The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements
The accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2017 (Unaudited)
(in thousands except share data and as otherwise noted)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
Nature of Operations
PCTEL, Inc. (“PCTEL”, the “Company”, “we”, “ours”, and “us”)
delivers
P
erformance
C
ritical
TEL
ecom technology solutions to the wireless industry. PCTEL is a
leading global supplier of antennas and wireless network testing solutions.
PCTEL’s Connected Solutions
segment designs and manufactures precision antennas. PCTEL antennas are deployed in small cells, enterprise Wi-Fi access points, fleet management and transit systems, and in network equipment and devices for the Industrial Internet of Things (“IIoT”).
PCTEL’s RF Solutions
segment p
rovides test tools
that improve the performance of wireless networks globally. Mobile operators, neutral hosts, and equipment manufacturers rely on PCTEL
to analyze, design, and optimize next generation wireless networks.
Segment Reporting
PCTEL operates in two segments for reporting purposes, Connected Solutions and RF Solutions.
The Company’s chief operating decision maker uses operating profits and identified assets for the Connected Solutions and RF Solutions segments to make operating decisions. Each segment has its own segment manager as well as its own engineering, sales and marketing, and operational general and administrative functions. All of the Company’s accounting and finance, human resources, IT and legal functions are provided on a centralized basis through the corporate function. The Company manages its balance sheet and cash flows centrally at the corporate level, with the exception of trade accounts receivable and inventory which is managed at the segment level. Each of the segment managers reports to and maintains regular contact with the chief operating decision maker to discuss operating activities, financial results, forecasts, or plans for the segment.
Connected Solutions Segment
PCTEL Connected Solutions designs and manufactures precision antennas. PCTEL antennas are deployed primarily in small cells, enterprise Wi-Fi access points, fleet management and transit systems, and in equipment and devices for the Industrial Internet of Things (“IIoT”). Revenue growth in these markets is driven by the increased use of wireless communications and increased complexity trends occurring in these markets. PCTEL antennas are primarily sold to original equipment manufacturer (“OEM”) providers where they are designed into the customer’s solution.
Competition in the antenna markets addressed by Connected Solutions is fragmented. Competitors include Amphenol, Comtelco, Laird, Mobile Mark, Pulse, Radiall/Larsen, and Airgain. The Company seeks out product applications that command a premium for product performance and customer service, and avoids commodity markets.
PCTEL maintains expertise in several technology areas in order to be competitive in the antenna market. These include radio frequency engineering, mobile antenna design and manufacturing, mechanical engineering, product quality and testing, and wireless network engineering.
RF Solutions Segment
PCTEL RF Solutions p
rovides test tools
that improve the performance of wireless networks globally. Mobile operators, neutral hosts, and equipment manufacturers rely on PCTEL test tools
to analyze, design, and optimize next generation wireless networks. Revenue growth is driven by the implementation and roll out of new wireless technology standards (i.e., 1G to 2G, 2G to 3G, 3G to 4G, 4G to 5G, etc.). PCTEL test equipment is sold directly to wireless carriers or to
OEM providers who integrate the Company’s products into their solution which is then sold to wireless carriers.
8
Competitors for PCTEL’s test tool products include OEMs such as Anritsu, Berkley Varitronics,
Digital Receiver Technology, and Rohde and Schwarz.
PCTEL maintains expertise in several technology areas in order to be competitive in the test tool market. These include radio frequency engineering, digital signal process (“DSP”) engineering, manufacturing, mechanical engineering, product quality and testing, and wireless network engineering.
Discontinued Operations
During the quarter ended June 30, 2017, the Company approved a plan to sell its Network Engineering Services business (“Engineering Services”) and shift its focus towards research and development driven radio frequency (”RF”) products Engineering Services is part of the RF Solutions segment. The Company classified the assets of the Network Engineering Services business unit (“Engineering Services”) as held for sale and classified the results of its operations as discontinued operations for the three and six months ended June 30, 2017 and 2016, respectively. The financial statements have been restated to reflect the historical results of Engineering Services as discontinued operations. See Note 5 in the notes to the financial statements for more information on discontinued operations. On July 31, 2017, the Company sold substantially all of the assets of the Company’s Network Engineering Services business unit to Gabe’s Construction Co., Inc. (“Gabe’s). See Note 13 related to subsequent events for additional information related to the sale to Gabe’s.
Basis of Consolidation
The condensed consolidated balance sheet as of June 30, 2017 and the condensed consolidated statements of operations, statements of comprehensive loss, and cash flows for the three and six months ended June 30, 2017 and 2016, respectively, are unaudited and reflect all adjustments of a normal recurring nature that are, in the opinion of management, necessary for a fair presentation of the interim period financial statements. The interim condensed consolidated financial statements are derived from the audited financial statements as of December 31, 2016.
The unaudited interim condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been condensed or omitted. The significant accounting policies followed by the Company are set forth within the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (“the 2016 Form 10-K”). There were no changes in the Company’s significant accounting policies during the three and six months ended June 30, 2017. In addition, the Company reaffirms the use of estimates in the preparation of the financial statements as set forth in the 2016 Form 10-K. These interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the 2016 Form 10-K. The results of operations for the period ended June 30, 2017 may not be indicative of the results for the period ending December 31, 2017.
Reclassifications
Certain reclassifications of the prior year’s financial statement and footnote amounts have been made to conform to the current year’s presentation.
Foreign Operations
The Company is exposed to foreign currency fluctuations due to its foreign operations and because products are sold internationally. The functional currency for the Company’s foreign operations is predominantly the applicable local currency. Accounts of foreign operations are translated into U.S. dollars using the exchange rate in effect at the applicable balance sheet date for assets and liabilities and average monthly rates prevailing during the period for revenue and expense accounts. Adjustments resulting from translation are included in accumulated other comprehensive income (loss), a separate component of shareholders’ equity. Gains and losses resulting from other transactions originally in foreign currencies and then translated into U.S. dollars are included in the condensed consolidated statement of operations. Net foreign exchange losses resulting from foreign currency transactions included in other income, net were $41 and $19 for the three months ended June 30, 2017 and 2016, respectively. Net foreign exchange losses resulting from foreign currency transactions included in other income, net were $53 and $35 for the six months ended June 30, 2017 and 2016, respectively.
Recent Accounting Pronouncements
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04
9
eliminates Step 2 as part of the goodwill impairment test, the result of which is that the impairment charge recognized would now be the amount by which the carrying value exceeds the reporting unit’s fair value. The loss to be reco
gnized cannot exceed the amount of
goodwill allocated
to that reporting unit.
The Company early adopted this guidance on January 1, 2017 because its annual impairment test is performed after January 1, 2017. The adoption of this ASU is not expected to ha
ve a material impact on the Company's consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. This guidance will be effective for us on January 1, 2018. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13 ("ASU 2016-13") regarding ASC Topic 326, "Financial Instruments - Credit Losses," which modifies the measurement of expected credit losses of certain financial instruments. The amendments will be effective for us on January 1, 2020. The Company is currently evaluating this guidance and the impact it will have on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU No. 2016-09 affects all entities that issue share-based payment awards to their employees. ASU No. 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows, including recognizing all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement rather than in additional paid-in capital. The Company adopted this ASU in the first quarter 2017. Upon adoption, the Company recognized deferred tax assets of $0.6 million for all excess tax benefits that had not been previously recognized. The Company also elected to recognize forfeitures as incurred. The Company recorded an adjustment of $0.1 million to deferred tax assets for estimated forfeitures previously recorded. These adjustments were recorded through a cumulative-effect adjustment to retained earnings of approximately $0.5 million and adjustment to the valuation allowance for $0.2 million.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which amends existing guidance to require lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by long-term leases and to disclose additional quantitative and qualitative information about leasing arrangements. This ASU also provides clarifications surrounding the presentation of the effects of leases in the income statement and statement of cash flows. This guidance will be effective for us on January 1, 2019. The Company is currently evaluating this guidance and the impact it will have on its consolidated financial statements and related disclosures.
In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory. ASU 2015-11 simplifies the subsequent measurement of inventory by requiring inventory to be measured at the lower of cost and net realizable value. ASU 2015-11 applies only to inventories for which cost is determined by methods other than last-in first-out and the retail inventory method. The Company adopted this guidance on January 1, 2017. The adoption of this ASU did not have a material impact to the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” which introduces a new revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This guidance will be effective for us on January 1, 2018. The FASB has also issued the following standards which clarify ASU 2014-09 and have the s
ame effective date as the original standard: ASU 2016-20, Technical Corrections and Improvements to Topic 606, ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients, ASU 2016-10, Identifying Performance Obligations and Licensing and ASU 2016-08, Principal versus Agent Considerations.
