What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-03 compared with 2023-08-03 · 128 added, 101 removed, 244 unchanged (48% of the section changed)

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• our ability to grow the Internet of Things (“IoT”) and mobile portfolio outside of North America;

• our ability to grow our Ctrack/asset tracking solutions within North America;

• our ability to grow our Intelligent Edge/asset tracking solutions within North America;

• our dependence on a small number of customers for a substantial portion of our revenues;

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• the continuing impact of uncertain global economic conditions on the demand for our products;

• the impact of geopolitical instability on our business, including the current conflict between Russia and Ukraine;

• the impact of geopolitical instability on our business, including the current conflict between Russia and Ukraine as well as the ongoing conflict in the Middle East;

• the emergence of global public health emergencies, such as the outbreak of the 2019 novel coronavirus (2019-nCoV), known as “COVID-19”, which could extend lead times in our supply chain and lengthen sales cycles with our customers;

• direct and indirect effects of COVID-19 on our employees, customers and supply chain and the economy and financial markets;

• the impact of high inflation and rising interest rates;

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The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this and other reports we file with or furnish to the Securities and Exchange Commission (“SEC”), including the information in “Item 1A.

Risk Factors” included in Part I of our Annual Report on Form 10-K for the year ended December 31, 2022 (the “Form 10-K”).

Risk Factors” included in Part I of our Annual Report on Form 10-K for the year ended December 31, 2022 (as amended, the “Form 10-K”).

If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate.

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Integrated telematics and asset tracking devices are provided as part of our integrated SaaS solutions.

We sell SaaS, software and services solutions across multiple vertical markets, including fleet management, vehicle telematics, stolen vehicle recovery, asset tracking, monitoring, business connectivity and subscription management.

Our SaaS delivery platforms include our telematics and asset tracking and management platforms, which provide fleet, vehicle, aviation, municipalities, healthcare, utilities asset and other telematics applications.

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The platforms are flexible and support both on-premise server or cloud-based deployments and are the basis for the delivery of a wide range of IoT services in multiple industries.

We classify our revenues from the sale of our 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.

We classify our revenues from the sale of our products and services into two distinct groupings, specifically IoT & Mobile Solutions (including DMS Subscribe revenue) and Enterprise SaaS Solutions (mainly Intelligent Edge business) .

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

Factors Which May Influence Future Results of Operations

Net Revenues.

We believe that our future net revenues may be influenced by a number of factors including:

We believe that our future results of operations may be influenced by a number of factors including:

• economic environment and related market conditions such as inflation;

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• product pricing;

• the impact of the COVID-19 pandemic on our business;

• changes in technologies.

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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.

The demand environment for our 5G products during the three and six months ended June 30, 2023 was consistent with our expectations.

However, we have recently experienced lower sales of LTE gigabit hotspots within IoT & Mobile Solutions as COVID-19 pandemic demand has eased.

The demand environment for our 5G products during the three and nine months ended September 30, 2023 was consistent with our expectations.

However, we have recently experienced lower sales of LTE gigabit hotspots within IoT & Mobile Solutions as we transition from 4G products to 5G product offerings.

The macroeconomic environment continues to remain uncertain and the demand for our products in prior years may not be sustainable for the long term.

We will continue to monitor the implications of the COVID-19 pandemic on our business, as well as our customers’ and suppliers’ businesses.

The net realizable value of inventory is impacted primarily by demand for our products, which are influenced by these factors.

The inflationary pressures impacting the global supply chain could potentially increase the cost of net revenues in the current and future years.

Although general and administrative expenses are not directly related to revenue levels, certain expenses, such as legal expenses and provisions for bad debts, may cause significant volatility in future general and administrative expenses, which may, in turn, impact net revenue levels.

As part of our business strategy, we may review acquisition or divestiture opportunities that we believe would be advantageous or complementary to the development of our business.

Given our current cash position and recent losses, any additional acquisitions we make would likely involve issuing stock or drawing on our Credit Facility in order to provide the purchase consideration for the acquisitions.

If we make any additional acquisitions, we may incur substantial expenditures in conjunction with the acquisition process and the subsequent integration of any acquired business, products, technologies or personnel.

Key Components of Revenues and Expenses

Net Revenues .

We classify our revenues from the sale of our 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.

Cost of Net Revenues .

