10-Q 1 sonm-10q_20200930.htm 10-Q sonm-10q_20200930.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 September 30, 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 78746

 

(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 October 31, 2020, the registrant had 66,162,019 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

24

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

32

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

Item 3.

Defaults Upon Senior Securities

34

Item 4.

Mine Safety Disclosures

34

Item 5.

Other Information

34

Item 6.

Exhibits

35

Signatures

36

 

 

i


 

SONIM TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2020 and DECEMBER 31, 2019 (UNAUDITED)

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

PER SHARE AMOUNTS)

 

 

 

September 30, 2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

31,672

 

 

$

11,298

 

Accounts receivable, net

 

 

5,804

 

 

 

10,082

 

Inventory

 

 

12,828

 

 

 

19,531

 

Prepaid expenses and other current assets

 

 

6,148

 

 

 

6,430

 

Total current assets

 

 

56,452

 

 

 

47,341

 

Property and equipment, net

 

 

1,146

 

 

 

1,442

 

Other assets

 

 

4,778

 

 

 

6,676

 

Total assets

 

$

62,376

 

 

$

55,459

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

177

 

 

$

9,821

 

Accounts payable

 

 

10,552

 

 

 

7,234

 

Accrued expenses

 

 

14,663

 

 

 

10,265

 

Deferred revenue

 

 

290

 

 

 

291

 

Total current liabilities

 

 

25,682

 

 

 

27,611

 

Income tax payable

 

 

2,135

 

 

 

1,961

 

Long-term debt, less current portion

 

 

222

 

 

 

362

 

Total liabilities

 

 

28,039

 

 

 

29,934

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

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

   66,008,316 and 20,437,235 shares issued and outstanding at, September 30, 2020 and

   December 31, 2019, respectively.

 

 

66

 

 

 

20

 

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

 

 

 

 

 

 

Additional paid-in capital

 

 

224,041

 

 

 

191,751

 

Accumulated deficit

 

 

(189,770

)

 

 

(166,246

)

Total stockholders’ equity

 

 

34,337

 

 

 

25,525

 

Total liabilities and stockholders’ equity

 

$

62,376

 

 

$

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 AND NINE MONTHS ENDED SEPTEMBER 30, 2020 and 2019 (UNAUDITED)

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

 

2020

 

 

 

2019

 

 

 

2020

 

 

 

2019

 

Net revenues

 

$

14,393

 

 

$

28,850

 

 

$

48,157

 

 

$

99,081

 

Cost of revenues

 

 

9,994

 

 

 

21,968

 

 

 

36,675

 

 

 

68,733

 

Gross profit

 

 

4,399

 

 

 

6,882

 

 

 

11,482

 

 

 

30,348

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

3,389

 

 

 

6,651

 

 

 

10,581

 

 

 

20,996

 

Sales and marketing

 

 

2,884

 

 

 

3,042

 

 

 

8,611

 

 

 

10,986

 

General and administrative

 

 

4,245

 

 

 

2,870

 

 

 

13,003

 

 

 

12,770

 

Restructuring costs

 

 

 

 

 

578

 

 

 

1,087

 

 

 

578

 

Total operating expenses

 

 

10,518

 

 

 

13,141

 

 

 

33,282

 

 

 

45,330

 

Loss from operations

 

 

(6,119

)

 

 

(6,259

)

 

 

(21,800

)

 

 

(14,982

)

Interest expense

 

 

(182

)

 

 

(235

)

 

 

(803

)

 

 

(1,212

)

Other expense, net

 

 

(13

)

 

 

(248

)

 

 

(408

)

 

 

(519

)

Loss before income taxes

 

 

(6,314

)

 

 

(6,742

)

 

 

(23,011

)

 

 

(16,713

)

Income tax expense

 

 

(150

)

 

 

(33

)

 

 

(513

)

 

 

(785

)

Net loss

 

$

(6,464

)

 

$

(6,775

)

 

$

(23,524

)

 

