What changed in this filing

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Item 1. Financial Statements

2022-05-10 compared with 2021-11-12 · 144 added, 314 removed, 418 unchanged (52% of the section changed)

3 unchanged sentences

(Unaudited, in thousands, except par value)

September 30,

Current assets:

Cash and cash equivalents

Accounts receivable, net of allowances of $ 395 and $ 178 as of September 30, 2021

Restricted cash

Accounts receivable, net of allowances of $ 2,668 and $ 2,745 as of March 31, 2022

and December 31, 2021, respectively

7 unchanged sentences

Accounts payable

Contractual payment obligation

Financial liabilities, net of debt issuance costs of $ 0

and $ 59 as of September 30, 2021 and December 31, 2020, respectively

Operating lease liabilities

9 unchanged sentences

Stockholders' equity:

Series B convertible preferred stock, $ 0.001 par value:

Preferred stock, $ 0.001 par value:

10,000 shares authorized;

issued and outstanding as of September 30, 2021 and December 31, 2020

issued and outstanding as of March 31, 2022 and December 31, 2021

Common stock, $ 0.001 par value:

1 unchanged sentence

23,794 and 23,707 shares

issued and 22,178 and 18,055 shares outstanding as of September 30, 2021 and

issued and 22,300 and 22,230 shares outstanding as of March 31, 2022 and

December 31, 2021, respectively

Additional paid-in capital

Treasury stock, 1,463 and 1,395 shares as of September 30, 2021 and December 31, 2020,

Treasury stock, 1,494 and 1,477 shares as of March 31, 2022 and December 31, 2021,

Accumulated deficit

4 unchanged sentences

IDENTIV, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited, in thousands, except per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Cost of revenue

3 unchanged sentences

General and administrative

Decrease in fair value of earnout liability

Restructuring and severance

Total operating expenses

Income (loss) from operations

Loss from operations

Non-operating income (expense):

Interest expense, net

Gain on forgiveness of Paycheck Protection Program note

Gain on investment

Foreign currency losses, net

Income (loss) before income tax provision

Income tax provision

Net income (loss)

Other comprehensive income (loss):

Foreign currency gains, net

Loss before income tax benefit (provision)

Income tax benefit (provision)

Other comprehensive loss:

Foreign currency translation adjustment

Comprehensive income (loss)

Net income (loss) per common share:

Weighted average shares used in computing net

income (loss) per common share:

Comprehensive loss

Net loss per common share:

Weighted average common shares outstanding, basic and diluted

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

2 unchanged sentences

(Unaudited, in thousands)

Three Months Ended September 30, 2021

Convertible Preferred Stock

1 unchanged sentence

Stockholders'

Balances, June 30, 2021

Unrealized loss from foreign

currency translation adjustments

Issuance of common stock in connection

with vesting of stock awards

Stock-based compensation

Shares withheld in payment of taxes in

connection with net share settlement of

restricted stock units

Proceeds from exercise of stock options

Balances, September 30, 2021

Nine Months Ended September 30, 2021

Convertible Preferred Stock

Comprehensive

Stockholders'

Balances, December 31, 2020

3 unchanged sentences

with vesting of stock awards

Stock-based compensation

Shares withheld in payment of taxes in

connection with net share settlement of

restricted stock units

Issuance of common stock in connection

with warrant exercise

Issuance of common stock in connection with public offering

Proceeds from exercise of stock options

Balances, September 30, 2021

Three Months Ended September 30, 2020

Convertible Preferred Stock

Comprehensive

Stockholders'

Balances, June 30, 2020

Unrealized income from foreign

currency translation adjustments

Issuance of common stock in connection

with vesting of stock awards

Proceeds from exercise of

stock options

Stock-based compensation

2 unchanged sentences

restricted stock units

Balances, September 30, 2020

Nine Months Ended September 30, 2020

Issuance of common stock in connection with

warrant exercise

Balances, March 31, 2021

Convertible Preferred Stock

2 unchanged sentences

Balances, December 31, 2021

Unrealized income from foreign

Unrealized loss from foreign

currency translation adjustments

5 unchanged sentences

restricted stock units

Issuance of common stock in connection

with warrant exercise

Issuance of common stock in connection

with earnout liability

Issuance of shares to non-employees

Issuance of warrants

Balances, September 30, 2020

Balances, March 31, 2022

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

2 unchanged sentences

(Unaudited, in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by (used in)

Adjustments to reconcile net loss to net cash used in

operating activities:

Depreciation and amortization

Gain on forgiveness of Paycheck Protection Program note

Gain on investment

2 unchanged sentences

Stock-based compensation expense

Impairment of right-of-use operating lease assets

Decrease in fair value of earnout liability

Impairment of right-of-use operating lease asset

Changes in operating assets and liabilities:

5 unchanged sentences

Accrued expenses and other liabilities

Net cash provided by (used in) operating activities

Net cash used in operating activities

Cash flows from investing activities:

5 unchanged sentences

Repayments under revolving loan facility

Borrowings under East West Bank term loan

Repayments under East West Bank term loan

Proceeds from April 21 Funds promissory notes

Repayments of April 21 Funds promissory notes

Proceeds from the sale of common stock, net of issuance costs

Proceeds from Paycheck Protection Program note

Taxes paid related to net share settlement of restricted stock units

Proceeds from exercise of stock options

Net cash provided by financing activities

Effect of exchange rates on cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Net cash provided by (used in) financing activities

Effect of exchange rates on cash, cash equivalents, and restricted cash

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

Cash, cash equivalents, and restricted cash at beginning of period

Cash, cash equivalents, and restricted cash at end of period

Supplemental Disclosures of Cash Flow Information:

1 unchanged sentence

Taxes paid, net

Non-cash investing and financing activities:

Common stock issued to settle vendor liability

Common stock issued to settle earnout liability

Fair value of warrants issued in connection with financial liabilities

Reclassification of debt issuance costs to prepaid expenses and other current assets

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

1 unchanged sentence

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

March 31, 2022

Basis of Presentation

2 unchanged sentences

All intercompany balances and transactions have been eliminated in consolidation.

