☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of November ~~4, 2022,~~2, 2023, the registrant had ~~10,223,536~~10,443,709 shares of common stock (par value $0.0001) outstanding.


	September 30, 2022			December 31, 2021			September 30, 2023			December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	9,190		$	14,511		$	9,989		$	11,903
Trade accounts receivable, net		9,452			10,757			6,272			8,741
Inventory		9,345			8,949
Inventories								3,950			4,226
Prepaid expenses and other current assets		2,005			1,272			2,041			2,284
Total current assets		29,992			35,489			22,252			27,154
Property and equipment, net		2,816			2,698			2,454			2,765
Leased right-of-use assets		2,437			2,777			1,604			2,217
Goodwill		10,845			10,845			10,845			10,845
Intangible assets, net		11,960			14,229			8,977			11,203
Other assets		243			352			170			216
Total assets	$	58,293		$	66,390		$	46,302		$	54,400
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	7,827		$	5,474		$	5,425		$	6,507
Accrued compensation		2,492			2,013			642			2,874
Accrued liabilities and other		3,007			2,833			2,538			2,615
Short-term lease liabilities		888			841			909			904
Deferred purchase price liabilities		153			8,726
Total current liabilities		14,367			19,887			9,514			12,900
Deferred tax liability		132			109			145			139
Long-term lease liabilities		1,782			2,221			878			1,536
Total liabilities		16,281			22,217			10,537			14,575
Commitments and contingencies (Note 16)
Commitments and contingencies (Note 13)
Stockholders’ equity:
Common stock and additional paid-in capital, par value $0.0001, 200,000 shares authorized; 10,765 shares issued and 10,224 shares outstanding at September 30, 2022; and 10,638 shares issued and 10,097 shares outstanding at December 31, 2021.		110,249			106,971
Treasury stock, at cost: 541 shares at September 30, 2022 and December 31, 2021.		(5,364	)		(5,364	)
Common stock and additional paid-in capital, par value $0.0001, 200,000 shares authorized; 10,985 shares issued and 10,444 shares outstanding at September 30, 2023; and 10,767 shares issued and 10,226 shares outstanding at December 31, 2022.								114,166			111,282
Treasury stock, at cost: 541 shares at September 30, 2023 and December 31, 2022.								(5,364	)		(5,364	)
Accumulated deficit		(62,873	)		(57,434	)		(73,037	)		(66,093	)
Total stockholders’ equity		42,012			44,173			35,765			39,825
Total liabilities and stockholders’ equity	$	58,293		$	66,390		$	46,302		$	54,400


	Three months ended September 30,						Nine months ended September 30,						Three months ended September 30,						Nine months ended September 30,
	2022			2021			2022			2021			2023			2022			2023			2022
Sales	$	19,198		$	15,455		$	56,006		$	50,129		$	13,696		$	19,198		$	45,970		$	56,006
Cost of goods sold		11,755			9,909			33,902			30,387			8,460			11,755			28,137			33,902
Gross profit		7,443			5,546			22,104			19,742			5,236			7,443			17,833			22,104
Operating expenses:
Research and development		2,901			2,698			9,117			8,130			2,298			2,901			7,337			9,117
Sales and marketing		2,808			2,484			8,552			7,412			1,704			2,808			6,875			8,552
General and administrative		2,998			3,307			9,738			10,201			3,144			2,998			10,533			9,738
Change in fair value of contingent consideration		—			103			—			1,660
Total operating expenses		8,707			8,592			27,407			27,403			7,146			8,707			24,745			27,407
Loss from operations		(1,264	)		(3,046	)		(5,303	)		(7,661	)		(1,910	)		(1,264	)		(6,912	)		(5,303	)
Other expense (income):
Other (income) expense:
Interest income, net		(26	)		(6	)		(37	)		(21	)		(34	)		(26	)		(68	)		(37	)
Other expense (income)		9			(1	)		39			15
Other expense														1			9			16			39
Total other (income) expense		(17	)		(7	)		2			(6	)		(33	)		(17	)		(52	)		2
Loss before income taxes		(1,247	)		(3,039	)		(5,305	)		(7,655	)		(1,877	)		(1,247	)		(6,860	)		(5,305	)
Income tax expense (benefit)		52			30			134			(2,214	)
Income tax expense														4			52			84			134
Net loss	$	(1,299	)	$	(3,069	)	$	(5,439	)	$	(5,441	)	$	(1,881	)	$	(1,299	)	$	(6,944	)	$	(5,439	)
Net loss per share:
Basic	$	(0.13	)	$	(0.30	)	$	(0.53	)	$	(0.54	)	$	(0.18	)	$	(0.13	)	$	(0.67	)	$	(0.53	)
Diluted	$	(0.13	)	$	(0.30	)	$	(0.53	)	$	(0.54	)	$	(0.18	)	$	(0.13	)	$	(0.67	)	$	(0.53	)
Weighted average shares used in calculating loss per share:
Basic		10,210			10,082			10,179			9,993			10,430			10,210			10,370			10,179
Diluted		10,210			10,082			10,179			9,993			10,430			10,210			10,370			10,179


