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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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FORM 10-Q 

 

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(Mark One)

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

For the quarterly period ended December 31, 2016

or

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

For the transition period from                             to                              

Commission file number: 000-52697

(Exact Name of Registrant as Specified in Its Charter)

(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 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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

As of January 31, 2017, the registrant had 10,970,384 shares of common stock outstanding.

Xplore Technologies Corp.

FORM 10-Q

For the Quarterly Period Ended December 31, 2016

Table of Contents

 

 

PART I—FINANCIAL INFORMATION

Item 1.  Financial Statements

XPLORE TECHNOLOGIES CORP.

Consolidated Balance Sheets

(in thousands)

 

 

See accompanying notes to unaudited consolidated financial statements.

XPLORE TECHNOLOGIES CORP.

Consolidated Statements of Profit and Loss—Unaudited

(in thousands of dollars, except share and per share amounts)

 

		Three Months Ended								Nine Months Ended
		December 31, 2016				December 31, 2015				December 31, 2016				December 31, 2015
Revenue		$	24,499			$	27,023			$	60,979			$	79,919
Cost of revenue			17,784				18,181				43,764				54,818
Gross profit			6,715				8,842				17,215				25,101
Expenses:
Sales, marketing and support			3,153				3,925				9,484				11,187
Product research, development and engineering			1,303				1,129				3,573				4,536
General administration			1,816				2,521				5,723				7,339
			6,272				7,575				18,780				23,062
Income (loss) from operations			443				1,267				(1,565	)			2,039
Other income (expense):
Other			(96	)			(317	)			(214	)			(385	)
Cost of integration			—				(95	)			—				(887	)
Interest expense			(79	)			—				(156	)			(58	)
			(175	)			(412	)			(370	)			(1,330	)
Income (loss) before income taxes			268				855				(1,935	)			709
Income tax (expense) benefit			(49	)			(69	)			(129	)			(69	)
Net income (loss)		$	219			$	786			$	(2,064	)		$	640
Income (loss) per common share, primary		$	0.02			$	0.07			$	(0.19	)		$	0.06
Income (loss) per common share, fully diluted		$	0.02			$	0.07			$	—			$	0.06
Weighted average number of common shares outstanding, basic			10,947,329				10,883,933				10,927,477				10,828,375
Weighted average number of common shares outstanding, fully diluted			10,950,390				11,539,074				—				11,494,496

 

See accompanying notes to unaudited consolidated financial statements.

XPLORE TECHNOLOGIES CORP.

Consolidated Statements of Cash Flows—Unaudited

(in thousands)

 

 

See accompanying notes to unaudited consolidated financial statements.

XPLORE TECHNOLOGIES CORP.

Notes to the Unaudited Consolidated Financial Statements

(In thousands of dollars, except share and per share amounts)

1. DESCRIPTION OF BUSINESS

Xplore Technologies Corp. (the “Company”), incorporated under the laws of the State of Delaware, is engaged in the development, integration and marketing of rugged mobile personal computer (“PC”) systems. The Company’s rugged tablet PCs are designed to withstand hazardous conditions such as extreme temperatures, driving rain, repeated vibrations, dirt, dust and concussive shocks.  The intrinsically safe, ruggedized and reliable nature of the Company’s products enable the extension of traditional computing systems to a range of field personnel, including oil field pipeline inspectors, public safety personnel, warehouse workers and pharmaceutical scientists. The Company’s tablets are fitted with a range of performance-matched accessories, including multiple docking station solutions, wireless connectivity alternatives, global positioning system modules, biometric and smartcard modules, as well as traditional peripherals, such as keyboards and cases. Additionally, the Company’s most rugged tablets are waterproof for up to 30 minutes in a depth of up to three feet, impervious to drops from as high as seven feet, readable in direct sunlight, can be mounted on vehicles and include LTE and Wi-Fi connectivity options for real-time data access. The Company’s customers include major telecommunications companies, leading heavy equipment manufacturers, oil and gas companies, the military and first responders.

2. SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and in accordance with the instructions for Form 10-Q. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, these financial statements contain all normal and recurring adjustments considered necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The results for the three and nine months ended December 31, 2016 are not necessarily indicative of the results to be expected for the full year.

The consolidated balance sheet at March 31, 2016 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These accompanying unaudited consolidated financial statements should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the audited consolidated financial statements and related notes included in the Company’s fiscal 2016 Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 29, 2016.