Certain reclassifications have been made to the fiscal year 2020 condensed consolidated financial statements to conform to the fiscal year 2021 presentation.

The reclassifications had no impact on net income (loss), total assets, total liabilities, or stockholders’ equity.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

4 unchanged sentences

In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the Company’s unaudited condensed consolidated financial statements have been included.

The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or any future period.

The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or any future period.

The unaudited condensed consolidated balance sheet as of December 31, 2021 has been derived from audited consolidated financial statements at that date, but does not include all disclosures required by U.S.

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Instead, these amendments are intended to clarify and improve operability of certain topics included within ASU 2016-13.

Additionally, ASU No.

2019-10 defers the effective date for the adoption of the new standard on credit losses for public filers that are considered small reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, which will be fiscal 2023 for the Company if it continues to be classified as a smaller reporting company.

In February 2020, the FASB issued ASU 2020-02, which provides guidance regarding methodologies, documentation, and internal controls related to expected credit losses.

2 unchanged sentences

Topic 326 requires a modified retrospective approach by recording a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption.

While the Company is currently evaluating the impact of Topic 326, the Company does not expect the adoption of the ASU to have a material impact on its consolidated financial statements.

In December 2019, FASB issued ASU 2019-12, Income Taxes (740), Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for incomes taxes by removing certain exceptions to the general principles in Topic 740 and amending existing guidance to improve consistent application.

ASU 2019-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020, with early adoption permitted.

The Company adopted this standard on January 1, 2022, and it did not have a material impact on the Company’s condensed consolidated financial statements.

10 unchanged sentences

The second performance obligation is to provide assurance that the product complies with its agreed-upon specifications and is free from defects in material and workmanship for a period of one to three years (i.e., assurance warranty).

The entire transaction price is allocated to the hardware product and is generally recognized as revenue at the time of delivery because the customer obtains control of the product at that point in time.

The Company has concluded that control generally transfers at that point in time because the customer has title to the hardware, physical possession, and a present obligation to pay for the hardware.

The entire transaction price is allocated to the hardware product and is generally recognized as revenue at the time of shipment because the customer obtains control of the product at that point in time.

The Company has concluded that control generally transfers at that point in time because the customer has title to the hardware, and a present obligation to pay for the hardware.

None of the transaction price is allocated to the assurance warranty component, as the Company accounts for these product warranty costs in accordance with Accounting Standards Codification (“ASC”) 460, Guarantees (“ASC 460”).

3 unchanged sentences

(1) the software licenses, and (2) the related updates and technical support.

The software license revenue is recognized upon delivery of the license to the customer, while the software updates and technical support revenue is recognized over the term of the support contract.

The software license revenue is recognized when the license is delivered to the customer or made available for download, while the software updates and technical support revenue is recognized over the term of the support contract.

Subscription Revenue — Subscription revenue consist of fees received in consideration for providing customers access to one or more of the Company’s software-as-a-service (“SaaS”) based solutions.

7 unchanged sentences

Support and maintenance contracts are typically billed at inception of the contract and recognized as revenue over the contract period, typically over a one-or three-year period.

Extended Hardware Warranties Revenue — Sales of the Company’s hardware products may also include optional extended hardware warranties, which typically provide assurance that the product will continue function as initially intended.

Extended hardware warranty contracts are typically billed at inception of the contract and recognized as revenue over the respective contract period, typically over one-to- two -year periods after the expiration of the original assurance warranty.

42 unchanged sentences

Total net revenue based on the disaggregation criteria described above is as follows (in thousands):

Three Months Ended September 30,

Europe and the Middle East

Nine Months Ended September 30,

Three Months Ended March 31,

Europe and the Middle East

5 unchanged sentences

The primary purpose of the Company’s invoicing terms is to provide customers with simplified and predictable ways of purchasing the Company’s products and services, not to receive financing from its customers.

Changes in deferred revenue during the nine months ended September 30, 2021 and September 30, 2020 were as follows (in thousands):

Nine Months Ended September 30,

Changes in deferred revenue during the three months ended March 31, 2022 and March 2021 were as follows (in thousands):

Three Months Ended March 31,

Deferred revenue, beginning of period

3 unchanged sentences

Unsatisfied Performance Obligations

Revenue expected to be recognized in future periods related to remaining performance obligations, excluding revenue pertaining to contracts that have an original expected duration of one year or less, and contracts where revenue is recognized as invoiced, was approximately $ 0.6 million as of September 30, 2021.

Since the Company typically invoices customers at contract inception, this amount is included in the deferred revenue balance.

As of September 30, 2021, the Company expects to recognize 23 % of the revenue related to these unsatisfied performance obligations during the remainder of 2021, 48 % during 2022, and 29 % thereafter.

Assets Recognized from the Costs to Obtain a Contract with a Customer

The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs to be longer than one year.

The Company has determined that certain sales incentive programs (i.e., commissions) meet the requirements to be capitalized.

Capitalized incremental costs related to contracts are amortized over the respective contract periods.

For the nine months ended September 30, 2021, total capitalized costs to obtain contracts were immaterial.

As of March 31, 2022, the Company expects to recognize 43 % of the revenue related to these unsatisfied performance obligations during the remainder of 2022, 30 % during 2023, and 27 % thereafter.

Fair Value Measurements

1 unchanged sentence

The classification of a financial asset or liability within the hierarchy is based upon the lowest level input that is significant to the fair value measurement.

