UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
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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:
CALAMP CORP.
(Exact name of Registrant as specified in its Charter)
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(State or other jurisdiction of |
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(I.R.S. Employer |
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incorporation or organization) |
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Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Name of Each Exchange On Which Registered |
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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.
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).
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.
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Large accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares outstanding of the registrant’s common stock as of June 21, 2022 was
CALAMP CORP.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MAY 31, 2022
TABLE OF CONTENTS
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Page Number |
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PART I – FINANCIAL INFORMATION |
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ITEM 1. |
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3 |
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Condensed consolidated balance sheets (unaudited) as of May 31, 2022 and February 28, 2022 |
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6 |
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Notes to unaudited condensed consolidated financial statements |
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ITEM 2. |
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Management’s discussion and analysis of financial condition and results of operations |
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ITEM 3. |
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31 |
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ITEM 4. |
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31 |
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PART II – OTHER INFORMATION |
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ITEM 1. |
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32 |
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ITEM 1A. |
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32 |
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ITEM 2. |
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33 |
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ITEM 6. |
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34 |
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2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CALAMP CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
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May 31, |
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February 28, |
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Assets |
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2022 |
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2022 |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Deferred income tax assets |
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Goodwill |
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Other intangible assets, net |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders' Equity |
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Current liabilities: |
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Current portion of long-term debt |
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$ |
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$ |
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Accounts payable |
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Accrued payroll and employee benefits |
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Deferred revenue |
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Other current liabilities |
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Total current liabilities |
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Long-term debt, net of current portion |
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Operating lease liabilities |
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Other non-current liabilities |
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Total liabilities |
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Commitments and contingencies |
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Stockholders' equity: |
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Preferred stock, $ |
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Common stock, $ issued and outstanding at May 31, 2022 and February 28, 2022, respectively |
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Additional paid-in capital |
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Accumulated deficit |
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Accumulated other comprehensive loss |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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See accompanying notes to condensed consolidated financial statements.
3
CALAMP CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands, except per share amounts)
(Unaudited)
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Three Months Ended |
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May 31, |
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2021 |
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Revenues: |
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Products |
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$ |
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$ |
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Application subscriptions and other services |
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Total revenues |
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Cost of revenues: |
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Products |
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Application subscriptions and other services |
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Total cost of revenues |
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Gross profit |
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Operating expenses: |
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Research and development |
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Selling and marketing |
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General and administrative |
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Intangible asset amortization |
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Total operating expenses |
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Operating loss |
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Non-operating income (expense): |
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Investment income (loss) |
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Interest expense |
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Other expense, net |
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Total non-operating expenses |
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Loss from continuing operations before income taxes |
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Income tax provision from continuing operations |
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Net loss from continuing operations |
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Net income from discontinued operations, net of tax |
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— |
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Net loss |
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$ |
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$ |
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Loss per share - continuing operations: |
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Basic |
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$ |
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Diluted |
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$ |
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$ |
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Earnings per share - discontinued operations: |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
- |
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$ |
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Shares used in computing earnings (loss) per share: |
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Basic |
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Diluted |
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Comprehensive income (loss): |
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Net loss |
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$ |
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$ |
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Other comprehensive income (loss): |
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Foreign currency translation adjustments |
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Total comprehensive loss |
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$ |
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$ |
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See accompanying notes to condensed consolidated financial statements.
4
CALAMP CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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Three Months Ended |
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May 31, |
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2022 |
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2021 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
$ |
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$ |
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Less: Net income from discontinued operations, net of tax |
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- |
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Net loss from continuing operations |
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Adjustments to reconcile net loss from continuing operations to net cash provided by (used in) operating activities: |
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Depreciation expense |
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Intangible asset amortization |
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Stock-based compensation |
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Amortization of debt issuance costs and discount |
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Noncash operating lease cost |
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Revenue assigned to factors |
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Deferred tax assets, net |
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Other |
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Changes in operating assets and liabilities of continuing operations: |
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Accounts receivable |
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Inventories |
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Prepaid expenses and other assets |
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Accounts payable |
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Accrued liabilities |
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Deferred revenue |
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Operating lease liabilities |
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Net cash provided by (used in) operating activities - continuing operations |
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Net cash used in operating activities - discontinued operations |
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- |
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Capital expenditures |
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Net cash used in investing activities - continuing operations |
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Net cash provided by investing activities - discontinued operations |
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— |
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Taxes paid related to net share settlement of vested equity awards |
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Proceeds from exercise of stock options and contributions to employee stock purchase plan |
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- |
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NET CASH USED IN FINANCING ACTIVITIES |
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EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |
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( |
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Net change in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
$ |
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$ |
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See accompanying notes to condensed consolidated financial statements.
