INVE Technologies, Inc. 10-Q

Item 1. Financial Statements IDENTIV, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited, in thousands, except par value) September 30, December 31, 2022 2021 ASSETS Current assets: Cash and cash equivalents $ 21,202 $ 28,553 Restricted cash 698 1,254 Accounts receivable, net of allowances of $ 2,666 and $ 2,745 as of September 30, 2022 and December 31, 2021, respectively 23,588 19,963 Inventories 25,060 19,924 Prepaid expenses and other current assets 3,908 3,032 Total current assets 74,456 72,726 Property and equipment, net 6,189 4,066 Operating lease right-of-use assets 3,997 2,088 Intangible assets, net 5,533 6,445 Goodwill 10,179 10,268 Other assets 1,046 1,070 Total assets $ 101,400 $ 96,663 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 15,074 $ 10,502 Operating lease liabilities 941 1,269 Deferred revenue 2,072 2,153 Accrued compensation and related benefits 2,753 3,150 Other accrued expenses and liabilities 2,917 3,774 Total current liabilities 23,757 20,848 Long-term operating lease liabilities 3,185 938 Long-term deferred revenue 474 280 Other long-term liabilities 24 85 Total liabilities 27,440 22,151 Commitments and contingencies (see Note 15) Stockholders' equity: Preferred stock, $ 0.001 par value: 10,000 shares authorized; 5,000 shares issued and outstanding as of September 30, 2022 and December 31, 2021 5 5 Common stock, $ 0.001 par value: 50,000 shares authorized; 24,021 and 23,707 shares issued and 22,490 and 22,230 shares outstanding as of September 30, 2022 and December 31, 2021, respectively 24 24 Additional paid-in capital 495,222 492,657 Treasury stock, 1,531 and 1,477 shares as of September 30, 2022 and December 31, 2021, respectively ( 12,030 ) ( 11,134 ) Accumulated deficit ( 409,720 ) ( 408,989 ) Accumulated other comprehensive income 459 1,949 Total stockholders' equity 73,960 74,512 Total liabilities and stockholders' equity $ 101,400 $ 96,663 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 IDENTIV, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited, in thousands, except per share data) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net revenue $ 30,996 $ 29,097 $ 83,914 $ 75,252 Cost of revenue 19,808 17,979 53,550 47,602 Gross profit 11,188 11,118 30,364 27,650 Operating expenses: Research and development 2,625 2,088 7,633 6,556 Selling and marketing 5,326 4,471 15,709 12,682 General and administrative 2,639 2,400 7,623 7,120 Restructuring and severance 49 99 132 761 Total operating expenses 10,639 9,058 31,097 27,119 Income (loss) from operations 549 2,060 ( 733 ) 531 Non-operating income (expense): Interest expense, net ( 39 ) ( 62 ) ( 101 ) ( 451 ) Gain on forgiveness of Paycheck Protection Program note — — — 2,946 Gain on investment — 611 30 611 Foreign currency gains (losses), net ( 3 ) ( 48 ) 111 ( 2 ) Income (loss) before income tax benefit (provision) 507 2,561 ( 693 ) 3,635 Income tax benefit (provision) 12 ( 21 ) ( 38 ) ( 94 ) Net income (loss) 519 2,540 ( 731 ) 3,541 Other comprehensive income (loss): Foreign currency translation adjustment ( 644 ) ( 229 ) ( 1,490 ) ( 449 ) Comprehensive income (loss) $ ( 125 ) $ 2,311 $ ( 2,221 ) $ 3,092 Net income (loss) per common share: ` Basic $ 0.01 $ 0.10 $ ( 0.07 ) $ 0.13 Diluted $ 0.01 $ 0.09 $ ( 0.07 ) $ 0.12 Weighted average shares used in computing net income (loss) per common share: Basic 22,682 22,448 22,632 20,948 Diluted 23,315 29,330 22,632 21,861 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 IDENTIV, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited, in thousands) Three Months Ended September 30, 2022 Series B Convertible Preferred Stock Common Stock Additional Paid-in Treasury Accumulated Accumulated Other Comprehensive Total Stockholders' Shares Amount Shares Amount Capital Stock Deficit Income Equity Balances, June 30, 2022 5,000 $ 5 22,444 $ 24 $ 494,370 $ ( 11,757 ) $ ( 410,239 ) $ 1,103 73,506 Net income — — — — — — 519 — 519 Unrealized loss from foreign currency translation adjustments — — — — — — — ( 644 ) ( 644 ) Issuance of common stock in connection with vesting of stock awards — — 64 — — — — — — Stock-based compensation — — — — 852 — — — 852 Shares withheld in payment of taxes in connection with net share settlement of restricted stock units — — ( 18 ) — — ( 273 ) — — ( 273 ) Balances, September 30, 2022 5,000 $ 5 22,490 $ 24 $ 495,222 $ ( 12,030 ) $ ( 409,720 ) $ 459 $ 73,960 Nine Months Ended September 30, 2022 Series B Convertible Preferred Stock Common Stock Additional Paid-in Treasury Accumulated Accumulated Other Comprehensive Total Stockholders' Shares Amount Shares Amount Capital Stock Deficit Income Equity Balances, December 31, 2021 5,000 $ 5 22,230 $ 24 $ 492,657 $ ( 11,134 ) $ ( 408,989 ) $ 1,949 74,512 Net loss — — — — — — ( 731 ) — ( 731 ) Unrealized loss from foreign currency translation adjustments — — — — — — — ( 1,490 ) ( 1,490 ) Issuance of common stock in connection with vesting of stock awards — — 314 — — — — — — Stock-based compensation — — — — 2,565 — — — 2,565 Shares withheld in payment of taxes in connection with net share settlement of restricted stock units — — ( 54 ) — — ( 896 ) — — ( 896 ) Balances, September 30, 2022 5,000 $ 5 22,490 $ 24 $ 495,222 $ ( 12,030 ) $ ( 409,720 ) $ 459 $ 73,960 Three Months Ended September 30, 2021 Series B Convertible Preferred Stock Common Stock Additional Paid-in Treasury Accumulated Accumulated Other Comprehensive Total Stockholders' Shares