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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 March 31, 2022

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 April 30, 2022, the registrant had 19,269,338 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

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

26

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

Item 3.

Defaults Upon Senior Securities

28

Item 4.

Mine Safety Disclosures

28

Item 5.

Other Information

28

Item 6.

Exhibits

29

Signatures

30

 

 

 

i


 

 

SONIM TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

MARCH 31, 2022 AND DECEMBER 31, 2021 (UNAUDITED)

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

PER SHARE AMOUNTS)

 

 

 

March 31,

2022

 

 

December 31,

2021

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

10,630

 

 

$

11,233

 

Accounts receivable, net

 

 

10,423

 

 

 

10,803

 

Non-trade receivable

 

 

3,985

 

 

 

2,255

 

Inventory

 

 

5,220

 

 

 

5,544

 

Prepaid expenses and other current assets

 

 

3,557

 

 

 

5,852

 

Total current assets

 

 

33,815

 

 

 

35,687

 

Property and equipment, net

 

 

491

 

 

 

534

 

Right-of-use assets

 

 

712

 

 

 

 

Other assets

 

 

4,277

 

 

 

4,869

 

Total assets

 

$

39,295

 

 

$

41,090

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

148

 

 

$

148

 

Accounts payable

 

 

13,439

 

 

 

9,473

 

Accrued expenses

 

 

11,273

 

 

 

11,353

 

Current portion of lease liability

 

 

769

 

 

 

 

Deferred revenue

 

 

172

 

 

 

11

 

Total current liabilities

 

 

25,801

 

 

 

20,985

 

Income tax payable

 

 

1,435

 

 

 

1,409

 

Long-term debt, less current portion

 

 

30

 

 

 

66

 

Lease liability

 

 

1,008

 

 

 

 

Total liabilities

 

 

28,274

 

 

 

22,460

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

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

   19,269,338 and 18,808,855 shares issued and outstanding at March 31,

   2022, and December 31, 2021, respectively.

 

 

19

 

 

 

19

 

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

   shares issued and outstanding at March 31, 2022, and December 31,

   2021, respectively.

 

 

 

 

 

 

Additional paid-in capital

 

 

253,997

 

 

 

253,416

 

Accumulated deficit

 

 

(242,995

)

 

 

(234,805

)

Total stockholders’ equity

 

 

11,021

 

 

 

18,630

 

Total liabilities and stockholders’ equity

 

$

39,295

 

 

$

41,090

 

 

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

 

1


 

 

SONIM TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2022 AND 2021 (UNAUDITED)

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

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

 

 

 

2022

 

 

2021

 

 

Net revenues

 

$

13,258

 

 

$

12,240

 

 

Cost of revenues

 

 

11,730

 

 

 

9,777

 

 

Gross profit

 

 

1,528

 

 

 

2,463

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

 

4,168

 

 

 

4,664

 

 

Sales and marketing

 

 

2,170

 

 

 

2,181

 

 

General and administrative

 

 

2,211

 

 

 

2,262

 

 

Legal expense

 

 

61

 

 

 

2,406

 

 

Total operating expenses

 

 

8,610

 

 

 

11,513

 

 

Loss from operations

 

 

(7,082

)

 

 

(9,050

)

 

Interest expense

 

 

(39

)

 

 

 

 

Other expense, net

 

 

(23

)

 

 

(169

)

 

Loss before income taxes

 

 

(7,144

)

 

 

(9,219

)

 

Income tax expense

 

 

(68

)

 

 

(61

)

 

Net loss

 

$

(7,212

)

 

$

(9,280

)

 

Net loss per share, basic and diluted*

 

$

(0.38

)

 

$

(1.40

)

 

Weighted–average shares used in

   computing net loss per share, basic

   and diluted*

 

 

19,111,379

 

 

 

6,631,680

 

 

 

 

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 MONTHS ENDED MARCH 31, 2022, AND MARCH 31, 2021 (UNAUDITED)

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

 

 

 

Common Stock*

 

 

Additional Paid-in

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital*

 

 

Deficit

 

 

Equity

 

Balance at January 1, 2021

 

 

6,631,087

 

 

$

7

 

 

$

224,581

 

 

$

(196,178

)

 

