0001564590-20-025509.txt : 20200514 0001564590-20-025509.hdr.sgml : 20200514 20200514171241 ACCESSION NUMBER: 0001564590-20-025509 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 75 CONFORMED PERIOD OF REPORT: 20200331 FILED AS OF DATE: 20200514 DATE AS OF CHANGE: 20200514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SONIM TECHNOLOGIES INC CENTRAL INDEX KEY: 0001178697 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 943336783 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-38907 FILM NUMBER: 20878895 BUSINESS ADDRESS: STREET 1: 6836 BEE CAVE ROAD STREET 2: BUILDING 1, SUITE 279 CITY: AUSTIN STATE: TX ZIP: 78746 BUSINESS PHONE: 650-378-8100 MAIL ADDRESS: STREET 1: 6836 BEE CAVE ROAD STREET 2: BUILDING 1, SUITE 279 CITY: AUSTIN STATE: TX ZIP: 78746 10-Q 1 sonm-10q_20200331.htm 10-Q sonm-10q_20200331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2020

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.)

 

6836 Bee Cave Road, Bldg. 1, S#279

Austin, TX 78734

 

(Address of principal executive offices and zip code)

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 April 30, 2020, the registrant had 20,806,943 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 Stockholder’s Equity

3

 

Condensed Consolidated Statements of Cash Flows

4

 

Notes to Unaudited Condensed Consolidated Financial Statements

5

Item 2.

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

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

Item 4.

Controls and Procedures

30

PART II.

OTHER INFORMATION

31

Item 1.

Legal Proceedings

31

Item 1A.

Risk Factors

31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

58

Item 3.

Defaults Upon Senior Securities

58

Item 4.

Mine Safety Disclosures

58

Item 5.

Other Information

58

Item 6.

Exhibits

59

Signatures

60

 

 

i


 

SONIM TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

MARCH 31, 2020 and DECEMBER 31, 2019 (UNAUDITED)

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

PER SHARE AMOUNTS)

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

12,362

 

 

$

11,298

 

Accounts receivable, net

 

 

4,999

 

 

 

10,082

 

Inventory

 

 

16,135

 

 

 

19,531

 

Prepaid expenses and other current assets

 

 

5,064

 

 

 

6,430

 

Total current assets

 

 

38,560

 

 

 

47,341

 

Property and equipment, net

 

 

1,447

 

 

 

1,442

 

Other assets

 

 

6,002

 

 

 

6,676

 

Total assets

 

$

46,009

 

 

$

55,459

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

10,107

 

 

$

9,821

 

Accounts payable

 

 

5,608

 

 

 

7,234

 

Accrued expenses

 

 

11,618

 

 

 

10,265

 

Deferred revenue

 

 

306

 

 

 

291

 

Total current liabilities

 

 

27,639

 

 

 

27,611

 

Income tax payable

 

 

2,051

 

 

 

1,961

 

Long-term debt, less current portion

 

 

325

 

 

 

362

 

Total liabilities

 

 

30,015

 

 

 

29,934

 

Stockholders' equity

 

 

 

 

 

 

 

 

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

   20,677,360 and 20,437,235 shares issued and outstanding at March 31, 2020 and

   December 31, 2019, respectively.

 

 

21

 

 

 

20

 

Preferred Stock, $0.001 par value per share, 5,000,000 shares authorized

 

 

 

 

 

 

Additional paid-in capital

 

 

192,183

 

 

 

191,751

 

Accumulated deficit

 

 

(176,210

)

 

 

(166,246

)

Total stockholders’ equity

 

 

15,994

 

 

 

25,525

 

Total liabilities and stockholders’ equity

 

$

46,009

 

 

$

55,459

 

 

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

1


 

SONIM TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2020 and 2019 (UNAUDITED)

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

 

 

 

2020

 

 

2019

 

Net revenues

 

$

12,706

 

 

$

26,484

 

Cost of revenues

 

 

10,541

 

 

 

17,463

 

Gross profit

 

 

2,165

 

 

 

9,021

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

3,936

 

 

 

6,961

 

Sales and marketing

 

 

3,131

 

 

 

3,726

 

General and administrative

 

 

3,072

 

 

 

2,476

 

Restructuring costs

 

 

1,087

 

 

 

 

Total operating expenses

 

 

11,226

 

 

 

13,163

 

Loss from operations

 

 

(9,061

)

 

 

(4,142

)

Interest expense

 

 

(319

)

 

 

(422

)

Other expense, net

 

 

(401

)

 

 

(265

)

Loss before income taxes

 

 

(9,781

)

 

 

(4,829

)

Income tax expense

 

 

(183

)

 

 

(295

)

Net loss

 

$

(9,964

)

 

$

(5,124

)

Net loss per share, basic and diluted

 

$

(0.48

)

 

$

(0.32

)

Weighted–average shares used in computing net loss per share attributable to common

   stockholders, basic and diluted

 

 

20,613,849

 

 

 

15,783,744

 

 

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

 

 

2


 

SONIM TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

THREE MONTHS ENDED MARCH 31, 2020 AND 2019 (UNAUDITED)

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

 

Common stock

 

 

paid-in

 

 

Accumulated

 

 

stockholders'

 

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

deficit

 

 

equity 

 

Balance at January 1, 2019

 

 

 

15,591,357

 

 

$

15

 

 

$

148,641

 

 

$

(143,527

)

 

$

5,129

 

Beginning balance adjustment – impact of ASC 606

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,115

 

 

 

3,115

 

Issuance of common stock, net of issuance costs

 

 

 

227,628

 

 

 

1

 

 

 

1,603

 

 

 

 

 

 

1,604

 

Issuance of common stock upon exercise of stock options

 

 

 

54,720

 

 

 

 

 

 

41

 

 

 

 

 

 

41

 

Employee and nonemployee stock-based compensation

 

 

 

 

 

 

 

 

 

47

 

 

 

 

 

 

47

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

(5,124

)

 

 

(5,124

)

Balance at March 31, 2019

 

 

 

15,873,705

 

 

$

16

 

 

$

150,332

 

 

$

(145,536

)

 

$

4,812

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2020

 

 

 

20,437,235

 

 

$

20

 

 

