Document And Entity Information
Document And Entity Information - shares | 3 Months Ended | |
Mar. 31, 2017 | May 08, 2017 | |
Document And Entity Information [Abstract] | ||
Entity Registrant Name | NUMEREX CORP /PA/ | |
Entity Central Index Key | 870,753 | |
Trading Symbol | nmrx | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 19,538,549 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2017 | |
Amendment Flag | false | |
Document Fiscal Year Focus | 2,017 | |
Document Fiscal Period Focus | Q1 |
UNAUDITED CONDENSED CONSOLIDATE
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Mar. 31, 2017 | Dec. 31, 2016 |
CURRENT ASSETS | ||
Cash and cash equivalents | $ 8,682 | $ 9,285 |
Restricted cash | 221 | 221 |
Accounts receivable, less allowance for doubtful accounts of $795 and $767 | 8,853 | 9,436 |
Financing receivables, current | 1,735 | 1,778 |
Inventory, net of reserves | 8,287 | 9,011 |
Prepaid expenses and other current assets | 1,370 | 1,421 |
TOTAL CURRENT ASSETS | 29,148 | 31,152 |
Financing receivables, less current portion | 1,941 | 2,227 |
Property and equipment, net of accumulated depreciation and amortization of $9,984 and $9,225 | 5,836 | 6,022 |
Software, net of accumulated amortization | 6,017 | 6,530 |
Other intangible assets, net of accumulated amortization | 11,382 | 11,519 |
Goodwill | 33,554 | 33,554 |
Other assets | 243 | 474 |
TOTAL ASSETS | 88,121 | 91,478 |
CURRENT LIABILITIES | ||
Accounts payable | 16,401 | 15,894 |
Accrued expenses and other current liabilities | 3,225 | 3,209 |
Deferred revenues | 1,666 | 1,882 |
Current maturities of long-term debt, net of debt issuance costs | 3,912 | 1,275 |
Current portion of capital lease | 306 | 291 |
TOTAL CURRENT LIABILITIES | 25,510 | 22,551 |
Long-term debt, net of debt issuance costs, less current maturities | 11,946 | 14,885 |
Capital lease, less current portion | 735 | 797 |
Deferred tax liabilities, noncurrent | 547 | 468 |
Other liabilities | 1,422 | 1,512 |
TOTAL LIABILITIES | 40,160 | 40,213 |
SHAREHOLDERS' EQUITY | ||
Preferred stock, no par value; 3,000 authorized; none issued | ||
Additional paid-in capital | 106,115 | 105,112 |
Treasury stock, at cost, 1,459 and 1,327 shares | (5,755) | (5,466) |
Accumulated other comprehensive loss | (104) | (110) |
Accumulated deficit | (52,295) | (48,271) |
TOTAL SHAREHOLDERS' EQUITY | 47,961 | 51,265 |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 88,121 | 91,478 |
Class A Common Stock | ||
SHAREHOLDERS' EQUITY | ||
Common stock value | ||
Class B Common Stock | ||
SHAREHOLDERS' EQUITY | ||
Common stock value |
UNAUDITED CONDENSED CONSOLIDAT3
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Parentheticals) - USD ($) shares in Thousands, $ in Thousands | Mar. 31, 2017 | Dec. 31, 2016 |
Accounts receivable, allowance for doubtful accounts (in dollars) | $ 795 | $ 767 |
Net of accumulated depreciation and amortization | $ 9,984 | $ 9,225 |
Preferred stock, no par value (in dollars per share) | $ 0 | $ 0 |
Preferred stock, shares authorized | 3,000 | 3,000 |
Preferred stock, shares issued | 0 | 0 |
Treasury stock, at cost, shares | 1,459 | 1,327 |
Class A Common Stock | ||
Common stock, no par value (in dollars per share) | $ 0 | $ 0 |
Common stock, shares authorized | 30,000 | 30,000 |
Common stock, shares issued | 20,992 | 20,935 |
Common stock, shares outstanding | 19,532 | 19,608 |
Class B Common Stock | ||
Common stock, no par value (in dollars per share) | $ 0 | $ 0 |
Common stock, shares authorized | 5,000 | 5,000 |
Common stock, shares issued | 0 | 0 |
Common stock, shares outstanding | 0 | 0 |
UNAUDITED CONDENSED CONSOLIDAT4
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Net revenues: | ||
Subscription and support revenues | $ 13,470 | $ 14,984 |
Embedded devices and hardware | 2,915 | 3,066 |
Total net revenues | 16,385 | 18,050 |
Cost of sales | ||
Subscription and support revenues | 5,464 | 5,701 |
Embedded devices and hardware | 3,032 | 3,118 |
Gross profit | 7,889 | 9,231 |
Operating expenses: | ||
Sales and marketing | 3,142 | 2,945 |
General and administrative | 2,945 | 4,129 |
Engineering and development | 2,215 | 2,247 |
Depreciation and amortization | 1,523 | 1,658 |
Restructuring charges | 425 | |
Operating loss | (2,361) | (1,748) |
Interest expense | 621 | 267 |
Loss on extinguishment of debt | 228 | 290 |
Other expense (income), net | 730 | (43) |
Loss before income taxes | (3,940) | (2,262) |
Income tax expense | 84 | 64 |
Net loss | (4,024) | (2,326) |
Other items of comprehensive income, net of income taxes: | ||
Foreign currency translation adjustment | 6 | 15 |
Comprehensive loss | $ (4,018) | $ (2,311) |
Basic and diluted loss per share (in dollars per share) | $ (0.21) | $ (0.12) |
Weighted average shares outstanding used in computing basic and diluted loss per share (in shares) | 19,524 | 19,377 |
UNAUDITED CONDENSED CONSOLIDAT5
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY - 3 months ended Mar. 31, 2017 - USD ($) shares in Thousands, $ in Thousands | Common Shares | Additional Paid-in Capital | Treasury Stock | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total |
Balance at Dec. 31, 2016 | $ 105,112 | $ (5,466) | $ (110) | $ (48,271) | $ 51,265 | |
Balance (in shares) at Dec. 31, 2016 | 20,935 | |||||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||
Equity-based compensation expense | 519 | 519 | ||||
Exercises, vesting and other equity- based compensation plan activity, net | (289) | (289) | ||||
Exercises, vesting and other equity- based compensation plan activity, net (in shares) | 57 | |||||
Value of shares retained to pay employee taxes | (111) | (111) | ||||
Warrants issued | 595 | 595 | ||||