Basis of consolidation and presentation

The consolidated financial statements include the accounts of the Company and its wholly‑owned subsidiaries, Xplore Technologies Corporation of America and Xplore Technologies International Corp.

Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. These estimates and assumptions are affected by management’s application of accounting policies. Estimates are deemed critical when a different estimate could have reasonably been used or where changes in the estimates are reasonably likely to occur from period to period, and would materially impact the Company’s financial condition, changes in financial condition or results of operations. On an ongoing basis, the Company evaluates the estimates, including those related to its revenue recognition, allowance for doubtful accounts, inventory valuation, warranty reserves, tooling amortization, financial instruments, stock‑based compensation and income taxes. The estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from management’s estimates and assumptions.

Motion Acquisition

 

On April 16, 2015, Xplore Technologies Corporation of America, a wholly-owned subsidiary of the Company, entered into a Foreclosure Purchase and Sale Agreement (the “Purchase and Sale Agreement”) with Motion Computing, Inc., Motion Computing Pty, Ltd., Motion Computing Holding Company, Inc. (collectively “Motion”) and Square 1 Bank, Motion’s senior secured lender (“Square 1”), pursuant to which the Company’s subsidiary agreed to purchase certain of the assets of Motion, including cash, cash equivalents, accounts receivable, inventory, equipment, personal property and other assets of Motion for an aggregate purchase price of approximately $9 million in cash, plus the assumption of approximately $6 million in certain liabilities, net of current assets, subject to the terms and conditions thereof (the “Motion Acquisition”). The assumed liabilities include certain accounts payable and obligations for service contracts and product warranties.  The closing of the Motion Acquisition occurred on April 17, 2015.

The Motion Acquisition was accounted for under the acquisition method of accounting in accordance with the provisions of FASB ASC Topic No. 805 Business Combinations (ASC 805).  The total purchase price for the Motion assets was approximately $9 million and was comprised of cash consideration paid by the Company to Square 1.

Under the acquisition method of accounting under ASC 805, the total estimated purchase price of the acquired company is allocated to the assets acquired and the liabilities assumed based on their fair values. The Company has made significant estimates and assumptions in determining the preliminary allocation of the purchase price. The preliminary allocation of purchase consideration is subject to change based on further review of the fair value of the assets acquired and liabilities assumed. The following table is the final allocation of the purchase price (in thousands, except years): 

 

Goodwill represents the excess of the fair value of consideration given over the fair value of the tangible assets, identifiable intangible assets and liabilities assumed in a business combination and the potential synergy of combining the operations of the Company and Motion.  The Company expects the entire amount of goodwill recorded in this acquisition will be deducted for tax purposes ratably over a 15 year period.  The identified intangible assets consist of trademarks, copyrights, and developed technology, including patents.  The estimated fair values of the trademark, copyrights and developed technology were determined using the “Relief from Royalty” method.  Trademark, developed technology, non-compete and customer relationship will be amortized on a straight-line basis over their estimated useful lives.  The Company expects the amortization of acquired intangibles will be approximately $400 per year for the remaining estimated useful lives.

Goodwill and other intangible assets 

Goodwill represents the excess purchase price over the fair value of identifiable assets received attributable to business acquisitions and combinations. Goodwill and other intangible assets are measured for impairment at least annually and/or whenever events and circumstances arise that indicate impairment may exist, such as a significant adverse change in the business climate. In assessing the value of goodwill, assets and liabilities are assigned to the reporting units and the appropriate valuation methodologies are used to determine fair value at the reporting unit level. Identified intangible assets are amortized using the straight-line method over their estimated useful lives which are estimated to be between three and seven years.

Long-lived asset impairment  

Long-lived assets include property and equipment and definite-lived intangible assets. Definite-lived intangible assets consist of customer relationships, trade names and non-compete agreements. Long-lived assets are measured for impairment at least annually and/or whenever events and circumstances arise that indicate that the carrying value of the assets may not be recoverable.

 

Cash and cash equivalents and liquidity

At December 31, 2016, the Company had cash and cash equivalents of approximately $4,099, working capital of approximately $15,170 and total equity of approximately $29,649.  The Company’s management believes that it has adequate cash and cash equivalents on hand, and projected cash flow from operations, to finance its operations for at least the next 12 months.