$

191,751

 

 

$

(166,246

)

 

$

25,525

 

Issuance of common stock upon exercise of stock options

 

 

 

240,125

 

 

 

1

 

 

 

209

 

 

 

 

 

 

210

 

Employee and nonemployee stock-based compensation

 

 

 

 

 

 

 

 

 

223

 

 

 

 

 

 

223

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,964

)

 

 

(9,964

)

Balance at March 31, 2020

 

 

 

20,677,360

 

 

$

21

 

 

$

192,183

 

 

$

(176,210

)

 

$

15,994

 

 

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

 

 

3


 

SONIM TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2020 AND 2019 (UNAUDITED)

(IN THOUSANDS OF U.S. DOLLARS)

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(9,964

)

 

$

(5,124

)

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

   operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

887

 

 

 

892

 

Stock-based compensation

 

 

223

 

 

 

47

 

Inventory write-downs

 

 

407

 

 

 

 

Trade-in guarantee

 

 

 

 

 

(268

)

Non-cash interest expense

 

 

255

 

 

 

 

Accretion of debt discount

 

 

30

 

 

 

30

 

Deferred income taxes

 

 

53

 

 

 

(11

)

Provision for doubtful accounts

 

 

 

 

 

(3

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

5,083

 

 

 

11,379

 

Inventory

 

 

2,989

 

 

 

(7,233

)

Prepaid expenses and other current assets

 

 

1,367

 

 

 

(2,252

)

Other assets

 

 

32

 

 

 

(1,489

)

Accounts payable

 

 

(1,746

)

 

 

(298

)

Accrued expenses

 

 

1,354

 

 

 

(319

)

Deferred revenue

 

 

15

 

 

 

(3

)

Income tax payable

 

 

90

 

 

 

124

 

Net cash provided by (used in) operating activities

 

 

1,075

 

 

 

(4,528

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(184

)

 

 

(82

)

Development of tooling and purchased software licenses

 

 

 

 

 

(109

)

Net cash used in investing activities

 

 

(184

)

 

 

(191

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repayment on long-term debt

 

 

(37

)

 

 

 

Repayment on line of credit

 

 

 

 

 

(123

)

Proceeds from issuance of common stock, net of costs

 

 

 

 

 

1,604

 

Proceeds from exercise of stock options

 

 

210

 

 

 

41

 

Net cash provided by financing activities

 

 

173

 

 

 

1,522

 

Net increase (decrease) in cash and cash equivalents

 

 

1,064

 

 

 

(3,197

)

Cash and cash equivalents at beginning of period

 

 

11,298

 

 

 

13,049

 

Cash and cash equivalents at end of period

 

$

12,362

 

 

$

9,852

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

37

 

 

$

358

 

Cash paid for income taxes

 

 

 

 

 

84

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Other assets included in accounts payable

 

 

 

 

 

4

 

 

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

 

 

4


SONIM TECHNOLOGIES, INC

NOTES TO CONDENSED 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 Austin, Texas. 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. We currently sell our ruggedized mobile phones and accessories to several of the largest wireless carriers in the United States— including AT&T and Verizon—as well as the three largest wireless carriers in Canada—Bell, Rogers and Telus Mobility. Our phones and accessories connect workers with voice, data and workflow applications in two end markets: industrial enterprise and public sector.

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and work force participation and created significant volatility and disruption of financial markets. The COVID-19 pandemic may impact the Company’s supply chain to timely produce finished goods, its workforce and the operations of its customers, and is expected to increase airfreight rates. An extended period of global supply chain, workforce availability and economic disruption could significantly affect the Company’s business and statement of financial condition, including the carrying value of long-lived assets, intangibles and goodwill.  While this business disruption is expected to be temporary, the dynamic nature of the virus spread and containment efforts make it difficult to reasonably estimate the impact of COVID-19 on the Company’s business operations, including the duration and impact on overall customer demand at this time.

Liquidity and Ability to Continue as a Going Concern – Our condensed consolidated financial statements account for the continuation of our business as a going concern.  We are subject to the risks and uncertainties associated with the development and release of new products.  Our principal sources of liquidity as of March 31, 2020 consist of existing cash and cash equivalents totaling approximately $12,362. During the three months ended March 31, 2020, our net loss from operations was $9,964, and it is likely that we will continue to experience operating losses into the future. Our cash balance during the quarter increased by $1,064 primarily through efforts to manage the levels of inventory and accounts receivable, which can only temporarily offset operational shortfalls. Although we believe our current resources, along with expected proceeds from forecasted billings, will provide sufficient funding for planned operations through the end of 2020 substantial doubt exists as to our ability to continue as a going concern for a period of twelve months from the date our unaudited condensed consolidated financials are filed with Securities and Exchange Commission (the “SEC”). We are actively pursuing expanding our business and increasing our revenue opportunities while effectively managing business operations and exploring further cost saving opportunities. We may not be successful in these efforts. The accompanying unaudited interim condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

 

We may seek to raise additional capital from the sale of equity securities or the incurrence of indebtedness to allow us to continue operations. There can be no assurance that additional financing will be available to us on acceptable terms, or at all.  Additionally, if we issue additional equity securities to raise funds, whether to existing investors or others, the ownership percentage of our existing stockholders would be reduced.  New investors may demand rights, preferences, or privileges senior to those of existing holders of common stock.  Additionally, we may be limited as to the amount of funds we can raise pursuant to SEC rules and the continued listing requirements of Nasdaq. In addition, global financial crises and economic downturns, including those caused by widespread public health crises such as the COVID-19 pandemic, may cause extreme volatility and disruptions in capital and credit markets, and may impact our ability to raise additional capital when needed on acceptable terms, if at all. If we cannot grow our revenue run-rate or raise needed funds, we might be forced to make substantial reductions in our operating expenses, which could adversely affect our ability to implement our business plan and ultimately our viability as a Company.

 

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 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, 2019. Results of operations for interim periods are not necessarily indicative of annual results of operations. The unaudited condensed consolidated balance sheet at December 31, 2019 was extracted from the audited annual consolidated financial statements and does not include all disclosures required by U.S. GAAP for annual financial statements.

