What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2021-02-19 compared with 2020-02-28 · 142 added, 167 removed, 167 unchanged (65% of the section changed)

3 unchanged sentences

Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this annual report.

Unless expressly stated otherwise, for discussion and analysis of results for the year ended December 31, 2018 and the comparison of 2019 and 2018 results, please refer to Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the United States Securities and Exchange Commission on February 28, 2020 and is incorporated herein by reference.

Business Overview

We are a leading provider of advanced antenna technologies used to enable high performance wireless networking across a broad and increasing range of devices and markets, including consumer, enterprise and automotive.

We are a leading provider of advanced wireless connectivity solutions and technologies used to enable high performance wireless networking across a broad and increasing range of devices and markets, including consumer, enterprise and automotive.

Our mission is to connect the world through advanced antenna systems and integrated wireless solutions.

Our innovative antenna systems are designed to address key challenges with wireless system performance faced by our customers.

We provide solutions to complex RF, engineering challenges to help improve wireless services that require higher throughput, broad coverage footprint, and carrier grade quality.

The consumer market encompasses a large and growing market of consumers using wireless-enabled devices and our antennas are deployed in consumer access points, wireless gateways, Wi-Fi Mesh systems and extenders, smart TVs, smart home devices, and set-top boxes.

Our Antennas support an array of technologies, including WLAN, Wi-Fi, LTE, 5G and LPWAN.

We are transitioning from a passive antenna and related services provider to a wireless system solutions provider, targeting higher levels of integration and complexity, and therefore, higher selling prices and margins and in 2020 we announced our new patented AirgainConnect ®

The first product from this platform is the FirstNet Ready ™

AirgainConnect AC-HPUE antenna-modem, targeting vehicles used by first responders.

The AC-HPUE antenna-modem includes an integrated high-power LTE modem supporting the 3GPP Band 14 HPUE (or high-power user equipment) output power functionality and is certified to run on the AT&T FirstNet network.

On January 7, 2021 we purchased 100% of the outstanding shares of Minnesota-based NimbeLink Corp., an IIoT company focused on the design, development, and delivery of cellular solutions for enterprise customers.

NimbeLink provides carrier-certified embedded modems and asset tracking solutions that minimize or often eliminate RF design and certification time from project schedules, significantly reducing costs and time to market.

The acquisition of NimbeLink supports our transition toward becoming a more system-level company and will play an important role in our overall growth strategy to broaden market diversification, especially within the IIoT space.

NimbeLink’s IIoT expertise puts them squarely in one of our targeted enterprise submarkets and extends the breadth and opportunity for our AirgainConnect platform.

Our worldwide salesforce represents a present opportunity to expand NimbeLink’s reach and NimbeLink will now gain access to design opportunities they were not previously able to win.

The result is an increase in the opportunities for Airgain in the enterprise market and a more diverse offering of products and expertise for our customers.

The consumer market encompasses a large and growing market of consumers using wireless-enabled devices and our antennas are deployed in consumer access points, wireless gateways, Wi-Fi

Mesh systems and extenders, smart TVs, smart home devices, and set-top

Our Antennas support an array of technologies, including WLAN, Wi-Fi,

LTE, 5G and LPWAN.

The enterprise market is characterized by devices that provide reliable wireless access for high-density environments such as buildings, campuses, transportation terminals and stadiums.

Within this market our antennas are deployed across a wide range of systems, devices, and applications that include access points and gateways, fixed wireless access infrastructure, small cells, and remote radio heads.

In addition we support an array of technologies, including WiFi, LTE, 5G and LPWAN.

In addition we support an array of technologies, including WiFi, LTE, 5G and LPWAN and NimbeLink’s products are well positioned to increase our growth in this market.

In the automotive market, our antennas are deployed in a wide range of vehicles to support a variety of wireless connectivity solutions in the fleet and aftermarket segment and support a variety of technologies that include WiFi, 3G, LTE, Satellite and LPWAN.

The fleet and aftermarket segment consists of applications whereby rugged vehicular wireless routers are paired with external antenna systems to provide connectivity to fixed and mobile assets.

The fleet and aftermarket segment of the automotive market consists of applications whereby rugged vehicular wireless routers are paired with external antenna systems to provide connectivity to fixed and mobile assets.

Within the fleet and aftermarket market segment, there has been a rise in the number of antennas per vehicle.

1 unchanged sentence

Our design teams partner with customers from the early stages of antenna prototyping to device throughput testing to facilitate optimal performance and quick time to market.

Our capabilities include design, custom engineering support, integrati on, and OTA testing.

Our capabilities include design, custom engineering support, integration, and OTA testing.

These capabilities have resulted in a strong reputation across the OEM, ODM and chipset manufacturer ecosystem.

