with US VC Partners, L.P. (the “Series A Investor”) for the purchase by the Investor of 123,077 units of securities of the Company for an aggregate purchase price of $4.0 million (or $32.50 per unit). Each security issued is comprised of: 1) one share of Series A Convertible Preferred Stock of the Company, at a par value of $0.001 per share (the “Series A Preferred Stock”); 2) one common stock warrant ( the “Common Warrant”); and 3) one preferred stock warrant (the “Preferred Warrant”).

Each share of Series A Preferred Stock may be converted at any time at the option of the holder into a number of shares of common stock initially equal to 50 shares of common stock, determined by dividing the Liquidation Value per share of Series A Preferred Stock by the applicable conversion price per share of Series A Preferred Stock. The initial conversion price was equal to $0.65, subject to customary adjustments, including for any accrued but unpaid dividends and pursuant to certain anti-dilution provisions. Pursuant to the Series A Certificate of Designation amended on July 30, 2014 (the “Amended Series A Certificate of Designation”), the conversion price per share of Series A Preferred Stock is now equal to $0.13664587. The Series A Preferred Stock is not subject to mandatory conversion at any time.

Upon voluntary or involuntary liquidation, dissolution or winding up of the Company, each holder of Series A Preferred Stock is entitled to a liquidation preference of $32.50 per share, plus any accrued but unpaid dividends, subject to customary adjustments as set forth in the Certificate of Designation (the “Series A Liquidation Value”).

Dividends on the Series A Preferred Stock accrue (payable in cash or in kind), whether or not declared by the Board and whether or not funds are available for the payment of dividends, at a rate of 12% per annum on the sum of the liquidation preference plus all accrued and accumulated dividends and will be payable quarterly in arrears in a) cash or b) newly issued shares of Series A Preferred Stock having an aggregate liquidation preference equal to the amount of such accrued dividends (“PIK Dividends”) at the option of the Company. All accrued and accumulated dividends on the convertible preferred stock shall be paid prior to and in preference to any other class of securities of the Company.

Each share of Series A Preferred Stock will be entitled to a number of votes equal to the number of shares of common stock into which such share is convertible and shall be entitled to vote with holders of outstanding shares of common stock, voting together as a single class, with respect to any and all matters presented to the stockholders of the Company for their action or consideration.

The requisite holders of the Series A Preferred Stock will have the right to cause the Company to redeem, out of funds legally available, all but not less than all of the then outstanding shares of Series A Preferred Stock, for a price per share equal to the Series A Liquidation Value of such shares from and after the fifth anniversary of the closing date of the Series A Purchase Agreement. Additionally, the Company will have the right to redeem all of the outstanding shares of Series A Preferred Stock from and after the eighth anniversary of the closing date of the Series A Purchase Agreement at a redemption price equal to the Series A Liquidation Value. As a result of the redemption provisions, the Series A Preferred Stock has been classified outside of permanent equity.

Series B Convertible Preferred Stock

On July 30, 2014, the Company entered into a Securities Purchase Agreement (the “Series Band C Purchase Agreement”) with Cova Small Cap Holdings, LLC (“Cova”), Bayonet Capital Fund I, LLC (see Note 9), and another investor (each, an “Investor”) for the purchase by the Investors of an aggregate of 1,000 units of securities of the Company (the “Units”) for an aggregate purchase price of $2.0 million (or $2,000.00 per Unit), with each Unit comprising (1) one share of Series B Convertible Preferred Stock of the Company, par value $0.001 per share (the “Series B Preferred Stock”), and (2) one share of Series C Preferred Stock of the Company, par value $0.001 per share (the “Series C Preferred Stock”). Approximately $1.3 million of the net proceeds from the sale of the Units was used to pay a contingent legal obligation.

The shares of Series B Preferred Stock have the rights and preferences set forth in the Certificate of Designation of Series B Convertible Preferred Stock, which was amended on May 15, 2015 (the “Amended Series B Certificate of Designation”). Pursuant to the Amended Series B Certificate of Designation, each share of Series B Preferred Stock ranks senior to the Company’s common stock (the “Common Stock”) and the Company’s Series A Preferred Stock with respect to payment of dividends and distribution of assets upon liquidation, dissolution or winding up of the Company. Upon the Company’s liquidation, sale to or merger with another corporation or other “Change of Control” (as such term is defined in the Amended Series B Certificate of Designation), each share of Series B Preferred Stock would be entitled to a liquidation preference in an amount equal to the amount per share that would have been payable had all shares of Series B Preferred Stock been converted into Common Stock immediately prior to such event in accordance with the terms of the Amended Series B Certificate of Designation, excluding for purposes of such calculation the liquidation preference payable to the holders of Series A Preferred Stock. Holders of the Series B Preferred Stock are entitled to convert at any time all or any portion of the shares of Series B Preferred Stock into a number of shares of Common Stock initially equal to 35,713.147 shares of Common Stock per share of Series B Preferred Stock (the “Conversion Number”). The Conversion Number is subject to customary adjustments, including for dividends, stock splits and other reorganizations affecting the Common Stock. In addition, the Conversion Number is subject to anti-dilution protections, subject to certain exceptions, if the Company issues or sells shares of Common Stock or other equity securities for no consideration or for consideration that is based on an equity valuation of the Company of less than $2.0 million in the aggregate (a “Trigger Issuance”). In the event of a Trigger Issuance, the Conversion Number shall be increased as of the close of business on the effective date of the Trigger Issuance to a number calculated as follows: (i) two-thirds of the Common Stock deemed Outstanding (as defined in the Amended Series A Certificate of Designation) immediately following such Trigger Issuance (excluding any Common Stock Deemed Outstanding as a result of the conversion of the Series B Preferred Stock) (ii) divided by 1,000. Each share of Series B Preferred Stock will automatically convert into shares of Common Stock on the tenth anniversary of its original issuance date, at the then-current Conversion Number. Each share of Series B Preferred Stock is entitled to a number of votes equal to the number of shares of Common Stock into which such share is convertible and will be entitled to vote with holders of outstanding shares of Common Stock, voting together as a single class, with respect to any and all matters presented to the stockholders of the Company for their action or consideration. The Series B Preferred Stock has been classified within permanent equity.