 

5


SONIM TECHNOLOGIES, INC

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

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

 

 

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, Sonim Technologies (Canada), Inc 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, 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. Notwithstanding the foregoing, the worldwide spread of the COVID-19 pandemic is expected to result in a global slowdown of economic activity which is likely to decrease demand for a broad variety of goods and services, including from the Company’s customers, while also disrupting sales channels and marketing activities for an unknown period of time until the disease is contained. The Company expects this to have a negative impact on its ability to make estimates.  These estimates may change, as new events occur and additional information is obtained, and are recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the Company’s financial statements.

Significant accounting policies There have been no material changes in the accounting policies from those disclosed in the audited 2019 consolidated financial statements.

 

Revenue Recognition — The Company adopted the requirements of Accounting Standards Codification (“ASC”) 2014-09, Revenue from Contracts with Customers (Topic 606), effective January 1, 2019, using the modified retrospective method. Under the modified retrospective method, this guidance is applied to those contracts which were not completed as of January 1, 2019. Refer to New Accounting Pronouncements, Pronouncements adopted in 2019, for a discussion of the effect of the adoption of Topic 606.

The Company recognizes revenue primarily from the sale of products, including our mobile phones and accessories. The Company also recognizes revenue from other contractual arrangements that may include a combination of products and Non-Recurring Engineering (“NRE”) services or from the provision of solely NRE services.

Revenue recognition incorporates discounts, price protection and customer incentives. 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’s handsets typically require a technical approval process. This process entails design and configuration activities required to conform the Company’s devices to a wireless carrier customer’s specific network requirement. Each wireless carrier defines its own specific functional requirements and certification process in order for the product to be ready for manufacture. While the technical approval process does involve some level of customization, in addition to design and configuration, the Company does not charge separately and is not reimbursed for these activities to the extent that they do not involve significant customization and does not incur these costs in advance of entering into binding agreements with its wireless carrier customers. Such technical approval is obtained prior to shipment.

Under Topic 606, revenue is recognized when control of promised goods or services is transferred to a customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To determine revenue recognition for its arrangements, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. See Note 2, Revenue Recognition, for additional information.

6


SONIM TECHNOLOGIES, INC

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

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

 

 

Deferred Offering Costs — On May 9, 2019, our registration statement on Form S-1 (File No. 333-230887) related to our initial public offering (“IPO”) was declared effective by the SEC, and our common stock began trading on The Nasdaq Stock Market LLC (“Nasdaq”) on May 10, 2019. Our IPO closed on May 14, 2019. Deferred offering costs, which consist of direct incremental legal, consulting, banking and accounting fees relating to the Company’s IPO, are capitalized and will be 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 three months ended March 31, 2019, an additional $1,709 in deferred offering costs were incurred. In connection with the IPO, as of March 31, 2019, all deferred offering costs were charged to prepaid expenses.

New accounting pronouncements:

Pronouncements adopted in 2019:

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.

As discussed above, the Company adopted Topic 606 under the modified retrospective method effective January 1, 2019.  The adoption of Topic 606 did not materially impact the Company’s timing and measurement of revenue recognition as compared to the prior Topic 605 guidance, however, resulted in a cumulative effect adjustment of $3,115, net of the associated income tax effect of $215, to reduce the opening accumulated deficit as of January 1, 2019 relating to the capitalization of certain non-recurring engineering costs that were incurred to fulfill contracts pursuant to Subtopic 340-40, Other Assets and Deferred Costs, which were previously expensed. In addition, the Company identified approximately $770 of deferred revenue as contract liabilities.

The guidance permitted 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 adopted the standard using the modified retrospective method with a cumulative adjustment and provided additional disclosures comparing results to previous U.S. GAAP in Note 2. We applied the new revenue standards only to contracts not completed as of the date of initial application, referred to as open contracts.

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 elected to early adopt this standard, resulting in no material impact to the condensed consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220). This ASU provides entities with the option to elect to reclassify the income tax effect of the Tax Cuts and Jobs Act on items within AOCI to retained earnings. This ASU is effective for all business entities for annual reporting periods beginning after December 15, 2018. The adoption of ASU 2018-02 did not have an impact on the Company’s condensed 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. The adoption of ASU 2016-16 did not have an impact on the Company’s condensed consolidated financial statements.

7


SONIM TECHNOLOGIES, INC

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

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

 

 

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. The adoption of ASU 2016-01 did not have an impact on the Company’s condensed consolidated financial statements.

Pronouncements not yet adopted:

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles of ASC 740 in order to reduce cost and complexity of its application.  The ASU removes the exception related to the incremental approach for intra-period tax allocation as well as two exceptions related to account for outside basis differences of equity method investments and foreign subsidiaries. This guidance is effective for fiscal years beginning after December 31, 2021 with early adoption permitted. The Company has not yet started evaluating the potential impact of the new standard on its condensed consolidated financial statements.

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, 2020, with early adoption permitted. The Company is currently evaluating this new standard and the impact it will have on its presentation of the condensed consolidated financial statements.

In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements. The ASU amendments represent changes to clarify, correct errors, or make minor improvements to the Accounting Standards Codification. Some amendments do not require transition guidance and are effective immediately. Amendments that require transition guidance have various effective dates. The amendments applicable to and effective for the Company’s 2018 fiscal year did not have a significant impact on the Company’s consolidated financial statements.   The Company has not yet determined the full effects of the remaining amendments within this ASU on its condensed consolidated financial statements, however, many of the remaining amendments are not expected to be applicable to the Company.

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 condensed 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, 2020. The Company is currently evaluating this new standard and the impact it will have on its condensed consolidated financial statements, information technology systems, process, and internal controls.