Our competencies and strengths have helped us secure design wins used in multiple reference designs from leading Wi-Fi chip set vendors, OEMs, ODMs, chipset manufacturers and service providers rely on these reference designs and our engineering skills to deliver superior throughput performance.

Our competencies and strengths have helped us secure design wins used in multiple reference designs from leading Wi-Fi

chipset vendors, OEMs, ODMs, chipset manufacturers and service providers rely on these reference designs and our engineering skills to deliver superior throughput performance.

We view our relationship with OEM, ODM, chipset manufacturers and service providers as an important attribute to our long-term strategy and success.

We believe demand is growing rapidly for our advanced antenna solutions and there is a significant market opportunity.

We believe demand is growing rapidly for our advanced wireless connectivity solutions and technologies and there is a significant market opportunity.

As the ability to provide mobile internet access grows, our solutions and expertise become more important to prospects and customers.

1 unchanged sentence

However, our design, engineering, and research show that antenna selection, placement, and testing can have significant improvements in device performance.

We believe that we are chosen when performance is a more significant factor than price, and our distinctive focus on superior designs that provide increased range and throughput has allowed us to build a leadership position in the in-home WLAN device market.

WLAN device market.

Our financial highlights for 2020 include the following:

Sales decreased by 13% in 2020 compared to 2019.

The decrease in sales was primarily driven by product cycle transition for several large volume embedded antenna products.

The decrease in sales was primarily driven by the impacts from COVID-19

and a product cycle transition for several large volume embedded antenna products.

Gross profit as a percentage of sales increased to 46.6% in 2020 compared to 45.4% in 2019.

The increase in gross profit as a percentage of sales was largely due to a change in the product mix for the year ended December 31, 2019, when compared to the year ended December 31, 2018.

Income from operations increased by $4.0 million in 2019 compared to 2018.

This increase was primarily due to a decrease of $5.1 million in operating expenses offset by a $1.2 million decrease in gross profit.

The increase in gross profit as a percentage of sales was largely due to product cost reductions for the year ended December 31, 2020.

Income from operations decreased by $3.6 million in 2020 compared to 2019.

This decrease was primarily due to an increase of $0.8 million in operating expenses along with a $2.7 million decrease in gross profit due to lower sales volumes.

Our effective tax rate was (9.0)% in 2020 compared to 15.0% in 2019.

We ended 2019 with cash, cash equivalents, and short-term investments totaling $34.9 million.

We believe that our performance and future success depend upon several factors including manufacturing costs, investments in our growth, our ability to expand into growing addressable markets, including consumer, enterprise, and automotive, the ASP of our products per device, the number of antennas per device, and our ability to diversify the number of devices that incorporate our antenna products.

Our customers are extremely price conscious, and our operating results are affected by pricing pressure which may force us to lower prices below our established list prices.

In addition, a few end-customer devices which incorporate our antenna products comprise a significant amount of our sales, and the discontinuation or modification of such devices may materially and adversely affect our sales and results of operations.

Our ability to maintain or increase our sales depends on, among other things, new and existing end-customers selecting our antenna solutions for their wireless devices and networks, the proliferation of Wi-Fi connected home devices and data intensive applications, investments in our growth to address customer needs, our ability to target new end markets, development of our product offerings and technology solutions, and international expansion, as well as our ability to successfully integrate past and any future acquisitions.

We ended 2020 with cash, cash equivalents totaling $38.2 million.

We believe that our performance and future success depend upon several factors including the growth in sales of AirgainConnect AC-HPUE product and success in integrating NimbeLink and increasing its sales, as well as historical factors such as manufacturing costs, continued investments in our growth, our ability to expand into growing addressable markets, including consumer, enterprise, and automotive, the ASP of our products per device, the number of antennas per device, and our ability to diversify the number of devices that incorporate our antenna products.

Our customers are price conscious, and our operating results are affected by pricing pressure which may force us to lower prices below our established list prices.

In addition, a few end-customer

devices which incorporate our antenna products comprise a significant amount of our sales, and the discontinuation or modification of such devices may materially and adversely affect our sales and results of operations.

Our ability to maintain or increase our sales depends on, among other things, new and existing end-customers

selecting our antenna solutions for their wireless devices and networks, the proliferation of Wi-Fi

connected home devices and data intensive applications, investments in our growth to address customer needs, our ability to target new end markets, development of our product offerings and technology solutions, and international expansion, as well as our ability to successfully integrate past and any future acquisitions.

While each of these areas presents significant opportunities for us, they also pose significant risks and challenges we must successfully address.

We discuss many of these risks, uncertainties and other factors in this annual report in greater detail under the section entitled “Risk Factors.”

Covid-19 Pandemic

The United States and other countries around the world are experiencing a major health pandemic related to COVID-19, which has created considerable instability and disruption in the U.S.

and world economies.

Governmental authorities in impacted regions are taking actions in an effort to slow COVID-19’s spread, resulting in limitations on business operations and consumer and employee travel.