Translation adjustment | 6 | 6 | ||||
Net loss | (4,024) | (4,024) | ||||
Balance at Mar. 31, 2017 | $ 106,115 | $ (5,755) | $ (104) | $ (52,295) | $ 47,961 | |
Balance (in shares) at Mar. 31, 2017 | 20,992 |
UNAUDITED CONDENSED CONSOLIDAT6
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Cash flows from operating activities: | ||
Net loss | $ (4,024) | $ (2,326) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||
Depreciation and amortization | 1,973 | 1,965 |
Equity-based compensation expense | 231 | 621 |
Loss on extinguishment of debt | 228 | 289 |
Deferred income taxes | 79 | 60 |
Bad debt expense | 72 | 120 |
Inventory reserves | (123) | 27 |
Other non-cash expense | 65 | 21 |
Changes in assets and liabilities: | ||
Accounts and financing receivables | 840 | 59 |
Inventory, net | 308 | (953) |
Accounts payable | 661 | (680) |
Deferred revenue | (253) | (150) |
Other | 251 | 107 |
Net cash provided by (used in) operating activities | 308 | (840) |
Cash flows from investing activities: | ||
Purchases of property and equipment | (187) | (297) |
Capitalized software development and purchases of software | (565) | (983) |
Net cash used in investing activities | (752) | (1,280) |
Cash flows from financing activities: | ||
Proceeds from long-term debt | 5,000 | 17,000 |
Principal payments on debt | (5,000) | (19,349) |
Principal payments on capital lease obligations | (48) | |
Exercises, vesting and other equity- based compensation plan activity, net | 300 | |
Payment of taxes on equity-based awards | (111) | |
Deferred financing costs paid | (848) | |
Net cash used in financing activities | (159) | (2,897) |
Net decrease in cash and cash equivalents | (603) | (5,017) |
Cash and cash equivalents at beginning of period | 9,285 | 16,237 |
Cash and cash equivalents at end of period | 8,682 | 11,220 |
Supplemental disclosures of cash flow information: | ||
Cash paid for interest | 453 | 251 |
Net cash paid (refunded) for income taxes | 2 | (350) |
Disclosure of non-cash investing and financing activities: | ||
Capital expenditures in accounts payable | 68 | 286 |
Non-cash interest | 167 | |
Warrants issued to Kenneth Rainin Foundation | $ 595 | |
Deferred financing costs in accounts payable | $ 213 |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 3 Months Ended |
Mar. 31, 2017 | |
Accounting Policies [Abstract] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business Numerex Corp. (NASDAQ: NMRX) is a holding company incorporated in Pennsylvania (the “Company”), and through its subsidiaries, is a single source, leading provider of managed enterprise solutions enabling the Internet of Things (IoT). An IoT solution is generally viewed as a combination of devices, software and services that operate with little or no human interaction. Our managed IoT solutions are simple, innovative, scalable and secure. Our solutions incorporate each of the four key IoT building blocks — Device, Network, Application and Platform. We provide our technology and service solutions through our integrated IoT horizontal platforms, which are generally sold on a subscription basis. Foreign operations were not significant to us for the three months ended March 31, 2017 or 2016. Basis of Presentation We prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, referred to as GAAP, for interim financial information and the Rules and Regulations issued by the Securities Exchange Commission, or SEC, as applicable. These financial statements include all of our accounts and those of our wholly-owned subsidiaries. We have eliminated intercompany transactions and balances in consolidation. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted, although we believe that the disclosures made are adequate to make the information not misleading. In the opinion of management, the accompanying financial statements reflect all adjustments, which consist of normal recurring adjustments unless otherwise disclosed, considered necessary for a fair presentation of our financial position as of March 31, 2017 and our operating results and cash flows for the interim periods presented. The accompanying condensed consolidated balance sheet as of December 31, 2016 was derived from our audited financial statements, but does not include all disclosures required by GAAP. The financial information presented herein should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2016 which includes information and disclosures not included in this quarterly report. Estimates and Assumptions The preparation of financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Actual results may differ materially from these estimates. Operating results for the three months ended March 31, 2017 may not be indicative of the results that may be expected for the year ending December 31, 2017 or any future periods. Liquidity The Company incurred an operating loss totaling $2.4 million and cash provided by operations was $0.3 million for the three months ended March 31, 2017. The Company incurred an operating loss totaling $22.8 million and cash used in operations totaled $0.5 million for the year ended December 31, 2016. As of March 31, 2017, the Company has an accumulated deficit of $52.3 million, and cash and cash equivalents of $8.9 million. The Company’s cash flow requirements during the fiscal year 2016 and to date in 2017 were financed by cash on hand and cash generated by operations. The Company had total long term debt, including current portion, of $15.9 million as of March 31, 2017. The Company’s ability to continue in business is dependent on its ability to continue to generate operating cash flows, to maintain sufficient cash on hand, to raise additional capital, and an ability to control expenditures. Management believes that the Company will maintain sufficient liquidity through at least March 2018. The consolidated financial statements do not include any adjustments that might result from this uncertainty. Restricted Cash As of March 31, 2017 and 2016, cash of $0.2 million was held in escrow related to certain vendor obligations as a result of entering into our new loan agreement. See Note F — Debt. |