$

(17,498

)

Net loss per share, basic and diluted

 

$

(0.10

)

 

$

(0.33

)

 

$

(0.60

)

 

$

(0.97

)

Weighted–average shares used in computing net

   loss per share, basic and diluted

 

 

65,938,028

 

 

 

20,356,447

 

 

 

39,494,441

 

 

 

18,085,719

 

 

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

 

 

2


 

SONIM TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019 (UNAUDITED)

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

 

 

 

Common Stock

 

 

Additional Paid-in

 

 

Accumulated

 

 

Stockholders’

 

For the Three Months Ended September 30, 2020

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at  July 1, 2020

 

 

65,927,316

 

 

$

66

 

 

$

223,495

 

 

$

(183,306

)

 

$

40,255

 

Issuance of common stock, net of issuance costs

 

 

 

 

 

 

 

 

64

 

 

 

 

 

 

64

 

Issuance of common stock, debt repayment

 

 

 

 

 

 

 

 

169

 

 

 

 

 

 

169

 

Issuance of common stock upon exercise of stock options

 

 

2,875

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Net settlement of common stock upon release of RSU

 

 

78,125

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee and nonemployee stock-based compensation

 

 

 

 

 

 

 

 

312

 

 

 

 

 

 

312

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(6,464

)

 

 

(6,464

)

Balance at September 30, 2020

 

 

66,008,316

 

 

$

66

 

 

$

224,041

 

 

$

(189,770

)

 

$

34,337

 

 

 

 

Common Stock

 

 

Additional Paid-in

 

 

Accumulated

 

 

Stockholders’

 

For the Nine Months Ended September 30, 2020 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at, January 1, 2020

 

 

20,437,235

 

 

$

20

 

 

$

191,751

 

 

$

(166,246

)

 

$

25,525

 

Issuance of common stock, net of issuance costs

 

 

36,800,000

 

 

 

37

 

 

 

25,019

 

 

 

 

 

 

25.056

 

Issuance of common stock, debt repayment

 

 

8,226,834

 

 

 

8

 

 

 

6,162

 

 

 

 

 

 

6,170

 

Issuance of common stock upon exercise of stock options

 

 

366,732

 

 

 

1

 

 

 

303

 

 

 

 

 

 

304

 

Issuance of common stock upon purchase of ESPP

 

 

64,320

 

 

 

 

 

 

42

 

 

 

 

 

 

42

 

Net settlement of common stock upon release of RSU

 

 

113,195

 

 

 

 

 

 

(6

 

 

 

 

 

(6

Employee and nonemployee stock-based compensation

 

 

 

 

 

 

 

 

770

 

 

 

 

 

 

770

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(23,524

)

 

 

(23,524

)

Balance at, September 30, 2020

 

 

66,008,316

 

 

$

66

 

 

$

224,041

 

 

$

(189,770

)

 

$

34,337

 

 

 

 

Common Stock

 

 

Additional Paid-in

 

 

Accumulated

 

 

Stockholders’

 

For the Three Months Ended September 30, 2019 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at, July 1, 2019

 

 

20,344,258

 

 

$

20

 

 

$

190,874

 

 

$

(151,135

)

 

$

39,759

 

Exercise of stock options

 

 

13,525

 

 

 

 

 

 

14

 

 

 

 

 

 

14

 

Employee and nonemployee stock-based compensation

 

 

 

 

 

 

 

 

307

 

 

 

 

 

 

307

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(6,775

)

 

 

(6,775

)

Balance at, September 30, 2019

 

 

20,357,783

 

 

$

20

 

 

$

191,195

 

 

$

(157,910

)

 

$

33,305

 

 

 

 

Common Stock

 

 

Additional Paid-in

 

 

Accumulated

 

 

Stockholders’

 

For the Nine Months Ended September 30, 2019 

 

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 IPO, net of issuance costs

 

 

4,297,901

 

 

 

4

 

 

 

36,845

 

 

 

 

