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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, 2022

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 5, 2022, the registrant had 10,202,325 shares of common stock (par value $0.0001) outstanding.

 

 


 

AIRGAIN, INC.

Form 10-Q

For the Quarter Ended June 30, 2022

 

 

 

 

 

 

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

31

Item 4. Controls and Procedures

31

 

 

 

 

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

32

Item 1A. Risk Factors

32

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

33

 

 

SIGNATURES

33

 

 

 

 

 


 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

Airgain, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except par value)

(Unaudited)

 

 

 

 

 

June 30, 2022

 

 

December 31, 2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

9,448

 

 

$

14,511

 

Trade accounts receivable, net

 

 

9,822

 

 

 

10,757

 

Inventory

 

 

8,621

 

 

 

8,949

 

Prepaid expenses and other current assets

 

 

1,825

 

 

 

1,272

 

Total current assets

 

 

29,716

 

 

 

35,489

 

Property and equipment, net

 

 

2,951

 

 

 

2,698

 

Leased right-of-use assets

 

 

2,540

 

 

 

2,777

 

Goodwill

 

 

10,845

 

 

 

10,845

 

Intangible assets, net

 

 

12,716

 

 

 

14,229

 

Other assets

 

 

277

 

 

 

352

 

Total assets

 

$

59,045

 

 

$

66,390

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

7,062

 

 

$

5,474

 

Accrued compensation

 

 

2,197

 

 

 

2,013

 

Accrued liabilities and other

 

 

4,484

 

 

 

2,833

 

Short-term lease liabilities

 

 

837

 

 

 

841

 

Deferred purchase price liabilities

 

 

153

 

 

 

8,726

 

Total current liabilities

 

 

14,733

 

 

 

19,887

 

Deferred tax liability

 

 

127

 

 

 

109

 

Long-term lease liabilities

 

 

1,937

 

 

 

2,221

 

Total liabilities

 

 

16,797

 

 

 

22,217

 

Commitments and contingencies (Note 16)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock and additional paid-in capital, par value $0.0001, 200,000 shares authorized; 10,742 shares issued and 10,200 shares outstanding at June 30, 2022; and 10,638 shares issued and 10,097 shares outstanding at December 31, 2021.

 

 

109,186

 

 

 

106,971

 

Treasury stock, at cost: 541 shares at June 30, 2022 and December 31, 2021.

 

 

(5,364

)

 

 

(5,364

)

Accumulated deficit

 

 

(61,574

)

 

 

(57,434

)

Total stockholders’ equity

 

 

42,248

 

 

 

44,173

 

Total liabilities and stockholders’ equity

 

$

59,045

 

 

$

66,390

 

 

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,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Sales

 

$

19,286

 

 

$

17,297

 

 

$

36,808

 

 

$

34,674

 

Cost of goods sold

 

 

11,793

 

 

 

9,998

 

 

 

22,159

 

 

 

20,478

 

Gross profit

 

 

7,493

 

 

 

7,299

 

 

 

14,649

 

 

 

14,196

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

2,962

 

 

 

2,726

 

 

 

6,204

 

 

 

5,432

 

Sales and marketing

 

 

2,889

 

 

 

2,489

 

 

 

5,744

 

 

 

4,928

 

General and administrative

 

 

3,255

 

 

 

3,261

 

 

 

6,740

 

 

 

6,894

 

Change in fair value of contingent consideration

 

 

 

 

 

1,557

 

 

 

 

 

 

1,557

 

Total operating expenses

 

 

9,106

 

 

 

10,033

 

 

 

18,688

 

 

 

18,811

 

Loss from operations

 

 

(1,613

)

 

 

(2,734

)

 

 

(4,039

)

 

 

(4,615

)

Other expense (income):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income, net

 

 

(6

)

 

 

(7

)

 

 

(11

)

 

 

(15

)

Other expense

 

 

15

 

 

 

9

 

 

 

30

 

 

 

16

 

Total other expense

 

 

9

 

 

 

2

 

 

 

19

 

 

 

1

 

Loss before income taxes

 

 

(1,622

)

 

 

(2,736

)

 

 

(4,058

)

 

 

(4,616

)

Income tax (benefit) expense

 

 

(3

)

 

 

(127

)

 

 

82

 

 

 

(2,244

)

Net loss

 

$

(1,619

)

 

$

(2,609

)

 

$

(4,140

)

 

$

(2,372

)

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.16

)

 

$

(0.26

)

 

$

(0.41

)

 

$

(0.24

)

Diluted

 

