| Basis of Reporting | Basis of Reporting The condensed consolidated financial statements and accompanying notes of Cartesian, Inc. and its subsidiaries ("Cartesian," "we," "us," "our" or the "Company") as of March 31, 2018 , and for the thirteen weeks ended March 31, 2018 and April 1, 2017 , are unaudited and reflect all normal recurring adjustments which are, in the opinion of management, necessary for the fair presentation of the Company’s condensed consolidated financial position, results of operations, and cash flows as of these dates and for the periods presented. The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Consequently, these statements do not include all the disclosures normally required by U.S. GAAP for annual financial statements nor those normally made in the Company’s Annual Report on Form 10-K. Accordingly, reference should be made to the Company’s annual consolidated financial statements and notes thereto for the fiscal year ended December 30, 2017 , included in the 2017 Annual Report on Form 10-K (“2017 Form 10-K”) for additional disclosures, including a summary of the Company’s accounting policies. The Condensed Consolidated Balance Sheet as of December 30, 2017 included in this report has been derived from the audited Consolidated Balance Sheet at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The Company has evaluated subsequent events for recognition or disclosure through the date these unaudited condensed consolidated financial statements were issued. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The results of operations for the thirteen weeks ended March 31, 2018 are not necessarily indicative of the results to be expected for the full year ending December 29, 2018. Accounting Changes - Except for the changes discussed below, the Company has consistently applied the accounting policies to all periods presented in these unaudited condensed consolidated financial statements. Effective December 31, 2017, the Company adopted Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 606, "Revenue from Contracts with Customers " ("ASC 606"). In accordance with ASC 606, the Company changed certain characteristics of its revenue recognition accounting policy as described below. ASC 606 was applied using the modified retrospective method under which the cumulative effect of the initial application was recognized as an adjustment to opening retained earnings at December 31, 2017. The adjustment to opening retained earnings was not material to the Company's unaudited condensed consolidated financial statements. The Company elected to apply ASC 606 only to contracts not completed under legacy U.S. GAAP at the date of adoption. Therefore, comparative prior periods have not been adjusted and continue to be reported under FASB ASC Topic 605, Revenue Recognition, or ASC 605. The impact of the adoption of ASC 606 on the Company's unaudited Condensed Consolidated Balance Sheet at March 31, 2018, the unaudited condensed consolidated statement of comprehensive loss and the unaudited condensed consolidated statement of cash flows for the fiscal quarter ended March 31, 2018 was not material. Liquidity and Going Concern - To date, the Company's cash resources and cash flows from financing activities have been sufficient to allow the Company to continue its operations. However, during the first quarter of fiscal 2018 net cash provided by operations was $1.0 million and during fiscal year 2017 net cash used in operating activities was $4.5 million . At March 31, 2018 and December 30, 2017, the Company had $1.5 million and $0.8 million , respectively, in cash and cash equivalents and negative net working capital of $2.2 million and $44,000 , respectively. The Company's current capital resources may not be sufficient to repay a promissory note payable to Elutions Capital Ventures S.à r.l, a subsidiary of Elutions, Inc. ("Elutions"), in an aggregate original principal amount of $3.3 million ("Elutions Note"), if it were to be called for redemption, and to fund the Company's operations going forward. The Elutions Note matures on March 18, 2019, but may be called for redemption by the holder at any time and is payable 30 days after it is called for redemption. The Company is not in default under the Elutions Note and does not have any reason to currently expect that the Elutions Note will be called for redemption, given that the Company is paying its debts as they become due (including making timely payments of interest on the Elutions Note.) See Note 3, Strategic Alliance and Investment by Elutions, Inc., for additional discussion related to the Elutions Note. On March 21, 2018, Company, entered into an Agreement and Plan of Merger (the "Merger Agreement") with Cartesian Holdings, LLC, a Delaware limited liability company ("Parent" or "CHLLC") and Cartesian Holdings, Inc., a Delaware corporation and a wholly owned subsidiary of Parent ("Merger Sub"), pursuant to which, among other things, Merger Sub will merge with and into the Company, with the Company surviving as a wholly owned subsidiary of Parent (the "Merger"). Pursuant to the Merger Agreement, Parent's designee made a working capital loan to the Company of $1,000,000 . In connection with the loan transaction, the