What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-01 compared with 2021-03-01 · 204 added, 239 removed, 176 unchanged (72% of the section changed)

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Risk Factors” and under the caption “Factors Which May Influence Future Results of Operations” below.

Business Overview and Background

Inseego Corp.

is a Delaware corporation formed in 2016 as the successor to Novatel Wireless, Inc., a Delaware corporation formed in 1996, resulting from an internal reorganization that was completed in November 2016.

Our principal executive office is located at 12600 Deerfield Parkway, Suite 100, Alpharetta, GA 30004, our corporate offices are located at 9710 Scranton Road, Suite 200, San Diego, CA 92121 and our sales and engineering offices are located throughout the world.

Inseego’s common stock trades on the NASDAQ Global Select Market under the trading symbol “INSG”.

Inseego Corp.

is a leader in the design and development of fixed and mobile wireless solutions (advanced 4G and 5G NR), IIoT and cloud solutions for Fortune 500 enterprises, service providers, small and medium-sized businesses, governments, and consumers around the globe.

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It is this proven expertise, commitment to quality, obsession with innovation and a relentless focus on execution that makes us a preferred global partner of service providers, distributors, value-added resellers, system integrators, and enterprises worldwide.

On July 30, 2021, we completed the sale of Ctrack South Africa.

Initial cash proceeds of $36.6 million were received.

Final cash proceeds were subject to certain post-closing working capital adjustments which totaled $2.6 million, $2.2 million of which was received on October 29, 2021, and the remaining $0.4 million was offset with our existing accounts payable balance to Convergence.

Business Segment Reporting

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Our Chief Executive Officer, who is also our Chief Operating Decision Maker, evaluates the business as a single entity and reviews financial information and makes business decisions based on the overall results of the business.

As such, the Company’s operations constitute a single operating segment and one reportable segment.

As such, our operations constitute a single operating segment and one reportable segment.

Factors Which May Influence Future Results of Operations

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• rate of change to new products;

• phase-out of earlier generation wireless technologies (such as 3G);

• deployment of 5G infrastructure equipment;

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Our revenues are also significantly dependent upon the availability of materials and components used in our hardware products.

We anticipate introducing additional products during the next twelve months, including SaaS telematics solutions and additional service offerings, industrial IoT hardware and services, and other mobile and fixed wireless devices targeting the emerging 5G market.

We continue to develop and maintain strategic relationships with service providers and other wireless industry leaders such as Verizon Wireless, T-Mobile, Sprint, and Qualcomm.

We anticipate introducing additional products during the next twelve months, including SaaS and additional service offerings, industrial IoT hardware and services, and other mobile and fixed wireless devices targeting the emerging 5G market.

We continue to develop and maintain strategic relationships with service providers and other wireless industry leaders such as Verizon Wireless, T-Mobile and Qualcomm.

Through strategic relationships, we have been able to maintain market penetration by leveraging the resources of our channel partners, including their access to distribution resources, increased sales opportunities and market opportunities.

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Results of Operations

The following table sets forth our consolidated statements of operations expressed as a percentage of net revenues, derived from the accompanying consolidated financial statements for the periods indicated.

The following table sets forth our consolidated statements of operations in dollars (in thousands) and expressed as a percentage of net revenues, derived from the accompanying consolidated financial statements for the periods indicated.

Year Ended December 31,

2021 2020 2019

Net revenues:

(as a percent of net revenues)

IoT & Mobile Solutions $ 217,984 83.1 % $ 261,169 83.2 % $ 160,873 73.3 %

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Other income (expense):

Gain on sale of Ctrack South Africa 5,262 2.0 % — — % — — %

Loss on debt conversion and extinguishment, net (432) (0.2) % (76,354) (24.3) % — — %

Interest expense, net (6,874) (2.6) % (9,942) (3.2) % (20,381) (9.3) %

Other income (expense), net 0.3 0.2

Other income, net 845 0.3 % 992 0.3 % 351 0.2 %

Loss before income taxes (47,720) (18.2) % (110,438) (35.2) % (39,574) (18.0) %

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Net loss (47,911) (18.3) % (111,186) (35.4) % (40,110) (18.2) %

Net loss (income) attributable to noncontrolling interests — —

Net income attributable to noncontrolling interests (214) (0.1) % (29) — % (15) — %

Net loss attributable to Inseego Corp.

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Net revenues .

Net revenues for the year ended December 31, 2021 were $262.4 million, a decrease of $51.4 million, or 16.4%, compared to the same period in 2020.

The following table summarizes net revenues by our two product categories (dollars in thousands):

Year Ended December 31, Change

Product Category 2021 2020 $ %

IoT & Mobile Solutions $ 217,984 $ 261,169 $ (43,185) (16.5) %

Enterprise SaaS Solutions 44,415 52,663 (8,248) (15.7) %

Total $ 262,399 $ 313,832 $ (51,433) (16.4) %

IoT & Mobile Solutions.

The decrease in IoT & Mobile Solutions net revenues is primarily due to decreases in our enterprise and carrier offerings, and lower sales of LTE gigabit hotspots as the COVID-19 pandemic demand eased, partially offset by increased sales of our second-generation 5G hotspot related to our MiFi business and increased revenues in our Inseego Subscribe business due to subscriber growth.

Enterprise SaaS Solutions.

Enterprise SaaS Solutions net revenues decreased year-over-year as a result of the divestiture of Ctrack South Africa as of July 30, 2021.

SaaS revenue was no longer generated in Africa, Pakistan or the Middle East beginning in August 2021.

See Part IV Item 15 Note 5.

Business Divestiture .

Following the divestiture of Ctrack South Africa, we continue to provide telematics solutions in the rest of the world, including in Europe and Australia.

Such impact was partially offset by an increase in Enterprise SaaS Solutions net revenue throughout the rest of the world as a result of the lifting of COVID-19 related installation restrictions during fiscal 2021.

Cost of net revenues.

Cost of net revenues for the year ended December 31, 2021 was $186.5 million, or 71.1% of net revenues, compared to $223.0 million, or 71.1% of net revenues, for the same period in 2020.

The following table summarizes cost of net revenues by our two product categories (dollars in thousands):

December 31, Change

Product Category 2021 2020 $ %

IoT & Mobile Solutions $ 168,604 $ 202,421 $ (33,817) (16.7) %

Enterprise SaaS Solutions 17,870 20,568 (2,698) (13.1) %

Total $ 186,474 $ 222,989 $ (36,515) (16.4) %

IoT & Mobile Solutions.

The decrease in IoT & Mobile Solutions cost of net revenues is primarily a result of lower sales of LTE gigabit hotspots.

Enterprise SaaS Solutions.

Enterprise SaaS Solutions cost of net revenues decreased as a result of the divestiture of Ctrack South Africa on July 30, 2021.

See Part IV Item 15 Note 5.

Business Divestiture .

Gross profit.