Under ASC 820, Fair Value Measurement and Disclosures (“ASC 820”) , the fair value hierarchy prioritizes the inputs into three levels that may be used to measure fair value:

Under ASC 820, Fair Value Measurement and Disclosures , the fair value hierarchy prioritizes the inputs into three levels that may be used to measure fair value:

Level 1 – Quoted prices (unadjusted) for identical assets and liabilities in active markets;

2 unchanged sentences

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of September 30, 2021 and December 31, 2020, the only assets measured and recognized at fair value on a recurring basis were nominal cash equivalents.

As of September 30, 2021 and December 31, 2020, there were no liabilities measured and recognized at fair value on a recurring basis, other than contingent consideration related to prior acquisitions as of December 31, 2020 which had no fair value.

As of March 31, 2022 and December 31, 2021, the only assets measured and recognized at fair value on a recurring basis were nominal cash equivalents.

As of March 31, 2022 and December 31, 2021, there were no liabilities measured and recognized at fair value on a recurring basis.

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

2 unchanged sentences

For additional discussion of measurement criteria used in evaluating potential impairment involving goodwill and intangible assets, refer to Note 5, Goodwill and Intangible Assets .

As of September 30, 2021 and December 31, 2020, the Company had $ 348,000 of privately-held investments measured at fair value on a nonrecurring basis, which were classified as Level 3 assets due to the absence of quoted market prices and inherent lack of liquidity.

As of March 31, 2022 and December 31, 2021, the Company had $ 348,000 of privately-held investments measured at fair value on a nonrecurring basis, which were classified as Level 3 assets due to the absence of quoted market prices and inherent lack of liquidity.

The Company reviews its investments to identify and evaluate investments that have an indication of possible impairment.

1 unchanged sentence

The amount of privately-held investments is included in other assets in the accompanying condensed consolidated balance sheets.

In the third quarter of 2021, the Company received proceeds of approximately $ 611,000 from the acquisition of a private company that the Company had invested in, which had been fully impaired and had no carrying value.

As of September 30, 2021 and December 31, 2020, there were no liabilities that are measured and recognized at fair value on a non-recurring basis.

As of March 31, 2022 and December 31, 2021, there were no liabilities that are measured and recognized at fair value on a non-recurring basis.

Assets and Liabilities Not Measured at Fair Value

The carrying amounts of the Company's accounts receivable, prepaid expenses and other current assets, accounts payable, and other accrued liabilities approximate fair value due to their short maturities.

The carrying value of the Company’s financial liabilities approximates fair value based upon borrowing rates currently available to the Company for loans with similar terms.

Goodwill and Intangible Assets

2 unchanged sentences

Currency translation adjustment

Balance as of September 30, 2021

Balance as of March 31, 2021

Balance as of December 31, 2021

Currency translation adjustment

Balance as of March 31, 2022

In accordance with ASC 350, Intangibles – Goodwill and Other , the Company tests goodwill for impairment on an annual basis, in the fourth quarter, or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable.

4 unchanged sentences

however, if the Company concludes otherwise, then the Company will perform the quantitative impairment test which compares the estimated fair value of the reporting unit to its carrying value, including goodwill.

If the carrying amount of the reporting unit is in excess of its fair value, an impairment loss would be recorded in the consolidated statement of comprehensive income (loss).

During the nine months ended September 30, 2021 and 2020, the Company noted no indicators of goodwill impairment and concluded no further testing was necessary.

If the carrying amount of the reporting unit is in excess of its fair value, an impairment loss would be recorded in the condensed consolidated statement of comprehensive loss.

During the three months ended March 31, 2022 and 2021, the Company noted no indicators of goodwill impairment and concluded no further testing was necessary.

Intangible Assets

2 unchanged sentences

Amortization period (in years)

Gross carrying amount as of September 30, 2021

Gross carrying amount as of March 31, 2022

Accumulated amortization

Intangible assets, net as of September 30, 2021

Intangible assets, net as of March 31, 2022

Gross carrying amount as of December 31, 2021

4 unchanged sentences

Intangible assets subject to amortization are amortized on a straight-line basis over their useful lives as indicated in the table above.

The Company performs an evaluation of it its amortizable intangible assets for impairment at the end of each reporting period.

The Company did no t identify any impairment indicators during the nine months ended September 30, 2021 and 2020.

The following table summarizes the amortization expense included in the unaudited condensed consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2021 and 2020, respectively (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

The Company performs an evaluation of its amortizable intangible assets for impairment at the end of each reporting period.

The Company did no t identify any impairment indicators during the three months ended March 31, 2022 and 2021.

The following table summarizes the amortization expense included in the condensed consolidated statements of comprehensive loss for the three months ended March 31, 2022 and 2021, respectively (in thousands):

Three Months Ended March 31,

Cost of revenue

Selling and marketing

The estimated annual future amortization expense for purchased intangible assets with definite lives as of September 30, 2021 was as follows (in thousands):

2021 (remaining three months)

The estimated annual future amortization expense for purchased intangible assets with definite lives as of March 31, 2022 was as follows (in thousands):

2022 (remaining nine months)

Balance Sheet Components

1 unchanged sentence

Inventories consists of (in thousands):

September 30,

Raw materials

2 unchanged sentences

Property and equipment, net consists of (in thousands):

September 30,

Building and leasehold improvements

4 unchanged sentences

Property and equipment, net

The Company recorded depreciation expense of $ 0.2 million during the three months ended September 30, 2021 and 2020, respectively, and $ 0.6 million during the nine months ended September 30, 2021 and 2020, respectively .

The Company recorded depreciation expense of $ 0.2 million during each of the three months ended March 31, 2022 and 2021 .

Other accrued expenses and liabilities consist of (in thousands):

September 30,

Rental payments due landlord

Accrued professional fees

Accrued restructuring

Customer deposits

Accrued warranties

Customer deposits

Rental payments due to landlord

Accrued restructuring

Other accrued expenses

The rental payments due landlord relate to leased office space acquired in a prior acquisition.