The Company commenced its assessment of ASU 2014-09 during the first quarter of 2017. The Company is developing a project plan to guide the implementation. This project plan includes analyzing the standard’s impact on the Company’s contract portfolio, comparing historical accounting policies and practices to the requirements of the new standard and identifying potential differences from applying the requirements of the new standard to its contracts. The Company will draft an updated accounting policy, evaluate
10
new disclosure requirements and identify and implement appropriate changes to the business processes, systems and controls to support recognition and disclosure under the new standard. The Company expects to
adopt this new standard using the modified retrospective method that will result in a cumulative effect adjustment as of the date of adoption. The Company is currently evaluating this guidance and the impact it will have on the consolidated financial sta
tements.
2. Fair Value of Financial Instruments
The Company follows accounting guidance for fair value measurements and disclosures, which establishes a fair value hierarchy that requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:
Level 1: inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of assets or liabilities.
Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Cash equivalents are measured at fair value and investments are recognized at amortized cost in the Company’s financial statements. Accounts receivable and other investments are financial assets with carrying values that approximate fair value due to the short-term nature of these assets. Accounts payable is a financial liability with a carrying value that approximates fair value due to the short-term nature of these liabilities.
3. Earnings per Share
The following table is the computation of basic and diluted earnings per share:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Basic Earnings Per Share computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(185
|
)
|
|
$
|
(7,781
|
)
|
|
$
|
(1
|
)
|
|
$
|
(8,318
|
)
|
Net loss from discontinued operations
|
|
$
|
(168
|
)
|
|
$
|
(3,292
|
)
|
|
$
|
(382
|
)
|
|
$
|
(4,211
|
)
|
Net loss
|
|
$
|
(353
|
)
|
|
$
|
(11,073
|
)
|
|
$
|
(383
|
)
|
|
$
|
(12,529
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding
|
|
|
16,534
|
|
|
|
15,979
|
|
|
|
16,437
|
|
|
|
16,149
|
|
Earnings per common share - basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(0.01
|
)
|
|
$
|
(0.49
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.52
|
)
|
Net loss from discontinued operations
|
|
$
|
(0.01
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.26
|
)
|
Net loss
|
|
$
|
(0.02
|
)
|
|
$
|
(0.69
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.78
|
)
|
Diluted Earnings Per Share computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding
|
|
|
16,534
|
|
|
|
15,979
|
|
|
|
16,437
|
|
|
|
16,149
|
|
Restricted shares subject to vesting
|
|
*
|
|
|
*
|
|
|
*
|
|
|
*
|
|
Common stock option grants
|
|
*
|
|
|
*
|
|
|
*
|
|
|
*
|
|
Total shares
|
|
|
16,534
|
|
|
|
15,979
|
|
|
|
16,437
|
|
|
|
16,149
|
|
Earnings per common share - diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(0.01
|
)
|
|
$
|
(0.49
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.52
|
)
|
Net loss from discontinued operations
|
|
$
|
(0.01
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.26
|
)
|
Net loss
|
|
$
|
(0.02
|
)
|
|
$
|
(0.69
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.78
|
)
|
*
|
As denoted by “*” in the table above, the weighted average common stock option grants and restricted shares of 481,000 and 483,000 for the three and six months ended June 30, 2017, respectively, and 163,000 for the six months ended June 30, 2016, were excluded from the calculations of diluted net loss per share since their effects are anti-dilutive.
|
11
4. Cash, Cash Equivalents and Investments
The Company’s cash and investments consisted of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
4,311
|
|
|
$
|
7,507
|
|
Cash equivalents
|
|
|
7,564
|
|
|
|
7,348
|
|
Short-term investments
|
|
|
22,340
|
|
|
|
18,456
|
|
|
|
$
|
34,215
|
|
|
$
|
33,311
|
|
Cash and Cash Equivalents
At June 30, 2017 and December 31, 2016, cash and cash equivalents included bank balances and investments with original maturities less than 90 days. At June 30, 2017 and December 31, 2016, the Company’s cash equivalents were invested in highly liquid AAA rated money market funds that are required to comply with Rule 2a-7 of the Investment Company Act of 1940. Such funds utilize the amortized cost method of accounting, seek to maintain a constant $1.00 per share price, and are redeemable upon demand. The Company restricts its investments in AAA money market funds to those invested 100% in either short-term U.S. government agency securities or bank repurchase agreements collateralized by these same securities. The fair values of these money market funds are established through quoted prices in active markets for identical assets (Level 1 inputs). The Company’s cash in U.S. banks is insured by the Federal Deposit Insurance Corporation up to the insurable limit of $250.
At June 30, 2017, the Company had $4.3 million in cash and $7.6 million in cash equivalents, and at December 31, 2016, the Company had $7.5 million in cash and $7.3 million in cash equivalents. At June 30, 2017, the Company had in cash equivalents $5.0 million in AA rated or higher corporate bonds, $1.7 million in U.S. government agency bonds, $0.8 million in certificates of deposit, and $0.1 million in money market funds. At December 31, 2016, the Company had in cash equivalents, $3.6 million in AA rated or higher corporate bonds, $2.8 million in U.S. government agency bonds, $0.8 million in certificates of deposit, and $0.1 million in money market funds.
The Company had $1.3 million and $0.9 million of cash and cash equivalents in foreign bank accounts at June 30, 2017 and December 31, 2016, respectively. With respect to the cash in foreign bank accounts, the Company had cash of $1.1 million and $0.5 million in Chinese bank accounts at June 30, 2017 and December 31, 2016, respectively. The Company ceased ongoing operations of its Israel subsidiary during the third quarter 2016.
The Company expects to liquidate the subsidiary and repatriate its remaining cash during 2017.
As of June 30, 2017, the Company has no intentions of repatriating the cash in its foreign bank accounts in the U.K. or China. If the Company decides to repatriate the cash in the foreign bank accounts, it may experience difficulty in doing so in a timely manner. The Company may also be exposed to foreign currency fluctuations and taxes if it repatriates these funds. The Company’s cash in its foreign bank accounts is not insured.
Investments
At June 30, 2017 and December 31, 2016, the Company’s short-term investments consisted of pre-refunded municipal bonds, U.S. government agency bonds, AA or higher rated corporate bonds, and certificates of deposit, all classified as held-to-maturity. At June 30, 2017, the Company had invested $7.5 million in pre-refunded municipal bonds, $6.4 million in AA rated or higher corporate bonds, $4.7 million in U.S. government agency bonds, and $3.6 million in certificates of deposit. The income and principal from the pre-refunded municipal bonds are secured by an irrevocable trust of U.S. Treasury securities. The bonds have original maturities greater than 90 days and mature in less than one year. The Company’s bond investments are recorded at the purchase price and carried at amortized cost. The net unrealized losses were $10 and $9 at June 30, 2017 and December 31, 2016, respectively. Approximately 8% and 6% of the Company’s bond investments were protected by bond default insurance at June 30, 2017 and December 31, 2016, respectively.
At December 31, 2016, the Company had invested $7.8 million in pre-refunded municipal bonds and taxable bond funds, $5.6 million in AA rated or higher corporate bond funds, $2.6 million in U.S. government agency bonds, and $2.5 million in certificates of deposit.
The Company categorizes its financial instruments within a fair value hierarchy according to accounting guidance for fair value. The fair value hierarchy is described under the Fair Value of Financial Instruments in Note 2. For the Level 2 investments, the Company uses quoted prices of similar assets in active markets.
