AIRGAIN INC 10-K

ITEM 9A. CONTROLS AND PROCEDURES Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of the end of the period covered by this annual report. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of such date, our disclosure controls and procedures were effective at the reasonable assurance level. Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal controls over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. Because of its inherent limitations, internal controls over financial reporting may not prevent or detect all misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. We conducted an evaluation of the effectiveness of our internal control over financial reporting. Based on our evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2020. Attestation Report of the Registered Public Accounting Firm This annual report does not include an attestation report of our independent registered public accounting firm due to an exemption established by the JOBS Act for emerging growth companies and non-accelerated filer status. Changes in Internal Control Over Financial Reporting There has been no change in our internal control over financial reporting during the quarter ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION On February 18, 2021, we announced that Kevin Thill, our Senior Vice President, Engineering, will retire from the company effective as of May 7, 2021. 48 Table of Contents PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. The information required by this item will be contained in our definitive proxy statement to be filed with the SEC in connection with our 2021 Annual Meeting of Stockholders, or the Definitive Proxy Statement, which we expect to file with the SEC within 120 days after the close of our year ended December 31, 2020, under the headings “Election of Directors,” “Our Executive Officers,” and “Section 16(a) Beneficial Ownership Reporting Compliance,” and is incorporated herein by reference. Code of Business Conduct and Ethics We adopted a Code of Business Conduct and Ethics that applies to our officers, directors and employees which is available, free of charge, on our website at www.airgain.com. The Code of Business Conduct and Ethics contains general guidelines for conducting the business of our company consistent with the highest standards of business ethics, and is intended to qualify as a “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and Item 406 of Regulation S-K. In addition, we intend to promptly disclose on our website in the future (i) the nature of any amendment to our Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions, and (ii) the nature of any waiver, including an implicit waiver, from a provision of our Code of Business Conduct and Ethics that is granted to one of these specified officers, the name of such person who is granted the waiver and the date of the waiver. ITEM 11. EXECUTIVE COMPENSATION The information required by this item will be contained in our Definitive Proxy Statement under the heading “Executive Compensation and Other Information” and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by this item will be set forth in the section headed “Security Ownership of Certain Beneficial Owners and Management” in our Definitive Proxy Statement and is incorporated herein by reference. The information required by Item 201(d) of Regulation S-K will be set forth in the section headed “Executive Compensation and Other Information” in our Proxy Statement and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this item will be set forth in the section headed “Certain Relationships and Related Person Transactions,” “Board Independence” and “Board Committees and Independence” in our Definitive Proxy Statement and is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this item will be set forth in the section headed “Independent Registered Public Accounting Firm’s’ Fees” in our Definitive Proxy Statement and is incorporated herein by reference. 49 Table of Contents PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 1. Financial Statements. The financial statements of Airgain, Inc., together with the report thereon of KPMG LLP, an independent registered public accounting firm, are included in this annual report on Form 10-K. 2. Financial Statement Schedules. All schedules are omitted because they are not applicable, or the required information is shown in the financial statements or notes thereto. 3. Exhibits A list of exhibits is set forth on the Exhibit Index immediately preceding the signature page of this annual report on Form 10-K and is incorporated herein by reference. ITEM 16. FORM 10-K SUMMARY None. 50 Table of Contents Airgain, Inc. Index to Financial Statements Page Report of Independent Registered Public Accounting Firm F-2 Balance Sheets F-3 Statements of Operations F-4 Statements of Comprehensive Income (Loss) F-5 Statements of Stockholders’ Equity F-6 Statements of Cash Flows F-7 Notes to Financial Statements F-8 F-1 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Airgain, Inc.: Opinion on the Financial Statements We have audited the accompanying balance sheets of Airgain, Inc. (the Company) as of December 31, 2020 and 2019, the related statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ KPMG, LLP We have served as the Company’s auditor since 2012. San Diego, California February 19, 2021 F-2 Table of Contents Airgain, Inc. Balance Sheets (in thousands, except par value) December 31, 2020 2019 Assets Current assets: Cash and cash equivalents $ 38,173 $ 13,197 Short-term investments — 21,686 Trade accounts receivable 4,782 7,656 Inventory 1,016 1,193 Prepaid expenses and other current assets 1,462 1,361 Total current assets 45,433 45,093 Property and equipment, net 2,377 2,126 Goodwill 3,700 3,700 Customer relationships, net 2,627 3,110 Intangible assets, net 541 687 Other assets 249 10 Total assets $ 54,927 $ 54,726 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 2,975 $ 3,838 Accrued compensation 2,655 2,492 Accrued liabilities and other 1,187 344 Current portion of deferred rent obligation under operating lease 39 85 Total current liabilities 6,856 6,759 Deferred tax liability 58 52 Deferred rent obligation under operating lease 271 11 Total liabilities 7,185 6,822 Commitments and contingencies (note 11 ) Stockholders’ equity: Common stock and additional paid-in capital, par value $ 0.0001 , 200,000 shares authorized; 10,318 shares issued and 9,784 shares outstanding at December 31, 2020; and 10,146 shares issued and 9,681 shares outstanding at December 31, 2019 100,356 96,623 Treasury stock, at cost; 534 shares and 465 shares at December 31, 2020 and 2019, respectively ( 5,267 ) ( 4,659 ) Accumulated other comprehensive income — 8 Accumulated deficit ( 47,347 ) ( 44,068 ) Total stockholders’ equity 47,742 47,904 Total liabilities and stockholders’ equity $ 54,927 $ 54,726 See accompanying notes. F-3 Table of Contents Airgain, Inc. Statements of Operations (in thousands, except per share data) For the year ended December 31, 2020 2019 Sales $ 48,502 $ 55,739 Cost of goods sold 25,917 30,415 Gross profit 22,585 25,324 Operating expenses: Research and development 9,157 8,989 Sales and marketing 5,976 7,036 General and administrative 10,636 8,919 Total operating expenses 25,769 24,944 Income (loss) from operations ( 3,184 ) 380 Other (income) expense: Interest income net ( 197 ) ( 709 ) Other expense 19 — Total other income ( 178 ) ( 709 ) Income (loss) before income taxes ( 3,006 ) 1,089 Provision for income taxes 273 163 Net income (loss) $ ( 3,279 ) $ 926 Net income (loss) per share: Basic $ ( 0.34 ) $ 0.10 Diluted $ ( 0.34 ) $ 0.09 Weighted average shares used in calculating income (loss) per share Basic 9,714 9,684 Diluted 9,714 10,097 See accompanying notes. F-4 Table of Contents Airgain, Inc. Statements of Comprehensive Income (Loss) (in thousands) For the