	Three months ended September 30,						Nine months ended September 30,						Three months ended September 30,						Nine months ended September 30,
	2022			2021			2022			2021			2023			2022			2023			2022
Total stockholders' equity, beginning balance	$	42,248		$	49,586		$	44,173		$	47,742		$	37,079		$	42,248		$	39,825		$	44,173

Common stock and additional paid-in capital:
Balance at beginning of period		109,186			104,572			106,971			100,356			113,599			109,186			111,282			106,971
Stock-based compensation		964			1,068			3,043			3,004			500			964			3,342			3,043
Replacement awards issued in relation to acquisition		—			—			—			40
Issuance of shares for stock purchase plan		99			286			235			2,526
Common stock withheld related to net share settlement of equity awards														—			167			(690	)		—
Issuance of shares for stock purchase and option plans														67			(68	)		232			235
Balance at end of period		110,249			105,926			110,249			105,926			114,166			110,249			114,166			110,249

Treasury stock:
Balance, at cost -at beginning of period		(5,364	)		(5,267	)		(5,364	)		(5,267	)		(5,364	)		(5,364	)		(5,364	)		(5,364	)
Shares repurchased		—			(97	)		—			(97	)
Balance, at cost -at end of period		(5,364	)		(5,364	)		(5,364	)		(5,364	)		(5,364	)		(5,364	)		(5,364	)		(5,364	)

Accumulated deficit:
Balance at beginning of period		(61,574	)		(49,719	)		(57,434	)		(47,347	)		(71,156	)		(61,574	)		(66,093	)		(57,434	)
Net loss		(1,299	)		(3,069	)		(5,439	)		(5,441	)		(1,881	)		(1,299	)		(6,944	)		(5,439	)
Balance at end of period		(62,873	)		(52,788	)		(62,873	)		(52,788	)		(73,037	)		(62,873	)		(73,037	)		(62,873	)

Total stockholders' equity, ending balance	$	42,012		$	47,774		$	42,012		$	47,774		$	35,765		$	42,012		$	35,765		$	42,012