5
CALAMP CORP.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
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Three Months Ended |
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May 31, |
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2022 |
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2021 |
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Total stockholders' equity, beginning balances |
$ |
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$ |
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Common stock and additional paid-in capital: |
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Beginning balances |
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Cumulative-effect adjustment related to the adoption of ASU 2020-06 |
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— |
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Stock-based compensation expense |
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Shares issued on net share settlement of equity awards |
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Exercise of stock options and contributions to employee stock purchase plan |
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— |
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Ending balances |
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Accumulated deficit: |
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Beginning balances |
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Cumulative-effect adjustment related to the adoption of ASU 2020-06 |
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— |
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Net loss |
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( |
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( |
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Ending balances |
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( |
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Accumulated other comprehensive income (loss): |
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Beginning balances |
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Foreign currency translation adjustments |
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Ending balances |
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Total stockholders' equity, ending balances |
$ |
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$ |
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See accompanying notes to condensed consolidated financial statements. |
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6
CALAMP CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MAY 31, 2022 AND 2021
NOTE 1 - DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
CalAmp Corp. (including its subsidiaries unless the context otherwise requires, “CalAmp”, “the Company”, “we”, “our”, or “us”) is a connected intelligence company that leverages a data-driven solutions ecosystem to help people and organizations improve operational performance. We solve complex problems for customers within the market verticals of transportation and logistics, commercial and government fleets, industrial equipment, and consumer vehicles by providing solutions that track, monitor, and recover their vital assets. The data and insights enabled by CalAmp solutions provide real-time visibility into a user’s vehicles, assets, drivers, and cargo, giving organizations greater understanding and control of their operations. Ultimately, these insights drive operational visibility, safety, efficiency, maintenance, and sustainability for organizations around the world. We are a global organization that is headquartered in Irvine, California.
Recent Events
COVID-19
In March 2020, the World Health Organization declared COVID-19 (“COVID-19” or the “pandemic”) to be a public health pandemic of international concern, which has led to adverse impacts on the U.S. and global economies and continues to impact our supply chain and operations. More recently, we have experienced supply shortages as a result of global supply imbalances driven by component shortages, disruptions in accessible labor, other freight and logistical challenges and other related macro-economic factors. These supply imbalances negatively impacted all parts of our business during fiscal 2022 and have continued into fiscal 2023. It is difficult to predict the extent to which these factors will continue to impact our future business or operating results, which are highly dependent on uncertain future developments, including the severity of the continuing pandemic, the actions taken or to be taken by governments and private businesses in relation to the resolution of supply chain issues and component shortages. Because our business is dependent on telematics product sales, device installations and related subscription-based services, the ultimate effect of these factors may not be fully reflected in our operating results until future periods.
Transition of MRM Telematics Customers to Subscription Arrangements
In the second half of fiscal 2022, we prompted a strategic shift with customers who have historically purchased Mobile Resource Management (“MRM”) telematics devices from us. These customers are being transitioned to subscription-based arrangements by way of bundling services with telematics devices under multi-year (generally three years) subscription contracts. Our plan is to transition the MRM business to multi-year subscription contracts over the course of fiscal 2023. As a result, our financial results associated with such subscription arrangements will be reported within our Software & Subscription Services reporting segment prospectively from the effective date of such underlying contracts. In the short term, we expect that this will lead to significant growth in our Software & Subscription Services business with a corresponding decline in our Telematics Products business. Long term we believe this shift will allow us to drive revenue growth as we generate incremental revenue from our existing customer base as well as new customers through current and anticipated broader future subscription service offerings.
Basis of Presentation
In the opinion of our management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary to present fairly our financial position at May 31, 2022 and our results of operations for the three months ended May 31, 2022 and 2021. The results of operations for such periods are not necessarily indicative of results to be expected for the full fiscal year ending February 28, 2023.