INVENTORY
INVENTORY | 3 Months Ended |
Mar. 31, 2017 | |
Inventory [Abstract] | |
INVENTORY | NOTE B — INVENTORY Inventory consisted of the following (in thousands): March 31, December 31, Raw materials $ 1,897 $ 2,953 Finished goods 8,215 8,504 Inventory reserves (1,825 ) (2,446 ) $ 8,287 $ 9,011 During the three months ended March 31, 2017, we transferred $0.5 million of inventory to monitoring equipment within property and equipment and disposed of $0.3 million of fully reserved inventory as part of our managed services business. |
PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT | 3 Months Ended |
Mar. 31, 2017 | |
Property, Plant and Equipment [Abstract] | |
PROPERTY AND EQUIPMENT | NOTE C — PROPERTY AND EQUIPMENT Property and equipment consisted of the following (in thousands): March 31, December 31, Computer, network and other equipment $ 8,839 $ 8,805 Monitoring equipment 6,231 5,692 Furniture and fixtures 486 486 Leasehold improvements 264 264 Total property and equipment 15,820 15,247 Accumulated depreciation and amortization (9,984 ) (9,225 ) $ 5,836 $ 6,022 During the three months ended March 31, 2017, we transferred $0.5 million of inventory to monitoring equipment as part of our managed services business. Depreciation and amortization related to property and equipment was $0.8 million and $0.6 million for the three months ended March 31, 2017 and 2016, respectively. |
INTANGIBLE ASSETS
INTANGIBLE ASSETS | 3 Months Ended |
Mar. 31, 2017 | |
Intangible Assets [Abstract] | |
INTANGIBLE ASSETS | NOTE D — INTANGIBLE ASSETS Intangible Assets Other Than Goodwill Intangible assets other than goodwill are summarized as follows (dollars in thousands): As of March 31, 2017 As of December 31, 2016 Remaining Gross Accumulated Net Book Gross Accumulated Net Book Purchased and developed software 1.7 $ 18,576 $ (13,610 ) $ 4,966 $ 18,205 $ (12,806 ) $ 5,399 Software in development n/a 1,051 — 1,051 1,131 — 1,131 Total software 19,627 (13,610 ) 6,017 19,336 (12,806 ) 6,530 Licenses 2.4 13,215 (12,622 ) 593 13,215 (12,534 ) 681 Customer relationships 7.5 8,167 (3,228 ) 4,939 8,167 (3,039 ) 5,128 Technologies 11.0 4,235 (899 ) 3,336 4,235 (822 ) 3,413 Patents and trademarks 1.9 4,108 (2,512 ) 1,596 3,747 (2,368 ) 1,379 Trade names Indefinite 918 — 918 918 — 918 Total other intangible assets 30,643 (19,261 ) 11,382 30,282 (18,763 ) 11,519 $ 50,270 $ (32,871 ) $ 17,399 $ 49,618 $ (31,569 ) $ 18,049 Remaining useful lives in the preceding table were calculated on a weighted average basis as of March 31, 2017. We did not incur significant costs to renew or extend the term of acquired intangible assets during the three months ended March 31, 2017. Amortization expense related to intangible assets was $1.2 million and $1.3 million for the three months ended March 31, 2017 and 2016, respectively. Amortization expense recorded in cost of subscription revenues in the accompanying condensed consolidated statements of operations and comprehensive loss was $0.5 million and $0.3 million for the three months ended March 31, 2017, and 2016, respectively. Additionally, we have capitalized approximately $0.7 million and $0.3 million of internally generated software development costs for the three months ended March 31, 2017 and 2016, respectively. |
INCOME TAXES
INCOME TAXES | 3 Months Ended |
Mar. 31, 2017 | |
Income Taxes [Abstract] | |
INCOME TAXES | NOTE E — INCOME TAXES We calculate our interim income tax provision in accordance with the accounting guidance for income taxes in interim periods. At the end of each interim period, we make our best estimate of the annual expected effective tax rate and apply that rate to our ordinary year-to-date income or loss. In addition, we calculate a year-to-date adjustment to increase or decrease our income tax provision to take into account our current expected effective tax rate. The tax or benefit related to significant, unusual, or extraordinary items that will be separately reported or reported net of their related tax effect are individually computed and recognized in the interim period in which those items occur. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider projections of future taxable income, tax planning strategies and the reversal of temporary differences in making this assessment. During 2015, we determined that we would not meet the criteria of “more likely than not” that our federal and state net operating losses and certain other deferred tax assets would be recoverable. This determination was based on our assessment of both positive and negative evidence regarding realization of our deferred tax assets, in particular, the strong negative evidence associated with our cumulative loss over the past three years. Accordingly, we recorded a valuation allowance against these items. The deferred tax assets consist of federal net operating losses, state net operating losses, tax credits, and other deferred tax assets, most of which expire between 2017 and 2036. We will maintain the valuation allowance against the net deferred tax assets until sufficient positive evidence outweighs any negative evidence to support reversal. Income tax expense recorded in the future will be reduced or increased to the extent of offsetting