The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
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
Basis of presentation and preparation
The condensed consolidated financial statements include the accounts of Sonim Technologies, Inc. and its wholly owned subsidiaries (collectively “Sonim” or the “Company”). Intercompany accounts and transactions have been eliminated. In the opinion of the Company’s management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The preparation of these condensed consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. Certain prior period amounts in the consolidated financial statements and accompanying notes have been reclassified to conform to the current period’s presentation. These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and accompanying notes included in its Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”).
Liquidity and Going Concern
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared assuming the Company will continue as a going concern and in accordance with generally accepted accounting principles in the United States of America.
Pursuant to the requirements of the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date these condensed consolidated financial statements are issued. This evaluation does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented or are not within control of the Company as of the date the condensed consolidated financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.
The Company had cash and cash equivalents of $6,896 and an accumulated deficit of $212,144 at June 30, 2021, and a net loss of $6,686 for the quarter ended June 30, 2021. Since inception, the Company has been developing ultra-rugged mobile phones and accessories designed specifically for task workers physically engaged in their work environments, often in mission-critical roles. The Company’s ability to continue as a going concern is dependent on its ability to complete ongoing and future development of its ultra-rugged mobile phones and accessories, continue commercial scale production and sell its products. The Company believes that its current level of cash and cash equivalents are not sufficient to fund commercial scale production and product sales. These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of at least one year from the date of issuance of these unaudited condensed consolidated financial statements.
To alleviate these conditions, management is currently evaluating various funding alternatives and may seek to raise additional funds through the issuance of equity, mezzanine or debt securities, through arrangements with strategic or investment partners with greater resources or access to funds or through obtaining credit from government or financial institutions. As the Company seeks additional sources of financing, there can be no assurance that such financing would be available to the Company on favorable terms or at all. The Company’s ability to obtain additional financing in the debt and equity capital markets is subject to several factors, including market and economic conditions, the Company’s performance and investor sentiment with respect to the Company and its industry.
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)
New accounting pronouncements:
Pronouncements adopted in 2021:
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 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 adopted ASU 2019-12 on January 1, 2021. The adoption of ASU 2019-12 did not have an impact on the Company’s condensed consolidated financial statements.
Pronouncements not yet adopted:
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 to control the use of the given asset assumed under the lease. As an emerging growth company, the Company has elected to adopt the standard based on nonpublic business entities implementation dates 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.
NOTE 2 —Revenue recognition
The Company recognizes revenue primarily from the sale of products, including its mobile phones, barcode scanners 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 Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. The Company also recognizes revenue from other contracts that may include a combination of products and non-recurring engineering (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 six months ended June 30, 2021, and 2020, 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 products. 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 records reductions to net revenues related to future product returns based on the Company’s expectations and historical experience. 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.
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)
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. Control is generally transferred when the Company has a present right to payment and title and the significant risks and rewards of ownership of products or services are transferred to its customers. For most of the Company’s revenue attributable to hardware, control transfers when products are shipped. 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 |
|
|
Six Months Ended |
|
|
|
June 30 |
|
|
June 30 |
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
Smartphones |
|
$ |
3,946 |
|
|
$ |
6,138 |
|
|
$ |
8,315 |
|
|
$ |
12,356 |
|
Feature Phones |
|
|
7,780 |
|
|
|
13,835 |
|
|
|
14,339 |
|
|
|
19,736 |
|
Scanners |
|
|
36 |
|
|
— |
|
|
|
1,091 |
|
|
— |
|
Accessories/Other |
|
|
192 |
|
|
|
1,085 |
|
|
449 |
|
|
|
1,672 |
|
|
|
$ |
11,954 |
|
|
$ |
21,058 |
|
|
$ |
24,194 |
|
|
$ |
33,764 |
|
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.
Distributor returns allowance
The Company records reductions to net revenues related to future distributor product returns based on the Company’s expectation. The Company had allowances for distributor product returns totaling approximately $237 as of June 30, 2021.
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 expenses.
The non-recurring costs associated with design and development of new products for technical approval, represent costs to fulfill a contract pursuant to ASC 340-40 Other Assets and Deferred Costs. 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 4 years, the estimated life of a particular model phone.
The total capitalized costs to fulfill a contract is primarily associated with Company’s introduction of the XP8 model phone. As of June 30, 2021, and December 31, 2020, the total costs to fulfill a contract included in other assets were $2,071 and $2,889, respectively.