Certain notes and other information included in the audited financial statements in our Annual Report on Form 10-K for the fiscal year ended February 28, 2022 are condensed in or omitted from the interim financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with our 2022 Annual Report on Form 10-K as filed with the U.S. Securities and Exchange Commission (“SEC”) on April 28, 2022.
All intercompany transactions and accounts have been eliminated in consolidation.
Effective March 15, 2021, the Company and Spireon Holdings, L.P. (“Spireon”) entered into a purchase agreement pursuant to which we sold certain assets and transferred certain liabilities of the LoJack U.S. and Canadian SVR (“LoJack North America”) business to Spireon for a purchase price of $8.0 million. Operations for LoJack North America are presented as discontinued operations in the accompanying condensed consolidated financial statements for the three months ended May 31, 2021. See Note 2, Discontinued Operations, for additional information.
Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We have considered all known and reasonably available information that existed throughout the three months ended and as of May 31, 2022 in making accounting judgements, estimates and disclosures. We are monitoring the potential effects of the health care related and economic conditions of COVID-19 in assessing certain matters including (but not limited to) supply chain disruptions, decreases in customer demand for our products and services, potential longer-term effects on our customer and distribution channels particularly in the U.S. and relevant end markets as well as
7
other developments. If the impact results in longer term closures of businesses and economic recessionary conditions, we may recognize material asset impairments and charges for uncollectible accounts receivable in future periods.
Revenue Recognition
Revenues from subscription services are recognized ratably on a straight-line basis over the term of the subscription, which generally ranges from .
We recognize revenue from telematics product sales upon the transfer of control of promised products to customers in an amount that reflects the transaction price. Customers generally do not have a right of return except for defective products returned during the warranty period. We record estimated commitments related to customer incentive programs as reductions of revenues.
From time to time, we provide various professional services to customers. These services include project management, engineering services and installation services, which are often distinct from other performance obligations and are recognized as the related services are performed. For certain professional service contracts, we recognize revenue based on the proportion of total costs incurred to-date over the estimated cost of the contract, which is an input method.
In many customer arrangements, subscription services are bundled with the sale or lease of telematics devices within the same contractual arrangement. To determine the performance obligations under these arrangements, we assess the contractual elements and, in particular, whether the telematics products within the arrangement are distinct. This is an area of judgment that includes the consideration of all elements of the arrangement. Significant factors in determining whether telematics devices are distinct are whether such devices are sold separately, as well as the degree of integration and interdependency between the subscription elements of the arrangement and the associated telematics devices. If we conclude that the telematics devices within a customer arrangement are distinct and therefore represent a separate performance obligation, the total expected consideration associated with the contract is allocated between the performance obligations based upon the relative stand-alone selling price associated with each performance obligation. We base stand-alone selling prices on pricing for the same or similar items.
For some customer arrangements, we have concluded that the subscription services and associated telematics devices are not distinct performance obligations and thus represent a single combined performance obligation. For certain other customer arrangements under which devices are leased in combination with subscription services, we consider the arrangement to be predominately a subscription service and thus a combined single performance obligation for purposes of revenue recognition. In both of these circumstances, we generally recognize the total expected consideration as revenue over the term of the subscription. Device related costs associated with arrangements in which title to the device is transferred to the customer under a single combined performance obligation are recorded as deferred costs on the balance sheet and are amortized into cost of revenues over the term of the subscription or the estimated in-service lives of the devices. In contractual arrangements under which we provide devices as part of the subscription contract but we retain control of the devices, the cost of the devices is capitalized as property and equipment and depreciated over the estimated useful life of .
As described above, we are in the process of transitioning our MRM customer base to subscription arrangements. This transition may have an impact on our future determinations around contractual performance obligations as we anticipate selling fewer telematics products that do not include related subscription services.
We exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by us from a customer.