decreases or increases to the valuation allowance. As a result of recording a valuation allowance, we recognized deferred tax expense of less than $0.1 million, representing an effective tax rate of (1.9%), for the three months ended March 31, 2017. The deferred tax expense recognized on a net loss before income taxes, and the difference in the effective tax rate from the federal statutory rate, is due primarily to the book and tax basis and accounting differences for certain long and indefinite lived intangible assets. We have also recognized a provision for income tax expense for certain state income taxes that cannot utilize offsetting net operating losses. Income tax expense recorded in the future will be reduced or increased to the extent of offsetting decreases or increases to the valuation allowance. We file U.S., state and foreign income tax returns in jurisdictions with varying statutes of limitation. The 2012 through 2016 tax years generally remain subject to examination by federal and most state tax authorities. However, certain returns from years in which net operating losses have arisen are still open for examination by the tax authorities. |
DEBT
DEBT | 3 Months Ended |
Mar. 31, 2017 | |
Debt Disclosure [Abstract] | |
DEBT | NOTE F — DEBT Debt consisted of the following (dollars in thousands): March 31, December 31, Note payable to Crystal Financial LLC, with interest at LIBOR plus margin $ 12,000 $ 17,000 Note payable to Kenneth Rainin Foundation (a related party) 5,000 — Less long-term deferred financing costs (1,142 ) (840 ) 15,858 16,160 Less current portion of long-term debt (3,912 ) (1,275 ) Noncurrent portion of long-term debt $ 11,946 $ 14,885 Loan Agreement On March 9, 2016, we and certain of our subsidiaries entered into a term loan agreement with Crystal Financial LLC as Term Agent (“Crystal”), and the term lenders party thereto (the “Crystal Loan Agreement”) pursuant to which the term lenders made a term loan to us in the amount of $17.0 million. The net proceeds from the term loan (after payment of the fees and expenses of the Term Agent), along with $2.9 million of cash on hand, were used to repay the $19.4 million outstanding debt under the Silicon Valley Bank (SVB) Loan Agreement and pay related transaction fees. We recorded a charge of $0.3 million to other income, net for unamortized deferred financing costs related to the SVB Loan Agreement during the three months ended March 31, 2016. The maturity date of the term loan is March 9, 2020. We are required to make regular quarterly principal payments of $0.6 million beginning September 1, 2017 with the balance due on the maturity date if not otherwise repaid earlier by way of voluntary prepayments or upon the occurrence of certain Prepayment Events or Excess Cash Flow (as defined in the Crystal Loan Agreement), or as a result of acceleration of the loan as a result of an event of default. Prepayments of the loan are subject to a prepayment penalty of 2% of the amount prepaid if the prepayment occurs on or after the first anniversary of the closing date but prior to the second anniversary date of the closing date. There is no prepayment penalty for prepayments that occur on or after the second anniversary of the closing date. The interest rate payable on the outstanding loan amount is determined by reference to LIBOR plus a margin established in the Crystal Loan Agreement. Our obligations under the Crystal Loan Agreement are secured by a first priority security interest in substantially all of our assets and the assets of our subsidiaries. In addition, we are required to meet certain financial and other restrictive covenants customary with this type of facility, including maintaining a minimum adjusted EBITDA, minimum consolidated fixed charge coverage ratio, maximum consolidated total net leverage, maximum subscriber churn, and minimum liquidity, all of which are defined in the Crystal Loan Agreement. We are also prohibited from incurring indebtedness, disposing of or permitting liens on our assets and making restricted payments, including cash dividends on shares of our common stock, except as expressly permitted under the Crystal Loan Agreement. The agreement contains customary events of default. If a default occurs and is not cured within the applicable cure period or is not waived, any outstanding obligations under the agreement may be accelerated. As of March 31, 2017, we were in compliance with all covenants. On July 29, 2016, and November 3, 2016, we entered into amendments to the Crystal Loan Agreement to modify the covenant relating to the Maximum Subscriber Churn and amend the definition of Adjusted EBITDA. On May 3, 2017, we entered into an amendment to the Crystal Loan Agreement to amend the definition of Adjusted EBITDA and changed the date from June 1, 2017 to June 7, 2017 with respect to the $2.0 million prepayment milestone and the retention of an investment banker for purposes of a refinancing transaction. Senior Subordinated Promissory Note On March 31, 2017, the Kenneth Rainin Foundation, a California corporation, and the Company entered into a Senior Subordinated Promissory Note in the amount of $5 million, with a maturity date of April 1, 2018, and an annual interest rate of 12%, which was used to pay down a portion of the outstanding debt with Crystal. The note included a warrant to Kenneth Rainin Foundation to purchase 125,000 shares of our common stock at a warrant price of $0.01 per share. The warrant has a fair value of $0.6 million, has been recorded as deferred financing costs, and will be amortized over the term of the loan. Brian Igoe, a director of the Company, is the Chief Investment Officer