We have worked, and continue to work, to comply within the framework of local, county, state, and federal laws.

In that regard, we have implemented a wide range of practices to protect and support our employees and to modify and monitor the engagement with our customers, suppliers, and contract manufacturers.

Specifically, in response to intensifying efforts to contain the spread of COVID 19, we began to monitor or modify our hours of operation and the hours of our employees based in China, as did our contract manufacturers.

As the situation progressed and the outbreak was stabilized in China, our workers and facilities, as well as those of our contract manufacturers, returned to full function with precautions in place to help prevent outbreak or spread of the virus.

In the United States, most of our employees in the San Diego office are working from home and our offices are reserved for only those who cannot perform certain functions remotely, such as prototyping and testing.

In accordance with local regulations, engineering, testing, and production operations in our Scottsdale office, as well as testing operations in our remote facilities, have resumed with protocols in place to prevent and limit the spread of the virus.

In each work location, protocols have been established and remain in place, in accordance with government guidance, in order to minimize the risk to those employees whose presence in the office is necessary or allowed.

Our salespeople continue to engage with customers in order to secure sales of, and opportunities for, our products and services remotely rather than in-person.

The continued spread of COVID-19 and its related effects on our business have had a material and adverse effect on our business operations.

Through the date of this filing, these disruptions or restrictions include restrictions on our ability to travel, temporary closures of our office buildings or the facilities of our customers or suppliers, and during the fourth quarter, disruptions with certain components in our supply chain located in Asia.

Such disruptions of our customers have had a negative impact on our sales and operating results, particularly in the first quarter.

Related to sales, we saw orders begin to rebound in the second and third quarters.

However, the continued spread of COVID-19 may adversely affect such rebound and have a negative effect on our operating results in future quarters.

The impact of the COVID-19 pandemic on the U.S.

and world economies generally, and our future results in particular, could be significant and will largely depend on future developments, which are highly uncertain and cannot be predicted.

This includes new information that may emerge concerning COVID-19, the success of vaccinations and other actions taken to contain or treat COVID-19 and additional reactions by consumers, companies, governmental entities and capital markets.

Our operating results historically have not been subject to significant seasonal variations.

2 unchanged sentences

In addition, although it is difficult to make broad generalizations, our sales tend to be lower in the first quarter of each year compared to other quarters due to the Chinese New Year.

The extension of the lunar new year holidays due to the recent outbreak of COVID 19 originating in China may contribute the traditionally slower first quarter sales this

Results for any quarter may not be indicative of the results that may be achieved for the full f iscal year and these patterns may change as a result of general customer demand or product cycles .

Resurfacing of outbreaks of COVID-19

in China may also contribute the traditionally slower first quarter sales this year.

Results for any quarter may not be indicative of the results that may be achieved for the full fiscal year and these patterns may change as a result of general customer demand or product cycles.

Key Components of Our Results of Operations and Financial Condition

23 unchanged sentences

Sales and marketing expenses also includes the costs of trade shows, marketing programs, promotional materials, demonstration equipment, travel, recruiting, and allocated costs for certain facilities.

Over the next several quarters, we expect sales and marketing expenses to fluctuate as a percentage of sales.

We expect sales and marketing expenses to fluctuate as a percentage of sales.

General and Administrative

General and administrative expenses primarily consist of personnel and facility- related costs for our executive, finance, and administrative personnel, including stock-based compensation, as well as legal, accounting, and other professional services fees, depreciation, and other corporate expenses.

We expect general and administrative expenses to fluctuate over the next several quarters as we grow our operations.

We expect general and administrative expenses to fluctuate as we grow our operations.

Interest Income.

Interest income consists of interest from our cash and cash equivalents and short-term investments.

Gain on Deferred Purchase Price Liability.

During the year ending December 31, 2018, Skycross, Inc.

and we and Skycross came to an agreement that we would pay Skycross $375 ,000 for deferred consideration under our asset purchase agreement entered into in December 2015.

Gain on deferred purchase price liability consists of the variance between the amount paid to Skycross for the deferred purchase price and th e elimination of the accounts receivable due from Skycross and the accounts payable due to Skycross .

Interest Expense.

Interest expense consists of interest charges on accrued expenses.

Interest expense consists of interest charges on credit card charges and certain vendor bills.

Provision for Income Taxes

2 unchanged sentences

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax-planning strategies in making this assessment.

Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax-planning

strategies in making this assessment.

It is difficult for us to project future taxable income as the timing and size of sales of our products are variable and difficult to predict.

We concluded that it is not more likely than not that we will utilize our deferred tax assets other than those that are offset by reversing temporary differences.

On December 22, 2017, the 2017 Tax Act, was enacted.