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Also included in cost of net revenues are costs related to inventory adjustments, as well as any write downs for excess and obsolete inventory and abandoned product lines.

Inventory adjustments are impacted primarily by demand for our products, which is influenced by the factors discussed above.

The inflationary pressures impacting the global supply chain could potentially increase the cost of net revenues in the current and future years.

Operating Costs and Expenses .

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Other marketing initiatives include public relations, seminars and co-branding with partners.

General and administrative expenses include primarily corporate functions such as accounting, human resources, legal, administrative support and professional fees.

General and administrative expenses include primarily salary and employee-related costs for executives and corporate functions such as accounting, human resources, legal, administrative support and professional fees.

This category also includes the expenses needed to operate as a publicly-traded company, including compliance with the Sarbanes-Oxley Act of 2002, as amended, SEC filings, stock exchange fees and investor relations expense.

As part of our business strategy, we may review acquisition or divestiture opportunities that we believe would be advantageous or complementary to the development of our business.

Given our current cash position and recent losses, any additional acquisitions we make would likely involve issuing stock or drawing on our revolving credit facility in order to provide the purchase consideration for the acquisitions.

If we make any additional acquisitions, we may incur substantial expenditures in conjunction with the acquisition process and the subsequent assimilation of any acquired business, products, technologies or personnel.

Critical Accounting Policies and Estimates

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The accounting principles used in preparing our unaudited condensed consolidated financial statements conform in all material respects to accounting principles generally accepted in the U.S.

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.

Inbound shipping and handling costs are classified as a component of cost of net revenues in the consolidated statements of operations.

The valuation of inventory requires significant judgment and estimates, including evaluating the need for any adjustments to net realizable value related to excess or obsolete inventory to ensure that the inventory is reported at the lower of cost or net realizable value.

The Company reviews the components of its inventory and its 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 the Company or its customers that vary from its current expectations.

Results of Operations

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Net revenues .

Net revenues for the three months ended June 30, 2023 were $53.6 million, compared to $61.9 million for the same period in 2022.

Net revenues for the three months ended September 30, 2023 were $48.6 million, compared to $69.2 million for the same period in 2022.

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

Three Months Ended

June 30, Change

September 30, Change

Product Category 2023 2022 $ %

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IoT & Mobile Solutions.

The $8.6 million decrease in IoT & Mobile Solutions net revenues over the same period in 2022 is primarily due to decreases in our carrier offerings and lower sales of LTE gigabit hotspots as the COVID-19 pandemic demand eased, partially offset by sales of our second-generation and fourth-generation 5G hotspot related to our MiFi business (launched in later part of 2022).

The $21.3 million decrease in IoT & Mobile Solutions net revenues over the same period in 2022 is primarily due to decreases in our carrier offerings and lower sales of LTE gigabit hotspots as we transition from 4G products to 5G product offerings, partially offset by sales of our second-generation and fourth-generation 5G hotspot related to our MiFi business (launched in later part of 2022).

Enterprise SaaS Solutions.

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Cost of net revenues.

Cost of net revenues for the three months ended June 30, 2023 was $34.7 million, or 64.7% of net revenues, compared to $44.0 million, or 71.1% of net revenues, for the same period in 2022.

Cost of net revenues for the three months ended September 30, 2023 was $46.7 million, or 96.1% of net revenues, compared to $51.2 million, or 74.0% of net revenues, for the same period in 2022.

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

Three Months Ended

June 30, Change

September 30, Change

Product Category 2023 2022 $ %

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IoT & Mobile Solutions.

The $8.9 million decrease in IoT & Mobile Solutions cost of net revenues over the same period in 2022 is primarily a result of lower sales of LTE gigabit hotspots.

The $4.6 million decrease in IoT & Mobile Solutions cost of net revenues over the same period in 2022 is primarily a result of lower sales of LTE gigabit hotspots, offset by increase in inventory and contract manufacturer reserves as further described below.

Enterprise SaaS Solutions.

The $0.4 million decrease in Enterprise SaaS Solutions cost of net revenues over the same period in 2022 is primarily due to reduced costs associated with providing our recurring rental and subscription services.

The $0.1 million increase in Enterprise SaaS Solutions cost of net revenues over the same period in 2022 is primarily due to increased costs associated with providing our recurring rental and subscription services.

Gross profit.