	Nine months ended September 30,						Nine months ended September 30,
	2022			2021			2023			2022
Cash flows from operating activities:
Net loss	$	(5,439	)	$	(5,441	)	$	(6,944	)	$	(5,439	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation		502			389			500			502
Loss on disposal of property and equipment		3			-			—			3
Amortization of intangible assets		2,269			2,248			2,227			2,269
Stock-based compensation		3,575			3,004			2,472			3,575
Change in fair value of contingent consideration		—			1,660
Deferred tax liability		24			(2,285	)		7			24
Changes in operating assets and liabilities:
Trade accounts receivable		1,305			(4,442	)		2,469			1,305
Inventory		(396	)		(3,859	)
Inventories								276			(396	)
Prepaid expenses and other current assets		(733	)		104			203			(733	)
Other assets		109			(31	)		6			109
Accounts payable		2,353			2,217			(1,100	)		2,353
Accrued compensation		(54	)		(1,041	)		(1,338	)		(54	)
Accrued liabilities and other		(1,383	)		568			(102	)		(1,383	)
Lease liabilities		(52	)		(12	)		(40	)		(52	)
Net cash provided by (used in) operating activities		2,083			(6,921	)
Net cash (used in) provided by operating activities								(1,364	)		2,083
Cash flows from investing activities:
Cash paid for acquisition, net of cash acquired		—			(14,185	)
Purchases of property and equipment		(634	)		(542	)		(172	)		(634	)
Proceeds from sale of equipment		10			—			—			10
Net cash used in investing activities		(624	)		(14,727	)		(172	)		(624	)
Cash flows from financing activities:
Repurchases of common stock		—			(97	)
Cash paid for business acquisition		(7,015	)		—
Proceeds from issuance of common stock, net		235			2,526
Net cash (used in) provided by financing activities		(6,780	)		2,429
Cash paid for business acquisition contingent consideration								—			(7,015	)
Payments for withholding taxes related to net share settlement of equity awards								(690	)		-
Issuance of common stock, net								232			235
Net cash used in financing activities								(458	)		(6,780	)
Net decrease in cash, cash equivalents and restricted cash		(5,321	)		(19,219	)		(1,994	)		(5,321	)
Cash, cash equivalents, and restricted cash; beginning of period		14,686			38,348			12,078			14,686
Cash, cash equivalents, and restricted cash; end of period	$	9,365		$	19,129		$	10,084		$	9,365

Supplemental disclosure of cash flow information:
Taxes paid	$	196		$	89
Income taxes paid							$	78		$	196
Supplemental disclosure of non-cash investing and financing activities:
Right-of-use assets recorded upon adoption of ASC 842	$	—		$	3,199
Leased liabilities recorded upon adoption of ASC 842	$	—		$	3,519
Operating lease liabilities resulting from right-of-use assets	$	364		$	—		$	11		$	364
Accrual of property and equipment	$	19		$	21		$	17		$	19

Cash, cash equivalents, and restricted cash:
Cash and cash equivalents	$	9,190		$	18,954		$	9,989		$	9,190
Restricted cash included in prepaid expenses and other current assets and other assets long term	$	175			175			95		$	175
Total cash, cash equivalents, and restricted cash	$	9,365		$	19,129		$	10,084		$	9,365

Note 1. Description of Business and Basis of Presentation

Description of Business

Airgain, Inc. was incorporated in the State of California on March 20, 1995; and reincorporated in the State of Delaware on August 17, 2016. Airgain, Inc. together with its subsidiary NimbeLink Corp. are herein ~~refer~~referred to as the “Company,” “we,” or “our”. The Company is a leading provider of connectivity solutions including embedded components, external antennas, and integrated systems that enable wireless networking in the consumer, enterprise, and automotive markets. The Company’s headquarters is in San Diego, California.

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Interim financial results are not necessarily indicative of results anticipated for the full year. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021,~~2022, from which the balance sheet information herein was derived. The unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiary. All intercompany transactions and investments have been eliminated in consolidation.

Segment Information

The Company’s operations are located primarily in the United States and most of its assets are located in San Diego, California and Plymouth, Minnesota.

The Company operates in one segment related to providing connectivity solutions – embedded components, external antennas, and integrated systems. The Company’s chief operating decision-maker is ~~its~~our chief executive officer, who reviews operating results on an aggregate basis and manages the Company’s operations as a single operating segment.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Note 2. Summary of Significant Accounting Policies

During the nine months ended September 30, ~~2022,~~2023, there have been no material changes to the Company’s significant accounting policies as described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021.~~2022.