 

 

36,849

 

Exercise of stock options

 

 

85,559

 

 

 

 

 

 

69

 

 

 

 

 

 

69

 

Exercise of warrants

 

 

155,338

 

 

 

 

 

 

23

 

 

 

 

 

 

23

 

Taxes paid on RSA

 

 

 

 

 

 

 

 

(1,897

 

 

 

 

 

(1,897

)

Employee and nonemployee stock-based compensation

 

 

 

 

 

 

 

 

5,911

 

 

 

 

 

 

5,911

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(17,498

)

 

 

(17,498

)

Balance at, September 30, 2019

 

 

20,357,783

 

 

$

20

 

 

$

191,195

 

 

$

(157,910

)

 

$

33,305

 

 

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)

 

 

 

Nine Months Ended

 

 

 

September 30

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(23,524

)

 

$

(17,498

)

Adjustments to reconcile net loss to net cash used in

   operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,321

 

 

 

2,669

 

Stock-based compensation

 

 

770

 

 

 

5,911

 

Inventory write-downs

 

 

407

 

 

 

2,109

 

Trade-in guarantee

 

 

 

 

 

(268

)

Non-cash interest expense

 

 

335

 

 

 

50

 

Accretion of debt discount

 

 

159

 

 

 

90

 

Deferred income taxes

 

 

(1

)

 

 

(7

)

Bad debt expense

 

 

289

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

4,278

 

 

 

1,507

 

Inventory

 

 

6,296

 

 

 

(5,185

)

Prepaid expenses and other current assets

 

 

44

 

 

 

2,968

 

Other assets

 

 

134

 

 

 

(2,722

)

Accounts payable

 

 

3,210

 

 

 

(9,710

)

Accrued expenses

 

 

4,399

 

 

 

(5,263

)

Deferred revenue

 

 

(1

)

 

 

(3,657

)

Income tax payable

 

 

174

 

 

 

203

 

Net cash used in operating activities

 

 

(710

)

 

 

(28,803

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(203

)

 

 

(908

)

Development of tooling and purchased software licenses

 

 

 

 

 

(347

)

Net cash used in investing activities

 

 

(203

)

 

 

(1,255

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repayment on long-term debt

 

 

(4,110

)

 

 

(3,621

)

Proceeds on line of credit

 

 

 

 

 

5,614

 

Repayment on line of credit

 

 

 

 

 

(5,614

)

Proceeds from PPP Loan

 

 

2,289

 

 

 

 

Repayment of PPP Loan

 

 

(2,289

)

 

 

 

Proceeds from issuance of common stock, net of costs

 

 

25,056

 

 

 

1,604

 

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

 

 

 

 

 

37,180

 

Taxes paid on net issuance of restricted stock award and restricted stock units

 

 

(6

)

 

 

(1,897

)

Proceeds from exercise of warrants

 

 

 

 

 

23

 

Proceeds from ESPP purchase of stock

 

 

43

 

 

 

 

Proceeds from exercise of stock options

 

 

304

 

 

 

69

 

Net cash provided by financing activities

 

 

21,287

 

 

 

33,358

 

Net increase in cash and cash equivalents

 

 

20,374

 

 

 

3,300

 

Cash and cash equivalents at beginning of period

 

 

11,298

 

 

 

13,049

 

Cash and cash equivalents at end of period

 

$

31,672

 

 

$

16,349

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

260

 

 

$

1,392

 

Cash paid for income taxes

 

 

76

 

 

 

352

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Other assets included in accounts payable

 

 

108

 

 

 

74

 

IPO issuance costs included in accounts payable

 

 

 

 

 

331

 

Settlement of long-term debt with issuance of common stock

 

 

6,170

 

 

 

 

 

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. (“Sonim”, “we”, “our”, or the “Company”) 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 mobility solutions to several of the largest wireless carriers in the United States— including AT&T, T-Mobile and Verizon—as well as the three largest wireless carriers in Canada—Bell, Rogers and Telus Mobility. Due to the acquisition of Sprint by T-Mobile, the Company’s current generation of products sold to Sprint/T-Mobile will be phased out.  The Company is actively working to develop a new series of products for T-Mobile. Our phones and accessories connect workers with voice, data and workflow applications in two end markets: industrial enterprise and public sector.