 

Foreign Currency Transactions

The Company does enter into transactions that are settled in a foreign currency.  The transactions are recorded in U.S. dollars based on the exchange rate in effect at the time a transaction is initiated.  When a transaction is settled, the foreign currency received to settle the transaction is converted to U.S. dollars based on the exchange rate in effect at the time of settlement.  A realized foreign currency exchange gain or loss is recorded based on the difference in the exchange rate in effect when a transaction is initiated, and the exchange rate in effect when a transaction is settled.  For the nine months ended December 31, 2016 and 2015 the Company reported a loss in foreign currency transactions of $167 and a loss in foreign currency transactions of $417, respectively.

 In March 2016, the Financial Accounting Standards Board ("FASB") amended the existing accounting standards for employee share-based payment arrangements. The amendments require all excess tax benefits and tax deficiencies associated with share-based payments to be recognized as income tax expense or income tax benefit, respectively, rather than as additional paid-in capital. The amendments also increase the amount an employer can withhold in order to cover income taxes on awards, allows companies to recognize forfeitures of awards as they occur, and requires companies to present excess tax benefits from stock-based compensation as an operating activity in the statement of cash flows rather than as a financing activity. The Company is required to adopt the guidance in the first quarter of fiscal 2018. Early adoption is permitted. The Company is currently evaluating the timing and the impact of these amendments on its Condensed Consolidated and Combined Financial Statements.

 In February 2016, the FASB amended the existing accounting standards for leases. The amendments require lessees to record, at lease inception, a lease liability for the obligation to make lease payments and a right-of-use ("ROU") asset for the right to use the underlying asset for the lease term on their balance sheets. Lessees may elect to not recognize lease liabilities and ROU assets for most leases with terms of 12 months or less. The lease liability is measured at the present value of the lease payments over the lease term. The ROU asset will be based on the liability, adjusted for lease prepayments, lease incentives received, and the lessee's initial direct costs. For finance leases, lease expense will be the sum of interest on the lease obligation and amortization of the ROU asset, resulting in a front-loaded expense pattern. For operating leases, lease expense will generally be recognized on a straight-line basis. The amended lessor accounting model is similar to the current model, updated to align with certain changes to the lessee model and the new revenue standard. The current sale-leaseback guidance, including guidance applicable to real estate, is also replaced with a new model for both lessees and lessors. The Company is required to adopt the guidance in the first quarter of fiscal 2020 using a modified retrospective approach. Early adoption is permitted. The Company is currently evaluating the timing and the impact of these amendments on its Condensed Consolidated and Combined Financial Statements.

 

4. INCOME (LOSS) PER SHARE

Income (loss) per share has been computed based on the weighted‑average number of shares of common stock issued and outstanding during the period, and is calculated by dividing net loss by the weighted average number of common shares outstanding during the period. The effects of the options granted under the Company’s option plans, the exercise of outstanding options and the exercise of outstanding warrants were excluded from the loss per share calculations for the periods presented as their inclusion is anti-dilutive. Accordingly, diluted loss per share has not been presented.

The following securities were not considered in the income (loss) per share calculations for the three and nine months ended:

5. SHORT-TERM INDEBTEDNESS

On April 17, 2015, the Company entered into a credit agreement in connection with the consummation of the Motion Acquisition.  The Company and its wholly-owned subsidiary entered into a Loan and Security Agreement with Square 1 (the “Square 1 Credit Agreement”) pursuant to which Square 1 agreed to provide revolving loans of up to an aggregate principal amount of $15 million to the Company’s subsidiary. The Square 1 Credit Agreement has a two-year term. Payment and performance under the Square 1 Credit Agreement is secured by a first priority security interest in and to substantially all of the assets of the Company and its subsidiaries. Pursuant to the Square 1 Credit Agreement, the loans consist of formula revolving loans and non-formula revolving loans. The maximum amount of formula revolving loans outstanding at any one time cannot exceed the lesser of $15 million or 85% of eligible accounts receivable of the Company’s subsidiary. The maximum amount of non-formula revolving loans outstanding at any one time could not exceed $4 million through April 16, 2016, and thereafter steps-down in $480 increments every three months until the cap reaches $2.08 million, which will be maximum allowable amount outstanding at any one time thereafter until the maturity date.  The interest rate on the loans is variable, and will be equal to the prime rate in effect from time to time plus 1.25% per annum, provided that the interest rate on any day shall not be less than 4.5% per annum.

