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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

OR

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

FOR THE TRANSITION PERIOD FROM TO  

Commission file number: 001-37851

 

AIRGAIN, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

95-4523882

(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

 

 

 

3611 Valley Centre Drive, Suite 150

San Diego, CA

 

92130

(Address of Principal Executive Offices)

 

(Zip Code)

(760) 579-0200

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common shares, par value $0.0001 per share

AIRG

Nasdaq

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

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

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

 

As of May 4, 2021, the registrant had 10,536,756 shares of Common Stock (par value $0.0001) outstanding.

 

 


AIRGAIN, INC.

Form 10-Q

For the Quarter Ended March 31, 2021

 

 

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements (Unaudited)

 

Condensed Consolidated Balance Sheets

3

Condensed Consolidated Statements of Operations

4

Condensed Consolidated Statements of Comprehensive Income (Loss)

5

Condensed Consolidated Statements of Stockholders’ Equity

6

Condensed Consolidated Statements of Cash Flows

7

Notes to Condensed Consolidated Financial Statements

8

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

22

Item 3. Quantitative and Qualitative Disclosures about Market Risk

29

Item 4. Controls and Procedures

29

 

 

 

 

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

30

Item 1A. Risk Factors

30

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

31

Item 3. Defaults Upon Senior Securities

31

Item 4. Mine Safety Disclosures

31

Item 5. Other Information

31

Item 6. Exhibits

32

 

 

SIGNATURES

33

 

 

 

 

 


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Airgain, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except par value)

(Unaudited)

 

 

 

March 31, 2021

 

 

December 31, 2020

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,458

 

 

$

38,173

 

Trade accounts receivable

 

 

9,853

 

 

 

4,782

 

Inventory

 

 

2,409

 

 

 

1,016

 

Prepaid expenses and other current assets

 

 

1,953

 

 

 

1,462

 

Total current assets

 

 

35,673

 

 

 

45,433

 

Property and equipment, net

 

 

2,469

 

 

 

2,377

 

Leased right-of-use assets

 

 

3,340

 

 

 

 

Goodwill

 

 

10,845

 

 

 

3,700

 

Intangible assets, net

 

 

16,517

 

 

 

3,168

 

Other assets

 

 

517

 

 

 

249

 

Total assets

 

$

69,361

 

 

$

54,927

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

4,848

 

 

$

2,975

 

Accrued compensation

 

 

1,531

 

 

 

2,655

 

Accrued liabilities and other

 

 

2,145

 

 

 

1,187

 

Short-term lease liabilities

 

 

981

 

 

 

 

Current portion of deferred rent obligation under operating lease

 

 

 

 

 

39

 

Total current liabilities

 

 

9,505

 

 

 

6,856

 

Deferred purchase price liabilities

 

 

6,686

 

 

 

 

Deferred tax liability

 

 

86

 

 

 

58

 

Long-term lease liabilities

 

 

2,686

 

 

 

 

Deferred rent obligation under operating lease

 

 

 

 

 

271

 

Total liabilities

 

 

18,963

 

 

 

7,185

 

Commitments and contingencies (note 15)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock and additional paid-in capital, par value $0.0001, 200,000 shares authorized; 10,537 shares issued and 10,003 shares outstanding at March 31, 2021; and 10,318 shares issued and 9,784 shares outstanding at December 31, 2020

 

 

102,775

 

 

 

100,356

 

Treasury stock, at cost: 534 shares at March 31, 2021 and December 31, 2020.

 

 

(5,267

)

 

 

(5,267

)

Accumulated deficit

 

 

(47,110

)

 

 

(47,347

)

Total stockholders’ equity

 

 

50,398

 

 

 

47,742

 

Total liabilities and stockholders’ equity

 

$

69,361

 

 

$

54,927

 

 

See accompanying notes.

 

3


Airgain, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

 

 

 

 

Three months ended March 31,

 

 

2021

 

 

2020

 

Sales

$

17,377

 

 

$

11,216

 

Cost of goods sold

 

10,480

 

 

 

5,891

 

Gross profit

 

6,897

 

 

 

5,325

 

Operating expenses:

 

 

 

 

 

Research and development

 

2,706

 

 

 

2,418

 

Sales and marketing

 

2,439

 

 

 

1,539

 

General and administrative

 

3,633

 

 

 

2,678

 

Total operating expenses

 

8,778

 

 

 

6,635

 

Loss from operations

 

(1,881

)

 

 

(1,310

)

Other expense (income):

 

 

 

 

 

Interest income, net

 