Gross profit for the three months ended June 30, 2023 was $18.9 million, or a gross margin of 35.3%, compared to $17.9 million, or a gross margin of 28.9%, for the same period in 2022.

The increase in gross profit is primarily

due to increase in revenue from Enterprise SaaS Solutions, reduced costs associated with providing our recurring rental and subscription services, and various initiatives to improve efficiencies in production.

Gross profit for the three months ended September 30, 2023 was $1.9 million, or a gross margin of 3.9%, compared to $18.0 million, or a gross margin of 26.0%, for the same period in 2022.

The decrease in gross profit is primarily due to an increase in inventory and contract manufacturer reserves and decrease in revenue from IoT and Mobile Solutions, offset by increase in revenue from Enterprise SaaS Solutions, reduced costs associated with providing our recurring rental and subscription services, and various initiatives to improve efficiencies in production.

As discussed in Note 2 Financial Statement Details in the condensed consolidated financial statements , in the third quarter of the current fiscal year , the Company recorded a write-down of $6.8 million to reflect inventories at net realizable value in addition to $1.3 million write-off of capitalized inventory order fees.

Further, management accrued an additional $6.3 million in contract manufacturing liabilities (included in a ccrued expenses and other current liabilities ) related to excess materials at the contract manufacturers’ sites.

All of these charges were recorded in cost of revenues during the three months ended September 30, 2023 and thereby negatively impacted Gross Profit.

Additionally, the Company recognized a $0.6 million write-down of capitalized software costs related to the products that had carrying value in excess of their net realizable value (discussed separately under operating costs and expenses below).

Management’s analysis was based on meaningful new information that became available during the third quarter of the current fiscal year, updated sales projections and other dynamics in the market.

Operating costs and expenses.

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

Three Months Ended June 30, Change

Three Months Ended September 30, Change

Operating costs and expenses 2023 2022 $ %

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Amortization of purchased intangible assets 424 433 (9) (2.1)

Write-down of capitalized software 611 — 611 100.0

Total $ 20,247 $ 29,865 $ (9,618) (32.2)

Research and development expenses.

Research and development expenses for the three months ended June 30, 2023 were $10.0 million, or 18.7% of net revenues, compared to $13.6 million, or 22.0% of net revenues, for the same period in 2022.

Research and development expenses for the three months ended September 30, 2023 were $9.0 million, or 18.4% of net revenues, compared to $15.4 million, or 22.3% of net revenues, for the same period in 2022.

The decrease in research and development expenses was primarily due to fewer new projects undertaken during the current period.

Sales and marketing expenses.

Sales and marketing expenses for the three months ended June 30, 2023 were $6.0 million, or 11.2% of net revenues, compared to $7.7 million, or 12.5% of net revenues, for the same period in 2022.

The decrease in sales and marketing expenses was primarily due to lower consulting costs and reduction in sales headcount compared to the same period in 2022.

Sales and marketing expenses for the three months ended September 30, 2023 were $5.4 million, or 11.0% of net revenues, compared to $8.3 million, or 12.0% of net revenues, for the same period in 2022.

The decrease in sales and marketing expenses was primarily due to lower professional fees and reduction in sales headcount compared to the same period in 2022.

General and administrative expenses.

General and administrative expenses for the three months ended June 30, 2023 were $5.8 million, or 10.7% of net revenues, compared to $6.1 million, or 9.9% of net revenues, for the same period in 2022.

The decrease in general and administrative expense was primarily due to decrease in share-based expense due to lower RSU bonus released during the three months ended June 30, 2023 compared to the same period in 2022.

General and administrative expenses for the three months ended September 30, 2023 were $4.9 million, or 10.1% of net revenues, compared to $5.7 million, or 8.3% of net revenues, for the same period in

The decrease in general and administrative expense was primarily due to decrease in share-based compensation expense due to lower RSU bonus released during the three months ended September 30, 2023 compared to the same period in 2022.

Amortization of purchased intangible assets.

Amortization of purchased intangible assets for each of the three months ended June 30, 2023 and 2022 was $0.4 million.

Amortization of purchased intangible assets for each of the three months ended September 30, 2023 and 2022 was $0.4 million.

Write down of capitalized software.

Write down of capitalized software for the three months ended September 30, 2023 and 2022 was $0.6 million and $0, respectively.

This write down was primarily due to lower sales demand for some of our products as also discussed in the Gross Profit section above.