8


SONIM TECHNOLOGIES, INC

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

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

 

 

NOTE 2 —Revenue recognition

 

The following reflect the changes in account balances as a result to adoption of ASC 606:

 

Three months ended, March 31, 2019 (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As Reported

 

 

Balances

Without

Adoption

of Topic

606

 

 

 

Effect of

Change

Higher/(Lower)

 

Net revenues

 

$

26,484

 

$

26,484

 

 

$

-

 

Cost of revenues

 

 

17,463

 

 

17,105

 

 

 

358

 

Gross profit

 

 

9,021

 

 

9,379

 

 

 

(358

)

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

6,961

 

 

8,401

 

 

 

(1,440

)

Sales and marketing

 

 

3,726

 

 

3,726

 

 

 

 

General and administrative

 

 

2,476

 

 

2,476

 

 

 

 

Total operating expenses

 

 

13,163

 

 

14,603

 

 

 

(1,440

)

Loss from operations

 

 

(4,142

)

 

(5,224

)

 

 

1,082

 

Interest expense

 

 

(422

)

 

(422

)

 

 

 

Other expense, net

 

 

(265

)

 

(265

)

 

 

 

Loss before income taxes

 

 

(4,829

)

 

(5,911

)

 

 

1,082

 

Income tax expense

 

 

(295

)

 

(295

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(5,124

)

$

(6,206

)

 

$

1,082

 

Net loss per share, basic and diluted

 

$

(0.32

)

$

(0.39

)

 

$

0.07

 

Weighted–average shares used in computing

   net loss per share, basic and diluted

 

 

15,783,744

 

 

15,783,744

 

 

 

 

 

 

The Company recognizes revenue primarily from the sale of products, including our mobile phones and accessories, and the majority of the Company’s contracts include only one performance obligation, namely the delivery of product. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is defined as the unit of account for revenue recognition under ASC 606. The Company also recognizes revenue from other contracts that may include a combination of products and NRE services or from the provision of solely NRE services. Where there is a combination of products and NRE services, the Company accounts for the promises as individual performance obligations if they are concluded as distinct. Performance obligations are considered distinct if they are both capable of being distinct and distinct within the context of the contract. In determining whether performance obligations meet the criteria for being distinct, the Company considers a number of factors, such as the degree of interrelation and interdependence between obligations, and whether or not the good or service significantly modifies or transforms another good or service in the contract. During the three months ended March 31, 2020 and 2019, the Company did not have any contracts in which the products and NRE services were concluded to be a single performance obligation. In certain cases, the Company may offer tiered pricing based on volumes purchased for specific model phones. To date, all tiered pricing provisions have fallen into observable ranges of pricing to existing customers, thus, not resulting in any material right which could be concluded as its own performance obligation. In addition, the Company does not offer material post-contract support services to its customers.

 

9


SONIM TECHNOLOGIES, INC

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

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

 

 

Net revenue for an individual contract is recognized at the related transaction price, which is the amount the Company expects to be entitled to in exchange for transferring the goods and/or services. The transaction price for product sales is calculated as the product selling price net of variable consideration which may include estimates for marketing development funds, sales incentives, and price protection and stock rotation rights. The Company generally does not offer a right of return to its customers. Typically, variable consideration does not need to be constrained as estimates are based on specific contract terms. However, the Company continues to assess variable consideration estimates such that it is probable that a significant reversal of revenue will not occur. The transaction price for a contract with multiple performance obligations is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices for products are determined based on the prices charged to customers, which are directly observable. Standalone selling price of the professional services are mostly based on time and materials. We determine our estimates of variable consideration based on historical collection experience with similar payor classes, aged accounts receivable by payor class, terms of payment agreements, correspondence from payors related to revenue audits or reviews, our historical settlement activity of audited and reviewed claims and current economic conditions using the portfolio approach. Revenue is recognized only to the extent that it is probable that a significant reversal of the cumulative amount recognized will not occur in future periods.

 

Revenue is then recognized for each distinct performance obligation as control is transferred to the customer. Revenue attributable to hardware is recognized at the time control of the product transfers to the customer. Revenue attributable to professional services is recognized at the time the Company has performed the professional services to the customer.

Disaggregation of revenue

The following table presents our Net revenue disaggregated by product category:

 

 

 

Three Months Ended March 31,

 

 

 

 

2020

 

 

2019

 

 

 

 

(in thousands)

 

 

Smartphones

 

$

6,218

 

 

$

14,412

 

 

Feature Phones

 

 

5,901

 

 

 

10,331

 

 

Accessories/Other

 

 

587

 

 

 

1,741

 

 

Total Revenue

 

$

12,706

 

 

$

26,484

 

 

 

Shipping and handling costs

The Company has elected to account for shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the associated products.

 

Contract costs

Applying the practical expedient, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred when the amortization period of the assets that otherwise would have been recognized is one year or less. These costs are included in sales and marketing and general and administrative expenses.

 

The costs associated with design and development non-recurring engineering activities for technical approval represent costs to fulfill a contract pursuant to ASC 340-40. Accordingly, the Company capitalizes these non-recurring engineering costs and amortizes such costs over the estimated period of time over which they are expected to be recovered, which is typically, the estimated life of a particular model phone.

 

As of December 31, 2019, the total costs to fulfill a contract which were deferred and capitalized upon adoption of ASC 606 totaled $4,524 and were recorded in Other Assets. The total capitalized costs to fulfill a contract is primarily associated with Company’s introduction of the XP8 model phone. As of March 31, 2020, the total costs to fulfill a contract were $4,412.

 

Contract balances

The Company records accounts receivable when it has an unconditional right to consideration. As of March 31, 2020, the Company does not have a contract receivable balance. Contract liabilities are recorded when cash payments are received or due in advance of performance. Contract liabilities consist of advance payments and deferred revenue, where the Company has unsatisfied performance

10


SONIM TECHNOLOGIES, INC

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

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

 

 

obligations. Contract liabilities are presented as a component of deferred revenue on the consolidated balance sheets. As of December 31, 2019, and March 31, 2020, the contract liabilities were $291 and $306, respectively, with the contract liabilities as of March 31, 2020 expected to be recognized into revenue in FY 2020.

The following table is a rollforward of contract balances as of March 31, 2020:

 

 

 

Contractual

 

 

 

Liability

 

Balance at January 1, 2020

 

$

291

 

Recognition of revenue

 

 

 

Addition of revenue

 

 

15

 

Balance at March 31, 2020

 

$

306

 

 

NOTE 3 —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.

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 March 31, 2020 and 2019, and December 31, 2019.

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

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.