(8

)

 

 

(124

)

Other expense

 

7

 

 

 

 

Total other income

 

(1

)

 

 

(124

)

Loss before income taxes

 

(1,880

)

 

 

(1,186

)

Provision (benefit) for income taxes

 

(2,117

)

 

 

16

 

Net income (loss)

$

237

 

 

$

(1,202

)

Net income (loss) per share:

 

 

 

 

 

Basic

$

0.02

 

 

$

(0.12

)

Diluted

$

0.02

 

 

$

(0.12

)

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

 

 

 

 

 

Basic

 

9,869

 

 

 

9,690

 

Diluted

 

10,839

 

 

 

9,690

 

 

 

See accompanying notes.

 

4


Airgain, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(Unaudited)

 

 

 

Three months ended March 31,

 

 

 

2021

 

 

2020

 

Net income (loss)

 

$

237

 

 

$

(1,202

)

Unrealized loss on available-for-sale securities, net of deferred taxes

 

 

 

 

 

(15

)

Comprehensive income (loss)

 

$

237

 

 

$

(1,217

)

 

See accompanying notes.

 

5


Airgain, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands)

(Unaudited)

 

 

 

Three months ended March 31,

 

 

 

2021

 

 

2020

 

Total stockholders' equity, beginning balance

 

$

47,742

 

 

$

47,904

 

 

 

 

 

 

 

 

Common stock and additional paid-in capital:

 

 

 

 

 

 

  Balance at beginning of period

 

 

100,356

 

 

 

96,623

 

   Stock-based compensation

 

 

928

 

 

 

668

 

Replacement awards issued in relation to acquisition

 

 

40

 

 

 

 

   Issuance of shares for stock purchase plan

 

 

1,451

 

 

 

70

 

  Balance at end of period

 

 

102,775

 

 

 

97,361

 

 

 

 

 

 

 

 

Treasury stock:

 

 

 

 

 

 

  Balance at beginning of period

 

 

(5,267

)

 

 

(4,659

)

    Repurchases of common stock

 

 

 

 

 

(190

)

  Balance at end of period

 

 

(5,267

)

 

 

(4,849

)

 

 

 

 

 

 

 

Accumulated other comprehensive income (loss):

 

 

 

 

 

 

  Balance at beginning of period

 

 

 

 

 

8

 

    Other comprehensive income (loss)

 

 

 

 

 

(15

)

  Balance at end of period

 

 

 

 

 

(7

)

 

 

 

 

 

 

 

Accumulated deficit:

 

 

 

 

 

 

  Balance at beginning of period

 

 

(47,347

)

 

 

(44,068

)

    Net income (loss)

 

 

237

 

 

 

(1,202

)

  Balance at end of period

 

 

(47,110

)

 

 

(45,270

)

 

 

 

 

 

 

 

Total stockholders' equity, ending balance

 

$

50,398

 

 

$

47,235

 

 

See accompanying notes.

 

6


Airgain, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

 

 

Three months ended March 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income (loss)

 

$

237

 

 

$

(1,202

)

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

 

 

 

 

 

 

Depreciation

 

 

131

 

 

 

122

 

Amortization of intangible assets

 

 

716

 

 

 

164

 

Amortization of premium (discounts) on investments, net

 

 

 

 

 

7

 

Stock-based compensation

 

 

928

 

 

 

668

 

Deferred tax liability

 

 

(2,302

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Trade accounts receivable

 

 

(3,944

)

 

 

640

 

Inventory

 

 

278

 

 

 

197

 

Prepaid expenses and other assets

 

 

(451

)

 

 

238

 

Other assets

 

 

27

 

 

 

 

Accounts payable

 

 

1,179

 

 

 

(291

)

Accrued compensation

 

 

(1,263

)

 

 

(1,356

)

Accrued liabilities and other

 

 

527

 

 

 

(44

)

Lease liabilities

 

 

17

 

 

 

 

Deferred obligation under operating lease

 

 

 

 

 

(45

)

Net cash used in operating activities

 

 

(3,920

)

 

 

(902

)

Cash flows from investing activities:

 

 

 

 

 

 

Cash paid for acquisition, net of cash acquired

 

 

(14,185

)

 

 

 

Purchases of available-for-sale securities

 

 

 

 

 

(752

)

Maturities of available-for-sale securities

 

 

 

 

 

11,400

 

Purchases of property and equipment

 

 

(61

)

 

 

(115

)

Net cash provided by (used in) investing activities

 

 

(14,246

)

 

 

10,533

 