Company issued the Working Capital Note to Parent's designee, Auto Cash Financing, Inc. that bears interest at an annual rate of ten percent ( 10% ). The Working Capital Note is secured by a lien on all assets of the Company and its subsidiaries (except certain assets that are pledged by the Company to Elutions Capital Ventures S.a. r.l), subordinate only to certain existing and permitted encumbrances. The Working Capital Note is due and payable in full on the earlier of (a) the closing of the Merger, (b) the date the Merger Agreement is terminated in accordance with its terms (subject to an extension of the due date in certain circumstances), or (c) September 30, 2018. The Company has no reason to believe that the Merger will not occur or that the Merger Agreement may be terminated, but if the Merger Agreement is terminated the Company would not have the ability to repay the loan without the infusion of new debt or equity capital. Under certain circumstances, we would be required to pay a termination fee of $400,000 to CHLLC in the event the Merger Agreement is terminated. See Note 12, Subsequent Events, for additional discussion related to the Merger. If the Elutions Note is called for redemption by the holder or if the Company realizes significant negative cash flows from operations, it will be required to seek additional debt or equity financing. Elutions has certain rights of first offer in connection with debt financings by us, subject to certain exceptions. In addition, if we obtain debt financing from other lenders, subject to certain exceptions, Elutions may require us to redeem the Elutions Note and to repurchase the shares of our common stock originally acquired by Elutions at a price based upon market prices over 15 trading days prior to the repurchase. In addition, Elutions has certain preemptive rights in connection with equity issuances by the Company, subject to certain exceptions, and Cartesian and its subsidiaries may not, without the prior written consent of Elutions, issue options, warrants or similar rights or convertible securities, other than with respect to certain excluded issuances. The Company is exploring alternatives to address its liquidity needs in the event the Elutions Note is called for redemption. However, there can be no assurance that financing will be available in amounts or on terms acceptable to the Company, if at all. The Company's ability to secure new financing may be impacted by economic and financial market conditions. If financing is obtained through the sale of additional equity securities or debt securities with equity features, it could result in dilution to the Company's stockholders. If adequate funds were not available on acceptable terms, our business, results of operations, cash flows, and financial condition could be materially adversely affected. The condensed consolidated financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. In 2016, the Company adopted Accounting Standards Update 2014-15, Presentation of Financial Statements - Going Concern that requires management to assess conditions or events that raise substantial doubt about an entity's ability to continue as a going concern for at least one year after the financial statements are issued. Management has concluded under ASU 2014-15 that the current circumstances as discussed above raise substantial doubt about the Company's ability to continue as a going concern. If the Company is unable to generate additional cash from operations or obtain financing in addition to the working capital loan, or if the Company is unable to arrange financing to pay off the Elutions Note upon a call for redemption or the Company becomes required to repay the Working Capital Note prior to the Merger, the Company may be unable to fund its operations in the future. The Company currently expects that such financing can be obtained if necessary, subject to market conditions and the Company's financial condition at the time the Company seeks such financing, provided that, if it is in the form of debt financing, such financing would be at a very high interest rate, or if it is in the form of equity financing, such financing would be on terms that would be highly dilutive to stockholders. However, there can be no assurances that sufficient liquidity can be raised from one or more of these actions or that these actions can be consummated within the period needed to meet the Company's current obligations. If the Company becomes unable to continue as a going concern, it may have to (i) seek protection under bankruptcy reorganization laws, or (ii) liquidate its assets, and the values it receives for its assets in liquidation or dissolution could be significantly lower than the values reflected in the consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty, including any adjustments to reflect the possible future effects of the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Managed Services Implementation Revenues and Costs - Managed service arrangements provide for the delivery of a software or technology based solution to clients over a period of time without the transfer of a license or a software sale to the customer. For long-term managed service agreements, implementation efforts are often