10-Q 1 sonm-10q_20190630.htm 10-Q sonm-10q_20190630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

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: 001-38907

 

Sonim Technologies, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

 

94-3336783

( State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

1875 South Grant Street Suite 750

San Mateo, CA 94402

 

(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (650) 378-8100

 

Registrant’s telephone number, including area code: (650) 378-8100

 

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 $0.001 per share

 

SONM

 

The Nasdaq Stock Market LLC

 

 

 

 

 

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, 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 the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of August 1, 2019, the registrant had 20,357,783 shares of common stock, $0.001 par value per share, outstanding.

 

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

 

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations

2

 

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

3

 

Condensed Consolidated Statements of Cash Flows

4

 

Notes to Condensed Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

26

PART II.

OTHER INFORMATION

28

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

48

Item 3.

Defaults Upon Senior Securities

49

Item 4.

Mine Safety Disclosures

49

Item 5.

Other Information

49

Item 6.

Exhibits

50

Signatures

52

 

 

i


 

SONIM TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

JUNE 30, 2019 and DECEMBER 31, 2018 (UNAUDITED)

(IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE AND

PER SHARE AMOUNTS)

 

 

 

June 30, 2019

 

 

December 31, 2018

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

15,694

 

 

$

13,049

 

Accounts receivable, net

 

 

31,296

 

 

 

18,877

 

Inventory

 

 

26,495

 

 

 

21,831

 

Prepaid expenses and other current assets

 

 

9,484

 

 

 

10,111

 

Total current assets

 

 

82,969

 

 

 

63,868

 

Property and equipment, net

 

 

1,037

 

 

 

1,071

 

Other assets

 

 

1,907

 

 

 

2,406

 

Total assets

 

$

85,913

 

 

$

67,345

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

227

 

 

$

301

 

Accounts payable

 

 

18,972

 

 

 

27,295

 

Accrued expenses

 

 

17,325

 

 

 

16,381

 

Deferred revenue

 

 

305

 

 

 

4,223

 

Total current liabilities

 

 

36,829

 

 

 

48,200

 

Income tax payable

 

 

939

 

 

 

807

 

Long-term debt, less current portion

 

 

13,067

 

 

 

13,209

 

Total liabilities

 

 

50,835

 

 

 

62,216

 

Stockholders' equity

 

 

 

 

 

 

 

 

Common stock, $0.001 par value per share; 100,000,000 shares authorized:

   and 20,344,258 and 15,591,357 shares issued and outstanding at June

   30, 2019 and December 31, 2018, respectively.

 

 

20

 

 

 

15

 

Additional paid-in capital

 

 

190,874

 

 

 

148,641

 

Accumulated deficit

 

 

(155,816

)

 

 

(143,527

)

Total stockholders’ equity

 

 

35,078

 

 

 

5,129

 

Total liabilities and stockholders’ equity

 

$

85,913

 

 

$

67,345

 

 

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

 

 

1


 

SONIM TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30

 

 

June 30

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net revenues

 

$

43,747

 

 

$

31,450

 

 

$

70,231

 

 

$

49,640

 

Cost of revenues

 

 

28,937

 

 

 

20,910

 

 

 

46,041

 

 

 

33,837

 

Gross profit

 

 

14,810

 

 

 

10,540

 

 

 

24,190

 

 

 

15,803

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

8,233

 

 

 

5,625

 

 

 

16,635

 

 

 

10,767

 

Sales and marketing

 

 

4,218

 

 

 

2,866

 

 

 

7,943

 

 

 

5,409

 

General and administrative

 

 

7,424

 

 

 

1,453

 

 

 

9,900

 

 

 

3,045

 

Total operating expenses

 

 

19,875

 

 

 

9,944

 

 

 

34,478

 

 

 

19,221

 

Income (loss) from operations

 

 

(5,065

)

 

 

596

 

 

 

(10,288

)

 

 

(3,418

)

Interest expense

 

 

(555

)

 

 

(472

)

 

 

(977

)

 

 

(879

)

Other expense, net

 

 

(6

)

 

 

(99

)

 

 

(272

)

 

 

(216

)

Income (loss) before income taxes

 

 

(5,626

)

 

 

25

 

 

 

(11,537

)

 

 

(4,513

)

Income tax expense

 

 

(457

)

 

 

(148

)

 

 

(752

)

 

 

(681

)

Net loss

 

 

(6,083

)

 

 

(123

)

 

 

(12,289

)

 

 

(5,194

)