Gross profit for the year ended December 31, 2021 was $75.9 million, or a gross margin of 28.9%, compared to $90.8 million, or a gross margin of 28.9%, for the same period in 2020.

The gross margin percentage remained stable due to an unfavorable product mix and a decrease in Enterprise SaaS Solutions as a result of the divestiture of Ctrack South Africa which has a higher gross margin, offset by higher Inseego Subscribe revenue.

The following table summarizes operating costs and expenses (dollars in thousands):

December 31, Change

Operating costs and expenses 2021 2020 $ %

Research and development $ 52,673 $ 44,953 $ 7,720 17.2 %

Sales and marketing 38,234 35,750 2,484 6.9 %

General and administrative 28,250 30,689 (2,439) (7.9) %

Amortization of purchased intangible assets 2,092 3,175 (1,083) (34.1) %

Impairment of capitalized software 1,197 1,410 (213) (15.1) %

Total $ 122,446 $ 115,977 $ 6,469 5.6 %

Research and development expenses.

Research and development expenses for the year ended December 31, 2021 were $52.7 million, or 20.1% of net revenues, compared to $45.0 million, or 14.3% of net revenues, for the same period in 2020.

The increase was primarily a result of increased staffing, test units, and other development spending related to 5G product programs.

Sales and marketing expenses.

Sales and marketing expenses for the year ended December 31, 2021 were $38.2 million, or 14.6% of net revenues, compared to $35.8 million, or 11.4% of net revenues, for the same period in 2020.

The increase was primarily a result of higher spend on the marketing of our 5G products.

The increase in sales and marketing expenses was partially offset by a decrease in payro ll costs for Ctrack South Africa employees, given the divestiture that was completed on July 30, 2021.

See Part IV Item 15.

Business Divestiture .

General and administrative expenses.

General and administrative expenses for the year ended December 31, 2021 were $28.3 million, or 10.8% of net revenues, compared to $30.7 million, or 9.8% of net revenues, for the same period in 2020.

The decrease was primarily due to the decrease in payroll costs for Ctrack South Africa employees, given the divestiture that was completed on July 30, 2021.

See Part IV Item 15.

Business Divestiture .

The decrease in general and administrative expenses was partially offset by the impact of bonus grants to employees who contributed to completion of the Ctrack South Africa sale.

See Part IV Item 15.

Share-based Compensation in the accompanying consolidated financial statements for further information.

Amortization of purchased intangible assets .

The amortization of purchased intangible assets for the years ended December 31, 2021 and 2020 was $2.1 million and $3.2 million, respectively.

The decrease was related to the divestiture of Ctrack South Africa as well as certain purchased intangibles becoming fully amortized for the year ended December 31, 2021.

Impairment of capitalized software.

For the years ended December 31, 2021 and 2020, we recorded losses of $1.2 million and $1.4 million, respectively, on capitalized software development costs related to an internal enterprise resource planning project.

The following table summarizes other income (expense) (dollars in thousands):

December 31, Change

Other income (expense) 2021 2020 $ %

Gain on sale of Ctrack South Africa $ 5,262 $ — $ 5,262 100.0 %

Loss on debt conversion and extinguishment, net (432) (76,354) 75,922 (99.4) %

Interest expense, net (6,874) (9,942) 3,068 (30.9) %

Other income, net 845 992 (147) (14.8) %

Total $ (1,199) $ (85,304) $ 84,105 (98.6) %

Gain on sale of Ctrack South Africa .

Gain on sale of Ctrack South Africa during the year ended December 31, 2021 was $5.3 million, related to the gain recognized on sale of Ctrack South Africa, while there was no such gain for the same period in fiscal 2020.

Loss on debt conversion and extinguishment, net.

The loss on debt conversion and extinguishment, net for each of the years ended December 31, 2021 and 2020 was $0.4 million and $76.4 million, respectively.

These amounts represent the loss on debt conversion of the 2025 Notes during fiscal 2021 and the debt conversion and extinguishment of the 2022 Notes during fiscal 2020, respectively.

Interest expense, net.

Interest expense, net, for the years ended December 31, 2021 and 2020 was $6.9 million and $9.9 million, respectively.

The decrease in interest expense was primarily due to the lower interest rate on the 2025 Notes, as compared to the 2022 Notes and our previous term loan, partially offset by the higher principal amount of the 2025 Notes.

Other income, net.

Other income, net, for the year ended December 31, 2021 was $0.8 million, which primarily included the fair value adjustment related to our interest make-whole payment on the 2025 Notes as well as foreign currency transaction gains and losses.

Other income, net for the same period in 2020 was $1.0 million, which primarily consisted of the fair value adjustment related to our interest make-whole payment on the 2025 Notes as well as foreign currency transaction gains and losses.

The following table summarizes income tax provision, net income attributable to noncontrolling interests, and Series E preferred stock dividends and deemed dividends from the preferred stock exchange (dollars in thousands):

December 31, Change

2021 2020 $ %

Income tax provision $ 191 $ 748 $ (557) (74.5) %

Net income attributable to noncontrolling interests (214) (29) (185) 637.9 %

Series E preferred stock dividends and deemed dividends from the preferred stock exchange (4,243) (2,904) (1,339) 46.1 %

Income tax provision.

Income tax provision for the years ended December 31, 2021 and 2020 was $0.2 million and $0.7 million, respectively, which, in each case, primarily related to certain of our profitable subsidiaries in foreign jurisdictions.

The effective tax rate for the year ended December 31, 2021 is different than the U.S.

statutory rate primarily due to a valuation allowance recorded against additional tax assets generated during the year and certain profitable foreign subsidiaries.

Net income attributable to noncontrolling interests.

For the years ended December 31, 2021 and 2020 there was $214,000 and $29,000, respectively, of net income attributable to noncontrolling interests.

Series E Preferred Stock dividends and deemed dividend from the preferred stock exchange.

During the years ended December 31, 2021 and 2020, we recorded dividends of $4.2 million and $2.9 million, respectively, on our Series E Preferred Stock.

The increase was primarily attributable to the impact of the deemed dividend of $1.1 million as part of the preferred stock exchange, offset by a decrease in the recurring preferred stock dividends as 10,000 shares of Series E Preferred Stock were extinguished in September 2021, resulting in a lower preferred stock dividends accrued through the end of 2021.

See Part IV Item 15.

Stockholders’ Equity in the accompanying consolidated financial statements for further information.

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Net revenues .

Net revenues for the year ended December 31, 2020 were $313.8 million, an increase of $94.3 million, or 43.0%, compared to the same period in 2019.

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The slight decrease in the gross profit percentage was primarily attributable to an unfavorable product mix offset by improvements in IoT & Mobile Solutions gross margin.

