10-Q 1 airg-20230930.htm 10-Q 10-Q
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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 September 30, 2023

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 November 2, 2023, the registrant had 10,443,709 shares of common stock (par value $0.0001) outstanding.

 

 


 

AIRGAIN, INC.

Form 10-Q

For the Quarter Ended September 30, 2023

 

 

 

 

 

 

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

32

 

 

SIGNATURES

34

 

 

 

 

 


 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

Airgain, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except par value)

(Unaudited)

 

 

 

 

September 30, 2023

 

 

December 31, 2022

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

9,989

 

 

$

11,903

 

Trade accounts receivable, net

 

 

6,272

 

 

 

8,741

 

Inventories

 

 

3,950

 

 

 

4,226

 

Prepaid expenses and other current assets

 

 

2,041

 

 

 

2,284

 

Total current assets

 

 

22,252

 

 

 

27,154

 

Property and equipment, net

 

 

2,454

 

 

 

2,765

 

Leased right-of-use assets

 

 

1,604

 

 

 

2,217

 

Goodwill

 

 

10,845

 

 

 

10,845

 

Intangible assets, net

 

 

8,977

 

 

 

11,203

 

Other assets

 

 

170

 

 

 

216

 

Total assets

 

$

46,302

 

 

$

54,400

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

5,425

 

 

$

6,507

 

Accrued compensation

 

 

642

 

 

 

2,874

 

Accrued liabilities and other

 

 

2,538

 

 

 

2,615

 

Short-term lease liabilities

 

 

909

 

 

 

904

 

Total current liabilities

 

 

9,514

 

 

 

12,900

 

Deferred tax liability

 

 

145

 

 

 

139

 

Long-term lease liabilities

 

 

878

 

 

 

1,536

 

Total liabilities

 

 

10,537

 

 

 

14,575

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock and additional paid-in capital, par value $0.0001, 200,000 shares authorized; 10,985 shares issued and 10,444 shares outstanding at September 30, 2023; and 10,767 shares issued and 10,226 shares outstanding at December 31, 2022.

 

 

114,166

 

 

 

111,282

 

Treasury stock, at cost: 541 shares at September 30, 2023 and December 31, 2022.

 

 

(5,364

)

 

 

(5,364

)

Accumulated deficit

 

 

(73,037

)

 

 

(66,093

)

Total stockholders’ equity

 

 

35,765

 

 

 

39,825

 

Total liabilities and stockholders’ equity

 

$

46,302

 

 

$

54,400

 

 

See accompanying notes.

 

3


 

Airgain, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

 

 

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Sales

 

$

13,696

 

 

$

19,198

 

 

$

45,970

 

 

$

56,006

 

Cost of goods sold

 

 

8,460

 

 

 

11,755

 

 

 

28,137

 

 

 

33,902

 

Gross profit

 

 

5,236

 

 

 

7,443

 

 

 

17,833

 

 

 

22,104

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

2,298

 

 

 

2,901

 

 

 

7,337

 

 

 

9,117

 

Sales and marketing

 

 

1,704

 

 

 

2,808

 

 

 

6,875

 

 

 

8,552

 

General and administrative

 

 

3,144

 

 

 

2,998

 

 

 

10,533

 

 

 

9,738

 

Total operating expenses

 

 

7,146

 

 

 

8,707

 

 

 

24,745

 

 

 

27,407

 

Loss from operations

 

 

(1,910

)

 

 

(1,264

)

 

 

(6,912

)

 

 

(5,303

)

Other (income) expense:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income, net

 

 

(34

)

 

 

(26

)

 

 

(68

)

 

 

(37

)

Other expense

 

 

1

 

 

 

9

 

 

 

16

 

 

 

39

 

Total other (income) expense

 

 

(33

)

 

 

(17

)

 

 

(52

)

 

 

2

 

Loss before income taxes

 

 

(1,877

)

 

 

(1,247

)

 

 

(6,860

)

 

 

(5,305

)

Income tax expense

 

 

4

 

 

 

52

 

 

 

84

 

 

 

134

 

Net loss

 

$

(1,881

)

 

$

(1,299

)

 

$

(6,944

)

 

$

(5,439

)

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.18

)

 

$

(0.13

)

 

$

(0.67

)

 

$

(0.53

)

Diluted

 

$

(0.18

)

 

$

(0.13

)

 

$

(0.67

)

 

$

(0.53

)

Weighted average shares used in calculating loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

10,430

 

 

 

10,210

 

 

 

10,370

 

 

 

10,179

 

Diluted

 

 

10,430

 

 

 

10,210

 

 

 

10,370

 

 

 

10,179

 

 

See accompanying notes.