The 2017 Tax Act includes a number of changes to existing U.S.

tax laws that impact us, most notably a reduction of the U.S.

corporate income tax rate from 35% to 21% effective for tax years beginning January 1, 2018.

The 2017 Tax Act changes primarily affected our tax rate on certain deferred tax assets and deferred tax liabilities.

Results of Operations

The following tables set forth our operating results for the periods presented as a percentage of our total sales for those periods.

The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods.

The period-to-period

comparison of financial results is not necessarily indicative of financial results to be achieved in future periods.

For the year ended December 31,

11 unchanged sentences

Net income (loss)

Comparison of the Years Ended December 31, 2019, 2018, and 2017 ( all tables —d ollars in thousands)

For the year ended December 31,

Increase/(Decrease)

For the year ended December 31,

Increase/(Decrease)

The decrease in sales of $4.9 million from $60.6 million for the year ended December 31, 2018, to $55.7 million for the year ended December 31, 2019, was primarily driven by product cycle transition for several large volume embedded antenna products.

The increase in sales of $11.1 million from $49.5 million for the year ended December 31, 2017, to $60.6 million for the year ended December 31, 2018.

The increase was primarily driven by a ramp in programs as well as contributions from new designs wins.

Cost of Goods Sold

Comparison of the Years Ended December 31, 2020 and 2019

(all tables—dollars in thousands)

For the year ended December 31,

Increase/(Decrease)

Sales decreased $7.2 million, or 13%, from $55.7 million for the year ended December 31, 2019, to $48.5 million for the year ended December 31, 2020, primarily due to the impacts from COVID-19

and a product cycle transition for several large volume embedded antenna products.

Cost of Goods Sold

For the year ended December 31,

Increase/(Decrease)

Cost of goods sold

The decrease in cost of goods sold between the years ended December 31, 2019 and December 31, 2018, was primarily due to a decrease in product sales.

The increase in cost of goods sold between the years ended December 31, 2018 and December 31, 2017, was primarily due to an increase in product sales.

For the year ended December 31,

Increase/(Decrease)

Gross profit (percentage of sales)

Cost of goods sold decreased $4.5 million, or 14.8%, from $30.4 million for the year ended December 31, 2019 to $25.9 million for the year ended December 31, 2020 as a result of decreased sales volume and product cost reductions in the current year.

For the year ended December 31,

Increase/(Decrease)

Gross profit (percentage of sales)

Gross profit as a percentage of sales increased 1.2% for the year ended December 31, 2020, as compared to the year ended December 31, 2019.

The increase in gross profit as a percentage of sales was primarily driven by a shift in the sales mix for the year ended December 31, 2019, when compared to the year ended December 31, 2018.

Gross profit as a percentage of sales decreased 3.3% for the year ended December 31, 2018, as compared to the year ended December 31, 2017.

The decrease in gross profit as a percentage of sales was primarily driven by a shift in the sales mix for the year ended December 31, 2018 when compared to the year ended December 31, 2017.

Operating Expenses

For the year ended December 31,

Increase/(Decrease)

The increase in gross profit as a percentage of sales was primarily due to product cost reductions negotiated with our contract manufacturers in Asia.

Operating Expenses

Research and development

Sales and marketing

General and administrative

For the year ended December 31,

Increase/(Decrease)

Operating Expenses

3 unchanged sentences

Research and Development

Research and development expense decreased $0.3 million for the year ended December 31, 2019, compared to the year ended December 31, 2018, primarily due to a decrease in personnel expenses.

Research and development expense increased $2.0 million for the year ended December 31, 2018, compared to the year ended December 31, 2017, primarily due to a $1.4 million increase in operating expenses associated with increase in personnel expenses associated with headcount increases, $0.4 million increase in miscellaneous research and development expenses and $0.1 million increase in depreciation.

Research and development expense increased $0.2 million or 1.9% for the year ended December 31, 2020, compared to the year ended December 31, 2019.

The increase was primarily due to increased product development expenses, partially offset by decreased personnel-related expenses and lower travel expenses.

Sales and Marketing

Sales and marketing expense decreased $4.0 million for the year ended December 31, 2019, compared to the year ended December 31, 2018, primarily due to a $2.7 million decrease related to the termination of a marketing agreement in 2018 and a $1.3 million decrease in personnel and consultants’ expenses and executive severance in 2018.

Sales and marketing expense increased $4.0 million for the year ended December 31, 2018, compared to the year ended December 31, 2017, primarily due to a $1.5 million increase in non-recurring expenses related to a marketing-related agreement and its termination and executive severance, $1.2 million increase in marketing expenses, $0.9 million increase in personnel expenses associated with headcount increases and $0.2 million increase in miscellaneous sales and marketing expenses.

Sales and marketing expense decreased $1.1 million or 15.1% for the year ended December 31, 2020, compared to the year ended December 31, 2019.