The following table summarizes operating costs and expenses (dollars in thousands):

December 31, Change

Operating costs and expenses 2020 2019 $ %

Research and development $ 44,953 $ 23,853 $ 21,100 88.5 %

Sales and marketing 35,750 28,914 6,836 23.6 %

General and administrative 30,689 27,327 3,362 12.3 %

Amortization of purchased intangible assets 3,175 3,421 (246) (7.2) %

Impairment of capitalized software 1,410 — 1,410 100.0 %

Total $ 115,977 $ 83,515 $ 32,462 38.9 %

Research and development expenses.

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Impairment of capitalized software.

During the twelve months ended December 31, 2020, we recorded a loss of $1.4 million on capitalized software development costs.

During the year ended December 31, 2020, we recorded a loss of $1.4 million on capitalized software development costs.

There was no such expense for the same period in 2019.

The following table summarizes other income (expense) (dollars in thousands):

December 31, Change

Other income (expense) 2020 2019 $ %

Loss on debt conversion and extinguishment, net $ (76,354) $ — $ (76,354) 100.0 %

During the twelve months ended December 31, 2020, we recorded a loss of $76.4 million, which primarily represents the loss on debt conversion and extinguishment of the 2022 Notes, including a $7.9 million inducement expense incurred in connection with certain conversions of the 2022 Notes, and a $67.2 million loss recorded on debt conversion of the 2025 Notes.

Interest expense, net (9,942) (20,381) 10,439 (51.2) %

Other income, net 992 351 641 182.6 %

Total $ (85,304) $ (20,030) $ (65,274) 325.9 %

Loss on debt conversion and extinguishment, net.

During the year ended December 31, 2020, we recorded a loss of $76.4 million, which primarily represents the loss on debt conversion and extinguishment of the 2022 Notes, including a $7.9 million inducement expense incurred in connection with certain conversions of the 2022 Notes, and a $67.2 million loss recorded on debt conversion of the 2025 Notes.

There was no such expense for the same period in 2019.

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The decrease in interest expense was due to the conversion of debt into equity in 2020, payment in full of our previous term loan during 2020, as well as a lower interest rate on the 2025 Notes, as compared to the 2022 Notes.

Other income (expense), net.

Other income, net.

Other income, net, for the year ended December 31, 2020 was $1.0 million, which primarily included the fair value adjustment related to our interest-make-whole payment on the 2025 Notes as well as foreign currency transaction gains and losses.

Other expense, net for the same period in 2019 was $0.4 million, which primarily consisted of foreign currency transaction gains and losses.

Other income, net for the same period in 2019 was $0.4 million, which primarily consisted of foreign currency transaction gains and losses.

December 31, Change

2020 2019 $ %

Income tax provision $ 748 $ 536 $ 212 39.6 %

Net income attributable to noncontrolling interests (29) (15) (14) 93.3 %

Series E preferred stock dividends and deemed dividends from the preferred stock exchange (2,904) (361) (2,543) 704.4 %

Income tax provision.

Income tax provision for the years ended December 31, 2020 and 2019 was $0.7 million and $0.5 million, respectively, which primarily related to certain of our profitable subsidiaries in foreign jurisdictions.

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statutory rate primarily due to a valuation allowance recorded against additional tax assets generated during the year and certain profitable foreign subsidiaries.

Net income attributable to noncontrolling interests.

For the years ended December 31, 2020 and 2019 there was $0.03 million and $0.02 million, respectively, of net income or loss attributable to noncontrolling interests.

Series E Preferred Stock dividends.

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Our principal sources of liquidity are our existing cash and cash equivalents and cash generated from operations.

As of December 31, 2020, we had cash and cash equivalents of $40.0 million compared with cash and cash equivalents of $12.1 million as of December 31, 2019.

In order to make continued growth investments, on March 6, 2020, the Company issued and sold 25,000 shares of our Series E Preferred Stock, for an aggregate purchase price of $25.0 million.

As of December 31, 2021, we had cash and cash equivalents of $46.5 million, as well as $3.3 million of restricted cash that will become available in July 2022, compared with cash and cash equivalents of $40.0 million as of December 31, 2020.

As of December 31, 2021, we had working capital of $52.8 million compared to working capital as of December 31, 2020 of $38.4 million.

On July 30, 2021, we completed the sale of our Ctrack South Africa operations in Africa, Pakistan and the Middle East.

Initial cash proceeds of $36.6 million were received.

Net cash proceeds received were $31.5 million, net of cash divested of $5.0 million.

Final cash proceeds were subject to certain post-closing working capital adjustments which totaled $2.6 million, out of which $2.2 million was received on October 29, 2021, and the remaining $0.4 million was offset with our existing accounts payable balance to an affiliate of Convergence, an investment management firm in South Africa.

On January 25, 2021, we entered into an Equity Distribution Agreement with Canaccord Genuity LLC (the “Agent”), pursuant to which we may offer and sell, from time to time, through or to the Agent, up to $40.0 million of shares of our common stock (the “ATM Offering”) pursuant to the Company’s Registration Statement on Form S-3ASR (File No.

333-238057), which was filed with the Securities and Exchange Commission on May 7, 2020 and amended on February 14, 2022.

In January 2021, we sold 1,516,073 shares of common stock, at an average price of $20.11 per share, for net proceeds of $29.4 million, after deducting underwriter fees and discounts of $0.9 million, and other offering fees, pursuant to the ATM Offering.

As of December 31, 2021, there was approximately $9.5 million of shares of our common stock available for issuance pursuant to the ATM Offering.

During the quarter ended September 30, 2020, certain holders of the 2025 Notes converted approximately $13.5 million in principal amount of the 2025 Notes into 1,177,156 shares of the Company’s common stock in accordance with the terms of such notes.

As of December 31, 2021, our outstanding debt primarily consisted of $161.9 million in principal amount of 2025 Notes.

In the first quarter of 2020, $59.9 million of our 2022 Notes were exchanged for common stock in private exchange transactions.

Additionally, in the second quarter of 2020, we restructured our outstanding debt by completing a $100.0 million registered public offering (the “Offering”) of 2025 Notes and also entered into privately-negotiated Exchange Agreements, pursuant to which an aggregate of $45.0 million in principal amount of the 2022 Notes were exchanged for an aggregate of $32.0 million in cash and $80.4 million in principal amount of the 2025 Notes (the “Private Exchange Transactions”).

We also used a portion of the proceeds from the Offering to repay in full our previous term loan.

In the third quarter of 2020, we redeemed the remaining $2,000 principal amount of the 2022 Notes.

In order to make continued growth investments, on March 6, 2020, we issued and sold 25,000 shares of our Series E Preferred Stock, for an aggregate purchase price of $25.0 million.

There are currently 25,000 shares of Series E Preferred Stock outstanding with an aggregate liquidation preference of $25 million.

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The Series E Preferred Stock is perpetual and has no maturity date.

However, the Company may, at its option, redeem shares of the Series E Preferred Stock, in whole or in part, on or after July 1, 2022, at a price equal to 110% of the Series E Base Amount plus (without duplication) any accrued and unpaid dividends.