Contract balances
The Company records accounts receivable when it has an unconditional right to consideration. As of June 30, 2021, the Company did 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 condensed consolidated balance sheets. As of January 1, 2021, and June 30, 2021, the contract liabilities were $5 and $872, respectively.
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 following table is a rollforward of contract balances as of June 30, 2021:
|
|
Contractual |
|
|
|
Liability |
|
Balance at, January 1, 2021 |
|
$ |
5 |
|
Recognition of revenue |
|
|
(8 |
) |
Addition to deferred revenue |
|
|
875 |
|
Balance at, June 30, 2021 |
|
$ |
872 |
|
Concentration of Customers
Revenue from customers with concentration greater than 10% in the three and six months ended June 30, 2021, and 2020 accounted for approximately the following percentage of total revenues:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
Customer A |
|
14% |
|
|
* |
|
|
12% |
|
|
* |
|
Customer B |
|
14% |
|
|
58% |
|
|
24% |
|
|
46% |
|
Customer C |
|
13% |
|
|
* |
|
|
13% |
|
|
* |
|
Customer D |
|
* |
|
|
* |
|
|
* |
|
|
12% |
|
Customer E |
|
41% |
|
|
12% |
|
|
31% |
|
|
13% |
|
* |
Customer revenue did not exceed 10% in the respective period. |
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 assets or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Following is a description of the valuation methodologies used for assets and liabilities measured at fair value. There have been no changes in the methodologies used at June 30, 2021, and December 31, 2020.
Money market funds are classified within level 1 of the fair value hierarchy because they are valued using quoted market prices.
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)
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The following tables sets forth by level, within the fair value hierarchy, the Company’s assets at fair value:
|
|
June 30, 2021 |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds * |
|
$ |
1,500 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020 |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds * |
|
$ |
17,905 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
17,905 |
|
* |
Included in cash and cash equivalents on the condensed consolidated balance sheets. |
NOTE 4 —Inventory
The following table presents the components of the Company’s inventory as of June 30, 2021, and December 31, 2020:
|
|
June 30,
2021 |
|
|
December 31,
2020 |
|
Finished goods |
|
$ |
8,094 |
|
|
$ |
7,792 |
|
Raw materials |
|
|
2,793 |
|
|
|
2,590 |
|
Accessories |
|
|
1,023 |
|
|
962 |
|
|
|
$ |
11,910 |
|
|
$ |
11,344 |
|
Distributor returns allowance
The Company records reductions to cost of goods sold related to future distributor product returns based on the Company’s expectation. The Company had inventory related to distributor product returns totaling approximately $158 as of June 30, 2021.
NOTE 5 — Accounts Receivable
The following table presents the components of the Company’s receivables as of June 30, 2021, and December 31, 2020:
|
|
June 30,
2021 |
|
|
December 31,
2020 |
|
Trade receivables |
|
$ |
6,328 |
|
|
$ |
4,217 |
|
Allowance for doubtful accounts |
|
|
(20) |
|
|
|
(65) |
|
Accounts receivable, net |
|
|
6,308 |
|
|
|
4,152 |
|
Vendor non-trade receivables |
|
|
4,438 |
|
|
|
453 |
|
Total accounts receivable |
|
$ |
10,746 |
|
|
$ |
4,605 |
|
The Company has non-trade receivables from a manufacturing vendor resulting from the sale of components to this vendor who manufactures and assembles final products for the Company.
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)
The Company analyzes the need for reserves for potential credit losses and records allowances for doubtful accounts when necessary. The Company had allowances for such losses totaling approximately $20 and $65 as of June 30, 2021, and December 31, 2020, respectively.
Trade receivables from two customers approximated 22% and 20% of total accounts receivable at June 30, 2021, and receivables from two customers approximated 26% and 10% of total trade receivables at, December 31, 2020.
NOTE 6 —Warranty Liability
The table below sets forth the activity in the warranty liability for the six months ended June 30, 2021, and 2020:
Balance, January 1, 2021 |
|
$ |
1,530 |
|
Additions |
|
|
479 |
|
Cost of warranty claims |
|
|
(716 |
) |
Balance, June 30, 2021 |
|
$ |
1,293 |
|
|
|
|
|
|
Balance, January 1, 2020 |
|
$ |
1,154 |
|
Additions |
|
|
882 |
|
Cost of warranty claims |
|
|
(647 |
) |
Balance, June 30, 2020 |
|
$ |
1,389 |
|
NOTE 7 —Long-Term Debt
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 are paid in quarterly installments over periods from two to four years, with interest ranging up to 8%. Remaining balances are $288 and $362, at June 30, 2021, and December 31, 2020, respectively.