of the Kenneth Rainin Foundation. Crystal Financial LLC Amendment and Waiver On March 31, 2017, we entered into an amendment to the Crystal Loan Agreement to modify the covenants related to minimum adjusted EBITDA, minimum fixed charge coverage ratio, maximum net leverage, and maximum subscriber churn. Pursuant to the terms of the amendment we are required to prepay $2.0 million of principal on June 1, 2017, unless we have entered into an agreement providing for the sale of all or substantially all the assets of the Company or the equity interests of the Company. In addition the amendment further provides that, by June 1, 2017, we must enter into a binding commitment letter to refinance our obligations under the Crystal Loan Agreement, or engage an investment banker reasonably acceptable to the Crystal to advise and assist us in entering into a sale or refinancing transaction. As a result of the pay down of $5.0 million of principal related to the Senior Subordinated Promissory Note with the Kenneth Rainin Foundation, we recorded a $0.2 million loss on partial extinguishment of the Crystal Loan Agreement, which is recorded as a separate line item on the consolidated statement of operations and comprehensive loss for the three month period ended March 31, 2017. |
NET LOSS PER SHARE
NET LOSS PER SHARE | 3 Months Ended |
Mar. 31, 2017 | |
Earnings Per Share [Abstract] | |
NET LOSS PER SHARE | NOTE G — NET LOSS PER SHARE Basic (loss) earnings per share attributable to common shareholders is based on the weighted-average number of common shares outstanding excluding the dilutive impact of common stock equivalents. Diluted (loss) earnings per share include the effect of all potentially dilutive securities on earnings per share. The dilutive effect of outstanding equity-based compensation awards is computed using the treasury stock method. The computation of diluted earnings per shares does not assume exercise of securities that would have an anti-dilutive effect on earnings. Diluted (loss) earnings per share is not presented separately because there are no adjustments to the numerator in calculating dilutive net loss per share and all potentially dilutive common stock equivalents would be antidilutive. The following table presents a reconciliation of the shares used in the calculation of basic and dilutive (loss) earnings per share and anti-dilutive equity based compensation awards (in thousands): For the Three Months Ended 2017 2016 Weighted average common shares outstanding Basic 19,524 19,377 Dilutive effect of common stock equivalents — — Total 19,524 19,377 Anti-dilutive equity-based compensation awards 1,634 1,188 |
RESTRUCTURING
RESTRUCTURING | 3 Months Ended |
Mar. 31, 2017 | |
Restructuring Costs [Abstract] | |
RESTRUCTURING | NOTE H — RESTRUCTURING We recorded a restructuring charge of $0.4 million, which included $0.4 million of severance costs for the three months ended March 31, 2017. |
RECENT ACCOUNTING PRONOUNCEMENT
RECENT ACCOUNTING PRONOUNCEMENTS | 3 Months Ended |
Mar. 31, 2017 | |
Recent Accounting Pronouncements [Abstract] | |
RECENT ACCOUNTING PRONOUNCEMENTS | NOTE I — RECENT ACCOUNTING PRONOUNCEMENTS In January 2017, the Financial Accounting Standards Board (FASB) issued guidance simplifying the test for goodwill impairment. The guidance eliminates step two from the goodwill impairment test and instead requires an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The updated guidance requires a prospective adoption, with early adoption permitted. The guidance is effective for the Company beginning in 2020. The Company is in the process of evaluating the effects of the provisions of this guidance on our financial statements. In January 2017, the FASB issued guidance to assist entities in evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The updated guidance requires a prospective adoption. Early adoption is permitted. This update will be effective for the Company beginning in 2018. The Company does not expect the provisions of this guidance to have a material impact on our financial statements. In November 2016, the FASB issued guidance impacting restricted cash presentation on the statement of cash flows. The guidance requires that a statement of cash flows explain the change during the period of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This standard becomes effective for the Company during the first quarter of 2018 and will be applied using a retrospective approach for each period presented. The Company does not expect the provisions of this guidance to have a material impact on our financial statements. In February 2016, the FASB issued guidance that requires lessees to recognize most leases as assets and liabilities on the balance sheet. Qualitative and quantitative disclosures will be enhanced to better understand the amount, timing and uncertainty of cash flows arising from leases. The guidance is effective for annual and interim periods beginning after December 15, 2018. The updated standard mandates a modified retrospective transition method with early adoption permitted. We are currently evaluating the effect that the updated standard will have on our financial statements. In May 2014, the FASB issued guidance which amends the existing accounting standards for revenue recognition. In August 2015, the FASB issued additional guidance which delays the effective date by one year. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. In March 2016, the FASB issued guidance which clarifies the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers. We currently anticipate adopting the new standard effective January 1, 2018. The new standard also permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). We currently anticipate adopting the standard using the modified retrospective method. We are concluding the assessment phase of implementing this guidance. We have evaluated each of the five steps in the new revenue recognition model, which are as follows: 1) Identify the contract with the customer; 2) Identify the performance obligations in the contract; 3) Determine the transaction price; 4) Allocate the transaction price to the performance obligations; and 5) Recognize revenue when (or as) performance obligations are satisfied. Our preliminary conclusion is that the determination of what constitutes a contract with our customers (step 1), our performance obligations under the contract (step 2), and the determination and allocation of the transaction price (steps 3 and 4) and recognizing revenue when performance obligations are satisfied (step 5) under the new revenue recognition model will not result in material changes in comparison to our current revenue recognition for our contracts with customers entered into in the normal course of operations. However, we have not yet finalized our analysis. Effective January 1, 2017, the Company adopted guidance which simplifies the measurement of inventory. The guidance changed the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value and eliminates the requirement to consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory. The provisions of this standard were adopted on a prospective basis and adoption of this standard did not have an impact on the Company’s financial position, results of operations or cash flows. |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 3 Months Ended |
Mar. 31, 2017 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | NOTE J — SUBSEQUENT EVENTS On April 12, 2017, we entered into an agreement to sublease the Company’s Dallas office space subject to the consent of the landlord. On May 3, 2017, we entered into an amendment to the Crystal Loan Agreement to amend the definition of Adjusted EBITDA and changed the date from June 1, 2017 to June 7, 2017 with respect to the $2.0 million prepayment milestone and the retention of an investment banker for purposes of a refinancing transaction, as documented in Note F. |
SUMMARY OF SIGNIFICANT ACCOUN17
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 3 Months Ended |
Mar. 31, 2017 | |
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation We prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, referred to as GAAP, for interim financial information and the Rules and Regulations issued by the Securities Exchange Commission, or SEC, as applicable. These financial statements include all of our accounts and those of our wholly-owned subsidiaries. We have eliminated intercompany transactions and balances in consolidation. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted, although we believe that the disclosures made are adequate to make the information not misleading. In the opinion of management, the accompanying financial statements reflect all adjustments, which consist of normal recurring adjustments unless otherwise disclosed, considered necessary for a fair presentation of our financial position as of March 31, 2017 and our operating results and cash flows for the interim periods presented. The accompanying condensed consolidated balance sheet as of December 31, 2016 was derived from our audited financial statements, but does not include all disclosures required by GAAP. The financial information presented herein should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2016 which includes information and disclosures not included in this quarterly report. |
Estimates and Assumptions | Estimates and Assumptions The preparation of financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Actual results may differ materially from these estimates. Operating results for the three months ended March 31, 2017 may not be indicative of the results that may be expected for the year ending December 31, 2017 or any future periods. |
Liquidity | Liquidity The Company incurred an operating loss totaling $2.4 million and cash provided by operations was $0.3 million for the three months ended March 31, 2017. The Company incurred an operating loss totaling $22.8 million and cash used in operations totaled $0.5 million for the year ended December 31, 2016. As of March 31, 2017, the Company has an accumulated deficit of $52.3 million, and cash and cash equivalents of $8.9 million. The Company’s cash flow requirements during the fiscal year 2016 and to date in 2017 were financed by cash on hand and cash generated by operations. The Company had total long term debt, including current portion, of $15.9 million as of March 31, 2017. The Company’s ability to continue in business is dependent on its ability to continue to generate operating cash flows, to maintain sufficient cash on hand, to raise additional capital, and an ability to control expenditures. Management believes that the Company will maintain sufficient liquidity through at least March 2018. The consolidated financial statements do not include any adjustments that might result from this uncertainty. |
Restricted Cash | Restricted Cash As of March 31, 2017 and 2016, cash of $0.2 million was held in escrow related to certain vendor obligations as a result of entering into our new loan agreement. See Note F — Debt. |
INVENTORY (Tables)
INVENTORY (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Inventory [Abstract] | |
Schedule of inventory | March 31, December 31, Raw materials $ 1,897 $ 2,953 Finished goods 8,215 8,504 Inventory reserves (1,825 ) (2,446 ) $ 8,287 $ 9,011 |