12
Cash equivalents and investments measured at fair value were as follows at June 30, 2017 and December 31, 2016:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
0
|
|
|
$
|
4,984
|
|
|
$
|
0
|
|
|
$
|
4,984
|
|
|
$
|
0
|
|
|
$
|
3,608
|
|
|
$
|
0
|
|
|
$
|
3,608
|
|
US government agency bonds
|
|
|
0
|
|
|
|
1,700
|
|
|
|
0
|
|
|
|
1,700
|
|
|
|
0
|
|
|
|
2,846
|
|
|
|
0
|
|
|
|
2,846
|
|
Certificates of deposit
|
|
|
801
|
|
|
|
0
|
|
|
|
0
|
|
|
|
801
|
|
|
|
750
|
|
|
|
0
|
|
|
|
0
|
|
|
|
750
|
|
Money market funds
|
|
|
79
|
|
|
|
0
|
|
|
|
0
|
|
|
|
79
|
|
|
|
145
|
|
|
|
0
|
|
|
|
0
|
|
|
|
145
|
|
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
0
|
|
|
|
6,428
|
|
|
|
0
|
|
|
|
6,428
|
|
|
|
0
|
|
|
|
5,569
|
|
|
|
0
|
|
|
|
5,569
|
|
Pre-refunded municipal bonds
|
|
|
0
|
|
|
|
7,548
|
|
|
|
0
|
|
|
|
7,548
|
|
|
|
0
|
|
|
|
7,776
|
|
|
|
0
|
|
|
|
7,776
|
|
US government agency bonds
|
|
|
0
|
|
|
|
4,728
|
|
|
|
0
|
|
|
|
4,728
|
|
|
|
0
|
|
|
|
2,571
|
|
|
|
0
|
|
|
|
2,571
|
|
Certificates of deposit
|
|
|
3,626
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3,626
|
|
|
|
2,530
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,530
|
|
Total
|
|
$
|
4,506
|
|
|
$
|
25,388
|
|
|
$
|
0
|
|
|
$
|
29,894
|
|
|
$
|
3,425
|
|
|
$
|
22,370
|
|
|
$
|
0
|
|
|
$
|
25,795
|
|
5. Discontinued Operations
During the quarter ended June 30, 2017, the Company approved a plan to sell its Network Engineering Services business (“Engineering Services”) and shift its focus towards research and development driven radio frequency (“RF”) products. The disposition met the requirements for classification as held for sale during the quarter ended June 30, 2017 because the disposition met all of the criteria outlined in the accounting guidance. Due to the significance of the results during the years ended December 31, 2016, 2015, and 2014, and because this disposition represents a strategic shift by the Company to focus on products, the disposition of Engineering Services qualifies as a discontinued operation for reporting purposes. As such, the Company reported the results of its Engineering Services business as discontinued operations for the three and six months ended June 30, 2017 and 2016, respectively. All of the revenues and cost of revenues in discontinued operations related to services.
There was no impairment loss recorded on the long-lived assets because the fair value of the assets less cost to sell was higher than the carrying value of the assets. At June 30, 2017, the assets held for sale consisted of the fixed assets of $0.6 million and prepaid expenses of the business of $0.1 million. For the balance sheet at December 31, 2016, the Company reclassified the fixed assets to noncurrent assets held for sale and the prepaid expenses to current assets held for sale. There were no liabilities classified as held for sale at June 30, 2017 or December 31, 2016.
The following table is a reconciliation of the assets classified as held for sale in the consolidated balance sheets.
|
June 30,
|
|
|
December 31,
|
|
|
2017
|
|
|
2016
|
|
Fixed assets
|
$
|
620
|
|
|
$
|
0
|
|
Prepaid expenses and other assets
|
|
74
|
|
|
|
50
|
|
Current assets held for sale
|
|
694
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
0
|
|
|
|
813
|
|
Non-current assets held for sale
|
$
|
0
|
|
|
$
|
813
|
|
|
|
|
|
|
|
|
|
13
The details of the discontinued operations within the Statements of Operations are as follows:
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
June 30,
|
|
|
June 30,
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenues
|
$
|
1,348
|
|
|
$
|
2,935
|
|
|
$
|
3,357
|
|
|
$
|
4,826
|
|
Cost of revenues
|
|
1,411
|
|
|
|
2,632
|
|
|
|
3,559
|
|
|
|
4,932
|
|
Gross profit
|
|
(63
|
)
|
|
|
303
|
|
|
|
(202
|
)
|
|
|
(106
|
)
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
194
|
|
|
|
324
|
|
|
|
348
|
|
|
|
575
|
|
General and administrative
|
|
13
|
|
|
|
49
|
|
|
|
26
|
|
|
|
83
|
|
Amortization of intangible assets
|
|
0
|
|
|
|
448
|
|
|
|
0
|
|
|
|
896
|
|
Impairment of intangible assets
|
|
0
|
|
|
|
4,724
|
|
|
|
0
|
|
|
|
4,724
|
|
Restructuring expenses
|
|
(1
|
)
|
|
|
2
|
|
|
|
8
|
|
|
|
324
|
|
Total operating expenses
|
|
206
|
|
|
|
5,547
|
|
|
|
382
|
|
|
|
6,602
|
|
Operating loss
|
|
(269
|
)
|
|
|
(5,244
|
)
|
|
|
(584
|
)
|
|
|
(6,708
|
)
|
Benefit for income taxes
|
|
(101
|
)
|
|
|
(1,952
|
)
|
|
|
(202
|
)
|
|
|
(2,497
|
)
|
Net Loss
|
$
|
(168
|
)
|
|
$
|
(3,292
|
)
|
|
$
|
(382
|
)
|
|
$
|
(4,211
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The details of the cash flows for discontinued operations are as follows:
|
|
Six Months Ended June 30
|
|
|
.
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from discontinued operations:
|
|
|
|
|
|
|
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(382
|
)
|
|
$
|
(4,211
|
)
|
|
Depreciation
|
|
|
197
|
|
|
|
272
|
|
|
Intangible amortization
|
|
|
0
|
|
|
|
896
|
|
|
Impairment of intangible assets
|
|
|
0
|
|
|
|
4,724
|
|
|
Deferred tax provision
|
|
|
(202
|
)
|
|
|
(2,497
|
)
|
|
Stock compensation
|
|
|
49
|
|
|
|
152
|
|
|
Prepaid expenses and other assets
|
|
|
(11
|
)
|
|
|
(26
|
)
|
|
Net cash (used in ) provided by operating activities
|
|
$
|
(349
|
)
|
|
$
|
(690
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
(16
|
)
|
|
$
|
(124
|
)
|
|
Net cash used in investing activities
|
|
$
|
(16
|
)
|
|
$
|
(124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
On July 31, 2017, the Company sold substantially all of the assets of its Engineering Services business to Gabe’s Construction Co., Ltd. See Note 13 related to Subsequent Events for additional information on the sale of the business.
6. Goodwill and Intangible Assets
Goodwill
There were no changes to goodwill during the six months ended June 30, 2017. The $3.3 million of goodwill on the balance sheet was recorded in February 2015 as part of the purchase accounting for the Nexgen acquisition and was assigned to the RF Solutions segment. For evaluation purposes, this goodwill is part of the products reporting unit within the RF Solutions segment. There were no triggering events for the products reporting unit of the RF Solutions segment during the quarter ended June 30, 2017. The Company will continue to monitor goodwill for impairment going forward.
Intangible Assets
The Company amortizes intangible assets with finite lives on a straight-line basis over the estimated useful lives, which range from one to six years. In continuing operations, amortization expense was approximately $0.3 million for the three months ended June 30,
14
2017 and 2016, respectively and $0.6 million for the six months ended June 30,
2017 and 2016, respectively.
Amortization for technology assets is included in cost of revenues and amortization for all other intangible assets is included in operating expenses. For the three months ended June 30, 2017 and 2016, $0.2 million
of the am
ortization expense was included in cost of revenues. For the six months ended June 30, 2017 and 2016, $0.3 million
of the amortization expense was included in cost of revenues
. In discontinued operations,
amortization expense was approximately $0.
4
milli
on and $0.9 million for the three and six months ended June 30, 2016, respectively.
There was no amortization expense in discontinued operations for the three and six months ended June 30, 2017, respectively.
The summary of other intangible assets, net is as follows:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
|
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
Customer contracts and relationships
|
|
$
|
17,380
|
|
|
$
|
17,380
|
|
|
$
|
0
|
|
|
$
|
17,380
|
|
|
$
|
17,380
|
|
|
$
|
0
|
|
Patents and technology
|
|
|
10,114
|
|
|
|
8,337
|
|
|
|
1,777
|
|
|
|
10,114
|
|
|
|
8,004
|
|
|
|
2,110
|
|
Trademarks and trade names
|
|
|
4,960
|
|
|
|
4,286
|
|
|
|
674
|
|
|
|
4,960
|
|
|
|
4,111
|
|
|
|
849
|
|
Other
|
|
|
2,743
|
|
|
|
2,500
|
|
|
|
243
|
|
|
|
2,743
|
|
|
|
2,427
|
|
|
|
316
|
|
|
|
$
|
35,197
|
|
|
$
|
32,503
|
|
|
$
|
2,694
|
|
|
$
|
35,197
|
|
|
$
|
31,922
|
|
|
$
|
3,275
|
|
The $0.6 million decrease in the net book value of intangible assets at June 30, 2017 compared to December 31, 2016 relates to amortization expense for the six months ended June 30, 2017.