Amount Shares Amount Capital Stock Deficit Income Equity Balances, June 30, 2021 5,000 $ 5 22,123 $ 23 $ 491,431 $ ( 10,519 ) $ ( 409,608 ) $ 2,358 73,690 Net income — — — — — — 2,540 — 2,540 Unrealized income from foreign currency translation adjustments — — — — — — — ( 229 ) ( 229 ) Issuance of common stock in connection with vesting of stock awards — — 73 — — — — — — Stock-based compensation — — — — 572 — — — 572 Shares withheld in payment of taxes in connection with net share settlement of restricted stock units — — ( 20 ) — — ( 334 ) — — ( 334 ) Proceeds from exercise of stock options — — 2 1 12 — — — 13 Balances, September 30, 2021 5,000 $ 5 22,178 $ 24 $ 492,015 $ ( 10,853 ) $ ( 407,068 ) $ 2,129 $ 76,252 5 Nine Months Ended September 30, 2021 Series B Convertible Preferred Stock Common Stock Additional Paid-in Treasury Accumulated Accumulated Other Comprehensive Total Stockholders' Shares Amount Shares Amount Capital Stock Deficit Income Equity Balances, December 31, 2020 5,000 $ 5 18,055 $ 19 $ 452,129 $ ( 9,933 ) $ ( 410,609 ) $ 2,578 34,189 Net income — — — — — — 3,541 — 3,541 Unrealized loss from foreign currency translation adjustments — — — — — — — ( 449 ) ( 449 ) Issuance of common stock in connection with vesting of stock awards — — 366 — — — — — — Stock-based compensation — — — — 2,027 — — — 2,027 Shares withheld in payment of taxes in connection with net share settlement of restricted stock units — — ( 68 ) — — ( 920 ) — — ( 920 ) Issuance of common stock in connection with warrant exercise — — 28 — — — — — — Issuance of common stock in connection with public offering — — 3,779 4 37,711 — — — 37,715 Proceeds from exercise of stock options — — 18 1 148 — — — 149 Balances, September 30, 2021 5,000 $ 5 22,178 $ 24 $ 492,015 $ ( 10,853 ) $ ( 407,068 ) $ 2,129 $ 76,252 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 IDENTIV, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands) Nine Months Ended September 30, 2022 2021 Cash flows used in operating activities Net income (loss) $ ( 731 ) $ 3,541 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 1,673 1,460 Gain on forgiveness of Paycheck Protection Program note — ( 2,946 ) Gain on investment ( 30 ) ( 611 ) Accretion of interest on contractual payment obligation — 41 Amortization of debt issuance costs — 101 Stock-based compensation expense 2,565 2,027 Impairment of right-of-use operating lease asset — 281 Changes in operating assets and liabilities: Accounts receivable ( 3,695 ) ( 346 ) Inventories ( 5,218 ) ( 1,332 ) Prepaid expenses and other assets ( 861 ) ( 1,123 ) Accounts payable 4,487 ( 1,639 ) Contractual payment obligation liability — ( 812 ) Deferred revenue 113 243 Accrued expenses and other liabilities ( 1,317 ) 1,120 Net cash provided by (used in) operating activities ( 3,014 ) 5 Cash flows from investing activities: Capital expenditures ( 3,008 ) ( 1,923 ) Proceeds from investment 30 611 Net cash used in investing activities ( 2,978 ) ( 1,312 ) Cash flows from financing activities: Borrowings under revolving loan facility, net of issuance costs — 3,964 Repayments under revolving loan facility — ( 18,548 ) Repayments of April 21 Funds promissory notes — ( 2,800 ) Proceeds from the sale of common stock, net of issuance costs — 37,715 Taxes paid related to net share settlement of restricted stock units ( 896 ) ( 920 ) Proceeds from exercise of stock options — 149 Net cash provided by (used in) financing activities ( 896 ) 19,560 Effect of exchange rates on cash, cash equivalents, and restricted cash ( 1,019 ) ( 444 ) Net increase (decrease) in cash, cash equivalents, and restricted cash ( 7,907 ) 17,809 Cash, cash equivalents, and restricted cash at beginning of period 29,807 11,409 Cash, cash equivalents, and restricted cash at end of period $ 21,900 $ 29,218 Supplemental Disclosures of Cash Flow Information: Interest paid $ 6 $ 329 Taxes paid, net $ 50 $ 61 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 IDENTIV, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2022 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements include the accounts of Identiv, Inc. and its wholly owned subsidiaries (the “Company”). All intercompany balances and transactions have been eliminated in consolidation. 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. GAAP”) for interim financial information and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. 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, 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. GAAP for complete financial statements. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors,” and the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. 