The Company is closely monitoring the impact of the COVID-19 global outbreak and its resulting impact on its manufacturing operations and supply chain, with its top priority being the health and safety of our employees, customers, partners, and communities.

The Company believes sales partners have sufficient inventory to continue meeting customer needs in the near term. However, demand for the Company’s solutions may be reduced as a result of the COVID-19 outbreak and resulting market uncertainty. It also remains possible that the Company’s results could be negatively impacted by interruptions in the global supply chain due to the continued and unpredictable spread of this pandemic. The magnitude of any future impact of the COVID-19 outbreak is unknown. The Company is working closely with its partners and suppliers to manage through this situation.

 

Restrictions on travel and the imposition of stay-at-home or work remote conditions have impacted our operations and those of our customers. The Company has effective communications and collaboration tools in place to ensure business continuity during periods requiring remote operation. While we have not experienced major disruptions, our ability to interact with customers has been impacted by the current environment. There is a risk that our inability to meet in-person with current or prospective customers, as well as the cancellation or postponement of Company-sponsored events or third-party events at which our products are featured, may have a negative impact on our business.

 

Liquidity The Company’s condensed consolidated financial statements account for the continuation of its business due primarily to approximately $25 million in net proceeds from the Company’s public offering of common stock that closed June 2020 and redemption of approximately $10 million of note payable in June 2020. The Company believes that the proceeds from the foregoing capital raise has provided the Company with sufficient funds to continue operations for at least the next twelve months.

Our principal sources of liquidity as of September 30, 2020 consist of existing cash and cash equivalents totaling $31.7 million, which includes approximately $25 million in net proceeds from our June 2020 public offering of common stock.  Although we remain subject to the risks and uncertainties associated with the development and release of new products, among others, we believe our operations have been streamlined to enable us to conduct business more effectively and efficiently despite near term economic uncertainty.

On April 13, 2020, the Company received approximately $2.3 million in loan proceeds from the Payroll Protections Program (the “PPP”) administered by the United States Small Business Administrations (the “SBA”).  The PPP was established under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”).  Following further guidance from the SBA on April 23, 2020 and further deliberation by the Board of Directors of the Company (the “Board of Directors”), the Company repaid the PPP Loan on April 29, 2020.

The Company may seek to raise additional capital from the sale of equity securities or the incurrence of indebtedness to allow it to invest in growth opportunities. There can be no assurance that additional financing will be available to the Company on acceptable terms, or at all. Additionally, if the Company issues additional equity securities to raise funds, whether to existing investors or others, the ownership percentage of its existing stockholders would be reduced. New investors may demand rights, preferences, or privileges senior to those of existing holders of common stock. Additionally, the Company may be limited as to the amount of funds it 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 the Company’s ability to raise additional capital when needed on acceptable terms, if at all. If the Company cannot grow its revenue run-rate or raise needed funds, it might be forced to make substantial reductions in its operating expenses, which could adversely affect its ability to implement its business plan and ultimately its viability as a Company.

 

5


SONIM TECHNOLOGIES, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

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 is 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, Sonim Technologies (Canada), Inc. and Sonim Communications India Private Limited. 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 as of 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 Other than the adoption of new accounting standards in New Accounting Pronouncements describes in the note below. There have been no material changes in the accounting policies from those disclosed in the audited  consolidated financial statements for the year ended December 31, 2019.

 

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 several 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.

6


SONIM TECHNOLOGIES, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

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.

