UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2018

OR

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

FOR THE TRANSITION PERIOD FROM       TO       

Commission file number: 001-37851

 

AIRGAIN, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

95-4523882

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

3611 Valley Centre Drive, Suite 150

San Diego, CA

 

92130

(Address of Principal Executive Offices)

 

(Zip Code)

(760) 579-0200

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

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

As of May 8, 2018, the registrant had 9,669,962 shares of Common Stock (par value $0.0001) outstanding.

 

 

 


 

AIRGAIN, INC.

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

 

Item 1. Financial Statements

 

3

Unaudited Condensed Balance Sheets as of March 31, 2018 and December 31, 2017

 

3

Unaudited Condensed Statements of Operations for the Three Months Ended March 31, 2018 and 2017

 

4

Unaudited Condensed Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2018 and 2017

 

5

Unaudited Condensed Statement of Stockholders’ Equity for the three months ended March 31, 2018

 

6

Unaudited Condensed Statements of Cash Flows for the three months ended March 31, 2018 and 2017

 

7

Notes to Unaudited Condensed Financial Statements

 

8

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

 

19

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

26

Item 4. Controls and Procedures

 

26

PART II. OTHER INFORMATION

 

 

Item 1. Legal Proceedings

 

28

Item 1A. Risk Factors

 

29

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

 

30

Item 3. Defaults Upon Senior Securities

 

31

Item 4. Mine Safety Disclosures

 

31

Item 5. Other Information

 

31

INDEX TO EXHIBITS

 

32

SIGNATURES

 

33

 

 

 

 


 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Airgain, Inc.

Unaudited Condensed Balance Sheets

 

 

 

March 31, 2018

 

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

15,462,507

 

 

$

15,026,068

 

Short term investments

 

 

17,515,408

 

 

 

21,287,064

 

Trade accounts receivable

 

 

8,180,047

 

 

 

8,418,132

 

Inventory

 

 

518,688

 

 

 

741,557

 

Prepaid expenses and other current assets

 

 

1,182,034

 

 

 

609,786

 

Total current assets

 

 

42,858,684

 

 

 

46,082,607

 

Property and equipment, net

 

 

1,418,657

 

 

 

1,036,860

 

Goodwill

 

 

3,700,447

 

 

 

3,700,447

 

Customer relationships, net

 

 

3,955,168

 

 

 

4,075,918

 

Intangible assets, net

 

 

1,003,737

 

 

 

1,052,333

 

Other assets

 

 

288,132

 

 

 

349,743

 

Total assets

 

$

53,224,825

 

 

$

56,297,908

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,215,806

 

 

$

3,969,083

 

Accrued bonus

 

 

718,924

 

 

 

2,224,517

 

Accrued liabilities

 

 

1,081,278

 

 

 

1,121,833

 

Deferred purchase price

 

 

1,000,000

 

 

 

1,000,000

 

Current portion of long-term notes payable

 

 

1,000,000

 

 

 

1,333,333

 

Current portion of deferred rent obligation under operating lease

 

 

81,332

 

 

 

81,332

 

Total current liabilities

 

 

8,097,340

 

 

 

9,730,098

 

Deferred tax liability

 

 

10,563

 

 

 

7,971

 

Deferred rent obligation under operating lease

 

 

319,182

 

 

 

334,860

 

Total liabilities

 

 

8,427,085

 

 

 

10,072,929

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common shares, par value $0.0001, 200,000,000 shares authorized at March 31, 2018 and December 31, 2017; 9,669,962 and 9,616,992 shares issued at March 31, 2018 and December 31, 2017, respectively; 9,448,794 and 9,481,992 shares outstanding at March 31, 2018 and December 31, 2017, respectively

 

 

966

 

 

 

961

 

Additional paid in capital

 

 

90,370,362

 

 

 

89,907,766

 

Treasury stock, at cost: 221,168 shares and 135,000 shares at March 31, 2018 and December 31, 2017, respectively

 

 

(2,037,013

)

 

 

(1,257,100

)

Accumulated other comprehensive loss

 

 

(21,043

)

 

 

(16,907

)

Accumulated deficit

 

 

(43,515,532

)

 

 

(42,409,741

)

Total stockholders’ equity

 

 

44,797,740

 

 

 

46,224,979

 

Commitments and contingencies (note 14)

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

53,224,825

 

 

$

56,297,908

 

 

See accompanying notes to unaudited condensed financial statements.