necessary to develop the software utilized to deliver the managed service. Costs of such implementation efforts may include internal and external costs for coding or customizing systems and costs for conversion of client data. The Company may invoice its clients for implementation fees at the go-live date of the underlying software. Lump sum implementation fees received from clients are initially deferred and recognized on a pro-rata basis as services are provided. Specific, incremental and direct costs of implementation incurred prior to the services going live are deferred and amortized over the period that the related ongoing services revenue is recognized to the extent that the Company believes the recoverability of the costs from the contract is probable. If a client terminates a managed services arrangement prior to the end of the contract, a loss on the contract may be recorded, if applicable, and any remaining deferred implementation revenues and costs would then be recognized into earnings generally over the remaining service period through the termination date. During the thirteen weeks ended March 31, 2018 , $67,000 of implementation costs related to managed service contracts were deferred. During the thirteen weeks ended April 1, 2017 , $133,000 of implementation costs related to managed service contracts were deferred. Unamortized deferred implementation costs were $505,000 and $482,000 as of March 31, 2018 and December 30, 2017 , respectively. Research and Development and Software Development Costs - During the thirteen weeks ended March 31, 2018 and April 1, 2017 , internal use software development costs of $171,000 and $102,000 , respectively, were expensed as incurred. During the thirteen weeks ended March 31, 2018 , no internal use software development costs were capitalized. During the thirteen weeks ended April 1, 2017 , $100,000 of internal use software development costs were capitalized. Foreign Currency Transactions and Translation - Cartesian Limited, the international operations of Cambridge Strategic Management Group, Inc., Farncombe France SARL, Farncombe Technology Limited, and Farncombe Engineering Services Limited conduct business primarily denominated in their respective local currency, which is their functional currency. Assets and liabilities have been translated to U.S. dollars at the period-end exchange rates. Revenues and expenses have been translated at exchange rates which approximate the average of the rates prevailing during each period. Translation adjustments are reported as a separate component of other comprehensive loss in the Condensed Consolidated Statements of Operations and Comprehensive Loss. Accumulated other comprehensive loss resulting from foreign currency translation adjustments totaled $6.3 million and $6.7 million as of March 31, 2018 and December 30, 2017 , respectively, and is included in Total Stockholders’ Equity in the Condensed Consolidated Balance Sheets. Assets and liabilities denominated in other than the functional currency of a subsidiary are re-measured at rates of exchange on the balance sheet date. Resulting gains and losses on foreign currency transactions are included in the Company’s results of operations. During the thirteen weeks ended March 31, 2018 and April 1, 2017 , realized and unrealized exchange gains of $119,000 and $58,000 , respectively, were included in our results of operations. Loss Per Share - The Company calculates and presents earnings (loss) per share using a dual presentation of basic and diluted earnings (loss) per share. Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. The weighted average number of common shares outstanding excludes treasury shares held by the Company. Diluted earnings (loss) per share is computed in the same manner except that the weighted average number of shares is increased for dilutive securities. In accordance with the provisions of FASB ASC 260, " Earnings per Share ", the Company uses the treasury stock method for calculating the dilutive effect of employee stock options, non-vested shares and warrants. The employee stock options, non-vested shares and warrants will have a dilutive effect under the treasury stock method only when average market value of the underlying Company common stock during the respective period exceeds the assumed proceeds. For share-based payment awards with a performance condition, the Company must first use the guidance on contingently issuable shares in FASB ASC 260-10 to determine whether the awards should be included in the computation of diluted earnings per share for the reporting period. For all non-vested performance-based awards, the Company determines the number of shares, if any, that would be issuable at the end of the reporting period if the end of the reporting period were the end of the contingency period. In applying the treasury stock method, assumed proceeds include the amount, if any, the employee must pay upon exercise, the amount of compensation cost for future services that the Company has not yet recognized, and the amount of tax benefits, if any, that would be credited to additional paid-in capital assuming exercise of the options and the vesting of non-vested shares. For the thirteen weeks ended March 31, 