$

28,410

 

Issuance of common stock upon exercise of stock options

 

 

708

 

 

 

 

 

5

 

 

 

 

 

5

 

Employee and nonemployee stock-based compensation

 

 

 

 

 

 

296

 

 

 

 

 

296

 

Net loss

 

 

 

 

 

 

 

 

(9,280

)

 

 

(9,280

)

Balance at March 31, 2021

 

 

6,631,795

 

 

$

7

 

 

$

224,882

 

 

$

(205,458

)

 

$

19,431

 

 

 

 

 

Common Stock

 

 

Additional Paid-in

 

 

Accumulated

 

 

Stockholders

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at January 1, 2022

 

 

18,808,885

 

 

$

19

 

 

$

253,416

 

 

$

(234,805

)

 

$

18,630

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock, net of issuance costs

 

 

45,305

 

 

 

 

45

 

 

 

 

45

 

Issuance of common stock, compensation

 

 

415,023

 

 

 

 

253

 

 

 

 

253

 

Adoption of ASC 842 – leases (See Note 5)

 

 

 

 

 

 

 

 

 

(978

)

 

(978

)

Net settlement of common stock upon release of RSU

 

 

125

 

 

 

 

 

 

 

 

 

 

Employee and nonemployee stock-based compensation

 

 

 

 

 

283

 

 

 

 

283

 

Net loss

 

 

 

 

 

 

 

 

(7,212

)

 

 

(7,212

)

Balance at March 31, 2022

 

 

19,269,338

 

 

$

19

 

 

$

253,997

 

 

$

(242,995

)

 

$

11,021

 

 

 

 

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

THREE MONTHS ENDED MARCH 31, 2022 AND 2021 (UNAUDITED)

(IN THOUSANDS OF U.S. DOLLARS)

 

 

 

Three Months Ended

 

 

March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(7,212

)

 

$

(9,280

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

190

 

 

 

554

 

Stock-based compensation

 

 

283

 

 

 

296

 

Amortization of lease liability and lease interest expense

 

 

(199

)

 

 

 

Loss on disposal of asset

 

 

 

 

 

18

 

Deferred income taxes

 

 

 

 

 

(3

)

Bad debt repayment

 

 

2

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

378

 

 

 

(1,229

)

Non-trade receivable

 

 

(1,730

)

 

 

 

Inventory

 

 

324

 

 

 

779

 

Prepaid expenses and other current assets

 

 

2,295

 

 

 

1,496

 

Other assets

 

 

592

 

 

 

(278

)

Accounts payable

 

 

3,966

 

 

 

2,338

 

Accrued expenses

 

 

369

 

 

 

(2,896

)

Warranty liability

 

 

(54

)

 

 

 

Deferred revenue

 

 

161

 

 

 

(5

)

Income tax payable

 

 

26

 

 

 

13

 

Net cash used in operating activities:

 

 

(609

)

 

 

(8,197

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(3

)

 

 

 

Net cash used in investing activities

 

 

(3

)

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repayment of current portion of long-term debt

 

 

(36

)

 

 

(37

)

Proceeds from issuance of common stock, net of costs

 

 

45

 

 

 

 

Proceeds from exercise of stock options

 

 

 

 

 

5

 

Net cash provided by (used in) financing activities

 

 

9

 

 

 

(32

)

Net increase (decrease) in cash and cash equivalents

 

 

(603

)

 

 

(8,229

)

Cash and cash equivalents at beginning of period

 

 

11,233

 

 

 

22,141

 

Cash and cash equivalents at end of period

 

$

10,630

 

 

$

13,912

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

39

 

 

$

37

 

Cash paid for income taxes

 

$

1

 

 

$

 

Non-cash financing activities:

 

 

 

 

 

 

 

 

Shares issued under bonus plans

 

$

253

 

 

$

 

 

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

 

 

4


 

SONIM TECHNOLOGIES, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

NOTE 1 —The Company and its significant accounting policies

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

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 Ability to Continue as a Going Concern – The Company’s condensed consolidated financial statements account for the continuation of our business as a going concern. The Company is subject to the risks and uncertainties associated with the development and release of new products.  The Company’s principal sources of liquidity as of March 31, 2022, consist of existing cash and cash equivalents totaling $10,630, and its ability to raise additional capital through the issuance of equity, as well as the expected positive cash flow from the sale of products that are currently in development over the next year. The Company had a net loss for the three months ended March 31, 2022 of $7,212 and used $609 in cash from operations that raises 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 condensed consolidated financial statements.