During 2016, the Company recorded total impairment expense of $5.8 million related to customer relationships for the Engineering Services reporting unit within the RF Solutions segment, consisting of $4.7 million at June 30, 2016 and $1.1 million at December 31, 2016. At June 30, 2017, the Company decided to sell the Engineering Services reporting unit. The impairment expense is included within discontinued operations on the statement of earnings for the three and six months ended June 30, 2016.
For the three months ended June 30, 2016, the revenue and contribution margin of the Engineering Services reporting unit were below its forecasts. The results and revised forecast were reflective of a long-term slowdown in the Distributed Antenna System (“DAS”) market which is the primary market addressed by the Company’s services offering. The Company considered the changes to its forecast and the industry and market trends as a triggering event to assess the intangible assets of the Engineering Services reporting units for impairment. The Company reviewed the intangible assets for impairment by performing a test of recoverability. The cash flow forecast prepared by the Company included assumptions for revenues, gross margins, and operating expenses. The test of recoverability failed because the undiscounted cash flows were below the carrying value of the Engineering Services reporting unit. The Company calculated the fair value of the Engineering Services reporting unit with the assistance of a third-party valuation firm.
For the three months ended December 31, 2016, the revenues and contribution margin for the Engineering Services reporting unit declined sequentially. The fourth quarter 2016 gross margin was negatively impacted by the lower revenue volume and by lower average margins on individual projects. At December 31, 2016, the backlog was lower than historical trends and there were no known large projects in the sales funnel. Based on these facts and an updated review of the market and industry trends, the Company lowered its profit forecast for 2017 compared to the profit forecast prepared for the 2017 operating plan and the Company lowered its long-term revenue and profit forecast. The Company determined that the revision to the forecast for Engineering Services reporting unit was a triggering event for its review of intangible assets for impairment. The Company reviewed its intangible assets for impairment by performing a test of recoverability. The cash flow forecast prepared by the Company included assumptions for revenues, gross margins, and operating expenses. The test of recoverability failed because the undiscounted cash flows were below the carrying value of the Engineering Services reporting unit. The Company calculated the fair value of the Engineering Services reporting unit based on the valuation assumptions from the analysis prepared at June 30, 2016. The impairment charge of $1.1 million represented the remaining value of the customer relationships as of December 31, 2016.
The assigned lives and weighted average amortization periods by intangible asset category is summarized below:
Intangible Assets
|
|
Assigned Life
|
|
Weighted Average Amortization Period
|
|
Customer contracts and relationships
|
|
5 years
|
|
|
5.0
|
|
Patents and technology
|
|
5 to 6 years
|
|
|
5.1
|
|
Trademarks and trade names
|
|
5 to 6 years
|
|
|
5.5
|
|
Other
|
|
1 to 6 years
|
|
|
3.4
|
|
15
The Company’s scheduled amortization expense for 2017 and the next three years is as follows:
Fiscal Year
|
|
Amount
|
|
2017
|
|
$
|
1,162
|
|
2018
|
|
$
|
1,084
|
|
2019
|
|
$
|
885
|
|
2020
|
|
$
|
144
|
|
7.
Balance Sheet Information
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at invoiced amount with standard net terms that range between 30 and 90 days. The Company extends credit to its customers based on an evaluation of a customer’s financial condition and collateral is generally not required. The Company maintains an allowance for doubtful accounts for estimated uncollectible accounts receivable. The allowance is based on the Company’s assessment of known delinquent accounts, historical experience, and other currently available evidence of the collectability and the aging of accounts receivable. The Company’s allowance for doubtful accounts was $0.3 million at June 30, 2017 and at December 31, 2016. The provision for doubtful accounts is included in sales and marketing expense in the condensed consolidated statements of operations.
Inventories
Inventories are stated at the lower of cost or market and include material, labor and overhead costs using the first-in, first-out (“FIFO”) method of costing. Inventories as of June 30, 2017 and December 31, 2016 were composed of raw materials, sub-assemblies, finished goods and work-in-process. The Company had consigned inventory with customers of $0.6 million and $0.4 million at June 30, 2017 and December 31, 2016, respectively. The Company records allowances to reduce the value of inventory to the lower of cost or market, including allowances for excess and obsolete inventory. Reserves for excess inventory are calculated based on our estimate of inventory in excess of normal and planned usage. Obsolete reserves are based on our identification of inventory where carrying value is above net realizable value. The allowance for inventory losses was $3.0 million at June 30, 2017 and $2.9 million at December 31, 2016.
Inventories consisted of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Raw materials
|
|
$
|
8,019
|
|
|
$
|
8,718
|
|
Work in process
|
|
|
1,380
|
|
|
|
1,486
|
|
Finished goods
|
|
|
4,384
|
|
|
|
4,238
|
|
Inventories, net
|
|
$
|
13,783
|
|
|
$
|
14,442
|
|
Prepaid and Other Current Assets
Prepaid assets are stated at cost and are amortized over the useful lives (up to one year) of the assets.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets. The Company depreciates computer equipment over three to five years, office equipment, manufacturing and test equipment, and motor vehicles over five years, furniture and fixtures over seven years, and buildings over 30 years. Leasehold improvements are amortized over the shorter of the corresponding lease term or useful life. Depreciation expense and gains and losses on the disposal of property and equipment are included in cost of sales and operating expenses in the condensed consolidated statements of operations. Maintenance and repairs are expensed as incurred.
16
Property and equipment consisted of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Building
|
|
$
|
6,351
|
|
|
$
|
6,351
|
|
Computers and office equipment
|
|
|
11,479
|
|
|
|
10,683
|
|
Manufacturing and test equipment
|
|
|
12,215
|
|
|
|
11,601
|
|
Furniture and fixtures
|
|
|
1,244
|
|
|
|
1,225
|
|
Leasehold improvements
|
|
|
1,323
|
|
|
|
1,191
|
|
Motor vehicles
|
|
|
19
|
|
|
|
20
|
|
Total property and equipment
|
|
|
32,631
|
|
|
|
31,071
|
|
Less: Accumulated depreciation and amortization
|
|
|
(22,091
|
)
|
|
|
(21,045
|
)
|
Land
|
|
|
1,770
|
|
|
|
1,770
|
|
Property and equipment, net
|
|
$
|
12,310
|
|
|
$
|
11,796
|
|
Depreciation and amortization expense in continuing operations was approximately $0.6 million and $0.7 million for the three months ended June 30, 2017 and 2016, respectively. Depreciation and amortization expense in continuing operations was approximately $1.3 million for the six months ended June 30, 2017 and 2016, respectively. Amortization for capital leases is included in depreciation and amortization expense. See Note 10 for information related to capital leases.
Liabilities
Accrued liabilities consisted of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Payroll, bonuses, and other employee benefits
|
|
$
|
1,659
|
|
|
$
|
2,029
|
|
Inventory receipts
|
|
|
1,395
|
|
|
|
1,622
|
|
Paid time off
|
|
|
1,260
|
|
|
|
1,230
|
|
Warranties
|
|
|
421
|
|
|
|
394
|
|
Professional fees and contractors
|
|
|
420
|
|
|
|
320
|
|
Employee stock purchase plan
|
|
|
312
|
|
|
|
300
|
|
Income and sales taxes
|
|
|
222
|
|
|
|
546
|
|
Real estate taxes
|
|
|
151
|
|
|
|
152
|
|
Deferred revenues
|
|
|
124
|
|
|
|
104
|
|
Restructuring
|
|
|
46
|
|
|
|
126
|
|
Customer prepayments
|
|
|
25
|
|
|
|
164
|
|
Other
|
|
|
265
|
|
|
|
190
|
|
Total
|
|
$
|
6,300
|
|
|
$
|
7,177
|
|
Long-term liabilities consisted of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Long-term obligations under capital leases
|
|
$
|
220
|
|
|
$
|
157
|
|
Deferred rent
|
|
|
125
|
|
|
|
156
|
|
Restructuring
|
|
|
92
|
|
|
|
70
|
|
Deferred revenues
|
|
|
35
|
|
|
|
8
|
|
Total
|
|
$
|
472
|
|
|
$
|
391
|
|
8. Stock-Based Compensation
The condensed consolidated statements of operations include $1.1 million and $1.8 million of stock compensation expense for the three and six months ended June 30, 2017, respectively. Stock compensation expense for the three months ended June 30, 2017 consists of $1.1 million for service-based restricted stock awards and $48 for the Employee Stock Purchase Plan (“ESPP”) offset by for stock options net forfeitures of $13. Stock compensation expense for the six months ended June 30, 2017 consists of $1.7 million for service-based restricted stock awards, $29 for stock options and $93 for the ESPP.