Cash flows from financing activities:

 

 

 

 

 

 

Repurchases of common stock

 

 

 

 

 

(190

)

Proceeds from issuance of common stock, net

 

 

1,451

 

 

 

70

 

Net cash provided by (used in) financing activities

 

 

1,451

 

 

 

(120

)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

(16,715

)

 

 

9,511

 

Cash, cash equivalents, and restricted cash; beginning of period

 

 

38,348

 

 

 

13,197

 

Cash, cash equivalents, and restricted cash; end of period

 

$

21,633

 

 

$

22,708

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Taxes paid

 

$

38

 

 

$

22

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

Right-of-use assets recorded upon adoption of ASC 842

 

$

3,199

 

 

$

 

Leased liabilities recorded upon adoption of ASC 842

 

$

3,519

 

 

$

 

Accrual of property and equipment

 

$

13

 

 

$

21

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,458

 

 

$

22,533

 

Restricted cash included in other assets

 

 

175

 

 

 

175

 

Total cash, cash equivalents, and restricted cash

 

$

21,633

 

 

$

22,708

 

 

See accompanying notes.

 

7


Airgain, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 1. Description of Business and Basis of Presentation

 

Description of Business

 

Airgain, Inc. (the Company) was incorporated in the State of California on March 20, 1995; and reincorporated in the State of Delaware on August 15, 2016. The Company is a leading provider of advanced wireless connectivity solutions and technologies used to enable high performance wireless networking across a broad range of markets, including consumer, enterprise and automotive. The Company's technologies are deployed in carrier, fleet, enterprise, residential, private, government, and public safety wireless networks and systems, including set-top boxes, access points, routers, modems, gateways, media adapters, portables, digital televisions, sensors, fleet, and asset tracking devices. The Company provides its solutions to the residential wireless local area networking, also known as WLAN, market, supplying to leading carriers, original equipment manufacturers, or OEMs, original design manufacturers, or ODMs, and chipset manufacturers. The Company’s headquarters is in San Diego, California with office space and research, design and test facilities in the United States, United Kingdom, China, and Taiwan.

 

Basis of Presentation and Principles of Consolidation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Interim financial results are not necessarily indicative of results anticipated for the full year. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, from which the balance sheet information herein was derived. The Condensed Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiary. All intercompany transactions and investments have been eliminated in consolidation.

 

On January 7, 2021, the Company acquired all of the outstanding stock of NimbeLink Corp., a Delaware corporation (NimbeLink),

for an upfront cash purchase price of approximately $15.0 million, subject to working capital and other customary adjustments of approximately $1.0 million as well as $0.7 million in deferred cash payments due to the seller fifteen months after the close of the transaction. In addition, NimbeLink’s former security holders may receive up to $8.0 million in additional consideration, subject to the acquired business's achievement of certain revenue targets in 2021. The transaction was recorded using the purchase method of accounting; accordingly, the results of NimbeLink are included in the Company’s condensed consolidated statements of operations and cash flows for the period subsequent to its acquisition.

 

The unaudited condensed balance sheet as of December 31, 2020, included herein was derived from the audited financial statements as of that date but does not include all disclosures including notes required by GAAP.

 

The unaudited condensed consolidated statements of operations for the three months ended March 31, 2021 and 2020, and the consolidated balance sheet data as of March 31, 2021, have been prepared on the same basis as the audited financial statements.

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal and recurring adjustments, necessary for a fair presentation of results of the Company’s operations and financial position for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2021, or for any future period.

 

Segment Information

 

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

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial

8


statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Reclassifications

 

Certain amounts in the prior year financial statements have been reclassified to conform to the presentation of the current year financial statements including reclassification of accrued vacation, accrued payroll and other payroll accrual balances from accrued liabilities and other to accrued compensation resulting in changes to the comparative condensed consolidated statement of cash flows.

 

Note 2. Summary of Significant Accounting Policies

 

During the three months ended March 31, 2021, there have been no material changes to the Company’s significant accounting policies as described in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020, with the exception of the Company's adoption of ASC 842, Leases as discussed below.

 

Restricted Cash

 

As of March 31, 2021, the Company has $0.2 million in cash on deposit to secure certain lease commitments. Restricted cash is recorded in Other assets in the Company’s balance sheet.

 

Trade Accounts Receivable

 

Trade accounts receivable is adjusted for all known uncollectible accounts. The policy for determining when receivables are past due or delinquent is based on the contractual terms agreed upon. Accounts are written off once all collection efforts have been exhausted. An allowance for doubtful accounts is established when, in the opinion of management, collection of the account is doubtful. No allowance for doubtful accounts was recorded as of March 31, 2021 and December 31, 2020.