Series C Preferred Stock

The shares of Series C Preferred Stock have the rights and preferences set forth in the Certificate of Designation of Series C Preferred Stock, which was amended on May 15, 2015 (the “Amended Series C Certificate of Designation”). Pursuant to the Amended Series C Certificate of Designation, each share of Series C Preferred Stock ranks senior to the Common Stock, the Series A Preferred Stock, the Series B Preferred Stock and the Series D Preferred Stock with respect to payment of dividends and distribution of assets upon liquidation, dissolution or winding up of the Company. Upon the Company’s liquidation, sale to or merger with another corporation or other “Change of Control” (as such term is defined in the Amended Series C Certificate of Designation), each share of Series C Preferred Stock would be entitled to a liquidation preference equal to the sum of: (1) $3,000 per share (the “Base Liquidation Value”) and the (2) the amount, if any, by which the Base Value exceeds 150% of the purchase price (the “Excess Liquidation Value), plus any accrued but unpaid dividends, in each case subject to customary adjustments as set forth in the Amended Series C Certificate of Designation. Holders of the Series C Preferred Stock are entitled to cumulative quarterly dividends at a rate of 12% per annum, calculated based on an assumed price of $2,000 per share, payable in cash or in kind; provided that to the extent not paid in cash or by issuance of additional shares of Series C Preferred Stock on the last day of each calendar quarter (a “Dividend Payment Date”), all accrued dividends on any outstanding shares of Series C Preferred Stock shall accumulate and compound. In the event the Company has not paid in cash or by the issuance of additional shares of Series C Preferred Stock all accrued dividends on a Dividend Payment Date, at the election of holders of at least 75% of the outstanding shares of Series C Preferred Stock (the “Requisite Holders”), all such dividends accruing on the shares of Series C Preferred Stock will be paid in shares of Series C Preferred Stock. From and after the fifth anniversary of the issuance of the shares of Series C Preferred Stock, the Requisite Holders will have the right to elect to cause the Company to redeem, out of funds legally available therefore, all but not less than all of the then outstanding shares of Series C Preferred Stock, for a price per share equal to the Series C Liquidation Value for such shares. In addition, the Company has the right to redeem at any time, out of funds legally available therefore, all or any portion of the then outstanding shares of Series C Preferred Stock, for a price per share equal to the Series C Liquidation Value for such shares. The Series C Preferred Stock is not convertible into Common Stock or other securities of the Company, and does not have any voting rights. As a result of the redemption provisions, the Series C Preferred Stock has been classified outside of permanent equity. 

Series D Preferred Stock

In connection with the execution of the Monroe Credit Agreement, the Company entered into a Subscription Agreement (the “Subscription Agreement”) with Monroe Capital Corporation, Monroe Capital Senior Secured Direct Loan Fund LP, Monroe Capital Senior Secured Direct Loan Fund (Unleveraged) LP and Monroe Capital Partners Fund II, LP. Pursuant to the Subscription Agreement, the Company issued 10 shares of $0.001 par value per share Series D convertible preferred stock (the “Series D Convertible Preferred Stock”).  Each share of Series D Convertible Preferred Stock may be converted at any time at the option of the holder into a number of shares of common stock initially equal to 752,807.8 shares of common stock. The Series D Convertible Preferred Stock will automatically, without any action on the part of the holder thereof, be converted into that number of fully paid and nonassessable shares of the Company’s common stock equal to the conversion number at the time in effect. The Series D Convertible Preferred Stock has a mandatory conversion date on the tenth anniversary of the issuance date. The Series D Convertible Preferred Stock ranks senior to the Company’s Series A Preferred Stock and the Company’s Series B Preferred Stock. The Company’s Series C Preferred Stock ranks senior to the Series D Convertible Preferred Stock. The shares of Series D Preferred Stock have the rights and preferences set forth in the Certificate of Designation of Series D Convertible Preferred Stock (the “Series D Certificate of Designation”).

In the event of any voluntary or involuntary liquidation, the holders of the Series D Convertible Preferred Stock shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders before any payment shall be made to the holders of junior securities. The Series C Preferred Stockholders would receive the Base Liquidation Value first, and not be entitled to the Excess Liquidation Value (as defined in the Amended Certificate of Designation of the Series C Preferred Stock) until the holders of the Series D Convertible Preferred Stock receive a pro rata Liquidation Value amount in cash. If at any time the Company redeems the outstanding shares of Series A Preferred Stock or Series C Preferred Stock, the holders of the Series D Preferred Stock would have the right to elect to cause the Company to redeem, out of funds legally available therefore, all but not less than all of the then outstanding shares of Series D Preferred Stock, for a price per share equal to the Liquidation Value for such shares; provided that, prior to the Company paying the full redemption price for all outstanding shares of Series D Preferred Stock, the Company would not be permitted to pay (i) any amounts in excess of the Series C Base Liquidation Value upon the redemption of shares of Series C Preferred Stock or (ii) any amounts upon the redemption of shares of Series A Preferred Stock. In the event of a voluntary or involuntary liquidation, each share of Series D Preferred Stock would be entitled to a liquidation preference in an amount equal to the amount per share that would have been payable had all shares of Series D Preferred Stock been converted into Common Stock immediately prior to such event in accordance with the terms of the Series D Certificate of Designation, excluding for purposes of such calculation the liquidation preference payable to the holders of Series A Preferred Stock and the holders of Series B Preferred Stock. The Series D Preferred Stock does not have any voting rights, except that the written consent of the holders of a majority of the then-outstanding Series D Preferred Stock shall be required for the Company to take certain actions, including the amendment of its certificate of incorporation or bylaws in a manner that adversely affects the relative rights, preferences, privileges or powers of holders of Series D Preferred Stock. As a result of the redemption provisions, the Series D Convertible Preferred Stock has been classified outside of permanent equity.

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STOCKHOLDERS' EQUITY

3 Months Ended

Mar. 31, 2016

Stockholders' Equity Note [Abstract]

STOCKHOLDERS' EQUITY

7. STOCKHOLDERS’ EQUITY

Common Stock

The Company is authorized to issue 150,000,000 shares of common stock. Common stockholders are entitled to one vote for each share held of record on all matters to be voted on by stockholders. Common stockholders have no conversion, preemptive or other subscription rights and there are no sinking fund or redemption provisions applicable to the common stock.

Common Stock Purchase Warrants

Common stock purchase warrants accounted for within equity are recorded at their initial fair value and reported in stockholders’ equity as increases to additional paid-in capital. Warrants reported as equity, rather than liabilities (i) may not be net-cash settled, (ii) have contractual limits on the number of shares to be delivered in a net-share settlement and (iii) are supported by sufficient unissued common shares available to settle the outstanding warrants. Subsequent changes in fair value from the warrants’ initial fair value are not recognized as long as the warrants continue to merit classification as equity.

As of March 31, 2016 and December 31, 2015, respectively, warrants to purchase 455,514 shares of the Company’s common stock were outstanding (see Note 12). These warrants are not indexed to the Company’s stock, are considered a derivative and therefore, are being accounted for as a liability.

Pursuant to the terms of a letter agreement previously entered into between the Company and Dragonfly Capital Partners, LLC (“Dragonfly”) under which Dragonfly provided advisory services to the Company in connection with the Company’s debt financing, the Company paid $820,000 cash to Dragonfly and issued to Dragonfly a warrant on May 18, 2015 to purchase from the Company up to an aggregate of 1,003,744 shares of Common Stock (subject to customary adjustments) at an exercise price of $0.05 per share (the “Dragonfly Warrant”). The Dragonfly warrant is being accounted for within equity at its initial fair value. The Dragonfly Warrant was reflected at its relative fair value of approximately $43,000 in connection with the Monroe refinancing transaction.

