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Massachusetts
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000-23599
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04-2741391
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(State or Other Jurisdiction
of Incorporation)
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(Commission File Number)
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(IRS Employer
Identification No.)
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50 Minuteman Road, Andover, Massachusetts
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01810
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(Address of Principal Executive Offices)
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(Zip Code)
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☐
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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☐
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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☐
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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☐
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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(a)
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Financial Statements of Business Acquired.
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(b)
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Pro forma Financial Information.
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(i)
|
unaudited pro forma condensed combined balance sheet as of December 31, 2017;
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(ii)
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unaudited pro forma condensed combined statement of operations for the six months ended December 31, 2017 and the year ended June 30, 2017; and
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(iii)
|
notes to the unaudited pro forma condensed combined financial statements
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Dated: March 2, 2018
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MERCURY SYSTEMS, INC.
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||
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|||
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By:
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/s/ Michael D. Ruppert
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Michael D. Ruppert
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Executive Vice President, Chief Financial Officer, and Treasurer
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ASSETS
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|
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|
||||
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(Unaudited)
|
|
(Audited)
|
||||
|
September 30,
|
|
December 31,
|
||||
Current assets
|
2017
|
|
2016
|
||||
Cash and cash equivalents
|
$
|
11,780,947
|
|
|
$
|
10,789,594
|
|
Accounts receivable
|
5,830,909
|
|
|
4,242,532
|
|
||
Due from related parties
|
633,870
|
|
|
616,076
|
|
||
Inventories
|
6,854,293
|
|
|
6,327,502
|
|
||
Prepaid expenses and other current assets
|
116,022
|
|
|
119,877
|
|
||
Income tax refund receivable
|
924,991
|
|
|
549,188
|
|
||
Total current assets
|
26,141,032
|
|
|
22,644,769
|
|
||
Property and equipment, net
|
447,874
|
|
|
250,769
|
|
||
Other assets
|
138,576
|
|
|
149,344
|
|
||
Deferred income taxes
|
3,367,516
|
|
|
4,283,715
|
|
||
Total assets
|
$
|
30,094,998
|
|
|
27,328,597
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
||||
Current liabilities
|
|
|
|
||||
Accounts payable
|
$
|
3,386,939
|
|
|
$
|
3,160,706
|
|
Accrued expenses
|
1,994,888
|
|
|
2,332,651
|
|
||
Income tax payable
|
149,619
|
|
|
—
|
|
||
Deferred revenues
|
256,080
|
|
|
246,931
|
|
||
Deferred rent, current
|
46,681
|
|
|
103,117
|
|
||
Total current liabilities
|
5,834,207
|
|
|
5,843,405
|
|
||
Deferred rent, less current portion
|
—
|
|
|
18,888
|
|
||
Total liabilities
|
5,834,207
|
|
|
5,862,293
|
|
||
Commitment and Contingencies (Note 10)
|
|
|
|
||||
Shareholders' Equity
|
|
|
|
||||
Preferred stock B, no par value; 6,000,000 shares authorized;
|
|
|
|
||||
4,772,500 shares issued and outstanding at September 30, 2017 and
|
|
|
|
||||
December 31, 2016, respectively (liquidation preference of $1,909,000)
|
1,601,000
|
|
|
1,601,000
|
|
||
Preferred stock A, no par value; 500,000 shares authorized;
|
|
|
|
||||
0 and 202,019 shares issued and outstanding at September 30, 2017 and
|
|
|
|
||||
December 31, 2016, respectively (liquidation preference of $2,020,191
|
—
|
|
|
2,020,191
|
|
||
at December 31, 2016)
|
|
|
|
||||
Common stock, no par value; 60,000,000 shares authorized;
|
|
|
|
||||
333,014,991 and 332,595,344 shares issued and outstanding