11


SONIM TECHNOLOGIES, INC

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

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

 

 

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

 

 

 

March 31, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds *

 

$

9,750

 

 

$

 

 

$

 

 

$

9,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds *

 

$

9,250

 

 

$

 

 

$

 

 

$

9,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*

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

The table below sets forth a summary of changes in the fair value of the Company’s level 3 liabilities for the three months ended March 31, 2020 and 2019:

 

 

Trade-In

 

 

Guarantee

 

Balance at January 1, 2020

 

 

$

 

Recognition of revenue

 

 

 

 

Balance at March 31, 2020

 

 

$

 

 

 

 

 

 

 

Balance at January 1, 2019

 

 

$

268

 

Recognition of revenue

 

 

 

(268

)

Balance at March 31, 2019

 

 

$

 

 

NOTE 4 —Inventory

Inventory consisted of approximately the following:

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Devices - for resale

 

$

8,860

 

 

$

13,559

 

Work in process

 

 

399

 

 

 

 

Raw materials

 

 

5,357

 

 

 

4,522

 

Accessories

 

 

1,519

 

 

 

1,450

 

 

 

$

16,135

 

 

$

19,531

 

 

12


SONIM TECHNOLOGIES, INC

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

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

 

 

NOTE 5 Warranty Liability

The table below sets forth the activity in the warranty liability, which is included in accrued expenses on the condensed consolidated balance sheet, for the three months ended March 31, 2020 and 2019:

 

Balance, January 1, 2020

 

$

1,154

 

Additions

 

 

178

 

Cost of warranty claims

 

 

(217

)

Balance, March 31, 2020

 

$

1,115

 

 

 

 

 

 

Balance, January 1, 2019

 

$

1,103

 

Additions

 

 

442

 

Cost of warranty claims

 

 

(352

)

Balance, March 31, 2019

 

$

1,193

 

 

NOTE 6 —Borrowings

Senior Credit Agreement

The Company has a loan and security agreement (“EWB Loan Agreement”) with East West Bank (the “Senior Lender” or “EWB”), as amended. Under the terms of the EWB Loan Agreement, as amended, the Senior Lender has provided for a $8,000 line of credit.

In the future, we may borrow up to $8,000 under the line of credit available under the EWB Loan Agreement; provided that we are not then in default and we maintain amounts on deposit with EWB equal to any amounts borrowed  under the EWB Loan Agreement. As of March 31, 2020, no amounts were outstanding under the EWB Loan Agreement.  As of March 31, 2020, we were in default under the EWB Loan Agreement for a number of reasons including the occurrence of a material adverse change and failure to provide notice of certain events. Borrowings under the EWB Loan Agreement bear interest at 1.0% plus the prime lending rate. Borrowings under the EWB Loan Agreement are secured by a senior lien on substantially all of our assets, including inventory and receivables, subject to permitted liens. In the event of a default under the EWB Loan Agreement, entities affiliated with B. Riley Financial and Investec Investments (UK) Limited, two of our stockholders, have the right to purchase the indebtedness under the EWB Loan Agreement at par and to exercise remedies for the default, in their discretion, as the holders of the indebtedness.

The EWB Loan Agreement contains certain negative and affirmative covenants as well as financial covenants, including covenants that restrict our ability to, among other things, incur or prepay indebtedness on subordinated debt, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, exceed annual capital expenditure limits, as defined, and make changes in the nature of the business. Objective events of default, include, without limitation, nonpayment of principal, interest or other obligations, violation of the covenants, insolvency, and court-ordered judgments. Audited financial statements are required to be submitted to the lenders no later than 120 days after year end. In particular, we are required to maintain a minimum availability under the line of credit under the EWB Loan Agreement of $750 and maintain a fixed charge coverage ratio, defined as the sum of Adjusted Covenant EBITDA plus capital expenditures minus taxes and dividends over fixed charges, of at least 1.05 to 1.00 as of the last of each month.

In 2018, the financial covenants were amended to temporarily suspend the obligation to comply with the minimum fixed charge coverage ratio through September 30, 2018, to increase the minimum fixed charge coverage ratio as of December 31, 2018, and for the last day of each month thereafter, from 1.05 to 1.10, and to increase the minimum excess availability to $1,200. In 2018, the financial covenants were amended to permanently remove the requirement to maintain positive Adjusted Covenant EBITDA. As a result, as of the period ended March 31, 2018, we were no longer subject to this Adjusted Covenant EBITDA financial covenant.  In October 2019, the financial covenants were amended to suspend the obligation to comply with the minimum fixed charge coverage ratio through the maturity date, which was amended to February 28, 2020, a cash block was placed on interest payments under our subordinated debt under the Riley Loan Agreement (as defined below) and the establishment of a blocked account was mandated, following which we may request revolving advances up to the amount on deposit in such blocked account in EWB’s discretion..

13


SONIM TECHNOLOGIES, INC

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

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

 

 

As of March 31, 2020, and December 31, 2019, no amounts were outstanding under the EWB Loan Agreement.  As of March 31, 2020 and December 31, 2019, the Company had remaining borrowing capacity of up to $8,000 against the line of credit, provided that such borrowings are conditioned upon us not being in default are otherwise subject to the terms and conditions of the EWB Loan Agreement.  As of September 30, 2019, the Company was not in compliance with one of the financial covenants, specifically the fixed charge coverage ratio, however, the Senior Lender waived such noncompliance in October 2019 by amending the EWB Loan Agreement through February 2020. The Senior Lender subsequently extended the waiver and maturity date to June 2020.  The Company has established a blocked account as required by the Senior Lender to resume future borrowings if needed.

Long-Term Debt

Riley Loan— On October 26, 2017 (the “Effective Date”), the Company entered into a Subordinated Term Loan and Security agreement (the “B. Riley Loan Agreement”) with B. Riley Principal Investments, LLC (“BRPI”), an affiliate of B. Riley Financial, Inc., a shareholder of the Company. Under the original B. Riley Loan Agreement, the Company could borrow principal up to $10,000 via a subordinated secured convertible promissory note (the “Convertible Note”), with an optional conversion feature as described below.