The office space was subleased, but the tenant went into default for non-payment beginning April 1, 2020.

The Company is currently in active negotiations with the lessor to negotiate a settlement of the outstanding lease obligation.

Contractual Payment Obligation

Hirsch Electronics Corporation (“Hirsch”) Acquisition – Secure Keyboards and Secure Networks .

Prior to the Company’s acquisition of Hirsch in 2009, in November 1994, Hirsch had entered into a settlement agreement (the “1994 Settlement Agreement”) with two limited partnerships, Secure Keyboards, Ltd.

(“Secure Keyboards”) and Secure Networks, Ltd.

(“Secure Networks”).

On April 8, 2009, the 1994 Settlement Agreement was amended and restated to replace the royalty-based payment arrangement with an installment payment schedule with contractual payments to be made in future periods through 2021 (the “2009 Settlement Agreement”).

On April 30, 2009, as part of the acquisition of Hirsch, the Company provided Secure Keyboards and Secure Networks with a limited guarantee of Hirsch’s payment obligation under the 2009 Settlement Agreement.

On April 13, 2020, the Company, Secure Keyboards, and Secure Networks, amended the 2009 Settlement Agreement.

The amendment reduced the amount of quarterly payments due under the obligation in 2020, and requires three additional quarterly payments in 2021.

The Company’s remaining payment obligation under the 2009 Settlement Agreement, as amended, was extended through October 31, 2021 .

The Company included approximately $ 8,000 and $ 41,000 of interest expense during the three and nine months ended September 30, 2021, respectively, and approximately $ 28,000 and $ 115,000 of interest expense during the three and nine months ended September 30, 2020, respectively, in its condensed consolidated statements of comprehensive income (loss) for interest accreted on the payment obligation.

The payment obligation under the 2009 Settlement Agreement, as amended, as of September 30, 2021, is as follows (in thousands):

2021 (remaining three months)

Present value discount factor

Financial Liabilities

Financial liabilities consist of (in thousands):

September 30,

Revolving loan facility

April 21 Funds promissory notes

Paycheck Protection Program note

Current maturities of financial liabilities

Unamortized debt issuance costs

Long-term financial liabilities

East West Bank

On February 8, 2017, the Company entered into a Loan and Security Agreement with East West Bank (“EWB”).

Following subsequent amendments, on February 8, 2021 the Company amended and restated the Loan and Security Agreement in its entirety (the “Loan and Security Agreement”).

The Loan and Security Agreement provides for a $ 20.0 million revolving loan facility subject to a borrowing base and a $ 4.0 million non-formula revolving loan facility that is not subject to a borrowing base.

The Company’s obligations under the Loan and Security Agreement are collateralized by substantially all of its assets.

As of September 30, 2021, the Company had repaid all amounts outstanding under its Loan and Security Agreement.

The Loan and Security Agreement provided for a $ 20.0 million revolving loan facility subject to a borrowing base and a $ 4.0 million non-formula revolving loan facility that was not subject to a borrowing base.

Advances under the revolving loan facility, as amended on April 30, 2021, bear interest at a per annum rate equal to the prime rate.

The maturity date of the main revolving loan facility is February 8, 2023 .

The non-formula revolving loan facility will terminate on February 7, 2022 , however the Company may, at its option if certain conditions are met, convert prior to their maturity any loans under the non-formula revolving loan facility to a term loan that will fully amortize and mature on February 1, 2025 .

Advances under the revolving loan facilities and the term loan (if converted) will initially bear interest at a per annum rate equal to the prime rate as determined under the Loan and Security Agreement plus 0.25 %.

On April 30, 2021, the Company entered into an amendment to its Loan and Security Agreement which reduced the per annum interest rate to the prime interest rate.

The Company may voluntarily prepay amounts outstanding under the revolving loan facilities and the term loan without prepayment charges.

In the event the Loan and Security Agreement is terminated prior to February 8, 2023, the Company would be required to pay an early termination fee in the amount of 2.0 % of the main revolving loan line if terminated prior to February 8, 2022 and 1 % of the main revolving loan line thereafter.

Additional borrowing requests under the revolving loan facilities are subject to various customary conditions precedent, including a borrowing base for the main revolving loan facility .

The Loan and Security Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, limits or restrictions on the Company’s ability to incur liens, incur indebtedness, make certain restricted payments (including dividends), merge or consolidate and dispose of assets.

In addition, the Loan and Security Agreement contains financial covenants requiring that the Company (i) hold $ 5 million in unrestricted cash in accounts with EWB, (ii) maintain a monthly minimum trailing six-month EBITDA of $ 0.6 million for the first two quarters of 2021 and $ 1.2 million thereafter and (iii) maintain, if the Company converts into the term loan and starting with the quarter ending March 31, 2022, a quarterly fixed charge coverage ratio of at least 1.35 :1.00.

The Loan and Security Agreement contains customary events of default that entitle EWB to cause any or all of the Company’s indebtedness under it to become immediately due and payable.

The events of default (some of which are subject to applicable grace or cure periods), include, among other things, non-payment defaults, covenant defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency defaults and material judgment defaults.

Upon the occurrence and during the continuance of an event of default, EWB may terminate its lending commitment and/or declare all or any part of the unpaid principal of all loans, all interest accrued and unpaid thereon and all other amounts payable under the Loan and Security Agreement to be immediately due and payable.

As of September 30, 2021, the Company was in compliance with all financial covenants under the Loan and Security Agreement.

April 21 Funds

On May 5, 2020, the Company issued secured subordinated promissory notes in an aggregate principal amount of $ 4.0 million (the “Notes”) to 21 April Fund, LP and 21 April Fund, Ltd.

(collectively referred to as the “April 21 Funds”) pursuant to a Note and Warrant Purchase Agreement entered into with the April 21 Funds (the “Note Purchase Agreement”).