|
|
|
|
||||
and outstanding at September 30, 2017 and December 31, 2016, respectively
|
1,248,280
|
|
|
1,100,737
|
|
||
Additional paid-in capital
|
837,081
|
|
|
784,776
|
|
||
Retained earnings
|
20,574,430
|
|
|
15,959,600
|
|
||
Total shareholders' equity
|
24,260,791
|
|
|
21,466,304
|
|
||
Total liabilities and shareholders' equity
|
$
|
30,094,998
|
|
|
$
|
27,328,597
|
|
|
2017
|
|
2016
|
||||
Net sales
|
$
|
39,040,140
|
|
|
$
|
28,662,892
|
|
Cost of sales
|
22,203,294
|
|
|
16,523,418
|
|
||
Gross profit
|
16,836,846
|
|
|
12,139,474
|
|
||
Operating expenses
|
|
|
|
||||
Research and development
|
3,643,257
|
|
|
3,226,658
|
|
||
Sales and marketing
|
3,209,791
|
|
|
3,370,149
|
|
||
General and administrative
|
2,026,565
|
|
|
1,490,251
|
|
||
Total operating expenses
|
8,879,613
|
|
|
8,087,058
|
|
||
Operating income
|
7,957,233
|
|
|
4,052,416
|
|
||
Other income (expense)
|
|
|
|
||||
Interest income
|
30,694
|
|
|
24,629
|
|
||
Interest expense
|
—
|
|
|
(29
|
)
|
||
Other income
|
(3,472
|
)
|
|
10,033
|
|
||
Other income
|
27,222
|
|
|
34,633
|
|
||
Income before from income taxes
|
7,984,455
|
|
|
4,087,049
|
|
||
Provision for income taxes
|
2,787,975
|
|
|
1,511,491
|
|
||
Net income
|
$
|
5,196,480
|
|
|
$
|
2,575,558
|
|
|
|
|
|
|
|
|
Additional
|
|
Total
|
|||||||||||||||
|
Preferred Stock B
|
Preferred Stock A
|
Common Stock
|
Paid-in
|
Retained
|
Shareholder's
|
||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Earnings
|
Equity
|
|||||||||||||||
Balance at January 1, 2017
|
4,772,500
|
|
1,601,000
|
|
202,019
|
|
2,020,191
|
|
32,595,344
|
|
1,100,737
|
|
784,776
|
|
15,959,600
|
|
21,466,304
|
|
||||||
Exercise of stock options
|
—
|
|
—
|
|
—
|
|
—
|
|
419,647
|
|
147,543
|
|
—
|
|
—
|
|
147,543
|
|
||||||
Repurchase of preferred stock series A
|
—
|
|
—
|
|
(202,019
|
)
|
(2,020,191
|
)
|
—
|
|
—
|
|
—
|
|
(581,650
|
)
|
(2,601,841
|
)
|
||||||
Stock compensation expense
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
52,305
|
|
—
|
|
52,305
|
|
||||||
Net income
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
5,196,480
|
|
5,196,480
|
|
||||||
Balance at September 30, 2017
|
4,772,500
|
|
$
|
1,601,000
|
|
—
|
|
$
|
—
|
|
33,014,991
|
|
$
|
1,248,280
|
|
$
|
837,081
|
|
$
|
20,574,430
|
|
$
|
24,260,791
|
|
|
2017
|
|
2016
|
||||
Cash flows from operating activities
|
|
|
|
||||
Net income
|
$
|
5,196,480
|
|
|
$
|
2,575,558
|
|
Adjustments to reconcile net income to net cash
|
|
|
|
||||
provided by operating activities:
|
|
|
|
||||
Depreciation expense
|
126,534
|
|
|
186,076
|
|
||
Amortization expense
|
62,195
|
|
|
64,130
|
|
||
Deferred income taxes
|
916,199
|
|
|
144,372
|
|
||
Stock compensation expense
|
52,305
|
|
|
28,241
|
|
||
Provision for excess and obsolete inventory
|
442,704
|
|
|
720,592
|
|
||
Changes in operating assets and liabilities:
|
|
|
|
||||
Accounts receivable
|
(1,588,377
|
)
|
|
(544,945
|
)
|
||
Due from related parties
|
(17,794
|
)
|
|
(17,859
|
)
|
||
Inventories
|
(969,495
|
)
|
|
(1,413,331
|
)
|
||
Prepaid expenses and other current assets
|
3,855
|
|
|
(45,575
|
)
|
||
Income tax refund receivable
|
(375,803
|
)
|
|
(69,612
|
)
|
||
Other assets
|
(51,427
|
)
|
|
(74,392
|
)
|
||
Accounts payable
|
226,233
|
|
|
220,109
|
|
||
Accrued expenses
|
(337,763
|
)
|
|
383,481
|
|
||
Income tax payable
|
149,619
|
|
|
68,216
|
|
||
Deferred revenues
|
9,149
|
|
|
165,376
|
|
||
Deferred rent
|
(75,324
|
)
|
|
(65,656
|
)
|
||
Net cash provided by operating activities
|
3,769,290
|
|
|
2,324,781
|
|
||
Cash flows from investing activities
|
|
|
|
||||
Acquisition of property and equipment
|
(323,639
|
)
|
|
(122,918
|
)
|
||
Net cash used in investing activities
|
(323,639
|
)
|
|
(122,918
|
)
|
||
Cash flows from financing activities
|
|
|
|
||||
Proceeds from exercise of warrants and options
|
147,543
|
|
|
6,300
|
|
||
Repurchase of preferred stock series A
|
(2,601,841
|
)
|
|
—
|
|
||
Net cash (used in) provided by financing activities
|
(2,454,298
|
)
|
|
6,300
|
|
||
Net increase in cash and cash equivalents
|
991,353
|
|
|
2,208,163
|
|
||
Cash and cash equivalents, beginning of period
|
10,789,594
|
|
|
4,751,501
|
|
||
Cash and cash equivalents, end of period
|
$
|
11,780,947
|
|
|
$
|
6,959,664
|
|
Supplemental cash flow information
|
|
|
|
||||
Cash paid for interest
|
$
|
—
|
|
|
$
|
29
|
|
Cash paid for income taxes
|
$
|
2,097,960
|
|
|
$
|
(1,371,000
|
)
|
•
|
Level 1 Inputs - quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date,
|
•
|
Level 2 Inputs - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability and
|
•
|
Level 3 Inputs - unobservable inputs for the asset or liability. These unobservable inputs reflect the entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances (which might include the reporting entity’s own data).