Other (expense) income.

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

Three Months Ended June 30, Change

Three Months Ended September 30, Change

Other (expense) income 2023 2022 $ %

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Interest expense, net.

The $0.4 million increase in interest expense, net over the same period in 2022 was primarily due to the Credit Agreement (as defined below) which commenced in the second half of 2022.

The $0.9 million increase in interest expense, net over the same period in 2022 was primarily due to the Credit Agreement (as defined below) which commenced in the second half of 2022 and higher interest rates in 2023.

Other (expense) income, net.

The $1.6 million increase in other income, net over the same period in 2022 is primarily due to foreign currency exchange gains in the current period.

The $1.2 million decrease in other expenses, net over the same period in 2022 is primarily due to less foreign currency exchange losses in the current period.

Income tax provision (benefit).

Income tax provision for the three months ended June 30, 2023 and 2022 was a provision of $0.3 million and a benefit of $0.3 million, respectively.

This $0.6 million increase in income tax expense was driven by an increase in pre-tax profits at certain foreign subsidiaries for the current year period compared to a loss in the prior year period.

Income tax for the three months ended September 30, 2023 and 2022 was a benefit of less than $0.1 million and a provision of less than $0.1 million, respectively.

This $0.1 million decrease in income tax expense was driven by an decrease in pre-tax profits at certain foreign subsidiaries for the current year period compared to a loss in the prior year period.

Series E preferred stock dividends.

During each of the three months ended June 30, 2023 and 2022, we recorded dividends of $0.7 million, on our Fixed-Rate Cumulative Perpetual Preferred Stock, Series E, par value $0.001 per share (the “Series E Preferred Stock”).

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

During the three months ended September 30, 2023 and 2022, we recorded dividends of $0.8 million and $0.7 million respectively, on our Fixed-Rate Cumulative Perpetual Preferred Stock, Series E, par value $0.001 per share (the “Series E Preferred Stock”).

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Net revenues .

Net revenues for the six months ended June 30, 2023 were $104.4 million, compared to $123.2 million for the same period in 2022.

Net revenues for the nine months ended September 30, 2023 were $152.9 million, compared to $192.4 million for the same period in 2022.

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

Six Months Ended

June 30, 2023 Change

Nine Months Ended

September 30, 2023 Change

Product Category 2023 2022 $ %

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IoT & Mobile Solutions.

The $19.5 million decrease in IoT & Mobile Solutions net revenues over the same period in 2022 is primarily due to decreases in our carrier offerings and lower sales of LTE gigabit hotspots as the COVID-19 pandemic demand eased, partially offset by sales of our second-generation and fourth-generation 5G hotspot related to our MiFi business (launched in later part of 2022), sales from our expanding Enterprise FWA business and subscriber growth in our Enterprise and Inseego Subscribe businesses.

The $40.8 million decrease in IoT & Mobile Solutions net revenues over the same period in 2022 is primarily due to decreases in our carrier offerings and lower sales of LTE gigabit hotspots as we transition from 4G products to 5G product offerings, partially offset by sales of our second-generation and fourth-generation 5G hotspot related to our MiFi business (launched in later part of 2022), sales from our expanding Enterprise FWA business and subscriber growth in our Enterprise and Inseego Subscribe businesses.

Enterprise SaaS Solutions.

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Cost of net revenues.

Cost of net revenues for the six months ended June 30, 2023 was $67.3 million, or 64.5% of net revenues, compared to $90.1 million, or 73.1% of net revenues, for the same period in 2022.

Cost of net revenues for the nine months ended September 30, 2023 was $114.0 million, or 74.5% of net revenues, compared to $141.3 million, or 73.4% of net revenues, for the same period in 2022.

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

Six Months Ended

June 30, 2023 Change

Nine Months Ended

September 30, 2023 Change

Product Category 2023 2022 $ %

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IoT & Mobile Solutions.

The $22.1 million decrease in IoT & Mobile Solutions cost of net revenues over the same period in 2022 is primarily is a result of lower sales of LTE gigabit hotspots.

The $26.8 million decrease in IoT & Mobile Solutions cost of net revenues over the same period in 2022 is primarily is a result of lower sales of LTE gigabit hotspots, offset by increase in inventory and contract manufacturer reserves as further described below.

Enterprise SaaS Solutions.

