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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, 2021

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.)

 

6500 River Place Boulevard, Bldg. 7, S#250,

Austin, TX 78730

 

(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 29, 2021, the registrant had 16,066,421 shares of common stock, $0.001 par value per share, issued and 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

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

27

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31

Item 3.

Defaults Upon Senior Securities

31

Item 4.

Mine Safety Disclosures

31

Item 5.

Other Information

31

Item 6.

Exhibits

32

Signatures

33

 

 

 

i


 

SONIM TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

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

PER SHARE AMOUNTS)

 

 

 

September 30,

2021

 

 

December 31,

2020

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

10,187

 

 

$

22,141

 

Accounts receivable, net

 

 

2,798

 

 

 

4,152

 

Non-trade receivable

 

 

2,845

 

 

 

453

 

Inventory

 

 

9,906

 

 

 

11,344

 

Prepaid expenses and other current assets

 

 

6,863

 

 

 

7,481

 

Total current assets

 

 

32,599

 

 

 

45,571

 

Property and equipment, net

 

 

570

 

 

 

843

 

Other assets

 

 

5,023

 

 

 

3,898

 

Total assets

 

$

38,192

 

 

$

50,312

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

177

 

 

$

177

 

Accounts payable

 

 

12,563

 

 

 

8,856

 

Accrued expenses

 

 

10,154

 

 

 

9,906

 

Warranty liability

 

 

1,296

 

 

 

1,530

 

Deferred revenue

 

 

 

 

 

5

 

Total current liabilities

 

 

24,190

 

 

 

20,474

 

Income tax payable

 

 

1,283

 

 

 

1,243

 

Long-term debt, less current portion

 

 

74

 

 

 

185

 

Total liabilities

 

 

25,547

 

 

 

21,902

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

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

   9,253,238 and 6,631,039 shares issued and outstanding at September 30, 2021, and

   December 31, 2020, respectively.*

 

 

9

 

 

 

7

 

Preferred stock, $0.001 par value per share, 5,000,000 shares authorized, and no

   shares issued and outstanding at September 30, 2021, and December 31,

   2020, respectively.

 

 

 

 

 

 

Additional paid-in capital

 

 

235,719

 

 

 

224,581

 

Accumulated deficit

 

 

(223,083

)

 

 

(196,178

)

Total stockholders’ equity

 

 

12,645

 

 

 

28,410

 

Total liabilities and stockholders’ equity

 

$

38,192

 

 

$

50,312

 

 

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

 

* Reflects the 1-for-10 reverse stock split that became effective on September 15, 2021. Refer to Note 1 – The Company and its Significant Accounting Policies for further information.

 

1


 

SONIM TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net revenues

 

$

14,445

 

 

$

14,393

 

 

$

38,639

 

 

$

48,157

 

Cost of revenues

 

 

12,661

 

 

 

9,994

 

 

 

31,738

 

 

 

36,675

 

Gross profit

 

 

1,784

 

 

 

4,399

 

 

 

6,901

 

 

 

11,482

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

5,492

 

 

 

3,389

 

 

 

13,826

 

 

 

10,581

 

Sales and marketing

 

 

3,087

 

 

 

2,884

 

 

 

7,456

 

 

 

8,611

 

General and administrative

 

 

2,961

 

 

 

2,477

 

 

 

7,602

 

 

 

7,644

 

Legal

 

 

967

 

 

 

1,768

 

 

 

4,276

 

 

 

5,359

 

Restructuring costs

 

 

 

 

 

 

 

 

 

 

 

1,087

 

Total operating expenses

 

 

12,507

 

 

 

10,518

 

 

 

33,160

 

 

 

33,282

 

Loss from operations

 

 

(10,723

)

 

 

(6119

)

 

 

(26,259

)

 

 

(21,800

)

Interest expense

 

 

 

 

 

(182

)

 

 

 

 

 

(803

)

Other expense, net

 

 

(126

)

 

 

(13

)

 

 

(419

)

 

 

(408

)

Loss before income taxes

 

 

(10,849

)

 

 

(6,314

)

 

 

(26,678

)

 

 

(23,011

)

Income tax expense

 

 

(90

)

 

 

(150

)

 

 

(227

)

 

 

(513

)

Net loss

 

$

(10,939

)

 

$

(6,464

)

 

$

(26,905

)

 

$

(23,524

)

Net loss per share, basic and diluted*

 

$

(1.31

)

 

$

(0.98

)

 

$

(3.72

)

 

$

(5.96

)

Weighted–average shares used in

   computing net loss per Share, basic

   and diluted*

 

 

8,366,283

 

 

 

6,593,764

 

 

 

7,222,541

 

 

 

3,949,415

 

 

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

 

* Reflects the 1-for-10 reverse stock split that became effective on September 15, 2021. Refer to Note 1 – The Company and its Significant Accounting Policies for further information.