The decrease was primarily due to a decrease in personnel-related expenses, lower travel expenses, and tradeshow cancellations.

General and Administrative

General and administrative expense decreased $0.6 million for the year ended December 31, 2019, compared to the year ended December 31, 2018, primarily related to a reduction in personnel expenses.

General and administrative expense increased $1.5 million for the year ended December 31, 2018, compared to the year ended December 31, 2017 primarily due to a $1.2 million increase in stock compensation expenses related to the acceleration of stock compensation expense for a former executive, $0.5 million in non-recurring expenses related to executive severance, and $0.4 million increase in personnel expenses associated with headcount increases offset by a $0.6 million decrease in outsourced services.

Other I ncome

For the year ended December 31,

Increase/(Decrease)

Other expense (income):

Interest income

Interest expense

Gain on deferred purchase price liability

Loss on disposal of fixed assets

General and administrative expense increased $1.7 million or 19.3% for the year ended December 31, 2020, compared to the year ended December 31, 2019.

The increase was primarily due to an increase in personnel-related expenses and other operating expenses, partially offset by lower travel expenses.

For the year ended December 31,

Increase/(Decrease)

Other expense (income):

Interest income

Interest expense

Gain on deferred purchase price liability

Loss on disposal of fixed assets

Other income decreased $0.2 million for the year ended December 31, 2019, compared to the year ended December 31, 2018, primarily due to the one-time $0.4 million gain on deferred purchase price liability in 2018 but offset in part by a $0.1 million increase in interest income.

Other income increased $0.7 million for the year ended December 31, 2018 compared to the year ended December 31, 2017, primarily due to a $0.4 million gain on deferred purchase price liability, a $0.3 million increase in interest income from investments.

Interest income, net

Other expense

Other income decreased $0.5 million for the year ended December 31, 2020, compared to the year ended December 31, 2019.

The decrease was primarily due to lower interest income on cash and short-term investment balances along with the loss on disposal of fixed assets.

Liquidity and Capital Resources

We had cash and cash equivalents of $13.2 and $21.7 in short-term investments at December 31, 2019.

Our short-term investments consist predominantly of commercial paper, corporate debt securities, U.S.

Treasury securities and asset backed securities.

Before 2013, we had incurred net losses in each year since our inception.

As a result, we had an accumulated deficit of $44.1 million at December 31, 2019.

We had cash and cash equivalents of $38.2 million at December 31, 2020.

Prior to 2013, and for the years ended 2018 and 2020, we have incurred net losses.

As a result, we have an accumulated deficit of $47.3 million at December 31, 2020.

Since inception, we have primarily financed our operations and capital expenditures through private sales of preferred stock, public offerings of our common stock and cash flows from our operations.

We have raised an aggregate of $29.5 million in net proceeds from the issuance of our preferred stock and convertible promissory notes and $37.0 million from the sale of common stock in public offerings.

As of December 31, 2018, we had paid off the remaining balance outstanding under a term loan pursuant to our prior amended and restated loan and security agreement with Silicon Valley Bank.

In addition, under our second amended and restated loan and security agreement with Silicon Valley Bank, or the Amended Loan Agreement, we have a revolving line of credit for $10.0 million.

We previously had a revolving line of credit for $10.0 million under our second amended and restated loan and security agreement with Silicon Valley Bank.

As of December 31, 2019, there was no balance owed on the line of credit.

The revolving line of credit expired in January 31, 2020 and was not extended or renewed.

On January 31, 2018, we entered into the Amended Loan Agreement with Silicon Valley Bank.

The Amended Loan Agreement amended and restated the terms of our prior amended and restated loan and security agreement with Silicon Valley Bank.

The agreement, among other things, increased the aggregate principal amount available under the revolving line of credit from $3.0 million to $10.0 million and modified certain existing financial covenants.

Under the Amended Loan Agreement, we were allowed to borrow up to $10.0 million under the line of credit, subject to a borrowing base limit of 80% of the aggregate face amount of all eligible receivables.

The Amended Loan Agreement removed the minimum EBITDA requirement previously applicable to the line of credit and term loan and maintained the liquidity ratio financial covenant such that we must maintain a ratio of cash and cash equivalents plus accounts receivable to outstanding debt under the Amended Loan Agreement minus deferred revenue of 1.25 to 1.00.

We were required to pay interest on borrowings outstanding, if any, under the revolving line of credit at a floating rate per annum equal to 1% above the Wall Street Journal prime rate (or, if unavailable, the

SVB prime rate) on a monthly basis, so long as we maintain ed a liqui dity ratio of cash and cash equivalents plus accounts receivable to outstanding debt under the Amended Loan Agreement minus deferred revenue of 1.

If this liquidity ratio was not met, we were subject to a minimum interest charge of $3 ,000 per month and borrowings outstanding, if any, under the revolving line of credit accrue d interest at a floating rate per annum equal to 2% above t he Wall Street Journal prime rate (or if unavailable, the SVB prime rate) on a monthly basis.