$

(0.16

)

 

$

(0.26

)

 

$

(0.41

)

 

$

(0.24

)

Weighted average shares used in calculating loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

10,219

 

 

 

10,026

 

 

 

10,188

 

 

 

9,948

 

Diluted

 

 

10,219

 

 

 

10,026

 

 

 

10,188

 

 

 

9,948

 

 

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,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net loss

 

$

(1,619

)

 

$

(2,609

)

 

$

(4,140

)

 

$

(2,372

)

Comprehensive loss

 

$

(1,619

)

 

$

(2,609

)

 

$

(4,140

)

 

$

(2,372

)

 

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,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Total stockholders' equity, beginning balance

 

$

42,823

 

 

$

50,398

 

 

$

44,173

 

 

$

47,742

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock and additional paid-in capital:

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

108,142

 

 

 

102,775

 

 

 

106,971

 

 

 

100,356

 

Stock-based compensation

 

 

1,028

 

 

 

1,008

 

 

 

2,079

 

 

 

1,936

 

Replacement awards issued in relation to acquisition

 

 

 

 

 

 

 

 

 

 

 

40

 

Issuance of shares for stock purchase plan

 

 

16

 

 

 

789

 

 

 

136

 

 

 

2,240

 

Balance at end of period

 

 

109,186

 

 

 

104,572

 

 

 

109,186

 

 

 

104,572

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury stock:

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at cost -at beginning of period

 

 

(5,364

)

 

 

(5,267

)

 

 

(5,364

)

 

 

(5,267

)

Balance, at cost -at end of period

 

 

(5,364

)

 

 

(5,267

)

 

 

(5,364

)

 

 

(5,267

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated deficit:

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

(59,955

)

 

 

(47,110

)

 

 

(57,434

)

 

 

(47,347

)

Net loss

 

 

(1,619

)

 

 

(2,609

)

 

 

(4,140

)

 

 

(2,372

)

Balance at end of period

 

 

(61,574

)

 

 

(49,719

)

 

 

(61,574

)

 

 

(49,719

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders' equity, ending balance

 

$

42,248

 

 

$

49,586

 

 

$

42,248

 

 

$

49,586

 

 

See accompanying notes.

 

6


 

Airgain, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

 

 

Six months ended June 30,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(4,140

)

 

$

(2,372

)

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

 

 

 

 

 

 

Depreciation

 

 

337

 

 

 

258

 

Loss on disposal of property and equipment

 

 

3

 

 

 

 

Amortization of intangible assets

 

 

1,513

 

 

 

1,483

 

Stock-based compensation

 

 

2,455

 

 

 

1,936

 

Change in fair value of contingent consideration

 

 

 

 

 

1,557

 

Deferred tax liability

 

 

18

 

 

 

(2,291

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Trade accounts receivable

 

 

935

 

 

 

(5,735

)

Inventory

 

 

328

 

 

 

(1,861

)

Prepaid expenses and other current assets

 

 

(554

)

 

 

(265

)

Other assets

 

 

75

 

 

 

48

 

Accounts payable

 

 

1,159

 

 

 

2,356

 

Accrued compensation

 

 

(193

)

 

 

(871

)

Accrued liabilities and other

 

 

94

 

 

 

217

 

Lease liabilities

 

 

(50

)

 

 

(39

)

Net cash provided by (used in) operating activities

 

 

1,980

 

 

 

(5,579

)

Cash flows from investing activities:

 

 

 

 

 

 

Cash paid for acquisition, net of cash acquired

 

 

 

 

 

(14,185

)

Purchases of property and equipment

 

 

(174

)

 

 

(409

)

Proceeds from sale of equipment

 

 

10

 

 

 

 

Net cash used in investing activities

 

 

(164

)

 

 

(14,594

)

Cash flows from financing activities:

 

 

 

 

 

 

Cash paid for business acquisition

 

 

(7,015

)

 

 

 

Proceeds from issuance of common stock, net

 

 

136

 

 

 

2,240

 

Net cash (used in) provided by financing activities

 

 

(6,879

)

 

 

2,240

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(5,063

)

 

 

(17,933

)

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

 

 

14,686

 

 

 

38,348

 

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

 

$

9,623

 

 

$

20,415

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Taxes paid

 

$

110

 

 

$

58

 

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

 

Operating lease liabilities resulting from right-of-use assets

 

$

254

 

 

$

 

Accrual of property and equipment

 

$

429

 

 

$

94

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

9,448

 

 

$

20,240

 

Restricted cash included in prepaid expenses and other current assets and other assets long term

 

 

175

 

 

 

175

 

Total cash, cash equivalents, and restricted cash

 

$

9,623

 

 

$

20,415

 

 

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. was incorporated in the State of California on March 20, 1995; and reincorporated in the State of Delaware on August 17, 2016. Airgain, Inc. together with its subsidiary NimbeLink are herein refer to as the “Company,” “we,” or “our”. The Company is a leading provider of connectivity solutions including embedded components, external antennas, and integrated systems that enable wireless networking in the consumer, enterprise, and automotive markets. The Company’s headquarters is in San Diego, California.