year ended December 31, 2020 2019 Net income (loss) $ ( 3,279 ) $ 926 Unrealized gain (loss) on available-for-sale securities, net of deferred taxes ( 8 ) 19 Total comprehensive income (loss) $ ( 3,287 ) $ 945 See accompanying notes. F-5 Table of Contents Airgain, Inc. Statements of Stockholders’ Equity (in thousands) For the year ended December 31, 2020 2019 Total stockholders’ equity, beginning balance $ 47,904 $ 45,147 Common stock and additional paid-in capital: Balance at beginning of period 96,623 93,584 Stock-based compensation 2,564 2,204 Issuance of shares for stock purchase plans 1,169 835 Balance at end of period 100,356 96,623 Treasury stock: Balance at beginning of period ( 4,659 ) ( 3,432 ) Repurchases of common stock ( 608 ) ( 1,227 ) Balance at end of period ( 5,267 ) ( 4,659 ) Accumulated other comprehensive income (loss): Balance at beginning of period 8 ( 11 ) Unrealized gain (loss) on available-for-sale securities, net of deferred taxes ( 8 ) 19 Balance at end of period — 8 Accumulated deficit: Balance at beginning of period ( 44,068 ) ( 44,994 ) Net income (loss) ( 3,279 ) 926 Balance at end of period ( 47,347 ) ( 44,068 ) Total stockholders’ equity, ending balance $ 47,742 $ 47,904 See accompanying notes. F-6 Table of Contents Airgain, Inc. Statements of Cash Flows (in thousands) For the year ended December 31, 2020 2019 Cash flows from operating activities: Net income (loss) $ ( 3,279 ) $ 926 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 463 493 Loss on disposal of property and equipment 11 — Amortization of intangibles 629 655 Amortization of (discounts) premium on investments, net 64 ( 312 ) Stock-based compensation 2,564 2,204 Deferred tax liability 6 14 Changes in operating assets and liabilities: Trade accounts receivable 2,874 ( 643 ) Inventory 177 158 Prepaid expenses and other assets ( 164 ) ( 171 ) Accounts payable ( 862 ) ( 303 ) Accrued compensation 163 ( 625 ) Accrued liabilities and other 843 168 Deferred obligation under operating lease 215 ( 196 ) Net cash provided by operating activities 3,704 2,368 Cash flows from investing activities: Purchases of available-for-sale securities ( 753 ) ( 36,456 ) Maturities of available-for-sale securities 22,366 35,270 Purchases of property and equipment ( 727 ) ( 1,214 ) Net cash provided by (used in) investing activities 20,886 ( 2,400 ) Cash flows from financing activities: Repurchase of common stock ( 608 ) ( 1,227 ) Proceeds from issuance of common stock 1,169 835 Net cash provided by (used in) financing activities 561 ( 392 ) Net increase (decrease) in cash, cash equivalents, and restricted cash 25,151 ( 424 ) Cash, cash equivalents, and restricted cash; beginning of period 13,197 13,621 Cash, cash equivalents, and restricted cash; end of period $ 38,348 $ 13,197 Supplemental disclosure of cash flow information Interest paid $ — $ 1 Taxes paid $ 164 $ 71 Supplemental disclosure of non-cash investing and financing activities: Accrual of property and equipment $ 2 $ 4 Cash and cash equivalents $ 38,173 $ 13,197 Restricted cash included in other assets 175 — Total cash, cash equivalents, and restricted cash $ 38,348 $ 13,197 See accompanying notes. F-7 Table of Contents Airgain, Inc. Notes to Financial Statements (1) Significant Accounting Policies Description of Business Airgain, Inc. (the Company) was incorporated in the State of California on March 20, 1995, and reincorporated in the State of Delaware on August 15, 2016. The Company is a leading provider of advanced antenna technologies used to enable high performance wireless networking across a broad range of devices and markets, including consumer, enterprise, and automotive. The Company designs, develops, and engineers its antenna products for original equipment and design manufacturers worldwide. The Company’s headquarters is in San Diego, California with office space and research, design, and test facilities in the United States, United Kingdom, China, and Taiwan. Basis of Presentation The financial statements of the Company have been prepared in conformity with U.S. generally accepted accounting principles (GAAP). Reclassifications Certain amounts in the prior year financial statements have been reclassified to conform to the presentation of the current year financial statements including reclassification of accrued vacation, accrued payroll and other payroll accrual balances from Accrued liabilities and other to Accrued compensation in the balance sheet. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include valuation of intangible assets. Recently Issued Accounting Pronouncements In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) , which requires lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use assets. Because of the Company’s emerging growth status, ASU 2016-02 is effective for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021. The Company will adopt the new accounting standard using the modified retrospective transition option as of the effective date on January 1, 2021. The Company’s initial evaluation of its current leases does not indicate that the adoption of this standard will have an impact on its statements of operations. The Company expects that the adoption of the standard will have an impact on its balance sheets for the recognition of certain operating leases as right-of-use assets and lease liabilities. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments . This standard changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. In December 2019, the FASB issued ASU 2019-10, Effective Dates which updated the effective dates of adoption of ASU 2016-13 . ASU 2016-13 is effective, for Smaller Reporting Companies, for annual and interim periods in fiscal years beginning after December 15, 2022. Companies are required to adopt the standard using a modified retrospective adoption method. The Company continues to evaluate the impact of the standard on its financial statements. In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment , which simplifies the test for goodwill impairment by removing Step 2 which requires a hypothetical purchase price allocation and may require the services of valuation experts. An entity will, therefore, perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, recognizing an impairment charge for the amount by which the carrying amount exceeds the fair value, not to exceed the total amount of goodwill allocated to the reporting unit. An entity still has the option to perform a qualitative assessment to determine if the quantitative impairment test is necessary. The Company early adopted ASU 2017-04 on January 1, 2020 with no impact on its financial reporting. F-8 Table of Contents Airgain, Inc. Notes to Financial Statements In May 2019, the FASB issued ASU 2019-05, Financial Instruments-Credit Losses (Topic 326), Targeted Transition Relief , which provides entities that have certain instruments within the scope of ASC 326-20, Financial Instruments-Credit Losses -Measured at Amortized Cost, with an option to irrevocably elect the fair value option for eligible instruments. The effective date and transition methodology for this standard are the same as in ASU 2016-13. The Company continues to evaluate the impact of the standard on its financial statements. In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes , as part of its initiative to reduce complexity in accounting standards. The amendments in the ASU include removing exceptions to incremental intra-period tax allocation of losses and gains from different financial statement components, exceptions to the method of recognizing income taxes on interim period losses, and exceptions to deferred tax liability recognition related to foreign subsidiary investments. In addition, the ASU requires that entities recognize franchise tax based on an incremental method and requires an entity to evaluate the accounting