The 2020 Offering (“PO”) —On June 9, 2020, the Company completed an underwritten public offering (“PO’) in which the Company sold 36,800,000 shares of its common stock, at a price to the public of $0.75 per share. The offer and sale of the shares in the PO were registered under the Securities Act of 1933, as amended (the “Securities Act”) pursuant to a registration statement on Form S-1 (File No. 333-238869), which was declared effective by the SEC on June 4, 2020. The Company raised approximately $25,056 in net proceeds, after deducting underwriting discounts and commissions of $1,656 and offering expenses of approximately $719. Offering costs, which consist of direct incremental legal, consulting, banking and accounting fees relating to the Company’s PO, are offset against proceeds from the PO within stockholders’ equity.

Initial Public Offering (“IPO”) —On May 14, 2019, the Company completed 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. 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 and the Company’s common stock began trading on -the Nasdaq -Global Market on May 10, 2019. On May 22, 2019, the Company sold an additional 505,714 shares of common stock, and its 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 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 consisted of direct incremental legal, consulting, banking and accounting fees relating to the Company’s IPO, were 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 nine months ended September 30, 2019, $4,798 in deferred offering costs were incurred and charged to additional paid in capital. $331 issuance cost was unpaid and charged to accounts payable/accrued expenses as of September 30, 2019.

 

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 are required to adopt the new or revised standard. This may make comparison of the Company’s consolidated financial statements with another public company that, 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.

7


SONIM TECHNOLOGIES, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

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. The Company 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 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. We applied this new standard as of the effective date and believe there is no significant impact.

Pronouncements not yet adopted:

In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 is currently 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 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, 2021. 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 CONDENSED CONSOLIDATED 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 of adoption of ASC 606:

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended,  September 30, 2019 (unaudited)

 

 

As Reported

 

 

Balances

Without

Adoption

of Topic

606

 

 

 

Effect of

Change

Higher/(Lower)

 

Net revenues

 

$

28,850

 

$

28,850

 

 

$

-

 

Cost of revenues

 

 

21,968

 

 

21,602

 

 

 

366

 

Gross profit

 

 

6,882

 

 

7,248

 

 

 

(366

)

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

6,651

 

 

7,010

 

 

 

(359

)

Sales and marketing

 

 

3,042

 

 

3,042

 

 

 

 

General and administrative

 

 

2,870

 

 

2,870

 

 

 

 

Restructuring costs

 

 

578

 

 

578

 

 

 

 

Total operating expenses

 

 

13,141

 

 

13,500

 

 

 

(359

)

Loss from operations

 

 

(6,259

)

 

(6,252

)

 

 

(7

)

Interest expense

 

 

(235

)

 

(235

)

 

 

 

Other expense, net

 

 

(248

)

 

(248

)

 

 

 

Loss before income taxes

 

 

(6,742

)

 

(6,735

)

 

 

(7

)

Income tax expense

 

 

(33

)

 

(33

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(6,775

)

$

(6,768

)

 

$

(7

)

Net loss per share, basic and

   diluted

 

$

(0.33

)

$

(0.33

)

 

$

 

Weighted–average shares used in

   computing net loss per share,

   basic and diluted

 

 

 

20,356,447

 

 

20,356,447

 

 

 

 

 

 

9


SONIM TECHNOLOGIES, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended, September 30, 2019 (unaudited)

 

 

As Reported

 

 

Balances

Without

Adoption

of Topic

606

 

 

 

Effect of

Change

Higher/(Lower)

 

Net revenues

 

$

99,081

 

$

99,081

 

 

$

-

 

Cost of revenues

 

 

68,733

 

 

67,644

 

 

 

1,089

 

Gross profit

 

 

30,348

 

 

31,437

 

 

 

(1,089

)

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

20,996

 

 

23,644

 

 

 

(2,648

)

Sales and marketing

 

 

10,986

 

 

10,986

 

 

 

 

General and administrative

 

 

12,770

 

 

12,770

 

 

 

 

Restructuring costs

 

 

578

 

 

578

 

 

 

 

Total operating expenses

 

 

45,330

 

 

47,978

 

 

 