2. Significant Accounting Policies and Recent Accounting Pronouncements Significant Accounting Policies No material changes have been made to the Company's significant accounting policies disclosed in Note 2, Significant Accounting Policies and Recent Accounting Pronouncements , in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Recent Accounting Pronouncements In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires measurement and recognition of expected credit losses for financial assets held at the reporting date based on external information, or a combination of both relating to past events, current conditions, and reasonable and supportable forecasts. ASU 2016-13 replaces the existing incurred loss impairment model with a forward-looking expected credit loss model which will result in earlier recognition of credit losses. Subsequent to the issuance of ASU 2016-13, the FASB issued ASU 2018-19, Codification Improvement to Topic 326, Financial Instruments – Credit Losses, ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, ASU 2019-05, Financial Instruments – Credit Losses (Topic 326) Targeted Transition Relief, ASU 2016-13, the FASB issued ASU 2019-10 Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), and ASU 2019-11 Codification Improvements to Topic 326, Financial Instruments – Credit Losses. The subsequent ASUs do not change the core principle of the guidance in ASU 2016-13. Instead, these amendments are intended to clarify and improve operability of certain topics included within ASU 2016-13. In February 2020, the FASB issued ASU 2020-02, which provides guidance regarding methodologies, documentation, and internal controls related to expected credit losses. The subsequent amendments will have the same effective date and transition requirements as ASU No. 2016-13. Early adoption is permitted. 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. 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. 8 3. Revenue Revenue Recognition Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company enters into contracts that can include various combinations of its products, software licenses, and services, which are generally capable of being distinct and accounted for as separate performance obligations. For contracts with multiple performance obligations, the Company allocates the transaction price of the contract to each performance obligation, generally on a relative basis using its standalone selling price. The stated contract value is generally the transaction price to be allocated to the separate performance obligations. Revenue is recognized net of any taxes collected from customers that are subsequently remitted to governmental authorities. Nature of Products and Services The Company derives revenues from sales of hardware products, software licenses, subscriptions, professional services, software maintenance and support, and extended hardware warranties. Hardware Product Revenue — The Company generally has two performance obligations in arrangements involving the sale of hardware products. The first performance obligation is to transfer the hardware product (which includes software integral to the functionality of the hardware product). 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 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”). Software License Revenue — The Company’s license arrangements grant customers the perpetual right to access and use the licensed software products at the outset of an arrangement. Technical support and software updates are generally made available throughout the term of the support agreement, which is generally one to three years . The Company accounts for these arrangements as two performance obligations: (1) the software licenses, and (2) the related updates and technical support. 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. These SaaS arrangements include access to the Company’s licensed software and, in certain arrangements, use of various hardware devices over the contract term. These SaaS arrangements do not provide the customer the right to take possession of the software supporting the subscription service, or if applicable, any hardware devices at any time during the contract period, and as such are not considered separate performance obligations. Revenue is recognized ratably on a straight-line basis over the term of the contract beginning when the service is made available to the customer. Subscription contract terms range from month-to-month to six years in length and are billed monthly or annually. Professional Services Revenue — Professional services revenue consists primarily of programming customization services performed relating to the integration of the Company’s software products with the customers other systems, such as human resources systems. Professional services contracts are generally billed on a time and materials basis and revenue is recognized as the services are performed. Software Maintenance and Support Revenue — Support and maintenance contract revenue consists of the services provided to support the specialized programming applications performed by the Company’s professional services group. 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 to 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. 9 Performance Obligation When Performance Obligation is Typically Satisfied When Payment is Typically Due How Standalone Selling Price is Typically Estimated Hardware products When customer obtains control of the product (point-in-time) Within 30 - 60 days of shipment Observable in transactions without multiple performance obligations Software licenses When license is delivered to customer or made available for download, and the applicable license period has begun (point-in-time) Within 30 - 60 days of the beginning of license period Established pricing practices for software licenses bundled with software maintenance, which are separately observable in renewal transactions Subscriptions Ratably over the course of the subscription term (over time) In advance of subscription term Contractually stated or list price Professional services As services are performed and/or when contract is fulfilled (point-in-time) Within 30 - 60 days of delivery Observable in