 

The Square 1 Credit Agreement contains a financial covenant regarding liquidity, which is tested monthly.  Failure to meet such covenant or the triggering of other events of default could result in acceleration of all payment obligations and the termination of the obligations of Square 1 to make loans and extend credit under the Square 1 Credit Agreement. The Square 1 Credit Agreement contains certain representations and warranties that must be made and certain other conditions that must be met for the Company and its subsidiary to cause Square 1 to make loans. The Square 1 Credit Agreement also contains customary affirmative and negative covenants, events of default and remedies upon default including acceleration. The Company agreed to a financial covenant requiring that the sum of the aggregate undrawn portion of the loans available under the Square 1 Credit Agreement plus the aggregate amount of all non-restricted cash and cash equivalents of the Company as shown on the Company's monthly financial statements provided to Square 1, as required under the Square 1 Credit Agreement, shall be at least $3 million.

 

On December 31, 2016, there was $5,096 in borrowings under the Square 1 Credit Agreement.

6. SHARE CAPITAL

The Company’s second amended and restated certificate of incorporation, has established the number of authorized shares of common stock of the Company as 15,000,000 and the number of authorized shares of preferred stock of the Company as 5,000,000.

Warrants Outstanding

At December 31, 2016, there were warrants to purchase an aggregate of 100,000 shares of common stock outstanding, all of which are fully exercisable, as detailed in the table below:

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(1)	Exercise price may change subject to anti-dilutive terms.

In the event that, after a person or a group of affiliated or associated persons has become an Acquiring Person, the Company is acquired in a merger or other business combination transaction, or 50% or more of the Company’s assets or earning power are sold, proper provision will be made so that each holder of a Right will thereafter have the right to receive, upon the exercise thereof at the then-current exercise price of the Right, that number of shares of common stock of the acquiring company having a market value at the time of that transaction equal to two times the Exercise Price.

The Board of Directors may amend or supplement the Rights Agreement without the approval of any holders of Rights, including, without limitation, in order to (a) cure any ambiguity, (b) correct inconsistent provisions, (c) alter time period provisions or (d) make additional changes to the Rights Agreement that the Board of Directors deems necessary or desirable. However, from and after any person or group of affiliated or associated persons becomes an Acquiring Person, the Rights Agreement may not be supplemented or amended in any manner that would adversely affect the interests of the holders of Rights.

7. STOCK-BASED COMPENSATION PLAN

a)  Stock Options and Restricted Stock Units

On July 28, 2009, the Board of Directors adopted the 2009 Stock Incentive Plan (the “Stock Plan”). The Stock Plan provides for equity‑based awards in the form of incentive stock options and non-statutory options, restricted shares, stock appreciation rights and restricted stock units. Awards are made to selected employees, directors and consultants to promote stock ownership among award recipients, encourage their focus on strategic long-range corporate objectives, and attract and retain exceptionally qualified personnel. The exercise price of an option is determined at the date of grant and is based on the closing price of the Company’s common stock on the stock exchange or quotation system on which the common stock is listed or traded on the day of grant. Unless otherwise provided for, the options are exercisable only during the term of engagement of the employee, officer or consultant or during the period of service as a director of the Company. The Stock Plan became effective as of June 10, 2009 and was approved by the Company’s stockholders on January 14, 2010.

On March 24, 2016, the stockholders approved an amendment to the Stock Plan to increase the number of shares of common stock issuable under the plan to three million shares.

On August 3, 2016, the Company granted to an officer of the Company 30,000 restricted stock units (“RSUs”) valued at $71,700, based upon the closing price of the Company’s common stock of $2.39 per share on the date of grant.  These RSUs had a three year vesting schedule, but were forfeited on December 2, 2016 due to termination of service by the officer.

 

A summary of the stock option activity in the Stock Plan during the nine months ended December 31, 2016 was as follows:

 

A summary of the RSU activity in the Stock Plan during the nine months ended December 31, 2016 was as follows:

 

At December 31, 2016, the total number of shares of common stock issued in connection with the exercise of options since the inception of the Stock Plan was 171,927 and the total number of shares of common stock issued in connection with the vesting of restricted stock awards was 4,268.

A summary of the options outstanding and exercisable at December 31, 2016 was as follows:

Stock options outstanding at December 31, 2016 have no intrinsic value, as the option exercise price exceeds the market value.

The weighted average exercise price of options exercisable at December 31, 2016 was $5.30 per share.

 

The options have been valued separately using the Black‑Scholes methodology. The options under the Stock Plan generally vest over a three-year period in equal annual amounts and expire five years after the issuance date.