During the year ended December 31, 2018, the Company amended the B. Riley Loan Agreement to increase the available aggregate principal borrowings to $12,000. The 2018 amendments did not change the terms of the original B. Riley Loan Agreement other than to provide a waiver of the defined prepayment penalties if any repayment does not reduce the principal amount outstanding below $10,000. The B. Riley Loan Agreement, as amended, matures on September 1, 2022 (the “Maturity Date”) and carries a stated interest rate of 10% and provided that the first year of interest commencing on October 26, 2018 be compounded into the principal, with interest-only payments beginning thereafter.  In October 2019, a cash block was placed on interest payments under the B. Riley Loan Agreement, which was accepted by BRPI. In March 2020, the cash block on interest payments was removed and scheduled interest payments resumed.

As of March 31, 2020, and December 31, 2019, the total outstanding principal and interest under the B. Riley Loan Agreement, as amended, was $10,258 and $10,003, respectively.  In July 2019, the Company repaid $3,250, or 25% of the principal amount under the B. Riley Loan Agreement and incurred a 2% fee on the amount below the $10,000 threshold as a result of the prepayment.  During the first quarter of 2020, the compounded interest, which was added to the outstanding principal totaled $255.

 

The Company has classified the debt as a current liability based on the occurrence of a material adverse change in our business, however B. Riley Principal Investments LLC has not commenced enforcement of its rights thereunder.  Upon the occurrence and during the continuance of an event of default under the B. Riley Loan Agreement, BRPI has the option, among other things, to accelerate the debt and foreclose upon the assets pledged as collateral, any of which could severely affect our liquidity and significantly harm our business. In addition, we are unable to borrow under the EWB facility during the continuance of an event of default thereunder or under the B. Riley Loan Agreement, which could severely affect our liquidity and significantly harm our business.

Optional Conversion—On November 2, 2018, the Company amended the optional conversion terms of its existing Convertible Note. As amended, the Convertible Note provides that at any time, on or prior to the Maturity Date, BRPI may elect to convert principal amounts outstanding, including accrued interest, as limited below, into shares of common stock at $8.87 per share. The number of shares of common stock to be issued upon conversion is limited to the sum of (A) the lesser of (i) the principal outstanding and (ii) the aggregate principal amount borrowed under the Loan Agreement to date multiplied by the Designated Percentage as described below, and (B) accrued interest. The “Designated Percentage” is one hundred percent (100%) if the conversion date is prior to the first anniversary of the Effective Date, seventy-five percent (75%) in Year 2 of the Loan Agreement, fifty percent (50%) in Year 3, twenty-five percent (25%) in Year 4, and twelve and a half of percent (12.5%) in the final year of the Loan Agreement on or prior to the Maturity Date.

 

Promissory Notes Payable—In 2014 and 2017, the Company entered into agreements with one of its suppliers, whereby certain of its trade payables for royalties and royalty up-front payments were converted to payment plans. In December 2018, the Company amended its accounts payable financing agreements, effective January 1, 2019, which provides for the $736 outstanding balance to be paid in twenty equal quarterly installments. The amounts due under these agreements would be paid in quarterly installments over periods from two to four years, with interest ranging up to 8%. Remaining balances are $472 and $508 at March 31, 2020 and December 31, 2019, respectively.

14


SONIM TECHNOLOGIES, INC

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

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

 

 

Other Financing Arrangements—In 2017, the Company entered into three financing arrangements totaling approximately $472 with remaining maturity dates of June 2020 and August 2020. During the quarter ended September 30, 2019, the Company repaid the remaining outstanding balance.

Future aggregate annual principal payment on all long-term debt, excluding discount of $298, are as follows for the next 5 years as of March 31, 2020:

 

Year Ending, December 31st,

 

 

 

 

2020

 

$

107

 

2021

 

 

144

 

2022

 

 

10,408

 

2023

 

 

78

 

 

 

$

10,737

 

 

NOTE 7 —Warrants

During the three months ended March 31, 2020 and year ended December 31, 2019, there was no activity related to the Company’s warrants. The following table discloses warrants issued and outstanding as of March 31, 2020 and December 31, 2019:

 

 

 

March 31, 2020

 

December 31, 2019

 

 

Exercise

 

 

Number of

warrant

 

 

Year of

 

Exercise

 

 

Number of

warrant

 

 

Year of

Issuance date

 

price

 

 

shares

 

 

expiration

 

price

 

 

shares

 

 

expiration

Common

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

November 2012

 

$

6.00

 

 

 

7

 

 

2028

 

$

6.00

 

 

 

7

 

 

2028

November 2012

 

$

6.00

 

 

 

927

 

 

2020

 

$

6.00

 

 

 

927

 

 

2020

November 2012

 

$

14.50

 

 

 

22

 

 

2028

 

$

14.50

 

 

 

22

 

 

2028

August 2016

 

 

 

 

 

 

 

 

 

$

0.15

 

 

 

 

 

 

Total warrants

 

 

 

 

 

 

956

 

 

 

 

 

 

 

 

 

956

 

 

 

 

NOTE 8 —Stock-based Compensation

As of March 31, 2020, the Company had the 2012 Equity Incentive Plan (the “2012 Option Plan”) and 2019 Equity Incentive Plan (the “2019 Option Plan”) in place.

As of March 31, 2020, the number of shares available to be issued under the 2019 Option Plan were 2,174,999.  As of March 31, 2020, the number of shares available to be issued under the 2019 Employee Stock Purchase Plan were 472,773.

The Option Plans provides for the grant of incentive and non-statutory stock options (“Options”), stock appreciation rights (“SAR”), restricted stock awards (“RSA”), and restricted stock unit awards (“RSU”) to employees, nonemployee directors, and consultants of the Company. Option awards granted under the Option Plan generally become exercisable ratably over a two-year or four-year period following the date of grant and expire ten years from the date of grant. At the discretion of the Company’s Board of Directors, certain awards may be exercisable immediately at the date of grant but are subject to a repurchase right, under which the Company may buy back any unvested shares at their original exercise price in the event of an employee’s termination prior to full vesting. All other awards are exercisable only to the extent vested. At March 31, 2020 and December 31, 2019, there were no shares that had been early exercised that were subject to the Company’s repurchase right at that date. The exercise price or strike price for Options and SARs granted under the Option Plan must generally be at least equal to 100% of the fair value of the Company’s common stock at the date of grant, as determined by the Board of Directors. The exercise price of incentive stock options granted under the Option Plan to ten percent or greater stockholders must be at least equal to 110% of the fair value of the Company’s common stock at the date of grant, as determined by the Board of Directors, and are not exercisable after five years from the date of grant.