The Notes were collateralized by the Company’s assets, but subordinate to the Company’s obligations to EWB under its Loan and Security Agreement.

Proceeds from the sale of the Notes were only to be used for expenses incurred by the Company in connection with its provisions of goods and services under a statement of work with a third party.

The Notes had an initial term of nine months and did not bear interest during that period.

If the Notes were not repaid on or before the nine-month anniversary of issuance, (a) the Notes would thereafter bear interest of 8 % per annum, payable quarterly , and (b) additional warrants to purchase common stock would be issuable to the April 21 Funds for each month all or a portion of the Notes remain unpaid, as further detailed in the Note Purchase Agreement.

In the event the Notes were not paid in full by the first anniversary of their issuance, May 5, 2021, they would thereafter bear interest of 12 % per annum, payable quarterly, and additional warrants would be issuable to the April 21 Funds.

As discussed in Note 10, Stockholders’ Equity, the fair value of the warrants issued to April 21 Funds was calculated using the Black Scholes pricing model using the following assumptions:

estimated volatility of 63.2 %, risk free interest rate of 0.24 %, no dividend yield, and an expected life of three years .

The relative fair value of the warrants of $ 290,000 was recorded as a direct reduction from the carrying amount of the Notes and was being amortized as interest expense over the term of the April 21 Funds promissory notes.

On February 5, 2021, the Company entered into an amendment to the secured subordinated promissory note with April 21 Funds, which extended the initial term of the Notes to March 31, 2021.

As a result of the amendment, if the Notes were repaid on or before March 31, 2021, the Company would incur no further interest on the Notes, or be obligated to issue additional warrants.

On March 31, 2021, April 21 Funds waived any additional warrants issuable, and interest payable, to April 21 Funds through May 5, 2021.

On April 13, 2021, the Company repaid the remaining principal amount outstanding of $ 2.8 million.

Paycheck Protection Program

On April 9, 2020, the Company entered into a promissory note (the “PPP Note”) under the Paycheck Protection Program established under Section 1102 of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act.

The PPP Note was dated April 8, 2020 with EWB.

The Company borrowed a principal amount of approximately $ 2.9 million.

The interest on the PPP Note was 1.0 % per annum.

The PPP Note was payable two years from the date of the PPP Note, and there was no prepayment penalty.

All interest which accrues during the initial six months of the loan period was deferred and payable on the maturity date of the PPP Note.

Notes issued under the CARES Act may be eligible for forgiveness in whole or in part in accordance with Small Business Administration rules established for the Paycheck Protection Program.

On May 7, 2021, the principal and accrued interest amounts outstanding of approximately $ 2.9 million under the Company’s promissory note pursuant to the Paycheck Protection Program had been forgiven.

As a result, the Company recorded a gain on forgiveness of debt of $ 2.9 million in the second quarter of 2021.

The non-formula revolving loan facility terminated on February 7, 2022 .

On April 14, 2022, the Company and EWB amended the Loan and Security Agreement replacing the $ 20.0 million revolving loan facility subject to a borrowing base with a non-formula revolving loan facility with no borrowing base requirement and a maturity date of February 8, 2023 .

In addition, the interest rate was lowered from prime to prime minus 0.25 % , and certain financial covenants were amended.

The Company’s obligations under the Loan and Security Agreement are collateralized by substantially all of its assets.

As of March 31, 2022, there were no amounts outstanding and the Company was in compliance with all financial covenants under the Loan and Security Agreement.

The Company conducts business globally and, as a result, files federal, state and foreign tax returns.

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The $1.9 trillion Act includes COVID-19 relief, as well as broader stimulus, but also includes several revenue-raising and business tax provisions.

The CARES Act also includes several significant provisions for corporations, including the usage of net operating losses and payroll benefits.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) also includes several significant provisions for corporations, including the usage of net operating losses and payroll benefits.

Several foreign (non-U.S.) jurisdictions in which the Company operates have taken similar economic stimulus measures.

2 unchanged sentences

Series B Convertible Preferred Stock Dividend Accretion

The following tables summarize Series B convertible preferred stock and the accretion of dividend activity for the nine months ended September 30, 2021 and 2020 (in thousands):

Nine Months Ended September 30,

The following table summarizes Series B convertible preferred stock and the accretion of dividend activity for the three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended March 31,

Series B Convertible Preferred Stock:

6 unchanged sentences

Number of shares at end of period

Based on the current conversion price, the outstanding shares, including the accretion of dividends, of Series B convertible preferred stock as of September 30, 2021 would be convertible into 5,956,945 shares of the Company’s common stock.

Based on the current conversion price, the outstanding shares, including the accretion of dividends, of Series B convertible preferred stock as of March 31, 2022 would be convertible into 6,103,819 shares of the Company’s common stock.

However, the conversion rate will be subject to adjustment in certain instances, such as if the Company issues shares of its common stock at a price less than $ 4.00 per common share, subject to a minimum conversion price of $ 3.27 per share.

As of September 30, 2021, none of the contingent conditions to adjust the total common shares to convert the shares had been met.

As of March 31, 2022, none of the contingent conditions to adjust the conversion rate had been met.

Each share of Series B convertible preferred stock is entitled to a cumulative annual dividend of 5 % for the first six (6) years following the issuance of such share and 3 % for each year thereafter, with the Company retaining the option to settle each year’s dividend after the tenth (10 th ) year in cash.

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The Certificate of Designation with respect to the Series B convertible preferred stock further provides that in the event of, among other things, any change of control, liquidation or dissolution of the Company, the holders of the Series B convertible preferred stock will be entitled to receive, on a pari passu basis with the holders of the common stock, the same amount and form of consideration that the holders of the Company’s common stock receive (on an as-if-converted-to-common-stock basis and without regard to the Ownership Limitation applicable to the Series B convertible preferred stock).