for step-ups in the tax basis of goodwill as inside or outside of a business combination. Based on the Company’s emerging growth company status the amendments in the ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. We have not early adopted this ASU as of December 31, 2020. The ASU is currently not expected to have a material impact on the Company’s financial statements. Segment Information The Company’s operations are located primarily in the United States and most of its assets are located in San Diego, California and Scottsdale, Arizona. The Company operates in one segment related to the sale of antenna products and testing services. The Company’s chief operating decision-maker is its chief executive officer, who reviews operating results on an aggregate basis and manages the Company’s operations as a single operating segment. Cash Equivalents and Short-Term Investments Cash equivalents are comprised of short-term, highly liquid investments with maturities of 90 days or less at the date of purchase. Short-term investments consist predominantly of commercial paper, corporate debt securities, U.S. Treasury securities, and asset-backed securities. The Company classifies short-term investments based on the facts and circumstances surrounding the investments at the time of purchase and evaluates such classification as of each balance sheet date. There were no short-term investments at December 31, 2020, and at December 31, 2019, all short-term investments were classified as available-for-sale. Unrealized gains and losses for available-for-sale securities are included in accumulated other comprehensive income—a component of stockholders’ equity. Realized gains and losses are determined using the specific identification method and are included in other income in the statement of operations. The Company evaluates its investments to determine whether those with unrealized loss positions are other than temporarily impaired. Impairments are considered to be other than temporary if they are related to deterioration in credit risk or if it is likely that the Company will sell the securities before recovery of their cost basis. Restricted Cash As of December 31, 2020, the Company has $ 0.2 million in cash on deposit to secure certain lease commitments. Restricted cash is recorded in Other assets in the Company’s balance sheet. Trade Accounts Receivable Trade accounts receivable is adjusted for all known uncollectible accounts. The policy for determining when receivables are past due or delinquent is based on the contractual terms agreed upon. Accounts are written off once all collection efforts have been exhausted. An allowance for doubtful accounts is established when, in the opinion of management, collection of the account is doubtful. The allowance for doubtful accounts was $ 0 as of December 31, 2020 and 2019. F-9 Table of Contents Airgain, Inc. Notes to Financial Statements Inventory The majority of the Company’s products are manufactured by third parties that retain ownership of the inventory until title is transferred to the customer at the shipping point. In certain instances shipping terms are delivery at place and the Company is responsible for arranging transportation and delivery of goods ready for unloading at the named place. In those instances the Company bears all risk involved in bringing the goods to the named place and records the related goods in transit to the customer as inventory on the accompanying balance sheet. Inventory is stated at the lower of cost or net realizable value. For items manufactured by the Company cost is determined using the weighted average cost method. For items manufactured by third parties, cost is determined using the first-in, first-out method (FIFO). Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period. As of December 31, 2020 and 2019, the Company’s inventories consist primarily of raw materials. Provisions for excess and obsolete inventories are estimated based on product life cycles, quality issues, and historical experience and were $ 10,000 and $ 0 as of December 31, 2020 and 2019, respectively. Property and Equipment Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets, generally three to fifteen years . The estimated useful lives for leasehold improvements are determined as either the estimated useful life of the asset or the lease term, whichever is shorter. Maintenance and repairs are expensed as incurred. Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. When assets are sold (or otherwise disposed of) the cost and related accumulated depreciation are removed from the accounts and any gain or loss on the disposal of property and equipment is classified as other income or expense. Goodwill Goodwill represents the excess of cost over fair value of net assets acquired. The Company reviews goodwill for impairment annually on December 1 st and whenever events or changes in circumstances indicate that goodwill may be impaired. The Company completed its annual assessment for goodwill impairment in December 2020 and determined that goodwill is no t impaired as of December 31 , 2020 . Intangibles The Company’s identifiable intangible assets are comprised of acquired developed technologies, customer relationships, tradenames, and non-compete agreements. The cost of the identifiable intangible assets with finite lives is amortized on a straight-line basis over the assets’ respective estimated useful lives. The Company periodically re-evaluates the original assumptions and rationale utilized in the establishment of the carrying value and estimated lives of long-lived assets and finite-lived intangible assets. Long-lived assets and finite-lived intangibles are assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an asset is considered to be impaired the impairment recognized is equal to the amount by which the carrying value of the asset exceeds its fair value. Revenue Recognition Effective January 1, 2019, the Company adopted FASB ASU 2014-09, Revenue from Contracts with Customers , and the related amendments, which are codified into ASC 606, using the modified retrospective method. The Company generates revenue mainly from the sale of antenna products. A portion of revenue is generated from service agreements with certain customers. The revenue generated from service contracts is insignificant. The Company recognizes 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 passes to the customers either when the products are shipped to or received by the customer, based on the terms of the specific agreement with the customer. The Company incurs selling expenses to obtain design wins prior to revenue recognition which is not a deliverable of revenue recognition. 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. F-10 Table of Contents Airgain, Inc. Notes to Financial Statements 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 the Company’s revenue is recognized on a “point-in-time” basis when control passes to the customer. The revenue from service contracts is recognized “over time”. A portion of the Company’s sales is made through distributors under agreements which allow for pricing credits and/or rights of return under certain circumstances. Pricing credits and returns under these provisions have been insignificant; accordingly, our allowance for sales returns and pricing credits is insignificant. The Company’s contracts with customers do not typically include extended payment terms. Payment terms vary by contract and type of customer and generally range from 30 to 90 days from delivery. The Company provides assurance-type warranties on all product sales ranging from one to two years. The Company accrues 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 have been insignificant; accordingly, our warranty reserve is insignificant. 