To alleviate a potential lack of liquidity, management has entered into an agreement with an investor group to receive cash in exchange for newly issued common stock. See Note 13 for further information. This transaction must be approved by the Company’s stockholders and is subject to normal regulatory approvals. There is no guarantee that this transaction will be completed or that the Company will be able to obtain additional financing in the debt and equity capital markets.

 

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, 2021 (the “2021 Form 10-K”).

 

New accounting pronouncements:

Pronouncements adopted in 2022:

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. The Company adopted ASU 2016-02 on January 1, 2022. The adoption of ASU 2019-12 resulted in the recording of right-of-use assets, lease liability, and the derecognition of deferred lease liabilities, with the offset to equity. Beginning in 2022, the Company records lease interest and the amortization of the right-of-use assets, with a corresponding reduction in rent expense. These changes were not applied to periods prior to 2022 and make comparison of the Company’s consolidated financial statements between periods difficult or impossible because of the differences in accounting standards used. See Note 5 for further information.

 

 

 

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)

 

 

 

NOTE 2 —Revenue recognition

 

 

 

The Company recognizes revenue primarily from the sale of products, which are primarily mobile phones and related 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 identified and distinct within the context of the contract. In determining whether performance obligations meet the criteria for being distinct, the Company considers a number of factors, such as the degree of interrelation and interdependence between obligations, and whether or not the good or service significantly modifies or transforms another good or service in the contract. During the three months ended March 31, 2022, and 2021, 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 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 for the customer.

Disaggregation of revenue

The following table presents the Company’s net revenue disaggregated by product category:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Smartphones

 

$

3,588

 

 

$

4,369

 

Feature Phones

 

 

8,837

 

 

 

6,559

 

Accessories/Other

 

 

833

 

 

 

1,312

 

 

 

$

13,258

 

 

$

12,240

 

 

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.

 

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)

 

 

 

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 XP3plus model feature phone. As of March 31, 2022, and December 31, 2021, the total costs to fulfill a contract included in other assets were $1,757 and $2,345, respectively.

Contract balances

The Company records accounts receivable when it has an unconditional right to consideration. 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 March 31, 2022 and December 31, 2021, the contract liabilities were $172 and $11, respectively.

 

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 March 31, 2022, and December 31, 2021.

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

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 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:

 

 

 

March 31, 2022

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds *

 

$

1,501

 

 

$

 

 

$

 

 

$

1,501

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2021

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds *

 

$

1,500

 

 

$

 

 

$

 

 

$

1,500

 

 

 

*

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

 

NOTE 4 —Significant Balance Sheet Components

Accounts Receivable consists of the following:

 

 

 

March 31,

2022

 

 

December 31,

2021

 

Trade receivables

 

$

11,357

 

 

$

11,735

 

Allowance for doubtful accounts

 

 

(934)

 

 

 

(932)

 

Accounts receivable, net

 

 

10,423

 

 

 

10,803

 

Vendor non-trade receivables

 

 

3,985

 

 

 

2,255

 

Total accounts receivable

 

$

14,408

 

 

$

13,058

 

 

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.

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 $934 and $932 as of March 31, 2022, and December 31, 2021, respectively. The majority of the allowance was for a distributor who is not a 10% customer.

Inventory consists of the following:

 

 

 

March 31,

2022

 

 

December 31,

2021

 

Finished goods

 

$

2,908

 

 

$

2,952

 

Raw materials

 

 

1,858

 

 

 

1,986

 

Accessories

 

 

454

 

 

606

 

 

 

$

5,220

 

 

$

5,544

 

 

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 $41 and $229 as of March 31, 2022 and December 31, 2021 respectively.