PROPERTY AND EQUIPMENT (Tables)
PROPERTY AND EQUIPMENT (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Property, Plant and Equipment [Abstract] | |
Schedule of components of property and equipment | March 31, December 31, Computer, network and other equipment $ 8,839 $ 8,805 Monitoring equipment 6,231 5,692 Furniture and fixtures 486 486 Leasehold improvements 264 264 Total property and equipment 15,820 15,247 Accumulated depreciation and amortization (9,984 ) (9,225 ) $ 5,836 $ 6,022 |
INTANGIBLE ASSETS (Tables)
INTANGIBLE ASSETS (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Intangible Assets [Abstract] | |
Schedule of intangible assets other than goodwill | As of March 31, 2017 As of December 31, 2016 Remaining Gross Accumulated Net Book Gross Accumulated Net Book Purchased and developed software 1.7 $ 18,576 $ (13,610 ) $ 4,966 $ 18,205 $ (12,806 ) $ 5,399 Software in development n/a 1,051 — 1,051 1,131 — 1,131 Total software 19,627 (13,610 ) 6,017 19,336 (12,806 ) 6,530 Licenses 2.4 13,215 (12,622 ) 593 13,215 (12,534 ) 681 Customer relationships 7.5 8,167 (3,228 ) 4,939 8,167 (3,039 ) 5,128 Technologies 11.0 4,235 (899 ) 3,336 4,235 (822 ) 3,413 Patents and trademarks 1.9 4,108 (2,512 ) 1,596 3,747 (2,368 ) 1,379 Trade names Indefinite 918 — 918 918 — 918 Total other intangible assets 30,643 (19,261 ) 11,382 30,282 (18,763 ) 11,519 $ 50,270 $ (32,871 ) $ 17,399 $ 49,618 $ (31,569 ) $ 18,049 |
DEBT (Tables)
DEBT (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Debt Disclosure [Abstract] | |
Schedule of debt | March 31, December 31, Note payable to Crystal Financial LLC, with interest at LIBOR plus margin $ 12,000 $ 17,000 Note payable to Kenneth Rainin Foundation (a related party) 5,000 — Less long-term deferred financing costs (1,142 ) (840 ) 15,858 16,160 Less current portion of long-term debt (3,912 ) (1,275 ) Noncurrent portion of long-term debt $ 11,946 $ 14,885 |
NET LOSS PER SHARE (Tables)
NET LOSS PER SHARE (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Earnings Per Share [Abstract] | |
Schedule of calculation of basic and dilutive earnings per share and anti-dilutive equity based compensation awards | For the Three Months Ended 2017 2016 Weighted average common shares outstanding Basic 19,524 19,377 Dilutive effect of common stock equivalents — — Total 19,524 19,377 Anti-dilutive equity-based compensation awards 1,634 1,188 |
SUMMARY OF SIGNIFICANT ACCOUN23
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Detail Textuals) - USD ($) $ in Thousands | 3 Months Ended | 12 Months Ended | ||
Mar. 31, 2017 | Mar. 31, 2016 | Dec. 31, 2016 | Dec. 31, 2015 | |
Accounting Policies [Abstract] | ||||
Operating income (loss) | $ (2,361) | $ (1,748) | $ 22,800 | |
Cash provided by operation | 308 | (840) | 500 | |
Accumulated deficit | (52,295) | (48,271) | ||
Cash and cash equivalents | 8,682 | 11,220 | 9,285 | $ 16,237 |
Long-term debt | 15,858 | $ 16,160 | ||
Cash held in escrow | $ 200 | $ 200 |
INVENTORY - Summary of inventor
INVENTORY - Summary of inventory (Details) - USD ($) $ in Thousands | Mar. 31, 2017 | Dec. 31, 2016 |
Inventory [Abstract] | ||
Raw materials | $ 1,897 | $ 2,953 |
Finished goods | 8,215 | 8,504 |
Inventory reserves | (1,825) | (2,446) |
Inventory, net | $ 8,287 | $ 9,011 |
INVENTORY (Detail Textuals)
INVENTORY (Detail Textuals) $ in Millions | Mar. 31, 2017USD ($) |
Inventory [Abstract] | |
Inventory amount transferred to monitoring equipment | $ 0.5 |
Disposed of fully reserved inventory | $ 0.3 |
PROPERTY AND EQUIPMENT (Details
PROPERTY AND EQUIPMENT (Details) - USD ($) $ in Thousands | Mar. 31, 2017 | Dec. 31, 2016 |
Property, Plant and Equipment [Line Items] | ||
Total property and equipment | $ 15,820 | $ 15,247 |
Accumulated depreciation and amortization | (9,984) | (9,225) |
Property and equipment, net | 5,836 | 6,022 |
Computer, network and other equipment | ||
Property, Plant and Equipment [Line Items] | ||
Total property and equipment | 8,839 | 8,805 |
Monitoring equipment | ||
Property, Plant and Equipment [Line Items] | ||
Total property and equipment | 6,231 | 5,692 |
Furniture and fixtures | ||
Property, Plant and Equipment [Line Items] | ||
Total property and equipment | 486 | 486 |
Leasehold improvements | ||
Property, Plant and Equipment [Line Items] | ||
Total property and equipment | $ 264 | $ 264 |
PROPERTY AND EQUIPMENT (Detail
PROPERTY AND EQUIPMENT (Detail Textuals) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Property, Plant and Equipment [Line Items] | ||
Inventory amount transferred to monitoring equipment | $ 500 | |
Depreciation and amortization | 1,973 | $ 1,965 |
Property And Equipment | ||
Property, Plant and Equipment [Line Items] | ||
Depreciation and amortization | $ 800 | $ 600 |
INTANGIBLE ASSETS - Summary of
INTANGIBLE ASSETS - Summary of intangible assets other than goodwill (Details 1) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2017 | Dec. 31, 2016 | |
Finite Lived And Indefinite Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | $ 50,270 | $ 49,618 |
Accumulated Amortization | (32,871) | (31,569) |
Net Book Value | $ 17,399 | 18,049 |
Purchased and developed software | ||
Finite Lived And Indefinite Lived Intangible Assets [Line Items] | ||
Remaining Useful Lives | 1 year 8 months 12 days | |
Gross Carrying Amount | $ 18,576 | 18,205 |
Accumulated Amortization | (13,610) | (12,806) |
Net Book Value | 4,966 | 5,399 |
Software in development | ||
Finite Lived And Indefinite Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 1,051 | 1,131 |
Accumulated Amortization | ||
Net Book Value | 1,051 | 1,131 |
Total software | ||
Finite Lived And Indefinite Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 19,627 | 19,336 |