transactions without multiple performance obligations Software maintenance and support services Ratably over the course of the support contract (over time) Within 30 - 60 days of the beginning of the contract period Observable in renewal transactions Extended hardware warranties Ratably over the course of the support contract (over time) Within 30 - 60 days of the beginning of the contract period Observable in renewal transactions Significant Judgments The Company’s contracts with customers often include promises to transfer multiple products and services to a customer. For such arrangements, the Company allocates the transaction price to each performance obligation based on its relative standalone selling price (“SSP”). Judgment is required to determine the SSP for each distinct performance obligation in a contract. For the majority of items, the Company estimates SSP using historical transaction data. The Company uses a range of amounts to estimate SSP when it sells each of the products and services separately and needs to determine whether there is a discount to be allocated based on the relative SSP of the various products and services. In instances where SSP is not directly observable, such as when the product or service is not sold separately, the Company determines the SSP using information that may include market conditions and other observable inputs. The determination of SSP is an ongoing process and information is reviewed regularly in order to ensure SSPs reflect current information or trends. Disaggregation of Revenue The Company disaggregates revenue from contracts with customers based on the timing of transfer of goods or services to customers (point-in-time or over time) and geographic region based on the shipping location of the customer. The geographic regions that are tracked are the Americas, Europe and the Middle East, and Asia-Pacific regions. 10 Total net revenue based on the disaggregation criteria described above is as follows (in thousands): Three Months Ended September 30, 2022 2021 Point-in- Time Over Time Total Point-in- Time Over Time Total Americas $ 20,412 $ 539 $ 20,951 $ 18,820 $ 847 $ 19,667 Europe and the Middle East 3,544 107 3,651 3,131 92 3,223 Asia-Pacific 6,364 30 6,394 6,207 — 6,207 Total $ 30,320 $ 676 $ 30,996 $ 28,158 $ 939 $ 29,097 Nine Months Ended September 30, 2022 2021 Point-in- Time Over Time Total Point-in- Time Over Time Total Americas $ 52,898 $ 2,582 $ 55,480 $ 46,598 $ 2,425 $ 49,023 Europe and the Middle East 11,141 332 11,473 9,026 283 9,309 Asia-Pacific 16,931 30 16,961 16,920 — 16,920 Total $ 80,970 $ 2,944 $ 83,914 $ 72,544 $ 2,708 $ 75,252 Contract Balances Amounts invoiced in advance of services being provided are accounted for as deferred revenue. Nearly all of the Company’s deferred revenue balance is related to software maintenance contracts. Payment terms and conditions vary by contract type, although payment is typically due within 30 to 60 days of contract inception. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined its contracts do not include a significant financing component. 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, 2022 and 2021 were as follows (in thousands): Nine Months Ended September 30, 2022 2021 Deferred revenue, beginning of period $ 2,433 $ 2,366 Deferral of revenue billed in current period, net of recognition 2,029 1,992 Recognition of revenue deferred in prior periods ( 1,916 ) ( 1,749 ) Deferred revenue, end of period $ 2,546 $ 2,609 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 $ 0.7 million as of September 30, 2022. Since the Company typically invoices customers at contract inception, this amount is included in the deferred revenue balance. As of September 30, 2022, the Company expects to recognize 12 % of the revenue related to these unsatisfied performance obligations during the remainder of 2022, 37 % during 2023, and 51 % thereafter. 11 4. Fair Value Measurements The Company determines the fair values of its financial instruments based on a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. 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 , 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; ● Level 2 – Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly; and ● Level 3 – Unobservable inputs. Assets and Liabilities Measured at Fair Value on a Recurring Basis As of September 30, 2022 and December 31, 2021, the only assets measured and recognized at fair value on a recurring basis were nominal cash equivalents. As of September 30, 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 Certain of the Company's assets, including goodwill, intangible assets, and privately-held investments, are measured at fair value on a nonrecurring basis if impairment is indicated. Purchased intangible assets are measured at fair value primarily using discounted cash flow projections. 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, 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. The Company adjusts the carrying value for its privately-held investments for any impairment if the fair value is less than the carrying value of the respective assets on an other-than-temporary basis. The amount of privately-held investments is included in other assets in the accompanying condensed consolidated balance sheets. As of September 30, 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. 