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Gross profit.

Gross profit for the six months ended June 30, 2023 was $37.1 million, or a gross margin of 35.5%, compared to $33.1 million, or a gross margin of 26.9%, for the same period in 2022.

The increase in gross profit is primarily due to increase in revenue from Enterprise SaaS Solutions, reduced costs associated with providing our recurring rental and subscription services, and various initiatives to improve efficiencies in production.

Gross profit for the nine months ended September 30, 2023 was $39.0 million, or a gross margin of 25.5%, compared to $51.1 million, or a gross margin of 26.6%, for the same period in 2022.

All of these charges were recorded in cost of revenues during the three months ended September 30, 2023 and thereby negatively impacted Gross Profit.

Management’s analysis was based on meaningful new information that became available during the third quarter of the current fiscal year, updated sales projections and other dynamics in the market.

Operating costs and expenses.

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

Six Months Ended

June 30, 2023 Change

Nine Months Ended

September 30, 2023 Change

Operating costs and expenses 2023 2022 $ %

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Amortization of purchased intangible assets 1,277 1,319 (42) (3.2)

Impairment of capitalized software 504 — 504 n/a

Write-down of capitalized software 1,115 — 1,115 n/a

Total $ 64,197 $ 94,806 $ (30,609) (32.3)

Research and development expenses.

Research and development expenses for the six months ended June 30, 2023 were $18.2 million , or 17.4% of net revenues, compared to $32.2 million, or 26.1% of net revenues, for the same period in 2022.

Research and development expenses for the nine months ended September 30, 2023 were $27.1 million , or 17.7% of net revenues, compared to $47.6 million, or 24.7% of net revenues, for the same period in 2022.

The decrease in research and development expenses was primarily due to fewer new projects undertaken during the current period.

Sales and marketing expenses.

Sales and marketing expenses for the six months ended June 30, 2023 were $12.6 million , or 12.1% of net revenues, compared to $17.5 million , or 14.2% of net revenues, for the same period in 2022.

The decrease in sales and marketing expenses was primarily due to lower consulting costs and reduction in sales headcount compared to the same period in 2022.

Sales and marketing expenses for the nine months ended September 30, 2023 were $18.0 million , or 11.8% of net revenues, compared to $25.8 million , or 13.4% of net revenues, for the same period in 2022.

The decrease in sales and marketing expenses was primarily due to lower professional fees and reduction in sales headcount compared to the same period in 2022.

General and administrative expenses.

General and administrative expenses for the six months ended June 30, 2023 were $11.8 million , or 11.3% of net revenues, compared to $14.4 million , or 11.7% of net revenues, for the same period in 2022.

The decrease in general and administrative expense was primarily due to decrease in share-based expense due to lower RSU bonus released during the six months ended June 30, 2023 compared to the same period in 2022.

General and administrative expenses for the nine months ended September 30, 2023 were $16.7 million , or 10.9% of net revenues, compared to $20.1 million , or 10.4% of net revenues, for the same period in 2022.

The decrease in general and administrative expense was primarily due to decrease in share-based compensation expense due to lower RSU bonus released during the nine months ended September 30, 2023 compared to the same period in 2022.

Amortization of purchased intangible assets.

Amortization of purchased intangible assets for each of the six months ended June 30, 2023 and 2022 was $0.9 million.

Impairment of capitalized software.

Impairment of capitalized software for the six months ended June 30, 2023 and 2022 was $0.5 million and $0, respectively.

The impairment was primarily due to lower sales demand for one of our products.

Amortization of purchased intangible assets for each of the nine months ended September 30, 2023 and 2022 was $1.3 million.

Write-down of capitalized software.

Write down of capitalized software for the nine months ended September 30, 2023 and 2022 was $1.1 million and $0, respectively.

The write-down was primarily due to lower sales demand for some of our products as also discussed in our Gross Profi t section above.

Other (expense) income.

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

Six Months Ended

June 30, 2023 Change

Nine Months Ended

September 30, 2023 Change

Other (expense) income 2023 2022 $ %

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Loss on debt conversion and extinguishment, net.

The loss on debt conversion and extinguishment, net for the six months ended June 30, 2023 and 2022 was $0 and $0.5 million, respectively.

The loss on debt conversion and extinguishment, net for the nine months ended September 30, 2023 and 2022 was $0 and $0.5 million, respectively.