Sale of Common Stock

On April 7, 2021, the Company sold an aggregate of 3,779,342 shares of its common stock at a public offering price of $ 10.65 per share in an underwritten public offering.

The Company received net proceeds of approximately $ 37.7 million from the sale of the common stock in the public offering, after deducting the underwriting discounts and other offering related expenses of $ 2.5 million.

Common Stock Warrants

On February 8, 2017, the Company entered into a Loan and Security Agreement with EWB .

In connection with the Loan and Security Agreement, the Company issued to EWB a warrant (the "EWB Warrant") to purchase up to 40,000 shares of the Company's common stock at a per share exercise price of $ 3.64 which were immediately exercisable for cash or by net exercise and expire on February 8, 2022.

On May 5, 2020, the Company entered into an amendment to the Loan and Security Agreement, which included amending the EWB Warrant, reducing its exercise price from $ 3.64 to $ 3.50 per share and extending the expiration date of the EWB Warrant from February 8, 2022 to February 8, 2023 .

The Company calculated the fair value of the amended EWB Warrant using the Black Scholes pricing model using the following assumptions:

estimated volatility of 63.2 %, risk free interest rate of 0.24 %, no dividend yield, and an expected life of three years .

The fair value of the amended EWB Warrant of $ 42,000 , as well as legal and administrative costs of $ 92,000 , were recorded as a direct reduction from the carrying amount of the Revolving Loan Facility and amortized as interest expense over the remaining term of the Loan and Security Agreement.

On February 11, 2021, EWB exercised their warrant on a cashless net exercise basis receiving 27,599 shares of the Company’s common stock.

On May 5, 2020, the Company entered into a Note and Warrant Purchase Agreement with the April 21 Funds, as discussed in Note 8, Financial Liabilities, in which the Company issued warrants (“April 21 Funds Warrants”) to purchase 275,000 shares of common stock of the Company.

On May 5, 2020, the Company entered into a Note and Warrant Purchase Agreement with 21 April Fund, LP and 21 April Fund, Ltd., (collectively, the “April 21 Funds”) , pursuant to which the Company issued warrants (“April 21 Funds Warrants”) to purchase 275,000 shares of common stock of the Company.

The April 21 Funds Warrants have a term of three years (subject to early termination upon the closing of an acquisition).

provided, that in the event that the Note is not paid in full by the nine-month anniversary of issuance, the term of the April 21 Funds Warrants shall be extended for a period of time equal to the period of time from such nine-month anniversary until the date the Note is fully paid (“Extension Warrants”).

The Extension Warrants would have a term of three years from the date of issuance of the latest Extension Warrant to be issued (subject to early termination upon an acquisition).

The shares of common stock issuable upon exercise of the April 21 Fund Warrants and any Extension Warrants that may be issued are entitled to the same resale registration rights granted to the April 21 Funds Warrants under the Stockholders Agreement dated December 21, 2017 in connection with the April 21 Funds previous purchase of certain securities of the Company.

Below is the summary of outstanding warrants issued by the Company as of September 30, 2021:

The shares of common stock issuable upon exercise of the April 21 Fund Warrants are entitled to resale registration rights pursuant to a Stockholders Agreement dated December 21, 2017.

Below is the summary of outstanding warrants issued by the Company as of March 31, 2022:

Number of Shares

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Common Stock Reserved for Future Issuance

Common stock reserved for future issuance as of September 30, 2021 was as follows:

Exercise of outstanding stock options, vesting of restricted stock units ("RSU"), vesting of

performance stock units ("PSU"), and issuance of RSUs vested but not released

Common stock reserved for future issuance as of March 31, 2022 was as follows:

Exercise of outstanding stock options, vesting of restricted stock units ("RSUs"), vesting of

performance stock units ("PSUs"), and issuance of RSUs vested but not released

Employee Stock Purchase Plan

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Stock Incentive Plan

The Company maintains a stock-based compensation plan, the 2011 Incentive Compensation Plan, as amended, (the “2011 Plan”), to attract, motivate, retain and reward employees, directors and consultants by providing its Board or a committee of the Board the discretion to award equity incentives to these persons.

The Company maintains a stock-based compensation plan, the 2011 Incentive Compensation Plan (the “2011 Plan”), as amended, to attract, motivate, retain and reward employees, directors and consultants by providing its Board or a committee of the Board the discretion to award equity incentives to these persons.

Stock Options

The following is a summary of stock option activity for the nine months ended September 30, 2021:

A summary of stock option activity for the three months ended March 31, 2022 is as follows:

Average Exercise

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Cancelled or Expired

Balance as of September 30, 2021

Vested or expected to vest as of

September 30, 2021

Exercisable as of September 30, 2021

The aggregate intrinsic value in the table above represents the difference between the fair value of the Company’s common stock as of September 31, 2021 and the stock option exercise price of in-the-money stock options multiplied by the number of such stock options.

The following table summarizes information about stock options outstanding as of September 30, 2021:

Balance as of March 31, 2022

Vested or expected to vest as of March 31, 2022

Exercisable as of March 31, 2022

The aggregate intrinsic value in the table above represents the difference between the fair value of the Company’s common stock as of March 31, 2022 and the exercise price of in-the-money stock options multiplied by the number of such stock options.

The following table summarizes information about stock options outstanding as of March 31, 2022:

Stock Options Outstanding

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$4.36 - $29.55

As of September 30, 2021, there was no unrecognized stock-based compensation expense related to stock options .

As of March 31, 2022, there was no unrecognized stock-based compensation expense related to stock options .

Restricted Stock Units

The following is a summary of RSU activity for the nine months ended September 30, 2021:

The following is a summary of RSU activity for the three months ended March 31, 2022:

Weighted Average

Unvested as of December 31, 2021

Unvested as of September 30, 2021

Unvested as of March 31, 2022

RSUs vested but not released

The fair value of the Company’s RSUs is calculated based upon the fair market value of the Company’s stock on the date of grant.