~~Restricted Cash~~

~~As of September 30, 2022, the Company had $175,000~~ ~~in cash on deposit to secure certain lease commitments; $80,000~~ ~~of which is short-term in nature and recorded in prepaid expenses and other current assets and $95,000~~ ~~of which is restricted for more than twelve months and recorded in other assets in the Company’s consolidated balance sheet. As of December 31, 2021, the Company had $175,000~~ ~~in cash on deposit to secure certain lease commitments; $40,000~~ ~~of which is short-term in nature and recorded in prepaid expenses and other current assets and $135,000~~ ~~of which is restricted for more than twelve months and recorded in other assets in the Company’s consolidated balance sheet.~~

Trade Accounts Receivable

~~Trade accounts receivable is adjusted for all known uncollectible accounts.~~We perform ongoing credit evaluations of our customers and assess each customer’s credit worthiness. The policy for determining when receivables are past due or delinquent is based on the contractual terms agreed upon. ~~Accounts~~We monitor collections and payments from our customers and analyze for an allowance for credit losses. The allowance for credit losses is based upon applying an expected credit loss rate to receivables based on the historical loss rate and is adjusted

for current conditions, including any specific customer collection issues identified, and economic conditions forecast. Delinquent account balances are written off ~~once all~~after management has determined that the likelihood of collection ~~efforts have been exhausted. An allowance for doubtful accounts~~ is ~~established when, in the opinion of management, collection of the account is doubtful.~~ No ~~allowance for doubtful accounts was recorded as of September 30, 2022 and December 31, 2021.~~remote.

~~Inventory~~Inventories

As of April 2022, all of the Company’s products are manufactured by third parties that retain ownership of the inventory until title is transferred to the customer at the shipping point. In some situations, the Company retains ownership of inventory which is held in ~~third party~~third-party contract manufacturing facilities. In certain instances, shipping terms are delivery-at-place and the Company is responsible for arranging transportation and delivery of goods ready for unloading at the named place. In those instances, the Company bears all risk involved in bringing the goods to the named place and records the related inventory in transit to the customer as inventory on the accompanying consolidated balance sheets. In the second quarter of 2022, ~~the Company~~we closed ~~its~~our facility located in Scottsdale, Arizona where certain of ~~its~~our products were previously manufactured.

Inventory is stated at the lower of cost or net realizable value. For items manufactured by ~~the Company,~~us, cost is determined using the weighted average cost method. For items manufactured by third parties, cost is determined using the first-in, first-out method (FIFO). Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period.~~Reserves~~ Write downs for excess and obsolete inventories are estimated based on product life cycles, quality issues, and historical ~~experience~~experience.

Property and ~~were $15,000~~ ~~and $47,000~~ ~~as of September 30, 2022, and December 31, 2021, respectively.~~

~~Business Combinations~~Equipment

Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets, generally three to ten years. The ~~Company applies~~estimated useful lives for leasehold improvements are determined as either the estimated useful life of the asset or the lease term, whichever is shorter. Repairs and maintenance are expensed as incurred. Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. When assets are disposed of (or otherwise sold), the cost and related accumulated depreciation are removed from the accounts and any gain or loss on the disposal of property and equipment is classified as other expense (income) in the Company's consolidated statement of operations.

Goodwill

Goodwill represents the excess of cost over fair value of net assets acquired. We account for our goodwill under the authoritative guidance Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350 for goodwill and other intangible assets and the provisions of ~~Accounting Standards Codification (ASC) 805, Business Combinations,~~ASU 2017-04, Simplifying the Test for Goodwill Impairment, which we early adopted in ~~accounting~~fiscal year 2020. Goodwill is not amortized but is tested for ~~its acquisitions. It requires the Company to recognize separately from goodwill the assets acquired and the liabilities assumed, at the acquisition date fair values. Goodwill~~impairment annually as of December 31 or more frequently if events or changes in circumstances indicate that our goodwill might be impaired. Such circumstances may include, but not limited to (1) a decline in microeconomic conditions, (2) a significant decline in our financial performance or (3) a significant decline in the ~~acquisition date~~price of our common stock for a sustained period of time. We consider the aggregation of the relevant qualitative factors, and conclude whether it is ~~measured as~~more likely than not that the ~~excess~~fair value of ~~consideration transferred over~~our reporting unit is less than the ~~acquisition date~~carrying value.