 

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)

 

 

 

Other assets consisted of the following:

 

 

 

March

31, 2022

 

 

December 31, 2021

 

Deferred NRE

 

$

1,757

 

 

$

2,345

 

Advances to third party manufacturers

 

 

2,000

 

 

 

2,000

 

Deposits

 

 

431

 

 

 

431

 

Other

 

 

89

 

 

 

93

 

 

 

$

4,277

 

 

$

4,869

 

 

Accrued Expenses consisted of the following:

 

 

 

March

31, 2022

 

 

December 31, 2021

 

Customer allowances

 

$

3,505

 

 

$

3,148

 

Employee-related liabilities

 

 

657

 

 

 

1,893

 

Warranties

 

 

782

 

 

 

836

 

Accrual for goods received not invoiced

 

 

1,118

 

 

 

668

 

Contractual obligations

 

 

1,035

 

 

 

1,035

 

Royalties

 

 

1,012

 

 

 

1,210

 

Research and development

 

 

2,334

 

 

 

1,158

 

Shipping

 

 

301

 

 

 

157

 

Returns allowance

 

 

64

 

 

 

390

 

Legal

 

 

167

 

 

 

517

 

Other

 

 

298

 

 

 

341

 

 

 

$

11,273

 

 

$

11,353

 

 

NOTE 5 —Leases

 

The Company adopted ASU 2016-02 on January 1, 2022. The Company elected to use “the effective date” method where the comparative reporting periods is unchanged from legacy US GAAP. The Company elected the package of practical expedients to not reassess the classifications of existing leases and to not reassess if initial direct costs qualify for capitalization. The Company identified and continued to classify six leases as operating leases at January 1, 2022. All of the Company’s leases are for office space. The Company has elected the practical expedient to not separate lease components from nonlease components for all leases.

 

At adoption of ASC 842, the Company determined the fair value of the lease liability for each of the four operating leases (excluding the short-term leases) as the net present value of future lease payments using the Company’s incremental borrowing rate of 8.5%. The incremental borrowing rate was determined by management as the interest rate that the Company would pay for a loan with a repayment stream that is the same as the lease payment stream and for a loan that is secured by the underlying lease assets. The Company determined that the incremental rate was 8.5% for all four leases at January 1, 2022. An ROU asset that represents the Company’s right to use the leased asset, was established at adoption for the same amount as the lease liability. Per ASC 842, ROU assets were reduced by $142 with the derecognition of deferred lease liabilities from December 31, 2021.

 

One of the Company’s ROU assets is part of an asset group that had indicators of impairment (sublease income that is significantly less than the head lease obligation) as of December 31, 2021 and accordingly subject to an impairment analysis under ASC 360 at that time. At December 31, 2021 the amount of leasehold improvements and other recorded assets related to the asset group were not significant and as a result no impairment was required prior to adoption of ASC 842; however, had the recorded assets of the group at December 31, 2021 been significant an impairment charge would have been required. Upon adoption of ASC 842 and the recording of the ROU asset within this asset group, the Company reassessed impairment under ASC 360. As a result of this assessment, it was determined that as of the adoption date the fair value of the asset group was less than the recorded carrying value upon adoption and an impairment related to the ROU asset of $978 was required. Since all impairment conditions and events were present at December 31, 2021 as well as the adoption date, the Company recognized the impairment of $978 as an adjustment to beginning of the year retained earnings upon the adoption date.

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 entered into a sublease for the above property in September 2021 that had sublease income that was significantly less than the head lease payments. This sublease is for 13 months with, at the option of the subtenant, can be extended for 12 additional months. In determining the fair value of the ROU asset, the Company assumed that the subtenant will extend the lease because the sublease payments are less than market value. The Company determined that the fair value of the ROU asset as the sum of the sublease payments for the 25 months of the sublease. The Company is amortizing this ROU asset as sublease payments are received.

 

The Company elected the practical expedient for short-term leases for two leases that had terms of one year or less. ROU assets and lease liabilities were not established for these two short-term leases and rent payments are recorded as rent expense.