Warrants to purchase the Company’s common stock were outstanding as follows as of March 31, 2016:

			Number of
	Number of		Shares
	Shares		Exercisable
	Under		Under		Exercise		Expiration
Warrant Holder	Warrant		Warrant		Price		Date
Granite Creek FlexCap I, L.P. (“Granite”)		267,950		267,950	$	0.01	November 19, 2023
Patriot Capital II, L.P. (“Patriot”)		187,564		187,564	$	0.01	November 19, 2023
Dragonfly Capital Partners, LLC (“Dragonfly”)		1,003,744		1,003,744	$	0.05	May 18, 2020

The fair value as of March 31, 2016 of the Granite and Patriot Warrants is estimated using the Black-Scholes pricing model with the following inputs:

	Granite and
	Patriot
	Warrants
Stock price of underlying equity	$	0.09
Exercise price	$	0.01
Expected term (years)		7.6
Risk-free interest rate		1.7	%
Estimated dividend yield		None
Volatility		166.9	%

The change in the fair value of the warrants liability during the three months ended March 31, 2016 is as follows (amounts in thousands):

	Granite and
	Patriot
	Warrants (see
	Note 12)
Warrant liability at December 31, 2015	$	54
Change in fair value of warrants		(13)
Warrant liability at March 31, 2016	$	41

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INCOME TAXES

3 Months Ended

Mar. 31, 2016

Income Tax Disclosure [Abstract]

INCOME TAXES

8. INCOME TAXES

During the three months ended March 31, 2016 and 2015, the Company incurred approximately $36,000 and $85,000, respectively, of foreign tax expense on CTSAS’s income. During the three months ended March 31, 2016, the Company incurred approximately $100,000 of U.S. tax expense. The Company has a valuation allowance against its U.S. deferred tax asset. The Company has a valuation allowance of approximately $12.2 million as of March 31, 2016 against deferred tax assets generated primarily as a result of foreign tax credits and net operating losses.

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RELATED PARTY TRANSACTIONS

3 Months Ended

Mar. 31, 2016

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

9. RELATED PARTY TRANSACTIONS

Financing Arrangements with Related Parties

In December 2012, the Company entered into a $2,100,000 unsecured promissory note with JFC Technologies, LLC (“JFC”), an entity controlled by James Schleck, a previous employee of CSP, who is an owner of a significant amount of the Company’s common shares and is a Board member. On November 19, 2013, the unsecured promissory note was amended (the “Amended JFC Note”). Pursuant to the Amended JFC Note, interest accrued at the rate of 12% per annum, retroactive to the date of the original note. On May 18, 2015, the Amended JFC Note of approximately $2.1 million and approximately $0.5 million of accrued interest on the Amended JFC Note were repaid in connection with the Company refinancing its debt. Pursuant to the Amended JFC Note, up to $1.0 million of the principal amount was convertible, at the option of JFC, into the number of shares of Series A Preferred Stock equal to the portion of the principal amount being converted divided by the conversion price of $32.50 per share. On May 18, 2015, $650 was converted into 20 shares of Series A Preferred Stock issued to James Schleck.

CSP leases property in Bound Brook, New Jersey, from Brook Industrial Park, LLC. This lease requires monthly lease payments of approximately $30,000 and ends on August 31, 2016, with extension options available.

Bayonet Capital Fund I, LLC, Brook Industrial Park, LLC and JFC are controlled by James Schleck. On July 30, 2014, 100 units of securities of the Company (the “Units”) were issued to Bayonet Capital Fund I, LLC (see Note 6), with each Unit comprising (1) one share of Series B Convertible Preferred Stock of the Company, par value $0.001 per share (the “Series B Preferred Stock”), and (2) one share of Series C Preferred Stock of the Company, par value $0.001 per share (the “Series C Preferred Stock”).

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NET INCOME (LOSS) PER COMMON SHARE

3 Months Ended

Mar. 31, 2016

Earnings Per Share [Abstract]

NET INCOME (LOSS) PER COMMON SHARE

10. NET INCOME (LOSS) PER COMMON SHARE

Basic earnings (loss) per common share is computed by dividing net income (loss) available to common stockholders by the basic weighted average number of common shares outstanding. Diluted earnings (loss) per common share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares and dilutive potential common share equivalents then outstanding. Potential common share equivalents consist of (i) shares issuable upon the exercise of warrants and options (using the “treasury stock” method), (ii) unvested restricted stock awards (using the “treasury stock” method) and (iii) shares issuable upon conversion of convertible notes and convertible preferred stock using the “if-converted” method.

	(in thousands, except shares and per share information)
	Three Months Ended March 31,
	2016		2015
Numerator (in thousands):
Net income (loss)	$	479	$	(67)
Series A convertible preferred stock dividends		(154)		(135)
Series C preferred stock dividends		(71)		(62)
Net income (loss) available to common stockholders – basic	$	254	$	(264)
Effect of dilutive securities:
Add: Series A convertible preferred stock dividends		154		0
Less: Change in fair value of warrant liability for dilutive warrants income		(13)		0
Income (loss) available to common stockholders – diluted	$	395	$	(264)

	(in thousands, except shares and per share information)
	Three Months Ended March 31,
	2016		2015
Denominator:
Weighted average common shares outstanding – basic		21,400,244		21,400,244
Weighted average effect of dilutive common equivalent shares:
Assumed conversion of Series A convertible preferred stock		38,723,815		0
Assumed conversion of Series B convertible preferred stock		35,713,147		0
Assumed conversion of Series D convertible preferred stock		7,528,078		0
Warrants		862,958		0
Options		9,152		0
Weighted average common shares outstanding – diluted		104,237,394		21,400,244
Income (loss) per common share:
Basic	$	0.02	$	(0.01)
Diluted	$	0.00	$	(0.01)

The following potentially dilutive common share equivalents were excluded from the calculation of diluted earnings (loss) per common share because their effect was antidilutive for each of the periods presented:

	Three Months Ended March 31,
	2016		2015
Options		1,258,082		10,347,322
Series A convertible preferred stock		0		33,401,765
Series B convertible preferred stock		0		35,713,147
Amended related party note		0		7,318,187
Convertible notes payable		0		2,666,667
Warrants		0		455,514

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COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2016

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

11. COMMITMENTS AND CONTINGENCIES

Legal

From time to time and in the ordinary course of business, the Company may be subject to various claims, charges, and litigation. At March 31, 2016 and December 31, 2015, the Company did not have any pending claims, charges or litigation that it expects would have a material adverse effect on its consolidated financial position, results of operations, or cash flows.