 

Inventory

 

The majority of the Company’s products are manufactured by third parties that retain ownership of the inventory until title is transferred to the customer at the shipping point. In certain instances, shipping terms are delivery at place and the Company is responsible for arranging transportation and delivery of goods ready for unloading at the named place. In those instances, the Company bears all risk involved in bringing the goods to the named place and records the related inventory in transit to the customer as inventory on the accompanying balance sheet. The Company also manufactures certain of its products at its facility located in Scottsdale, Arizona.

 

Inventory is stated at the lower of cost or net realizable value. For items manufactured by the Company, cost is determined using the weighted average cost method. For items manufactured by third parties, cost is determined using the first-in, first-out (FIFO) method. Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period. As of March 31, 2021, the Company’s inventories consist of raw materials of $1.5 million and finished goods of $0.9 million as of March 31, 2021. As of December 31, 2020, inventories consisted of raw materials of $0.8 million and finished goods of $0.2 million, respectively. Provisions for excess and obsolete inventories are estimated based on product life cycles, quality issues, and historical experience and were $10,000 as of March 31, 2021 and December 31, 2020.

 

Fair Value Measurements

 

The carrying values of the Company’s financial instruments, including cash, trade accounts receivable, accounts payable, and accrued liabilities approximate their fair values due to the short maturity of these instruments. Fair value measurements are market-based measurements, not entity-specific measurements. Therefore, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. The Company follows a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values. The basis for fair value measurements for each level within the hierarchy is described below: 

Level 1: Quoted prices in active markets for identical assets or liabilities
Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
Level 3: Valuations derived from valuation techniques in which one or more significant inputs are unobservable in active markets.

 

9


 

Business Combinations

 

The Company applies the provisions of Accounting Standards Codification (ASC) 805, Business Combinations, in accounting for its acquisitions. It requires the Company to recognize separately from goodwill the assets acquired and the liabilities assumed, at the acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the acquisition date fair values of the net assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, as well as the contingent consideration, where applicable, its estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.

 

In addition, uncertain tax positions and tax-related valuation allowances assumed, if any, in connection with a business combination are initially estimated as of the acquisition date. The Company re-evaluates these items quarterly based upon facts and circumstances that existed as of the acquisition date with any adjustments to the preliminary estimates being recorded to goodwill if identified within the measurement period. Subsequent to the end of the measurement period or final determination of the estimated value of the tax allowance or contingency, whichever comes first, changes to these uncertain tax positions and tax related valuation allowances will affect the income tax provision (benefit) in the consolidated statements of operations and could have a material impact on the results of operations and financial position.

 

Revenue Recognition

 

Effective January 1, 2019, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, and the related amendments, which are codified into ASC 606, Revenue from Contracts with Customers, using the modified retrospective method. The Company generates revenue mainly from the sale of wireless connectivity solutions and technologies. A portion of revenue is generated from service agreements and data subscription plans with certain customers. The revenue generated from service contracts and data subscription plans is insignificant. The Company recognizes revenue to depict the transfer of control of the promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled for those goods or services. Control passes to the customers either when the products are shipped to or received by the customer, based on the terms of the specific agreement with the customer. Revenue from Nimbelink's data subscription plans is recognized over the period of the subscription.

 

The Company records revenue based on a five-step model in accordance with ASC 606 whereby the company (i) identifies the contract(s) with the customer, (ii) identifies the performance obligations in the contract, (iii) determines the transaction price, (iv) allocates the transaction price to the performance obligation(s) in the contract and (v) recognizes the revenue when (as) the entity satisfies performance obligations. The Company only applies the five-step model when it is probable that the entity will collect substantially all of the consideration it is entitled to in exchange for the goods or services it transfers to the customer. 

 

For product sales, each purchase order, along with existing customer agreements, when applicable, represents a contract from a customer and each product sold represents a distinct performance obligation. The contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of the Company’s revenue is recognized on a “point-in-time” basis when control passes to the customer. The revenue from service contracts and data subscription plans is recognized “over time”. A portion of the Company’s sales is made through distributors under agreements which allow for pricing credits and/or rights of return under certain circumstances. The Company has recorded a $0.2 million reserve, in accrued and other liabilities as of March 31, 2021, for potential rights of return from distributors.