|
•
|
Investment in Quorum Labs, Inc. preferred stock - the Company is unable to estimate fair value for this stock due to the lack of a market for such stock as a private company.
|
•
|
Notes and interest receivable from the Company’s shareholders - given the short time to maturity the carrying value is a reasonable approximation of fair value.
|
Computers and equipment
|
3 to 5 years
|
Purchased software
|
3 years
|
Furniture and fixtures
|
5 to 7 years
|
Leasehold improvements
|
Shorter of estimated lives
|
|
of assets or lease term
|
|
September 30, 2017
|
|
December 31, 2016
|
||||
Raw materials
|
$
|
1,908,816
|
|
|
$
|
1,598,833
|
|
Work in progress
|
652,902
|
|
|
1,002,846
|
|
||
Fabricated assemblies
|
2,892,991
|
|
|
1,501,107
|
|
||
Finished goods
|
1,399,584
|
|
|
2,224,716
|
|
||
|
$
|
6,854,293
|
|
|
$
|
6,327,502
|
|
|
September 30, 2017
|
|
December 31, 2017
|
||||
Computers and equipment
|
$
|
2,796,725
|
|
|
$
|
2,578,365
|
|
Purchased software
|
550,135
|
|
|
495,487
|
|
||
Furniture/fixtures
|
564,631
|
|
|
553,052
|
|
||
Leasehold improvements
|
400,859
|
|
|
379,193
|
|
||
Total
|
4,312,350
|
|
|
4,006,097
|
|
||
Less: accumulated depreciation
|
3,864,476
|
|
|
3,755,328
|
|
||
|
$
|
447,874
|
|
|
$
|
250,769
|
|
|
September 30, 2017
|
|
December 31, 2016
|
||||
Accrued payroll and related expenses
|
$
|
1,055,995
|
|
|
$
|
1,520,773
|
|
Accrued vacation
|
510,299
|
|
|
538,695
|
|
||
Accrued other expenses
|
264,537
|
|
|
131,673
|
|
||
Accrued sales taxes
|
1,325
|
|
|
11,326
|
|
||
Accrued commission
|
44,631
|
|
|
31,774
|
|
||
Accrued warranty
|
118,101
|
|
|
98,410
|
|
||
|
$
|
1,994,888
|
|
|
$
|
2,332,651
|
|
|
2017
|
|
2016
|
||||
Current
|
|
|
|
||||
Federal
|
$
|
1,527,711
|
|
|
$
|
1,304,548
|
|
State
|
194,446
|
|
|
83,602
|
|
||
Foreign
|
149,619
|
|
|
68,216
|
|
||
|
1,871,776
|
|
|
1,456,366
|
|
||
Deferred
|
|
|
|
||||
Federal
|
826,521
|
|
|
(28,968
|
)
|
||
State
|
89,678
|
|
|
84,093
|
|
||
|
916,199
|
|
|
55,125
|
|
||
|
$
|
2,787,975
|
|
|
$
|
1,511,491
|
|
|
September 30, 2017
|
|
December 31, 2017
|
||||
Deferred income tax assets
|
|
|
|
||||
Research and minimum tax credits
|
$
|
2,262,812
|
|
|
$
|
3,401,911
|
|
Net operating losses
|
—
|
|
|
126,135
|
|
||
Reserves and accruals not deductible for tax purposes
|
1,010,759
|
|
|
507,454
|
|
||
Deferred stock compensation
|
1,153
|
|
|
235,340
|
|
||
State income taxes
|
92,790
|
|
|
12,875
|
|
||
Total deferred income tax assets
|
$
|
3,367,514
|
|
|
$
|
4,283,715
|
|
|
2017
|
|
2016
|
Federal statutory expense
|
34.0%
|
|
34.0%
|
State income taxes, net of federal tax
benefits
|
3.6%
|
|
4.1%
|
Research tax credit
|
(1.3)%
|
|
(1.3)%
|
Others
|
(1.4)%
|
|
0.2%
|
|
34.9%
|
|
37.0%
|
|
Amount
|
||
2017
|
$
|
145,562
|
|
2018
|
122,197
|
|
|
|
$
|
267,759
|
|
Series
|
Shares
Authorized
|
Shares Issued and
Outstanding
|
Liquidation Preference
per Share
|
Liquidation
Amount
|
||||||
A
|
500,000
|
|
—
|
|
$
|
10.00
|
|
$
|
—
|
|
B
|
6,000,000
|
|
4,772,500
|
|
$
|
0.40
|
|
$
|
1,909,000
|
|
Series
|
Shares
Authorized
|
Shares Issued and
Outstanding
|
Liquidation Preference
per Share
|
Liquidation
Amount
|
||||||
A
|
500,000
|
|
202,019
|
|
$