(2,648

)

Loss from operations

 

 

(14,982

)

 

(16,541

)

 

 

1,559

 

Interest expense

 

 

(1,212

)

 

(1,212

)

 

 

 

Other expense, net

 

 

(519

)

 

(519

)

 

 

 

Loss before income taxes

 

 

(16,713

)

 

(18,272

)

 

 

1,559

 

Income tax expense

 

 

(785

)

 

(785

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(17,498

)

$

(19,057

)

 

$

1,559

 

Net loss per share, basic and diluted

 

$

(0.97

)

$

(1.05

)

 

$

0.08

 

Weighted–average shares used in

   computing net loss per share,

   basic and diluted

 

 

18,085,719

 

 

18,085,719

 

 

 

 

 

 

The Company recognizes revenue primarily from the sale of products, including its 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 and nine months ended September 30, 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.

 

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.

 

10


SONIM TECHNOLOGIES, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

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 as the Company performs the professional services to the customer.

Disaggregation of revenue

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

 

 

September 30

 

 

September 30

 

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

Smartphones

 

$

5,684

 

 

$

11,709

 

 

$

18,040

 

 

$

45,578

 

 

Feature Phones

 

 

8,323

 

 

 

16,224

 

 

 

28,059

 

 

 

49,623

 

 

Accessories/Other

 

 

386

 

 

 

917

 

 

 

2,058

 

 

 

3,880

 

 

 

 

$

14,393

 

 

$

28,850

 

 

$

48,157

 

 

$

99,081

 

 

 

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 $4,525 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 September 30, 2020, the total costs to fulfill a contract included in other assets were $3,298.

 

Contract balances

The Company records accounts receivable when it has an unconditional right to consideration. As of September 30, 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 obligations. Contract liabilities are presented as a component of deferred revenue on the consolidated balance sheets. As of December 31, 2019, and September 30, 2020, the contract liabilities were $291 and $290, respectively, with the contract liabilities as of September 30, 2020 expected to be recognized into revenue in 2020.

The following table is a rollforward of contract balances as of September 30, 2020:

 

 

 

Contractual

 

 

 

Liability

 

Balance at, January 1, 2020

 

$

291

 

Recognition of revenue

 

 

(177

)

Addition to deferred revenue

 

 

176

 

Balance at, September 30, 2020

 

$

290

 

 

11


SONIM TECHNOLOGIES, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

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, September 30, 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.

12


SONIM TECHNOLOGIES, INC

NOTES TO CONDENSED CONSOLIDATED 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:

 

 

 

September 30, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds *

 

$

17,900

 

 

$

 

 

$

 

 

$

17,900

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 nine months ended September 30, 2020 and 2019:

 

 

Trade-In

 

 

 

Guarantee

 

 

Balance at, January 1, 2020

$

 

Recognition of revenue

 

 

Balance at, September 30, 2020

$

 

 

 

 

 

Balance at, January 1, 2019

$

268

 

Recognition of revenue

 

(268

)

Balance at, September 30, 2019

$

 

 

NOTE 4 —Inventory

Inventory consisted of approximately the following:

 

 

 

September 30,

2020

 

 

December 31,

2019

 

Finished goods

 

$

7,523

 

 

$

13,559

 

Work in process

 

 

553

 

 

 

 

Raw materials

 

 

3,567

 

 

 

4,522

 

Accessories

 

 

1,185

 

 

 

1,450

 

 

 

$

12,828

 

 

$

19,531

 

 

13


SONIM TECHNOLOGIES, INC

NOTES TO CONDENSED CONSOLIDATED 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 sheets, for the nine months ended September 30, 2020 and 2019:

 

Balance, January 1, 2020

 

$

1,154

 

Additions

 

 

1,269

 

Cost of warranty claims

 

 

(1,187

)

Balance, September 30, 2020

 

$

1,236

 

 

 

 

 

 

Balance, January 1, 2019

 

$

1,103

 

Additions

 

 

957