NOTE 8 —Stock-based Compensation
Stock-based compensation expense for the three and six months ended June 30, 2021, and 2020 is as follows:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
Cost of revenues |
|
$ |
16 |
|
|
$ |
13 |
|
|
$ |
32 |
|
|
$ |
23 |
|
Sales and marketing |
|
55 |
|
|
49 |
|
|
111 |
|
|
106 |
|
General and administrative |
|
63 |
|
|
102 |
|
|
237 |
|
|
198 |
|
Research and development |
|
45 |
|
|
71 |
|
|
95 |
|
|
131 |
|
|
|
$ |
179 |
|
|
$ |
235 |
|
|
$ |
475 |
|
|
$ |
458 |
|
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)
Stock Options:
Stock option activity for the six months ended June 30, 2021, is as follows:
|
|
|
|
|
|
|
|
|
|
Weighted average |
|
|
|
|
|
|
|
|
|
|
|
Weighted average |
|
|
|
remaining |
|
|
|
Aggregate |
|
|
|
|
|
|
|
exercise price |
|
|
|
contractual life |
|
|
|
Intrinsic |
|
|
|
Options |
|
|
|
per share |
|
|
|
(in years) |
|
|
|
Value* |
|
Outstanding at January 1, 2021 |
|
1,443,940 |
|
|
$ |
3.64 |
|
|
|
7.82 |
|
|
$ |
24 |
|
Options granted |
|
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
Options exercised |
|
(7,082 |
) |
|
$ |
0.75 |
|
|
|
|
|
|
|
|
|
Options forfeited |
|
(128,070 |
) |
|
$ |
2.92 |
|
|
|
|
|
|
|
|
|
Options expired |
|
(49,330 |
) |
|
$ |
4.14 |
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2021 |
|
1,259,458 |
|
|
$ |
3.71 |
|
|
|
6.93 |
|
|
$ |
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2021 |
|
734,636 |
|
|
$ |
4.09 |
|
|
|
5.88 |
|
|
$ |
9 |
|
*The intrinsic value is calculated as the difference between the exercise price and the fair value of the common stock on the balance sheet date.
As of June 30, 2021, there was approximately $2,443 of unamortized stock-based compensation cost related to unvested stock options, which is expected to be recognized over a weighted average period of approximately three years.
Restricted Stock Units:
Restricted stock units’ activity for the six months ended June 30, 2021, is as follows:
|
|
RSUs |
|
Outstanding at January 1, 2021 |
|
|
2,691,375 |
|
Granted |
|
|
467,482 |
|
Released |
|
|
(535,375 |
) |
Forfeited |
|
|
(525,000 |
) |
Outstanding at June 30, 2021 |
|
|
2,098,482 |
|
|
|
|
|
|
Exercisable June 30, 2021 |
|
|
— |
|
As of June 30, 2021, unvested restricted stock units (“RSU’s) totaled 2,098,482 shares. There were 467,482 RSU’s issued for the six months ended June 30, 2021, and 2,015,500 RSU’s issued for the six months ended June 30, 2020.
As of June 30, 2021, shares issued under the employee stock purchase plan (“ESPP”) totaled 360,924 shares. There were 99,983 ESPP shares issued in the six months ended June 30, 2021, and 64,320 ESPP shares issued in the six months ended June 30, 2020.
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 June 30, 2021, and 2020, the Company recorded provisions for income taxes of $76, and $180, respectively. For the six months ended June 30, 2021, and 2020, the Company recorded provisions for income taxes $137, and $363, respectively.
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 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 and six months ended June 30, 2021, and 2020 was $483 and $843, respectively and $845 and $1,194, respectively. The Company may be required to pay additional royalties to additional patent holder and technology providers on future products.