The timing of revenue recognition may differ from the timing on our invoicing to customers. Contract assets are comprised of unbilled amounts for which we have transferred products or provided services to our customers and are classified as accounts receivable. Contract liabilities (deferred revenues) are comprised of billings or payments received from our customers in advance of performance under the contract. During the three months ended May 31, 2022, we recognized $
Incremental costs of obtaining a contract with a customer consist of sales commissions, which are recognized on a straight-line basis over the life of the corresponding contracts. Prepaid sales commissions included in prepaid expenses and other current assets and other assets were $
8
We disaggregate revenue from contracts with customers into reportable segments, geography, type of goods and services and timing of revenue recognition. See Note 14, Segment Information and Geographic Data, for our revenue by segment and geography. The disaggregation of revenue by type of goods and services and by timing of revenue recognition is as follows (in thousands):
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Three Months Ended |
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May 31, |
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2022 |
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|
2021 |
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Revenue by type of goods and services: |
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Telematics devices and accessories |
$ |
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|
$ |
|
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|
Rental income and other services |
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Recurring application subscriptions |
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Total |
$ |
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|
$ |
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Three Months Ended |
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May 31, |
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|||||
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2022 |
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|
2021 |
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||
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Revenue by timing of revenue recognition: |
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|
|
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Revenue recognized at a point in time |
$ |
|
|
|
$ |
|
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Revenue recognized over time |
|
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|
|
|
|
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Total |
$ |
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|
|
$ |
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|
Telematics devices and accessories revenues presented in the table above include devices sold in customer arrangements that include both device and subscription services. Revenues related to recurring application subscriptions include subscription revenues as well as amortization of deferred revenue for contractual arrangements under which the subscription services and associated telematics devices were determined to be a single combined performance obligation.
Remaining performance obligations for Software & Subscription Services represents contracted revenue that has not yet been recognized, which includes deferred revenue on our consolidated balance sheets and unbilled amounts that will be recognized as revenue in future periods. As of May 31, 2022 and February 28, 2022, we have estimated remaining performance obligations for contractually committed revenues of $
Cash and Cash Equivalents
We consider all highly liquid investments with maturities at date of purchase of three months or less to be cash equivalents.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable consists of amounts due to us from sales arrangements executed in our normal business activities and are recorded at invoiced amounts or in some cases amounts expected to be invoiced. Our payment terms generally range between of our invoice date with a few exceptions that extend the credit terms up to
Due to the COVID-19 pandemic and other related macro-economic factors, there has been uncertainty and disruption in the global economy and financial markets. Except for the increase in expected credit losses, we are not aware of any specific event or circumstances that would require an update to our estimates or assumptions or a revision of the carrying value of our assets or liabilities as of the date of this quarterly report. These estimates and assumptions may change as new events occur and additional information is obtained. As a result, actual results could differ materially from these estimates and assumptions.
We group all accounts receivables and lease receivables into a single portfolio and analyze the credit risk associated with our accounts receivables and lease receivables. Our historical loss rates have not shown any significant differences between customer industries or geographies. As disclosed in Note 15, Segment Information and Geographic Data, we do not have significant international geographic concentrations of revenue, and, as a result, we do not have significant concentrations of accounts receivables or lease receivables in any single geography outside of the United States.
9
The allowance for doubtful accounts totaled $
Goodwill and Other Long-Lived Assets
Goodwill and long-lived assets to be held and used, including identifiable intangible assets, are reviewed for impairment annually in the fourth quarter or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. These events or changes in circumstances may include a significant deterioration of operating results, changes in business plans or changes in anticipated future cash flows. If an impairment indicator is present, we evaluate recoverability by a comparison of the carrying amount of the assets or reporting unit to the estimated fair value of those assets or reporting unit determined using either an income approach, a market approach, or a combination of both. If the assets are impaired, the impairment recognized is the amount by which the carrying amount exceeds the fair value of the assets.
Fair Value Measurements
We apply fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in our financial statements. We define fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly manner in an arm’s-length transaction between market participants at the measurement date. Fair value is estimated by using the following hierarchy:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
Litigation and Other Contingencies
We accrue for litigation and other contingencies whenever we determine that an unfavorable outcome is probable and a liability is reasonably estimable. The amount of the accrual is estimated based on a review of each claim, including the type and facts of the claim and our assessment of the merits of the claim. These accruals are reviewed at least on a quarterly basis and are adjusted to reflect the impact of recent negotiations, settlements, court rulings, advice from legal counsel and other events pertaining to the case. Such accruals, if any, are recorded as general and administrative expenses in our condensed consolidated statements of comprehensive loss. Although we take considerable measures to mitigate our exposure in these matters, litigation is unpredictable; however, we believe that we have valid defenses with respect to pending legal matters against us as well as adequate provisions for probable and estimable losses. All costs for legal services are expensed as incurred.