Borrowings outs tanding on the Amended Loan Agreement matured on December 1, 2018 , at which time all remaining balances on the loan were repaid .

The revolving line of credit mature d on January 31, 2020 and the Amended Loan Agreement expired pursuant to its term .

In August 2017, our board of directors approved a share repurchase program pursuant to which we may purchase up to $7.0 million shares of our common stock over the twelve-month period following the establishment of the program.

The repurchases under the share repurchase program are made from time to time in the open market or in privately negotiated transactions and are funded from our working capital.

Repurchases will be made in compliance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended, subject to market conditions, available liquidity, cash flow, applicable legal requirements and other factors.

All shares of common stock repurchased under our share repurchase program will be returned to the status of authorized and issued shares of common stock.

In August 2018, our board of directors approved an extension to our share repurchase program for an additional twelve-month period ending August 14, 2019.

On September 9, 2019, our board of directors approved a new share repurchase program pursuant to w hich the Company may purchase up to $7.0 million of shares of its common stock over the twelve-month period following the establishment of the program.

The revolving line of credit expired in January 31, 2020, and the loan agreement was terminated in accordance with its terms.

On September 9, 2019, our board of directors approved a new share repurchase program pursuant to which the Company may purchase up to $7.0 million of shares of its common stock over the twelve-month period following the establishment of the program.

The repurchases under the new share repurchase program are made from time to time in the open market or in privately negotiated transactions and are funded from our working capital.

All shares purchased in the three months ended December 31, 2019, were subject to the new share repurchase program.

Repurchases will be made in compliance with Rule 10b-18

of the Securities Exchange Act of 1934, as amended, subject to market conditions, available liquidity, cash flow, applicable legal requirements and other factors.

In September 2020, our board of directors approved an extension to our share repurchase program for an additional twelve-month period ending September 9, 2021.

During the year ended December 31, 2020 we repurchased 69,000 shares of common stock under the new share repurchase program.

These shares were repurchased at an average price per share of $8.78, for a total cost of $0.6 million.

Since inception of the stock repurchase program, we have purchased a total of 465,000 shares for a total cost of $4.7 million.

Since inception of the stock repurchase programs, including our prior share repurchase programs, we have purchased a total of 534,110 shares for a total cost of $5.3 million.

We plan to continue to invest for long-term growth, including expanding our sales force and engineering organizations and making additional capital expenditures to further penetrate markets both in the United States and internationally, as well as expanding our research and development for new product offerings and technology solutions.

3 unchanged sentences

For the year ended December 31

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Net cash provided by (used in) investing activities

Net cash used in financing activities

Net decrease in cash and cash equivalents

Net Cash Provided by (Used in) Operating Activities.

Net increase (decrease) in cash, cash equivalents, and restricted cash

Net Cash Provided by Operating Activities.

Net cash provided by operating activities was $3.7 million for the year ended December 31, 2020.

This was primarily driven by net income of $0.9 million and further adjusted for non-cash operating expenses of $3.1 million and offset by change in operating assets and liabilities of $1.6 million.

This was primarily driven by non-cash

operating expenses of $3.7 million and the change in operating assets and liabilities of $3.3 million but offset by a net loss of $3.3 million.

Net cash provided by operating activities was $2.4 million for the year ended December 31, 2019.

This was primarily driven by net non-cash operating expenses of $3.7 million and the change in operating assets and liabilities of $0.3 million, offset by our net loss of $2.6 million.

Net cash used by operating activities was $ 0.3 million for the year ended December 31, 2017 .

This was pr imarily driven by our net income of $1.1 million, net non-cash operating expenses of $1.7 million and the change in operating assets and liabilities of $3.1 million .

This was primarily driven by net income of $0.9 million and further adjusted for non-cash

operating expenses of $3.1 million and offset by change in operating assets and liabilities of $1.6 million.

Net Cash Provided by (Used in) Investing Activities.

Net cash used by investing activities was $2.4 million for the year ended December 31, 2019.

This consisted of $36.5 million in purchases of available-for-sale securities and $1.2 million purchases of property and equipment but offset by $35.3 million in maturities of available-for-sale securities.

Net cash provided by in investing activities was $0.3 million for the year ended December 31, 2018.

This consisted of $29.7 million in purchases of available-for-sale securities, $1.0 million of purchases of property and equipment, offset by $31.0 million in maturities of available-for-sale securities.

Net cash provided by investing activities was $20.9 million for the year ended December 31, 2020.

This consisted of $22.4 million in maturities of available-for-sale

securities offset by $0.8 million in purchases of available-for-sale

securities and $0.7 million purchases of property and equipment.

Net cash used in investing activities was $2.4 million for the year ended December 31, 2019.