However, we may, at our option, redeem shares of the Series E Preferred Stock, in whole or in part, on or after July 1, 2022, at a price equal to 110% of the Series E Base Amount plus (without duplication) any accrued and unpaid dividends.

The “Series E Base Amount” means $1,000 per share, plus any accrued but unpaid dividends, whether or not declared by the Company’s board of directors, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series E Preferred Stock.

In the event of a liquidation, dissolution or winding up of the Company, the holders of the Series E Preferred Stock will be entitled to receive, after satisfaction of liabilities to creditors and subject to the rights of holders of any senior securities, but before any distribution of assets is made to holders of common stock or any other junior securities, the Series E Base Amount plus (without duplication) any accrued and unpaid dividends.

In the first quarter of 2020, $59.9 million of the Company’s 2022 Notes were exchanged for common stock in private exchange transactions.

Additionally, in the second quarter of 2020, the Company restructured its outstanding debt by completing a $100.0 million registered public offering (the “Offering”) of 2025 Notes and also entered into privately-negotiated Exchange Agreements, pursuant to which an aggregate of $45.0 million in principal amount of the 2022 Notes were exchanged for an aggregate of $32.0 million in cash and $80.4 million in principal amount of the 2025 Notes (the “Private Exchange Transactions”).

The Company also used a portion of the proceeds from the Offering to repay in full our previous term loan.

In the third quarter of 2020, the Company redeemed the remaining $2,000 principal amount of the 2022 Notes.

As of December 31, 2020, the Company’s outstanding debt primarily consisted of $166.9 million in principal amount of 2025 Notes.

Additionally, on January 25, 2021, the Company entered into an Equity Distribution Agreement with Canaccord Genuity LLC (the “Agent”), pursuant to which the Company may offer and sell, from time to time, through or to the Agent, up to $40.0 million of shares of its common stock (the “ATM Offering”) pursuant to the Company’s Registration Statement on Form S-3ASR (File No.

333-238057), which was filed with the Securities and Exchange Commission on May 7, 2020, and the 424(b) prospectus supplement relating to the ATM Offering dated January 25, 2021.

In January 2021, the Company sold 1,516,073 shares of common stock, at a public offering price of $20.11 per share, for net proceeds of $29.6 million, pursuant to the ATM Offering.

See Note 15, Subsequent Events .

The Company has a history of operating and net losses and overall usage of cash from operating and investing activities.

The Company’s management believes that its cash and cash equivalents, together with anticipated cash flows from operations, will be sufficient to meet its cash flow needs for the next twelve months from the filing date of this report.

The Company’s ability to attain more profitable operations and continue to generate positive cash flow is dependent upon achieving a level and mix of revenues adequate to support its evolving cost structure.

If events or circumstances occur such that the Company does not meet its operating plan as expected, or if the Company becomes obligated to pay unforeseen expenditures as a result of ongoing litigation, the Company may be required to raise capital, reduce planned research and development activities, incur additional restructuring charges or reduce other operating expenses which could have an adverse impact on its ability to achieve its intended business objectives.

The Company’s liquidity could be impaired if there is any interruption in its business operations, a material failure to satisfy its contractual commitments or a failure to generate revenue from new or existing products.

There can be no assurance that any required or desired restructuring or financing will be available on terms favorable to the Company, or at all.

Additionally, the Company is uncertain of the full extent to which the COVID-19 pandemic will impact the Company’s business, operations and financial results.

We have a history of operating and net losses and overall usage of cash from operating and investing activities.

Our management believes that our cash and cash equivalents, together with anticipated cash flows from operations, will be sufficient to meet our cash flow needs for the next twelve months from the filing date of this report.

Our ability to attain more profitable operations and continue to generate positive cash flow is dependent upon achieving a level and mix of revenues adequate to support our evolving cost structure.

If events or circumstances occur such that we do not meet our operating plan as expected, or if we become obligated to pay unforeseen expenditures as a result of ongoing litigation, we may be required to raise capital, reduce planned research and development activities, incur additional restructuring charges or reduce other operating expenses which could have an adverse impact on our ability to achieve our intended business objectives.

Our liquidity could be compromised if there is any interruption in our business operations, a material failure to satisfy our contractual commitments or a failure to generate revenue from new or existing products.

There can be no assurance that any required or desired restructuring or financing will be available on terms favorable to us, or at all.

Ultimately, our ability to attain profitability and to generate positive cash flow is dependent upon achieving a level of revenues adequate to support our evolving cost structure and increasing working capital needs.

If events or circumstances occur such that we do not meet our operating plan as expected, we may be required to raise additional capital, reduce planned research and development activities, incur additional restructuring charges or reduce other operating expenses which could have an adverse impact on our ability to achieve our intended business objectives.

There can be no assurance that any required or desired restructuring or financing will be available on terms favorable to us, or at all.

If additional funds are raised by the issuance of equity securities, Company stockholders could experience dilution of their ownership interests and securities issued may have rights senior to those of the holders of the Company’s common stock.

If additional funds are raised by the issuance of debt securities, we may be subject to additional limitations on our operations.

Additionally, we are uncertain of the full extent to which the COVID-19 pandemic will impact our business, operations and financial results.

Settlement Agreement

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Enterprises, Inc.

(“RER”) and its wholly-owned subsidiary and principal operating asset, Feeney Wireless, LLC (which has been renamed Inseego North America, LLC), the Company agreed to pay a total of $15.0 million in deferred purchase price in five cash installments over a four-year period, beginning in March 2016.

The Company also agreed to provide earn-out consideration to the former stockholders of RER in the form of $6.1 million in cash over a four-year period, beginning in March 2016, and issuance of up to 2,920,000 shares of the Company’s common stock in three equal annual installments, beginning in March 2016, contingent upon retention of certain key personnel of RER.

On May 11, 2017, the Company initiated a lawsuit against the former stockholders of RER in the Court of Chancery of the State of Delaware seeking recovery of damages for civil conspiracy, fraud in the inducement, unjust enrichment and breach of fiduciary duty.

(“RER”) and its wholly-owned subsidiary and principal operating asset, Feeney Wireless, LLC (which has been renamed Inseego North America, LLC), we agreed to pay a total of $15.0 million in deferred purchase price in five cash installments over a four-year period, beginning in March 2016.

We also agreed to provide earn-out consideration to the former stockholders of RER in the form of $6.1 million in cash over a four-year period, beginning in March 2016, and issuance of up to 2,920,000 shares of our common stock in three equal annual installments, beginning in March 2016, contingent upon retention of certain key personnel of RER.

On May 11, 2017, we initiated a lawsuit against the former stockholders of RER in the Court of Chancery of the State of Delaware seeking recovery of damages for civil conspiracy, fraud in the inducement, unjust enrichment and breach of fiduciary duty.

On January 16, 2018, the former stockholders of RER filed an answer and counterclaim in the matter seeking recovery of certain deferred and earn-out payments allegedly owed to them by the Company in connection with the Company’s acquisition of RER.