Cumulative dividends on Series A, Series A-1 and Series

   A-2 preferred shares

 

 

 

 

 

(3,000

)

 

 

 

 

 

(5,967

)

Net loss attributable to common stockholders

 

$

(6,083

)

 

$

(3,123

)

 

$

(12,289

)

 

$

(11,161

)

Net loss per share attributable to common stockholders,

   basic and diluted

 

$

(0.34

)

 

$

(3.01

)

 

$

(0.73

)

 

$

(10.78

)

Weighted–average shares used in computing net loss per

   share attributable to common stockholders, basic

   and diluted

 

 

18,120,143

 

 

 

1,036,059

 

 

 

16,950,375

 

 

 

1,035,345

 

 

 

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

 

 

2


 

SONIM TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

June 30, 2019

 

 

June 30, 2018

 

 

June 30, 2019

 

 

June 30, 2018

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

Convertible preferred stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

 

 

$

 

 

 

11,906,783

 

 

$

80,397

 

 

 

 

 

$

 

 

 

11,906,783

 

 

$

80,397

 

Issuance of shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, at end of period

 

 

 

 

$

 

 

 

11,906,783

 

 

$

80,397

 

 

 

 

 

$

 

 

 

11,906,783

 

 

$

80,397

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

15,873,705

 

 

$

16

 

 

 

1,035,570

 

 

$

1

 

 

 

15,591,357

 

 

$

15

 

 

 

1,027,113

 

 

$

1

 

Issuance of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

227,628

 

 

 

1

 

 

 

 

 

 

 

Issuance of common stock upon IPO

 

 

4,077,143

 

 

 

4

 

 

 

 

 

 

 

 

 

4,297,901

 

 

 

4

 

 

 

 

 

 

 

Net issuance of restricted stock award

 

 

220,758

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

 

17,314

 

 

 

 

 

 

1,520

 

 

 

 

 

 

72,034

 

 

 

 

 

 

9,977

 

 

 

 

Exercise of warrants

 

 

155,338

 

 

 

 

 

 

 

 

 

 

 

 

155,338

 

 

 

 

 

 

 

 

 

 

Balance, at end of period

 

 

20,344,258

 

 

 

20

 

 

 

1,037,090

 

 

 

1

 

 

 

20,344,258

 

 

 

20

 

 

 

1,037,090

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional paid-in capital:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

 

 

 

150,332

 

 

 

 

 

 

54,936

 

 

 

 

 

 

148,641

 

 

 

 

 

 

54,892

 

Issuance of common stock, net of issuance costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,603

 

 

 

 

 

 

 

Issuance of common stock upon IPO, net of issuance costs

 

 

 

 

 

36,845

 

 

 

 

 

 

 

 

 

 

 

 

36,845

 

 

 

 

 

 

 

Taxes paid on net issuance of restricted stock award

 

 

 

 

 

(1,897

)

 

 

 

 

 

 

 

 

 

 

 

(1,897

)

 

 

 

 

 

 

Exercise of stock options

 

 

 

 

 

14

 

 

 

 

 

 

 

 

 

 

 

 

55

 

 

 

 

 

 

11

 

Exercise of warrants

 

 

 

 

 

23

 

 

 

 

 

 

 

 

 

 

 

 

23

 

 

 

 

 

 

 

Employee and nonemployee stock-based compensation

 

 

 

 

 

5,557

 

 

 

 

 

 

33

 

 

 

 

 

 

5,604

 

 

 

 

 

 

66

 

Balance, at end of period

 

 

 

 

 

190,874

 

 

 

 

 

 

54,969

 

 

 

 

 

 

190,874

 

 

 

 

 

 

54,969

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated deficit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

 

 

 

 

(149,733

)

 

 

 

 

 

(149,875

)

 

 

 

 

 

(143,527

)

 

 

 

 

 

(144,804

)

Net loss

 

 

 

 

 

(6,083

)

 

 

 

 

 

(123

)

 

 

 

 

 

(12,289

)

 

 

 

 

 

(5,194

)

Balance, at end of period

 

 

 

 

 

(155,816

)

 

 

 

 

 

(149,998

)

 

 

 

 

 

(155,816

)

 

 

 

 

 

(149,998

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders' equity (deficit)

 

 

 

 

$

35,078

 

 

 

 

 

$

(95,028

)

 

 

 

 

$

35,078

 

 

 

 

 

$

(95,028

)

 

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

 

3


 

SONIM TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS OF U.S. DOLLARS)