This consisted of $22.0 million in purchases of available-for-sale securities, $6.3 million in cash paid for the acquisition of the Antenna Plus assets, $0.3 million of purchases of property and equipment, offset by $0.8 million in maturities of available-for-sale securities.

Net Cash Used in Financing Activities.

Net financing activities for the year ended December 31, 2019, used net cash of $0.4 million and primarily consisted of common stock repurchases in the amount of $1.2 million, offset by proceeds from the exercise of stock options and ESPP in the amount of $0.8 million.

Net financing activities for the year ended December 31, 2018, used net cash of $3.1 million and primarily consisted of repayment of notes payable in the amount of $1.3 million, common stock repurchases in the amount of $2.2 million, and $0.4 million on the settlement of acquisition related deferred purchase price, offset by proceeds from the exercise of stock options in the amount of $0.8 million.

Net financing activities for the year ended December 31, 2017, used net cash of $2.1 million and primarily consisted of repayment of notes payable in the amount of $1.4 million, common stock repurchases in the amount of $1.3 million offset by proceeds from the exercise of stock options in the amount of $0.6 million.

This consisted of $36.5 million in purchases of available-for-sale

securities, $1.2 million purchases of property and equipment, but offset by $35.3 million in maturities of available-for-sale

Net Cash Provided by (Used in) Financing Activities.

Net cash provided by financing activities was $0.6 million for the year ended December 31, 2020.

This primarily consisted of $1.2 million proceeds from stock option exercises and our employee stock purchase plan, or the ESPP, but offset by $0.6 million in common stock repurchases.

Net cash used in financing activities was $0.4 million for the year ended December 31, 2019.

This primarily consisted of $1.2 million in common stock repurchases but offset by $0.8 million in proceeds from stock option exercises and the ESPP.

Contractual Obligations and Commitments

8 unchanged sentences

and Cambridge, United Kingdom;

under non-cancelable operating leases that expire at various dates through 2024.

under non-cancelable

operating leases that expire at various dates through 2025.

We subcontract with other companies to manufacture our products.

3 unchanged sentences

Our financial position and operating results could be negatively impacted if we were required to compensate the contract manufacturers for any unrecorded liabilities incurred.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements (as defined by applicable regulations of the Securities and Exchange Commission) that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

We entered into a supply agreement with a vendor to purchase up to $2.0 million of inventory during the initial term of the agreement through December 31, 2022.

As of December 31, 2020, $0.3 million had been paid under this supply agreement.

Sheet Arrangements

We do not have any off-balance

sheet arrangements (as defined by applicable regulations of the Securities and Exchange Commission) that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies and Significant Judgments and Estimates

10 unchanged sentences

Revenue Recognition

On January 1, 2019, we adopted Financial Accounting Standards Board, or FASB, Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, or ASC 606, using the modified retrospective method.

We generate revenue from the sale of our antenna products.

We recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled for those goods or services.

On January 1, 2019, we adopted Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 606, Revenue from Contracts with Customers, or ASC 606, using the modified retrospective method.

We generate revenue mainly from the sale of our antenna products.

A portion of revenue is generated from service agreements with certain customers.

The revenue generated from service contracts is insignificant.

We recognize revenue to depict the transfer of control of the promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled for those goods or services.

Control transfers to customers either when the products are shipped to or received by the customer, based on the terms of the specific agreement with the customer.

We incur selling expenses to obtain design wins prior to revenue recognition, which is not a deliverable of a revenue arrangement.

The Company records revenue based on a five-step model in accordance with ASC 606 whereby the company (i) identifies the contract(s) with the customer, (ii) identifies the performance obligations in the contract, (iii) determines the transaction price, (iv) allocates the transaction price to the performance obligation(s) in the contract and (v) recognizes the revenue when (as) the entity satisfies performance obligations.

The Company only applies the five-step model when it is probable that the entity will collect substantially all of the consideration it is entitled to in exchange for the goods or services it transfers to the customer.

For product sales, each purchase order, along with existing customer agreements, when applicable, represents a contract from a customer and each product sold represents a distinct performance obligation.

The contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

The majority of our revenue is recognized on a “point-in-time” basis when control has passed to the customer.

The revenue from service contracts is recognized “over time” which is typically one year or less.

A portion of our sales is made through distributors under agreements allowing for pricing credits and/or rights of return under certain circumstances.

1 unchanged sentence

accordingly, our allowance for sales returns and pricing credits was insignificant.

To date, services revenues have been immaterial as a percentage of total revenues.

Service revenues are recognized ratably over the term of the agreement which are typically one year or less.

To determine revenue recognition for arrangements that we determine are within the scope of ASC 606, we perform the following five steps:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligation(s) in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligation(s) in the contract;

and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

We only apply the five-step model to contracts when it is probable that we will collect substantially all the consideration we are entitled to in exchange for the goods or services we transfer to the customer.