Foreign Currency Translation
We translate the assets and liabilities of our non-U.S. dollar functional currency subsidiaries into U.S. dollars using exchange rates in effect at the end of each period. Revenue and expenses for these subsidiaries are translated using rates that approximate those in effect during the period. Gains and losses from these translations are recognized in foreign currency translation included in accumulated other comprehensive income (loss) during the period. The aggregate foreign currency transaction exchange rate gain (loss) included in determining income (loss) before income taxes was ($
Comprehensive Income (Loss)
Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (loss) (“OCI”). OCI refers to revenue, expenses and gains and losses that under GAAP are recorded as an element of stockholders’ equity and excluded from net income (loss). Our OCI consists of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency.
Recently Adopted Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), which removes certain separation models for convertible debt instruments and convertible preferred stock that require the separation of a convertible debt instrument into a debt component and an equity or derivative component. Specifically, the new pronouncement removes the separation models for convertible debt with a cash conversion feature or convertible instruments with a beneficial conversion feature. We adopted ASU 2020-06 effective March 1, 2022, the beginning of fiscal 2023, utilizing the modified retrospective approach whereby the cumulative effect of the change in accounting was recognized as an adjustment to the opening balance of retained earnings (accumulated deficit) at the date of adoption. Comparative information has not been restated and continues to be presented in accordance with accounting standards that were in effect for those periods.
Prior to the adoption of ASU 2020-06, we allocated the gross proceeds of the Convertible Notes between the liability and equity components under the cash conversion feature model using the accounting rules in GAAP (ASC 470-20). The carrying amount of the liability component was calculated based on the fair value of a similar debt instrument excluding the embedded conversion option at the issuance date. The carrying
10
amount of the equity component representing the conversion option was calculated by deducting the carrying value of the liability component from the principal amount of the notes as a whole. This difference represented a debt discount and was being amortized to interest expense over the term of the notes using the effective interest rate method. The equity component of the notes was included in stockholders’ equity and was not remeasured as long as it continued to meet the conditions for equity classification.
Effective March 1, 2022, we no longer separately present in equity an embedded conversion feature of such debt. Instead, we account for a convertible debt instrument wholly as debt unless (i) the convertible debt instrument contains features that require bifurcation as a derivative or (ii) the convertible debt instrument was issued at a substantial premium. Prior to the adoption of ASU 2020-06, debt issuance costs attributable to the liability component were amortized to interest expense using the effective interest method and debt issuance costs attributable to the equity component were netted with the equity component in stockholders’ equity. Upon adoption, the entire amount of debt issuance costs is reflected as a contra-liability and amortized as interest expense using the effective interest method over the respective term of the notes. We account for the cost of the capped calls as a reduction to additional paid-in capital.
After adopting the new guidance, the use of the if-converted method is required when calculating diluted earnings per share (“EPS”) for convertible instruments and the treasury stock method should no longer be used. Under the new guidance, convertible instruments that may be settled in cash or shares are to be included in the calculation of diluted EPS if the effect is more dilutive, with no option for rebutting the presumption of share settlement based on stated policy or past experience. If we make an irrevocable election to settle the principal of the Convertible Notes in cash and the excess conversion spread in shares, the if-converted method will result in a reduced number of shares issued to reflect only the excess conversion.
The below adoption adjustments were calculated based on the carrying amount of the Convertible Notes as if it had always been treated as a liability only. Furthermore, these adjustments address the debt issuance costs contra-liability and equity (additional paid-in capital) components under the same premise (i.e., as if the total amount of debt issuance costs had always been treated as a contra-liability only). Lastly, we derecognized the deferred income taxes associated with the debt discount and adjusted deferred income taxes relative to unamortized debt issuance costs associated with the Convertible Notes. This resulted in a net increase in gross deferred tax assets of $
The following table summarizes the impact of the adoption of ASU 2020-06 on our consolidated balance sheet on March 1, 2022 (in thousands).