 

 

 

Six Months Ended

 

 

 

June 30

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(12,289

)

 

$

(5,194

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,075

 

 

 

831

 

Stock-based compensation

 

 

5,604

 

 

 

66

 

Trade-in guarantee

 

 

(268

)

 

 

 

Noncash interest expense

 

 

50

 

 

 

556

 

Deferred income taxes

 

 

(11

)

 

 

(9

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(12,420

)

 

 

(7,921

)

Inventory

 

 

(4,664

)

 

 

(4,930

)

Prepaid expenses and other current assets

 

 

627

 

 

 

(4,770

)

Other assets

 

 

(41

)

 

 

(4

)

Accounts payable

 

 

(9,868

)

 

 

10,686

 

Accrued expenses

 

 

937

 

 

 

4,306

 

Deferred revenue

 

 

(3,649

)

 

 

1,272

 

Income tax payable

 

 

133

 

 

 

224

 

Net cash used in operating activities

 

 

(34,784

)

 

 

(4,887

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(247

)

 

 

(255

)

Development of tooling and purchased software licenses

 

 

(244

)

 

 

(1,233

)

Net cash used in investing activities

 

 

(491

)

 

 

(1,488

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from borrowings on long-term debt

 

 

 

 

 

5,000

 

Proceeds on line of credit

 

 

5,614

 

 

 

45,566

 

Repayment on line of credit

 

 

(5,878

)

 

 

(44,702

)

Proceeds from issuance of common stock, net of costs

 

 

1,604

 

 

 

 

Proceeds from issuance of common stock upon IPO, net of costs

 

 

38,399

 

 

 

 

Taxes paid on net Issuance of restricted stock award

 

 

(1,897

)

 

 

 

Cost associated with amendments to credit agreements

 

 

 

 

 

(48

)

Proceeds from exercise of warrants

 

 

23

 

 

 

 

Proceeds from exercise of stock options

 

 

55

 

 

 

11

 

Net cash provided by financing activities

 

 

37,920

 

 

 

5,827

 

Net increase (decrease) in cash and cash equivalents

 

 

2,645

 

 

 

(548

)

Cash and cash equivalents at beginning of period

 

 

13,049

 

 

 

1,581

 

Cash and cash equivalents at end of period

 

$

15,694

 

 

$

1,033

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

1,055

 

 

$

188

 

Cash paid for income taxes

 

 

352

 

 

 

61

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Other assets included in accounts payable

 

 

1

 

 

 

199

 

IPO issuance costs included in accounts payable

 

 

1,550

 

 

 

 

 

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

 

 

4


SONIM TECHNOLOGIES, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In thousands of U.S. dollars, except share and per share amounts or as otherwise disclosed)

NOTE 1 —The Company and its significant accounting policies

Description of Business —Sonim Technologies, Inc. was incorporated in the state of Delaware on August 5, 1999 and is headquartered in San Mateo, California. The Company is a leading U.S. provider of ultra-rugged mobile phones and accessories designed specifically for task workers physically engaged in their work environments, often in mission-critical roles.

 

Financial Statement Presentation—The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. The unaudited interim condensed consolidated financial statements, which reflect all adjustments (consisting of normal recurring items or items discussed herein) that management believes necessary to fairly state results of interim operations, should be read in conjunction with the Notes to Consolidated Financial Statements (including the Significant Accounting Policies and Recent Accounting Pronouncements) included in the Company’s audited consolidated financial statements for the year ended December 31, 2018, as filed with the SEC on Form S-1 (the “2018 Report”). Results of operations for interim periods are not necessarily indicative of annual results of operations. The unaudited condensed consolidated balance sheet at December 31, 2018 was extracted from the audited annual consolidated financial statements and does not include all disclosures required by U.S. GAAP for annual financial statements.

 

Principles of Consolidation — The accompanying condensed consolidated financial statements include the accounts of Sonim Technologies. Inc. and its wholly-owned foreign subsidiaries, Sonim Technologies Spain SL, Sonim Technologies India Private Limited, Sonim Technologies (Shenzhen) Limited, Sonim Technologies (Hong Kong) Limited, and Sonim Communications India Private Limited (collectively, the “Company”). All significant intercompany transactions and balances have been eliminated in consolidation.