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. The Company has 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. The Company has also elected to record sales commissions when incurred, pursuant to the practical expedient under ASC 340, 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 operations. There were no contract assets at December 31, 2020. As of December 31, 2020, and 2019, the Company recorded $ 19,000 and $ 22,000 of contract liabilities, respectively . Shipping and Transportation Costs Shipping and other transportation costs—expensed as incurred—were $ 0.2 million and $ 0.3 million for the years ended December 31, 2020 and 2019, respectively. These costs are included in general and administrative expenses in the accompanying statements of operations. Research and Development Costs Research and development costs are expensed as incurred. Advertising Costs Advertising costs—expensed as incurred—were $ 0.1 million for the years ended December 31, 2020 and 2019, respectively. These costs are included in sales and marketing expenses in the accompanying statements of operations. Income Taxes The Company records income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. When applicable a valuation allowance is established to reduce any deferred tax asset when it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized. F-11 Table of Contents Airgain, Inc. Notes to Financial Statements The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest related to unrecognized tax benefits in interest expense and penalties in general and administrative expenses. 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 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. The assumptions used in the Black-Scholes option-pricing model are as follows: • Fair value of our common stock . The Company’s 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. • Expected volatility . From 2016 through 2017, the Company estimated expected volatility using weighted average historical volatilities of comparable publicly traded companies within our industry. Beginning 2018, the Company began using its historical share prices along with volatilities of the selected comparable companies, to calculate a weighted average volatility. • Risk-free interest rate . The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the expected term. • Expected dividend . The expected dividend is assumed to be zero as the Company has never paid dividends and have no current plans to pay any dividends. Compensation cost is expensed on a straight-line basis over the requisite service period of the entire reward. The Company recognizes forfeitures when incurred. Fair Value Measurements The carrying values of the Company’s financial instruments, including cash, trade accounts receivable, accounts payable, and accrued liabilities approximate their fair values due to the short maturity of these instruments. Fair value measurements are market-based measurements, not entity-specific measurements. Therefore, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. The Company follows a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values. The basis for fair value measurements for each level within the hierarchy is described below: • Level 1: Quoted prices in active markets for identical assets or liabilities. • Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets. • Level 3: Valuations derived from valuation techniques in which one or more significant inputs are unobservable in active markets. Accumulated Other Comprehensive Income (Loss) Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). Accumulated other comprehensive income on the balance sheet at December 31, 2019, includes unrealized gains and losses on the Company’s available-for-sale securities. Net Income (Loss) Per Share Basic net income (loss) per share is calculated by dividing net income (loss) available to common stockholders by the weighted average shares of common stock outstanding for the period. Diluted net income (loss) per share is calculated by dividing net income (loss) by the weighted average shares of common stock outstanding for the period plus amounts representing the dilutive effect of securities that are convertible into common stock. The Company calculates diluted income (loss) per common share using the treasury stock method. F-12 Table of Contents Airgain, Inc. Notes to Financial Statements The following table presents the computation of net income (loss) per share (in thousands, except per share data): For the year ended December 31, 2020 2019 Numerator: Net income (loss) $ ( 3,279 ) $ 926 Denominator: Weighted average common shares outstanding Basic 9,714 9,684 Diluted 9,714 10,097 Net income (loss) per share: Basic $ ( 0.34 ) $ 0.10 Diluted $ ( 0.34 ) $ 0.09 Basic and diluted weighted average common shares outstanding for the year ended December 31, 2020 were the same. Diluted weighted average common shares outstanding for the year ended December 31, 2019, includes 1,000 warrants and 412,000 options outstanding. Potentially dilutive securities (in common stock equivalent shares) not included in the calculation of diluted net income (loss) per share because to do so would be anti-dilutive are as follows: For the year ended December 31, 2020 2019 Stock options and restricted stock units 1,548 402 Warrants outstanding 51 — Total $ 1,599 $ 402 F-13 Table of Contents Airgain, Inc. Notes to Financial Statements (2) Cash, Cash Equivalents and Short-Term Investments The following tables show the Company’s cash and cash equivalents and short-term investments by significant investment category as of December 31 (in thousands): 2020 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Cash and Cash Equivalents Short-Term Investments Cash $ 2,779 $ — $ — $ 2,779 $ 2,779 $ — Level 1 (1) : Money market funds 35,394 — — 35,394 35,394 — Total $ 38,173 $ — $ — $ 38,173 $ 38,173 $ — 2019 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Cash and Cash Equivalents Short-Term Investments Cash $ 3,950 $ — $ — $ 3,950 $ 3,950 $ — Level 1 (1) : Money market funds 5,500 — — 5,500 5,500 — U.S. treasury securities 3,078 2 ( 1 ) 3,079 — 3,079 Subtotal 8,578 2 ( 1 ) 8,579 5,500 3,079 Level 2 (2) : Commercial paper 8,920 — — 8,920 747 8,173 Corporate debt obligations 5,922 5 ( 1 ) 5,926 — 5,926 Repurchase agreements 3,000 — — 3,000 3,000 — Asset-backed securities 4,505 3 — 4,508 — 4,508 Subtotal 22,347 8 ( 1 ) 22,354 3,747 18,607 Total $ 34,875 $ 10 $ ( 2 ) $ 34,883 $ 13,197 $ 21,686 (1) Level 1 fair value estimates are based on quoted prices in active markets for identical assets or liabilities. (2) Level 2 fair value estimates are based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The Company’s investments were primarily valued based upon one or more valuations reported by its investment accounting and reporting service provider. The investment service provider values the securities using a hierarchical security pricing models that relies primarily on valuations provided by a third-party pricing vendor. Such valuations may be based on trade prices in active markets for identical assets or liabilities (Level 1 inputs) or valuation models using inputs that are observable either directly or indirectly (Level 2 inputs), such as quoted prices for similar assets or liabilities, yield curve, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for underlying instruments or debt, broker and dealer quotes, as well as other relevant economic measures. The Company performs certain procedures to corroborate the fair value of its holdings, including comparing valuations obtained from its investment service provider with other pricing sources to validate the reasonableness of the valuations. F-14 Table of Contents Airgain, Inc. Notes to Financial Statements The Company typically invests in highly rated securities and its investment policy limits the amount of credit exposure to any one issuer. The policy requires investments in fixed