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February 28, 2022 |
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ASU 2020-06 |
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March 1, 2022 |
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As Reported |
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Adoption Impact |
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As Adjusted |
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Deferred income tax assets, net |
$ |
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$ |
- |
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Total debt (1) |
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Additional paid-in-capital |
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( |
) |
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Accumulated deficit |
$ |
( |
) |
|
$ |
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$ |
( |
) |
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(1) |
Prior to adoption, the carrying value of convertible debt represented the principal amount less unamortized debt discount and unamortized debt issuance costs. After adoption, the carrying value of convertible debt represents the principal amount less unamortized debt issuance costs. |
Recently Issued Accounting Pronouncements, Not Yet Adopted
There are currently no accounting standards that have been issued but not yet adopted that we believe will have a significant impact on our unaudited condensed consolidated financial position, results of operations or cash flows.
NOTE 2 – DISCONTINUED OPERATIONS
Effective March 15, 2021, a wholly owned subsidiary of the Company and Spireon entered into an agreement (“Sale Agreement”) pursuant to which we sold certain assets and transferred certain liabilities of the LoJack North America business (“LoJack Transaction”) for an upfront cash purchase price of approximately $
11
Concurrent with the closing of the transaction, we also entered into a Transition Services Agreement (the “TSA”) to provide support to Spireon in the transition of customers to its telematics solution and to provide recovery services to the existing installed base of LoJack North America customers, as an agent of Spireon, for a period of six months commencing March 15, 2021. Subsequently, the transition period was extended and then effectively terminated on March 31, 2022. As consideration for these services, Spireon reimbursed us for the direct and certain indirect costs, as well as certain overhead or administrative expenses related to operating the business. Additionally, we entered into a services agreement that commenced April 1, 2022 upon the expiration of the TSA, under which we will provide certain services related to the LoJack North America tower infrastructure for a period no longer than forty-eight months. As consideration for these services, Spireon will pay us a monthly service fee over the stipulated contract term. Further, we entered into a license agreement pursuant to which we license certain intellectual property rights related to the LoJack North America business in the U.S. and Canada to Spireon. In connection with the services provided to Spireon during the three months ended May 31, 2022, we incurred a total cost of $
The operating results and cash flows related to the LoJack North America operations are reflected as discontinued operations in the unaudited condensed consolidated statements of comprehensive loss for the three months ended May 31, 2021, and the unaudited condensed consolidated statements of cash flows for the three months ended May 31, 2021. For the three months ended May 31, 2021, we have reported the operating results and cash flows related to the LoJack North America operations through March 14, 2021:
The amounts in the statement of operations that are included in discontinued operations are summarized in the following table (in thousands):
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Three Months Ended |
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May 31, |
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2021 |
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Revenues |
|
$ |
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Cost of revenues |
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Gross profit (loss) |
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( |
) |
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Operating expenses: |
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Research and development |
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Selling and marketing |
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General and administrative |
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Intangible asset amortization |
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Restructuring |
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Impairment losses |
|
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— |
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Total operating expenses |
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Operating loss from discontinued operations |
|
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( |
) |
|
Gain on sale of discontinued operations |
|
|
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|
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Net income from discontinued operations, net of tax |
|
$ |
|
|
12
The amounts in the statement of cash flows that are included in discontinued operations are summarized in the following table (in thousands):
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Three Months Ended |
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May 31, |
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2021 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income from discontinued operations, net of tax |
$ |
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Adjustments to reconcile net income from discontinued operations to net cash used in operating activities: |
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Intangible asset amortization |
|
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Stock-based compensation |
|
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Gain on sale of discontinued operations |
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( |
) |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Inventories |
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Prepaid expenses and other current assets |
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Accounts payable |
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( |
) |
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Accrued liabilities |
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( |
) |
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Deferred revenue |
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( |
) |
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NET CASH USED IN OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS |
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( |
) |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Net proceeds from sale of discontinued operations |
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NET CASH PROVIDED BY INVESTING ACTIVITIES OF DISCONTINUED OPERATIONS |
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Net change in cash and cash equivalents |
$ |
|
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NOTE 3 – CASH, CASH EQUIVALENTS AND INVESTMENTS
The following tables summarize our financial instrument assets (in thousands):
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As of May 31, 2022 |
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Balance Sheet Classification |
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of Fair Value |
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Unrealized |
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Cash and |
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Gains |
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Fair |
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Cash |
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Other |
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Cost |
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(Losses) |
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Value |
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Equivalents |
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Assets |
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Cash |
$ |
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$ |
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$ |
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$ |
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$ |
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Level 1: |
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Money market funds |
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</ | |||||||