At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determines those that are performance obligations and assess whether each promised good or service is distinct.

We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606.

Each distinct promise to transfer products is considered to be an identified performance obligation for which revenue is recognized upon transfer of control of the products to the customer.

Although customers may place orders for products that are delivered on multiple dates in different quarterly reporting periods;

all of the orders are normally scheduled within one year from the order date.

Our contracts with customers do not typically include extended payment terms.

Payment terms may vary by contract and type of customer and generally range from 30 to 90 days from delivery.

We provide assurance-type warranties on all product sales ranging from one to two years.

we accrue for the estimated warranty costs at the time of sale based on historical warranty experience plus any known or expected changes in warranty exposure.

Warranty costs under these provisions have been insignificant, accordingly, our warranty reserve was insignificant for the years ended December 31, 2020 and 2019, respectively.

We have opted to not disclose the portion of revenues allocated to partially unsatisfied performance obligations, which represent products to be shipped within 12 months under open customer purchase orders, at the end of the current reporting period as allowed under ASC 606.

We have also elected to record sales commissions when incurred, pursuant to the practical

expedient under ASC 340, Other Assets and Deferred Costs, as the period over which the sales commission asset that would have been recognized is less than one year.

Shipping and handling costs are immaterial and reported in in operating expenses in the statement of opera tions.

Business Combinations

We use an outside third-party consultant to help determine the allocation of the purchase price of a business combination to the assets acquired and liabilities assumed, such as for our acquisition of the Skycross and Antenna Plus assets and related liabilities.

The fair values assigned, defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, are determined based on estimates and assumptions made by management.

We record any excess consideration over the aggregate fair value of tangible and intangible assets, net of liabilities assumed, as goodwill.

These valuations require us to make significant estimates and assumptions, especially with respect to intangible assets.

We have also elected to record sales commissions when incurred, pursuant to the practical expedient under ASC 340, Other Assets and Deferred Costs, as the period over which the sales commission asset that would have been recognized is less than one year.

Shipping and handling costs are immaterial and reported in operating expenses in the statement of operations.

Stock-based Compensation

We recognize compensation costs related to stock options and restricted stock units granted to employees and directors based on the estimated fair value of the awards on the date of grant.

We estimate the grant date fair value, and the resulting stock-based compensation expense, using the Black-Scholes-Merton option-pricing model.

We estimate the grant date fair value, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model.

The grant date fair value of stock-based awards is expensed on a straight-line basis over the vesting period of the respective award.

We recorded stock-based compensation expense of approximately $2.2 million, $2.9 million, and $0.7 million for the years ended December 31, 2019, 2018, and 2017, respectively.

We expect to continue to grant stock options, restricted stock units, and other equity-based awards in the future, and to the extent that we do, our stock-based compensation expense recognized in future periods will likely increase.

The Black-Scholes-Merton option-pricing model requires the use of highly subjective and complex assumptions, which determine the fair value of stock-based awards.

If we had made different assumptions, our stock-based compensation expense, net loss and net loss per share of common stock could have been significantly different.

Our assumptions are as follows:

2 unchanged sentences

See “Significant Factors, Assumptions and Methodologies Used in Determining Fair Value of Our Common Stock” below.

Upon the closing of our initial public offering, our common stock is valued by reference to the publicly traded price of our common stock.

Our common stock is valued by reference to the publicly traded price of our common stock.

Expected term.

The expected term represents the period of time stock-based awards are expected to be outstanding.

Until the beginning of 2019 our lack of option exercise history did not provide reasonable bases for estimating the expected term.

Therefore, we estimate the expected term using the simplified method, which calculates an expected term as the average of the time-to-vesting and the contractual life of an option.

Beginning in 2019 our historical option activity data is used to calculate an expected term.

Expected volatility.

We have been a private company until August, 2016;

therefore we estimate expected volatility using weighted average historical volatilities of publicly traded companies within our industry that we consider to be comparable to our business.

We intend to continue to use the same or similar public companies or unless circumstances change such that the identified companies are no longer similar to us, in which case, more suitable companies whose share prices are publicly available would be utilized.

We were a private company until August, 2016;

therefore, from 2016 through 2017 we estimated expected volatility using weighted average historical volatilities of publicly traded companies within our industry that we consider to be comparable to our business.

At the beginning of 2018 we began using our historical share prices for calculating a weighted average volatility using our volatility along with the volatilities of the selected comparable companies.

Over time—as the Company accumulates enough historical data— this weighting formula will favor our volatility more heavily, until such time our share price history is equal to the expected terms of future grants.

Over time—as the Company accumulates enough historical data— this weighting formula favors our volatility more heavily, until such time our share price history is equal to the expected terms of future grants.

Risk-free interest rate.

7 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis