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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, 2024

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 May 1, 2024, the registrant had 10,777,426 shares of common stock (par value $0.0001) outstanding.

 

 


 

AIRGAIN, INC.

Form 10-Q

For the Quarter Ended March 31, 2024

 

 

 

 

 

 

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

30

Item 4. Controls and Procedures

30

 

 

 

 

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

31

Item 1A. Risk Factors

31

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

31

 

 

SIGNATURES

33

 

 

 

 

 


 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

Airgain, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except par value)

(Unaudited)

 

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,169

 

 

$

7,881

 

Trade accounts receivable, net

 

 

9,644

 

 

 

7,375

 

Inventories

 

 

2,588

 

 

 

2,403

 

Prepaid expenses and other current assets

 

 

1,419

 

 

 

1,422

 

Total current assets

 

 

20,820

 

 

 

19,081

 

Property and equipment, net

 

 

2,305

 

 

 

2,507

 

Leased right-of-use assets

 

 

1,180

 

 

 

1,392

 

Goodwill

 

 

10,845

 

 

 

10,845

 

Intangible assets, net

 

 

7,493

 

 

 

8,234

 

Other assets

 

 

155

 

 

 

170

 

Total assets

 

$

42,798

 

 

$

42,229

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

7,156

 

 

$

6,472

 

Accrued compensation

 

 

799

 

 

 

728

 

Accrued liabilities and other

 

 

2,848

 

 

 

1,926

 

Short-term lease liabilities

 

 

848

 

 

 

865

 

Total current liabilities

 

 

11,651

 

 

 

9,991

 

Deferred tax liability

 

 

158

 

 

 

151

 

Long-term lease liabilities

 

 

476

 

 

 

674

 

Total liabilities

 

 

12,285

 

 

 

10,816

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock and additional paid-in capital, par value $0.0001, 200,000 shares authorized; 11,302 shares issued and 10,761 shares outstanding at March 31, 2024; and 11,010 shares issued and 10,469 shares outstanding at December 31, 2023.

 

 

116,852

 

 

 

115,295

 

Treasury stock, at cost: 541 shares at March 31, 2024 and December 31, 2023.

 

 

(5,364

)

 

 

(5,364

)

Accumulated deficit

 

 

(80,976

)

 

 

(78,521

)

Accumulated other comprehensive income

 

 

1

 

 

 

3

 

Total stockholders’ equity

 

 

30,513

 

 

 

31,413

 

Total liabilities and stockholders’ equity

 

$

42,798

 

 

$

42,229

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3


 

Airgain, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

 

 

 

 

Three months ended March 31,

 

 

 

2024

 

 

2023

 

Sales

 

$

14,231

 

 

$

16,444

 

Cost of goods sold

 

 

8,655

 

 

 

10,126

 

Gross profit

 

 

5,576

 

 

 

6,318

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

3,120

 

 

 

2,449

 

Sales and marketing

 

 

2,158

 

 

 

2,866

 

General and administrative

 

 

2,927

 

 

 

3,793

 

Total operating expenses

 

 

8,205

 

 

 

9,108

 

Loss from operations

 

 

(2,629

)

 

 

(2,790

)

Other (income) expense:

 

 

 

 

 

 

Interest income, net

 

 

(26

)

 

 

(18

)

Other (income) expense

 

 

(8

)

 

 

4

 

Total other income

 

 

(34

)

 

 

(14

)

Loss before income taxes

 

 

(2,595

)

 

 

(2,776

)

Income tax (benefit) expense

 

 

(140

)

 

 

82

 

Net loss

 

$

(2,455

)

 

$

(2,858

)

Net loss per share:

 

 

 

 

 

 

Basic

 

$

(0.23

)

 

$

(0.28

)

Diluted

 

$

(0.23

)

 

$

(0.28

)

Weighted average shares used in calculating loss per share:

 

 

 

 

 

 

Basic

 

 

10,532

 

 

 

10,266

 

Diluted

 

 

10,532

 

 

 

10,266

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4


 

Airgain, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)

 

 

 

 

Three months ended March 31,

 

 

 

2024

 

 

2023

 

Net loss

 

$

(2,455

)

 

$

(2,858

)

Other comprehensive income:

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(2

)

 

 

 

Comprehensive loss

 

$

(2,457

)

 

$

(2,858

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5


 

Airgain, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock And Additional Paid-In Capital

 

 

Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Accumulated
Other
Comprehensive (Loss)

 

 

Accumulated
Deficit

 

 

Total
Stockholders’ Equity

 

Balance at December 31, 2023

 

 

11,010

 

 

$

115,295

 

 

 

(541

)

 

$

(5,364

)

 

$

3

 

 

$

(78,521

)

 

$

31,413

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,455

)

 

 

(2,455

)

Stock-based compensation

 

 

 

 

 

1,087

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,087

 

Common stock Issued through restricted stock awards

 

 

169

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock withheld related to net share settlement of equity awards

 

 

(24

)

 

 

(94

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(94

)

Common stock issued under ESPP

 

 

23

 

 

 

76

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

76

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

(2

)

Common stock Issued in connection with at-the-market offerings, net

 

 

124

 

 

 

488

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

488

 

Balance at March 31, 2024

 

 

11,302

 

 

$

116,852

 

 

 

(541

)

 

$

(5,364

)

 

$

1

 

 

$

(80,976

)

 

$

30,513

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock And Additional Paid-In Capital

 

 

Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Accumulated
Other
Comprehensive (Loss)

 

 

Accumulated
Deficit

 

 

Total
Stockholders’ Equity

 

Balance at December 31, 2022

 

 

10,767

 

 

$

111,282

 

 

 

(541

)

 

$

(5,364

)

 

$

 

 

$

(66,093

)

 

$

39,825

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,858

)

 

 

(2,858

)

Stock-based compensation

 

 

 

 

 

1,874

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,874

 

Common stock Issued through restricted stock awards

 

 

278

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock withheld related to net share settlement of equity awards

 

 

(118

)

 

 

(678

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(678

)

Common stock issued under ESPP

 

 

22

 

 

 

137

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

137

 

Balance at March 31, 2023

 

$

10,949

 

 

$

112,615

 

 

 

(541

)

 

$

(5,364

)

 

$

 

 

$

(68,951

)

 

$

38,300

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6


 

Airgain, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

Three months ended March 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(2,455

)

 

$

(2,858

)

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

 

 

 

 

 

 

Depreciation

 

 

145

 

 

 

157

 

Amortization of intangible assets

 

 

742

 

 

 

743

 

Stock-based compensation

 

 

1,046

 

 

 

981

 

Deferred tax liability

 

 

7

 

 

 

3

 

Amortization of prepaid assets

 

 

132

 

 

 

 

Accrual of property and equipment

 

 

(15

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Trade accounts receivable

 

 

(2,269

)

 

 

593

 

Inventories

 

 

(185

)

 

 

(255

)

Prepaid expenses and other current assets

 

 

3

 

 

 

555

 

Other assets

 

 

15

 

 

 

 

Accounts payable

 

 

684

 

 

 

250

 

Accrued compensation

 

 

72

 

 

 

(1,109

)

Accrued liabilities and other

 

 

963

 

 

 

(459

)

Lease liabilities

 

 

(4

)

 

 

(35

)

Net cash used in operating activities

 

 

(1,119

)

 

 

(1,434

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(60

)

 

 

(89

)

Net cash used in investing activities

 

 

(60

)

 

 

(89

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from at-the-market common stock offering, net of offering costs

 

 

488

 

 

 

 

Payments for withholding taxes related to net share settlement of equity awards

 

 

(95

)

 

 

(678

)

Proceeds from employee stock purchase and option exercises

 

 

76

 

 

 

137

 

Net cash provided by (used in) financing activities

 

 

469

 

 

 

(541

)

 

 

 

 

 

 

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(712

)

 

 

(2,064

)

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

 

 

7,976

 

 

 

12,078

 

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

 

$

7,264

 

 

$

10,014

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Income taxes paid

 

$

7

 

 

$

 

Income taxes refunded

 

$

50

 

 

$

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

Operating lease liabilities resulting from right-of-use assets

 

$

 

 

$

11

 

Accrual of property and equipment

 

$

 

 

$

13

 

Offering costs charged against proceeds from sale of common stock

 

$

164

 

 

$

 

 

 

 

 

 

 

 

Cash, cash equivalents, and restricted cash:

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,169

 

 

$

9,839

 

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

 

 

95

 

 

 

175

 

Total cash, cash equivalents, and restricted cash

 

$

7,264

 

 

$

10,014

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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 subsidiaries are herein referred 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, 2023, from which the balance sheet information herein was derived. The unaudited 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 our chief executive officer, who reviews operating results on an aggregate consolidated basis for purposes of regularly making operating decisions, allocation of resources and assessing performance 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.

Note 2. Summary of Significant Accounting Policies

During the three months ended March 31, 2024, 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, 2023.

Trade Accounts Receivable

We perform ongoing credit evaluations of our customers and assess each customer’s credit worthiness. The policy for determining when receivables are past due or delinquent is based on the contractual terms agreed upon. We monitor collections and payments from our customers and analyze for an allowance for credit losses. The allowance for credit losses is based upon applying an expected credit loss rate to receivables based on the historical loss rate and is adjusted for current conditions, including any specific customer collection issues identified, and economic conditions forecast. Delinquent account balances are written off after management has determined that the likelihood of collection is remote.

8


 

An allowance for doubtful accounts is established when, in the opinion of management, collection of the account is doubtful.

Inventories

As of April 2022, all 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 consigned inventories at third-party contract manufacturer (CM) locations due to actual or pending customers' orders. The Company recognized the consigned inventory as an asset in its financial statements. 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, we closed our facility located in Scottsdale, Arizona where certain of our products were previously manufactured.

Inventory is stated at the lower of cost or net realizable value. For items manufactured by our CMs, 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. Write downs for excess and obsolete inventories are estimated based on product life cycles, quality issues, and historical experience.

Property and Equipment

Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets, generally three to ten years. The estimated useful lives for leasehold improvements are determined as either the estimated useful life of the asset or the lease term, whichever is shorter. Repairs and maintenance are expensed as incurred. Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. When assets are disposed of (or otherwise sold), the cost and related accumulated depreciation are removed from the accounts and any gain or loss on the disposal of property and equipment is classified as other expense (income) in the Company's consolidated statement of operations.

Goodwill

We account for our goodwill under the authoritative guidance ASC 250 for goodwill and other intangible assets and the provisions of ASU 2017-04, Simplifying the Test for Goodwill Impairment, which we early adopted in fiscal year 2020. Goodwill is not amortized but is tested for impairment annually as of December 31 or more frequently if events or changes in circumstances indicate that our goodwill might be impaired. Such circumstances may include, but not limited to (1) a decline in microeconomic conditions, (2) a significant decline in our financial performance or (3) a significant decline in the price of our common stock for a sustained period of time. We consider the aggregation of the relevant qualitative factors, and conclude whether it is more likely than not that the fair value of our reporting unit is less than the carrying value.

If we conclude that it is more likely than not that the fair value of our reporting unit is less than the carrying value, we perform a quantitative impairment test. The quantitative impairment test compares the fair value of the reporting unit to its carrying amount, including goodwill. If the fair value of the reporting unit exceeds the carrying amount of the net assets assigned to that reporting unit, goodwill is not considered impaired. However, if the fair value of the reporting unit is lower than the carrying amount of the net assets assigned to the reporting unit, an impairment charge is recognized equal to the excess of the carrying amount over the fair value. The impairment charge is limited to the goodwill amount of the reporting unit.

Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. For the market approach of valuation, we may use the guideline public company method. Under this method we utilize information from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit to derive an indication of value. For the income approach of valuation, we use a discounted cash flow methodology to derive an indication of value, which required management to make estimates and assumptions related to forecasted revenues, gross profit margins, operating income margins, working capital cash flow, income tax rates, EBITDA, perpetual growth rates, and long-term discount rates, among others. In addition, we make certain judgments and assumptions in determining our reporting unit. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.

9


 

Intangibles

The Company’s identifiable finite-lived intangible assets are comprised of acquired intangibles, developed technologies, customer relationships and non-compete agreements. The cost of the market-related intangible assets with finite lives is amortized on a straight-line basis over the assets’ respective estimated useful lives.

We assess potential impairments to our intangible assets in accordance with the authoritative guidance for impairment or disposal of long-lived assets (ASC 360) when events or changes in circumstances indicate that the carrying value may not be recoverable. We assess the impairment of long-lived and intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. As a first step, we consider factors, which may include the following, but are not limited to: (1) significant underperformance relative to historical or projected future operating results; (2) significant negative industry or economic trends; or (3) a significant decline in our stock price for a sustained period.

If this assessment indicates that the carrying value of the assets may not be recoverable, the Company is required to perform the second step to test the asset group for recoverability. This recoverability test compares the future undiscounted cash flows expected from the use of the asset group to its carrying value. If the carrying value is more than the undiscounted future cash flows, the Company is required perform a third step to determine the fair value of the asset group and compare fair value against the carrying value. Any excess carrying value over the fair value needs to be recognized as an impairment loss.

Determining the recoverability of long-lived or intangible assets is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows and the future market value of our asset group. In addition, we make certain judgments and assumptions in determining our asset group. We base our recoverability estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.

Revenue Recognition

Under ASC Topic 606 “Revenue from Contracts with Customers”, the Company recognize revenue when, or as the control of the promised goods or services is transferred to the customers in an amount that reflects the consideration the Company expects to be entitled in exchange for those goods or services. In applying this core principle, the Company performs the following five-steps only when it is probable that substantially all of the consideration that it will be entitled in exchange for the goods or services that will be transferred to the customer:

(i) identify the contract(s) with the customer,

(ii) identify the performance obligations in the contract,

(iii) determine the transaction price,

(iv) allocate the transaction price to the performance obligation(s) in the contract and

(v) recognize revenue when or as the entity satisfies performance obligations. A performance obligation is at a point in time, except if it meets any of the three criteria, which will require recognition of revenue over time:

the customer simultaneously receives and consumes the benefit provided by the entity’s performance as the entity performs,
the entity’s performance creates or enhances an asset (for example, work in process) that the customer controls as the asset is created or enhanced, and
the entity's performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date.

Most of the Company's revenue is generated from product sales and the revenue is recognized at a point-in-time when control is transferred to the customer. 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. Revenue is recognized when control is transferred to the customer at a point in time either when the product is shipped to or received by the customer, based on the terms of the specific agreement with the customer, and the Company has an enforceable right to payment for the product. The Company allocates the transaction price, which is generally the quoted price per terms of the contract and the consideration the Company expects to receive, to each performance obligation. The Company offers return rights and/or pricing credits under certain circumstances. We estimate product returns based on historical sales and return trends and record against revenue and corresponding refund liability.

10


 

A portion of the Company's revenue is recognized over time, including: data subscription, test services or custom design services. Revenue from data subscription plans relate to purchased asset trackers with activated data lines, through a third-party service provider. Data subscription plan revenues are recognized monthly based on the fee stated in the contract, as the customer is simultaneously receiving and consuming the benefits provided throughout the Company's monthly performance obligation. Test service revenues are recognized monthly based on the fee stated in the contract for obligations over time on assets that the customer controls. Design service fees are paid in advance; the prepayments are deferred revenues and are recorded as contract liabilities. Most of the design service fees are recognized based on the Company's achievement of milestones. The Company's performance for the design services does not create an asset with an alternative use to the Company and the Company has an enforceable right to payment for performance completed to date. We recognize from the contract liabilities as milestones are achieved over service periods ranging from three (3) to eighteen (18) months.

The Company's contracts with customers do not typically include extended payment terms. Payment terms may 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 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.

 

Shipping and Transportation Costs

Shipping and other transportation costs expensed as incurred were $20,000 and $0.1 million for the three months ended March 31, 2024 and 2023, respectively. These costs are included in sales and marketing expenses in the accompanying consolidated statements of operations.

Research and Development Costs

Research and development costs are expensed as incurred.

Advertising Costs

Advertising costs are expensed as incurred. These costs are included in sales and marketing expenses in the accompanying consolidated statements of operations.

Income Taxes

The Company records income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. When applicable a valuation allowance is established to reduce any deferred tax asset when we determine that it is more likely than not that some portion of the deferred tax asset will not be realized.

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest related to unrecognized tax benefits in interest expense and penalties in general and administrative expenses.

Stock-Based Compensation

We recognize compensation costs related to stock options and restricted stock units granted to employees and directors based on the estimated fair value of the awards on the date of grant. We estimate the option grant fair values, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model. The grant date fair value of

11


 

stock-based awards are expensed on a straight-line basis over the requisite service period of the entire reward. The Company recognizes forfeitures when incurred.

The assumptions used in the Black-Scholes option-pricing model are as follows:

Fair value of our common stock. The Company’s common stock is valued by reference to the publicly traded price of our common stock.
Expected term. The expected term represents the period of time stock-based awards are expected to be outstanding.
Expected weighted average volatility. From 2018 through 2021, the Company estimated expected volatility using our historical share prices along with volatilities of the selected comparable companies. Beginning 2022, we estimated expected volatility using solely our historical share price volatilities.
Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the expected term.
Expected dividend. The expected dividend is assumed to be zero as the Company has never paid dividends and have no current plans to pay any dividends.

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

 

Recently Adopted Accounting Pronouncements

None.

 

Recently Issued Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” ASU No. 2023-07 require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to an entity's chief operating decision maker (CODM), amounts and descriptions of other reportable segments, and any additional measures of a segment's profit or loss used by the CODM when deciding how to allocate resources. The ASU is applicable to entities with a single reportable segment. This ASU is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The ASU should be applied retrospectively to all prior periods presented in the financial statements. The Company will evaluate the ASU to determine its impact on the Company’s disclosures. The Company does not expect adoption to have a material impact on its consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures.". ASU No. 2023-09 requires expanded disaggregated information about a reporting entity’s effective tax rate reconciliation as well as disclosure of income taxes paid by jurisdiction. The amendments in ASU are effective for fiscal years beginning after December 15, 2024 with early adoption permitted. Retrospective application of the amendments are permitted. The Company will evaluate the ASU to determine its impact on the Company’s disclosures. As the amendments apply to income

12


 

tax disclosures only, the Company does not expect adoption to have a material impact on its consolidated financial statements.

In March 2024, the FASB issued ASU 2024-02, "Codification Improvements—Amendments to Remove References to the Concepts Statements." ASU No. 2024-02 removes various references to concepts statements from the FASB Accounting Standards Codification. The ASU indicates that the goal of the amendments is to simplify the Codification and distinguish between non-authoritative and authoritative guidance since, unlike the Codification, the concepts statements are non-authoritative. The amendments in ASU are effective for fiscal years beginning after December 15, 2024 with early adoption permitted. Retrospective application of the amendments are permitted. The Company will evaluate the ASU to determine its impact on the Company’s disclosures. The Company does not expect adoption to have a material impact on its consolidated financial statements.

We have assessed all other ASUs issued but not yet adopted and concluded that those not disclosed are not relevant to the Company or are not expected to have a material impact.

Note 3. Net Loss Per Share

Basic net loss per share is calculated by dividing net loss available to common stockholders 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.

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

 

 

 

Three months ended March 31,

 

 

 

2024

 

 

2023

 

Numerator:

 

 

 

 

 

 

Net loss

 

$

(2,455

)

 

$

(2,858

)

Denominator:

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

 

10,532

 

 

 

10,266

 

Plus dilutive effect of potential common shares

 

 

 

 

 

 

Diluted weighted average common shares outstanding

 

 

10,532

 

 

 

10,266

 

Net loss per share:

 

 

 

 

 

 

Basic

 

$

(0.23

)

 

$

(0.28

)

Diluted

 

$

(0.23

)

 

$

(0.28

)

 

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 March 31,

 

 

 

2024

 

 

2023

 

Common stock equivalent shares

 

 

2,327

 

 

 

2,224

 

 

Note 4. Cash and Cash Equivalents

The following tables show the Company’s cash and cash equivalents by significant investment category (in thousands):

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Cash

 

$

6,846

 

 

$

7,581

 

Level 1:

 

 

 

 

 

 

Money market funds

 

 

323

 

 

 

300

 

Total

 

$

7,169

 

 

$

7,881

 

 

Restricted Cash

As of March 31, 2024 and December 31, 2023, the Company had $95,000 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

13


 

$55,000 of which is restricted for more than twelve months and recorded in other assets in the Company’s consolidated balance sheet.

Note 5. Inventory

Inventories are comprised of the following (in thousands):

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Raw materials

 

$

819

 

 

$

661

 

Finished goods

 

 

1,769

 

 

 

1,742

 

Total Inventory

 

$

2,588

 

 

$

2,403

 

 

Consigned inventories, which are included in total inventories, are comprised of the following (in thousands):

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Raw materials

 

$

485

 

 

$

558

 

Finished goods

 

 

701

 

 

 

598

 

Total Consigned Inventory

 

$

1,186

 

 

$

1,156

 

 

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 ten years for all other property and equipment. Property and equipment consist of the following (in thousands):

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Manufacturing and testing equipment

 

$

5,485

 

 

$

5,371

 

Leasehold improvements

 

 

848

 

 

 

848

 

Computers and software

 

 

542

 

 

 

811

 

Furniture, fixtures, and equipment

 

 

427

 

 

 

427

 

Vehicles

 

 

56

 

 

 

55

 

Construction in process

 

 

6

 

 

 

45

 

Property and equipment, gross

 

 

7,364

 

 

 

7,557

 

Less accumulated depreciation

 

 

(5,059

)

 

 

(5,050

)

Property and equipment, net

 

$

2,305

 

 

$

2,507

 

Depreciation expense was $0.1 million and $0.2 million for the three months ended March 31, 2024 and 2023, respectively.

 

Note 7. Intangible Assets and Goodwill

Other Intangible Assets

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

 

 

 

March 31, 2024

 

 

 

Weighted average amortization period (in years)

 

Gross carrying amount

 

 

Accumulated amortization

 

 

Net carrying amount

 

Market related intangibles

 

5

 

$

1,820

 

 

$

1,219

 

 

$

601

 

Customer relationships

 

7

 

 

13,780

 

 

 

9,561

 

 

 

4,219

 

Developed technologies

 

11

 

 

4,380

 

 

 

1,707

 

 

 

2,673

 

Covenants to non-compete

 

2

 

 

115

 

 

 

115

 

 

 

 

Total intangible assets, net

 

 

 

$

20,095

 

 

$

12,602

 

 

$

7,493

 

 

14


 

 

 

 

December 31, 2023

 

 

 

Weighted average amortization period (in years)

 

Gross carrying amount

 

 

Accumulated amortization

 

 

Net carrying amount

 

Market related intangibles

 

5

 

$

1,820

 

 

$

1,135

 

 

$

685

 

Customer relationships

 

7

 

 

13,780

 

 

 

8,993

 

 

 

4,787

 

Developed technologies

 

11

 

 

4,380

 

 

 

1,618

 

 

 

2,762

 

Covenants to non-compete

 

2

 

 

115

 

 

 

115

 

 

 

 

Total intangible assets, net

 

 

 

$

20,095

 

 

$

11,861

 

 

$

8,234

 

 

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

 

 

 

Estimated future amortization

 

2024 (remaining nine months)

 

$

2,226

 

2025

 

 

2,958

 

2026

 

 

557

 

2027

 

 

356

 

Thereafter

 

 

1,396

 

Total

 

$

7,493

 

 

Actual amortization expense to be reported in future periods could differ from these estimates as a result of acquisitions, divestitures, and asset impairments, among other factors. Amortization expense was $0.7 million for each of the three months ended March 31, 2024 and 2023.

No impairment losses were recorded against the other intangibles during the three months ended March 31, 2024 and 2023.

For the annual finite-lived intangible assets impairment assessment, as of December 31, 2023, the Company evaluated the impairment considerations, starting with the interim assessment as of September 30, 2023. For the interim impairment assessment, as of March 31, 2024, the Company evaluated the impairment considerations, starting with the interim assessment as of December 31, 2023.

During the fourth quarter of 2023 and first quarter of 2024, the Company determined that there were no triggering events or circumstances to indicate that the carrying value of the finite-lived asset group may not be recoverable. Based on the assessment performed, we concluded that an impairment charge to finite-lived intangible assets was not required as of December 31, 2023 and March 31, 2024 and the useful lives remain appropriate.

Goodwill

No impairment losses were recorded against the goodwill during the three months ended March 31, 2024 and 2023.

For the annual goodwill impairment assessment as of December 31, 2023, the Company evaluated the impairment considerations, starting with the interim assessment as of September 30, 2023. For the interim goodwill impairment assessment as of March 31, 2024, the Company evaluated the impairment considerations, starting with the interim assessment as of December 31, 2023.

During the fourth quarter of 2023 and first quarter of 2024, the Company's market capitalization, working capital, current and expected future cash flows and the macroeconomic industry and market conditions have remained relatively stable. After assessing the totality of events or circumstances, the Company determined that there were no events or circumstances in the fourth quarter 2023 and first quarter of 2024 that indicated that the fair value of a reporting unit is more likely than not less than its carrying amount. Since there was no indication that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the Company determined that a quantitative goodwill impairment test was not necessary as of December 31, 2023 and March 31, 2024. Based on the assessment performed, we concluded that an impairment charge to goodwill was not required as of December 31, 2023 and March 31, 2024.

Certain future events and circumstances, including adverse changes in the business and economic conditions and changes in customer behavior could result in changes to our assumptions and judgments used in the impairment tests. A downward revision of these assumptions could cause the total fair value of our goodwill and intangible assets to fall below carrying values and a non-cash impairment charge would be required. Such a charge may have a material effect on the consolidated financial statements.

15


 

Note 8. Accrued Liabilities and Other

Accrued liabilities and other is comprised of the following (in thousands):

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Accrued expenses

 

$

1,116

 

 

$

1,031

 

VAT payable

 

 

 

 

 

339

 

Accrued income taxes

 

 

47

 

 

 

145

 

Advanced payments from contract manufacturers

 

 

11

 

 

 

 

Contract liabilities

 

 

 

 

 

17

 

Goods received not invoiced

 

 

1,404

 

 

 

185

 

Other current liabilities

 

 

270

 

 

 

209

 

Accrued liabilities and other

 

$

2,848

 

 

$

1,926

 

 

Note 9. Leases

Operating leases

The Company has made certain assumptions and judgments when applying ASC 842, the Company elected not to recognize right-of-use assets and lease liabilities for short-term leases (lease terms of twelve months or less).

Operating lease arrangements primarily consist of office, warehouse and test house leases expiring during different years through 2025. The facility leases have original lease terms of approximately one to five years and may contain options to extend up to 5 years and/or terminate early. Options to extend are included in leased right-of-use assets and lease liabilities in the consolidated balance sheet when we are reasonably certain to renew a lease. Since the implicit rate of such leases is unknown and we may not be reasonably certain to renew leases, the Company has elected to apply a collateralized incremental borrowing rate to facility leases on the original lease term in calculating the present value of future lease payments. As of March 31, 2024 and December 31, 2023, the weighted average discount rate for operating leases was 3.8%. As of March 31, 2024 and December 31, 2023, the weighted average remaining lease term for operating leases was 1.6 years and 1.8 years, respectively.

The Company has entered into various short-term operating leases, primarily for test houses and office equipment with initial terms of 12 months or less. These short-term leases are not recorded on the Company's consolidated balance sheet and the related short-term lease expense was $29,000 and $22,000, for the three months ended March 31, 2024 and 2023, respectively. Total operating lease cost was $0.3 million for the three months ended March 31, 2024 and 2023, respectively.

The table below presents aggregate future minimum payments due under leases, reconciled to lease liabilities included in the consolidated balance sheet as of March 31, 2024 (in thousands):

 

 

 

Estimated future lease obligation

 

2024 (remaining nine months)

 

$

674

 

2025

 

 

687

 

Total minimum payments

 

 

1,361

 

Less imputed interest

 

 

(40

)

Less unrealized translation gain

 

 

3

 

Total lease liabilities

 

 

1,324

 

Less short-term lease liabilities

 

 

(848

)

Long-term lease liability

 

$

476

 

 

Note 10. Income Taxes

The Company’s effective income tax rate was 5.4% and -2.9% for the three months ended March 31, 2024 and 2023, respectively. The variance from the U.S. federal statutory rate of 21.0% for the three months ended March 31, 2024 was primarily attributable to the utilization of deferred tax attributes that had a full valuation allowance. The variance from the U.S. federal statutory rate of 21.0% for the three months ended March 31, 2023 was primarily attributable to the utilization of deferred tax attributes that had a full valuation allowance.

Management assesses its deferred tax assets quarterly to determine whether all or any portion of the asset is more likely than not unrealizable under Accounting Standards Codification (ASC) Topic 740. The Company is required to establish a

16


 

valuation allowance for any portion of the asset that management concludes is more likely than not to be unrealizable. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company’s assessment considers all evidence, both positive and negative, including the nature, frequency and severity of any current and cumulative losses, taxable income in carryback years, the scheduled reversal of deferred tax liabilities, tax planning strategies, and projected future taxable income in making this assessment.

As of December 31, 2023, the Company had a valuation allowance against net deferred tax assets of $14.6 million, however, the exclusion of a deferred tax liability generated by goodwill (an indefinite lived intangible) may not be considered a future source of taxable income in evaluating the need for a valuation allowance.

Note 11. Stockholders’ Equity

In August 2016, the Company's Board adopted the 2016 Equity Inventive Plan (the 2016 Plan) for employees, directors and consultants. In February 2021, the Board adopted the 2021 Employment Inducement Incentive Award Plan (Inducement Plan), which provides for grants of equity-based awards.

The following table presents common stock reserved for future issuance(1) (in thousands):

 

 

 

March 31, 2024

 

 

December 31, 2023

 

Stock options issued and outstanding

 

 

2,494

 

 

 

2,104

 

Stock awards issued and outstanding

 

 

1,080

 

 

 

817

 

Authorized for grants under the 2016 Equity Incentive Plan(2)

 

 

55

 

 

 

448

 

Authorized for grants under the Inducement Plan(3)

 

 

180

 

 

 

174

 

Authorized for grants under the 2016 Employee Stock Purchase Plan(4)

 

 

517

 

 

 

540

 

 

 

 

4,326

 

 

 

4,083

 

 

(1) The table above excludes 541,000 treasury stock shares as of March 31, 2024 and December 31, 2023.

(2) On January 1, 2024, the number of authorized shares in the 2016 Plan increased by 440,000 shares pursuant to the evergreen provisions of the 2016 Plan.

(3) On February 5, 2021, 300,000 shares were authorized pursuant to the terms of the Inducement Plan.

(4) On January 1, 2024, the number of authorized shares in the 2016 Employee Stock Purchase Plan increased by 100,000 shares pursuant to the evergreen provisions of the 2016 Employee Stock Purchase Plan.

Issuance of Common Stock

In March 2024, we established an at-the-market ("ATM") offerings program to sell up to $5.0 million of the Company's common stock. During the three months ended March 31, 2024, we issued 124,600 shares of common stock for $0.7 million gross proceeds. The Company incurred $0.2 million of offering costs, which are recorded in additional paid-in capital in the consolidated balance sheet.

Note 12. Stock Based Compensation

 

Stock-based compensation expense

Stock-based compensation is recorded in the consolidated statements of operations as follows (in thousands):

 

 

 

Three months ended March 31,

 

 

 

2024

 

 

2023

 

Cost of goods sold

 

$

58

 

 

$

15

 

Research and development

 

 

328

 

 

 

237

 

Sales and marketing

 

 

80

 

 

 

161

 

General and administrative

 

 

580

 

 

 

568

 

Total stock-based compensation expense

 

$

1,046

 

 

$

981

 

 

17


 

 

 

Stock Options

The following table summarizes the outstanding stock option activity during the period indicated (shares in thousands):

 

 

 

 

 

 

Weighted average

 

 

 

 

 

Number of
stock options

 

 

Exercise
price

 

 

Remaining contractual term (in years)

 

Aggregate intrinsic value (in thousands)

 

Balance at December 31, 2023

 

 

2,104

 

 

$

10.20

 

 

 

6.2

 

$

329

 

Granted

 

 

403

 

 

$

5.07

 

 

 

 

 

 

Exercised

 

 

 

 

$

 

 

 

 

$

 

Expired/Forfeited

 

 

(13

)

 

$

6.80

 

 

 

 

 

 

Balance at March 31, 2024

 

 

2,494

 

 

$

9.39

 

 

 

6.6

 

$

1,051

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested and exercisable at March 31, 2024

 

 

1,609

 

 

$

11.05

 

 

 

5.2

 

$