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FAIR VALUES OF ASSETS AND LIABILITIES

3 Months Ended

Mar. 31, 2016

Fair Value Disclosures [Abstract]

FAIR VALUES OF ASSETS AND LIABILITIES

12. FAIR VALUES OF ASSETS AND LIABILITIES

Under U.S. GAAP, the Company is required to record certain financial assets and liabilities at fair value and may choose to record other financial assets and financial liabilities at fair value as well. Also under U.S. GAAP, the Company is required to record nonfinancial assets and liabilities at fair value due to events that may or may not recur in the future, such as an impairment event. When required to record such assets and liabilities at fair value, that fair value is estimated using an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. That fair value is determined based on significant inputs contained in a fair value hierarchy as follows:

Level 1	Quoted prices for identical assets or liabilities in active markets to which we have access at the measurement date.
Level 2	Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3	Unobservable inputs for the asset or liability.

There are three general valuation techniques that may be used to measure fair value, as described below:

Market Approach	Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. Prices may be indicated by pricing guides, sale transactions, market trades, or other sources.
Cost Approach	Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).
Income Approach	Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about the future amounts (includes present value techniques and option-pricing models). Net present value is an income approach where a stream of expected cash flows is discounted at an appropriate market interest rate.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities itemized below were measured at fair value on a recurring basis at March 31, 2016 (all amounts in thousands):

	Level 1 Quoted Prices in Active Markets for Identical Assets		Level 2 Significant Other Observable Inputs		Level 3 Significant Unobservable Inputs		Assets/ (Liabilities) At Fair Value
Warrants (see Note 7) (1)	$	0	$	0	$	(41)	$	(41)
	$	0	$	0	$	(41)	$	(41)

⁽¹⁾ The Company has classified its warrants liability which could be potentially settled in cash within Level 3 because the fair values are determined using significant unobservable inputs into the Black-Scholes pricing model.

The table below presents reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (all amounts in thousands):

	March 31, 2016		December 31, 2015
Warrants liability:
Balance at the beginning of period	$	54	$	25
Change in fair value of warrants		(13)		29
Balance at the end of period	$	41	$	54

The Company has other financial instruments, such as cash, accounts receivable, due from related party, accounts payable, notes payable and a line of credit. The Company believes the carrying amounts of those assets and liabilities approximate their fair value since those carrying amounts have been estimated to approximate the exit price which would be received to sell these assets or pay to transfer these liabilities to a market participant.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

During the three months ended March 31, 2016, none of our assets or liabilities were remeasured at fair value on a nonrecurring basis and no assets were identified as impaired as of March 31, 2016.

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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

3 Months Ended

Mar. 31, 2016

Supplemental Cash Flow Elements [Abstract]

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

13. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash Paid for Interest and Income Taxes (all amounts in thousands):

	Three Months Ended
	March 31
	2016		2015
Interest	$	505	$	120
Income taxes		98		31

Non-Cash Investing and Financing Activities (all amounts in thousands):

	Three Months Ended
	March 31,
	2016		2015
Series A Convertible Preferred stock accrued dividend	$	154	$	135
Series C Preferred stock accrued dividend		71		62

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NEW ACCOUNTING PRONOUNCEMENTS

3 Months Ended

Mar. 31, 2016

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

NEW ACCOUNTING PRONOUNCEMENTS

14. NEW ACCOUNTING PRONOUNCEMENTS

The following are recent accounting pronouncements that have affected our consolidated financial statements or may affect them in the future.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”). The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. As a result, this guidance is now effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017 and early adoption is permitted only as of annual reporting periods (including interim reporting periods within those reporting periods) beginning after December 15, 2016. Entities have the option of using either a full retrospective or a modified approach to adopt the guidance. The Company is in the process of determining the potential effects on the consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Topic 915): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 states that in connection with preparing financial statements for each annual and interim reporting period, an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). ASU 2014-15 will be effective for annual and interim periods beginning on or after December 15, 2016, and will be effective for the Company beginning on January 1, 2017. Early adoption is permitted. The Company is currently evaluating the impact, if any, of the adoption of this update.

In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). ASU 2015-03 states that entities that have historically presented debt issuance costs as an asset, related to a recognized debt liability, are required to present those costs as a direct deduction from the carrying amount of that debt liability. This presentation will result in debt issuance costs being presented the same way debt discounts have historically been handled. ASU 2015-03 does not change the recognition, measurement, or subsequent measurement guidance for debt issuance costs. This guidance was effective for the Company as of January 1, 2016. This new guidance reduced total assets and total long-term debt on its condensed consolidated balance sheets by amounts classified as deferred debt issuance costs relating to the Company’s Term A Loan and Delayed Draw Loan, but did not have any other effect on its condensed consolidated financial statements when adopted.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”). The amendments in ASU 2015-11 require an entity to measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendments do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. This guidance is effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. A reporting entity should apply the amendments prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is in the process of determining the potential effects on the consolidated financial statements.

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740) (“ASU 2015-17”). ASU 2015-17 simplifies the presentation of deferred income taxes by requiring that deferred tax assets and liabilities be classified as noncurrent on the balance sheet instead of separating into current and noncurrent amounts. ASU 2015-17 will be effective for annual periods beginning on or after December 15, 2016 and may be applied either prospectively or retrospectively. Early adoption is permitted. The Company previously elected to early adopt this guidance as of December 31, 2015 on a prospective basis. As a result, the Company reclassified deferred tax assets classified as current to noncurrent and deferred tax liabilities classified as current to noncurrent in the December 31, 2015 consolidated balance sheet. Prior balance sheets were not retrospectively adjusted.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10) (“ASU 2016-01”), which updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01 will be effective for the Company beginning in its first quarter of 2019 and early adoption is not permitted. The Company does not expect the adoption of ASU 2016-01 will have a material impact on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases   (Topic 842) (“ASU 2016-02”), which requires companies that are lessees to recognize a right-of-use asset and lease liability for most leases that do not meet the definition of a short-term lease. For income statement purposes, leases will continue to be classified as either operating or financing. Classification will be based on criteria that are largely similar to those applied in current lease accounting. This standard will result in extensive qualitative and quantitative disclosure changes. This standard will be effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. The Company is currently evaluating the impact of ASU 2016-02 on its consolidated financial statements.

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SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2016

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

15. SUBSEQUENT EVENTS

Pursuant to the terms of the Monroe Credit Agreement, the Company made an excess cash payment of approximately $0.5 million on May 10, 2016, which reduced the principal of the Company’s Term A Loan. The excess cash payment is calculated based on the definition of excess cash flow under the Monroe Credit Agreement.