2018 there were no shares related to outstanding stock options, non-vested shares and warrants that otherwise would have been included in the diluted earnings per share calculation because they would have been anti-dilutive. For the thirteen weeks ended April 1, 2017, 25,000 shares related to outstanding stock options, non-vested shares and warrants that otherwise would have been included in the diluted earnings per share calculation were not included because they would have been anti-dilutive due to our net loss for those periods. Accounts Receivable - The Company has entered into agreements with third-party financial institutions under which it can selectively elect to transfer to the financial institutions accounts receivable with certain of the Company’s largest, international customers on a non-recourse basis. These agreements give the Company optionality to convert outstanding accounts receivable to cash. For any transfer of accounts receivable under these agreements that qualifies as a sale, the Company applies the guidance in FASB ASC 860, “Transfers and Servicing – Sales of Financial Assets”, which requires the derecognition of the carrying value of those accounts receivable on the Condensed Consolidated Balance Sheets and recognition of a loss on the sale of an asset in operating expenses on the Condensed Consolidated Statements of Operations and Comprehensive Loss. The loss is determined at the date of transfer based upon the amount at which the accounts receivable are transferred less any fees, discounts and other charges provided under the agreements. During the thirteen weeks ended March 31, 2018 and April 1, 2017 , $2.5 million and $3.5 million , respectively, in accounts receivable were transferred pursuant to these agreements which qualified as sales of receivables and the related carrying amounts were derecognized. The loss on the sale of these accounts receivable recorded in the Condensed Consolidated Statements of Operations and Comprehensive Loss was immaterial for each of the thirteen weeks ended March 31, 2018 and April 1, 2017 . On April 22, 2016, the Company entered into a Factoring Agreement ("Factoring Agreement") with RTS Financial Service, Inc. ("RTS"). Pursuant to the terms of the Factoring Agreement, the Company may offer for sale, and RTS may purchase, certain accounts receivable of the Company on an account by account basis (such purchased accounts, the "Purchased Accounts"). Under the Factoring Agreement, upon purchase RTS becomes the absolute owner of the Purchased Accounts, which are payable directly to RTS, subject to certain repurchase obligations of the Company. Proceeds from transfers under the Factoring Agreement reflect the face value of the account receivable less a factor’s fee. The factor’s fee is computed on a daily basis until the amount of the Purchased Account is paid to RTS, and equals the amount of the Purchased Account multiplied by the sum of the prime rate then in effect plus 6.49% divided by 360. Upon purchase of a Purchased Account, RTS will pay to the Company the amount of the Purchased Account, less a reserve of 20% of that amount, which reserve (less the total fee calculated) is payable to the Company upon collection of the Purchased Account by RTS. The fee is recorded as interest expense within the Condensed Consolidated Statements of Operations and Comprehensive Loss in the period the fee becomes payable. During the thirteen weeks ended March 31, 2018 and April 1, 2017, the Company factored $3,489,000 and $434,000 , respectively, of accounts receivable under the Factoring Agreement and as of March 31, 2018 and December 30, 2017 recognized a liability of $1,972,000 and $1,917,000 , respectively, which is recorded as Secured borrowing on the Condensed Consolidated Balance Sheets. Until received, the reserve amount withheld at the time of transfer is recorded as a receivable and is included in Other current assets on the Condensed Consolidated Balance Sheets. As of March 31, 2018 and December 30, 2017 the amount recorded as a receivable for the reserve withheld by RTS was $394,000 and $381,000 , respectively. The amount of fees recorded as interest expense were immaterial for the thirteen weeks ended March 31, 2018 and April 1, 2017. Also in 2016, Cartesian Limited, a U.K. subsidiary of Cartesian, Inc., entered into an Invoice Discounting Agreement, a Debenture (security agreement) and certain related agreements (collectively, the "Agreement") with RBS Invoice Finance Limited ("RBS"). In April 2017, the Company entered into agreements with RBS to include Farncombe Engineering Services Ltd. and Farncombe Technology Limited as companies that could assign eligible accounts receivable to RBS. Pursuant to the terms of the Agreement, Cartesian Limited, Farncombe Engineering Services Ltd., and Farncombe Technology Limited may assign to RBS certain eligible accounts receivable (such purchased accounts, the "U.K. Purchased Accounts"). The Agreement has a maximum funding level of £3,000,000 with respect to Cartesian Limited, a combined £1,000,000 maximum funding level with respect to Farncombe Engineering Services Ltd. and Farncombe Technology Limited, and a combined £3,000,000 maximum funding level with respect to the three entities. At