Securities litigation—On 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 (the “’33 Act State Court Actions”). The defendants asked the Superior court to dismiss the “33 Act State Court Actions based on the provision in the Company’s Amended and Restated Certificate of Incorporation requiring stockholders to file and litigate in federal court any claims under the Securities Act of 1933. On December 7, 2020, the Superior Court entered an order granting defendants’ motion to dismiss. 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 (the “’33 Act Federal Action”). 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. In July 2020, the Company entered into an agreement with the Lead Plaintiff in the ‘33 Act Federal Action to settle that case on a class wide basis for $2.0 million. As a result, the Company has paid out the $2.0 million settlement as of December 31, 2020. On March 5, 2021, the court presiding over the ’33 Act Federal Action granted final approval of the settlement.
Securities and Exchange Commission Formal Order of Private Investigation: In March 2020, the Company received a voluntary document request from the SEC San Francisco Regional office, and in August 2020, the Company was informed that the SEC Staff was conducting a formal investigation. The SEC’s investigation is ongoing. The Company has been cooperating with the SEC in the matter. The Company is unable to predict the likely outcome of the investigation or determine its potential impact, if any, on the Company.
Derivative litigation—On September 21, 2020, the Company, and certain of its current and former directors and officers were sued by a stockholder on behalf of our Company in a derivative action in the United States District Court for the District of Delaware, captioned Kusiak v. Plaschke, et al., Case No 20-cv-1270-MN (“Kusiak”). The Kusiak complaint is based largely on the same underlying factual allegations as the ’33 Act Federal Action. The defendants filed a motion to dismiss the Kusiak derivative action based on plaintiff’s failure to make a litigation demand on Sonim’s directors. On February 1, 2021, plaintiff in Kusiak voluntarily dismissed the action without prejudice.
On February 1, 2021, the same plaintiffs’ lawyers in the Kusiak action filed a new derivative action in the United States District Court for the District of Delaware against the Company and certain of its current and former directors and officers, captioned Gupta v. Plaschke, et al., Case No. 1:21-cv-130-MN (“Gupta”). The allegations in the Gupta complaint are generally similar to those in the Kusiak action. The defendants filed a motion to dismiss the Gupta derivative action based on plaintiff’s failure to make a litigation demand on Sonim’s directors. Given the early stages of this proceeding and the limited information available, we cannot predict the outcome of this legal proceeding or determine its potential impact, if any, on the Company.
General litigation—The 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 condensed 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.
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)
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. On May 31, 2021, the Company and Tom Wilkinson agreed that he will cease serving as the Company’s Chief Executive Officer. In connection with his departure, the Company entered into a Separation and Release Agreement with him pursuant to which he will continue to be paid his base salary of $400, the rate in effect on the effective date for a period of twelve months, subject to tax withholding and any other authorized deductions, and will continue to be eligible for the Transaction Bonus Plan until November 30, 2021.
On December 11, 2019, the Board of Directors 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, except in the event of death or disability or involuntary termination without cause as further described in Section 5(c) and 5(d) of the Plan, and payment is contingent upon delivery and non-revocation of a general release of claims. In connection with the adoption of the Plan, the Board of Directors allocated a 50% interest in the Plan to Tom Wilkinson, the Company’s former Chief Executive Officer, and a 10% interest in the Plan to Robert Tirva, the Company’s President, Chief Operating Officer and Chief Financial Officer, and 35% to 7 other key employees and consultants.
NOTE 11 —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 and six months ended:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
|
June 30, |
|
|
June 30, |
|
|
|
|
2021 |
|
|
|
2020 |
|
|
|
2021 |
|
|
|
2020 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(6,686 |
) |
|
$ |
(7,096 |
) |
|
$ |
(15,966 |
) |
|
$ |
(17,060 |
) |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in
computing net loss per share, basic
and diluted |
|
|
66,506,956 |
|
|
|
31,638,250 |
|
|
|
66,412,365 |
|
|
|
26,126,037 |
|
Net loss per share, basic and diluted |
|
$ |
(0.10 |
) |
|
$ |
(0.22 |
) |
|
$ |
(0.24 |
) |
|
$ |
(0.65 |
) |
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)
The dilutive common shares that were excluded from the calculation of diluted net loss per share because their effect would have been antidilutive for the three and six months ended, are presented are as follows:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
|
June 30, |
|
|
June 30, |
|
|
|
|
2021 |
|
|
|
2020 |
|
|
|
2021 |
|
|
|
2020 |
|
Shares subject to options to purchase common stock |
|
|
1,259,458 |
|
|
|
1,806,493 |
|
|
|
1,259,458 |
|
|
|
1,806,493 |
|
Unvested restricted stock units |
|
|
2,098,482 |
|
|
|
2,150,000 |
|
|
|
2,098,482 |
|
|
|
2,150,000 |
|
Shares subject to warrants to purchase common
stock |
|
|
29 |
|
|
|
29 |
|
|
|
29 |
|
|
|
29 |
|
Total |
|
|
3,357,969 |
|
|
|
3,956,522 |
|
|
|
3,357,969 |
|
|
|
3,956,522 |
|
NOTE 12 —Segment and Geographic Information
The Company operates in one reporting segment. Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker, who is the president, chief operating officer and chief financial officer, in deciding how to allocate resources and assessing performance. The Company’s chief operating decision maker allocates resources and assesses performance based upon discrete financial information at the consolidated level.