 

 

3


 

Airgain, Inc.

Unaudited Condensed Statements of Operations

 

 

 

Three Months Ended March 31,

 

 

 

 

2018

 

 

2017

 

 

Sales

 

$

13,305,098

 

 

$

11,252,417

 

 

Cost of goods sold

 

 

7,110,927

 

 

 

5,963,959

 

 

Gross profit

 

 

6,194,171

 

 

 

5,288,458

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

 

2,269,114

 

 

 

1,596,799

 

 

Sales and marketing

 

 

2,884,386

 

 

 

1,628,141

 

 

General and administrative

 

 

2,204,340

 

 

 

1,638,039

 

 

Total operating expenses

 

 

7,357,840

 

 

 

4,862,979

 

 

Income (loss) from operations

 

 

(1,163,669

)

 

 

425,479

 

 

Other expense (income):

 

 

 

 

 

 

 

 

 

Interest income

 

 

(110,431

)

 

 

(37,201

)

 

Interest expense

 

 

13,904

 

 

 

30,764

 

 

Total other income

 

 

(96,527

)

 

 

(6,437

)

 

Income (loss) before income taxes

 

 

(1,067,142

)

 

 

431,916

 

 

Provision for income taxes

 

 

38,649

 

 

 

46,826

 

 

Net income (loss)

 

$

(1,105,791

)

 

$

385,090

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.12

)

 

$

0.04

 

 

Diluted

 

$

(0.12

)

 

$

0.04

 

 

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

 

 

 

 

 

 

 

 

 

Basic

 

 

9,479,742

 

 

 

9,359,562

 

 

Diluted

 

 

9,479,742

 

 

 

10,201,606

 

 

See accompanying notes to unaudited condensed financial statements.

 

4


 

Airgain, Inc.

Unaudited Condensed Statement of Comprehensive Income (Loss)

 

 

 

Three Months Ended March 31,

 

 

 

 

 

2018

 

 

2017

 

 

 

Net income (loss)

 

$

(1,105,791

)

 

$

385,090

 

 

 

Unrealized loss on available-for-sale securities

 

 

(4,136

)

 

 

 

 

 

Total comprehensive income (loss)

 

$

(1,109,927

)

 

$

385,090

 

 

 

 

 

See accompanying notes to unaudited condensed financial statements.

 

5


 

Airgain, Inc.

Unaudited Condensed Statement of Stockholders’ Equity

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Treasury

 

 

Accumulated Other Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2017

 

 

9,481,992

 

 

$

961

 

 

$

89,907,766

 

 

$

(1,257,100

)

 

$

(16,907

)

 

$

(42,409,741

)

 

$

46,224,979

 

Stock-based compensation

 

 

 

 

 

 

 

 

358,896

 

 

 

 

 

 

 

 

 

 

 

 

358,896

 

Exercise of stock options

 

 

52,970

 

 

 

5

 

 

 

103,700

 

 

 

 

 

 

 

 

 

 

 

 

103,705

 

Common stock repurchases

 

 

(86,168

)

 

 

 

 

 

 

 

 

(779,913

)

 

 

 

 

 

 

 

 

(779,913

)

Unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,136

)

 

 

 

 

 

(4,136

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,105,791

)

 

 

(1,105,791

)

Balance at March 31, 2018

 

 

9,448,794

 

 

$

966

 

 

$

90,370,362

 

 

$

(2,037,013

)

 

$

(21,043

)

 

$

(43,515,532

)

 

$

44,797,740

 

See accompanying notes to unaudited condensed financial statements.

 

 

 

 

 

6


 

Airgain, Inc.

Unaudited Condensed Statements of Cash Flows

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(1,105,791

)

 

$

385,090

 

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

121,417

 

 

 

115,447

 

Amortization

 

 

169,346

 

 

 

97,346

 

Amortization of discounts on investments, net

 

 

(8,280

)

 

 

 

Stock-based compensation

 

 

358,896

 

 

 

73,475

 

Deferred tax liability

 

 

2,592

 

 

 

9,834

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Trade accounts receivable

 

 

238,085

 

 

 

(2,357,941

)

Inventory

 

 

222,869

 

 

 

38,494

 

Prepaid expenses and other assets

 

 

(510,637

)

 

 