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INVENTORIES (Tables)

3 Months Ended

Mar. 31, 2016

Inventory Disclosure [Abstract]

INVENTORIES

Inventories consist of the following (all amounts in thousands) :

	March 31, 2016		December 31, 2015
Raw materials	$	4,339	$	4,406
Work-in-process		1,854		1,809
Finished goods		1,408		1,313
	$	7,601	$	7,528

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CREDIT LINE AND NOTES PAYABLE (Tables)

3 Months Ended

Mar. 31, 2016

Debt Disclosure [Abstract]

Schedule of Debt

Outstanding notes payable consist of (all amounts in thousands):  

	March 31, 2016		December 31, 2015
Monroe Term A Loan	$	16,778	$	17,138
Delayed Draw Loan		1,463		1,481
Promissory Note Payable		538		645
Total		18,779		19,264
Less: Unamortized debt discount and unamortized debt issuance costs		(3,590)		(3,783)
Less: Current portion of notes payable, including current portion of unamortized debt discount and current portion of unamortized debt issuance costs		(385)		(274)
Notes payable, net of current portion	$	14,804	$	15,207

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STOCKHOLDERS' EQUITY (Tables)

3 Months Ended

Mar. 31, 2016

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Schedule of Stockholders Equity Note, Warrants or Rights

Warrants to purchase the Company’s common stock were outstanding as follows as of March 31, 2016:

			Number of
	Number of		Shares
	Shares		Exercisable
	Under		Under		Exercise		Expiration
Warrant Holder	Warrant		Warrant		Price		Date
Granite Creek FlexCap I, L.P. (“Granite”)		267,950		267,950	$	0.01	November 19, 2023
Patriot Capital II, L.P. (“Patriot”)		187,564		187,564	$	0.01	November 19, 2023
Dragonfly Capital Partners, LLC (“Dragonfly”)		1,003,744		1,003,744	$	0.05	May 18, 2020

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions

The fair value as of March 31, 2016 of the Granite and Patriot Warrants is estimated using the Black-Scholes pricing model with the following inputs:

	Granite and
	Patriot
	Warrants
Stock price of underlying equity	$	0.09
Exercise price	$	0.01
Expected term (years)		7.6
Risk-free interest rate		1.7	%
Estimated dividend yield		None
Volatility		166.9	%

Schedule Of Change In The Fair Value Of The Warrants Liability

The change in the fair value of the warrants liability during the three months ended March 31, 2016 is as follows (amounts in thousands):

	Granite and
	Patriot
	Warrants (see
	Note 12)
Warrant liability at December 31, 2015	$	54
Change in fair value of warrants		(13)
Warrant liability at March 31, 2016	$	41

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NET INCOME (LOSS) PER COMMON SHARE (Tables)

3 Months Ended

Mar. 31, 2016

Earnings Per Share [Abstract]

Net Income Per Common Share

	(in thousands, except shares and per share information)
	Three Months Ended March 31,
	2016		2015
Numerator (in thousands):
Net income (loss)	$	479	$	(67)
Series A convertible preferred stock dividends		(154)		(135)
Series C preferred stock dividends		(71)		(62)
Net income (loss) available to common stockholders – basic	$	254	$	(264)
Effect of dilutive securities:
Add: Series A convertible preferred stock dividends		154		0
Less: Change in fair value of warrant liability for dilutive warrants income		(13)		0
Income (loss) available to common stockholders – diluted	$	395	$	(264)

	(in thousands, except shares and per share information)
	Three Months Ended March 31,
	2016		2015
Denominator:
Weighted average common shares outstanding – basic		21,400,244		21,400,244
Weighted average effect of dilutive common equivalent shares:
Assumed conversion of Series A convertible preferred stock		38,723,815		0
Assumed conversion of Series B convertible preferred stock		35,713,147		0
Assumed conversion of Series D convertible preferred stock		7,528,078		0
Warrants		862,958		0
Options		9,152		0
Weighted average common shares outstanding – diluted		104,237,394		21,400,244
Income (loss) per common share:
Basic	$	0.02	$	(0.01)
Diluted	$	0.00	$	(0.01)

Common Shares Issuable upon Vesting or Exercise of Convertible Securities

The following potentially dilutive common share equivalents were excluded from the calculation of diluted earnings (loss) per common share because their effect was antidilutive for each of the periods presented:

	Three Months Ended March 31,
	2016		2015
Options		1,258,082		10,347,322
Series A convertible preferred stock		0		33,401,765
Series B convertible preferred stock		0		35,713,147
Amended related party note		0		7,318,187
Convertible notes payable		0		2,666,667
Warrants		0		455,514

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FAIR VALUES OF ASSETS AND LIABILITIES (Tables)

3 Months Ended

Mar. 31, 2016

Fair Value Disclosures [Abstract]

Assets and Liabilities Measured at Fair Value on Recurring Basis

Assets and liabilities itemized below were measured at fair value on a recurring basis at March 31, 2016 (all amounts in thousands):

	Level 1 Quoted Prices in Active Markets for Identical Assets		Level 2 Significant Other Observable Inputs		Level 3 Significant Unobservable Inputs		Assets/ (Liabilities) At Fair Value
Warrants (see Note 7) (1)	$	0	$	0	$	(41)	$	(41)
	$	0	$	0	$	(41)	$	(41)

⁽¹⁾ The Company has classified its warrants liability which could be potentially settled in cash within Level 3 because the fair values are determined using significant unobservable inputs into the Black-Scholes pricing model.

Reconciliation of Contingent Consideration Liability Measured at Fair Value on Recurring Basis Using Significant Unobservable Inputs

The table below presents reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (all amounts in thousands):

	March 31, 2016		December 31, 2015
Warrants liability:
Balance at the beginning of period	$	54	$	25
Change in fair value of warrants		(13)		29
Balance at the end of period	$	41	$	54

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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (Tables)

3 Months Ended

Mar. 31, 2016

Supplemental Cash Flow Elements [Abstract]

Cash Paid for Interest and Income Taxes

Cash Paid for Interest and Income Taxes (all amounts in thousands):

	Three Months Ended
	March 31
	2016		2015
Interest	$	505	$	120
Income taxes		98		31

Non-Cash Investing and Financing Activities

Non-Cash Investing and Financing Activities (all amounts in thousands):

	Three Months Ended
	March 31,
	2016		2015
Series A Convertible Preferred stock accrued dividend	$	154	$	135
Series C Preferred stock accrued dividend		71		62

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INVENTORIES (Schedule Of Inventories) (Detail) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Schedule of Inventory [Line Items]
Raw materials	$ 4,339	$ 4,406
Work-in-process	1,854	1,809
Finished goods	1,408	1,313
Inventory, Net	$ 7,601	$ 7,528

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CREDIT LINE AND NOTES PAYABLE (Outstanding Notes Payable) (Detail) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Promissory Note Payable	$ 538	$ 645
Total	18,779	19,264
Less: Unamortized debt discount and unamortized debt issuance costs	(3,590)	(3,783)
Less: Current portion of notes payable, including current portion of unamortized debt discount and current portion of unamortized debt issuance costs	(385)	(274)
Notes payable, net of current portion	14,804	15,207
Monroe Term A Loan [Member]
Bank Loans	16,778	17,138
Delayed Draw Loan [Member]
Bank Loans	$ 1,463	$ 1,481