17
The condensed consolidated statements of operations include $1.4 million and $2.2 million of stock compensation expense for the three and six months ended June 30, 20
16, respectively. Stock compensation expense for the three months ended June 30, 2016 consists of $0.7 million for time-based restricted stock awards, $0.4 million for shares to directors, $0.2 million for stock bonus expenses, $41 for stock option expens
es and $42 for stock purchase plan expenses. Stock compensation expense for the six months ended June 30, 2016 consists of $1.4 million for time-based restricted stock awards, $0.4 million for shares to directors, $0.2 million for stock bonus expenses, $1
29 for stock option expenses and $89 for stock purchase plan expenses.
The Company did not capitalize any stock compensation expense during the three and six months ended June 30, 2017 or 2016. Effective January 1, 2017, the Company has elected to account for forfeitures as they occur. Prior to fiscal year 2017, the Company estimated the number of stock-based awards that were expected to vest, and only recognized compensation expense for such awards.
Total stock-based compensation is reflected in the condensed consolidated statements of operations as follows:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
June 30
|
|
|
June 30
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
$
|
72
|
|
|
$
|
73
|
|
|
$
|
133
|
|
|
$
|
141
|
|
|
Research and development
|
|
|
119
|
|
|
|
175
|
|
|
|
266
|
|
|
|
342
|
|
|
Sales and marketing
|
|
|
127
|
|
|
|
161
|
|
|
|
246
|
|
|
|
301
|
|
|
General and administrative
|
|
|
770
|
|
|
|
892
|
|
|
|
1,152
|
|
|
|
1,306
|
|
|
Total continuing operations
|
|
|
1,088
|
|
|
|
1,301
|
|
|
|
1,797
|
|
|
|
2,090
|
|
|
Discontinued operations
|
|
|
28
|
|
|
|
81
|
|
|
|
49
|
|
|
|
152
|
|
|
Total
|
|
$
|
1,116
|
|
|
$
|
1,382
|
|
|
$
|
1,846
|
|
|
$
|
2,242
|
|
|
Restricted Stock – Service Based
The Company grants restricted shares as employee incentives. When service-based restricted stock is granted to employees, the Company records deferred stock compensation within additional paid in capital, representing the fair value of the common stock on the date the restricted shares are granted. The Company records stock compensation expense on a straight-line basis over the vesting period of the applicable service-based restricted shares. These grants vest over various periods, but typically vest over four years. During the first quarter 2017, the Company issued 285,000 service-based restricted stock awards to employees as long-term incentives that cliff vest in two years.
The following table summarizes service-based restricted stock activity for the six months ended June 30, 2017:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
Unvested Restricted Stock Awards - December 31, 2016
|
|
|
1,120,960
|
|
|
$
|
5.83
|
|
Shares awarded
|
|
|
337,786
|
|
|
|
6.13
|
|
Shares vested
|
|
|
(260,883
|
)
|
|
|
6.66
|
|
Shares cancelled
|
|
|
(32,200
|
)
|
|
|
5.99
|
|
Unvested Restricted Stock Awards - June 30, 2017
|
|
|
1,165,663
|
|
|
$
|
5.72
|
|
The intrinsic value of service-based restricted shares that vested during the three months ended June 30, 2017, and 2016, was $0.2 million and $6, respectively. The intrinsic value of service-based restricted shares that vested during the six months ended June 30, 2017, and 2016, was $1.2 million and $0.5 million, respectively.
At June 30, 2017, total unrecognized compensation expense related to restricted stock was approximately $4.1 million to be recognized through 2020 over a weighted average period of 1.5 years.
Restricted Stock Units – Service Based
The Company grants restricted stock units as employee incentives. Restricted stock units are primarily granted to foreign employees for long-term incentive purposes. Employee restricted stock units are service-based awards and are amortized over the vesting period.
18
At the vesting date, these units are converted to shares of common stock. The Company records expense
on a straight-line basis for restricted stock units.
The following table summarizes the restricted stock unit activity during the six months ended June 30, 2017:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Units
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
Unvested Restricted Stock Units - December 31, 2016
|
|
|
36,388
|
|
|
$
|
5.57
|
|
Units awarded
|
|
|
5,000
|
|
|
|
5.97
|
|
Units vested
|
|
|
(6,588
|
)
|
|
|
6.44
|
|
Unvested Restricted Stock Units - June 30, 2017
|
|
|
34,800
|
|
|
$
|
5.47
|
|
The intrinsic value of service-based restricted stock units that vested and were issued as shares during the three months ended June 30, 2017 was $17.
The intrinsic value of service-based restricted stock units that vested and were issued as shares during the six months ended June 30, 2017 and 2016 was $23 and $10, respectively.
No units vested during the three months ended June 30, 2016.
As of June 30, 2017, the unrecognized compensation expense related to the unvested portion of the Company’s restricted stock units was approximately $0.1 million, to be recognized through 2020 over a weighted average period of 1.0 year.
Stock Options
The Company grants stock options to purchase common stock as long-term incentives. The exercise price of the stock options is no less than the fair value of the Company’s stock on the grant date. The stock options have a seven-year life and generally vest over a period of four years, 25% after one year, and monthly thereafter. Stock options may be exercised at any time prior to their expiration date or within ninety days of termination of employment, or such shorter time as may be provided in the related stock option agreement.
A summary of the Company’s stock option activity for the six months ended June 30, 2017 is as follows:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
Options
|
|
|
Exercise
|
|
|
|
Outstanding
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
825,561
|
|
|
$
|
7.30
|
|
Exercised
|
|
|
(94,300
|
)
|
|
|
7.09
|
|
Expired or Cancelled
|
|
|
(62,747
|
)
|
|
|
8.50
|
|
Forfeited
|
|
|
(30,901
|
)
|
|
|
6.79
|
|
Outstanding at June 30, 2017
|
|
|
637,613
|
|
|
$
|
7.24
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2017
|
|
|
611,448
|
|
|
$
|
7.29
|
|
There were no stock options granted during the six months ended June 30, 2017.
The range of exercise prices for options outstanding and exercisable at June 30, 2017, was $5.00 to $10.46. The following table summarizes information about stock options outstanding under all stock option plans:
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted-
|
|
|
|
|
|
|
Weighted
|
|
Range of
|
|
|
Number
|
|
|
Contractual Life
|
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
Exercise Prices ($)
|
|
|
Outstanding
|
|
|
(# Years)
|
|
|
Exercise Price
|
|
|
Exercisable
|
|
|
Exercise Price
|
|
$
|
5.00
|
|
--
|
$
|
6.00
|
|
|
|
19,753
|
|
|
|
5.89
|
|
|
$
|
5.11
|
|
|
|
1,253
|
|
|
$
|
5.87
|
|
|
6.01
|
|
--
|
|
7.00
|
|
|
|
39,789
|
|
|
|
0.84
|
|
|
|
6.80
|
|
|
|
39,789
|
|
|
|
6.80
|
|
|
7.01
|
|
--
|
|
8.00
|
|
|
|
524,039
|
|
|
|
2.77
|
|
|
|
7.20
|
|
|
|
521,755
|
|
|
|
7.19
|
|
|
8.01
|
|
--
|
|
9.00
|
|
|
|
35,732
|
|
|
|
1.99
|
|
|
|
8.26
|
|
|
|
30,509
|
|
|
|
8.28
|
|
|
9.01
|
|
--
|
|
10.00
|
|
|
|
16,900
|
|
|
|
1.20
|
|
|
|
9.62
|
|
|
|
16,742
|
|
|
|
9.62
|
|
|
10.01
|
|
--
|
|
10.46
|
|
|
|
1,400
|
|
|
|
1.09
|
|
|
|
10.46
|
|
|
|
1,400
|
|
|
|
10.46
|
|
$
|
5.00
|
|
--
|
$
|
10.46
|
|
|
|
637,613
|
|
|
|
2.66
|
|
|
$
|
7.24
|
|
|
|
611,448
|
|
|
$
|
7.29
|
|
19
The weighted average contractual life and intrinsic value at June 30, 2017, was the following:
|
|
Weighted
Average
Contractual
Life (years)
|
|
|
Intrinsic
Value
|
|
Options Outstanding
|
|
|
2.66
|
|
|
$
|
49
|
|
Options Exercisable
|
|
|
2.53
|
|
|
$
|
12
|
|
The intrinsic value is based on the share price of $7.08 at June 30, 2017.