 

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, 2021, 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.

 

Segment Information

The Company’s operations are located primarily in the United States and most of its assets are located in San Diego, California, and Plymouth, Minnesota.

The Company operates in one segment related to providing connectivity solutions – embedded components, external antennas, and integrated systems. 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 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 the reclassification of sales and marketing expenses in the Company's consolidated statement of operations as well as reclassification of sales channel and geographic location in the disaggregated revenue disclosures in Note 18.

 

Note 2. Summary of Significant Accounting Policies

During the six months ended June 30, 2022, 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, 2021.

 

8


 

Restricted Cash

As of June 30, 2022 and December 31, 2021, the Company had $175,000 in cash on deposit to secure certain lease commitments; $40,000 of which is short-term in nature and recorded in prepaid expenses and other current assets and $135,000 of which is restricted for more than twelve months and recorded in other assets in the Company’s consolidated 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, 2022 and December 31, 2021.

 

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 contract 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 consolidated balance sheets. In the second quarter of 2022, the Company closed its facility located in Scottsdale, Arizona where certain of its products were previously manufactured.

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 method (FIFO). Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period. Reserves for excess and obsolete inventories are estimated based on product life cycles, quality issues, and historical experience and were $107,000 and $47,000 as of June 30, 2022, and December 31, 2021, respectively.

 

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

On January 1, 2019, the Company adopted Financial Accounting Standards Board (FASB) ASC Topic 606, Revenue from Contracts with Customers (ASC 606) 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 agreements and

9


 

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 transfers to 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 the NimbeLink 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 is recognized either at a "point-in-time" or “over time” based on the terms and conditions in the contract. Revenue from data subscription plans are recognized “over time”.

The Company offers return rights and/or pricing credits under certain circumstances. A reserve for potential rights of return of $44,000 and $109,000 was recorded as of June 30, 2022 and December 31, 2021, respectively.

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 90 days from delivery.

The Company provides assurance-type warranties on all product sales ranging from one to two years. The estimated warranty costs are accrued for at the time of sale based on historical warranty experience plus any known or expected changes in warranty exposure. The Company has recorded a warranty reserve of $141,000 and $58,000 as of June 30, 2022 and December 31, 2021, respectively.

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, Other Assets and Deferred Costs, as the period over which the sales commission asset that would have been recognized is less than one year.

There were no contract assets as of June 30, 2022 and December 31, 2021. As of June 30, 2022 and December 31, 2021, the Company recorded $0.2 million and $0.1 million of contract liabilities, respectively.

 

Shipping and Transportation Costs

Shipping and other transportation costs—expensed as incurred—were $156,000 and $35,000 for the three months ended June 30, 2022 and 2021, respectively. Shipping and other transportation expenses were $0.3 million and $0.1 million for the six months ended June 30, 2022 and 2021, respectively. These costs are included in sales and marketing expenses in the accompanying consolidated statements of operations.

 

Fair Value Measurements

The carrying values of the Company’s financial instruments, including cash, trade accounts receivable, accounts payable, accrued liabilities and deferred purchase price obligations 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.

10


 

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

 

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 does not expect the standard to have a significant impact on its financial statements, when adopted

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 expects this accounting standard option, if elected, will not have a significant impact on its financial statements, but we will continue to monitor any future impact.

 

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 net loss per common share using the treasury stock method.

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,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(1,619

)

 

$

(2,609

)

 

$

(4,140

)

 

$

(2,372

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

 

10,219

 

 

 

10,026

 

 

 

10,188

 

 

 

9,948

 

Plus dilutive effect of potential common shares

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average common shares outstanding

 

 

10,219

 

 

 

10,026

 

 

 

10,188

 

 

 

9,948

 

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.16

)

 

$

(0.26

)

 

$

(0.41

)

 

$

(0.24

)

Diluted

 

$

(0.16

)

 

$

(0.26

)

 

$

(0.41

)

 

$

(0.24

)

 

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):