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CREDIT LINE AND NOTES PAYABLE (Additional Information) (Detail)		1 Months Ended				3 Months Ended
	Aug. 03, 2015 USD ($)	May. 18, 2015 USD ($) shares	Dec. 31, 2013 $ / shares shares	Nov. 19, 2013 USD ($)	Jul. 29, 2010 USD ($) $ / shares shares	Mar. 31, 2016 USD ($) shares	Mar. 31, 2016 EUR (€) shares	Dec. 31, 2015 USD ($) shares	Dec. 31, 2010 $ / shares shares
Notes Payable [Line Items]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights | shares						455,514	455,514
Proceeds from Issuance of Debt						$ 8,500,000
Line of Credit Facility, Maximum Borrowing Capacity						848,000	€ 750,000
Line of Credit, Current						1,000,000		$ 1,000,000
Term A Loan And Delayed Draw Loan [Member]
Notes Payable [Line Items]
Debt Instrument, Unamortized Discount						$ 2,400,000
Delayed Draw Loan [Member]
Notes Payable [Line Items]
Debt Instrument, Interest Rate, Stated Percentage						20.00%	20.00%
Series D Convertible Preferred Stock [Member]
Notes Payable [Line Items]
Preferred Stock Shares Issued | shares						10	10	10
Long-term Debt, Fair Value						$ 2,800,000
Debt Instrument, Unamortized Discount						$ 400,000
Conversion of Stock, Shares Converted | shares						752,807.8
Monroe Credit Agreement [Member]
Notes Payable [Line Items]
Debt Instrument, Maturity Date		Jun. 30, 2017
Debt Instrument, Periodic Payment	$ 1,400,000	$ 11,300,000
Debt Instrument, Face Amount		$ 25,000,000
Line of Credit Facility, Interest Rate Description		interest at a rate of the one-month LIBOR plus 9%
Debt Instrument, Term		5 years
Line of Credit Facility, Covenant Terms						a fixed charge coverage ratio of 1.25 to 1.00; (ii) a senior debt to EBITDA ratio of 4.50 to 1.00, decreasing to 1.50 to 1.00 over the term of the loans; and (iii) a twelve month trailing EBITDA, measured quarterly, with the amounts ranging from $4,750,000, increasing up to $7.0 million over the term of the loans
Line of Credit Facility, Frequency of Payment and Payment Terms						quarterly amortization payments on the last day of each calendar quarter in an aggregate principal amount equal to 0.625% of the original principal amount of the Delayed Draw Loan, increasing to 1.25% on March 31, 2016, and increasing to 2.5% on March 31, 2017, with the balance payable on the maturity date of May 18, 2020.
Line of Credit Facility, Description						$5.0 million and (ii) the sum of 85% of all eligible accounts receivable plus 60% of all eligible inventory.
Debt Instrument, Periodic Payment Terms, Balloon Payment to be Paid	1,500,000
Debt Issuance Cost	100,000
Debt Instrument, Annual Principal Payment	$ 2,000,000
Monroe Credit Agreement [Member] | Term A Loan And Delayed Draw Loan [Member]
Notes Payable [Line Items]
Debt Instrument, Maturity Date		May 18, 2020
Monroe Credit Agreement [Member] | Series D Preferred Stock [Member]
Notes Payable [Line Items]
Preferred Stock Shares Issued | shares		10
Monroe Credit Agreement [Member] | Quarterly Repayments Beginning on June 30, 2015 through March 31, 2016 [Member]
Notes Payable [Line Items]
Debt Instrument, Periodic Payment		$ 113,000
Monroe Credit Agreement [Member] | Quarterly Repayments Beginning On June 30, 2016 Through March 31, 2017 [Member]
Notes Payable [Line Items]
Debt Instrument, Periodic Payment		225,000
Monroe Credit Agreement [Member] | Quarterly Repayments Of Beginning on June 30, 2017 through March 31, 2020 [Member]
Notes Payable [Line Items]
Debt Instrument, Periodic Payment		450,000
Monroe Credit Agreement [Member] | Revolving Credit Facility [Member]
Notes Payable [Line Items]
Debt Instrument, Face Amount		5,000,000
Monroe Credit Agreement [Member] | Secured Debt [Member]
Notes Payable [Line Items]
Debt Instrument, Face Amount		18,000,000
Monroe Credit Agreement [Member] | Legal Reserve Delayed Draw Term Loan [Member]
Notes Payable [Line Items]
Debt Instrument, Face Amount		$ 2,000,000
TD Bank [Member]
Notes Payable [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity						$ 5,000,000
Line of Credit Facility, Interest Rate During Period						10.00%
Line of Credit, Current						$ 1,000,000
Line of Credit Facility, Remaining Borrowing Capacity						$ 3,500,000
Promissory Notes Payable [Member]
Notes Payable [Line Items]
Debt Instrument, Interest Rate, Stated Percentage				2.00%
Debt Instrument, Periodic Payment				$ 215,000
Debt Instrument, Face Amount				$ 1,075,000
Before Amendment [Member] | Monroe Credit Agreement [Member]
Notes Payable [Line Items]
Debt Instrument, Maturity Date		Mar. 31, 2020
Maximum [Member] | Monroe Credit Agreement [Member]
Notes Payable [Line Items]
Debt Instrument, Maturity Date						May 18, 2020
Subordinated Term Loan [Member]
Notes Payable [Line Items]
Debt Instrument, Maturity Date		Mar. 31, 2017	Jun. 30, 2016
Class of Warrant or Right, Number of Securities Called by Warrants or Rights | shares			455,514						160,000
Class of Warrant or Right, Exercise Price of Warrants or Rights | $ / shares			$ 0.01						$ 1.50
Warrants Not Settleable in Cash, Fair Value Disclosure						$ 41,000
Term Loan [Member]
Notes Payable [Line Items]
Debt Instrument, Interest Rate, Stated Percentage						17.00%	17.00%
Debt Instrument, Maturity Date		Jun. 30, 2016
Granite Creek Partners Agent Llc [Member]
Notes Payable [Line Items]
Subordinated Borrowing, Interest Rate					11.00%
Debt Instrument, Maturity Date					Jun. 30, 2016
Debt Instrument Convertible Number Of Equity Instrument | shares					2,666,667
Debt Instrument, Convertible, Conversion Price | $ / shares					$ 3.19
Issuance Of Loan					$ 8,500,000