On July 26, 2018, the Company and the former stockholders of RER entered into a mutual general release and settlement agreement (the “Settlement Agreement”) pursuant to which the parties agreed to release all claims against each other and the Company agreed to (i) pay the former stockholders of RER $1.0 million in cash by August 17, 2018, (ii) immediately instruct its transfer agent to permit the transfer or sale of 973,333 shares of the Company’s common stock that the Company had issued to the former stockholders of RER in March 2017, (iii) immediately issue 500,000 shares of the Company’s common stock to the former stockholders of RER, (iv) within 12 months following the execution of the Settlement Agreement, deliver to the former stockholders of RER an additional $1.0 million in cash, common stock, or a combination thereof, at the Company’s option, (v) within 24 months following the execution of the Settlement Agreement deliver to the former stockholders of RER an additional $1.0 million in cash, common stock, or a combination thereof, at the Company’s option, and (vi) file one or more registration statements with respect to the resale of the shares of the Company’s common stock issued to the former stockholders of RER pursuant to the Settlement Agreement.

On July 26, 2018, the Company and the former stockholders of RER entered into a mutual general release and settlement agreement (the “Settlement Agreement”) pursuant to which the parties agreed to release all claims against each other and we agreed to (i) pay the former stockholders of RER $1.0 million in cash by August 17, 2018, (ii) immediately instruct our transfer agent to permit the transfer or sale of 973,333 shares of the Company’s common stock that the Company had issued to the former stockholders of RER in March 2017, (iii) immediately issue 500,000 shares of the Company’s common stock to the former stockholders of RER, (iv) within 12 months following the execution of the Settlement Agreement, deliver to the former stockholders of RER an additional $1.0 million in cash, common stock, or a combination thereof, at the Company’s option, (v) within 24 months following the execution of the Settlement Agreement deliver to the former stockholders of RER an additional $1.0 million in cash, common stock, or a combination thereof, at the Company’s option, and (vi) file one or more registration statements with respect to the resale of the shares of the Company’s common stock issued to the former stockholders of RER pursuant to the Settlement Agreement.

On July 24, 2020, the Company issued 89,928 shares in satisfaction of all remaining liabilities under the Settlement Agreement.

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Year Ended December 31,

Net cash provided by (used in) operating activities $ 20,050 $ (17,999)

Net cash used in investing activities (34,713) (28,213)

2021 2020 2019

Net cash (used in) provided by operating activities $ (25,212) $ 20,050 $ (17,999)

Net cash provided by (used in) investing activities 6,078 (34,713) (28,213)

Net cash provided by financing activities 29,921 42,081 27,469

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Cash, cash equivalents and restricted cash, beginning of period 40,015 12,074 31,076

Cash, and cash equivalents, end of period $ 40,015 $ 12,074

Cash, cash equivalents and restricted cash, end of period $ 49,812 $ 40,015 $ 12,074

Operating activities.

Net cash provided by operating activities was $20.1 million for the year ended December 31, 2020 compared to net cash used in operating activities of $18.0 million for the same period in 2019.

Net cash provided by operating activities for the year ended December 31, 2020 was primarily attributable to the net cash provided by changes in working capital, non-cash loss on debt conversion and extinguishment, a non-cash fair value adjustment on derivative instrument, depreciation and amortization, including the amortization of debt discount and debt issuance costs, and share-based compensation expense, offset by net losses incurred during the period.

Net cash used in operating activities was $25.2 million for the year ended December 31, 2021 compared to net cash provided by operating activities of $20.1 million for the same period in 2020.

Net cash used in operating

activities for the year ended December 31, 2021 was primarily attributable to the net cash used by changes in working capital, and the adjustments to the net loss such as share-based compensation expense, depreciation and amortization, including the amortization of debt discount and debt issuance costs, partially offset by the gain on sale of Ctrack South Africa and a non-cash fair value adjustment on derivative instrument .

Net cash provided by operating activities for the year ended December 31, 2020 was primarily attributable to non-cash charges for depreciation and amortization, including the amortization of debt discount and debt issuance costs, and share-based compensation expense as add backs to the net loss incurred during the period.

Net cash used in operating activities for the year ended December 31, 2019 was primarily attributable to the net losses incurred during the period, partially offset by non-cash charges for depreciation and amortization, including the amortization of debt discount and debt issuance costs, and share-based compensation expense.

Investing activities.

Net cash used in investing activities during the year ended December 31, 2020 was $34.7 million compared to $28.2 million used in investing activities for the same period in 2019.

Net cash provided by investing activities during the year ended December 31, 2021 was $6.1 million compared to $34.7 million used in investing activities for the same period in 2020.

Cash provided by investing activities during the year ended December 31, 2021 was primarily from the proceeds from sale of Ctrack South Africa, partially offset by purchases of intangible assets and additions to capitalized software, as well as purchases of property, plant and equipment.

Cash used in investing activities during the year ended December 31, 2020 was primarily related to the purchases of property, plant and equipment and capitalization of certain costs related to the development of software to be sold in our products, in large part due to the increase in development in support of 5G products and services as well as certain internally developed software projects.

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Net cash provided by financing activities during the year ended December 31, 2021 was $29.9 million, compared to net cash provided by financing activities of $42.1 million for the same period in 2020.

Net cash provided by financing activities during the year ended December 31, 2020 was primarily related to net proceeds received from the Offering, the issuance of Series E Preferred Stock, the exercise of warrants to purchase common stock and stock option exercises and purchases through our employee stock purchase plan, partially offset by $32.0 million of cash paid to investors in the Private Exchange Transactions, $48.8 million of cash used to pay off our previous term loan and related extinguishment costs, the repurchase of Series E Preferred Stock, principal payments under finance lease obligations and taxes paid on vested restricted stock units.

Net cash provided by financing activities during the year ended December 31, 2021 was primarily related to net proceeds received from the ATM Offering, stock option exercises and purchases through our employee stock purchase plan, partially offset by principal payments under finance lease arrangements.

Net cash provided by financing activities during the year ended December 31, 2020 was primarily attributable to the proceeds received from the issuance and sale of Series E Preferred Stock and the exercise of warrants to purchase common stock, as well as proceeds received from stock option exercises and purchases made under the employee stock purchase plan, partially offset by net repayments of bank and overdraft facilities, principal payments under our previous term loan and taxes paid on vested restricted stock units.

Other Liquidity Needs

As of December 31, 2020, we had available cash and cash equivalents totaling $40.0 million and working capital of $38.4 million.

The Company’s liquidity could be compromised if there is any interruption in its business operations, a material failure to satisfy its contractual commitments or a failure to generate revenue from new or existing products.

Ultimately, the Company’s ability to attain profitability and to generate positive cash flow is dependent upon achieving a level of revenues adequate to support its evolving cost structure and increasing working capital needs.