5. Goodwill and Intangible Assets Goodwill The following table summarizes the activity in goodwill (in thousands): Identity Premises Total Balance as of December 31, 2021 $ 3,554 $ 6,714 $ 10,268 Currency translation adjustment — ( 89 ) ( 89 ) Balance as of September 30, 2022 $ 3,554 $ 6,625 $ 10,179 Balance as of December 31, 2020 $ 3,554 $ 6,712 $ 10,266 Currency translation adjustment — 2 2 Balance as of December 31, 2021 $ 3,554 $ 6,714 $ 10,268 12 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. The Company performs an initial assessment of qualitative factors to determine whether the existence of events and circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In performing the qualitative assessment, the Company identifies and considers the significance of relevant key factors, events, and circumstances that affect the fair value of its reporting units. These factors include external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as actual and planned financial performance. If, after assessing the totality of relevant events and circumstances, the Company determines that it is more likely than not that the fair value of the reporting unit exceeds its carrying value and there is no indication of impairment, no further testing is performed; 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 condensed consolidated statement of comprehensive income (loss). During the nine months ended September 30, 2022 and 2021, the Company noted no indicators of goodwill impairment and concluded no further testing was necessary. Intangible Assets The following table summarizes the gross carrying amount and accumulated amortization for intangible assets resulting from acquisitions (in thousands): Developed Customer Trademarks Technology Relationships Total Amortization period (in years) 5 10 – 12 4 – 12 Gross carrying amount as of September 30, 2022 $ 765 $ 9,089 $ 15,739 $ 25,593 Accumulated amortization ( 653 ) ( 6,555 ) ( 12,852 ) ( 20,060 ) Intangible assets, net as of September 30, 2022 $ 112 $ 2,534 $ 2,887 $ 5,533 Gross carrying amount as of December 31, 2021 $ 764 $ 9,127 $ 15,774 $ 25,665 Accumulated amortization ( 536 ) ( 6,219 ) ( 12,465 ) ( 19,220 ) Intangible assets, net as of December 31, 2021 $ 228 $ 2,908 $ 3,309 $ 6,445 Each period, the Company evaluates the estimated remaining useful lives of purchased intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization. If a revision to the remaining period of amortization is warranted, amortization is prospectively adjusted over the remaining useful life of the intangible asset. 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 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, 2022 and 2021. The following table summarizes the amortization expense included in the condensed consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2022 and 2021 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Cost of revenue $ 112 $ 114 $ 336 $ 340 Selling and marketing 168 168 504 503 Total $ 280 $ 282 $ 840 $ 843 13 The estimated annual future amortization expense for purchased intangible assets with definite lives as of September 30, 2022 was as follows (in thousands): 2022 (remaining three months) $ 277 2023 1,030 2024 956 2025 956 2026 956 Thereafter 1,358 Total $ 5,533 6. Balance Sheet Components The Company’s inventories are stated at the lower of cost or net realizable value. Inventories consists of (in thousands): September 30, December 31, 2022 2021 Raw materials $ 11,195 $ 7,182 Work-in-progress 31 — Finished goods 13,834 12,742 Total $ 25,060 $ 19,924 Property and equipment, net consists of (in thousands): September 30, December 31, 2022 2021 Building and leasehold improvements $ 583 $ 1,304 Furniture, fixtures and office equipment 1,411 1,379 Plant and machinery 16,464 13,244 Purchased software 2,307 2,281 Total 20,765 18,208 Accumulated depreciation ( 14,576 ) ( 14,142 ) Property and equipment, net $ 6,189 $ 4,066 The Company recorded depreciation expenses of $ 0.3 million and $ 0.2 million during the three months ended September 30, 2022 and 2021 , respectively, and $ 0.8 million and $ 0.6 million during the nine months ended September 30, 2022 and 2021, respectively . Other accrued expenses and liabilities consist of (in thousands): September 30, December 31, 2022 2021 Accrued professional fees $ 563 $ 576 Accrued warranties 382 377 Customer deposits 224 149 Rental payments due to landlord — 922 Accrued restructuring 31 294 Other accrued expenses 1,717 1,456 Total $ 2,917 $ 3,774 14 7. Financial Liabilities 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 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 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 $ 20.0 million 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 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, as well as other financial covenants. The Company’s obligations under the Loan and Security Agreement are collateralized by substantially all of its assets. As of September 30, 2022, there were no amounts outstanding and the Company was in compliance with all financial covenants under the Loan and Security Agreement. 