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PREFERRED STOCK (Additional Information) (Detail) - USD ($) $ / shares in Units, $ in Millions	1 Months Ended		3 Months Ended
	Jul. 30, 2014	Nov. 19, 2013	Mar. 31, 2016	Dec. 31, 2015
Series A Preferred Stock [Member]
Preferred Stock Disclosure [Line Items]
Preferred Stock, Liquidation Preference Per Share			$ 32.50
Convertible Preferred Stock, Shares Issued upon Conversion			50
Convertible Preferred Stock Conversion Price			$ 0.65
Conversion Price			$ 0.13664587
Series A Convertible Preferred Stock [Member]
Preferred Stock Disclosure [Line Items]
Preferred Stock, Shares Authorized			1,000,000	1,000,000
Preferred Stock Par Or Stated Value Per Share			$ 0.001	$ 0.001
Preferred Stock, Dividend Rate, Percentage			12.00%
Preferred Stock Shares Issued			123,097	123,077
Series A Convertible Preferred Stock [Member] | Minimum [Member]
Preferred Stock Disclosure [Line Items]
Preferred Stock, Liquidation Preference Per Share			$ 3,000
Series C Preferred Stock [Member]
Preferred Stock Disclosure [Line Items]
Preferred Stock, Shares Authorized			1,000,000	1,000,000
Preferred Stock Par Or Stated Value Per Share	$ 0.001		$ 0.001	$ 0.001
Preferred Stock, Dividend Rate, Percentage			12.00%
Preferred Stock Liquidation Preference Description			each share of Series C Preferred Stock would be entitled to a liquidation preference equal to the sum of: (1) $3,000 per share (the “Base Liquidation Value”) and the (2) the amount, if any, by which the Base Value exceeds 150% of the purchase price (the “Excess Liquidation Value), plus any accrued but unpaid dividends, in each case subject to customary adjustments as set forth in the Amended Series C Certificate of Designation
Preferred Stock Dividend Payable Percentage Of Shares			75.00%
Accrued Dividends Payable In Cash Or In Kind Per Share			$ 2,000
Preferred Stock Shares Issued			1,000	1,000
Series B convertible preferred stock [Member]
Preferred Stock Disclosure [Line Items]
Preferred Stock, Shares Authorized			1,000,000	1,000,000
Preferred Stock Par Or Stated Value Per Share			$ 0.001	$ 0.001
Conversion of Stock, Shares Converted	35,713.147
Preferred Stock Shares Issued			1,000	1,000
Series D Convertible Preferred Stock [Member]
Preferred Stock Disclosure [Line Items]
Preferred Stock, Shares Authorized			1,000,000	1,000,000
Preferred Stock Par Or Stated Value Per Share			$ 0.001	$ 0.001
Conversion of Stock, Shares Converted			752,807.8
Preferred Stock Shares Issued			10	10
Purchase Agreement [Member] | Series A Convertible Preferred Stock [Member]
Preferred Stock Disclosure [Line Items]
Preferred Stock Par Or Stated Value Per Share		$ 0.001
Purchase Agreement [Member] | Series B convertible preferred stock [Member]
Preferred Stock Disclosure [Line Items]
Preferred Stock, Conversion Basis	if the Company issues or sells shares of Common Stock or other equity securities for no consideration or for consideration that is based on an equity valuation of the Company of less than $2.0 million in the aggregate (a Trigger Issuance). In the event of a Trigger Issuance, the Conversion Number shall be increased as of the close of business on the effective date of the Trigger Issuance to a number calculated as follows: (i) two-thirds of the Common Stock deemed Outstanding (as defined in the Amended Series A Certificate of Designation) immediately following such Trigger Issuance (excluding any Common Stock Deemed Outstanding as a result of the conversion of the Series B Preferred Stock) (ii) divided by 1,000. Each share of Series B Preferred Stock will automatically convert into shares of Common Stock on the tenth anniversary of its original issuance date, at the then-current Conversion Number.
Series A Purchase Agreement [Member] | Series A Convertible Preferred Stock [Member]
Preferred Stock Disclosure [Line Items]
Stock Issued During Period, Shares, Other		123,077
Stock Issued During Period, Value, Other		$ 4.0
Sale of Stock, Price Per Share		$ 32.50
Series B and C Purchase Agreement [Member] | Series B convertible preferred stock [Member]
Preferred Stock Disclosure [Line Items]
Stock Issued During Period, Shares, Other	1,000
Stock Issued During Period, Value, Other	$ 2.0
Sale of Stock, Price Per Share	$ 2,000.00
Preferred Stock Par Or Stated Value Per Share	$ 0.001
Net Proceeds from Sale of Preferred Units Used to Pay Contingent Legal Obligation	$ 1.3
Series B and C Purchase Agreement [Member] | Series C Convertible Preferred Stock [Member]
Preferred Stock Disclosure [Line Items]
Preferred Stock Par Or Stated Value Per Share	$ 0.001

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STOCKHOLDERS' EQUITY (Warrants To Purchase Common Stock Outstanding) (Detail) - $ / shares	3 Months Ended
	Mar. 31, 2016	May. 18, 2015
Class of Warrant or Right [Line Items]
Number of Shares Exercisable Under Warrant	455,514
Granite Creek FlexCap I, L.P [Member]
Class of Warrant or Right [Line Items]
Number of Shares Under Warrant	267,950
Number of Shares Exercisable Under Warrant	267,950
Exercise Price	$ 0.01
Expiration Date	Nov. 19, 2023
Patriot Capital II, L.P [Member]
Class of Warrant or Right [Line Items]
Number of Shares Under Warrant	187,564
Number of Shares Exercisable Under Warrant	187,564
Exercise Price	$ 0.01
Expiration Date	Nov. 19, 2023
Dragonfly Capital Partners, LLC [Member]
Class of Warrant or Right [Line Items]
Number of Shares Under Warrant	1,003,744
Number of Shares Exercisable Under Warrant	1,003,744	1,003,744
Exercise Price	$ 0.05	$ 0.05
Expiration Date	May 18, 2020

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STOCKHOLDERS' EQUITY (Granite and Patriot Warrants is estimated using the Black-Scholes pricing model) (Detail) - Granite and Patriot Warrants [Member]	3 Months Ended
	Mar. 31, 2016 $ / shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock price of underlying equity	$ 0.09
Exercise price	$ 0.01
Expected term (years)	7 years 7 months 6 days
Risk-free interest rate	1.70%
Estimated dividend yield	0.00%
Volatility	166.90%

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STOCKHOLDERS' EQUITY (Change In The Fair Value Of The Warrants Liability) (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Class of Warrant or Right [Line Items]
Change in fair value of warrants	$ (13)	$ 20
Granite and Patriot Warrants [Member]
Class of Warrant or Right [Line Items]
Warrant liability at December 31, 2015	54
Change in fair value of warrants	(13)
Warrant liability at March 31, 2016	$ 41

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STOCKHOLDERS' EQUITY (Additional Information) (Detail) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended	3 Months Ended
	May. 18, 2015	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Stockholders Equity Additional Information [Line Items]
Common stock, shares authorized		150,000,000		150,000,000
Class Of Warrant Or Right, Number Of Securities Called By Warrants Or Rights		455,514
Fair Value Adjustment of Warrants		$ (13)	$ 20
Dragonfly Capital Partners, LLC [Member]
Stockholders Equity Additional Information [Line Items]
Debt Issuance Cost	$ 820
Class Of Warrant Or Right, Number Of Securities Called By Warrants Or Rights	1,003,744	1,003,744
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 0.05	$ 0.05
Monroe Warrant [Member] | Dragonfly Warrant [Member]
Stockholders Equity Additional Information [Line Items]
Fair Value Adjustment of Warrants		$ 43
Subordinated Term Loan [Member]
Stockholders Equity Additional Information [Line Items]
Class Of Warrant Or Right, Number Of Securities Called By Warrants Or Rights		455,514		455,514

