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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 JUNE 30, 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 stock, par value $0.0001 per share

AIRG

Nasdaq Capital Market

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 August 6, 2021, the registrant had 10,077,914 shares of common stock (par value $0.0001) outstanding.

 

 


AIRGAIN, INC.

Form 10-Q

For the Quarter Ended June 30, 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 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

30

 

 

 

 

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

32

Item 3. Defaults Upon Senior Securities

32

Item 4. Mine Safety Disclosures

32

Item 5. Other Information

32

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)

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

20,240

 

 

$

38,173

 

Trade accounts receivable

 

 

11,644

 

 

 

4,782

 

Inventory

 

 

4,549

 

 

 

1,016

 

Prepaid expenses and other current assets

 

 

1,767

 

 

 

1,462

 

Total current assets

 

 

38,200

 

 

 

45,433

 

Property and equipment, net

 

 

2,771

 

 

 

2,377

 

Leased right-of-use assets

 

 

3,081

 

 

 

 

Goodwill

 

 

10,845

 

 

 

3,700

 

Intangible assets, net

 

 

15,750

 

 

 

3,168

 

Other assets

 

 

496

 

 

 

249

 

Total assets

 

$

71,143

 

 

$

54,927

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

6,105

 

 

$

2,975

 

Accrued compensation

 

 

1,923

 

 

 

2,655

 

Accrued liabilities and other

 

 

1,836

 

 

 

1,187

 

Short-term lease liabilities

 

 

883

 

 

 

 

Deferred purchase price liabilities

 

 

8,243

 

 

 

 

Current portion of deferred rent obligation under operating lease

 

 

 

 

 

39

 

Total current liabilities

 

 

18,990

 

 

 

6,856

 

Deferred tax liability

 

 

97

 

 

 

58

 

Long-term lease liabilities

 

 

2,470

 

 

 

 

Deferred rent obligation under operating lease

 

 

 

 

 

271

 

Total liabilities

 

 

21,557

 

 

 

7,185

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock and additional paid-in capital, par value $0.0001, 200,000 shares authorized; 10,612 shares issued and 10,077 shares outstanding at June 30, 2021; and 10,318 shares issued and 9,784 shares outstanding at December 31, 2020

 

 

104,572

 

 

 

100,356

 

Treasury stock, at cost: 534 shares at June 30, 2021 and December 31, 2020.

 

 

(5,267

)

 

 

(5,267

)

Accumulated deficit

 

 

(49,719

)

 

 

(47,347

)

Total stockholders’ equity

 

 

49,586

 

 

 

47,742

 

Total liabilities and stockholders’ equity

 

$

71,143

 

 

$

54,927

 

 

See accompanying notes.

 

3


Airgain, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

 

 

 

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Sales

 

$

17,297

 

 

$

11,446

 

 

$

34,674

 

 

$

22,662

 

Cost of goods sold

 

 

9,998

 

 

 

6,052

 

 

 

20,478

 

 

 

11,943

 

Gross profit

 

 

7,299

 

 

 

5,394

 

 

 

14,196

 

 

 

10,719

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

2,726

 

 

 

2,224

 

 

 

5,432

 

 

 

4,642

 

Sales and marketing

 

 

2,489

 

 

 

1,379

 

 

 

4,928

 

 

 

2,918

 

General and administrative

 

 

3,261

 

 

 

2,389

 

 

 

6,894

 

 

 

5,067

 

Change in fair value of contingent consideration

 

 

1,557

 

 

 

 

 

 

1,557

 

 

 

 

Total operating expenses

 

 

10,033

 

 

 

5,992

 

 

 

18,811

 

 

 

12,627

 

Loss from operations

 

 

(2,734

)

 

 

(598

)

 

 

(4,615

)

 

 

(1,908

)

Other expense (income):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income, net

 

 

(7

)

 

 

(47

)

 

 

(15

)

 

 

(171

)

Other expense

 

 

9

 

 

 

11

 

 

 

16

 

 

 

11

 

Total other expense (income)

 

 

2

 

 

 

(36

)

 

 

1

 

 

 

(160

)

Loss before income taxes

 

 

(2,736

)

 

 