This was a non-recurring event in 2022.

Interest expense, net.

The $0.6 million decrease in interest expense, net over the same period in 2022 was primarily a result of certain 2022 Notes debt extinguishments related adjustments, offset by loan interest incurred under the Credit Agreement (as defined below), recorded in the prior period.

The $0.3 million increase in interest expense, net over the same period in 2022 was primarily due to higher interest rates in 2023 and the Credit Agreement which commenced in the second half of 2022.

Other (expense) income, net.

The $2.8 million increase in other income, net over the same period in 2022 is primarily due to favorable changes in foreign exchange rates in the current period.

The $4.0 million increase in other income, net over the same period in 2022 was primarily due to favorable changes in foreign exchange rates in the current period.

Income tax provision (benefit).

Income tax provision for the six months ended June 30, 2023 and 2022 was a provision of $0.6 million and a benefit of $0.6 million, respectively.

Income tax provision (benefit) for the nine months ended September 30, 2023 and 2022 was a provision of $0.6 million and a benefit of $0.6 million, respectively.

This $1.2 million increase in income tax expense was driven by an increase in pre-tax profits at certain foreign subsidiaries for the current year period compared to a loss in the prior year period.

Series E preferred stock dividends.

During the six months ended June 30, 2023 and 2022, we recorded dividends of $1.5 million and $1.3 million, respectively, on our Fixed-Rate Cumulative Perpetual Preferred Stock, Series E, par value $0.001 per share (the “Series E Preferred Stock”).

During the nine months ended September 30, 2023 and 2022, we recorded dividends of $2.2 million and $2.0 million, respectively, on our Fixed-Rate Cumulative Perpetual Preferred Stock, Series E, par value $0.001 per share (the “Series E Preferred Stock”).

Liquidity and Capital Resources

Our principal sources of liquidity are our existing cash and cash equivalents and availability under our new revolving credit facility.

As of June 30, 2023, we had available cash and cash equivalents totaling $15.2 million and $14.2 million of excess availability under our revolving credit facility.

We also have an equity distribution agreement through which we may sell shares of our common stock, and as of June 30, 2023, there was approximately $3.5 million of cash remaining before underwriter fees and discounts that we may generate from such issuance.

Our principal sources of liquidity are our existing cash and cash equivalents and availability to borrow under our Credit Facility (as defined below).

As of September 30, 2023, we had available cash and cash equivalents totaling $18.9 million and $5.2 million of availability to borrow under our Credit Facility.

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, availability under our secured asset-backed revolving credit facility, and anticipated savings from ongoing cost reduction efforts, will be sufficient to meet our cash flow needs for the next twelve months from the filing date of this report.

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

restructuring charges or reduce other operating expenses which could have an adverse impact on our ability to achieve our intended business objectives.

Our management believes that our cash and cash equivalents, together with anticipated cash flows from operations, availability under our secured asset-backed Credit Facility, and anticipated savings from ongoing cost reduction efforts, will be sufficient to meet our cash flow needs for the next twelve months from the filing date of this report.

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 potential litigation, we may be required to raise capital, reduce planned research and development activities, incur 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.

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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.

Revolving Credit Facility

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On February 25, 2023, we entered into an amendment of the Credit Agreement with an effective date of December 15, 2022, which clarified certain terms within the Credit Agreement.

On May 2, 2023, we entered into a third amendment of the Credit Agreement which increased the borrowing base under the Credit Facility by $4.0 million, increased the minimum draw to $8.5 million, and modified certain covenants (as so amended, the “Amended Credit Agreement”).

On May 2, 2023, we entered into a third amendment of the Credit Agreement which increased the borrowing base under the Credit Facility by $4.0 million, increased the minimum borrowing amount for interest calculations to $8.5 million, and modified certain covenants (as so amended, the “Amended Credit Agreement”).

Availability under the Credit Facility is determined monthly by a Borrowing Base (as defined in the Amended Credit Agreement) comprised of a percentage of eligible accounts receivable and eligible inventory of the Borrowers.

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If the average outstanding amount for a preceding month is greater than $25 million, the Applicable Margin will be 4.5% for Base Rate loans and 5.50% for SOFR loans.

The Amended Credit Agreement contains a financial covenant whereby the Loan Parties shall not permit the consolidated Liquidity (as defined in the Credit Agreement) to be less than $10 million at any time.