8. Income Taxes The Company conducts business globally and, as a result, files federal, state and foreign tax returns. The Company strives to resolve open matters with each tax authority at the examination level and could reach agreement with a tax authority at any time. While the Company has accrued for amounts it believes are the probable outcomes, the final outcome with a tax authority may result in a tax liability that is more or less than that reflected in the condensed consolidated financial statements. Furthermore, the Company may later decide to challenge any assessments, if made, and may exercise its right to appeal. The Company applies the provisions of, and accounted for uncertain tax positions, in accordance with ASC 740, Income Taxes (“ASC 740”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. It prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company generally is no longer subject to tax examinations for years prior to 2017. However, if loss carryforwards of tax years prior to 2017 are utilized in the U.S., these tax years may become subject to investigation by the tax authorities. While timing of the resolution and/or finalization of tax audits is uncertain, the Company does not believe that its unrecognized tax benefits would materially change in the next 12 months. On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (the “Act”) into law. 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 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. The Act and the CARES Act had no material impact on the Company’s condensed consolidated financial statements and disclosures. The Inflation Reduction Act (the “IRA”) was signed into the law on August 16, 2022. The IRA provides for a minimum tax on certain corporations having more than $ 1 billion in revenue, excise taxes on share buybacks and changes to various types of tax credits. The Company believes the IRA will have little to no effect on the Company’s income taxes. The Company will continue to assess as the provisions are clarified. 15 9. Stockholders’ Equity Series B Convertible Preferred Stock Dividend Accretion The following table summarizes Series B convertible preferred stock and the accretion of dividend activity for the three and nine months ended September 30, 2022 and 2021 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Series B Convertible Preferred Stock: Balance at beginning of period $ 24,715 $ 23,539 $ 24,117 $ 22,969 Cumulative dividends on Series B convertible preferred stock 304 289 902 859 Balance at end of period $ 25,019 $ 23,828 $ 25,019 $ 23,828 Number of Common Shares Issuable Upon Conversion: Number of shares at beginning of period 6,179 5,885 6,029 5,742 Cumulative dividends on Series B convertible preferred stock 76 72 226 215 Number of shares at end of period 6,255 5,957 6,255 5,957 Based on the current conversion price, the outstanding shares, including the accretion of dividends, of Series B convertible preferred stock as of September 30, 2022 would be convertible into 6,254,793 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, 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 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 10th year in cash. The dividends accrue and are payable in kind upon such time as the shares convert into the Company’s common stock . In general, the shares are not entitled to vote except in certain limited cases, including in change of control transactions where the expected price per share distributable to the Company’s stockholders is expected to be less than $ 4.00 per share. 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 Beneficial Ownership Limitation (as defined in the Certificate of Designation) applicable to the Series B convertible preferred stock). Common Stock Warrants 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). 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 as of September 30, 2022: Warrant Type Number of Shares Issuable Upon Exercise Weighted Average Exercise Price Issue Date Expiration Date April 21 Funds Warrants 275,000 $ 3.50 May 5, 2020 May 5, 2023 16 Common Stock Reserved for Future Issuance Common stock reserved for future issuance as of September 30, 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 1,301,289 Employee Stock Purchase Plan 293,888 Shares of common stock available for grant under the 2011 Plan 858,346 Warrants to purchase common stock 275,000 Shares of common stock issuable upon conversion of Series B convertible preferred stock 7,541,449 Total 10,269,972 10. Stock-Based Compensation Stock Incentive Plan 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 A summary of stock option activity for the nine months ended September 30, 2022 is as follows: Number Outstanding Weighted Average Exercise Price per Share Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value Balance as of December 31, 2021 514,693 $ 5.11 4.11 $ 11,850,930 Granted — — Cancelled or Expired ( 8,883 ) 8.41 Exercised — — Balance as of September 30, 2022 505,810 $ 5.06 3.42 $ 3,785,283 Vested or expected to vest as of September 30, 2022 505,810 $ 5.06 3.42 $ 3,785,283 Exercisable as of September 30, 2022 505,810 $ 5.06 3.42 $ 3,785,283 The aggregate intrinsic value in the table above represents the difference between the fair value of the Company’s common stock as of September 30, 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 September 30, 2022: Stock Options Outstanding Stock Options Exercisable Range of Exercise Prices Number Outstanding Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Number Exercisable Weighted Average Exercise Price $4.36 - $7.20 445,960 3.68 $ 4.37 445,960 $ 4.37 $7.50 - $11.25 59,317 1.54 10.18 59,317 10.18 $11.30 - $16.95 500 1.50 11.30 500 11.30 $19.70 - $29.55 33 0.87 19.70 33 19.70 $4.36 - $29.55 505,810 3.42 $ 5.06 505,810 $ 5.06 As of September 30, 2022, there was no unrecognized stock-based compensation expense related to stock options . 