The fair value of each stock option outstanding was estimated on the date of grant using the Black-Scholes option valuation model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, the existing models may not necessarily provide a reliable single measure of the fair value of the employee stock options. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility and expected option life.
The Company calculated the volatility based on a five-year historical period of the Company’s stock price. The expected life used for options granted was based on historical data of employee exercise performance. The dividend yield rate was calculated by dividing the Company’s annual dividend by the closing price on the grant date. The risk-free interest rate was based on the U.S. Treasury yields with remaining term that approximates the expected life of the options granted. The volatility was based on a five-year historical period of the Company’s stock price. The Company records expense based on the grading vesting method.
As of June 30, 2017, the unrecognized compensation expense related to the unvested portion of the Company’s stock options was approximately $0.1 million to be recognized through 2020 over a weighted average period of 1.1 years.
Performance-based Equity Awards
Performance awards are restricted shares that vest if certain annual performance measures are met. The Company had 262,500 unvested performance awards at June 30, 2017. As of June 30, 2017, the Company does not expect any of these performance awards to vest. There were forfeitures of 34,000 awards during the six months ended June 30, 2017 due to employee attrition.
The following table summarizes the performance-based equity activity during the six months ended June 30, 2017:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Units
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
Unvested Performance Units - December 31, 2016
|
|
|
296,500
|
|
|
$
|
7.95
|
|
Units cancelled
|
|
|
(34,000
|
)
|
|
|
7.89
|
|
Unvested Performance Units - June 30, 2017
|
|
|
262,500
|
|
|
$
|
7.95
|
|
Short-term incentive plan
For the Company’s 2016 short-term incentive plan (“STIP”), executives were paid in shares of the Company’s stock. During the first quarter 2017, the Company issued 112,916 shares with a fair value of $0.6 million earned under the 2016 STIP. The Company recorded the expense during the year ended December 31, 2016. No shares were issued for the STIP during the second quarter 2017. Because all bonuses earned for the 2017 STIP will be paid in cash, there was no stock compensation expense recorded related to the STIP during the six months ended June 30, 2017. The accrual for the 2017 STIP and the cash portion of the 2016 STIP is included in the accrual for payroll, bonuses, and other employee benefits at June 30, 2017 and December 31, 2016, respectively in the liabilities section of Note 7. The Company expects to pay the 2017 STIP in March 2018.
Employee Stock Purchase Plan (“ESPP”)
The ESPP enables eligible employees to purchase common stock at the lower of 85% of the fair market value of the common stock on the first or last day of each offering period. Each offering period is approximately six months. The Company received proceeds of $0.3 million from the issuance of 72,218 shares under the ESPP in February 2017 and received proceeds of $0.4 million from the issuance of 78,415 shares under the ESPP in February 2016.
20
Based on the 15% discount and the fair value of the option feature of this plan, this plan is considered compensatory. Compensation expense is calculated using the fair value of the employees
’ purchase rights under the Black-Scholes model.
The Company calculated the fair value of each employee stock purchase grant on the date of grant using the Black-Scholes option-pricing model using the following assumptions:
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Dividend yield
|
|
|
3.6
|
%
|
|
|
4.2
|
%
|
Risk-free interest rate
|
|
|
0.8
|
%
|
|
|
0.6
|
%
|
Expected volatility
|
|
|
33
|
%
|
|
|
34
|
%
|
Expected life (in years)
|
|
|
0.5
|
|
|
|
0.5
|
|
The dividend yield rate was calculated by dividing the Company’s annual dividend by the closing price on the grant date. The risk-free interest rate was based on the U.S. Treasury yields with a remaining term that approximates the expected life of the options granted. The dividend yield rate is calculated by dividing the Company’s annual dividend by the closing price on the grant date. The Company calculates the volatility based on a five-year historical period of the Company’s stock price. The expected life used is based on the offering period.
Employee Withholding Taxes on Stock Awards
For ease in administering the issuance of stock awards, the Company holds back shares of vested restricted stock awards and short-term incentive plan stock awards for the value of the statutory withholding taxes. For each individual receiving a share award, the Company redeems the shares it computes as the value for the withholding tax and remits this amount to the appropriate tax authority. For withholding taxes related to stock awards, the Company paid $0.7 million and $0.4 million during the six months ended June 30, 2017 and 2016, respectively.
Stock Repurchases
No shares have been repurchased during 2017. The Company repurchased 783,212 shares at an average price of $5.23 during the first quarter 2016. There are no current programs to repurchase shares.
9. Benefit Plans
Employee Benefit Plans
The Company’s 401(k) plan covers all of the U.S. employees beginning the first day of the month following the first month of their employment. Under this plan, employees may elect to contribute up to 15% of their current compensation to the 401(k) plan up to the statutorily prescribed annual limit. The Company matches employee contributions up to 4% and may also make discretionary contributions to the 401(k) plan. The Company also contributes to various retirement plans for foreign employees.
The Company’s contributions to retirement plans were as follows:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
PCTEL, Inc. 401(k) Profit sharing Plan - US employees
|
|
$
|
175
|
|
|
$
|
165
|
|
|
$
|
360
|
|
|
$
|
340
|
|
Defined contribution plans - foreign employees
|
|
|
109
|
|
|
|
97
|
|
|
|
207
|
|
|
197
|
|
Total
|
|
$
|
284
|
|
|
$
|
262
|
|
|
$
|
567
|
|
|
$
|
537
|
|
21
10. Commitments and Contingencies
Restructuring
The restructuring liability at June 30, 2017 and December 31, 2016 is primarily related to the Company’s exit from its Colorado office during the first quarter 2016.
The restructuring liability includes the remaining obligations under the Colorado lease, net of proceeds for a sublease. The Company signed a sublease for the office space in the second quarter 2017. The Company exited from its Colorado office in order to consolidate facility space for its Engineering Services reporting unit. The restructuring expense related to the Colorado lease is included in discontinued operations in the statements of earnings for the six months ended June 30, 2017 and 2016, respectively. The restructuring liability was not held for sale at June 30, 2017. Of the $138 restructuring liability at June 30, 2017, $46 was included in accrued liabilities and $92 was included in long-term liabilities in the consolidated balance sheets.
Of the $0.2 million restructuring liability at December 31, 2016, $0.1 million was included in accrued liabilities and $0.1 million was included in long-term liabilities in the consolidated balance sheets.
The following table summarizes the restructuring activity during the six months ended June 30, 2017 and the status of the reserves at June 30, 2017.
|
|
December 31, 2016
|
|
|
Expenses/ Adjustments
|
|
|
Cash Payments/ Adjustments
|
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and related employee benefits
|
|
$
|
6
|
|
|
$
|
(1
|
)
|
|
$
|
(5
|
)
|
|
$
|
0
|
|
Lease terminations
|
|
|
190
|
|
|
|
9
|
|
|
|
(61
|
)
|
|
|
138
|
|
Total
|
|
$
|
196
|
|
|
$
|
8
|
|
|
$
|
(66
|
)
|
|
$
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
The Company has operating leases for facilities through 2020 and office equipment through 2019. The future minimum rental payments under these leases at June 30, 2017, are as follows:
Year
|
|
Amount
|
|
2017
|
|
$
|
569
|
|
2018
|
|
|
1,036
|
|
2019
|
|
|
949
|
|
2020
|
|
|
364
|
|
Thereafter
|
|
|
28
|
|
Future minimum lease payments
|
|
$
|
2,946
|
|
The rent expense under leases was approximately $0.3 million and $0.2 million for the three months ended June 30, 2017, and 2016, respectively. The rent expense under leases was approximately $0.5 million for the six months ended June 30, 2017, and 2016, respectively.
During the first quarter 2016, the Company exited from its Colorado office in order to consolidate facility space related to its Engineering Services reporting unit. The lease expires on October 31, 2020 and the remaining lease obligation as of June 30, 2017 was $0.4 million. In May 2017, the Company signed a sublease through the lease termination date for this property. See discussion related to the Colorado office in the restructuring section of this footnote.
In June 2016, the Company entered into a new four-year lease for its Beijing Design Center and in January 2017 the Company signed a new lease for additional space at the same location. With the expansion, the Company has 11,270 square feet in its Beijing Design Center. The total lease obligation pursuant to agreement for the expansion was $0.4 million. The Beijing Design Center has an engineering department for antenna development as well as sales and marketing for the China market.