 

The Company’s contracts with customers do not typically include extended payment terms. Payment terms vary by contract and type of customer and generally range from 30 to 120 days from delivery. The Company provides assurance-type warranties on all product sales ranging from one to two years. The Company accrues for the estimated warranty costs at the time of sale based on historical warranty experience plus any known or expected changes in warranty exposure. Warranty costs including replacement costs for product failures in the field under warranty have been insignificant; accordingly, our warranty reserve is insignificant.

 

Although customers may place orders for products that are delivered on multiple dates in different quarterly reporting periods; all of the orders are normally scheduled within one year from the order date. The Company has opted to not disclose the portion of revenues allocated to partially unsatisfied performance obligations, which represent products to be shipped within 12 months under open customer purchase orders, at the end of the current reporting period as allowed under ASC 606. The Company has also elected to record sales commissions when incurred, pursuant to the practical expedient under ASC 340, as the period over which the sales commission asset that would have been recognized is less than one year. Shipping and handling costs are immaterial and reported in in operating expenses in the condensed consolidated statement of operations.

10


 

There were no contract assets as of March 31, 2021 and December 31, 2020. As of March 31, 2021 and December 31, 2020, the Company recorded $52,000 and $19,000 of contract liabilities, respectively.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize most leases on their balance sheets as lease liabilities, representing a liability to make lease payments, and corresponding right-of-use assets representing its right to use the underlying asset. The Company adopted the new accounting standard using the modified retrospective transition option as of the effective date on January 1, 2021. The adoption of this standard had a material impact on the Company's condensed consolidated balance sheets. The adoption did not have an impact on the Company's consolidated statements of operations.

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in the ASU include removing exceptions to incremental intraperiod tax allocation of losses and gains from different financial statement components, exceptions to the method of recognizing income taxes on interim period losses, and exceptions to deferred tax liability recognition related to foreign subsidiary investments. In addition, the ASU requires that entities recognize franchise tax based on an incremental method and requires an entity to evaluate the accounting for step-ups in the tax basis of goodwill as inside or outside of a business combination. Based on the Company’s emerging growth company status the amendments in the ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The Company has adopted this standard as of January 1, 2021. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. In December 2019, the FASB issued ASU 2019-10, Effective Dates which updated the effective dates of adoption of ASU 2016-13. ASU 2016-13 is effective, for Smaller Reporting Companies, for annual and interim periods in fiscal years beginning after December 15, 2022. Companies are required to adopt the standard using a modified retrospective adoption method. The Company continues to evaluate the impact of the standard on its consolidated financial statements.

In May 2019, the FASB issued ASU 2019-05, Financial Instruments-Credit Losses (Topic 326), Targeted Transition Relief, which provides entities that have certain instruments within the scope of ASC 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost, with an option to irrevocably elect the fair value option for eligible instruments. The effective date and transition methodology for this standard are the same as in ASU 2016-13. The Company continues to evaluate the impact of the standard on its consolidated financial statements.

 

Note 3. Net Income (Loss) Per Share

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

The following table presents the computation of net income (loss) per share (in thousands except per share data):

 

 

 

Three months ended March 31,

 

 

 

2021

 

 

2020

 

Numerator:

 

 

 

 

 

 

Net income (loss)

 

$

237

 

 

$

(1,202

)

Denominator:

 

 

 

 

 

 

Weighted average common shares outstanding - basic

 

 

9,869

 

 

 

9,690

 

Plus dilutive effect of potential common shares

 

 

970

 

 

 

 

Weighted average common shares outstanding - diluted

 

 

10,839

 

 

 

9,690

 

Net income (loss) per share:

 

 

 

 

 

 

Basic

 

$

0.02

 

 

$

(0.12

)

Diluted

 

$

0.02

 

 

$

(0.12

)

 

11


Diluted weighted average common shares outstanding for the three months ended March 31, 2021 includes 25,201 warrants and 945,032 options.

 

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

 

 

 

Three months ended March 31,

 

 

 

2021

 

 

2020

 

Stock options and restricted stock

 

 

371

 

 

 

1,211

 

Warrants outstanding

 

 

 

 

 

51

 

Total

 

 

371

 

 

 

1,262

 

 

Note 4. Business Combinations

 

On January 7, 2021, the Company entered into a Stock Purchase Agreement, by and among the Company, NimbeLink, the sellers set forth therein (the Sellers) and Scott Schwalbe in his capacity as seller representative (the Purchase Agreement).  NimbeLink is an industrial Internet of Things (IIoT) company focused on the design, development and delivery of edge-based cellular connectivity solutions for enterprise customers. The acquisition of NimbeLink supports the Company's transition toward becoming a more system-level company and will play an important role in the Company's overall growth strategy to broaden market diversification, especially within the IIoT space.