Accumulated Amortization | (13,610) | (12,806) |
Net Book Value | $ 6,017 | 6,530 |
Licenses | ||
Finite Lived And Indefinite Lived Intangible Assets [Line Items] | ||
Remaining Useful Lives | 2 years 4 months 24 days | |
Gross Carrying Amount | $ 13,215 | 13,215 |
Accumulated Amortization | (12,622) | (12,534) |
Net Book Value | $ 593 | 681 |
Customer relationships | ||
Finite Lived And Indefinite Lived Intangible Assets [Line Items] | ||
Remaining Useful Lives | 7 years 6 months | |
Gross Carrying Amount | $ 8,167 | 8,167 |
Accumulated Amortization | (3,228) | (3,039) |
Net Book Value | $ 4,939 | 5,128 |
Technologies | ||
Finite Lived And Indefinite Lived Intangible Assets [Line Items] | ||
Remaining Useful Lives | 11 years | |
Gross Carrying Amount | $ 4,235 | 4,235 |
Accumulated Amortization | (899) | (822) |
Net Book Value | $ 3,336 | 3,413 |
Patents and trademarks | ||
Finite Lived And Indefinite Lived Intangible Assets [Line Items] | ||
Remaining Useful Lives | 1 year 10 months 24 days | |
Gross Carrying Amount | $ 4,108 | 3,747 |
Accumulated Amortization | (2,512) | (2,368) |
Net Book Value | $ 1,596 | 1,379 |
Trade names | ||
Finite Lived And Indefinite Lived Intangible Assets [Line Items] | ||
Weighted Remaining Average Useful Lives | Indefinite | |
Gross Carrying Amount | $ 918 | 918 |
Net Book Value | 918 | 918 |
Total Other Intangibles Assets | ||
Finite Lived And Indefinite Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 30,643 | 30,282 |
Accumulated Amortization | (19,261) | (18,763) |
Net Book Value | $ 11,382 | $ 11,519 |
INTANGIBLE ASSETS (Detail Textu
INTANGIBLE ASSETS (Detail Textuals) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Intangible Assets [Abstract] | ||
Amortization expense of intangible assets | $ 1.2 | $ 1.3 |
Amortization of intangible assets recorded in cost of subscription revenue | 0.5 | 0.3 |
Internally generated software development costs | $ 0.7 | $ 0.3 |
INCOME TAXES (Detail Textuals)
INCOME TAXES (Detail Textuals) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Income Taxes [Abstract] | ||
Percentage of tax expense effective tax rate | 1.90% | |
Deferred tax expense | $ 79 | $ 60 |
DEBT - Summary of debt (Details
DEBT - Summary of debt (Details) - USD ($) $ in Thousands | Mar. 31, 2017 | Dec. 31, 2016 |
Debt Instrument [Line Items] | ||
Less long-term deferred financing costs | $ (1,142) | $ (840) |
Long-term debt, total | 15,858 | 16,160 |
Less current portion of long-term debt | (3,912) | (1,275) |
Noncurrent portion of long-term debt | 11,946 | 14,885 |
Note payable to Crystal Financial LLC, with interest at LIBOR plus margin | ||
Debt Instrument [Line Items] | ||
Long-term debt, gross | 12,000 | 17,000 |
Note payable to Kenneth Rainin Foundation (a related party) | ||
Debt Instrument [Line Items] | ||
Long-term debt, gross | $ 5,000 |
DEBT (Detail Textuals)
DEBT (Detail Textuals) - USD ($) $ / shares in Units, $ in Thousands | May 03, 2017 | Mar. 09, 2016 | Mar. 31, 2017 | Mar. 31, 2016 | Dec. 31, 2016 |
Debt Instrument [Line Items] | |||||
Net proceeds from the term loan, amount cash in hand | $ 5,000 | $ 17,000 | |||
Loss on extinguishment of debt | (228) | (290) | |||
Prepayment of milestone | 5,000 | 19,349 | |||
Note payable to Crystal Financial LLC, with interest at LIBOR plus margin | |||||
Debt Instrument [Line Items] | |||||
Long-term debt, gross | 12,000 | $ 17,000 | |||
Repayment of principal amount | 2,000 | ||||
Note payable to Crystal Financial LLC, with interest at LIBOR plus margin | Term loan | |||||
Debt Instrument [Line Items] | |||||
Long-term debt, gross | $ 17,000 | ||||
Amount of quarterly principal payments | $ 600 | ||||
Prepayment penalty percentage after first anniversary and before second anniversary | 2.00% | ||||
Note payable to Crystal Financial LLC, with interest at LIBOR plus margin | Silicon Valley Bank | Term loan | |||||
Debt Instrument [Line Items] | |||||
Net proceeds from the term loan, amount cash in hand | $ 2,900 | ||||
Repayment of outstanding debt | $ 19,400 | ||||
Net of unamortized deferred financing costs | $ 300 | ||||
Note payable to Kenneth Rainin Foundation (a related party) | |||||
Debt Instrument [Line Items] | |||||
Long-term debt, gross | $ 5,000 | ||||
Annual interest rate of promissory note | 12.00% | ||||
Number of warrants to purchase common stock | 125,000 | ||||
Price of warrant per share (in dollars per share) | $ 0.01 | ||||
Amount of fair value of warrant | $ 600 | ||||
Repayment of senior subordinated promissory note | 5,000 | ||||
Loss on extinguishment of debt | $ 200 | ||||
Amendment to the Crystal Loan Agreement | Subsequent event | |||||
Debt Instrument [Line Items] | |||||
Prepayment of milestone | $ 200 |
NET LOSS PER SHARE (Details)
NET LOSS PER SHARE (Details) - shares shares in Thousands | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Weighted average common shares outstanding | ||
Basic (in share) | 19,524 | 19,377 |
Dilutive effect of common stock equivalents | ||
Total (in share) | 19,524 | 19,377 |
Anti-dilutive equity-based compensation awards | 1,634 | 1,188 |
RESTRUCTURING (Detail Textuals)
RESTRUCTURING (Detail Textuals) $ in Thousands | 3 Months Ended |
Mar. 31, 2017USD ($) | |
Restructuring Costs [Abstract] | |
Restructuring charges | $ 425 |
Severance costs | $ 400 |
SUBSEQUENT EVENTS (Detail Textu
SUBSEQUENT EVENTS (Detail Textuals) - USD ($) $ in Thousands | May 03, 2017 | Mar. 31, 2017 | Mar. 31, 2016 |
Subsequent Event [Line Items] | |||
Prepayment of milestone | $ 5,000 | $ 19,349 | |
Subsequent event | Amendment to the Crystal Loan Agreement | |||
Subsequent Event [Line Items] | |||
Prepayment of milestone | $ 200 |