If we conclude that it is more likely than not that the fair ~~values~~value of our reporting unit is less than the carrying value, we perform a quantitative impairment test. The quantitative impairment test compares the fair value of the reporting unit to its carrying amount, including goodwill. If the fair value of the reporting unit exceeds the carrying amount of the net assets ~~acquired~~assigned to that reporting unit, goodwill is not considered impaired. However, if the fair value of the reporting unit is lower than the carrying amount of the net assets assigned to the reporting unit, an impairment charge is recognized equal to the excess of the carrying amount over the fair value. The impairment charge is limited to the goodwill amount of the reporting unit.

Determining the fair value of a reporting unit is judgmental in nature and involves the ~~liabilities assumed. While the Company uses its best~~use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to ~~accurately~~calculate projected future cash flows and risk-adjusted discount rates. In addition, we make certain judgments and assumptions in determining our reporting unit. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates

Other Intangible Assets

The Company’s identifiable finite-lived intangible assets are comprised of acquired intangibles, developed technologies, customer relationships and ~~liabilities assumed at~~non-compete agreements. The cost of the ~~acquisition date, as well as~~market-related intangible assets with finite lives is amortized on a straight-line basis over the ~~contingent consideration, where applicable, its estimates are inherently uncertain~~assets’ respective estimated useful lives.

We assess potential impairments to our intangible assets in accordance with the authoritative guidance for impairment or disposal of long-lived assets (ASC 360) when events or changes in circumstances indicate that the carrying value may not be recoverable. We assess the impairment of long-lived and ~~subject to refinement.~~intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. As a ~~result, during the measurement period,~~first step, we consider factors, which may ~~be up~~include the following, but are not limited to: (1) significant underperformance relative to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement periodhistorical or ~~final determination of the values of assets acquired~~projected future operating results; (2) significant negative industry or ~~liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.~~economic trends; or (3) a significant decline in our stock price for a sustained period.

~~In addition, uncertain tax positions and tax-related valuation allowances assumed, if any, in connection with a business combination are initially estimated as of~~If this assessment indicates that the acquisition date. The Company re-evaluates these items quarterly based upon facts and circumstances that existed as of the acquisition date with any adjustments to the preliminary estimates being recorded to goodwill if identified within the measurement period. Subsequent to the end of the measurement period or final determination of the estimatedcarrying value of the ~~tax allowance~~assets may not be recoverable, the Company is required to perform the second step to test the asset group for recoverability. This recoverability test compares the future undiscounted cash flows expected from the use of the asset group to its carrying value. If the carrying value is more than the undiscounted future cash flows, the Company is required perform a third step to determine the fair value of the asset group and compare fair value against the carrying value. Any excess carrying value over the fair value needs to be recognized as an impairment loss.

Determining the recoverability of long-lived or ~~contingency, whichever comes first, changes~~intangible assets is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to ~~these uncertain tax positions~~calculate projected future cash flows and ~~tax related valuation allowances will affect~~ the ~~income tax provision (benefit)~~future market value of our asset group. In addition, we make certain judgments and assumptions in ~~the consolidated statements of operations~~determining our asset group. We base our recoverability estimates on assumptions we believe to be reasonable but that are unpredictable and ~~could have a material impact on the~~inherently uncertain. Actual future results ~~of operations and financial position.~~may differ from those estimates.

Revenue Recognition

~~On January 1, 2019, the Company adopted Financial Accounting Standards Board (FASB) ASC Topic 606, Revenue from Contracts with Customers (ASC 606) using the modified retrospective method.~~ The Company generates revenue mainly from the sale of wireless connectivity solutions and technologies. A portion of revenue is generated from service agreements and data subscription plans with certain customers. ~~The revenue generated from service agreements and data subscription plans is insignificant.~~ The Company recognizes revenue to depict the transfer of control of the promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled for those goods or services. Control transfers to customers either when the products are shipped to or received by the customer, based on the terms of the specific agreement with the customer. Revenue from the NimbeLink data subscription plans is recognized over the period of the subscription.