(75,203

)

Accounts payable

 

 

246,723

 

 

 

42,917

 

Accrued bonus

 

 

(1,505,593

)

 

 

(1,149,076

)

Accrued liabilities

 

 

(40,555

)

 

 

(268,306

)

Deferred obligation under operating lease

 

 

(15,678

)

 

 

(30,739

)

Net cash used in operating activities

 

 

(1,826,606

)

 

 

(3,118,662

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of available-for-sale securities

 

 

(3,724,200

)

 

 

 

Maturities of available-for-sale securities

 

 

7,500,000

 

 

 

 

Purchases of property and equipment

 

 

(503,214

)

 

 

(119,312

)

Net cash provided by (used in) investing activities

 

 

3,272,586

 

 

 

(119,312

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repayment of notes payable

 

 

(333,333

)

 

 

(388,563

)

Reversal of costs related to initial public offering

 

 

 

 

 

781

 

Common stock repurchases

 

 

(779,913

)

 

 

 

Proceeds from exercise of stock options

 

 

103,705

 

 

 

323,651

 

Net cash used in financing activities

 

 

(1,009,541

)

 

 

(64,131

)

Net increase (decrease) in cash and cash equivalents

 

 

436,439

 

 

 

(3,302,105

)

Cash and cash equivalents, beginning of period

 

 

15,026,068

 

 

 

45,161,403

 

Cash and cash equivalents, end of period

 

$

15,462,507

 

 

$

41,859,298

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

Interest paid

 

$

15,340

 

 

$

32,508

 

Taxes paid

 

$

7,409

 

 

$

 

See accompanying notes to unaudited condensed financial statements.

 

 

7


 

Airgain, Inc.

Notes to Unaudited Condensed Financial Statements

 

Note 1. Basis of Presentation

Business Description

Airgain, Inc. (the Company) was incorporated in the State of California on March 20, 1995 and reincorporated in the State of Delaware on August 15, 2016. The Company is a leading provider of advanced antenna technologies used to enable high performance wireless networking across a broad range of devices and markets, including connected home, enterprise, automotive and Internet of Things (IoT). The Company designs, develops, and engineers its antenna products for original equipment and design manufacturers worldwide.  The Company’s headquarters is in San Diego, California with office space and research facilities in the United States, United Kingdom and China.  

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Interim financial results are not necessarily indicative of results anticipated for the full year. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, from which the balance sheet information herein was derived.  

The condensed balance sheet as of December 31, 2017 included herein was derived from the audited financial statements as of that date but does not include all disclosures including notes required by GAAP.

The condensed statements of operations for the three months ended March 31, 2018 and March 31, 2017, and the balance sheet data as of March 31, 2018 have been prepared on the same basis as the audited financial statements.

In the opinion of management, the accompanying unaudited condensed financial statements reflect all adjustments, consisting of normal and recurring adjustments, necessary for a fair presentation of results of the Company’s operations and financial position for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2018 or for any future period.   

 

 

Segment Information

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

Use of Estimates

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

Fair Value Measurements

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

8


 

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

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

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

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

 

The Company’s accounting policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were no transfers into or out of Level 1, Level 2, or Level 3 for the three months ended March 31, 2018 and for the year ended December 31, 2017.

Cash Equivalents and Short-Term Investments

Cash equivalents are comprised of short-term, highly liquid investments with maturities of 90 days or less at the date of purchase.  

Short-term investments consist predominantly of commercial paper, corporate debt securities, U.S. Treasury securities and asset backed securities.  The Company classifies short-term investments based on the facts and circumstances surrounding the investments at the time of purchase and evaluates such classification as of each balance sheet date.  All short-term investments are classified as available-for-sale securities as of March 31, 2018 and are recorded at estimated fair value.  Unrealized gains and losses for available-for-sale securities are included in accumulated other comprehensive income (loss), a component of stockholders’ equity.  Realized gains and losses are included in other income, in the unaudited condensed statement of operations.  The Company evaluates its investments to determine whether those with unrealized loss positions are other than temporarily impaired.  Impairments are considered to be other than temporary if they are related to deterioration in credit risk or if it is likely that the Company will sell the securities before recovery of their cost basis.  