Estimates —The preparation of condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates include, but are not limited to, estimates related to revenue recognition; valuation assumptions regarding the determination of the fair value of common stock, as well as stock options and warrants; the useful lives of our long-lived assets; product warranties; loss contingencies; and the recognition and measurement of income tax assets and liabilities, including uncertain tax positions; The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Significant accounting policies There have been no material changes in the accounting policies from those disclosed in the 2018 Report.

 

Revenue Recognition We recognize revenues primarily from the sale of products. We also enter into multiple-element agreements that include a combination of products and Non-Recurring Engineering (“NRE”) services.

Revenues from the sale of our mobile phones and accessories is recognized when all of the following conditions are met per Accounting Standards Codification, or ASC, Topic 605, Revenue Recognition, or ASC 605: (i) there is persuasive evidence of an arrangement; (ii) the product has been delivered to the customer; (iii) the collection of the fees is reasonably assured; and (iv) the amount of fees to be paid by the customer is fixed or determinable.

Terms of product sales are generally FOB destination. Revenue recognition also incorporates allowances for discounts, price protection, returns and customer incentives that can be reasonably estimated. In addition to cooperative marketing and other incentive programs, the Company has arrangements with some distributors, which allow for price protection and limited rights of return, generally through stock rotation programs. Under the price protection programs, the Company gives distributors credits for the difference between the original price paid and the Company’s then current price. Under the stock rotation programs, certain distributors are able to exchange certain products based on the number of qualified purchases made during the period. The Company monitors and tracks these programs and records a provision, at the time of the sale, for future payments or credits granted as reductions of revenue based on historical experience. Recorded revenues are reduced by these allowances.

5


SONIM TECHNOLOGIES, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of U.S. dollars, except share and per share amounts or as otherwise disclosed)

 

 

When revenue arrangements involve multiple elements, each element, referred to as a deliverable, is evaluated to determine whether it represents a separate unit of accounting in accordance with ASC 605-25, Revenue Recognition – Multiple-Element Arrangements. We perform this evaluation at the inception of an arrangement and as each item is delivered in the arrangement. Generally, we account for a deliverable separately if the delivered item has stand-alone value to the customer and delivery or performance of the undelivered item or service is probable and substantially in our control. When multiple elements can be separated into separate units of accounting, arrangement consideration is allocated at the inception of the arrangement, based on each unit’s relative selling price, and recognized based on the method most appropriate for that unit. When an arrangement includes NRE services which involve significant production, modification or customization of the product software that is essential to the functionality of the hardware, revenues are recognized according to the milestone method in accordance with the provisions of ASC Topic 605-35, Construction-Type and Production- Type Contract. Under this method, we recognize revenues from milestone payments when: (i) the milestone event is substantive and its achievability was not reasonably assured at the inception of the agreement, and (i) we do not have ongoing performance requirements related to the achievement of the milestone earned. Milestone payments are considered substantive if all of the following conditions are met: the milestone payment (i) is commensurate with either our performance to achieve the milestone or the enhancement of the value of the delivered item or items as a result of a specific outcome resulting from our performance to achieve the milestone, (ii) relates solely to past performance, and (iii) is reasonable relative to all of the deliverables and payment terms (including other potential milestone consideration) within the arrangement. If a milestone is deemed non-substantive, we defer, if applicable, and recognize such non-substantive milestones over the estimated period of performance applicable to each agreement on a straight-line basis, as appropriate.

Reverse Stock Split —In November 2018, the Company’s stockholders approved a one-for-fifteen reverse stock split of its common and convertible preferred stock which was effected on November 2, 2018. The par value of the common stock and convertible preferred stock were not adjusted as a result of the reverse stock split. Accordingly, all share and per share amounts for the period presented in the consolidated financial statements and notes thereto have been adjusted retrospectively to reflect this reverse stock split.

Initial Public Offering (“IPO”) —On May 14, 2019, the Company closed an initial public offering (“IPO’) in which the Company sold 3,571,429 shares of its common stock, at a price to the public of $11.00 per share. On May 22, 2019, the Company sold an additional 505,714 shares of common stock, and our Chief Executive Officer sold 30,000 shares of common stock, at a price to the public of $11.00 per share pursuant to the exercise of the underwriters’ option to purchase additional shares.  The offer and sale of the shares in the IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-230887), which was declared effective by the SEC on May 9, 2019. The Company raised approximately $36,849 in net proceeds, after deducting underwriting discounts and commissions of $3,139 and offering expenses paid by us of approximately $4,861 . Offering costs, which consist of direct incremental legal, consulting, banking and accounting fees relating to the Company’s IPO, are offset against proceeds from the IPO within stockholders’ equity. As of December 31, 2018, there was $63 of deferred offering costs within other non-current assets on the condensed consolidated balance sheets. During the six months ended June 30, 2019, $4,861 in deferred offering costs were incurred, and charged to additional paid in capital. $1,550 issuance cost was unpaid and charged to accounts payable/accrued expenses as of June 30, 2019.