The Company records revenue based on a five-step model in accordance with ASC 606 whereby the company (i) identifies the contract(s) with the customer, (ii) identifies the performance obligations in the contract, (iii) determines the

transaction price, (iv) allocates the transaction price to the performance obligation(s) in the contract and (v) recognizes the revenue when (as) the entity satisfies performance obligations. ~~The Company~~We only ~~applies~~apply the five-step model when it is probable that ~~the entity~~we will collect substantially all of the consideration ~~it is~~that we are entitled to in exchange for the goods or services ~~it transfers~~that we transfer to the customer.

For product sales, each purchase order, along with existing customer agreements, when applicable, represents a contract from a customer and each product sold represents a distinct performance obligation. The contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. ~~The majority~~Most of the Company’s revenue is recognized on a “point-in-time” basis when control passes to the customer. The revenue from service contracts is recognized either at a "point-in-time" or “over time” based on the terms and conditions in the contract. Revenue from data subscription plans relate to purchased asset trackers with activated data lines, through a third-party service provider. Subscription plans are recognized ~~“over time”.~~monthly. Service revenues are earned based on contractual milestones. Prepayments are deferred revenues and are recorded as contract liabilities. We recognize the contract liabilities over service periods ranging from three (3) to eighteen (18) months.

The Company offers return rights and/or pricing credits under certain circumstances. ~~A reserve for potential rights of~~We estimate product returns based on historical sales and return ~~of $146,000~~trends and $~~109,000~~ ~~was recorded as of September 30, 2022~~record against revenue and ~~December 31, 2021, respectively.~~corresponding refund liability.

The ~~Company’s~~Company's contracts with customers do not typically include extended payment terms. Payment terms may vary by contract and type of customer and generally range from 30 to 90 days from delivery.

The Company provides assurance-type warranties on all product sales ranging from one to two years. The estimated warranty costs are accrued for at the time of sale based on historical warranty experience plus any known or expected changes in warranty exposure. ~~The Company has recorded a warranty reserve of $70,000~~ ~~and $58,000~~ ~~as of September 30, 2022 and December 31, 2021, respectively.~~

The Company has opted to not disclose the portion of revenues allocated to partially unsatisfied performance obligations, which represent products to be shipped within 12 months under open customer purchase orders, at the end of the current reporting period as allowed under ASC 606. The Company has also elected to record sales commissions when incurred, pursuant to the practical expedient under ASC 340, Other Assets and Deferred Costs, as the period over which the sales commission asset that would have been recognized is less than one year.

There were no contract assets as of September 30, ~~2022~~2023 and December 31, ~~2021. As of September 30, 2022 and December 31, 2021, the Company recorded $0.3~~ ~~million and $0.1~~ ~~million of contract liabilities, respectively.~~2022.

Shipping and Transportation Costs

Shipping and other transportation costs expensed as incurred were $~~81,000~~0.1 ~~and $33,000~~million for each of the three months ended September 30, ~~2022~~2023 and ~~2021, respectively. Shipping and other transportation expenses were $0.4~~ ~~million and $0.1~~ ~~million for the nine months ended September 30, 2022 and 2021, respectively.~~2022. These costs are included in sales and marketing expenses in the accompanying consolidated statements of operations.

Research and Development Costs

Research and development costs are expensed as incurred.

Advertising Costs

Advertising costs are expensed as incurred. These costs are included in sales and marketing expenses in the accompanying consolidated statements of operations.

Stock-Based Compensation

We recognize compensation costs related to stock options and restricted stock units granted to employees and directors based on the estimated fair value of the awards on the date of grant. We estimate the option grant fair values, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model. The grant date fair value of stock-based awards are expensed on a straight-line basis over the requisite service period of the entire reward. The Company recognizes forfeitures when incurred.