 

Inventory

The majority of the Company’s products are manufactured by third parties that retain ownership of the inventory until title is transferred to the customer at the shipping point.  In certain instances, shipping terms are delivery at place and the Company is responsible for arranging transportation and delivery of goods ready for unloading at the named place.  The Company bears all risk involved in bringing the goods to the named place and records the related inventory in transit to the customer as inventory on the accompanying balance sheet.  With the acquisition of substantially all of the assets of Antenna Plus, LLC (“Antenna Plus”), in April 2017, the Company began manufacting products at its Scottsdale, Arizona and Shullsburg, Wisconsin locations.  In July 2017, the Company relocated all of its product manufacturing produced in Shullsburg, Wisconsin to the Scottsadale, Arizona facility.  See Note 6 for additional information relating to the Company’s acquisition of the Antenna Plus assets.  

Inventory is stated at the lower of cost or net realizable value.  For items manufactured by the Company, cost is determined using the weighted average cost method.  For items manufactured by third parties, cost is determined using the first-in, first-out method (FIFO).  Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period.  As of March 31, 2018, the Company’s inventories consist primarily of raw materials.  Provisions for excess and obsolete inventories are estimated based on product life cycles, quality issues, and historical experience.  As of March 31, 2018, there is no provision for excess and obsolete inventories.    

Accumulated Other Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss).  Accumulated other comprehensive income (loss) on the unaudited condensed balance sheet at March 31, 2018 includes unrealized gains and losses on the Company’s available-for-sale securities.  

 

Note 2. Summary of Significant Accounting Policies

During the three months ended March 31, 2018, there have been no material changes to the Company’s significant accounting policies as described in the Annual Report on Form 10-K for the fiscal year ended December 31, 2017.  

Recent Accounting Pronouncements

9


 

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

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

 

 

Note 3. Net Income (Loss) Per Share

Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average shares of common stock outstanding for the period. Diluted net income (loss) per share is calculated by dividing net income (loss) by the weighted average shares of common stock outstanding for the period plus amounts representing the dilutive effect of securities that are convertible into common stock. The Company calculates diluted earnings per common share using the treasury stock method and the as-if-converted method, as applicable.

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

 

 

 

Three Months Ended March 31,

 

 

 

 

2018

 

 

2017

 

 

Numerator:

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(1,105,791

)

 

$

385,090

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic

 

 

9,479,742

 

 

 

9,359,562

 

 

Plus dilutive effect of potential common shares

 

 

 

 

 

842,044

 

 

Weighted average common shares outstanding - diluted

 

 

9,479,742

 

 

 

10,201,606

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.12

)

 

$

0.04

 

 

Diluted

 

$

(0.12

)

 

$

0.04

 

 

 

 

Diluted weighted average common shares outstanding for the three months ended March 31, 2017 includes 10,532 warrants and 831,512 options outstanding.

 

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

 

 

 

Three Months Ended March 31,

 

 

 

 

2018

 

 

2017

 

 

Employee stock options

 

 

1,159,062

 

 

 

6,581

 

 

Warrants outstanding

 

 

51,003

 

 

 

 

 

Total

 

 

1,210,065

 

 

 

6,581

 

 

 

Note 4. Cash, Cash Equivalents and Short-Term Investments

The following table shows the Company’s cash and cash equivalents and short-term investments by significant investment category as of March 31, 2018:

10


 

 

 

March 31, 2018

 

 

 

Amortized Cost

 

 

Gross Unrealized Losses

 

 

Estimated Fair Value

 

 

Cash and Cash Equivalents

 

 

Short-Term Investments

 

Cash

 

$

3,692,893

 

 

$

 

 

$

3,692,893

 

 

$

3,692,893

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 1 (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

 

5,031,300

 

 

 

 

 

 

5,031,300

 

 

 

5,031,300

 

 

 

 

U.S. treasury securities

 

 

2,492,664

 

 

 

(5,660

)

 

 

2,487,004

 

 

 

 

 

 

2,487,004

 

Subtotal

 

 

7,523,964

 

 

 

(5,660

)

 

 

7,518,304

 

 

 

5,031,300

 

 

 

2,487,004

 

Level 2 (2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

10,460,305

 

 

 

 

 

 

10,460,305

 

 

 

2,987,944

 

 

 

7,472,361

 

Corporate debt obligations

 

 

4,551,681

 

 

 

(9,610

)

 

 

4,542,071

 

 

 

 

 

 

4,542,071

 

Repurchase agreements

 