 

The Company recorded stock compensation cost of $111 and $535 for the three months ended December 31, 2016 and 2015, respectively. The Company recorded stock compensation cost of $413 and $1,634 for the nine months ended December 31, 2016 and 2015, respectively. This expense was recorded in the employee related functional classification.

 

Compensation expense has been determined based on the fair value at the grant date for options and RSUs granted in the current fiscal year. The future compensation expense to be recognized for unvested option grants at December 31, 2016 was $575, which is to be recognized over the next three years.

b)  2009 Employee Stock Purchase Plan

The Board of Directors approved an employee stock purchase plan that was implemented on January 1, 2009 and approved by the Company’s stockholders on November 4, 2009 (the “ESPP”).  The offering price per common share and number of common shares purchased for the periods ended December 31, 2016 and 2015 are as follows:

 

8. RELATED PARTY TRANSACTIONS

On April 7, 2015, the Board of Directors approved grants of options to purchase a total of 240,374 shares of the Company’s common stock, with an exercise price of $6.38, of which options to purchase 87,437 shares were granted to Philip Sassower, the Company's Chairman and Chief Executive Officer, and options to purchase 27,937 shares were granted to Andrea Goren, a member of the Board of Directors.  The options vested after one year, and have a term of seven and one half years from the date of the grant.

 

During the periods ended September 30, 2015, each member of the Board of Directors was paid a quarterly fee in the amount of $2.5 and an additional fee to each member of the Board of Director’s audit committee and compensation committee in the amount of $1 per quarter for each committee on which such member served. On June 15, 2016, the Board of Directors approved an increase in the quarterly fee to $6 per quarter and an increase in the quarterly committee fee to $2 for each committee on which such member serves, including the Board of Director’s nomination and corporate governance committee, up to a maximum of two committees for each member. General administration expense includes an expense of $58 and $21 for the three months ended December 31, 2016 and 2015, and $160 and $63 for the nine month ended December 31, 2016 and 2015, respectively, relating to these fees.

 

On November 7, 2016, the Board of Directors approved payments to SG Phoenix LLC, an affiliate of the Company, of an annual fee of $300 for services rendered, retroactive to April 1, 2016, which included compensation for the services of the Company’s Chief Executive Officer.  In the prior fiscal year, the fee paid to SG Phoenix LLC for these services was $287.5. Additionally, the Company made a bonus payment of $100 to SG Phoenix LLC in the first quarter of fiscal 2016 for services performed by SG Phoenix LLC in the preceding fiscal year. General administration expense includes an expense of $81 and $72 for the three months ended December 31, 2016 and 2015, respectively, and $225 and $216 for the nine month ended December 31, 2016 and 2015, respectively, for these fees.

During the nine months ended December 31, 2016 and 2015, the Company purchased approximately $1 and $121 in components for the Company’s tablet PCs from Ember Industries, Inc., a contract manufacturer.  Thomas F. Leonardis, a member of the Board of Directors through November 11, 2016, when he resigned, is the Chief Executive Officer and the majority shareholder of Ember Industries.  The Company purchased the components from Ember Industries pursuant to standard purchase orders at Ember Industries’ standard prices.  The disinterested members of the Board of Directors reviewed, approved and ratified the Company’s purchase of component parts from Ember Industries on the described terms.  As of December 31, 2016, the Company did not owe Ember Industries any amount for purchases of such components.

9. SEGMENTED INFORMATION

The Company operates in one segment, the sale of rugged mobile tablet PC systems. The United States accounted for approximately 81% and 75% of the Company’s total revenue for the three and nine months ended December 31, 2016, respectively. For the three and nine months ended December 31, 2015, the United States accounted for 59% and 68% of the Company’s total revenue.

 

The distribution of revenue by country is segmented as follows:

 

		Three Months Ended																Nine Months Ended
		December 31, 2016								December 31, 2015								December 31, 2016								December 31, 2015
Revenue by country:
United States		$	19,787				81	%		$	15,828				59	%		$	45,930				75	%		$	54,425				68	%
Germany			1,370				6	%			2,891				11	%			4,186				7	%			5,445				7	%
Other			3,342				14	%			8,034				30	%			10,863				18	%			20,049				25	%
		$	24,499				100	%		$	27,023				100	%		$	60,979				100	%		$	79,919				100	%

The Company has a variety of customers, and in any given year a single customer can account for a significant portion of sales. For the three and nine months ended December 31, 2016, the Company had two customers located in the United States who accounted for more than 10% of total revenue. For the three and nine months ended December 31, 2015, the Company also had two customers located in the United States who accounted for more than 10% of total revenue.