The Credit Agreement also contains certain customary covenants, which include, but are not limited to, restrictions on indebtedness, liens, fundamental changes, restricted payments, asset sales, and investments, and places limits on various other payments.

We were in compliance with the financial covenants contained in the Amended Credit Agreement as of June 30, 2023.

As of June 30, 2023, we had outstanding borrowings of $3.3 million, a gross borrowing base of $17.5 million and excess availability of $14.2 million.

On May 2, 2023, in addition to the amendment to the Credit Agreement entered into as described above, South Ocean Funding, LLC and North Sound Ventures, LP (the “Participants”) collectively purchased a $4.0 million last-out subordinated participation interest in the Amended Credit Agreement (the “Participation Interest”) from the Lender pursuant to a Participation Agreement between the Participants and the Lender (the “Participation Agreement”).

In connection with the purchase of the Participation Interest, we agreed to pay the Participants an exit fee upon the earlier of (a) the scheduled maturity date of the Amended Credit Agreement, (b) the termination of the Lender’s commitment to make revolving loans prior to the scheduled maturity date of the Amended Credit Agreement, and (c) the early redemption of the Participants’ Participation Interest under the Participation Agreement (the earliest to occur of the foregoing, the “Exit Event”).

The aggregate exit fee payable to the Participants is equal to (i) 7.5% of the Participation Interest, if the Exit Event occurs on or before December 31, 2023, (ii) 10.0% of the Participation interest, if the Exit Event occurs between January 1, 2024 and June 30, 2024 and (iii) 12.5% of the Participation Interest, if the Exit Events occurs after June 30, 2024.

Further, the purchase of the Participation Interest granted an option for the Participants to purchase the subject revolving loan or to redeem its Participation Interest under certain circumstances.

South Ocean Funding, LLC is an affiliate of Golden Harbor, Ltd.

and North Sound Ventures, LP is an affiliate of North Sound Management, Inc.

As of the date hereof, each of Golden Harbor, Ltd.

and North Sound Management, Inc.

hold in excess of 5% of the Company’s outstanding common stock.

James Avery, a member of our Board of Directors, currently serves as Senior Managing Director of Tavistock Group, an affiliate of South Ocean Funding, LLC.

The Amended Credit Agreement contains a financial covenant whereby the Loan Parties shall not permit the consolidated Liquidity (as defined in the Amended Credit Agreement) to be less than $10 million at any time.

The Amended Credit Agreement also contains certain customary covenants, which include, but are not limited to, restrictions on indebtedness, liens, fundamental changes, restricted payments, asset sales, and investments, and places limits on various other payments.

We were in compliance with the financial covenants contained in the Amended Credit Agreement as of September 30, 2023.

As of September 30, 2023, we had no outstanding borrowings, excess availability (collateral value less lender reserves) of $10.2 million and availability to borrow of approximately $5.2 million under the Amended Credit Agreement.

On May 12, 2020, we completed a registered public offering of $100.0 million aggregate principal amount of our 3.25% convertible senior notes due 2025 (the “2025 Notes”) and issued $80.4 million principal amount of 2025 Notes in the privately negotiated exchange agreements that closed concurrently with the registered offering in May 2020.

As of June 30, 2023 and December 31, 2022, $161.9 million in principal amount of the 2025 Notes were outstanding.

As of September 30, 2023 and December 31, 2022, $161.9 million in principal amount of the 2025 Notes were outstanding.

Assuming no repurchases or conversions of the 2025 Notes prior to May 1, 2025, the entire principal balance of $161.9 million is due on May 1, 2025.

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333-238057), as filed with the SEC on May 7, 2020 and amended from time to time.

During the six months ended June 30, 2023 the Company sold 8,035,959 shares of common stock, at an average price of $0.75 per share, for net proceeds of $5.9 million, after deducting underwriter fees and discounts.

As of June 30, 2023, there were approximately $3.5 million of equivalent shares remaining available for sale under the ATM Offering.

D uring the nine months ended September 30, 2023, the Company sold 8,035,959 shares of common stock, at an average price of $0.75 per share, for net proceeds of $5.9 million, after deducting underwriter fees and discounts.

There was no ATM transactions during the quarter ended September 30, 2023.

Effective as of November 2, 2023 , the Equity Distribution Agreement was terminated by the Company, and there will be no further sales under the ATM Offering .