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INCOME TAXES (Additional Information) (Detail) - USD ($)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Current Foreign Tax Expense (Benefit)	$ 36,000	$ 85,000
Deferred Tax Assets, Valuation Allowance, Noncurrent	12,200,000
Current Income Tax Expense (Benefit), Total	$ 100,000

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RELATED PARTY TRANSACTIONS (Additional Information) (Detail) - USD ($)	1 Months Ended	3 Months Ended
	May. 18, 2015	Mar. 31, 2016	Dec. 31, 2015	Jul. 30, 2014	Nov. 19, 2013	Dec. 31, 2012
Series B Preferred Stock [Member]
Related Party Transaction [Line Items]
Preferred Stock Par Or Stated Value Per Share				$ 0.001
Series C Preferred Stock [Member]
Related Party Transaction [Line Items]
Preferred Stock Par Or Stated Value Per Share		$ 0.001	$ 0.001	$ 0.001
Jfc [Member]
Related Party Transaction [Line Items]
Unsecured Debt						$ 2,100,000
Amended JFC Note [Member]
Related Party Transaction [Line Items]
Debt Instrument, Interest Rate, Stated Percentage					12.00%
Debt Instrument, Convertible, Conversion Price					$ 32.50
Convertible Debt					$ 1,000,000
Repayments of Related Party Debt	$ 2,100,000
Repayments Of Related Party Debt, Accrued interest	500,000
James Schleck [Member] | Series A Preferred Stock [Member]
Related Party Transaction [Line Items]
Debt Conversion, Converted Instrument, Amount	$ 650
Debt Conversion, Converted Instrument, Shares Issued	20
Cyalume Specialty Products Inc [Member]
Related Party Transaction [Line Items]
Monthly Lease Payments Due To Related Parties		$ 30,000
Lease Expiration Date		Aug. 31, 2016
Bayonet Capital Fund I, LLC [Member]
Related Party Transaction [Line Items]
Preferred Units, Issued				100

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NET INCOME (LOSS) PER COMMON SHARE (Net Income (Loss) Per Common Share) (Detail) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Numerator:
Net income (loss)	$ 479	$ (67)
Net income (loss) available to common stockholders - basic	254	(264)
Effect of dilutive securities:
Add: Series A convertible preferred stock dividends	154	0
Less: Change in fair value of warrant liability for dilutive warrants income	(13)	0
Income (loss) available to common stockholders - diluted	$ 395	$ (264)
Denominator:
Weighted average common shares outstanding - basic	21,400,244	21,400,244
Weighted average effect of dilutive common equivalent shares:
Warrants	862,958	0
Options	9,152	0
Weighted average common shares outstanding - diluted	104,237,394	21,400,244
Income (loss) per common share:
Basic	$ 0.02	$ (0.01)
Diluted	$ 0.00	$ (0.01)
Series A convertible preferred stock dividends [Member]
Numerator:
Preferred stock dividends	$ (154)	$ (135)
Series C preferred stock dividends [Member]
Numerator:
Preferred stock dividends	(71)	(62)
Series A Preferred Stock [Member]
Effect of dilutive securities:
Add: Series A convertible preferred stock dividends	$ 154	$ 0
Weighted average effect of dilutive common equivalent shares:
Assumed conversion of convertible preferred stock	38,723,815	0
Series B Preferred Stock [Member]
Weighted average effect of dilutive common equivalent shares:
Assumed conversion of convertible preferred stock	35,713,147	0
Series D Preferred Stock [Member]
Weighted average effect of dilutive common equivalent shares:
Assumed conversion of convertible preferred stock	7,528,078	0

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NET INCOME (LOSS) PER COMMON SHARE (Dilutive Common Share Equivalents Were Excluded From The Calculation Of Diluted Net Income Per Common Share) (Detail) - shares	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Employee Stock Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	1,258,082	10,347,322
Series A convertible preferred stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	0	33,401,765
Series B convertible preferred stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	0	35,713,147
Warrant [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	0	455,514
Convertible notes payable [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	0	2,666,667
Amended related party note [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	0	7,318,187

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FAIR VALUES OF ASSETS AND LIABILITIES (Assets And Liabilities Measured At Fair Value On Recurring Basis) (Detail) $ in Thousands	Mar. 31, 2016 USD ($)
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fair Value Assets And Liabilities Measured On Recurring Basis	$ (41)
Warrants [Member]
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fair Value Assets And Liabilities Measured On Recurring Basis	(41)	[1]
Level 1 Quoted Prices in Active Markets for Identical Assets [Member]
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fair Value Assets And Liabilities Measured On Recurring Basis	0
Level 1 Quoted Prices in Active Markets for Identical Assets [Member] | Warrants [Member]
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fair Value Assets And Liabilities Measured On Recurring Basis	0	[1]
Level 2 Significant Other Observable Inputs [Member]
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fair Value Assets And Liabilities Measured On Recurring Basis	0
Level 2 Significant Other Observable Inputs [Member] | Warrants [Member]
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fair Value Assets And Liabilities Measured On Recurring Basis	0	[1]
Level 3 Significant Unobservable Inputs [Member]
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fair Value Assets And Liabilities Measured On Recurring Basis	(41)
Level 3 Significant Unobservable Inputs [Member] | Warrants [Member]
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items]
Fair Value Assets And Liabilities Measured On Recurring Basis	$ (41)	[1]

[1] The Company has classified its warrants liability which could be potentially settled in cash within Level 3 because the fair values are determined using significant unobservable inputs into the Black-Scholes pricing model.

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FAIR VALUES OF ASSETS AND LIABILITIES (Consideration Liability Measured at Fair Value on Recurring Basis) (Detail) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2016	Dec. 31, 2015
Fair Value Liabilities Measured On Recurring Basis Unobservable Input Reconciliation [Line Items]
Balance at the end of period	$ 41
Warrants Liability [Member]
Fair Value Liabilities Measured On Recurring Basis Unobservable Input Reconciliation [Line Items]
Balance at the beginning of period	54	$ 25
Change in fair value of warrants	(13)	29
Balance at the end of period	$ 41	$ 54

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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (Cash Paid for Interest and Income Taxes) (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Interest	$ 505	$ 120
Income taxes	$ 98	$ 31

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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (Non-Cash Investing and Financing Activities) (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Series A Convertible Preferred stock accrued dividend [Member]
Non-Cash Investing And Financing Activities [Line Items]
Preferred stock dividends	$ 154	$ 135
Series C Preferred stock accrued dividend [Member]
Non-Cash Investing And Financing Activities [Line Items]
Preferred stock dividends	$ 71	$ 62

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SUBSEQUENT EVENTS (Additional Information) (Details) $ in Millions	May. 10, 2016 USD ($)
Credit Agrement [Member] | Subsequent Event [Member]
Debt Instrument, Annual Principal Payment	$ 0.5