 

Pursuant to the Purchase Agreement, at the closing on January 7, 2021, the Company acquired all of the outstanding stock of NimbeLink for an upfront cash purchase price of approximately $15.0 million, subject to working capital and other customary adjustments of $1.0 million and $0.7 million in deferred cash payments due to the Sellers fifteen months after the close of the transaction. In addition, NimbeLink’s former security holders may receive up to $8.0 million in contingent consideration, subject to the acquired business's achievement of certain revenue targets in 2021. The Company assumed unvested common stock options of continuing employees and service providers.

 

Acquisition Consideration

 

The following table summarizes the fair value of purchase consideration to acquire NimbeLink (in thousands):

 

Fair value of purchase consideration

 

 

 

Cash

 

$

15,991

 

Deferred payments(1)

 

 

728

 

Contingent consideration(2)

 

 

5,986

 

Replacement options(3)

 

 

40

 

Total purchase consideration

 

$

22,745

 

 

(1) The fair value of the holdback payment was determined by discounting to present value, payments totaling $/0.7 million expected to be made to NimbeLink fifteen months after the close of the transaction.

(2) The fair value of contingent consideration is based on applying the Monte Carlo simulation method to forecast achievement under various contingent consideration events which may result in up to $8 million in payments subject to the acquired business’s satisfying certain revenue targets in 2021. Key inputs in the valuation include forecasted revenue, revenue volatility and discount rate. Underlying forecast mathematics were based on Geometric Brownian Motion in a risk-neutral framework and discounted back to the applicable period in which the accumulative thresholds were achieved at discount rates commensurate with the risk and expected payout term of the contingent consideration.

(3) Represents the pre-combination stock compensation expense for replacement options issued to NimbeLink employees.

 

12


Preliminary Purchase Price Allocation

 

The following is an allocation of purchase price as of the January 7, 2021 closing date based upon a preliminary estimate of the fair value of the assets acquired and liabilities assumed by the Company in the acquisition (in thousands):

 

Purchase price allocation

 

 

 

Cash

 

$

1,806

 

Accounts receivable

 

 

1,127

 

Inventory

 

 

1,671

 

Prepaids and other current assets

 

 

141

 

Property and equipment

 

 

151

 

Right of use assets

 

 

402

 

Other assets

 

 

194

 

Identified intangible assets

 

 

14,065

 

Accounts payable

 

 

(654

)

Accrued compensation

 

 

(139

)

Accrued expenses and other current liabilities

 

 

(432

)

Short-term lease liabilities

 

 

(78

)

Long-term lease liabilities

 

 

(324

)

Deferred tax liabilities

 

 

(2,330

)

Identifiable net assets acquired

 

 

15,600

 

Goodwill

 

 

7,145

 

Total purchase price

 

$

22,745

 

The following is a summary of identifiable intangible assets acquired and the related expected lives for the finite-lived intangible assets (in thousands):

Category

Estimated
Life
in Years

Fair value

 

Finite-lived intangible assets

 

 

 

Market-related intangibles

5

$

1,700

 

Customer relationships

5

 

8,950

 

Developed technology

12

 

2,600

 

Covenants to non-compete

2

 

115

 

Indefinite-lived intangible assets

 

 

 

In-process research and development

N/A

 

700

 

Total identifiable intangible assets acquired

 

$

14,065

 

 

Assumptions in the Allocations of Purchase Price

 

Management prepared the purchase price allocations and in doing so considered or relied in part upon reports of a third party valuation expert to calculate the fair value of certain acquired assets, which primarily included identifiable intangible assets and inventory, and the portions of the purchase consideration expected to be paid to NimbeLink securityholders in the future, as described above. Certain NimbeLink securityholders that are employees are not required to remain employed in order to receive the deferred payments and contingent consideration; accordingly, the fair value of the deferred payments and contingent consideration have been accounted for as a portion of the purchase consideration.


Estimates of fair value require management to make significant estimates and assumptions which are preliminary and subject to change upon finalization of the valuation analysis. The goodwill recognized is attributable primarily to the acquired workforce, expected synergies, and other benefits that the Company believes will result from integrating the operations of the NimbeLink business with the operations of the Company. Certain liabilities included in the purchase price allocations are based on management’s best estimates of the amounts to be paid or settled and based on information available at the time the purchase price allocations were prepared. Updates to and/or completion of the valuations of certain assets acquired and liabilities assumed and our evaluation of certain income tax positions may result in changes to the recorded amounts of assets and liabilities, with corresponding adjustments to goodwill amounts in subsequent periods. We expect to complete the purchase price allocations within 12 months of the respective acquisition dates.