Contractual Obligations and Commitments

Our material contractual obligations are as follows:

Our material contractual obligations as of September 30, 2023, were follows:

• 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 June 30, 2023, our future payments under these noncancellable purchase obligations were approximately $49.7 million.

As of September 30, 2023, our future payments under these noncancellable purchase obligations were approximately $28.4 million.

• $161,898 in outstanding principal amount of 2025 Notes with required interest payments;

• $3.3 million in outstanding borrowings under the revolving Credit Facility;

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

There were no material changes in our other contractual obligations during the three months ended June 30, 2023.

There were no material changes in our other contractual obligations during the three months ended September 30, 2023.

Historical Cash Flows

The following table summarizes our unaudited condensed consolidated statements of cash flows for the periods indicated (in thousands):

Six Months Ended

Nine Months Ended

September 30,

Net cash provided by (used in) operating activities $ 22,403 $ (24,703)

Net cash used in investing activities (6,517) (10,445)

Net cash provided by (used in) financing activities 1,227 (1,317)

Net cash (used in) provided by financing activities (2,026) 1,483

Effect of exchange rates on cash (2,057) 1,916

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Operating activities.

Net cash provided by operating activities for the six months ended June 30, 2023 is primarily comprised of a $10.0 million net loss incurred during the period, net cash used for working capital of $5.8 million, partially offset by non-cash charges, including depreciation and amortization of $10.8 million, share-based compensation expense of $3.8 million, and amortization of debt discount and debt issuance costs of $1.0 million.

Net cash used in operating activities for the same period in 2022 is primarily comprised of a $37.6 million net loss and a $0.9 million non-cash gain attributable to the fair value adjustment on derivative instruments, which was offset by net cash provided from working capital of $10.9 million, and non-cash charges, including depreciation and amortization of $14.0 million share-based compensation expense of $13.5 million, $2.0 million of amortization of debt issuance and discount costs and other non-cash adjustments.

Net cash provided by operating activities for the nine months ended September 30, 2023 is primarily comprised of a $31.8 million net loss incurred during the period, net cash provided by changes in working capital of $20.5 million, partially offset by non-cash charges, including depreciation and amortization of $16.3 million, share-based compensation expense of $6.0 million, and amortization of debt discount and debt issuance costs of $2.0 million.

Net cash used in operating activities for the same period in 2022 is primarily comprised of a $53.3 million net loss and a $0.9 million non-cash gain attributable to the fair value adjustment on derivative instruments, which was offset by net cash provided by working capital of $12.4 million, and non-cash charges, depreciation and amortization of $20.9 million share-based compensation expense of $15.9 million, $2.5 million of amortization of debt issuance and discount costs and other non-cash adjustments.

Investing activities.

Net cash used in investing activities during the six months ended June 30, 2023 is primarily comprised of $4.4 million of c ash outflows related to the development of software in support of our 5G products and services and $0.2 million of property, plant and equipment purchases.

Net cash used in investing activities during the same period in 2022 is primarily comprised of $6.2 million of cash outflows related to the development of software in support of our 5G products and services and $1.1 million of property, plant and equipment purchases.

Net cash used in investing activities during the nine months ended September 30, 2023 is primarily comprised of $6.1 million of c ash outflows related to the development of software in support of our products and services and $0.4 million of property, plant and equipment purchases.

Net cash used in investing activities during the same period in 2022 is primarily comprised of $9.2 million of cash outflows related to the development of software in support of our products and services and $1.2 million of property, plant and equipment purchases.

Financing activities.

Net cash provided by financing activities during the six months ended June 30, 2023 is primarily comprised of $6.1 million in proceeds from public offering, partially offset by $4.6 million of cash outflow related to repayments of our revolving credit facility.

Net cash used in financing activities for the same period in 2022 is primarily comprised of $1.2 million in principal repayments of financed assets.

Net cash used in financing activities during the nine months ended September 30, 2023 is primarily comprised of $6.1 million in proceeds from the public offering, partially offset by $7.9 million of cash outflow related to repayments of our Credit Facility.

Net cash provided by financing activities for the same period in 2022 is primarily comprised of $4.5 million net borrowing of our Credit Facility, partially offset by $1.6 million in principal repayments of financed assets.

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-Q

Item 2. Management’s Discussion and Analysis