15


SONIM TECHNOLOGIES, INC

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

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

 

 

The Company’s board of directors adopted, and its stockholders approved, the 2019 Employee Stock Purchase Plan and the 2019 Equity Incentive Plan in March 2019 and April 2019, respectively, each of which became effective in connection with the IPO.  There are 541,379 shares of common stock reserved for issuance under the 2019 Employee Stock Purchase Plan. Additionally, the number of shares of common stock reserved for issuance under the 2019 Employee Stock Purchase Plan will automatically increase on January 1 of each calendar year for 10 years, starting January 1, 2020, and ending on, and including, January 1, 2029, in an amount equal to the lesser of 1% of the total number of shares of capital stock outstanding on December 31st of the prior calendar year, and (ii) 500,000 shares, unless the board of directors or compensation committee determines prior to such date that there will be a lesser increase, or no increase. The increase under the 2019 employee Stock Purchase Plan for 2020 was 204,372 shares. 2,906,900 shares of common stock are reserved for future issuance under the 2019 Equity Incentive Plan, plus the number of shares subject to outstanding stock options or other stock awards that were granted under the 2012 Option Plan that are forfeited, terminated, expire or are otherwise not issued. Additionally, the number of shares of common stock reserved for issuance under the 2019 Equity Incentive Plan will automatically increase on January 1 of each calendar year for 10 years, starting January 1, 2020 and ending on and including January 1, 2029, in an amount equal to 5% of the total number of shares of capital stock outstanding on December 31 of the prior calendar year, unless the board of directors or compensation committee determines prior to the date of increase that there will be a lesser increase, or no increase. The increase under the 2019 Equity Incentive Plan for 2020 was 1,021,861 shares. The purchase price of the shares will not be less than the lesser of an amount equal to 85% of the Fair Market Value of the shares of Common Stock on the Offering Date or an amount equal to 85% of the Fair Market Value of the shares of Common Stock on the applicable Purchase Date.

Stock-based compensation expense for the three months ended March 31, 2020 and 2019 is as follows:

 

 

 

March 31, 2020

 

 

March 31, 2019

 

Research and development

 

$

60

 

 

$

4

 

Sales and marketing

 

 

57

 

 

11

 

General and administrative

 

 

96

 

 

31

 

Cost of revenues

 

 

10

 

 

1

 

 

 

$

223

 

 

$

47

 

 

Stock Options:

Stock option activity for the three months ended March 31, 2020 is as follows:

 

 

 

 

 

 

 

 

 

 

 

Weighted average

 

 

 

 

 

 

 

 

 

 

 

Weighted average

 

 

remaining

 

 

Aggregate

 

 

 

 

 

 

 

exercise price

 

 

contractual life

 

 

Intrinsic

 

 

 

Options

 

 

per share

 

 

(in years)

 

 

Value

 

Outstanding at January 1, 2020

 

 

2,645,714

 

 

$

3.50

 

 

 

8.51

 

 

$

4,184

 

Options granted

 

 

 

 

$

 

 

 

 

 

 

 

 

 

Options exercised

 

 

(240,125

)

 

$

0.87

 

 

 

 

 

 

 

 

 

Options forfeited

 

 

(278,791

)

 

$

3.44

 

 

 

 

 

 

 

 

 

Options cancelled

 

 

 

 

$

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2020

 

 

2,126,798

 

 

$

3.75

 

 

 

6.42

 

 

$

88

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested and expected to vest at March 31, 2020  

 

 

2,126,798

 

 

$

3.75

 

 

 

6.42

 

 

$

88

 

Ending exercisable at March 31, 2020

 

 

825,205

 

 

$

3.40

 

 

 

3.56

 

 

$

73

 

 

 

As of March 31, 2020, there was approximately $2,901 of unamortized stock-based compensation cost related to unvested stock options, which is expected to be recognized over a weighted average period of three years.

 

16


SONIM TECHNOLOGIES, INC

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

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

 

 

Restricted Stock Awards:

 

The following table summarized the outstanding RSU’s as of March 31, 2020:

 

 

 

RSU's

 

Outstanding at January 1, 2020

 

 

249,500

 

Granted

 

 

 

Forfeited

 

 

(23,000

)

Outstanding at March 31, 2020

 

 

226,500

 

 

 

 

 

 

Vested at March 31, 2020

 

 

 

 

As of March 31, 2020, unvested restricted stock units totaled 226,500 shares.  There were no RSU’s issued for the three months ended March 31, 2020 and 2019.

NOTE 9 —Income Taxes

In determining quarterly provisions for income taxes, the Company uses the annual estimated effective tax rate applied to the actual year-to-date profit or loss, adjusted for discrete items arising in that quarter. The Company’s annual estimated effective tax rate differs from the U.S. federal statutory rate primarily as a result of state taxes, foreign taxes, and changes in the Company’s valuation allowance against its deferred tax assets. For the three months ended March 31, 2020 and 2019, the Company recorded provisions for income taxes of $183, and $295, respectively.

On March 27, 2020, the President signed into law the CARES Act, an economic stimulus package in response to the COVID-19 global pandemic. The CARES Act contains several corporate income tax provisions of which only the acceleration of timing of tax refunds for minimum tax credits apply to the Company.  As a result of the CARES Act, the Company reclassified $68,000 of minimum tax credits from a non-current asset to a current asset in the quarter ended March 31, 2020.

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the Tax Act), which significantly changes existing U.S. tax laws, including a reduction in the corporate tax rate from 35% to 21%, a move from a worldwide tax system to a territorial system, as well as other changes. Beginning in 2018, the Company became subject to the global intangible low-taxed income (GILTI) provisions of the Tax Act on the income of the Company’s foreign subsidiary.  The Company’s foreign subsidiaries are profitable during the three months ended March 31, 2020 and forecast profits for all of 2020.  The GILTI subjects the income of the foreign subsidiaries to U.S. taxation.  The Company’s accounting policy related to the GILTI is to treat GILTI related book/tax differences as period costs and to use the incremental cash tax savings approach in evaluating the Company’s U.S. net operating loss valuation allowance assessment.