(562

)

 

 

(4,616

)

 

 

(1,748

)

Provision (benefit) for income taxes

 

 

(127

)

 

 

174

 

 

 

(2,244

)

 

 

190

 

Net loss

 

$

(2,609

)

 

$

(736

)

 

$

(2,372

)

 

$

(1,938

)

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.26

)

 

$

(0.08

)

 

$

(0.24

)

 

$

(0.20

)

Diluted

 

$

(0.26

)

 

$

(0.08

)

 

$

(0.24

)

 

$

(0.20

)

Weighted average shares used in calculating loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

10,026

 

 

 

9,683

 

 

 

9,948

 

 

 

9,686

 

Diluted

 

 

10,026

 

 

 

9,683

 

 

 

9,948

 

 

 

9,686

 

 

 

See accompanying notes.

 

4


Airgain, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)

 

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net loss

 

$

(2,609

)

 

$

(736

)

 

$

(2,372

)

 

$

(1,938

)

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

 

 

 

 

 

23

 

 

 

 

 

 

8

 

Comprehensive loss

 

$

(2,609

)

 

$

(713

)

 

$

(2,372

)

 

$

(1,930

)

 

See accompanying notes.

 

5


Airgain, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands)

(Unaudited)

 

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Total stockholders' equity, beginning balance

 

$

50,398

 

 

$

47,235

 

 

$

47,742

 

 

$

47,904

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock and additional paid-in capital:

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

102,775

 

 

 

97,361

 

 

 

100,356

 

 

 

96,623

 

Stock-based compensation

 

 

1,008

 

 

 

654

 

 

 

1,936

 

 

 

1,322

 

Replacement awards issued in relation to acquisition

 

 

 

 

 

 

 

 

40

 

 

 

 

Issuance of shares for stock purchase plan

 

 

789

 

 

 

21

 

 

 

2,240

 

 

 

91

 

Balance at end of period

 

 

104,572

 

 

 

98,036

 

 

 

104,572

 

 

 

98,036

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury stock:

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

(5,267

)

 

 

(4,849

)

 

 

(5,267

)

 

 

(4,659

)

Repurchases of common stock

 

 

 

 

 

(418

)

 

 

 

 

 

(608

)

Balance at end of period

 

 

(5,267

)

 

 

(5,267

)

 

 

(5,267

)

 

 

(5,267

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

 

 

 

(7

)

 

 

 

 

 

8

 

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

 

 

 

 

 

23

 

 

 

 

 

 

8

 

Balance at end of period

 

 

 

 

 

16

 

 

 

 

 

 

16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated deficit:

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

(47,110

)

 

 

(45,270

)

 

 

(47,347

)

 

 

(44,068

)

Net loss

 

 

(2,609

)

 

 

(736

)

 

 

(2,372

)

 

 

(1,938

)

Balance at end of period

 

 

(49,719

)

 

 

(46,006

)

 

 

(49,719

)

 

 

(46,006

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders' equity, ending balance

 

$

49,586

 

 

$

46,779

 

 

$

49,586

 

 

$

46,779

 

 

See accompanying notes.

 

6


Airgain, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

 

 

Six months ended June 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(2,372

)

 

$

(1,938

)

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

 

 

 

 

 

 

Depreciation

 

 

258

 

 

 

242

 

Loss on disposal of property and equipment

 

 

 

 

 

11

 

Amortization of intangible assets

 

 

1,483

 

 

 

322

 

Amortization of premium on investments, net

 

 

 

 

 

27

 

Stock-based compensation

 

 

1,936

 

 

 

1,322

 

Change in fair value of contingent consideration

 

 

1,557

 

 

 

 

Deferred tax liability

 

 

(2,291

)

 

 

(22

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Trade accounts receivable

 

 

(5,735

)

 

 

3,069

 

Inventory

 

 

(1,861

)

 

 

322

 

Prepaid expenses and other assets

 

 

(265

)

 

 

188

 

Other assets

 

 

48

 

 

 

 

Accounts payable

 

 

2,356

 

 

 

(1,576

)

Accrued compensation

 

 

(871

)

 

 

(845

)

Accrued liabilities and other

 