 

On January 1, 2022 the Company began recording all lease payments as the payment of lease interest expense and a reduction of the lease liability for the four leases that are not short-term. ROU assets are amortized over the life of the Company’s lease. The following table shows the activity of the ROU assets and lease liability for the three months ending on March 31, 2022:

 

 

 

Lease

Liability

 

Balance, December 31, 2021

 

$

 

Adoption of ASC 842

 

 

1,976

 

Principal payments

 

 

(199

)

Balance, March 31, 2022

 

 

1,777

 

Less short-term portion

 

 

(769

)

Long term lease liability

 

$

1,008

 

 

 

 

 

 

 

 

ROU Assets

 

Balance, December 31, 2021

 

$

 

Adoption of ASC 842

 

 

1,976

 

Derecognition of deferred rent liability

 

 

(142

)

Impairment of ROU asset

 

 

(978

)

Amortization

 

 

(144

)

Balance, March 31, 2022

 

$

712

 

Future minimum lease payments under noncancelable operating lease commitments are as follows as of March 31, 2022:

 

Year Ending, December 31st,

 

 

 

 

2022

 

$

676

 

2023

 

 

553

 

2024

 

 

467

 

2025

 

 

296

 

Total undiscounted minimum lease commitments

 

$

1,992

 

Effect of discounting

 

 

(215

)

Lease liabilities at March 31, 2022

 

$

1,777

 

 

In connection with leases, for the three months ended March 31, 2022, the Company recognized $144 for the amortization of ROU assets, $39 for interest expense on lease liabilities, and $37 of rent expense was included in Cost of Revenues. Variable lease payments, including reimbursements to the landlord for property taxes and operating expenses, of approximately $24 and short-term rent payments of $3 were included in rent expense for the three months ended March 31, 2022, and were offset by $27 in sublease income. The Company does not have any lease extension or termination options on any lease. The Company’s sublease does have a one year extension option, at the option of the subtenant, that the Company expects to be executed and is included in the value of the ROU asset. There are no residual value guarantees in any lease. The weighted average remaining lease term of the operating leases is approximately 2.8 years. The weighted average of the discount rate for both the discount rate used to calculate the lease liabilities and the remaining balance of the lease payments for each lease as of March 31, 2022 is 8.5%.

 

 

 

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)

 

 

 

NOTE 6 —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 $178 and $214, at March 31, 2022, and December 31, 2021, respectively.

 

 

 

NOTE 7 —Stockholders’ Equity

On September 15, 2021, the Company effected a 1-for-10 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.

 

On September 23, 2021, the Company entered into an At Market Issuance Sales Agreement with the same B. Riley Securities, Inc., as sales agent, to sell shares of the Company’s common stock, having an aggregate offering price of up to $41,637 from time to time, through a new “at the market offering” program (the “ATM Program”). Under the terms of the Sales Agreement, the Company will pay B. Riley Securities, Inc. a commission equal to 3.0% of the gross proceeds from each sale of common stock sold through it under the Sales Agreement. From January 1, 2022 through January 4, 2022, the Company issued and sold an aggregate of 45,305 shares of our common stock at an average price per share of $0.99 under the ATM Program for net proceeds of approximately $45.

 

 

NOTE 8 —Stock-based Compensation

 

On January 27, 2022, 415,023 shares of common stock were issued under the 2019 Employee Stock Purchase Plan as payment to three executives for bonuses that relate to the 2021 year. The dollar value of these bonuses was fixed at $254 as of December 31, 2021, and the number of shares issued on January 27, 2022 was determined based on the closing stock price on that date. As of December 31, 2021, the bonus was fully vested and $254 was included in accrued expenses. The stock was issued to the executives on February 4, 2022.

 

Stock-based compensation expense for the three months ended March 31, 2022 is as follows:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Cost of revenues

 

$

11

 

 

$

50

 

Sales and marketing

 

26

 

 

56

 

General and administrative

 

225

 

 

174

 

Research and development

 

21

 

 

16

 

 

 

$

283

 

 

$

296

 

 

 

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)

 

 

 

Stock Options:

Stock option activity for the three months ended March 31, 2022, is set forth in the table below and reflects the 1-for-10 Reverse Stock Split that became effective on September 15, 2021:

 

 

 

 

 

 

 

 

 

 

 

Weighted average

 

 

 

 

 

 

 

 

 

 

 

Weighted average

 

 

 

remaining

 

 

 

Aggregate

 

 

 

 

 

 

 

exercise price

 

 

 

contractual life

 

 

 

Intrinsic

 

 

 

Options

 

 