As of September 30, 2021, there was $ 3.6 million of unrecognized compensation expense related to unvested RSUs granted, which is expected to be recognized over a weighted average period of 3.0 years.

The fair value of the Company’s RSUs is calculated based upon the fair market value of the Company’s common stock at the date of grant.

As of March 31, 2022, there was $ 5.6 million of unrecognized compensation expense related to unvested RSUs granted, which is expected to be recognized over a weighted average period of 3.3 years.

No tax benefit was realized from RSUs for the three months ended March 31, 2022.

Performance Stock Units

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If the employee terminates employment, the non-vested portion of the PSUs will not vest and all rights to the non-vested portion will terminate.

The following is a summary of PSU activity for the nine months ended September 30, 2021:

The following is a summary of PSU activity for the three months ended March 31, 2022:

Unvested as of December 31, 2021

Unvested as of September 30, 2021

As of September 30, 2021, there was $ 1.1 million of unrecognized compensation cost related to unvested PSUs, which is expected to be recognized over a period of 1.3 years.

No tax benefit was realized from PSUs for the nine months ended September 30, 2021.

Unvested as of March 31, 2022

As of March 31, 2022, there was $ 0.4 million of unrecognized compensation expense related to unvested PSUs, which is expected to be recognized over a period of 0 .8 years .

No tax benefit was realized from PSUs for the three months ended March 31, 2022.

Stock-Based Compensation Expense

The following table summarizes stock-based compensation expense related to stock options, RSUs, and PSUs included in the condensed consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2021 and 2020 (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

The following table summarizes stock-based compensation expense related to stock options, RSUs, and PSUs included in the condensed consolidated statements of comprehensive loss for the three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended March 31,

Cost of revenue

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Restricted Stock Unit Net Share Settlements

During the nine months ended September 30, 2021 and 2020, the Company repurchased 68,519 and 130,745 shares, respectively, of common stock surrendered to the Company to satisfy tax withholding obligations in connection with the vesting of RSUs issued to employees.

Net Income (Loss) per Common Share

Basic net income (loss) per common share is computed by dividing net income (loss) available to common stockholders during the period by the weighted average number of common shares outstanding during that period.

Diluted net income (loss) per common share is impacted by equity instruments considered to be potential common shares, if dilutive, computed using the treasury stock or the if-converted method of accounting.

The calculations for basic and diluted net income (loss) per common share for the three and nine months ended September 30, 2021 and September 30, 2021 are as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Basic net income (loss) per common share:

Net income (loss)

During the three months ended March 31, 2022 and 2021, the Company repurchased 17,647 and 25,327 shares, respectively, of common stock surrendered to the Company to satisfy tax withholding obligations in connection with the vesting of RSUs issued to employees.

Net Loss per Common Share

Basic net loss per common share is computed by dividing net loss available to common stockholders during the period by the weighted average number of common shares outstanding during that period.

Diluted net loss per common share is impacted by equity instruments considered to be potential common shares, if dilutive, computed using the treasury stock or the if-converted method of accounting.

Three Months Ended March 31,

Basic net loss per common share:

accretion of Series B convertible preferred stock dividends

Net income (loss) available to common stockholders

Weighted average common shares outstanding - basic

Net income (loss) per common share - basic

Diluted net income (loss) per common share:

Net income (loss) available to common stockholders

accretion of Series B convertible preferred stock dividends, if dilutive

Net income (loss) available to common stockholders

Net loss available to common stockholders

Weighted average common shares outstanding - basic

Dilutive securities:

Stock options, RSUs, and warrants

Convertible preferred shares

Weighted average common shares outstanding - diluted

Net income (loss) per common share - diluted

The following common stock equivalents have been excluded from diluted net income (loss) per share for the three and nine months ended September 30, 2021 and 2020 because their inclusion would have been anti-dilutive (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

Net loss per common share - basic

The following common stock equivalents have been excluded from diluted net loss per share for the three months ended March 31, 2022 and 2021 because their inclusion would have been anti-dilutive (in thousands):

Three Months Ended March 31,

Shares of common stock subject to outstanding RSUs

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Shares of common stock subject to outstanding warrants

Shares of common stock issuable upon conversion of Series B convertible preferred stock

Shares of common stock issuable upon conversion of Series B

convertible preferred stock

Segment Reporting, Geographic Information, and Concentration of Credit Risk

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An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenue and incur expenses and about which separate financial information is available to its chief operating decision makers (“CODM”).

The Company’s CODM is its CEO.

The Company’s CODM is its Chief Executive Officer.

The CODM reviews financial information and business performance for each operating segment.

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The Company does not report total assets, capital expenditures or operating expenses by operating segment as such information is not used by the CODM for purposes of assessing performance or allocating resources.

Net revenue and gross profit information by segment for the three and nine months ended September 30, 2021 and 2020 are as follows (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

Net revenue and gross profit information by segment for the three months ended March 31, 2022 and 2021 are as follows (in thousands):

Three Months Ended March 31,

Gross profit margin

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General and administrative

Decrease in fair value of earnout liability

Restructuring and severance

Total operating expenses:

Income (loss) from operations

Loss from operations

Non-operating income (expense):

Interest expense, net

Gain on forgiveness of Paycheck Protection Program note

Gain on investment

Foreign currency losses, net

Income (loss) before income tax provision

Foreign currency gains, net

Loss before income tax benefit (provision)

Geographic Information

Geographic net revenue is based on the customer’s ship-to location.

Information regarding net revenue by geographic region for the three and nine months ended September 30, 2021 and 2020 is as follows (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

Information regarding net revenue by geographic region for the three months ended March 31, 2022 and 2021 is as follows (in thousands):

Three Months Ended March 31,

Europe and the Middle East

Percentage of net revenue:

As percentage of net revenue:

Europe and the Middle East

Concentration of Credit Risk

No customer accounted for 10% or more of net revenue for either of the three or nine months ended September 30, 2021 or 2020.