Three Months Ended		Total Revenue (in millions)				Number of Customers with Revenue > 10% of Total Revenue				Customer Share as a Percent of Total Revenue
December 31, 2016		$	24.5				2				39	%
December 31, 2015		$	27.0				2				27	%

 

Nine Months Ended		Total Revenue (in millions)				Number of Customers with Revenue > 10% of Total Revenue				Customer Share as a Percent of Total Revenue
December 31, 2016		$	61.0				2				41	%
December 31, 2015		$	79.9				2				25	%

 

At December 31, 2016, the Company had one customer that accounted for more than 10% of the outstanding net receivables.

 

 

 

10. COMMITMENTS AND CONTINGENT LIABILITIES

a)            Premises

The Company maintains its corporate functions, along with sales support, marketing and finance at a leased facility totaling approximately 16,228 square feet at 8601 Ranch Road 2222, Building II, Austin, Texas 78730.  This lease expires on June 30, 2020 and has a current annual base rent, before reimbursable operating expenses, of approximately $235,000.  The Company maintains its engineering and operating groups at a leased facility totaling 21,700 square feet at 14000 Summit Drive, Suite 900, Austin, Texas, 78728.  This lease expires on August 31, 2019, and has a current annual base rent, before reimbursable operating expenses, of approximately $228,000.  As a result of the Motion Acquisition, during fiscal year 2016 the Company occupied, with the consent of the landlord, a portion of Motion’s former leased facility at 8601 RR 2222, Building II, Austin, Texas, where Motion maintained its corporate functions, along with sales support, marketing, finance, engineering and operating groups.  The Company did not assume Motion’s lease for the facility, and in fiscal year 2016 negotiated the terms of the new lease with the landlord, as described above, for a portion of Motion’s former space.  The Company believes that its present facilities are suitable for its existing and planned operations. Rent expense for the three months ended December 31, 2016 and 2015, was $228 and $304, respectively. Rent expense for the nine months ended December 31, 2016 and 2015, was $591 and $510, respectively.

Minimum annual payments by fiscal year required under all of the Company’s operating leases are:

At December 31, 2016, the Company had purchase obligations for fiscal 2017 of approximately $28,724 related to inventory and product development items.

c)   Litigation

The Company and its subsidiaries are involved in various claims and legal actions arising in the ordinary course of business. None of these actions, individually or in the aggregate, are expected to have a material adverse effect on the Company’s consolidated financial position or results of operations.

	Nine Months Ended December 31,
	2016				2015
Net cash used in operating activities		$	(4,790	)		$	(4,914	)
Net cash provided by (used in) investing  activities			(1,913	)			12
Net cash provided by (used in) financing activities			5,208				(8,518	)
Cash and cash equivalents, end of period			4,099				6,035

PART II—OTHER INFORMATION

Item 1.  Legal Proceedings.

At December 31, 2016, we were not involved in any legal actions, arising in the ordinary course of business or otherwise.  From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business.  We believe that the ultimate outcome of these matters would not have a material adverse impact on our financial condition or the results of operations.

Item 1A.  Risk Factors

Our Annual Report on Form 10-K for the year ended March 31, 2016 includes a detailed discussion of our risk factors. The information presented below updates and should be read in conjunction with the risk factors and information disclosed in the Annual Report on Form 10-K for the year ended March 31, 2016.

Risks Relating to our Business

For the three months ended December 31, 2016, we had two customers that accounted for more than 10% of our total revenue.  If we are unable to replace revenue generated from one of our major resellers or end-user customers with revenue from others in future periods, our revenue may decrease and our growth would be limited.

Historically, in any given quarter a single customer, either reseller or end-user customer, could account for more than 10% of our revenue. For the three months ended December 31, 2016, two customers located in the United States who accounted for approximately 39% of our total revenue.  If we are unable to replace revenue generated from our major customers, including resellers, with revenue from others our revenue may decrease and our growth would be limited.

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

Recent Sales of Unregistered Securities

None.

Item 3.  Defaults Upon Senior Securities.

None.

Item 4.  Mine Safety Disclosures

None.

Item 5.  Other Information.

None.

Item 6.  Exhibits.

*Filed herewith.

SIGNATURE

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