 

217

 

 

 

168

 

Lease liabilities

 

 

(39

)

 

 

 

Net cash provided by (used in) operating activities

 

 

(5,579

)

 

 

1,290

 

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

 

 

 

 

 

15,899

 

Purchases of property and equipment

 

 

(409

)

 

 

(349

)

Net cash provided by (used in) investing activities

 

 

(14,594

)

 

 

14,798

 

Cash flows from financing activities:

 

 

 

 

 

 

Repurchases of common stock

 

 

 

 

 

(608

)

Proceeds from issuance of common stock, net

 

 

2,240

 

 

 

91

 

Net cash provided by (used in) financing activities

 

 

2,240

 

 

 

(517

)

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

 

 

(17,933

)

 

 

15,571

 

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

 

 

38,348

 

 

 

13,197

 

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

 

$

20,415

 

 

$

28,768

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Taxes paid

 

$

58

 

 

$

59

 

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

 

$

94

 

 

$

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

20,240

 

 

$

28,593

 

Restricted cash included in other assets

 

 

175

 

 

 

175

 

Total cash, cash equivalents, and restricted cash

 

$

20,415

 

 

$

28,768

 

 

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 (OEMs), original design manufacturers (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 and six months ended June 30, 2021 and 2020, and the consolidated balance sheet data as of June 30, 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 fiscal 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 (i) the 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 and (ii) the reclassification of disaggregated revenue disclosures by sales channel resulting in changes to the comparative results disclosed in Note 17.

 

Note 2. Summary of Significant Accounting Policies

 

During the three and six months ended June 30, 2021, there have been no material changes to the Company’s significant accounting policies as described in the Company’s 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 June 30, 2021, the Company had $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 June 30, 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 some situations, the Company retains ownership of inventory which is held in third party contact manufacturing facilities. 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 June 30, 2021, the Company’s inventories consisted of raw materials of $3.6 million, of which $1.5 million was held at contract manufacturing facilities, and finished goods of $1.0 million. As of December 31, 2020, inventories consisted of raw materials of $0.8 million and finished goods of $0.2 million. Provisions for excess and obsolete inventories are estimated based on product life cycles, quality issues, and historical experience and were $21,000 and $10,000 as of June 30, 2021 and December 31, 2020, respectively.

 

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.

9


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

 

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. A reserve for potential rights of return from distributors of $30,000 was recorded as of June 30, 2021.

 

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

10


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.

 

There were no contract assets as of June 30, 2021 and December 31, 2020. As of June 30, 2021 and December 31, 2020, the Company recorded $313,000 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. See Note 10 for disclosures related to the adoption of this standard.

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.

 

In April 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This guidance clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options due to a lack of explicit guidance in the FASB Codification. The ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021. Early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2021-04 on its consolidated financial statements.

 

Note 3. Net Loss Per Share

Basic net loss per share is calculated by dividing net loss by the weighted average shares of common stock outstanding for the period. Diluted net loss per share is calculated by dividing net 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 loss per common share using the treasury stock method.

11


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

 

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(2,609

)

 

$

(736

)

 

$

(2,372

)

 

$

(1,938

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

 

10,026

 

 

 

9,683

 

 

 

9,948

 

 

 

9,686

 

Plus dilutive effect of potential common shares

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average common shares outstanding

 

 

10,026

 

 

 

9,683

 

 

 

9,948

 

 

 

9,686

 

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.26

)

 

$

(0.08

)

 

$

(0.24

)

 

$

(0.20

)

Diluted

 

$

(0.26

)

 

$

(0.08

)

 

$

(0.24

)

 

$

(0.20

)

 

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

 

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Stock options and restricted stock

 

 

1,307

 

 

 

1,847

 

 

 

1,318

 

 

 

1,762

 

Warrants outstanding

 

 

4

 

 

 

51

 

 

 

25

 

 

 

51

 

Employee Stock Purchase Plan shares

 

 

 

 

 

 

 

 

2

 

 

 

 

Total common stock equivalent shares

 

 

1,311

 

 

 

1,898

 

 

 

1,345

 

 

 

1,813

 

 

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 (IoT) 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 industrial IoT 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 $