income instruments denominated and payable in U.S. dollars only and requires investments to be investment grade, with a primary objective of minimizing the potential risk of principal loss. The Company had no short-term investments as of December 31, 2020 . As of December 31, 2019, the Company’s short-term investments in a continuous unrealized loss position for twelve months or less were as follows (in thousands): Description of securities Estimated fair value Unrealized losses U.S. treasury securities $ 1,218 $ ( 1 ) Corporate debt obligations 1,428 ( 1 ) Asset-backed securities 753 — Total $ 3,399 $ ( 2 ) The Company considers the declines in market value of its short-term investments to be temporary in nature. Fair values were determined for each individual security in the investment portfolio. When evaluating an investment for other-than-temporary impairment, the Company reviews factors such as length of time and extent to which fair value has been below its cost basis; the financial condition of the issuer and any changes thereto; changes in market interest rates and the Company’s intent to sell; or whether it is more likely than not it will be required to sell the investment before recovery of the investment’s cost basis. As of December 31, 2020 , the Company does not consider any of its investments to be other-than temporarily impaired. (3) Property and Equipment Depreciation and amortization of property and equipment is calculated on the straight-line method based on estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of their useful life or lease term. Property and equipment consist of the following at December 31(in thousands): 2020 2019 Computers and software $ 596 $ 572 Furniture, fixtures, and equipment 400 299 Manufacturing and testing equipment 3,874 3,444 Construction in process 120 18 Leasehold improvements 932 911 5,922 5,244 Less accumulated depreciation ( 3,545 ) ( 3,118 ) $ 2,377 $ 2,126 Depreciation expense was $ 0.5 million for the years ended December 31, 2020 and 2019, respectively. (4) Goodwill and Intangible Assets There were no changes to the Company’s goodwill balance during the years ended December 31, 2020 and 2019. F-15 Table of Contents Airgain, Inc. Notes to Financial Statements The following is a summary of the Company’s acquired intangible assets as of December 31 (dollars in thousands): 2020 Weighted average amortization period (years) Gross carrying amount Accumulated amortization Intangibles, net Customer relationships 10 $ 4,830 $ 2,203 $ 2,627 Developed technologies 9 1,080 $ 539 541 Tradename 3 120 $ 120 — Total $ 6,030 $ 2,862 $ 3,168 2019 Customer relationships 10 $ 4,830 $ 1,720 $ 3,110 Developed technologies 9 1,080 406 674 Tradename 3 120 107 13 Total $ 6,030 $ 2,233 $ 3,797 The estimated annual amortization of intangible assets for the next five years and thereafter is shown in the following table (actual amortization expense to be reported in future periods could differ from these estimates as a result of acquisitions, divestitures, and asset impairments, among other factors) (in thousands): Estimated future amortization 2021 $ 598 2022 563 2023 563 2024 563 2025 551 Thereafter 330 Total $ 3,168 Amortization expense was $ 0.6 million and $ 0.7 million for the years ended December 31, 2020 and 2019, respectively. (5) Accrued Liabilities and Other Accrued liabilities and other is comprised of the following as of December 31 (in thousands): 2020 2019 Accrued expenses $ 519 $ 242 VAT Payable 327 — Accrued income taxes 182 68 Other current liabilities 159 34 Total $ 1,187 $ 344 (6) Long-term Note Payable and Line of Credit In January 2018 , the Company entered into a second amended and restated loan and security agreement (the Loan Agreement) with Silicon Valley Bank. Under this Loan Agreement the aggregate principal amount available under the revolving line of credit is $ 10.0 million and requires the Company maintain a ratio of cash and cash equivalents plus accounts receivable to outstanding debt under the Loan Agreement minus deferred revenue of 1.25 to 1.00. The Loan Agreement also set a borrowing base limit of 80 % of the aggregate face amount of all eligible receivables. No balance was owed on the line of credit as of December 31, 2019. The revolving line of credit matured on January 31, 2020 . ( 7 ) Treasury Stock In August 2017 the Company’s Board of Directors (Board) approved a share repurchase program (2017 Program) pursuant to which the Company may purchase up to $ 7.0 million of shares of its common stock over the 12 -month period following the establishment of the program. The repurchases under the 2017 Program are made from time to time in the open market or in privately negotiated transactions and are funded from the Company’s 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 F-16 Table of Contents Airgain, Inc. Notes to Financial Statements legal requirements, and other factors. On August 7, 2018, the Board approved an extension to the existing share repurchase program for an additional 12 - month period ending August 14, 2019. On September 9, 2019, the Board 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 following 12 months. This newly adopted share repurchase program mirrors all aspects and terms of the 2017 Program as described above. On September 9, 2020, the Board approved an extension to the existing share repurchase program for an additional 12 -month period ending September 9, 2021. In the year ended December 31, 2019, the Company repurchased an aggregate of 108,000 shares of common stock under the repurchase program at a weighted average price per share of $ 11.41 , for a total cost of $ 1.2 million. In the year ended December 31, 2020 the Company repurchased 69,000 shares of common stock under the repurchase programs. These shares were repurchased at a weighted average price per share of $ 8.78 for a total cost of $ 0.6 million. As of December 31, 2020 , the Company has repurchased an aggregate of 534,000 shares of common stock under the share repurchase programs at a weighted average price per share of $ 9.86 , for a total cost of $ 5.3 million. ( 8 ) Income Taxes (a) Income Taxes The income tax provisions for the years ended December 31 are as follows (in thousands): 2020 2019 Current: U.S. federal $ — $ 1 State and local ( 2 ) 3 Foreign 269 144 Total current provision 267 148 Deferred: U.S. federal 10 10 State and local ( 4 ) 5 Total deferred provision 6 15 Total tax provision $ 273 $ 163 F-17 Table of Contents Airgain, Inc. Notes to Financial Statements (b) Tax Rate Reconciliation Reconciliations of the total income tax provision tax rate to the statutory federal income tax rate of 21 % for the years ended December 31, 2020 and 2019, respectively, are as follows (in thousands): 2020 2019 Income taxes at statutory rates $ ( 631 ) $ 229 State income tax, net of federal benefit ( 6 ) 8 Permanent items ( 20 ) ( 11 ) Meals and entertainment 29 50 Equity based compensation 81 ( 8 ) Research and development credit ( 168 ) ( 94 ) Federal return to provision ( 136 ) 101 Foreign taxes 269 144 Other — 1 Change in federal valuation allowance 855 ( 257 ) $ 273 $ 163 (c) Significant Components of Current and Deferred Taxes The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, are as follows (in thousands): 2020 2019 Deferred tax assets: Net operating loss carryforward s $ 4,741 $ 4,564 Research and AMT credits 2,664 2,208 Stock based compensation 733 387 Accrued and other 928 748 9,066 7,907 Less valuation allowance ( 8,520 ) ( 7,455 ) Deferred tax assets, net of allowance 546 452 Deferred tax liabilities: Fixed assets ( 344 ) ( 288 ) Goodwill ( 260 ) ( 216 ) Deferred tax liabilities ( 604 ) ( 504 ) Total deferred tax liabilities $ ( 58 ) $ ( 52 ) The Company has established a valuation allowance against its net deferred tax assets due to the uncertainty surrounding the realization of such assets. The