|
10.00
|
|
$
|
2,020,190
|
|
B
|
6,000,000
|
|
4,772,500
|
|
$
|
0.40
|
|
$
|
1,909,000
|
|
|
Shares
|
Weighted average exercise price
per share
|
Weighted average remaining contractual
life (in years)
|
||||
Outstanding at December 31, 2016
|
1,607,981
|
|
$
|
0.53
|
|
5.52
|
|
Options granted
|
300,000
|
|
2.01
|
|
9.77
|
|
|
Options exercised
|
(419,647
|
)
|
0.29
|
|
0.11
|
|
|
Options canceled/forfeited/expired
|
(42,500
|
)
|
0.71
|
|
2.91
|
|
|
Outstanding at September 30, 2017
|
1,445,834
|
|
$
|
0.89
|
|
7.22
|
|
Vested and expected to vest and exercisable at September 30, 2017
|
1,445,834
|
|
$
|
0.89
|
|
7.22
|
|
Vested and exercisable at September 30, 2017
|
888,655
|
|
$
|
0.59
|
|
6.19
|
|
|
September 30, 2017
|
|
December 31, 2016
|
Risk-free interest rate (1)
|
1.76%
|
|
0.85%
|
Expected life (in years) (2)
|
10.00
|
|
10.00
|
Dividend yield (3)
|
0.00
|
|
0.00
|
Volatility (4)
|
7.46%
|
|
7.69%
|
(3)
|
The Company has no history or expectation of paying cash dividends on its common stock.
|
|
Page
|
INDEPENDENT AUDITOR’S REPORT
|
1 - 2
|
CONSOLIDATED FINANCIAL STATEMENTS
|
|
Consolidated Balance Sheet
|
3
|
Consolidated Statement of Income
|
4
|
Consolidated Statement of Shareholders’ Equity
|
5
|
Consolidated Statement of Cash Flows
|
6
|
Notes to Consolidated Financial Statements
|
7 - 24
|
ASSETS
|
|
||
Current Assets
|
|
||
Cash and cash equivalents
|
$
|
10,789,594
|
|
Accounts receivable
|
4,242,532
|
|
|
Due from related parties
|
616,076
|
|
|
Inventories
|
6,327,502
|
|
|
Prepaid expenses and other current assets
|
119,877
|
|
|
Income tax refund receivable
|
549,188
|
|
|
Total current assets
|
22,644,769
|
|
|
Property and equipment, net
|
250,769
|
|
|
Other assets
|
149,344
|
|
|
Deferred income taxes
|
4,283,715
|
|
|
Total assets
|
$
|
27,328,597
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
||
Current liabilities
|
|
||
Accounts payable
|
$
|
3,160,706
|
|
Accrued expenses
|
2,332,651
|
|
|
Deferred revenues
|
246,931
|
|
|
Deferred rent, current
|
103,117
|
|
|
Total current liabilities
|
5,843,405
|
|
|
Deferred rent, less current portion
|
18,888
|
|
|
Total liabilities
|
5,862,293
|
|
|
Commitment and Contingencies (Note 10)
|
|
||
Shareholders' Equity
|
|
||
Preferred stock B, no par value; 6,000,000 shares authorized;
|
|
||
4,772,500 shares issued and outstanding (liquidation preference of
|
|
||
$1,909,000)
|
1,601,000
|
|
|
Preferred stock A, no par value; 500,000 shares authorized;
|
|
||
202,019 shares issued and outstanding (liquidation preference of
|
|
||
$2,020,190)
|
2,020,191
|
|
|
Common stock, no par value; 60,000,000 shares authorized;
|
|
||
32,595,344 shares issued and outstanding at December 31, 2016
|
1,100,737
|
|
|
Additional paid-in capital
|
784,776
|
|
|
Retained earnings
|
15,959,600
|
|
|
Total shareholders' equity
|
21,466,304
|
|
|
Total liabilities and shareholders' equity
|
$
|
27,328,597
|
|
Net sales
|
$
|
38,981,912
|
|
Cost of sales
|
22,085,457
|
|
|
Gross profit
|
16,896,455
|
|
|
Operating expenses
|
|
||
Research and development
|
4,379,724
|
|
|
Sales and marketing
|
4,622,624
|
|
|
General and administrative
|
2,046,849
|
|
|
Total operating expenses