 

The fair value of the customer relationships was determined using the multi-period excess earnings method, or MPEEM. MPEEM estimates the value of an intangible asset by quantifying the amount of residual (or excess) cash flows generated by the asset, and

13


discounting those cash flows to the present. Future cash flows for contractual and non-contractual customers were estimated based on forecasted revenue and costs, taking into account the growth rates and contributory charges. The fair value of market-related intangible assets, developed technology, and in-process research and development (IPR&D) was determined using the Relief from Royalty Method. The Relief-from-Royalty method is a specific application of the discounted-cash-flow method, which is a form of the income approach. It is based on the principle that ownership of the intangible asset relieves the owner of the need to pay a royalty to another party in exchange for rights to use the asset. Key assumptions to estimate the hypothetical royalty rate include observable royalty rates, which are royalty rates in negotiated licenses and market-based royalty rates which are royalty rates found in available market data for licenses involving similar assets. Developed technology will begin amortization immediately and IPR&D will begin amortization upon the completion of each project. If any of the projects are abandoned, the Company will be required to impair the related IPR&D asset. The fair value of non-compete intangible assets was estimated using the with-or-without method. The with-and-without method estimates the value of an intangible asset by quantifying the loss of economic profits under a hypothetical condition where only the subject intangible does not exist and needs to be re-created. Projected revenues, operating expenses and cash flows are calculated in each "with" and "without" scenario and the difference in the cash flow is discounted to present value. Inventory was valued at net realizable value. Raw materials were valued at book value and finished goods were valued assuming hypothetical revenues from finished goods adjusted for disposal costs, profit attributable to the seller and holding costs. An inventory step-up of $0.4 million is included in the purchase price allocation above.

 

The Company assumed liabilities in the acquisition which primarily consist of accrued employee compensation and certain operating liabilities. The liabilities assumed in these acquisitions are included in the respective purchase price allocations above.


Goodwill recorded in connection with the NimbeLink acquisition was $
7.1 million. The Company does not expect to deduct any of the acquired goodwill for tax purposes.

 

Supplemental proforma financial information

 

The following unaudited pro forma financial information presents the combined results of operations for each of the periods presented as if the NimbeLink acquisition had occurred at the beginning of 2020 (in thousands):

 

 

Three months ended March 31,

 

 

2021

 

 

2020

 

Net revenue - pro forma combined

$

17,409

 

 

$

15,946

 

Net loss - pro forma combined

 

236

 

 

 

(1,324

)

 

The following adjustments were included in the unaudited pro forma combined net revenues (in thousands):

 

 

Three months ended March 31,

 

 

2021

 

 

2020

 

Net revenue

$

17,377

 

 

$

11,216

 

Add: Net revenue - acquired businesses

 

32

 

 

 

4,730

 

Net revenues - pro-forma combined

$

17,409

 

 

$

15,946

 

 

The following adjustments were included in the unaudited pro forma combined net income (loss) (in thousands):

 

 

Three months ended March 31,

 

 

2021

 

 

2020

 

Net income (loss)

$

237

 

 

$

(1,202

)

Add: Results of operations of acquired business

 

(310

)

 

 

771

 

Less: pro forma adjustments

 

 

 

 

 

Amortization of historical intangibles

 

 

 

 

24

 

Amortization of acquired intangibles

 

(38

)

 

 

(587

)

Inventory fair value adjustments

 

353

 

 

 

(353

)

Interest income

 

(6

)

 

 

 

Interest expense

 

 

 

 

23

 

Net loss - pro forma combined

$

236

 

 

$

(1,324

)

 

 

 

 

 

 

 

The unaudited pro forma financial information has been adjusted to reflect the amortization expense for acquired intangibles, removal of historical intangible asset amortization and recognition of expense associated with the step-up of inventory.

 

14


The pro forma data is presented for illustrative purposes only, and the historical results of NimbeLink are based on its books and records prior to the acquisition, and is not necessarily indicative of the consolidated results of operations of the combined business had the acquisition actually occurred at the beginning of fiscal year 2020. In addition, future results may vary significantly from the pro forma results reflected herein and should not be relied upon as an indication of the results of future operations of the combined business. The unaudited pro forma financial information does not reflect any operating efficiencies and cost savings that may be realized from the integration of the acquired entity. For the three months ended March 31, 2021, $3.2 million of revenue and $0.2 million of net loss included in the Company's condensed consolidated statements of operations was related to NimbeLink. The Company does not consider the revenue and net loss related to the acquired entity to be indicative of results of the acquisition due to integration activities since the acquisition date.