Company periodically evaluates the recoverability of the deferred tax assets. At such time it is determined that it is more likely than not that deferred assets are realizable, the valuation allowance will be reduced. The Company has recorded a valuation allowance of $ 8.5 million as of December 31, 2020 as it does not believe it is more likely than not that certain deferred tax assets will be realized due to the recent history of both pre-tax book income and losses, the lack of taxable income available in carryback periods or feasible tax-planning strategies, the limited existing taxable temporary differences, and the subjective nature of forecasting future taxable income into the future. The Company increased its valuation allowance by approximately $ 1.1 million during the year ended December 31, 2020. F-18 Table of Contents Airgain, Inc. Notes to Financial Statements At December 31, 2020 the Company had federal and California tax loss carryforwards of approximately $ 19.9 million, and $ 5.7 million, respectively. The federal loss generated post 2018 of $ 2.6 million will carryforward indefinitely and be available to offset up to 80 % of future taxable income each year. The remaining federal and state net operating loss carryforwards begin to expire in 2022 and 2028 , respectively, if unused. At December 31, 2020 the Company had federal and state tax credit carryforwards of approximately $ 1.3 million, and $ 1.4 million, respectively, after reduction for uncertain tax positions. The federal credits will begin to expire in 2026 , if unused, and the state credits carryforwards indefinitely. Pursuant to the Internal Revenue Code of 1986, as amended (IRC), specifically IRC §382 and IRC §383, the Company’s ability to use net operating loss and research and development tax credit carryforwards (“tax attribute carryforwards ”) to offset future taxable income is limited if the Company experiences a cumulative change in ownership of more than 50 % within a three -year testing period. The Company has not completed an ownership change analysis pursuant to IRC Section 382 for taxable years ended after December 31, 2012. If ownership changes within the meaning of IRC Section 382 are identified as having occurred subsequent to 2012, the amount of remaining tax attribute carryforwards available to offset future taxable income and income tax expense in future years may be significantly restricted or eliminated. Further, the Company’s deferred tax assets associated with such tax attributes could be significantly reduced upon realization of an ownership change within the meaning of IRC §382. The following table summarizes the reconciliation of the unrecognized tax benefits activity during the years ended December 31 (in thousands): 2020 2019 Beginning unrecognized tax benefits $ 765 $ 732 Decreases related to prior year tax positions 36 ( 7 ) Increases related to current year tax positions 78 40 Ending unrecognized tax benefits $ 879 $ 765 The unrecognized tax benefit amounts are reflected in the determination of the Company’s deferred tax assets. If recognized, $ 9,000 of these amounts would impact company’s effective tax rate. The Company does not foresee material changes to its uncertain tax benefits within the next twelve months. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company has an accrual for interest or penalties of $ 61,000 and $ 3,000 on the Company’s balance sheets as of December 31, 2020 and 2019, respectively, and has recognized interest and/or penalties of $ 57,000 and $ 1,000 in the Statement of Operations for each of the two years ended December 31, 2020 and 2019, respectively. Due to the existence of federal and state net operating loss and credit carryovers, the Company’s tax years that remain open and subject to examination by tax jurisdiction are years 2000 and forward for federal and years 2006 and forward for the state of California. ( 9 ) Stockholders’ Equity Shares Reserved for Future Issuance The following common stock is reserved for future issuance at December 31 (1) (in thousands): 2020 2019 Warrants issued and outstanding 51 51 Stock option awards issued and outstanding 1,760 1,600 Authorized for grants under the 2016 Equity Incentive Plan 357 (2) 401 Authorized for grants under the 2016 Employee Stock Purchase Plan 256 (3) 186 2,424 2,238 F-19 Table of Contents Airgain, Inc. Notes to Financial Statements (1) Treasury stock in the amount of 534,000 and 465,000 as of December 31, 2020 and 2019, respectively, are excluded from the table above. (2) On January 1, 2020, the number of authorized shares in the 2016 Equity Incentive Plan increased by 387,000 shares pursuant to the evergreen provisions of the 2016 Equity Incentive Plan. (3) On January 1, 2020, the number of authorized shares in the 2016 Employee Stock Purchase Plan increased by 97,000 shares pursuant to the evergreen provisions of the 2016 Employee Stock Purchase Plan. (10) Stock Based Compensation (a) Stock Options In August 2016, the Company’s board of directors adopted the 2016 Equity Incentive Plan (the 2016 Plan) for employees, directors, and consultants. As of December 31, 2020 , 357 ,000 shares are available for issuance under the 2016 Plan. The service period for stock options granted to employees is generally one to four years . All stock options granted under the 2016 Plan have a maximum contractual term of ten years. The grant-date fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option-pricing model. The weighted average assumptions for grants during the years ended December 31, 2020 and 2019, are provided in the following table. Commencing in 2019 each non-employee member of the board of directors will receive an annual award on the first trading day in February of each year of (1) a number of stock options having a value of $ 30,000 (with the award to the chairperson of the board of directors having a value of $ 45,000 ), (calculated as of the date of grant in accordance with the Black-Scholes option pricing model) and (2) the restricted stock units described below. As of December 31, 2020 2019 Valuation assumptions: Expected dividend yield 0 % 0 % Expected volatility 44.1 % 40.8 % Expected term (years) 5.8 6.0 Risk-free interest rate 1.5 % 2.1 % F-20 Table of Contents Airgain, Inc. Notes to Financial Statements A summary of the Company’s stock option activity is as follows (shares in thousands): Number of shares Weighted average exercise price Weighted average remaining contractual term (years) Balance at December 31, 2019 1,600 $ 9.98 Granted 402 10.05 Exercised ( 120 ) 8.49 Expired/Forfeited ( 122 ) 10.38 Balance at December 31, 2020 1,760 10.07 7.6 Vested and exercisable at December 31, 2020 984 $ 9.40 6.7 Vested and expected to vest at December 31, 2020 1,760 $ 10.07 7.6 During the year ended December 31, 2020, the Company received proceeds of $ 1.0 million from the exercise of options with an intrinsic value of $ 0.6 million. During the year ended December 31, 2019, the Company received proceed s of $ 0.7 million from the exercise of options with an intrinsic value of $ 1.5 million. The weighted average grant-date fair values of options granted during the years ended December 31, 2020 and 2019, were $ 4.30 and $ 4.93 , respectively. For fully vested stock options the aggregate intrinsic values were $ 8.2 million and $ 2.3 million as of December 31, 2020 and 2019, respectively. For stock options expected to vest the aggregate intrinsic values were $ 5.3 million and $ 0.3 million as of December 31, 2020 and 2019, respectively. The grant date fair value of shares vested during the years ended December 31, 2020 and 2019, was $ 2.0 million and $ 2.1 million, respectively. At December 31, 2020 and 2019, there was $ 3.0 million and $ 3.2 million, respectively, of total unrecognized compensation cost related to unvested stock options granted under the plans. That cost is expected to be