In April 2017, the Company renewed the first floor space of Tianjin facility with 22,120 square feet of leased space. The total lease obligation as of June 30, 2017 pursuant to the agreement was $35 and expires on April 11, 2018
22
Capital Leases
The Company has capital leases for office and manufacturing equipment. The net book values for assets under capital leases were as follows:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Cost
|
|
$
|
453
|
|
|
$
|
324
|
|
Accumulated Depreciation
|
|
|
(149
|
)
|
|
|
(105
|
)
|
Net Book Value
|
|
$
|
304
|
|
|
$
|
219
|
|
The following table presents future minimum lease payments under capital leases together with the present value of the net minimum lease payments due in each year:
Year
|
|
Amount
|
|
|
|
|
|
|
2017
|
|
$
|
52
|
|
2018
|
|
|
104
|
|
2019
|
|
|
87
|
|
2020
|
|
|
47
|
|
Thereafter
|
|
|
47
|
|
Total minimum payments required:
|
|
|
337
|
|
Less amount representing interest:
|
|
|
24
|
|
Present value of net minimum lease payments:
|
|
$
|
313
|
|
Warranty Reserve and Sales Returns
The Company allows its major distributors and certain other customers to return unused product under specified terms and conditions. The Company accrues for product returns based on historical sales and return trends. The Company’s allowance for product returns was $0.2 million at June 30, 2017 and December 31, 2016, respectively, and is included within accounts receivable on the accompanying condensed consolidated balance sheet.
The Company offers repair and replacement warranties of up to five years for certain antenna products and scanning receiver products. The Company’s warranty reserve is based on historical sales and costs of repair and replacement trends. The warranty reserve was $0.4 million at June 30, 2017 and December 31, 2016, respectively, and is included in other accrued liabilities in the accompanying condensed consolidated balance sheets.
|
|
Six Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Beginning balance
|
|
$
|
394
|
|
|
$
|
348
|
|
Provisions for warranties
|
|
|
74
|
|
|
|
33
|
|
Consumption of reserves
|
|
|
(47
|
)
|
|
|
(78
|
)
|
Ending balance
|
|
$
|
421
|
|
|
$
|
303
|
|
11. Income Taxes
The Company recorded an income tax benefit of $0.3 million in continuing operations for the six months ended June 30, 2017 and income tax expense of $7.0 million in continuing operations for the six months ended June 30, 2016. The benefit recorded for the six months ended June 30, 2017 differed from the statutory rate of 34% primarily due to the combination of U.S. pretax losses and foreign pretax profits taxed at lower rates. The net tax benefit for the six months ended June 30, 2017 included income tax expense of $0.2 million related to tax deficiencies with restricted stock and stock options in accordance with ASU No. 2016-09 and $0.1 million income tax benefit related to previously unrecognized tax benefits for research credits. The income tax expense for the six months ended June 30, 2016 included a $7.6 million adjustment to the valuation allowance for deferred tax assets.
The Company had deferred tax assets net of deferred tax liabilities of $5.6 million and $4.5 million at June 30, 2017 and December 31, 2016, respectively, virtually all of which are related to the United States tax jurisdiction. On January 1, 2017 in accordance with the new accounting guidance for stock compensation, the Company recorded an increase of $0.7 million to deferred tax assets to account for tax benefits related to stock compensation previously unrecognized and for forfeitures previously recorded for restricted stock and stock options with a corresponding increase of $0.2 million to its valuation allowance. The adjustment to the valuation
23
allowance was based on the same assumptions used to adjust the valuation allowance in 2016 which are still applicable for the three mo
nths ended June 30, 2017.
The Company’s valuation allowance against its deferred tax assets was $13.5 million at June 30, 2017 and $13.3 million at December 31, 2016. The valuation allowance at June 30, 2017 and December 31, 2016 is primarily because the Company does not believe it will generate sufficient US taxable income to realize a significant portion of its deferred tax assets. On a regular basis, the Company evaluates the recoverability of deferred tax assets and the need for a valuation allowance. Such evaluations involve the application of significant judgment. The Company considers multiple factors in its evaluation of the need for a valuation allowance. The Company’s domestic deferred tax assets have a ratable reversal pattern over 15 years. The carry forward rules allow for up to a 20 year carry forward of net operating losses (“NOL”) to future income that is available to realize the deferred tax assets. The combination of the deferred tax asset reversal pattern and carry forward period yields a 27.0 year average period over which future income can be utilized to realize the deferred tax assets. The sale of the Company’s Network Engineering business does not have a significant impact on the Company’s long-term projections for U.S. taxable income. So, there was no adjustment to the valuation allowance at June 30, 2017.
During 2016, the Company adjusted the valuation allowance by $12.6 million as income tax expense. During the second quarter 2016, there were two significant changes in the deferred tax asset recoverability evidence pattern. The cumulative three year US book income turned to a loss. In addition, the Company experienced a significant shift in its Connected Solutions segment revenue to products that are designed, manufactured and sold through the Company’s China subsidiary directly into China. This will cause a significant shift going forward in the Company’s tax profitability from the United States to China. The Company believes this is the beginning of a long-term trend. The Company completed a recapitalization of its China subsidiary to accommodate the initial working capital growth required to support the shift and continues to anticipate permanently reinvesting future earnings and profits from its China subsidiary in China to support its future working capital needs there. The Company re-forecasted its long term domestic profitability in light of the shift in business to China that is occurring. The Company recorded an adjustment to the valuation allowance of $7.6 million at June 30, 2016.
In the fourth quarter 2016, the Company updated its projections for its analysis to determine the valuation allowance. The Company reduced its domestic profit forecast because it lowered its long-term forecast for its services business and increased the contribution of the profits from its China subsidiary. The Company also updated its estimated tax deductions. Based on assigned probabilities to each scenario, the Company recorded an additional adjustment to the valuation allowance of $5.0 million at December 31, 2016.
The analysis that the Company prepared to determine the valuation allowance required significant judgment and assumptions regarding future market conditions as well as forecasts for profits, taxable income, and taxable income by jurisdiction. The Company used a series of projections bound on the low side by what it would take for none of its deferred tax assets to be realized and on the high side by what it would take for all of the deferred tax assets to be realized. The Company assigned probabilities to each scenario to calculate a weighted average valuation allowance. Due to the sensitivity of the analysis, changes to the assumptions in subsequent periods could have a material effect on the valuation allowance.
The Company’s gross unrecognized tax benefit was $0.7 million at June 30, 2017 and $0.9 million at December 31, 2016.
The Company files a consolidated federal income tax return, income tax returns with various states, and foreign income tax returns in various foreign jurisdictions. For U.S. federal income tax purposes, 2013, 2015, and subsequent periods are subject to examination by the IRS. For state income tax purposes, 2012 and subsequent periods are generally subject to examination by various state taxing authorities.
12. Segment, Customer and Geographic Information – Continuing Operations
PCTEL operates in two segments for reporting purposes. The Company’s Connected Solutions segment includes its antenna and engineered site solutions. Its RF Solutions segment includes its scanning receivers and other test tools. Each of the segments has its own segment manager as well as its own engineering, sales and marketing, and operational general and administrative functions. All of the Company’s accounting and finance, human resources, IT and legal functions are provided on a centralized basis through the corporate function. The Company manages its balance sheet and cash flows centrally at the corporate level, with the exception of inventory which is managed at the segment level. Each of the segment managers reports to and maintains regular contact with the chief operating decision maker to discuss operating activities, financial results, forecasts, or plans for the segment. The Company’s chief operating decision maker uses operating profits and identified assets for Connected Solutions and RF Solutions segments to make operating decisions.
24
The following tables are the segment operating profits and cash flow information in continuing operations for the
three months ended June 30, 2017 and 2016, respectively, and the segment balance sheet information as of June 30, 2017 and December 31, 2016:
|
|
Three Months Ended June 30, 2017
|
|
|
|
Connected Solutions
|
|
|
RF Solutions
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
16,866
|
|
|
$
|
4,661
|
|
|
$
|
(26
|
)
|
|
$
|
21,501
|
|
GROSS PROFIT
|
|
|
5,731
|
|
|
|
3,223
|
|
|
|
8
|
|
|
|
8,962
|
|
OPERATING INCOME (LOSS) FOR CONTINUING OPERATIONS
|
|
$
|
2,349
|
|
|
$
|
411
|
|
|
$
|
(3,099
|
)
|
|
$
|
(339
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
425
|
|
|
$
|
137
|
|
|
$
|
71
|
|
|
$
|
633
|
|
Intangible amortization
|
|
$
|
39
|
|
|
$
|
252
|
|
|
$
|
0
|
|
|
$
|
291
|
|
Capital expenditures
|
|
$
|
334
|
|
|
$
|
226
|
|
|
$
|
(66
|
)
|
|
$
|
494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2017
|
|
|
|
Connected Solutions
|
|
|
RF Solutions
|
|
|
Corporate
|
|
|
Total
|
|
REVENUES
|
|
$
|
34,137
|
|
|
$
|
10,418
|
|
|
$
|
(84
|
)
|
|
$
|
44,471
|
|
GROSS PROFIT
|
|
$
|
11,135
|
|
|
$
|
7,270
|
|
|
$
|
11
|
|
|
$
|
18,416
|
|
OPERATING INCOME (LOSS) FOR CONTINUING OPERATIONS
|
|
$
|
4,095
|
|
|
$
|
1,432
|
|
|
$
|
(5,844
|
)
|
|
$
|
(317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
852
|
|
|
$
|
278
|
|
|
$
|
132
|
|
|
$
|
1,262
|
|
Intangible amortization
|
|
$
|
78
|
|
|
$
|
503
|
|
|
$
|
0
|
|
|
$
|
581
|
|
Capital expenditures
|
|
$
|
844
|
|
|
$
|
298
|
|
|
$
|
402
|
|
|
$
|
1,544
|
|
|
|
As of June 30, 2017
|
|
|
|
Connected Solutions
|
|
|
RF Solutions
|
|
|
Corporate
|
|
|
Total
|
|
Accounts receivable
|
|
$
|
12,773
|
|
|
$
|
4,962
|
|
|
$
|
0
|
|
|
$
|
17,735
|
|
Inventories
|
|
$
|
11,690
|
|
|
$
|
2,093
|
|
|
$
|
0
|
|
|
$
|
13,783
|
|
Current assets held for sale
|
|
$
|
0
|
|
|
$
|
694
|
|
|
$
|
0
|
|
|
$
|
694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
9,908
|
|
|
$
|
1,400
|
|
|
$
|
1,002
|
|
|
$
|
12,310
|
|
Goodwill
|
|
$
|
0
|
|
|
$
|
3,332
|
|
|
$
|
0
|
|
|
$
|
3,332
|
|
Intangible assets, net
|
|
$
|
155
|
|
|
$
|
2,539
|
|
|
$
|
0
|
|
|
$
|
2,694
|
|
Deferred tax assets, net
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
5,647
|
|
|
$
|
5,647
|
|
Other noncurrent assets
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
83
|
|
|
$
|
83
|
|
25
|
|
Three Months Ended June 30, 2016
|
|
|
|
Connected Solutions
|
|
|
RF Solutions
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
15,781
|
|
|
$
|
5,572
|
|
|
$
|
(45
|
)
|
|
$
|
21,308
|
|
GROSS PROFIT
|
|
$
|
4,941
|
|
|
$
|
3,983
|
|
|
$
|
10
|
|
|
$
|
8,934
|
|
OPERATING INCOME (LOSS) FOR CONTINUING OPERATIONS
|
|
$
|
1,792
|
|
|
$
|
859
|
|
|
$
|
(2,737
|
)
|
|
$
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
468
|
|
|
$
|
191
|
|
|
$
|
0
|
|
|
$
|
659
|
|
Intangible amortization
|
|
$
|
44
|
|
|
$
|
700
|
|
|
$
|
0
|
|
|
$
|
744
|
|
Capital expenditures
|
|
$
|
264
|
|
|
$
|
109
|
|
|
$
|
320
|
|
|
$
|
693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2016
|
|
|
|
Connected Solutions
|
|
|
RF Solutions
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
30,480
|
|
|
$
|
10,116
|
|
|
$
|
(105
|
)
|
|
$
|
40,491
|
|
GROSS PROFIT
|
|
$
|
9,265
|
|
|
$
|
7,122
|
|
|
$
|
7
|
|
|
$
|
16,394
|
|
OPERATING INCOME (LOSS) FOR CONTINUING OPERATIONS
|
|
$
|
3,094
|
|
|
$
|
786
|
|
|
$
|
(5,255
|
)
|
|
$
|
(1,375
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
933
|
|
|
$
|
386
|
|
|
$
|
0
|
|
|
$
|
1,319
|
|
Intangible amortization
|
|
$
|
114
|
|
|
$
|
504
|
|
|
$
|
0
|
|
|
$
|
618
|
|
Capital expenditures
|
|
$
|
843
|
|
|
$
|
74
|
|
|
$
|
351
|
|
|
$
|
1,268
|
|
|
|
As of December 31, 2016
|
|
|
|
Connected Solutions
|
|
|
RF Solutions
|
|
|
Corporate
|
|
|
Total
|
|
Accounts receivable
|
|
$
|
12,731
|
|
|
$
|
6,370
|
|
|
$
|
0
|
|
|
$
|
19,101
|
|
Inventories
|
|
$
|
12,301
|
|
|
$
|
2,141
|
|
|
$
|
0
|
|
|
$
|
14,442
|
|
Current assets held for sale
|
|
$
|
0
|
|
|
$
|
50
|
|
|
$
|
0
|
|
|
$
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
9,756
|
|
|
$
|
1,309
|
|
|
$
|
731
|
|
|
$
|
11,796
|
|
Goodwill
|
|
$
|
0
|
|
|
$
|
3,332
|
|
|
$
|
0
|
|
|
$
|
3,332
|
|
Intangible assets, net
|
|
$
|
233
|
|
|
$
|
3,042
|
|
|
$
|
0
|
|
|
$
|
3,275
|
|
Deferred tax assets, net
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
4,512
|
|
|
$
|
4,512
|
|
Other noncurrent assets
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
36
|
|
|
$
|
36
|
|
Non-current assets held for sale
|
|
$
|
0
|
|
|
$
|
813
|
|
|
$
|
0
|
|
|
$
|
813
|
|
The Company’s revenue to customers by geographic location, as a percent of total revenues, is as follows:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
Region
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Asia Pacific
|
|
|
16
|
%
|
|
|
16
|
%
|
|
|
19
|
%
|
|
|
17
|
%
|
Europe, Middle East, & Africa
|
|
|
8
|
%
|
|
|
7
|
%
|
|
|
7
|
%
|
|
|
9
|
%
|
Other Americas
|
|
|
6
|
%
|
|
|
6
|
%
|
|
|
5
|
%
|
|
|
6
|
%
|
Total Foreign sales
|
|
|
30
|
%
|
|
|
29
|
%
|
|
|
31
|
%
|
|
|
32
|
%
|
There was one customer that accounted for approximately 10% of revenues for the three months ended June 30, 2017 and t
here were
no customers that accounted 10% or greater of revenues for the three months ended June 30, 2016. No customer accounted for 10% or more of revenues for the six months ended June 30, 2017, and one customer accounted for approximately 12% of revenues for the six months ended June 30, 2016.
26
All revenues
and cost of revenues
in continuing operations for the three and six months ended June 30, 2017 and 2016, respectively relate to products. All of the revenues and cost of revenues included in discontinued operations relate to services.
See Note 5 for the revenues and cost of revenues in discontinued operations for three and six months ended June 30, 2017 and 2016, respectively.
13. Subsequent Events
The Company evaluates subsequent events occurring between the most recent balance sheet date and the date that the financial statements are available to be issued in order to determine whether the subsequent events are to be recorded and/or disclosed in the Company’s financial statements and footnotes. The financial statements are considered to be available to be issued at the time that they are filed with the SEC. Other than the item mentioned below, there were no other subsequent events or transactions that required recognition or disclosure in the consolidated financial statements.
On July 31, 2017 the Company sold its Network Engineering Services business to Gabe’s Construction Co., Inc. (“Gabe’s”), a Wisconsin corporation, for $1.45 million. The Company sold its fixed assets and backlog. The book value of the assets was $0.7 million at the date of closing. At closing, the Company received $1.4 million, consisting of $1.3 million for the sale of the business and $0.1 million related to future services. The Company retained working capital of approximately $0.5 million, including accounts receivable, accounts payable, and accrued liabilities. On August 1, 2017, the Company terminated 25 employees and Gabe’s hired 11 of these employees. The estimated severance and related benefits for the terminated employees is $0.2 million. The Company filed a Form 8-K related to the disposition on August 4, 2017. Subsequent to the sale, the Company will provide transition services for billing and accounts receivable collection. This transition is expected to be complete by the end of the quarter ended December 31, 2017.
27