The Company's income tax returns are subject to examinations by the Internal Revenue Service and other tax authorities in various jurisdictions.  In accordance with the guidance on the accounting for uncertainty in income taxes, the Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision for income taxes.  These assessments can require considerable estimates and judgments.  As of March 31, 2020, the gross amount of unrecognized tax benefits was approximately $7,000.  If the Company's estimate of income tax liabilities proves to be less than the ultimate assessment, then a further charge to expense would be required.  If events occur and the payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when the Company determines the liabilities are no longer necessary.  The Company does not anticipate any material changes to its uncertain tax positions during the next twelve months.

 

NOTE 10 —Commitments and Contingencies

Royalty payments—The Company is required to pay per unit royalties to wireless essential patent holders and other providers of integrated technologies on mobile devices delivered, which, in aggregate, amount to less than 5% of net revenues associated with each unit and expire in 2021 and 2023. Royalty expense for the three months ended March 31, 2020 and 2019 was $351 and $451, respectively, which are included in cost of revenues on the condensed consolidated statements of operations.

17


SONIM TECHNOLOGIES, INC

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

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

 

 

Securities litigationOn September 20, 2019, a purported Sonim stockholder who allegedly purchased stock registered in Sonim’s initial public offering (“IPO”) filed a putative class action complaint in the Superior Court of the State of California, County of San Mateo, captioned Pearson v. Sonim Technologies, Inc., et al., Case No. 19CIV05564, on behalf of himself and others who purchased shares of Sonim registered in the IPO (the “Pearson Action”).  On October 4 and 16, 2019, two additional purported class action complaints substantially similar to the Pearson Action were filed on behalf of different plaintiffs yet the same putative class of Sonim stockholders, in the same court as the Pearson Action.  On October 7, 2019, a substantially similar putative class action lawsuit was filed in the United States District Court for the Northern District of California.  All four complaints allege violations of the Securities Act of 1933 by Sonim and certain of its current and former officers and directors for, among other things, alleged false or misleading statements and omissions in the registration statement issued in connection with the IPO, relating primarily to an alleged failure to disclose software defects in Sonim’s phones and alleged misstatements about performance characteristics of Sonim’s phones.  Sonim intends to defend these matters vigorously.  An adverse outcome in any of these matters, however, could have a material adverse effect on our consolidated financial condition, results of operations, or cash flows for a particular period.  Due to the uncertainty of the outcome of this matter, the Company has not recorded any accruals as of March 31, 2020.

Securities and Exchange Commission Document Request—In March 2020, the Company received a voluntary document request from the Securities and Exchange Commission (“SEC”). The Company has engaged counsel and is currently cooperating with the SEC in the matter.  This document request is in the preliminary stages and the outcome cannot be predicted with any certainty.

General litigationThe Company is involved in various other legal proceedings arising in the normal course of business. The Company does not believe that the ultimate resolution of these other matters will have a material adverse effect on its consolidated financial position, results of operations, or cash flows.

The results of any future litigation cannot be predicted with certainty and, regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management time and resources and other factors.

Indemnification—Under the terms of its agreements with wireless carriers and other partners, the Company has agreed to provide indemnification for intellectual property infringement claims related to Company’s product sold by them to their end customers. From time to time, the Company receives notices from these wireless carriers and other partners of a claim for infringement of intellectual property rights potentially related to their products. These infringement claims have been settled, dismissed, have not been further pursued by the customers, or are pending for further action by the Company.

Contingent severance obligations—The Company has agreements in place with certain key employees (Executive Severance Arrangement) guaranteeing severance payments under certain circumstances. Generally, in the event of termination by the Company without cause, termination due to death or disability, or resignation for good reason, the Company is obligated to the pay the employees: (i) any time before a Change in Control, amounts up to $1,754 or (ii) if at any time within 12 months of a Change in Control, amounts up to $2,345.  As of March 31, 2020, and December 31, 2019, no accrual has been recorded.

On December 11, 2019, the Board of Directors of Sonim Technologies, Inc. (the “Company”) approved the Sonim Technologies Inc. Transaction Bonus Plan (the “Plan”) that is intended to incentivize Company employees who are in a position to significantly impact the value received by the Company’s stockholders in a change of control transaction. Pursuant to the Plan, upon consummation of a change of control transaction, 10% of the consideration payable to Company stockholders, after deducting transaction expenses, will be distributed to Plan participants, including the Company’s named executive officers. The Plan has a three-year term and may be extended by the administrator of the Plan. Subject to the terms of the Plan, participants must be continuously providing services to the Company through the date of the closing of a change in control transaction to be eligible to receive a bonus thereunder, and payment is contingent upon delivery and non-revocation of a general release of claims. In connection with the adoption of the Plan, the Company’s Board of Directors allocated a 50% interest in the Plan to Tom Wilkinson, the Company’s Chief Executive Officer, and a 10% interest in the Plan to Robert Tirva, the Company’s Chief Financial Officer and 25% to 6 other key employees. As of March 31, 2020, no accrual has been recorded.

18


SONIM TECHNOLOGIES, INC

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

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

 

 

NOTE 11—Related Party Transactions

Management Services Agreement—In October 2017, the Company entered into a management services agreement with B. Riley Principal Investments, an investor, pursuant to which B. Riley Investments agreed to provide advisory and consulting services to the Company. The Company incurred approximately $50 in related consulting fees in each of the three months ended March 31, 2020 and 2019.  At the closing of the Company’s IPO in May 2019, the management services agreement was terminated in accordance with its terms.

NOTE 12 Net Loss Per Share Attributable to Common Stockholders

The following table sets forth the computation of the Company’s basic and diluted net loss per share attributable to common stockholders for the three months ended March 31, 2020 and 2019:

 

 

 

 

2020

 

 

 

2019

 

Numerator:

 

 

 

 

 

 

 

 

Net loss allocable to common stockholders

 

$

(9,964

)

 

$

(5,124

)

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

Weighted-average shares used in computing net loss per

   share, basic and diluted

 

 

20,613,849