If events or circumstances occur such that the Company does not meet its operating plan as expected, the Company may be required to raise additional capital, reduce planned research and development activities, incur additional restructuring charges or reduce other operating expenses which could have an adverse impact on the Company’s ability to achieve its intended business objectives.

There can be no assurance that any required or desired restructuring or financing will be available on terms favorable to the Company, or at all.

If additional funds are raised by the issuance of equity securities, Company stockholders could experience dilution of their ownership interests and

securities issued may have rights senior to those of the holders of the Company’s common stock.

If additional funds are raised by the issuance of debt securities, the Company may be subject to additional limitations on its operations.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Net cash provided by financing activities during the year ended December 31, 2019 was primarily attributable to the proceeds received from the issuance and sale of Series E Preferred Stock and the exercise of warrants to purchase common stock, as well as proceeds received from stock option exercises and purchases made under the employee stock purchase plan, partially offset by net repayments of bank and overdraft facilities, principal payments under our previous term loan and taxes paid on vested restricted stock units.

Contractual Obligations

In order to mitigate the risk of material shortages and price increases, we enter into non-cancellable purchase obligations with certain key contract manufacturers for the purchase of goods and services in the three to four quarters following the balance sheet date.

Our purchase obligations consist of agreements to purchase goods and services entered into in the ordinary course of business.

As of December 31, 2021, our material contractual obligations consisted of the following:

• $161.9 million in outstanding principal amount of 2025 Notes with required interest payments;

see Part IV Item 15 Note 6.

• operating lease liabilities that are included on our consolidated balance sheet;

see Part IV Item 15 Note 12.

• other non-cancellable unconditional purchase obligations;

see Part IV Item 15 Note 11.

Commitments and Contingencies .

Critical Accounting Policies and Estimates

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Actual results could differ from these estimates.

Revenue Recognition

Sources of Revenue

The Company generates revenue from a broad range of product sales including intelligent wireless hardware products for the worldwide mobile communications and IoT markets.

The Company’s products principally include intelligent 4G and 5G mobile hotspots, wireless gateways and routers for IoT applications, 1 Gigabit speed 4G LTE hotspots and USB modems, integrated telematics and mobile tracking hardware devices, which are supported by applications software and cloud services designed to enable customers to easily analyze data insights and configure and manage their hardware.

The Company classifies its revenues from the sale of its products and services into two distinct groupings, specifically IoT & Mobile Solutions and Enterprise SaaS Solutions.

Both IoT & Mobile Solutions and Enterprise SaaS Solutions revenues include any hardware and software required for the respective solution.

Net revenues by product grouping for the year ended December 31, 2020 and 2019 were as follows (in thousands):

IoT & Mobile Solutions $ 261,169 $ 160,873

Enterprise SaaS Solutions 52,663 58,623

Total $ 313,832 $ 219,496

Net revenues by geographic region based on shipping destination for the year ended December 31, 2020 and 2019 were as follows (in thousands):

United States and Canada $ 260,009 $ 158,756

South Africa 28,208 35,001

Other 25,615 25,739

Total $ 313,832 $ 219,496

IoT & Mobile Solutions .

The IoT & Mobile Solutions portfolio is comprised of end-to-end edge to cloud solutions including 4G LTE mobile broadband gateways, routers, modems, hotspots, HD quality VoLTE based wireless home phones, cloud management software and an advanced 5G portfolio of products (currently in various stages of development).

The solutions are offered under the MiFi brands for consumer and business markets, and under the Skyus brand for industrial IoT markets.

Enterprise SaaS Solutions .

The Enterprise SaaS Solutions consist of various subscription offerings to gain access to the Company’s Ctrack telematics platforms, which provide fleet vehicle, aviation ground vehicle and asset tracking and performance information, and other telematics applications, and the Company’s Device Management System (“DMS”), a hosted SaaS platform that helps organizations manage the selection, deployment and spend of their customers wireless assets, helping them save money on personnel and telecom expenses.

Contracts with Customers

The Company adopted Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) (as amended, “ASC 606”), effective January 1, 2018, using the modified retrospective method applied to those contracts which were not substantially completed as of January 1, 2018 .

ASC 606 provides guidance on recognizing revenue, including a five-step model to determine when revenue recognition is appropriate.

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

The Company routinely enters into a variety of agreements with customers, including quality agreements, pricing agreements and master supply agreements which outline the general commercial terms and conditions under which the Company does business with a specific customer, including shipping terms and pricing for the products and services that the Company offers.

The Company also sells to some customers solely based on purchase orders.

The Company has concluded for the vast majority of its revenues, that its contracts with customers are either a purchase order or the combination of a purchase order with a master supply agreement.

The Company determines revenue recognition through the following five steps:

1) identification of the contract, or contracts, with a customer;

2) identification of the performance obligations in the contract;

3) determination of the transaction price;

4) allocation of the transaction price to the performance obligations in the contract;

5) recognition of revenue when, or as, performance obligations are satisfied.

The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

The Company’s performance obligations are established when a customer submits a purchase order notification (in writing, electronically or verbally) for goods and services, and the Company accepts the order.

The Company identifies performance obligations as the delivery of the requested product or service in appropriate quantities and to the location specified in the customer’s contract and/or purchase order.

The Company generally recognizes revenue upon the satisfaction of these criteria when control of the product or service has been transferred to the customer at which time it has an unconditional right to receive payment.

The Company’s prices are fixed and have no history of being affected by contingent events that could impact the transaction price.

The Company does not offer price concessions and does not accept payment that is less than the price stated when it accepts the purchase order.

Revenue Recognition

Revenue is recognized upon transfer of control of products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services.

The Company enters into contracts that may include various combinations of products and services which are generally capable of being distinct and accounted for as separate performance obligations.

Hardware revenue from the sale of the Company’s IoT & Mobile Solutions devices is recognized when the Company transfers control to the customer, typically at the time when the product is delivered, shipped or installed at which time the title passes to the customer, and there are no further performance obligations with regards to the hardware device.

SaaS and Other Services.

SaaS subscription revenue is recognized over time on a ratable basis over the contract term beginning on the date that its service is made available to the customer.

Subscription periods range from monthly to multi-year, with the majority of contracts being one to three years.

Telematics includes a device which collects and transmits the information from the vehicle or other asset.

The Company’s customers have an option to purchase the monitoring device or lease it over the term of the contract.

If the customer purchases the hardware device, the Company recognizes the revenue at a point in time as discussed above in the hardware revenue recognition disclosure.

Prior to adoption of the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”), on January 1, 2019, if the customer chose to lease the monitoring device, the Company accounted for the monitoring device lease as an operating lease, recognized the revenue for the monitoring device lease over the term of the contract and recorded such revenue in accordance with the previous lease accounting guidance in ASC 840, Leases .

Under the new standard, because the Company’s rental asset lease contracts qualify as operating leases under ASC 842 and the contracts also include services to operate the underlying asset, and to maintain the asset, the Company has elected the practical expedient to combine the lease and the non-

lease components because the service is the predominant element in the eyes of the customer and the pattern of service delivery is the same for both elements.