New accounting pronouncements:

Pronouncements adopted in 2018:

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s consolidated financial statements with another public company, which is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period, difficult or impossible because of the potential differences in accounting standards used.

6


SONIM TECHNOLOGIES, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of U.S. dollars, except share and per share amounts or as otherwise disclosed)

 

 

In July 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-Controlling Interests with a Scope Exception. Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The adoption of ASU 2017-11 did not have an impact on the Company’s condensed consolidated financial statements for the periods presented.

Pronouncements not yet adopted:

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820)Changes to the Disclosure Requirements for Fair Value Measurement. The ASU eliminates certain disclosure requirements for fair value measurements for all entities and modifies some disclosure requirements. This ASU is effective for nonpublic entities beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating this new standard and the impact it will have on its existing accounting policies or presentation of the consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718). This ASU simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. This ASU is effective for nonpublic business entities for annual reporting periods beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating this new standard and the impact it will have on its existing accounting policies or presentation of the consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes—Intra-Entity Transfers of Assets Other Than Inventory. ASU 2016-16 requires entities to recognize income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments in ASU 2016-16 are effective for annual reporting periods beginning after December 15, 2018 and requires a modified retrospective method of adoption. Early adoption is permitted. The Company is in the process of determining the potential effects of this ASU on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments, which clarifies eight specific cash flow issues in an effort to reduce diversity in practice in how certain transactions are classified within the statement of cash flows. This ASU is effective for nonpublic business entities beginning after December 15, 2019 with early adoption permitted. The Company is currently evaluating this new standard and the impact it will have on its existing accounting policies or presentation of the consolidated statement of cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), as amended, which requires lessees to recognize a liability associated with obligations to make payments under the terms of the arrangement in addition to a right-of-use asset representing the lessee’s right to use, or control the use of the given asset assumed under the lease. The standard will be effective for nonpublic business entities for annual reporting periods beginning after December 15, 2019. The Company is currently evaluating this new standard and the impact it will have on its consolidated financial statements, information technology systems, process, and internal controls.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, as amended, which affect various aspects of recognition, measurement, presentation and disclosure of financial instruments. The amendment is effective for nonpublic business entities for annual periods beginning after December 15, 2018. Early application of certain provisions is permitted. The Company is in the process of determining the potential effects of this ASU on its consolidated financial statements.

7


SONIM TECHNOLOGIES, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of U.S. dollars, except share and per share amounts or as otherwise disclosed)

 

 

 

In May 2014, the FASB, issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), as amended, which affects any entity that either enters into contracts with customers to transfer goods and services or enters into contracts for the transfer of nonfinancial assets. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The standard has a five-step approach which includes identifying the contract or contracts, identifying the performance obligations, determining the transaction price, allocating the transaction price and recognizing revenue. In doing so, companies will need to use more judgment and make more estimates than under the currently effective guidance. These judgments may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The new standard may, in certain circumstances, impact the timing of when revenue is recognized for products shipped, and the timing and classification of certain sales incentives, which are expected to generally be recognized earlier than historical guidance. The standard also significantly expands the quantitative and qualitative disclosure requirements for revenue, which are intended to help users of financial statements understand the nature, amount, timing and uncertainty of revenue and the related cash flows. The standard will be effective for nonpublic business entities beginning for annual periods after December 15, 2018 and interim reporting periods within annual reporting periods beginning after December 15, 2019. While, early adoption is permitted, we plan to adopt the standard when it is effective for us in 2019.

The guidance permits two methods of adoption, the full retrospective method applying the standard to each prior reporting period presented, or the modified retrospective method with a cumulative effect of initially applying the guidance recognized at the date of initial application. The standard also allows entities to apply certain practical expedients at their discretion. We currently anticipate adopting the standard using the modified retrospective method with a cumulative adjustment and will provide additional disclosures comparing results to previous U.S. GAAP in our fiscal 2019 consolidated financial statements. We plan to apply the new revenue standards only to contracts not completed as of the date of initial application, referred to as open contracts.