|
11,049,197
|
|
|
Operating income
|
5,847,258
|
|
|
Other income (expense)
|
|
||
Interest income
|
34,221
|
|
|
Interest expense
|
(29
|
)
|
|
Other income
|
34,903
|
|
|
Other income
|
69,095
|
|
|
Income before from income taxes
|
5,916,353
|
|
|
Provision for income taxes
|
2,169,491
|
|
|
Net income
|
$
|
3,746,862
|
|
|
|
|
|
|
|
|
Additional
|
|
Total
|
|||||||||||||||
|
Preferred Stock B
|
Preferred Stock A
|
Common Stock
|
Paid-in
|
Retained
|
Shareholder's
|
||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Earnings
|
Equity
|
|||||||||||||||
Balance at January 1, 2016
|
4,772,500
|
|
1,601,000
|
|
202,019
|
|
2,020,191
|
|
32,477,344
|
|
1,079,837
|
|
747,122
|
|
12,212,738
|
|
17,660,888
|
|
||||||
Exercise of warrants and options
|
—
|
|
—
|
|
—
|
|
—
|
|
118,000
|
|
20,900
|
|
—
|
|
—
|
|
20,900
|
|
||||||
Stock compensation
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
37,654
|
|
—
|
|
37,654
|
|
||||||
Net income
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
3,746,862
|
|
3,746,862
|
|
||||||
Balance at December 31, 2016
|
4,772,500
|
|
$
|
1,601,000
|
|
202,019
|
|
$
|
2,020,191
|
|
32,595,344
|
|
$
|
1,100,737
|
|
$
|
784,776
|
|
$
|
15,959,600
|
|
$
|
21,466,304
|
|
Cash flows from operating activities
|
|
||
Net income
|
$
|
3,746,862
|
|
Adjustments to reconcile net income to net cash
|
|
||
provided by operating activities:
|
|
||
Depreciation expense
|
236,912
|
|
|
Amortization expense
|
85,772
|
|
|
Provision for deferred income taxes
|
853,584
|
|
|
Stock compensation expense
|
37,654
|
|
|
Loss on disposition of fixed assets
|
—
|
|
|
Provision for excess and obsolete inventory
|
(151,139
|
)
|
|
Changes in operating assets and liabilities:
|
|
||
Accounts receivable
|
449,449
|
|
|
Due from related parties
|
(23,877
|
)
|
|
Inventories
|
(1,533,173
|
)
|
|
Prepaid expenses and other current assets
|
(55,614
|
)
|
|
Income tax refund receivable
|
(52,082
|
)
|
|
Other assets
|
(97,987
|
)
|
|
Accounts payable
|
1,816,748
|
|
|
Accrued expenses
|
761,565
|
|
|
Deferred revenues
|
180,495
|
|
|
Deferred rent
|
(90,226
|
)
|
|
Net cash provided by operating activities
|
6,164,943
|
|
|
Cash flows from investing activities
|
|
||
Acquisition of property and equipment
|
(147,750
|
)
|
|
Net cash used in investing activities
|
(147,750
|
)
|
|
Cash flows from financing activities
|
|
||
Proceeds from exercise of warrants and options
|
20,900
|
|
|
Net cash provided by financing activities
|
20,900
|
|
|
Net increase in cash and cash equivalents
|
6,038,093
|
|
|
Cash and cash equivalents, beginning of year
|
4,751,501
|
|
|
Cash and cash equivalents, end of year
|
$
|
10,789,594
|
|
Supplemental cash flow information
|
|
||
Cash paid for interest
|
$
|
29
|
|
Cash paid for income taxes
|
$
|
1,377,000
|
|
•
|
Level 1 Inputs - quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date,
|
•
|
Level 2 Inputs - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability and
|
•
|
Level 3 Inputs - unobservable inputs for the asset or liability. These unobservable inputs reflect the entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances (which might include the reporting entity’s own data).