 

per share

 

 

 

(in years)

 

 

 

Value*

 

Outstanding at January 1, 2022

 

95,413

 

 

$

40.00

 

 

 

6.73

 

 

$

0

 

Options granted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options forfeited

 

(1,074

)

 

$

23.29

 

 

 

 

 

 

 

 

 

Options expired

 

(1,696

)

 

$

52.87

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2022

 

92,643

 

 

$

39.96

 

 

 

6.15

 

 

$

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at March 31, 2022

 

62,550

 

 

$

43.74

 

 

 

5.51

 

 

$

0

 

 

*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 March 31, 2022, there was approximately $1,285 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’ (“RSU”) activity for the three months ended March 31, 2022, is set forth in the table below and reflects the 1-for-10 Reverse Stock Split that became effective on September 15, 2021:

 

 

 

RSUs

 

Outstanding at January 1, 2022

 

 

347,111

 

Granted

 

 

 

Released

 

 

(125

)

Forfeited

 

 

(23,037

)

Outstanding at March 31, 2022

 

 

323,949

 

 

 

 

 

 

 

 

 

NOTE 9 —Income Taxes

In determining quarterly provisions for income taxes, the Company uses the annual estimated effective tax rate applied to the actual year-to-date profit or loss, adjusted for discrete items arising in that quarter. The Company’s annual estimated effective tax rate differs from the U.S. federal statutory rate primarily as a result of state taxes, foreign taxes, and changes in the Company’s valuation allowance against its deferred tax assets. For the three months ended March 31, 2022, and 2021, the Company recorded provisions for income taxes of $68 and $61, respectively.

 

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)

 

 

 

NOTE 10 —Commitments and Contingencies

The terms and conditions of applicable bylaws, certificates or articles of incorporation, agreements or applicable law may obligate Sonim under certain circumstances to indemnify its current and former directors, officers or employees, and underwriters, with respect to certain of the matters described below and Sonim has been advancing legal fees and costs to certain current and former directors, officers, employees and underwriters in connection with certain matters describe below.

Third Party Designer Commitments—The aggregate amount of noncancelable outsourced third-party designer services for our next generation phones as of March 31, 2022 and December 31, 2021, was approximately $3,684 and $6,460, respectively, and were related to the XP5plus and the XP10.  

Purchase Commitments—The aggregate amount of noncancelable purchase orders as of March 31, 2022 and December 31, 2021, was approximately $5,299 and $5,663, respectively, and were related to the purchase of components of our devices.  

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 between 2022 and 2026. Royalty expense for the three months ended March 31, 2022, and 2021 was $495 and $362, respectively and is included in Cost of Revenues. The Company may be required to pay additional royalties to additional patent holder and technology providers on future products.

Securities litigationOn September 20, 2019, a purported Sonim stockholder who allegedly purchased stock registered in Sonim’s initial public offering (“IPO”) filed a putative class action complaint in the Superior Court of the State of California, County of San Mateo, captioned Pearson v. Sonim Technologies, Inc., et al., Case No. 19CIV05564, on behalf of himself and others who purchased shares of Sonim registered in the IPO (the “Pearson Action”). On October 4 and 16, 2019, two additional purported class action complaints substantially similar to the Pearson Action were filed on behalf of different plaintiffs yet the same putative class of Sonim stockholders, in the same court as the Pearson Action (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 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 into events that occurred in 2018-2019.  The Company has been cooperating in the SEC’s ongoing investigation.  In October 2021, the Company and the SEC Staff began discussions regarding a potential resolution of the investigation. These discussions are ongoing. The Company is unable to predict the likely outcome of the investigation, including whether it can be resolved through settlement negotiations, 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 Company 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

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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)

 

 

Kusiak action. On March 29, 2022, Judge Dawson granted Defendants’ motion to dismiss and gave the plaintiff 14 days to file an amended complaint. No amended complaint was filed and on April 14, 2022 the federal court dismissed the action with prejudice..

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

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

Indemnification—Under the terms of its agreements with wireless carriers and other partners, the Company has agreed to provide indemnification for intellectual property infringement claims related to Company’s product sold by them to their end customers. From time to time, the Company receives notices from these wireless carriers and other partners of a clai