 

Also see Note 7, Goodwill and Intangible Assets for further information on goodwill and intangible assets related to the NimbeLink acquisition.
 

Note 5. Cash and Cash Equivalents

The following tables show the Company’s cash and cash equivalents by significant investment category as of March 31, 2021 and December 31, 2020 (in thousands):

 

 

March 31, 2021

 

 

 

Amortized cost

 

 

Gross unrealized gains

 

 

Gross unrealized losses

 

 

Estimated fair value

 

 

Cash and cash equivalents

 

Cash

 

$

5,411

 

 

$

 

 

$

 

 

$

5,411

 

 

$

5,411

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 1:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

 

16,047

 

 

 

 

 

 

 

 

 

16,047

 

 

 

16,047

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

21,458

 

 

$

 

 

$

 

 

$

21,458

 

 

$

21,458

 

 

 

 

December 31, 2020

 

 

 

Amortized cost

 

 

Gross unrealized gains

 

 

Gross unrealized losses

 

 

Estimated fair value

 

 

Cash and cash equivalents

 

Cash

 

$

2,779

 

 

$

 

 

$

 

 

$

2,779

 

 

$

2,779

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 1:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

 

35,394

 

 

 

 

 

 

 

 

 

35,394

 

 

 

35,394

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

38,173

 

 

$

 

 

$

 

 

$

38,173

 

 

$

38,173

 

 

Note 6. Property and Equipment

Depreciation and amortization of property and equipment is calculated on the straight-line method based on the shorter of the estimated useful life or the term of the lease for tenant improvements and three to fifteen years for all other property and equipment. Property and equipment consist of the following (in thousands):

 

 

March 31, 2021

 

 

December 31, 2020

 

Computers and software

 

$

607

 

 

$

596

 

Furniture, fixtures, and equipment

 

 

400

 

 

 

400

 

Manufacturing and testing equipment

 

 

4,184

 

 

 

3,874

 

Construction in process

 

 

22

 

 

 

120

 

Leasehold improvements

 

 

932

 

 

 

932

 

Property and equipment, gross

 

 

6,145

 

 

 

5,922

 

Less accumulated depreciation

 

 

(3,676

)

 

 

(3,545

)

Property and equipment, net

 

$

2,469

 

 

$

2,377

 

 

Depreciation expense was $0.1 million for the three months ended March 31, 2021 and 2020, respectively.

 

Note 7. Goodwill and Intangible Assets

 

The change in the carrying amount of goodwill during the three months ended March 31, 2021 is as follows (in thousands):

 

Goodwill as of December 31, 2020

 

$

3,700

 

Goodwill from NimbeLink acquisition

 

 

7,145

 

Goodwill as of March 31, 2021

 

$

10,845

 

 

15


The following is a summary of the Company’s acquired intangible assets (dollars in thousands):

 

 

Weighted
average
amortization
period (years)

 

Gross
carrying
amount

 

 

Accumulated
amortization

 

 

Intangibles, net

 

March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

Market related intangibles

 

5

 

$

1,700

 

 

$

80

 

 

$

1,620

 

Customer relationships

 

7

 

 

13,780

 

 

 

2,743

 

 

 

11,037

 

Developed technologies

 

11

 

 

3,680

 

 

 

622

 

 

 

3,058

 

In process research and development

 

N/A

 

 

700

 

 

 

 

 

 

700

 

Covenants to non-compete

 

2

 

 

115

 

 

 

13

 

 

 

102

 

Tradenames

 

4

 

 

120

 

 

 

120

 

 

 

 

Total intangible assets, net

 

 

 

$

20,095

 

 

$

3,578

 

 

$

16,517

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

10

 

$

4,830

 

 

$

2,203

 

 

$

2,627

 

Developed technologies

 

9

 

 

1,080

 

 

 

539

 

 

 

541

 

Tradename

 

3

 

 

120

 

 

 

120

 

 

 

 

Total intangible assets, net

 

 

 

$

6,030

 

 

$

2,862

 

 

$

3,168

 

The estimated annual amortization of intangible assets for the next five years and thereafter is shown in the following table (in thousands):

 

 

Estimated future amortization

 

2021 (remaining nine months)

 

$

2,286

 

2022

 

 

3,026

 

2023