 

3,000,450

 

 

 

 

 

 

3,000,450

 

 

 

3,000,450

 

 

 

 

Asset-backed securities

 

 

3,769,665

 

 

 

(5,773

)

 

 

3,763,892

 

 

 

749,920

 

 

 

3,013,972

 

Subtotal

 

 

21,782,101

 

 

 

(15,383

)

 

 

21,766,718

 

 

 

6,738,314

 

 

 

15,028,404

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

32,998,958

 

 

$

(21,043

)

 

$

32,977,915

 

 

$

15,462,507

 

 

$

17,515,408

 

 

 

 

 

December 31, 2017

 

 

 

Amortized Cost

 

 

Gross Unrealized Losses

 

 

Estimated Fair Value

 

 

Cash and Cash Equivalents

 

 

Short-Term Investments

 

Cash

 

$

3,040,696

 

 

$

 

 

$

3,040,696

 

 

$

3,040,696

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 1 (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

 

8,234,751

 

 

 

 

 

 

8,234,751

 

 

 

8,234,751

 

 

 

 

U.S. treasury securities

 

 

2,490,799

 

 

 

(5,540

)

 

 

2,485,259

 

 

 

 

 

 

2,485,259

 

Subtotal

 

 

10,725,550

 

 

 

(5,540

)

 

 

10,720,010

 

 

 

8,234,751

 

 

 

2,485,259

 

Level 2 (2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

9,716,093

 

 

 

 

 

 

9,716,093

 

 

 

 

 

 

9,716,093

 

Corporate debt obligations

 

 

6,829,191

 

 

 

(9,414

)

 

 

6,819,777

 

 

 

 

 

 

6,819,777

 

Repurchase agreements

 

 

3,000,233

 

 

 

 

 

 

3,000,233

 

 

 

3,000,233

 

 

 

 

Asset-backed securities

 

 

3,018,276

 

 

 

(1,953

)

 

 

3,016,323

 

 

 

750,388

 

 

 

2,265,935

 

Subtotal

 

 

22,563,793

 

 

 

(11,367

)

 

 

22,552,426

 

 

 

3,750,621

 

 

 

18,801,805

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

36,330,039

 

 

$

(16,907

)

 

$

36,313,132

 

 

$

15,026,068

 

 

$

21,287,064

 

 

 

(1)

Level 1 fair value estimates are based on quoted prices in active markets for identical assets or liabilities.

 

(2)

Level 2 fair value estimates are based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.  

 

The Company’s investments were primarily valued based upon one or more valuations reported by its investment accounting and reporting service provider.  The investment service provider values the securities using a hierarchical security pricing model that relies primarily on valuations provided by a third-party pricing vendor.  Such valuations may be based on trade prices in active markets for identical assets or liabilities (Level 1 inputs) or valuation models using inputs that are observable either directly or indirectly (Level 2 inputs), such as quoted prices for similar assets or liabilities, yield curve, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for underlying instruments or debt, broker and dealer quotes, as well as other relevant economic measures.  The Company performs certain procedures to corroborate the fair value of its holdings, including comparing valuations obtained from its investment service provider with other pricing sources to validate the reasonableness of the valuations.    

 

The Company typically invests in highly-rated securities, and its investment policy limits the amount of credit exposure to any one issuer.  The policy requires investments in fixed income instruments denominated and payable in U.S. dollars only and requires investments to be investment grade, with a primary objective of minimizing the potential risk of principal loss.  

 

The following table presents the Company’s short-term investments with unrealized losses by investment category and length of time that individual securities have been in a continuous unrealized loss position as of March 31, 2018:

11


 

 

 

Less Than 12 Months

 

Description of Securities

 

Estimated Fair Value

 

 

Unrealized Losses

 

March 31, 2018

 

 

 

 

 

 

 

 

U.S. treasury securities

 

$

2,487,004

 

 

$

(5,660

)

Corporate debt obligations

 

 

4,542,071

 

 

 

(9,610

)

Asset-backed securities

 

 

3,013,972

 

 

 

(5,773

)

Total

 

$

10,043,047

 

 

$

(21,043

)

 

 

The Company considers the declines in market value of its short-term investments to be temporary in nature.  Fair values were determined for each individual security in the investment portfolio.  When evaluating an investment for other-than-temporary impairment, the Company reviews factors such as length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer and any changes thereto, changes in market interest rates and the Company’s intent to sell, or whether it is more likely than not it will be required to sell the investment before recovery of the investment’s cost basis.  As of March 31, 2018, the Company does not consider any of its investments to be other-than temporarily impaired.