 

 

 

2


 

SONIM TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND 2020 (UNAUDITED)

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

 

 

 

Common stock*

 

 

Additional Paid-in

 

 

Accumulated

 

 

Total

Stockholders’

 

For the Three Months Ended September 30, 2021

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at July 1, 2021

 

 

6,695,272

 

 

$

7

 

 

$

225,099

 

 

$

(212,144

)

 

$

12,962

 

Issuance of common stock, net of issuance costs

 

 

2,555,788

 

 

2

 

 

 

10,335

 

 

 

 

 

10,337

 

Net settlement of common stock upon release of RSU

 

 

2,149

 

 

 

 

 

 

 

 

 

 

Employee and nonemployee stock-based compensation

 

 

 

 

 

 

285

 

 

 

 

 

285

 

Common stock variance, reverse stock split

 

29

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

(10,939

)

 

 

(10,939

)

Balance at September 30, 2021

 

 

9,253,238

 

 

$

9

 

 

$

235,719

 

 

$

(223,083

)

 

$

12,645

 

 

 

 

Common Stock*

 

 

Additional Paid-in

 

 

Accumulated

 

 

Stockholders’

 

For the Nine Months Ended September 30, 2021,

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at January 1, 2021

 

 

6,631,039

 

 

$

7

 

 

$

224,581

 

 

$

(196,178

)

 

$

28,410

 

Issuance of common stock upon exercise of stock options

 

 

707

 

 

 

 

5

 

 

 

 

5

 

Issuance of common stock, net of issuance costs

 

 

2,555,788

 

 

2

 

 

10,335

 

 

 

 

10,337

 

Issuance of common stock upon exercise of ESPP

 

 

9,992

 

 

 

 

38

 

 

 

 

38

 

Net settlement of common stock upon release of RSU

 

 

55,683

 

 

 

 

 

 

 

 

 

 

Common stock variance, reverse stock split

 

29

 

 

 

 

 

 

 

 

 

Employee and nonemployee stock-based compensation

 

 

 

 

 

760

 

 

 

 

760

 

Net loss

 

 

 

 

 

 

 

 

(26,905

)

 

 

(26,905

)

Balance at September 30, 2021

 

 

9,253,238

 

 

$

9

 

 

$

235,719

 

 

$

(223,083

)

 

$

12,645

 

 

 

 

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

 

 

2,916,372

 

 

$

3

 

 

$

223,558

 

 

$

(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

 

 

287

 

 

 

 

1

 

 

 

 

1

 

Net settlement of common stock upon release of RSU

 

 

7,812

 

 

 

 

 

 

 

 

 

 

Employee and nonemployee stock-based compensation

 

 

 

 

 

312

 

 

 

 

312

 

Net loss

 

 

 

 

 

 

 

(6,464

)

 

 

(6,464

)

Balance at September 30, 2020

 

 

2,924,471

 

 

$

3

 

 

$

224,104

 

 

$

(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

 

 

2,043,701

 

 

$

2

 

 

$

191,769

 

 

$

(166,246

)

 

$

25,525

 

Issuance of common stock, net of issuance costs

 

 

3,680

 

 

 

 

 

25,056

 

 

 

 

 

25,056

 

Issuance of common stock, debt repayment

 

 

822,682

 

 

1

 

 

 

6,169

 

 

 

 

 

6,170

 

Issuance of common stock upon exercise of stock options

 

 

36,663

 

 

 

 

 

304

 

 

 

 

 

304

 

Issuance of common stock upon exercise of ESPP

 

 

6,426

 

 

 

 

 

42

 

 

 

 

 

42

 

Net settlement of common stock upon release of RSU

 

 

11,319

 

 

 

 

 

(6

)

 

 

 

 

(6

)

Employee and nonemployee stock-based compensation

 

 

 

 

 

 

770

 

 

 

 

 

770

 

Net loss

 

 

 

 

 

 

 

 

(23,524

)

 

 

(23,524

)

Balance at September 30, 2020

 

 

2,924,471

 

 

$

3

 

 

$

224,104

 

 

$

(189,770

)

 

$

34,337

 

 

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

* Reflects the 1-for-10 reverse stock split that became effective on September 15, 2021. Refer to Note 1 – The Company and its Significant Accounting Policies for further information.

 

 

3


 

SONIM TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

(IN THOUSANDS OF U.S. DOLLARS)

 

 

 

Nine Months Ended

 

 

September 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(26,905

)

 

$

(23,524

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,631

 

 

 

2,321

 

Stock-based compensation

 

 

760

 

 

 

770

 

Inventory write-downs

 

 

 

 

 

407

 

Non-cash interest expense

 

 

 

 

 

335

 

Accretion of debt discount

 

 

 

 

 

159

 

Loss on disposal of asset

 

 

59

 

 

 

 

Deferred income taxes

 

 

(9

)

 

 

(1

)

Bad debt expense

 

 

685

 

 

 

289

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

669

 

 

 

4,897

 

Non-trade receivable

 

 

(2,392

)

 

 

(619

)

Inventory

 

 