The following table summarizes the revenue by region based on ship-to destinations for the three and six months ended:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
U.S. |
|
$ |
8,111 |
|
|
$ |
17,478 |
|
|
$ |
16,738 |
|
|
$ |
25,696 |
|
Canada and Latin America |
|
|
3,772 |
|
|
|
2,579 |
|
|
|
7,115 |
|
|
|
6,658 |
|
Europe and Middle East |
|
|
66 |
|
|
|
446 |
|
|
|
327 |
|
|
|
794 |
|
Asia Pacific |
|
|
5 |
|
|
|
555 |
|
|
|
14 |
|
|
|
616 |
|
Total revenues |
|
$ |
11,954 |
|
|
$ |
21,058 |
|
|
$ |
24,194 |
|
|
$ |
33,764 |
|
The following table summarizes the composition of revenues for the three and six months ended:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
Product Sales |
|
$ |
11,913 |
|
|
$ |
21,042 |
|
|
$ |
24,151 |
|
|
$ |
33,737 |
|
Services |
|
|
41 |
|
|
|
16 |
|
|
|
43 |
|
|
|
27 |
|
Total revenues |
|
$ |
11,954 |
|
|
$ |
21,058 |
|
|
$ |
24,194 |
|
|
$ |
33,764 |
|
NOTE 13 —Restructuring Costs
At the beginning of 2021, the Company outsourced substantially all of its software development to a third-party and transferred 105 employees to support the ongoing work to be performed. In connection with outsourcing its software development, the Company entered into an agreement of future business volume over the next three years in the amount of $7.1 million, of which the Company has committed to that a minimum value of $3.1 million will be assured in the first year of business. The Company has paid $1.8 million during the six months ended June 30, 2021.
Additionally, in the beginning of 2021, the Company outsourced its manufacturing work to a supply chain partner and did transfer 22 employees as part of this solution.
14
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)
During 2020, the Company continued to reduce headcount to better align its expenses with its revenue profile. The Company executed a reduction in force of approximately 10% of its U.S. employees in February 2020 and has also reduced headcount in certain international locations in India and Shenzhen. The Company has also relocated its headquarters from San Mateo, California to Austin, Texas, a lower cost location.
The table below sets forth the activity in the Company’s restructuring costs, which is included in accrued expenses on the condensed consolidated balance sheet, as of June 30, 2020:
Balance, January 1, 2020 |
|
$ |
511 |
|
Additions: expensed costs |
|
|
1,204 |
|
Expenses paid out |
|
|
(1,535 |
) |
Balance, June 30, 2020 |
|
$ |
180 |
|
Total restructuring costs of approximately $1.2 million were broken out between operating expenses of $1.1 million and cost of revenues of $0.1 million for the six months ended June 30, 2020.
The Company paid insignificant bonuses and cash settlement of options for the India employees for the six months ended June 30, 2021.
NOTE 14 -Subsequent Events
On June 30, 2021, the Company entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with B. Riley Securities, Inc. and EF Hutton, a division of Benchmark Investments, LLC (the “Sales Agents”) to sell shares of the Company’s common stock, having an aggregate offering price of up to $10,000 (the “Shares”), from time to time, through an “at-the-market offering” program (the “ATM Program”).
Under the terms of the Sales Agreement, the Company will pay the Sales Agents a commission equal to 3.0% of the gross proceeds from each sale of common stock sold through it under the Sales Agreement.
From July 1, 2021, through July 30, 2021, the Company received $8,363 in net proceeds from the sale of 18,207,800 shares of our common stock at an average price per share of $0.4593 under the ATM Program.
15