17 Restricted Stock Units The following is a summary of RSU activity for the nine months ended September 30, 2022: Number Outstanding Weighted Average Fair Value Unvested as of December 31, 2021 485,729 $ 9.19 Granted 275,807 17.16 Vested ( 212,600 ) 8.75 Forfeited ( 44,192 ) 8.92 Unvested as of September 30, 2022 504,744 $ 13.76 RSUs vested but not released 215,735 $ 6.45 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 September 30, 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 2.9 years. No tax benefit was realized from RSUs for the nine months ended September 30, 2022. Performance Stock Units The Company granted 200,000 PSUs to a certain key employee during the year ended December 31, 2020, with a grant date fair value of $ 6.38 per share. The PSUs are subject to the attainment of performance goals established by the Company’s Compensation Committee, the periods during which performance is to be measured, and other limitations and conditions. Performance goals are based on pre-established objectives that specify the manner of determining the number of PSUs that will vest if performance goals are attained. 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, 2022: Number Outstanding Unvested as of December 31, 2021 175,000 Granted — Vested ( 20,000 ) Forfeited ( 80,000 ) Unvested as of September 30, 2022 75,000 As of September 30, 2022, there was $ 0.1 million of unrecognized compensation expense related to unvested PSUs, which is expected to be recognized over a period of 0 .3 years . No tax benefit was realized from PSUs for the nine months ended September 30, 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, 2022 and 2021 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Cost of revenue $ 39 $ 49 $ 138 $ 130 Research and development 239 109 780 364 Selling and marketing 223 155 606 382 General and administrative 351 259 1,041 1,151 Total $ 852 $ 572 $ 2,565 $ 2,027 18 Restricted Stock Unit Net Share Settlements During the nine months ended September 30, 2022 and 2021, the Company repurchased 54,074 and 68,519 shares, respectively, of common stock surrendered to the Company to satisfy tax withholding obligations in connection with the vesting of RSUs issued to employees. 11. 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. Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Basic net income (loss) per common share: Numerator: Net income (loss) $ 519 $ 2,540 $ ( 731 ) $ 3,541 Less: accretion of Series B convertible preferred stock dividends ( 304 ) ( 289 ) ( 902 ) ( 859 ) Net income (loss) available to common stockholders $ 215 $ 2,251 $ ( 1,633 ) $ 2,682 Denominator: Weighted average common shares outstanding - basic 22,682 22,448 22,632 20,948 Net income (loss) per common share - basic $ 0.01 $ 0.10 $ ( 0.07 ) $ 0.13 Diluted net income (loss) per common share: Numerator: Net income (loss) available to common stockholders $ 215 $ 2,251 $ ( 1,633 ) $ 2,682 Plus: accretion of Series B convertible preferred stock dividends, if dilutive — 289 — — Net income (loss) available to common stockholders $ 215 $ 2,540 $ ( 1,633 ) $ 2,682 Denominator: Weighted average common shares outstanding - basic 22,682 22,448 22,632 20,948 Dilutive securities: Stock options, RSUs, and warrants 633 925 — 913 Convertible preferred shares — 5,957 — — Weighted average common shares outstanding - diluted 23,315 29,330 22,632 21,861 Net income (loss) per common share - diluted $ 0.01 $ 0.09 $ ( 0.07 ) $ 0.12 The following common stock equivalents have been excluded from diluted net income (loss) per share for the three and nine months ended September 30, 2022 and 2021 because their inclusion would have been anti-dilutive (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Shares of common stock subject to outstanding RSUs — — 505 — Shares of common stock subject to outstanding PSUs 75 175 75 175 Shares of common stock subject to outstanding stock options — 2 506 2 Shares of common stock subject to outstanding warrants — — 275 — Shares of common stock issuable upon conversion of Series B convertible preferred stock 6,255 — 6,255 5,957 Total 6,330 177 7,616 6,134 19 12. Segment Reporting, Geographic Information, and Concentration of Credit Risk Segment Reporting ASC 280, Segment Reporting (“ASC 280”) establishes standards for the reporting by public business enterprises of information about operating segments, products and services, geographic areas, and major customers. The method for determining what information to report is based on the way management organizes the operating segments within the Company for making operating decisions and assessing financial performance. 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 Chief Executive Officer. The CODM reviews financial information and business performance for each operating segment. The Company evaluates the performance of its operating segments at the revenue and gross profit levels. 