1,438

 

 

 

6,296

 

Prepaid expenses and other current assets

 

 

589

 

 

 

44

 

Other assets

 

 

(1,134

)

 

 

134

 

Accounts payable

 

 

3,648

 

 

 

3,210

 

Accrued expenses

 

 

248

 

 

 

4,399

 

Warranty liability

 

 

(234

)

 

 

(235

)

Deferred revenue

 

 

(5

)

 

 

(1

)

Income tax payable

 

 

40

 

 

 

174

 

Net cash used in operating activities:

 

 

(20,912

)

 

 

(710

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(20

)

 

 

(203

)

Net cash used in investing activities

 

 

(20

)

 

 

(203

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repayment on long-term debt

 

 

(111

)

 

 

(4,109

)

Proceeds from PPP Loan

 

 

 

 

 

2,289

 

Repayment of PPP Loan

 

 

 

 

 

(2,289

)

Proceeds from issuance of common stock, net of costs

 

 

9,046

 

 

 

25,056

 

Taxes paid on net issuance of restricted stock units

 

 

 

 

 

(6

)

Proceeds from ESPP purchase of stock

 

 

38

 

 

 

42

 

Proceeds from exercise of stock options

 

 

5

 

 

 

304

 

Net cash provided by financing activities

 

 

8,978

 

 

 

21,287

 

Net increase (decrease) in cash and cash equivalents

 

 

(11,954

)

 

 

20,374

 

Cash and cash equivalents at beginning of period

 

 

22,141

 

 

 

11,298

 

Cash and cash equivalents at end of period

 

$

10,187

 

 

$

31,672

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

 

 

$

260

 

Cash paid for income taxes

 

 

45

 

 

 

76

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Issuance of common stock included in other assets

 

 

1,291

 

 

 

 

Other assets included in accounts payable

 

 

 

 

 

108

 

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

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 (“GAAP”) 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 condensed 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”).

On September 15, 2021, the Company effected a 1-for-10 stock split (the “Reverse Stock Split”) of its issued and outstanding shares of common stock on that date. Additionally, the number of shares of the Company’s common stock subject to outstanding stock options and restricted stock units, the exercise price of all of its outstanding stock options, and the number of shares of common stock reserved for future issuance pursuant to its equity compensation plans were adjusted proportionately in connection with the Reverse Stock Split. The number of authorized shares of common stock under the Company’s Amended and Restated Certificate of Incorporation and the par value per share of its common stock were unchanged. All historical share and per share amounts presented herein have been adjusted retrospectively to reflect these changes.

 

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 GAAP.

 

Pursuant to the requirements of the Financial Accounting Standards Board’s (“FASB”) 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 $10,187 and an accumulated deficit of $223,083 at September 30, 2021, and a net loss of $10,939 for the quarter ended September 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, 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 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 nine months ended September 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. The Company determines its 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, the Company’s historical settlement activity of audited and reviewed claims and current economic conditions using the portfolio approach. Revenue is recognized only to the extent that it is probable that a significant reversal of the cumulative amount recognized will not occur in future periods.

 

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

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)

 

 

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 the Company’s net revenue disaggregated by product category:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Smartphones

 

$

2,800

 

 

$

5,684

 

 

$

11,115

 

 

$

18,040

 

Feature Phones

 

 

11,396

 

 

 

8,323

 

 

 

25,735

 

 

 

28,059

 

Scanners

 

 

3

 

 

 

 

 

1,094

 

 

 

Accessories/Other

 

 

246

 

 

 

386

 

 

695

 

 

 

2,058

 

 

 

$

14,445

 

 

$

14,393

 

 

$

38,639

 

 

$

48,157

 

 

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 $300 as of September 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 and now the XP3 Plus model feature phone. As of September 30, 2021, and December 31, 2020, the total costs to fulfill a contract included in other assets were $2,684 and $2,889, respectively.

Contract balances

The Company records accounts receivable when it has an unconditional right to consideration. As of September 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 September 30, 2021, the contract liabilities were $5 and zero, respectively.

The following table is a rollforward of contract balances as of September 30, 2021:

 

 

 

Contractual

 

 

 

Liability

 

Balance at, January 1, 2021

 

$

5

 

Recognition of revenue

 

 

(880

)

Addition to deferred revenue

 

 

875

 

Balance at, September 30, 2021

 

$

 

 

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)

 

 

Concentration of Customers

Revenue from customers with concentration greater than 10% in the three and nine months ended September 30, 2021, and 2020 accounted for approximately the following percentage of total revenues:

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Customer A

 

21%

 

 

11%

 

 

27%

 

 

*

 

Customer B

 

23%

 

 

28%

 

 

24%

 

 

40%

 

Customer C

 

28%

 

 

11%

 

 

13%

 

 

11%

 

Customer D

 

*

 

 

13%

 

 

*

 

 

10%

 

 

*

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 September 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:

 

 

 

September 30, 2021

 

 

Level 1

 

 

Level 2