The Company recognizes revenue over time on a ratable basis over the term of the contract.

Maintenance and support services revenue.

Periodically, the Company sells separately priced warranty contracts that extend beyond the Company’s base warranty period.

The separately priced service contracts range from 12 months to 36 months.

The Company typically receives payment at the inception of the contract and recognizes revenue as earned on a straight-line basis over the term of the contract.

Professional services revenue.

From time to time, the Company enters into special engineering design service agreements.

Revenues from engineering design services are designed to meet specifications of a particular product, and therefore do not create an asset with an alternative use.

The Company recognizes revenue based on the achievement of certain applicable milestones and the amount of payment the Company believes it is entitled to at the time.

With respect to revenue related to third party product sales or other arrangements that involve the services of another party, for which the Company does not control the sale or service and acts as an agent to the transaction, the Company recognizes revenue on a net basis.

The portion of the gross amount billed to customers that is remitted by the Company to another party is not reflected as revenue.

Multiple Performance Obligations

The Company’s contracts with customers may include commitments to transfer multiple products and services to a customer.

Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.

When hardware, software and services are sold in various combinations, judgment is required to determine whether each performance obligation is considered distinct and accounted for separately, or not distinct and accounted for together with other performance obligations.

In instances where the software elements included within hardware for various products are considered to be functioning together with non-software elements to provide the tangible product’s essential functionality, these arrangements are accounted for as a single distinct performance obligation.

Judgment is required to determine the stand-alone selling price (“SSP”) for each distinct performance obligation.

When available, the Company uses observable inputs to determine SSP.

In instances where SSP is not directly observable, such as when the Company does not sell the product or service separately, it determines the SSP based on a cost-plus model as market and other observable inputs are seldom present based on the proprietary nature of the Company’s products.

Contract Liabilities

Timing of revenue recognition may differ from the timing of invoicing to customers.

If customers are invoiced for subscription services in advance of the service period, deferred revenue liabilities, or contract liabilities, are recorded.

Deferred revenue liabilities, or contract liabilities, are also recorded when the Company collects payments in advance of performing the services.

Contract Assets

The Company capitalizes sales commissions earned by its sales force when they are considered to be incremental and recoverable costs of obtaining a contract with a customer.

These costs are deferred and then amortized over a period of benefit.

There were no significant amounts of assets recorded related to contract costs as of December 31, 2020.

Applying the practical expedient in paragraph 40-25-4 of ASC 340, Other assets and deferred costs , the Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less.

These costs are included in selling, general and administrative expenses.

Significant Judgments in the Application of the Guidance in ASC 606

Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.

The Company considered the performance obligations in its customer master supply agreements and determined that, for the majority of its revenue, the Company generally satisfies performance obligations at a point in time upon delivery of the product to the customer.

Revenues from the Company’s SaaS subscription services represent a single promise to provide continuous access to its software solutions and their processing capabilities in the form of a service through one of the Company’s data centers or a hosted data center.

As each day of providing access to the software is substantially the same, and the customer simultaneously receives and consumes the benefits as access is provided, the Company has determined that its subscription services arrangements include a single performance obligation comprised of a series of distinct services.

The Company’s SaaS subscriptions also include an unspecified volume of call center support and any remote system diagnostic and software upgrades as needed.

These services are combined with the recurring monthly subscription service since they are highly interrelated and interdependent.

Revenue from the Company’s subscription services is recognized over time on a ratable basis over the contract term beginning on the date that the service is made available to the customer.

Allowance for Doubtful Accounts Receivable

We provide an allowance for our accounts receivable for estimated losses that may result from our customers’ inability to pay.

We determine the amount of the allowance by analyzing known uncollectible accounts, aged receivables, economic conditions, historical losses, and changes in customer payment cycles and our customers’ creditworthiness.

Amounts later determined and specifically identified to be uncollectible are charged or written off against this allowance.

To minimize the likelihood of uncollectible accounts, we review our customers’ creditworthiness periodically based on credit scores generated by independent credit reporting services, our experience with our customers and the economic condition of our customers’ industries.

Material differences may result in the amount and timing of expense for any period if we were to make different judgments or utilize different estimates.

If the financial condition of our customers deteriorates resulting in an impairment of their ability to make payments, additional allowances may be required.

Inventories and Provision for Excess and Obsolete Inventory

Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value.

We review the components of our inventory and our inventory purchase commitments on a regular basis for excess and obsolete inventory based on estimated future usage and sales.

Write-downs in inventory value or losses on inventory purchase commitments depend on various items, including factors related to customer demand, economic and competitive conditions, technological advances or new product introductions by us or our customers that vary from our current expectations.

Whenever inventory is written down, a new cost basis is established, and the inventory is not subsequently written up if market conditions improve.

We believe that, when made, the estimates we use in calculating the inventory provision are reasonable and properly reflect the risk of excess and obsolete inventory.

If customer demand for our inventory is substantially less than our estimates, inventory write-downs may be required, which could have a material adverse effect on our consolidated financial statements.

Purchased Intangible Assets

In determining the fair value allocation for our acquisitions, we considered, among other factors, our intended uses of the acquired assets and the historical and estimated future demand for the acquired company’s products and services.

The estimated fair value of intangible assets is determined using the income approach.

The income approach relies on an estimation of the present value of the future monetary benefits expected to flow to the owner of an asset during its remaining economic life.

This approach requires a projection of the cash flow that the asset is expected to generate in the future.

The projected cash flow is discounted to its present value using a rate of return, or discount rate that accounts for the time value of money and the degree of risks inherent in the asset.

The expected future cash flow that is projected should include all of the economic benefits attributable to the asset, including the tax savings associated with the amortization of the intangible asset value over the tax life of the asset.

The income approach may take the form of a “relief from royalty” methodology, a cost savings methodology, a “with and without” methodology or excess earnings methodology, depending on the specific asset under consideration.

Research and development

Research and development expense consists primarily of personnel costs for our engineers engaged in the design and development of our products, software and technologies, including salary, bonus and share‐based compensation expense, project material costs, services, depreciation and amortization.

Such costs are charged to research and development expense as they are incurred, to the extent not capitalized as software development costs for external or internal use.

Software Development Costs for External Use

Software development costs for external use are expensed as incurred until technological feasibility has been established, at which time those costs are capitalized as intangible assets until the software is implemented into products sold to customers.

Capitalized software development costs are amortized on a straight-line basis over the estimated useful life.

Costs incurred to enhance existing software or after the implementation of the software into a product are expensed in the period they are

incurred and included in research and development expense in the consolidated statements of operations.

The establishment of technological feasibility and the ongoing assessment for recoverability of capitalized computer software development costs require considerable judgment by management with respect to certain external factors including, but not limited to, technological feasibility, anticipated future gross revenues, estimated economic life and changes in software and hardware technologies.

Capitalized software development costs are comprised primarily of salaries, other direct payroll-related costs and payments to third party vendors.