As o f September 30, 2021, one customer accounted for 10% of accounts receivable .

No customer accounted for 10% of net accounts receivable as of December 31, 2020.

Long-lived assets by geographic location as of September 30, 2021 and December 31, 2020 are as follows (in thousands):

September 30,

No customer accounted for 10% or more of net revenue for either of the three months ended March 31, 2022 or 2021.

No customer accounted for 10% or more of net accounts receivable as of March 31, 2022 or December 31, 2021.

Long-lived assets by geographic location as of March 31, 2022 and December 31, 2021 are as follows (in thousands):

Property and equipment, net:

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Restructuring and Severance

Restructuring expenses incurred during the three and nine months ended September 30, 2021 of $ 99,000 and $ 761,000 , respectively, consists of facility rental related costs of $ 67,000 and $ 523,000 , respectively, and severance related costs of $ 32,000 and $ 238,000 , respectively.

Facility rental related costs during the nine months ended September 30, 2021 included a charge of $ 281,000 resulting from the impairment of a right-of-use operating lease asset for office space the Company vacated in the first quarter of 2021 .

Restructuring expenses incurred during the three and nine months ended September 30, 2020 of $ 163,000 and $ 1,645,000 , respectively, consists of severance related costs of $ 145,000 , and $ 229,000 , respectively, and facility rental related costs associated with office space from a prior acquisition of $ 18,000 and $ 1,416,000 , respectively.

The facility rental related costs included a charge of $ 1,199,000 associated with the impairment of the ROU operating lease asset, which was subleased, but went into default due to non-payment of rent beginning April 1, 2020.

Sublease income of $ 198,000 was received in the first quarter of 2020, however, no rental payments were received during the three months ended September 30, 2020.

During the three months ended March 31, 2022, the Company entered into a settlement agreement associated with outstanding rental payments due the landlord on leased office space in San Francisco, California.

As a result of the settlement, the Company recorded a net credit of $ 153,000 representing the difference between amounts accrued and the settlement amount.

The settlement credit was partially offset by severance related costs of $ 13,000 .

During the three months ended March 31, 2021, the Company incurred restructuring expenses of $ 388,000 , consisting of facility rental related costs of $ 329,000 , which included a charge of $ 281,000 resulting from the impairment of a right-of-use operating lease asset for office space the Company vacated in the first quarter of 2021, and severance related costs of $ 59,000 .

The Company’s leases consist primarily of operating leases for administrative office space, research and development facilities, a manufacturing facility, and sales offices in various countries around the world.

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Some lease agreements contain lease and non-lease components, which are accounted for as a single lease component.

Total rent expense was $ 0.3 million and $ 1.0 million for the three and nine months ended September 30, 2021, respectively, and $ 0.4 million and $ 1.2 million for the three and nine months ended September 30, 2020, respectively.

Total rent expense was approximately $ 0.3 million for both the three months ended March 31, 2022 and 2021.

Initial lease terms are determined at commencement and may include options to extend or terminate the lease when it is reasonably certain the Company will exercise the option.

Remaining lease terms range from one to five years , some of which include options to extend for up to five years .

Remaining lease terms range from one to four years , some of which include options to extend for up to five years .

Leases with an initial term of twelve months or less are not recorded on the condensed consolidated balance sheets.

As the Company’s leases do not provide an implicit rate, the present value of future lease payments is determined using the Company’s incremental borrowing rate based on information available at the lease commencement date.

The table below reconciles the undiscounted cash flows for the first five years and the total of the remaining years to the operating lease liabilities recorded on the condensed consolidated balance sheet as of September 30, 2021 (in thousands):

September 30,

2021 (remaining three months)

2022 (remaining nine months)

Total minimum lease payments

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Long-term operating lease liabilities

As of September 30, 2021, the weighted average remaining lease term for the Company’s operating leases was 2.5 years, and the weighted average discount rate used to determine the present value of the Company’s operating leases was 6.3 %.

Sublease rental income due in the future under non-cancelable subleases was $ 1.6 million.

As discussed in Note 14, Restructuring and Severance, sublease income is associated with office space acquired in an acquisition where the tenant went into default due to non-payment of rent beginning April 1, 2020.

No cash has been received from the tenant since April 1, 2020.

Cash paid for amounts included in the measurement of operating lease liabilities was $ 0.4 million and $ 1.2 million for the three and nine months ended September 30, 2021, respectively.

As of March 31, 2022, the weighted average remaining lease term for the Company’s operating leases was 2.3 years, and the weighted average discount rate used to determine the present value of the Company’s operating leases was 5.9 %.

Cash paid for amounts included in the measurement of operating lease liabilities was $ 0.3 million for the three months ended March 31, 2022.

Commitments and Contingencies

The following table summarizes the Company’s principal contractual commitments, excluding operating leases, as of September 30, 2021 (in thousands):

2021 (remaining three months)

The following table summarizes the Company’s principal contractual commitments, excluding operating leases, as of March 31, 2022 (in thousands):

2022 (remaining nine months)

Purchase commitments for inventories are highly dependent upon forecasts of customer demand.

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These changes may lead to vendor cancellation charges on these purchases or contractual commitments.

The following table summarizes the Company’s warranty accrual account activity during the three and nine months ended September 30, 2021 and 2020:

Three Months Ended September 30,

Nine Months Ended September 30,

The following table summarizes the Company’s warranty accrual account activity during the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

Balance at beginning of period

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Historically the warranty accrual and the expense amounts have been immaterial.

Subsequent Events

There were no subsequent events except as disclosed within Note 7, Financial Liabilities.

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 1. Financial Statements