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, 2022 and 2021 are as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Identity: Net revenue $ 19,150 $ 18,745 $ 50,647 $ 47,199 Gross profit 4,319 5,211 11,459 12,133 Gross profit margin 23 % 28 % 23 % 26 % Premises: Net revenue 11,846 10,352 33,267 28,053 Gross profit 6,869 5,907 18,905 15,517 Gross profit margin 58 % 57 % 57 % 55 % Total: Net revenue 30,996 29,097 83,914 75,252 Gross profit 11,188 11,118 30,364 27,650 Gross profit margin 36 % 38 % 36 % 37 % Operating expenses: Research and development 2,625 2,088 7,633 6,556 Selling and marketing 5,326 4,471 15,709 12,682 General and administrative 2,639 2,400 7,623 7,120 Restructuring and severance 49 99 132 761 Total operating expenses: 10,639 9,058 31,097 27,119 Income (loss) from operations 549 2,060 ( 733 ) 531 Non-operating income (expense): Interest expense, net ( 39 ) ( 62 ) ( 101 ) ( 451 ) Gain on forgiveness of Paycheck Protection Program note — — — 2,946 Gain on investment — 611 30 611 Foreign currency gains (losses), net ( 3 ) ( 48 ) 111 ( 2 ) Income (loss) before income tax benefit (provision) $ 507 $ 2,561 $ ( 693 ) $ 3,635 20 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, 2022 and 2021 is as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Americas $ 20,951 $ 19,667 $ 55,480 $ 49,023 Europe and the Middle East 3,651 3,223 11,473 9,309 Asia-Pacific 6,394 6,207 16,961 16,920 Total $ 30,996 $ 29,097 $ 83,914 $ 75,252 As percentage of net revenue: Americas 68 % 68 % 66 % 65 % Europe and the Middle East 11 % 11 % 14 % 12 % Asia-Pacific 21 % 21 % 20 % 23 % Total 100 % 100 % 100 % 100 % 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, 2022 or 2021. No customer accounted for 10% or more of net accounts receivable as of September 30, 2022 or December 31, 2021. Long-lived assets by geographic location as of September 30, 2022 and December 31, 2021 are as follows (in thousands): September 30, December 31, 2022 2021 Property and equipment, net: Americas $ 476 $ 545 Europe and the Middle East 301 334 Asia-Pacific 5,412 3,187 Total property and equipment, net $ 6,189 $ 4,066 Operating lease ROU assets: Americas $ 3,666 $ 1,344 Europe and the Middle East 88 135 Asia-Pacific 243 609 Total operating lease right-of-use assets $ 3,997 $ 2,088 13. Restructuring and Severance During the three and nine months ended September 30, 2022, restructuring expenses consisted of severance related costs of $ 49,000 and $ 283,000 , respectively. In the first quarter of 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 $ 151,000 representing the difference between amounts accrued and the settlement amount. 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. 21 14. Leases 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. The Company determines if an arrangement is a lease at inception. Some lease agreements contain lease and non-lease components, which are accounted for as a single lease component. Total rent expense was $ 0.4 million and $ 1.0 million for the three and nine months ended September 30, 2022, respectively, and $ 0.3 million and $ 1.0 million for the three and nine months ended September 30, 2021, respectively. 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 . Leases with an initial term of 12 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, 2022 (in thousands): September 30, 2022 2022 (remaining three months) $ 315 2023 1,064 2024 911 2025 907 2026 743 Thereafter 722 Total minimum lease payments 4,662 Less: amount of lease payments representing interest ( 536 ) Present value of future minimum lease payments 4,126 Less: current liabilities under operating leases ( 941 ) Long-term operating lease liabilities $ 3,185 As of September 30, 2022, the weighted average remaining lease term for the Company’s operating leases was 3.0 years, and the weighted average discount rate used to determine the present value of the Company’s operating leases was 6.3 %. Cash paid for amounts included in the measurement of operating lease liabilities was $ 0.3 million and $ 1.0 million for the three and nine months ended September 30, 2022, respectively. 15. Commitments and Contingencies The following table summarizes the Company’s principal contractual commitments, excluding operating leases, as of September 30, 2022 (in thousands): Purchase Commitments Other Contractual Commitments Total 2022 (remaining three months) $ 48,161 $ 224 $ 48,385 2023 17,304 8 17,312 2024 3,405 — 3,405 2025 4,005 — 4,005 2026 5 — 5 Total $ 72,880 $ 232 $ 73,112 22 Purchase commitments for inventories are highly dependent upon forecasts of customer demand. Due to the uncertainty in demand from its customers, the Company may have to change, reschedule, or cancel purchases or purchase orders from its suppliers. 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, 2022 and 2021: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Balance at beginning of period $ 393 $ 352 $ 377 $ 321 Accruals for warranties charged to expense — — 21 33 Cost of warranty claims ( 11 ) — ( 16 ) ( 2 ) Balance at end of period $ 382 $ 352 $ 382 $ 352 The Company provides warranties on certain product sales for periods ranging from 12 to 36 months, and allowances for estimated warranty costs are recorded during the period of sale. The determination of such allowances requires the Company to make estimates of product return rates and expected costs to repair or to replace the products under warranty. The Company currently establishes warranty reserves based on historical warranty costs for each product line combined with liability estimates based on the prior 12 months’ sales activities. If actual return rates and/or repair and replacement costs differ significantly from the Company’s estimates, adjustments to recognize additional cost of sales may be required in future periods. Historically, the warranty accrual and the expense amounts have been immaterial. 23