Capitalized software development costs are amortized on a straight-line basis over the estimated economic life.

Costs incurred to enhance existing software or after the software is available for general release to customers are expensed in the period they are incurred and included in research and development expense in the consolidated statements of operations.

The straight-line recognition method approximates the manner in which the expected benefit will be derived.

Also, at each balance sheet date, the unamortized capitalized software development costs for external use is compared to the net realizable value of that product by analyzing critical inputs such as costs necessary to bring the software to market, and life of the software.

At each balance sheet date, the unamortized capitalized software development costs for external use is compared to the net realizable value of that product by analyzing critical inputs such as expected future lifetime revenue.

The amount by which unamortized software costs exceed the net realizable value, if any, is recognized as a charge to amortization expense in the period it is determined.

Software Development Costs for Internal Use

Costs incurred in the preliminary stages of development are expensed as incurred and included in research and development expense in the consolidated statements of operations.

Once an application has reached the development stage, internal and external costs, if direct and incremental, are capitalized until the software is substantially complete and ready for its intended use.

Capitalization ceases upon completion of all substantial testing performed to ensure the product is ready for its intended use.

The Company also capitalizes costs related to specific upgrades and enhancements of internal-use software when it is probable that the expenditures will result in additional functionality.

Maintenance and training costs are expensed as incurred.

Capitalized internal-use software costs are recorded as part of intangible assets and are amortized on a straight-line basis over the estimated useful life of the software.

The Company tests these assets for impairment whenever events or circumstances occur that could impact their recoverability.

Long-Lived Assets

We periodically evaluate the carrying value of the unamortized balances of our long-lived assets, including property, plant and equipment, rental assets and intangible assets, which requires us to make assumptions and judgments regarding the carrying value of these assets.

We consider assets to be impaired if the carrying value may not be recoverable based upon our assessment of the following events or changes in circumstances:

the asset’s ability to continue to generate income from operations and positive cash flow in future periods;

loss of legal ownership or title to the asset;

significant changes in our strategic business objectives and utilization of the asset;

or significant negative industry or economic trends.

Indefinite-lived assets, including goodwill and in-process capitalized software development costs, are not amortized;

however, they are tested for impairment annually, and between annual tests, if certain events occur indicating that the carrying amounts may be impaired.

The Company performs an annual impairment review of indefinite-lived assets during the fourth fiscal quarter of each year, and more frequently if we believe indicators of impairment exist.

To review for impairment, we first assess qualitative factors to determine whether events or circumstances lead to a determination that it is more likely than not that the fair value of the Company’s reporting unit is less than its carrying amount.

The Company’s qualitative assessment of the recoverability of indefinite-lived assets was based on various macroeconomic, industry-specific, and company specific factors.

These factors include:

(i) industry or economic trends;

(ii) current, historical, or projected financial performance;

and (iii) the Company’s market capitalization.

After assessing the totality of events and circumstances, if the Company determines that it is not more likely than not that the fair value of the Company’s reporting unit is less than its carrying amount, no further assessment is performed.

If the Company determines that it is more likely than not that the fair value of the Company’s reporting unit is less than its carrying amount, the Company calculates the fair value of the reporting unit and compares the fair value to the reporting unit’s net book value.

Valuation of Goodwill

Our goodwill resulted from our acquisitions of RER and DigiCore Holdings Limited during 2015.

In accordance with the ASC 350, Intangibles—Goodwill and Other , we review goodwill for impairment at least annually, typically at the beginning of the fourth quarter of each year, and more frequently if events or changes in circumstances occur that indicate a potential reduction in the fair value of the reporting unit to which the goodwill has been assigned below its carrying value.

Convertible Debt

We evaluate embedded features within convertible debt that will be settled in shares upon conversion under ASC 815, Derivatives and Hedging (“ASC 815”), to determine whether the embedded feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings.

If an embedded derivative is bifurcated from share-settled convertible debt, we record the debt component at cost less a debt discount equal to the bifurcated derivative’s fair value.

We amortize the debt discount over the life of the debt instrument as additional non-cash interest expense utilizing the effective interest method.

The convertible debt and the derivative liability are presented in total on the consolidated balance sheet.

The derivative liability will be remeasured at each reporting period with changes in fair value recorded in the consolidated statements of operations in other income, net.

Derivative Financial Instruments

We evaluate stock warrants, debt instruments and other contracts to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for under the relevant sections of the Financial Accounting Standards Board (the “FASB”) ASC.

The result of this accounting treatment could be that the fair value of a financial instrument is classified as a derivative financial instrument and is marked-to-market at each balance sheet date and recorded as an asset or liability.

In the event that the fair value is recorded as an asset or liability, the change in fair value is recorded in the consolidated statements of operations as other income or other expense.

Upon conversion, exercise or expiration of a derivative financial instrument, the instrument is marked to fair value.

We are, from time to time, party to various legal proceedings arising in the ordinary course of business.

We will record a loss when we determine information available prior to the issuance of the financial statements indicates the loss is both probable and estimable.

Where a liability is probable and there is a range of estimated loss with no best estimate in the range, we record the minimum estimated liability related to the claim.

As additional information becomes available, we assess the potential liability related to our pending litigation and revise our estimates, if necessary.

Our policy is to expense litigation costs as incurred.

Share-based Compensation

We have stock incentive plans under which stock options and restricted stock units have been granted to employees, non-employee consultants and non-employee members of our Board of Directors.

We also have an employee stock purchase plan for all eligible employees.

Share-based payments, including grants of stock options, restricted stock units and stock purchase rights, are recognized in the financial statements based upon their respective grant date fair values.

We estimate the fair value of stock option awards and stock purchase rights on the date of grant using an option-pricing model.

The value of the portion of the award that is ultimately expected to vest is principally recognized as expense ratably over the requisite service periods.

We have estimated the fair value of stock options and stock purchase rights as of the date of grant or assumption using the Black-Scholes option-pricing model, which was developed for use in estimating the value of traded options that have no vesting restrictions and that are freely transferable.

The Black-Scholes model considers, among other factors, the expected life of the award and the expected volatility of our stock price.

We evaluate the assumptions used to value stock options and stock purchase rights on a quarterly basis.

Although the Black-Scholes model is an acceptable model, the fair values generated by the model may not be indicative of the actual fair values of our equity awards, as it does not consider other factors important to those awards to recipients, such as continued service, periodic vesting requirements and limited transferability.

Compensation cost associated with grants of restricted stock units are measured at fair value, which has historically been the closing price of our common stock on the date of the grant.

Quantitative and Qualitative Disclosures About Market Risk

Because we were a smaller reporting company, as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, for the fiscal year ended December 31, 2020 and are transitioning into large accelerated filer status, we are not required to provide the information required under this item.

Financial Statements and Supplementary Data

Our consolidated financial statements and the Reports of Independent Registered Public Accounting Firms appear in Part IV of this report.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

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