the time of the purchase of a U.K. Purchased Account, RBS will make an initial payment to the applicable entity of no more than 50% of the U.K. Purchased Account. Upon collection of a U.K. Purchased Account, RBS will pay to the applicable entity the amount of the U.K. Purchased Account, less the initial payment and a discounting charge. The discounting charge is computed on a daily basis until the amount of the U.K. Purchased Account is paid to RBS, and equals the amount of the U.K. Purchased Account multiplied by the sum of the National Westminster Bank Plc base rate then in effect plus 1.75% divided by 365. The Agreement for Cartesian Limited includes a fixed fee service charge of £833 per month and the agreement for Farncombe Engineering Services Ltd. includes a fixed fee service charge of £250 per month. The agreements have loan concentration limits regarding the obligors on U.K. Purchased Accounts. The discounting charges are recorded as interest expense within the Condensed Consolidated Statements of Operations and Comprehensive Loss in the period the fee becomes payable. The entities' obligations under the agreements are secured by certain assets of the entities, including all equipment and intellectual property, all stock of subsidiaries held by them and certain accounts receivable. Each of the three entities guarantees the obligations of the other entities. Under the Agreement, Cartesian Limited's net worth, as measured by issued share capital and retained earnings, less all intangible assets, may not fall below £7,500,000 in any 12 month period. RBS may require the applicable entity to repurchase U.K. Purchased Accounts upon a number of specified events, including if the entity breaches or defaults on any of its obligations under the Agreement or if in the case of Cartesian Limited it fails to meet the net worth requirement. The entities are in compliance with those obligations and Cartesian Limited meets the net worth requirement. The agreements have an initial term of 12 months and continue after the initial term until terminated by either the applicable entity or RBS. Each entity may terminate its agreement at any time during the initial term upon approval of RBS or upon six months' notice of intent to terminate. RBS may terminate the agreements upon certain other events or conditions included in the agreements. During the thirteen weeks ended March 31, 2018 and April 1, 2017, Cartesian Limited factored $4.4 million and $2.7 million , respectively, under the agreements and as of March 31, 2018 and December 30, 2017 recognized a liability of $1.9 million and $2.5 million , respectively, which is recorded as Secured borrowing on the Condensed Consolidated Balance Sheets. Inventory – In accordance with the provisions of FASB ASC 330, “ Inventory ”, the Company’s inventory is stated at the lower of cost, using the first-in first-out (FIFO) method, or fair value. As of March 31, 2018 and December 30, 2017, the Company had $0.2 million and $0.2 million , respectively, in inventory, all of which was finished goods. All of the inventory was purchased in July 2014 from Elutions, Inc. (“Elutions”), which owns more than five percent of the outstanding shares of common stock of the Company. See Note 3, Strategic Alliance and Investment by Elutions, Inc. Long-lived Assets - The Company reviews long-lived assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets might not be recoverable in accordance with the provisions of FASB ASC 360, “ Property, Plant and Equipment ”. There was no impairment of long-lived assets during the thirteen weeks ended March 31, 2018 or April 1, 2017. Recent Accounting Pronouncements – In August 2016, the FASB issued Accounting Standards Update ("ASU") 2016-15, "Classification of Certain Cash Receipts and Cash Payments", which will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. This ASU is effective for the Company beginning in fiscal 2018 and its adoption did not have a material impact on the Company’s condensed consolidated financial statements. In February 2016, the FASB issued ASU 2016-2, “Leases” which, for operating leases, requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. The ASU is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. A modified retrospective approach is required for all leases existing or entered into after the beginning of the earliest comparative period in the consolidated financial statements. The Company is currently evaluating the effects that the adoption of ASU 2016-2 will have on the Company’s consolidated financial statements. In May 2014, the FASB issued ASU 2014-9, "Revenue" from Contracts with Customers. This standard update clarifies the principles for recognizing revenue and develops a common revenue standard for U.S. GAAP and International Financial Reporting Standards. The standard update intends to provide a more robust framework for addressing revenue issues; improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets; and provide more useful information to users of financial statements through improved disclosure requirements. The provisions of FASB ASU 2014-9 were effective for the Company in fiscal 2018. See Accounting Changes , above and Note 2. Revenue Recognition for further discussion. |