recognized over the next 2.4 years. (b) Restricted Stock Units The following table summarizes the Company’s restricted stock unit activity (shares in thousands): Restricted stock units Weighted average grant date fair value Balance at December 31, 2019 80 $ 11.43 Grants 151 10.17 Vested ( 29 ) 11.28 Balance at December 31, 2020 202 10.51 Each non-employee member of the board of directors receives, on the first trading day in February of each year, such number of restricted stock units as is determined by dividing (a) $ 30,000 (with the award to the chairperson of the board of directors having a value of $ 45,000 ) by (b) the 30-day trailing average share price. During the year ended December 31, 2020, 16,165 restricted stock units with a fair value of $ 9.35 per share were issued to the members of the Company’s board of directors which shares vest on the first anniversary of the grant date , and 135,000 restricted stock units with a fair value of $ 10.26 per share were issued to employees which shares vest equally after each of the annual anniversaries, on March 1 of the respective year, over a four-year period . During the year ended December 31, 2019, 14,175 restricted stock units with a fair value of $ 10.75 per share were issued to members of the Company’s board of directors which shares vest on the first anniversary of the grant date , and 81,303 restricted stock units with a fair value of $ 11.46 per share were issued to employees which shares vest equally after each of the annual anniversaries, on March 1 of the respective year, over a four-year period. F-21 Table of Contents Airgain, Inc. Notes to Financial Statements As of December 31, 2020, there was $ 1.5 million of total unrecognized stock-based compensation expense related to non-vested restricted stock units which is expected to be recognized over a remaining weighted-average vesting period of 2.6 . The Company currently uses authorized and unissued shares to satisfy share award exercises. (c) Employee Stock Purchase Plan (ESPP) The Company maintains the Employee Stock Purchase Plan (ESPP) that provides employees an opportunity to purchase common stock through payroll deductions. The ESPP is implemented through consecutive 6 -month offering periods commencing on March 1 and September 1 of each year. The first offering period under the ESPP commenced on March 1, 2019. The purchase price is set at 85 % of the fair market value of the Company’s common stock on either the first or last trading day of the offering period, whichever is lower, and annual contributions are limited to the lower of 20 % of an employee’s eligible compensation or such other limits as apply under Section 423 of the Internal Revenue Code for such plans such as the ESPP. The ESPP is intended to qualify as an employee stock purchase plan for purposes of Section 423 of the Internal Revenue Code. Based on the 15 % discount and the fair value of the option feature of the ESPP, it is considered compensatory. Compensation expense is calculated using the fair value of the employees’ purchase rights under the Black-Scholes model. The Company currently uses authorized and unissued shares to satisfy share award exercises. During the year ended December 31, 2020, the Company received proceeds of $ 0.2 million from the issuance of 27,002 shares and during the year ended December 31, 2019, proceeds of $ 0.1 million from the issuance of 10,114 shares under the ESPP. (d) Stock-based compensation expense Stock-based compensation expense was $ 2.6 million and $ 2.2 million for the years ended December 31, 2020 and 2019, respectively. The stock-based compensation is reflected in the statements of operations as follows (in thousands): For the year ended December 31, 2020 2019 Cost of goods sold $ 2 $ — Research and development 548 474 Sales and marketing 390 174 General and administrative 1,624 1,556 Total 2,564 2,204 (11) Commitments and Contingencies (a) Operating Leases The Company has entered into lease agreements for office space and research facilities in San Diego County, California; Melbourne, Florida; Scottsdale, Arizona; Taipei, Taiwan; Shenzhen and Jiangsu, China; and Cambridge, United Kingdom. Rent expense was $ 1.2 million and $ 1.0 million for the years ended December 31, 2020 and 2019, respectively. The longest lease expires in 202 5 . The Company moved into its facility in San Diego, California during the year ended December 31, 2014. In February 2020 , the Company extended its office space lease agreement in San Diego through 2025 . The future minimum lease payments required under operating leases in effect at December 31, 2020 were as follows (in thousands): Year ending: 2021 $ 992 2022 721 2023 705 2024 689 2025 615 $ 3,722 (b) Indemnification In some agreements to which the Company is a party, the Company has agreed to indemnify the other party for certain matters, including, but not limited to, product liability and intellectual property. To date, there have been no known events or circumstances that have resulted in any material costs related to these indemnification provisions and no liabilities have been recorded in the accompanying financial statements. F-22 Table of Contents Airgain, Inc. Notes to Financial Statements (c) Supply Agreement In September 2020 , the Company 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. (d) Employment Agreements On January 16, 2019, the Company entered into amended and restated employment agreements with Jacob Suen, the Company’s President and Kevin Thill, the Company’s Senior Vice President, Engineering. On August 8, 2019, the Company entered into an amendment to the amended and restated employment agreement with Mr. Suen in connection with his promotion to Chief Executive Officer of the Company. The amended and restated employment agreements provide for an indefinite term and for at-will employment. The agreements also set forth each executive’s annual base salary and target bonus opportunity and provide that each executive will be entitled to the benefits provided to employees generally. In April 2020, the Company further amended the employment agreement with Mr. Suen and Mr. Thill to increase the severance payable in the event of a termination without cause or resignation for good reason, other than in connection with a change in control, from 6 months to 12 months. On January 13, 2020, the Company entered into an employment agreement with David B. Lyle, the Company’s Chief Financial Officer and Secretary. The agreement sets forth Mr. Lyle’s annual base salary, target bonus opportunity and provides that Mr. Lyle will be entitled to the benefits provided to employees generally. The employment agreement provides for an indefinite term and for at-will employment. Pursuant to the employment agreements, if the Company terminates Mr. Lyle’s employment without cause or he resigns for good reason, he is entitled a lump sum cash payment in an amount equal to 12 months of his base salary plus his target bonus (prorated for the portion of the calendar year during which such termination occurs) and continuation of health benefits at the Company’s expense for a period of 12 months following the date of termination. (1 2 ) Customer and Geographic Information (a) Concentration of Sales and Accounts Receivable The following represents customers that accounted for 10 % or more of total revenue during the years ended December 31, 2020 and 2019, and customers that accounted for 10 % or more of total trade accounts receivable at December 31, 2020 and 2019: For the year ended December 31, 2020 2019 Percentage of net revenue Customer A 34 % 36 % Customer B 12 % 14 % As of December, 31 2020 2019 Percentage of gross trade accounts receivable Customer A 23 % 33 % Customer B 17 % 7 % Customer C 13 % 9 % Customer D — 14 % F-23 Table of Contents Airgain, Inc. Notes to Financial Statements (b) Concentration of Purchases During the