|
•
|
Investment in Quorum Labs, Inc. preferred stock - the Company is unable to estimate fair value for this stock due to the lack of a market for such stock as a private company.
|
•
|
Notes and interest receivable from the Company’s shareholder - given the short time to maturity the carrying value is a reasonable approximation of fair value.
|
Computers and equipment
|
3 to 5 years
|
Purchased software
|
3 years
|
Furniture and fixtures
|
5 to 7 years
|
Leasehold improvements
|
Shorter of estimated lives
|
|
of assets or lease term
|
Raw materials
|
$
|
1,598,833
|
|
Work in progress
|
1,002,846
|
|
|
Fabricated assemblies
|
1,501,107
|
|
|
Finished goods
|
2,224,716
|
|
|
Inventories
|
$
|
6,327,502
|
|
Computers and equipment
|
$
|
2,578,365
|
|
Purchased software
|
495,487
|
|
|
Furniture/fixtures
|
553,052
|
|
|
Leasehold improvements
|
379,193
|
|
|
Total
|
4,006,097
|
|
|
Less: accumulated depreciation
|
(3,755,328
|
)
|
|
|
$
|
250,769
|
|
Accrued payroll and related expenses
|
$
|
1,520,773
|
|
Accrued vacation
|
538,695
|
|
|
Accrued other expenses
|
131,673
|
|
|
Accrued sales taxes
|
11,326
|
|
|
Accrued commission
|
31,774
|
|
|
Accrued warranty
|
98,410
|
|
|
|
$
|
2,332,651
|
|
Current
|
|
||
Federal
|
$
|
1,268,725
|
|
State
|
37,867
|
|
|
Foreign
|
9,315
|
|
|
|
1,315,907
|
|
|
Deferred
|
|
||
Federal
|
615,231
|
|
|
State
|
238,353
|
|
|
|
853,584
|
|
|
|
$
|
2,169,491
|
|
Deferred income tax assets
|
|
||
Research and minimum tax credits
|
$
|
3,401,911
|
|
Net operating losses
|
126,135
|
|
|
Reserves and accruals not deductible for tax purposes
|
507,454
|
|
|
Deferred stock compensation
|
235,340
|
|
|
State income taxes
|
12,875
|
|
|
Total deferred income tax assets
|
$
|
4,283,715
|
|
Year ending December 31,
|
Amount
|
||
2017
|
$
|
575,803
|
|
2018
|
122,197
|
|
|
Total
|
$
|
698,000
|
|
Series
|
Shares Authorized
|
Shares Issued and
Outstanding
|
Liquidation Preference
per Share
|
Liquidation
Amount
|
A
|
500,000
|
202,019
|
$10.00
|
$ 2,020,190
|
B
|
6,000,000
|
4,772,500
|
$0.40
|
$ 1,909,000
|
|
|
|
|
|
|
||||
|
Shares
|
|
Weighted average exercise price
per share
|
|
Weighted average remaining contractual life
(in years)
|
||||
Outstanding at December 31, 2015
|
1,639,481
|
|
|
$
|
0.51
|
|
|
6.07
|
|
Options granted
|
56,500
|
|
|
0.78
|
|
|
9.50
|
|
|
Options exercised
|
(58,000
|
)
|
|
—
|
|
|
—
|
|
|
Options canceled/forfeited/expired
|
(30,000
|
)
|
|
—
|
|
|
—
|
|
|
Outstanding at December 31, 2016
|
1,607,981
|
|
|
$
|
0.53
|
|
|
5.52
|
|
Vested and exercisable at
December 31, 2016
|
1,200,855
|
|
|
$
|
0.52
|
|
|
4.51
|
|
Risk-free interest rate (1)
|
0.85%
|
Expected life (in years) (2)
|
10.00
|
Dividend yield (3)
|
0.00
|
Volatility (4)
|
7.69%
|
|
|
Mercury Systems, Inc.
|
|
Ceres Systems
|
|
Pro Forma Adjustments
|
|
Adjustment
|
|
Pro Forma Combined
|
||||||||
Assets
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Cash and cash equivalents
|
|
$
|
32,035
|
|
|
$
|
8,889
|
|
|
$
|
—
|
|
|
|
|
$
|
40,924
|
|
Accounts receivable, net
|
|
87,315
|
|
|
7,018
|
|
|
—
|
|
|
|
|
94,333
|
|
||||
Unbilled receivables and costs in excess of billings
|
|
35,655
|
|
|
—
|
|
|
—
|
|
|
|
|
35,655
|
|
||||
Inventory
|
|
105,912
|
|
|
6,024
|
|
|
1,547
|
|
|
A(2)
|
|
113,483
|
|
||||
Other current assets
|
|
7,985
|
|
|
3,658
|
|
|
1,185
|
|
|
A(3), A(7)
|
|
12,828
|
|
||||
Total current assets
|
|
268,902
|
|
|
25,589
|
|
|
2,732
|
|
|
|
|
297,223
|
|
||||
Property and equipment, net
|
|
51,640
|
|
|
456
|
|
|
—
|
|
|
|
|
52,096
|
|
||||
Goodwill
|
|
384,785
|
|
|
—
|
|
|
115,126
|
|
|
A(1)
|
|
499,911
|
|
||||
Intangible assets, net
|
|
120,672
|
|
|
—
|
|
|
67,880
|
|
|
A(4)
|
|
188,552
|
|
||||
Other non-current assets
|
|
9,817
|
|
|
4,140
|
|
|
(3,962
|
)
|
|
A(6), E(1)
|
|
9,995
|
|
||||
Total assets
|
|
$
|
835,816
|
|
|
$
|
30,185
|
|
|
$
|
181,776
|
|
|
|
|
$
|
1,047,777
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
||||||||
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Accounts payable
|
|
$
|
37,628
|
|
|
$
|
4,505
|
|
|
$
|
—
|
|
|
|
|
$
|
42,133
|
|
Other current liabilities
|
|
36,648
|
|
|
2,705
|
|
|
6,969
|
|
|
B(3)
|
|
46,322
|
|
||||
Total current liabilities
|
|
74,276
|
|
|
7,210
|
|
|
6,969
|
|
|
|
|
88,455
|
|
||||
Long-term debt
|
|
—
|
|
|
—
|
|
|
188,889
|
|
|
A(5)
|
|
188,889
|
|
||||
Other non-current liabilities
|
|
12,309
|
|
|
245
|
|
|
13,805
|
|
|
A(6), E(1)
|
|
26,359
|
|
||||
Total liabilities
|
|
86,585
|
|
|
7,455
|
|
|
209,663
|
|
|
|
|
303,703
|
|
||||
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Preferred stock
|
|
—
|
|
|
1,601
|
|
|
(1,601
|
)
|
|
A(7)
|
|
—
|
|
||||
Common stock
|
|
468
|
|
|
3,124
|
|
|
(3,124
|
)
|
|
A(7)
|
|
468
|
|
||||
Additional paid-in capital
|
|
581,534
|
|
|
—
|
|
|
—
|
|
|
|
|
581,534
|
|
||||
Retained earnings
|
|
166,171
|
|
|
18,005
|
|
|
(23,162
|
)
|
|
A(7), B(3)
|
|
161,014
|
|
||||
Accumulated other comprehensive income
|
|
1,058
|
|
|
—
|
|
|
—
|
|
|
|
|
1,058
|
|
||||
Total shareholders’ equity
|
|
749,231
|
|
|
22,730
|
|
|
(27,887
|
)
|
|
|
|
744,074
|
|
||||
Total liabilities and shareholders’ equity
|
|
$
|
835,816
|
|
|
$
|
30,185
|
|
|
$
|
181,776
|
|
|
|
|
$
|
1,047,777
|
|
|
|
Mercury Systems, Inc.
|
|
Ceres Systems
|
|
Pro Forma Adjustments
|
|
Adjustment
|
|
Pro Forma Combined
|
||||||||
Net revenues
|
|
$
|
223,981
|
|
|
$
|
31,316
|
|
|
$
|
—
|
|
|
|
|
$
|
255,297
|
|
Cost of revenues
|
|
119,147
|
|
|
18,001
|
|
|
(1,018
|
)
|
|
B(1)
|
|
136,130
|
|
||||
Gross margin
|
|
104,834
|
|
|
13,315
|
|
|
1,018
|
|
|
|
|
119,167
|
|
||||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Selling, general and administrative
|
|
41,790
|
|
|
11,201
|
|
|
(8,153
|
)
|
|
B(1)
|
|
44,838
|
|
||||
Research and development
|
|
28,929
|
|
|
3,159
|
|
|
(102
|
)
|
|
B(1)
|
|
31,986
|
|
||||
Amortization of intangible assets
|
|
11,464
|
|
|
—
|
|
|
4,061
|
|
|
C
|
|
15,525
|
|
||||
Other operating expenses
|
|
1,392
|
|
|
—
|
|
|
—
|
|
|
|
|
1,392
|
|
||||
Total operating expenses
|
|
83,575
|
|
|
14,360
|
|
|
(4,194
|
)
|
|
|
|
93,741
|
|
||||
Income (loss) from operations
|
|
21,259
|
|
|
(1,045
|
)
|
|
5,212
|
|
|
|
|
25,426
|
|
||||
Other expense, net
|
|
(1,219
|
)
|
|
(26
|
)
|
|
(2,696
|
)
|
|
D
|
|
(3,941
|
)
|
||||
Income (loss) before income taxes
|
|
20,040
|
|
|
(1,071
|
)
|
|
2,516
|
|
|
|
|
21,485
|
|
||||
Tax benefit
|
|
(7,046
|
)
|
|
(79
|
)
|
|
654
|
|
|
E(2)
|
|
(6,471
|
)
|
||||
Net income (loss)
|
|
$
|
27,086
|
|
|
$
|
(992
|
)
|
|
$
|
1,862
|
|
|
|
|
$
|
27,956
|
|
Basic net earnings per share
|
|
$
|
0.58
|
|
|
|
|
|
|
|
|
$
|
0.60
|
|
||||
Diluted net earnings per share
|
|
$
|
0.57
|
|
|
|
|
|
|
|
|
$
|
0.59
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||||||
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Basic
|
|
46,701
|
|
|
|
|
|
|
|
|
46,701
|
|
||||||
Diluted
|
|
47,538
|
|
|
|
|
|
|
|
|
47,538
|
|
|
|
Mercury Systems, Inc.
|
|
Ceres Systems
|
|
Pro Forma Adjustments
|
|
Adjustment
|
|
Pro Forma Combined
|
||||||||
Net revenues
|
|
$
|
408,588
|
|
|
$
|
46,414
|
|
|
$
|
—
|
|
|
|
|
$
|
455,002
|
|
Cost of revenues
|
|
217,045
|
|
|
26,401
|
|
|
—
|
|
|
|
|
243,446
|
|
||||
Gross margin
|
|
191,543
|
|
|
20,013
|
|
|
—
|
|
|
|
|
211,556
|
|
||||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Selling, general and administrative
|
|
76,491
|
|
|
7,140
|
|
|
(878
|
)
|
|
B(2)
|
|
82,753
|
|
||||
Research and development
|
|
54,086
|
|
|
4,586
|
|
|
—
|
|
|
|
|
58,672
|
|
||||
Amortization of intangible assets
|
|
19,680
|
|
|
—
|
|
|
8,121
|
|
|
C
|
|
27,801
|
|
||||
Other operating expenses
|
|
3,883
|
|
|
—
|
|
|
—
|
|
|
|
|
3,883
|
|
||||
Total operating expenses
|
|
154,140
|
|
|
11,726
|
|
|
7,243
|
|
|
|
|
173,109
|
|
||||
Income from operations
|
|
37,403
|
|
|
8,287
|
|
|
(7,243
|
)
|
|
|
|
38,447
|
|
||||
Other (expense) income, net
|
|
(6,335
|
)
|
|
81
|
|
|
(4,459
|
)
|
|
D
|
|
(10,713
|
)
|
||||
Income before income taxes
|
|
31,068
|
|
|
8,368
|
|
|
(11,702
|
)
|
|
|
|
27,734
|
|
||||
Tax expense
|
|
6,193
|
|
|
2,945
|
|
|
(4,681
|
)
|
|
E(2)
|
|
4,457
|
|
||||
Net income
|
|
$
|
24,875
|
|
|
$
|
5,423
|
|
|
$
|
(7,021
|
)
|
|
|
|
$
|
23,277
|
|
Basic net earnings per share
|
|
$
|
0.59
|
|
|
|
|
|
|
|
|
$
|
0.55
|
|
||||
Diluted net earnings per share
|
|
$
|
0.58
|
|
|
|
|
|
|
|
|
$
|
0.54
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||||||
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Basic
|
|
41,986
|
|
|
|
|
|
|
|
|
41,986
|
|
||||||
Diluted
|
|
43,018
|
|
|
|
|
|
|
|
|
43,018
|
|
(in thousands, except weighted average life information)
|
Intangible Amount Fair Value
|
|
Pro Forma Amortization Expense Year Ended June 30, 2017
|
|
Pro Forma Amortization Expense Six Months Ended December 31, 2017
|
|
Weighted Average Lives (Years)
|
||||||
Customer relationships
|
$
|
51,375
|
|
|
$
|
4,467
|
|
|
$
|
2,234
|
|
|
11.5
|
Backlog
|
$
|
2,185
|
|
|
2,185
|
|
|
1,093
|
|
|
1.0
|
||
Developed technology
|
$
|
14,320
|
|
|
1,469
|
|
|
734
|
|
|
9.8
|
||
Net amortization expense
|
|
|
$
|
8,121
|
|
|
$
|
4,061
|
|
|
|