 

Contractual maturities of short-term investments as of March 31, 2018 are as follows:

 

 

 

Estimated Fair Value

 

Due within one year

 

$

17,515,408

 

Total

 

$

17,515,408

 

 

 

 

 

Note 5. Property and Equipment

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

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Lab equipment

 

$

2,228,032

 

 

$

1,914,911

 

Computer equipment

 

 

169,366

 

 

 

169,366

 

Computer software

 

 

306,767

 

 

 

299,227

 

Furniture and fixtures

 

 

202,218

 

 

 

202,218

 

Tenant improvements

 

 

894,756

 

 

 

763,898

 

Other office equipment

 

 

115,520

 

 

 

63,825

 

 

 

 

3,916,659

 

 

 

3,413,445

 

Less accumulated depreciation

 

 

(2,498,002

)

 

 

(2,376,585

)

 

 

$

1,418,657

 

 

$

1,036,860

 

Depreciation expense was $121,417 and $115,447 for the three months ended March 31, 2018 and 2017, respectively.

 

 

Note 6. Acquisitions

Antenna Plus

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

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

The following table shows the allocation of the purchase price for Antenna Plus to the acquired identifiable assets, liabilities assumed and goodwill:

12


 

 

Consideration:

 

 

 

 

Cash

 

$

6,383,500

 

Working capital adjustments

 

 

(34,770

)

Fair value of total consideration transferred

 

$

6,348,730

 

Recognized amounts of identifiable assets acquired and liabilities assumed:

 

 

 

 

Accounts receivable

 

$

584,390

 

Inventory

 

 

432,770

 

Fixed assets

 

 

402,958

 

Intangible assets

 

 

2,600,000

 

Current liabilities

 

 

(121,879

)

Total identifiable net assets acquired

 

 

3,898,239

 

Goodwill

 

 

2,450,491

 

Total

 

$

6,348,730

 

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

Revenue associated with the acquired Antenna Plus assets was $2.3 million for the three months ended March 31, 2018.  Cost of goods sold associated with the acquired Antenna Plus assets was $0.9 million for the three months ended March 31, 2018.  Net income associated with the acquired Antenna Plus assets was net income of $0.7 million for the three months ended March 31, 2018.  

Unaudited Pro Forma Information

The following unaudited pro forma financial information presents combined results of operations for each of the periods presented, as if Antenna Plus had been acquired as of the beginning of the fiscal year 2017.  The pro forma information includes adjustments to amortization and depreciation for intangible assets and property, plant and equipment acquired.  The pro forma data are for informational purposes only and are not necessarily indicative of the consolidated results of operations of the combined business had the acquisition actually occurred at the beginning of fiscal year 2017 or of the results of future operations of the combined business.  Consequently, actual results will differ from the unaudited pro forma information presented below:

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

Pro forma sales

 

$

13,305,098

 

 

$

13,026,993

 

Pro forma income from operations

 

$

(1,163,669

)

 

$

927,532

 

Pro forma net income

 

$

(1,105,791

)

 

$

887,143

 

  

 

Note 7. Intangible Assets

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

 

 

 

March 31, 2018

 

 

 

Weighted

Average

Amortization

Period (years)

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Intangibles, Net

 

Customer relationships

 

 

10

 

 

$

4,830,000

 

 

$

874,832

 

 

$

3,955,168

 

Developed technologies

 

 

9

 

 

 

1,080,000

 

 

 

175,489

 

 

 

904,511

 

Tradename

 

 

3

 

 

 

120,000

 

 

 

36,667

 

 

 

83,333

 

Non-compete agreement

 

 

3

 

 

 

67,000

 

 

 

51,107

 

 

 

15,893

 

Total intangible assets, net

 

 

10

 

 

$

6,097,000

 

 

$

1,138,095

 

 

$

4,958,905

 

 

13


 

 

 

December 31, 2017

 

 

 

Weighted

Average

Amortization

Period (years)

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Intangibles, Net

 

Customer relationships

 

 

10

 

 

$

4,830,000

 

 

$

754,082

 

 

$

4,075,918

 

Developed technologies