years ended December 31, 2020 and 2019, all of the Company’s products were manufactured in our Scottsdale, Arizona facilities and by three contract manufacturers located in China and Myanmar. (c) Concentration of Property and Equipment The Company’s property and equipment, net by geographic region are as follows: As of December, 31 2020 2019 North America $ 1,936 $ 1,663 China 249 190 United Kingdom 192 273 Total $ 2,377 $ 2,126 (1 3 ) Disaggregated Revenues Disaggregated revenues for the years ended December 31 are as follows (in thousands): By Sales Channel For year ended December 31, 2020 2019 Fulfillment distributors $ 27,356 $ 32,273 OEM/ODM/CM 16,020 17,075 Other 5,126 6,391 Total $ 48,502 $ 55,739 By Market Group For year ended December 31, 2020 2019 Consumer $ 37,129 $ 43,000 Automotive 7,463 8,873 Enterprise 3,910 3,866 Total $ 48,502 $ 55,739 By Geography For year ended December 31, 2020 2019 China $ 35,173 $ 40,810 North America 10,044 11,611 Other 3,285 3,318 Total $ 48,502 $ 55,739 During the year ended December 31, 2020 and 2019, the Company earned $ 9.6 million and $ 9.7 million from customers in the United States. (14) Employee Benefit Plan The Company’s 401(k) plan covers all of the U.S. employees beginning the first of the month following the first 90 days of their employment. Under this plan, employees may elect to contribute up to 20 % of their annual compensation to the 401(k) plan up to the statutorily prescribed annual limit. The Company matches 100 % of the employee’s elective deferrals up to 4 % of their annual compensation. The Company may make discretionary contributions to the 401(k) plan, but there were no discretionary contributions during the year ended December 31 , 2019 . The Company’s contribution expense was $ 0.2 million for the year ended December 31 , 2020 . (1 5 ) Subsequent Events On January 7, 2021, the Company acquired all of the outstanding stock of privately held NimbeLink Corp., or NimbeLink, for approximately $ 15.0 million, subject to working capital and other customary adjustments. In addition to the cash price, the Company assumed unvested common stock options of continuing employees and service providers. NimbeLink’s former equity-holders have the potential to earn a one-time payment of up to an additional $ 8.0 million in cash based on the achievement of certain revenue targets for the NimbeLink business in 2021. On February 5, 2021, the Company’s board of directors approved the 2021 Employment Inducement Incentive Award Plan (the Inducement Plan) which allows for the Company to issue up to 300,000 shares of common stock. On February 5, 2021, the Company granted inducement awards under the Inducement Plan. The inducement awards consisted of options to purchase an aggregate of 125,000 shares of Company common stock. The options have a 10 -year term and an exercise price equal to $ 24.22 . The options vest over a four-year period with 25 % of the options vesting on the first anniversary of employment and the rest vesting in equal monthly installments thereafter. On February 18, 2021, the Company announced the retirement of its Senior Vice President of Engineering effective May 7, 2021. F-24 Table of Contents EXHIBIT INDEX Exhibit Number Description of Exhibit 3.1(1) Amended and Restated Certificate of Incorporation 3.2(1) Amended and Restated Bylaws 4.1(2) Specimen stock certificate evidencing the shares of common stock 4.2(2) Form of Warrant issued to Northland Securities, Inc. in connection with the Registrant’s initial public offering 4.3(3) Description of Registered Securities 10.1(4) Office Lease, dated June 13, 2013, by and between Kilroy Realty, L.P. and the Registrant 10.2(2) Form of Indemnity Agreement for Directors and Officers 10.3#(4) Airgain, Inc. 2003 Equity Incentive Plan 10.4#(4) Form of Stock Option Agreement under the Airgain, Inc. 2003 Equity Incentive Plan 10.5#(4) Airgain, Inc. 2013 Equity Incentive Plan 10.6#(4) Form of Stock Option Grant Notice and Stock Option Agreement under the Airgain, Inc. 2013 Equity Incentive Plan 10.7#(2) Airgain, Inc. 2016 Incentive Award Plan 10.8#(3) Form of Stock Option Agreement under the Airgain, Inc. 2016 Incentive Award Plan 10.9#(5) Form of Restricted Stock Unit Agreement under the Airgain, Inc. 2016 Incentive Award Plan 10.10#(2) Airgain, Inc. 2016 Employee Stock Purchase Plan 10.11# Second Amended and Restated Employment Agreement, dated April 27, 2020, by and between Kevin Thill and the Registrant 10.12# Second Amended and Restated Employment Agreement, dated April 27, 2020, by and between Jacob Suen and the Registrant 10.13(6) Asset Purchase Agreement, dated as of April 7, 2017, by and between the Registrant and MCA Financial Group, Inc. acting as the appointed received for Antenna Plus, LLC. Table of Contents 10.14#(3) Employment Agreement, dated January 13, 2020, by and between David Lyle and the Registrant 10.15(8) First Amendment to Office Lease, dated February 13, 2020, by and between Kilroy Realty, L.P. and the Registrant 10.16(9) Stock Purchase Agreement, dated January 7, 2021, by and among Airgain, Inc, NimbeLink Corp., the sellers set forth therein, and Scott Schwalbe in his capacity as seller representative 10.17# Non-Employee Director Compensation and Stock Ownership Program (as amended through November 19, 2020) 10.18# Airgain, Inc. 2021 Employment Inducement Incentive Award Plan 10.19# Form of Stock Option Agreement under the 2021 Employment Inducement Incentive Award Plan 23.1 Consent of KPMG LLP, independent registered public accounting firm 31.1 Certification of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 promulgated pursuant to the Securities Exchange Act of 1934, as amended 31.2 Certification of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 promulgated pursuant to the Securities Exchange Act of 1934, as amended 32.1* Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2* Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS Inline XBRL Instance Document–the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) (1) Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the SEC on August 17, 2016. (2) Incorporated by reference to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-212542), filed with the SEC on July 29, 2016. (3) Incorporated by reference to the Registrant’s Annual Report on Form 10-K filed with the SEC on February 28, 2020 (4) Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-212542), filed with the SEC on July 15, 2016. (5) Incorporated by reference to the Registrant’s Annual Report on Form 10-K, filed with the SEC on March 15, 2019 (6) Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, filed with the SEC on May 12, 2017. (7) Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, filed with the SEC on November 7, 2019. (8) Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, filed with the SEC on May 7, 2020. (9) Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the SEC on January 7, 2021. # Indicates management contract or compensatory plan. * These certifications are being furnished solely to accompany this annual report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing. Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized. AIRGAIN, INC. /s/ Jacob Suen Jacob Suen Chief Executive Officer Date: February 19, 2021 Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Jacob Suen Jacob Suen Chief Executive Officer, President and Director (Principal Executive Officer) February 19, 2021 /s/ David B. Lyle David B. Lyle Chief Financial Officer (Principal Financial and Accounting Officer) February 19, 2021 /s/ James K. Sims James K. Sims Chairman February 19, 2021 /s/ Tzau-Jin Chung Tzau-Jin Chung Director February 19, 2021 /s/ Joan H. Gillman Joan H. Gillman Director February 19, 2021 /s/ Thomas A. Munro Thomas A. Munro Director February 19, 2021 /s/ Arthur M. Toscanini Arthur M. Toscanini Director February 19, 2021