 

4


 

Airgain, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)

 

 

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net loss

 

$

(1,881

)

 

$

(1,299

)

 

$

(6,944

)

 

$

(5,439

)

Comprehensive loss

 

$

(1,881

)

 

$

(1,299

)

 

$

(6,944

)

 

$

(5,439

)

 

See accompanying notes.

 

5


 

Airgain, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands)

(Unaudited)

 

 

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Total stockholders' equity, beginning balance

 

$

37,079

 

 

$

42,248

 

 

$

39,825

 

 

$

44,173

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock and additional paid-in capital:

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

113,599

 

 

 

109,186

 

 

 

111,282

 

 

 

106,971

 

Stock-based compensation

 

 

500

 

 

 

964

 

 

 

3,342

 

 

 

3,043

 

Common stock withheld related to net share settlement of equity awards

 

 

 

 

 

167

 

 

 

(690

)

 

 

 

Issuance of shares for stock purchase and option plans

 

 

67

 

 

 

(68

)

 

 

232

 

 

 

235

 

Balance at end of period

 

 

114,166

 

 

 

110,249

 

 

 

114,166

 

 

 

110,249

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury stock:

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at cost -at beginning of period

 

 

(5,364

)

 

 

(5,364

)

 

 

(5,364

)

 

 

(5,364

)

Balance, at cost -at end of period

 

 

(5,364

)

 

 

(5,364

)

 

 

(5,364

)

 

 

(5,364

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated deficit:

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

(71,156

)

 

 

(61,574

)

 

 

(66,093

)

 

 

(57,434

)

Net loss

 

 

(1,881

)

 

 

(1,299

)

 

 

(6,944

)

 

 

(5,439

)

Balance at end of period

 

 

(73,037

)

 

 

(62,873

)

 

 

(73,037

)

 

 

(62,873

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders' equity, ending balance

 

$

35,765

 

 

$

42,012

 

 

$

35,765

 

 

$

42,012

 

 

See accompanying notes.

 

6


 

Airgain, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

 

Nine months ended September 30,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(6,944

)

 

$

(5,439

)

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

 

 

 

 

 

 

Depreciation

 

 

500

 

 

 

502

 

Loss on disposal of property and equipment

 

 

 

 

 

3

 

Amortization of intangible assets

 

 

2,227

 

 

 

2,269

 

Stock-based compensation

 

 

2,472

 

 

 

3,575

 

Deferred tax liability

 

 

7

 

 

 

24

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Trade accounts receivable

 

 

2,469

 

 

 

1,305

 

Inventories

 

 

276

 

 

 

(396

)

Prepaid expenses and other current assets

 

 

203

 

 

 

(733

)

Other assets

 

 

6

 

 

 

109

 

Accounts payable

 

 

(1,100

)

 

 

2,353

 

Accrued compensation

 

 

(1,338

)

 

 

(54

)

Accrued liabilities and other

 

 

(102

)

 

 

(1,383

)

Lease liabilities

 

 

(40

)

 

 

(52

)

Net cash (used in) provided by operating activities

 

 

(1,364

)

 

 

2,083

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(172

)

 

 

(634

)

Proceeds from sale of equipment

 

 

 

 

 

10

 

Net cash used in investing activities

 

 

(172

)

 

 

(624

)

Cash flows from financing activities:

 

 

 

 

 

 

Cash paid for business acquisition contingent consideration

 

 

 

 

 

(7,015

)

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

 

 

(690

)

 

 

-

 

Issuance of common stock, net

 

 

232

 

 

 

235

 

Net cash used in financing activities

 

 

(458

)

 

 

(6,780

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(1,994

)

 

 

(5,321

)

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

 

 

12,078

 

 

 

14,686

 

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

 

$

10,084

 

 

$

9,365

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Income taxes paid

 

$

78

 

 

$

196

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

Operating lease liabilities resulting from right-of-use assets

 

$

11

 

 

$

364

 

Accrual of property and equipment

 

$

17

 

 

$

19

 

 

 

 

 

 

 

 

Cash, cash equivalents, and restricted cash:

 

 

 

 

 

 

Cash and cash equivalents

 

$

9,989

 

 

$

9,190

 

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

 

 

95

 

 

$

175

 

Total cash, cash equivalents, and restricted cash

 

$

10,084

 

 

$

9,365

 

 

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 Corp. 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, 2022, 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 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.

Note 2. Summary of Significant Accounting Policies

During the nine months ended September 30, 2023, 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, 2022.

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

8


 

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.

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 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, 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 us, 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

Goodwill represents the excess of cost over fair value of net assets acquired. We account for our goodwill under the authoritative guidance Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350 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. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows and risk-adjusted discount rates. 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

Other Intangible Assets

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.

9


 

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

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 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. We only apply the five-step model when it is probable that we will collect substantially all of the consideration that we are entitled in exchange for the goods or services that we transfer 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. Most 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 relate to purchased asset trackers with activated data lines, through a third-party service provider. Subscription plans are recognized monthly. Service revenues are earned based on contractual milestones. Prepayments are deferred revenues and are recorded as contract liabilities. We recognize the contract liabilities over service periods ranging from three (3) to eighteen (18) months.

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.

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.

10


 

There were no contract assets as of September 30, 2023 and December 31, 2022.

 

Shipping and Transportation Costs

Shipping and other transportation costs expensed as incurred were $0.1 million for each of the three months ended September 30, 2023 and 2022. 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.

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 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.

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

In June 2016, the Financial Accounting Standards Board (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. The Company adopted this standard in the first quarter of fiscal 2023; it did not have a material impact on our financial statements.

 

Recently Issued Accounting Pronouncements

There were no recently issued accounting pronouncements that the Company expects to have a material impact on the Company's financial statements.

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

11


 

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 September 30,

 

 

Nine months ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(1,881

)

 

$

(1,299

)

 

$

(6,944

)

 

$

(5,439

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

 

10,430

 

 

 

10,210

 

 

 

10,370

 

 

 

10,179

 

Plus dilutive effect of potential common shares

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average common shares outstanding

 

 

10,430

 

 

 

10,210

 

 

 

10,370

 

 

 

10,179

 

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.18

)

 

$

(0.13

)

 

$

(0.67

)

 

$

(0.53

)

Diluted

 

$

(0.18

)

 

$

(0.13

)

 

$

(0.67

)

 

$

(0.53

)

 

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 September 30,

 

 

Nine months ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Stock options, restricted stock and performance stock

 

 

2,211

 

 

 

2,207

 

 

 

2,290

 

 

 

2,033

 

Common stock equivalent shares

 

 

2,211

 

 

 

2,207

 

 

 

2,290

 

 

 

2,033

 

 

Note 4. Cash and Cash Equivalents

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

 

 

 

September 30, 2023

 

 

December 31, 2022

 

Cash

 

$

9,719

 

 

$

8,323

 

Level 1:

 

 

 

 

 

 

Money market funds

 

 

270

 

 

 

3,580

 

Total

 

$

9,989

 

 

$

11,903

 

 

Restricted Cash

As of September 30, 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 $55,000 of which is restricted for more than twelve months and recorded in other assets in the Company’s consolidated balance sheet. As of December 31, 2022, the Company had $175,000 in cash on deposit to secure certain lease commitments.

Note 5. Inventory

Inventories are comprised of the following (in thousands):

 

 

 

September 30, 2023

 

 

December 31, 2022

 

Raw materials

 

$

864

 

 

$

1,060

 

Finished goods

 

 

3,086

 

 

 

3,166

 

Total Inventory

 

$

3,950

 

 

$

4,226

 

 

12


 

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

 

 

 

September 30, 2023

 

 

December 31, 2022

 

Raw materials

 

$

990

 

 

$

631

 

Finished goods

 

 

1,580

 

 

 

2,272

 

Total Consigned Inventory

 

$

2,570

 

 

$

2,903

 

 

Excess and obsolete inventory reserves were $1.0 million and $0.9 million as of September 30, 2023 and December 31, 2022, respectively.

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):

 

 

 

September 30, 2023

 

 

December 31, 2022

 

Manufacturing and testing equipment

 

$

5,261

 

 

$

5,194

 

Leasehold improvements

 

 

848

 

 

 

848

 

Computers and software

 

 

752

 

 

 

703

 

Furniture, fixtures, and equipment

 

 

427

 

 

 

409

 

Construction in process

 

 

55

 

 

 

16

 

Property and equipment, gross

 

 

7,343

 

 

 

7,170

 

Less accumulated depreciation

 

 

(4,889

)

 

 

(4,405

)

Property and equipment, net

 

$

2,454

 

 

$

2,765

 

Depreciation expense was $0.2 million for each of the three months ended September 30, 2023 and 2022 and $0.5 million for each of the nine months ended September 30, 2023 and 2022, 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):

 

 

 

September 30, 2023

 

 

 

Weighted average amortization period (in years)

 

Gross carrying amount

 

 

Accumulated amortization

 

 

Net carrying amount

 

Market related intangibles

 

5

 

$

1,820

 

 

$

1,049

 

 

$

771

 

Customer relationships

 

7

 

 

13,780

 

 

 

8,425

 

 

$

5,355

 

Developed technologies

 

11

 

 

4,380

 

 

 

1,529

 

 

$

2,851

 

Covenants to non-compete

 

2

 

 

115

 

 

 

115

 

 

$

 

Total intangible assets, net