While the Company’s evaluation of the impact of this new guidance is not complete, we believe the impact of the new standard related to revenue recognition will not have a material impact on our consolidated financial statements other than potentially expanded disclosures. More judgements and estimates are required under Topic 606 than are required under Topic 605, including estimating the stand alone selling price (“SSP”) for each performance obligation identified within our arrangements with multiple elements and estimating the amount of variable considerations at inception of the arrangement. We will continue to evaluate sales incentives provided to our customers in order to determine the transaction price at inception of the contract.

This preliminary assessment is based on the revenue arrangements currently in place. The exact impact of ASC 606 will be dependent on facts and circumstances at adoption and could vary from quarter to quarter. New products or offerings, or changes to current offerings, may yield significantly different impacts than currently expected. Our conclusions will be reassessed periodically based on current facts and circumstances. We are also evaluating accounting systems, processes and internal controls over revenue recognition to assist us in the application of the new standard.

NOTE 2 —Fair value measurement

The fair value measurements standard establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under the standard are described below:

Level 1—Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.

Level 2—Inputs to the valuation methodology include:

 

Quoted market prices for similar assets or liabilities in active markets;

 

Quoted prices for identical or similar assets or liabilities in inactive markets;

 

Inputs other than quoted prices that are observable for the asset or liability;

 

Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

8


SONIM TECHNOLOGIES, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of U.S. dollars, except share and per share amounts or as otherwise disclosed)

 

 

If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.

Level 3—Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

Following is a description of the valuation methodologies used for assets and liabilities measured at fair value. There have been no changes in the methodologies used at June 30, 2019 and 2018, and December 31, 2018.

Money market funds are classified within level 1 of the fair value hierarchy because they are valued using quoted market prices.

The warrant liability was classified within level 3 of the fair value hierarchy because there was no active market for the warrant or for similar warrants. The fair value of the Series A and Series B warrants at June 30, 2018, was estimated by first applying a weighting of the income approach and the market approach to determine the equity value of the Company. An Option-Pricing Method (“OPM”) was then used to allocate the total equity value of the Company to the different classes of equity according to their rights and preferences. As the Company was a private company at June 30, 2018, the fair value measurement was based on significant inputs that are not observable in the market thus represents Level 3 inputs. As of June 30, 2019, and December 31, 2018, as a result of the Company’s November 2018 stock conversion of preferred shares into common shares, all Series A and Series B warrants outstanding are now exercisable into common stock and are no longer required to be remeasured at fair value on a recurring basis.

Trade-in guarantee liability is classified within level 3 of the fair value hierarchy because the fair value measurement is based on inputs that are not observable in the market, including the probability and timing of a customer upgrading to a new device and the value of the upgraded device.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The following tables sets forth by level, within the fair value hierarchy, the Company’s assets and liabilities at fair value:

 

 

 

June 30, 2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds *

 

$

13,250

 

 

$

 

 

$

 

 

$

13,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade-in Guarantee**

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

December 31, 2018

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds *

 

$

11,006

 

 

$

 

 

$

 

 

$

11,006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade-in Guarantee**

 

$

 

 

$

 

 

$

268

 

 

$

268

 

 

*

Included in cash and cash equivalents on the condensed consolidated balance sheets.

**

Included in deferred revenue on the condensed consolidated balance sheets.

9


SONIM TECHNOLOGIES, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of U.S. dollars, except share and per share amounts or as otherwise disclosed)

 

 

The table below sets forth a summary of changes in the fair value of the Company’s level 3 liabilities for the six months ended June 30, 2019 and 2018:

 

 

 

Warrant

 

 

Trade-In

 

 

 

Liability

 

 

Guarantee

 

Balance at January 1, 2019

 

$

 

 

$

268

 

Recognition of revenue

 

 

 

 

 

(268

)

Balance at June 30, 2019

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2018

 

$

3,785

 

 

$

805

 

Recognition of revenue

 

 

 

 

 

 

Change in fair value

 

 

 

 

 

 

Balance at June 30, 2018

 

$

3,785

 

 

$

805

 

 

NOTE 3 —Inventory

Inventory consisted of the following:

 

 

 

June 30,

2019

 

 

December 31,

2018

 

Devices - for resale

 

$

15,272

 

 

$

11,319

 

Work in process

 

 

3,719

 

 

 

 

Raw materials

 

 

5,470

 

 

 

8,826

 

Accessories

 

 

2,034

 

 

 

1,686

 

 

 

$

26,495

 

 

$

21,831

 

 

NOTE 4 —Warranty Liability

The table below sets forth the activit