Fair Value Measurements

The carrying values of the Company’s financial instruments, including cash, trade accounts receivable, accounts payable, accrued liabilities and deferred purchase price obligations approximate their fair values due to the short maturity of these instruments.

Fair value measurements are market-based measurements, not entity-specific measurements. Therefore, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. The Company follows a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values. The basis for fair value measurements for each level within the hierarchy is described below:

•

Level 1: Quoted prices in active markets for identical assets or liabilities.

•

Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.

•

Level 3: Valuations derived from valuation techniques in which one or more significant inputs are unobservable in active markets.

Recently ~~Issued~~Adopted Accounting Pronouncements

In June 2016, the ~~FASB~~Financial Accounting Standards Board (FASB) issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. ~~In December 2019,~~The Company adopted this standard in the ~~FASB issued ASU 2019-10,~~ ~~Effective Dates~~ ~~which updated the effective dates~~first quarter of ~~adoption of ASU 2016-13~~. ~~ASU 2016-13 is effective, for Smaller Reporting~~fiscal 2023; it did not have a material impact on our financial statements.

~~Companies, for annual and interim periods in fiscal years beginning after December 15, 2022. Companies are required to adopt~~Recently Issued Accounting Pronouncements

There were no recently issued accounting pronouncements that the ~~standard using a modified retrospective adoption method. The~~ Company ~~does not expect the standard~~expects to have a ~~significant~~material impact on ~~its~~the Company's financial ~~statements, when adopted.~~

~~In May 2019, the FASB issued ASU 2019-05,~~ ~~Financial Instruments-Credit Losses (Topic 326), Targeted Transition Relief, which provides entities that have certain instruments within the scope of ASC 326-20,~~ ~~Financial Instruments-Credit Losses-Measured at Amortized Cost~~, with an option to irrevocably elect the fair value option for eligible instruments. The effective date and transition methodology for this standard are the same as in ASU 2016-13. The Company expects this accounting standard option, if elected, will not have a significant impact on its financial statements, but we will continue to monitor any future impact.statements.

Note 3. Net Loss Per Share

Basic net loss per share is calculated by dividing net loss available to common stockholders by the weighted average shares of common stock outstanding for the period. Diluted net loss per share is calculated by dividing net loss by the weighted average shares of common stock outstanding for the period plus amounts representing the dilutive effect of

securities that are convertible into common stock. The Company calculates diluted ~~net~~ loss per common share using the treasury stock method.

The following table presents the computation of net loss per share (in thousands except per share data):


	Three months ended September 30,						Nine months ended September 30,						Three months ended September 30,						Nine months ended September 30,
	2022			2021			2022			2021			2023			2022			2023			2022
Numerator:
Net loss	$	(1,299	)	$	(3,069	)	$	(5,439	)	$	(5,441	)	$	(1,881	)	$	(1,299	)	$	(6,944	)	$	(5,439	)
Denominator:
Basic weighted average common shares outstanding		10,210			10,082			10,179			9,993			10,430			10,210			10,370			10,179
Plus dilutive effect of potential common shares		—			—			—			—			—			—			—			—
Diluted weighted average common shares outstanding		10,210			10,082			10,179			9,993			10,430			10,210			10,370			10,179
Net loss per share:
Basic	$	(0.13	)	$	(0.30	)	$	(0.53	)	$	(0.54	)	$	(0.18	)	$	(0.13	)	$	(0.67	)	$	(0.53	)
Diluted	$	(0.13	)	$	(0.30	)	$	(0.53	)	$	(0.54	)	$	(0.18	)	$	(0.13	)	$	(0.67	)	$	(0.53	)

Potentially dilutive securities (in common stock equivalent shares) not included in the calculation of diluted net loss per share because to do so would be anti-dilutive are as follows (in thousands):


	Three months ended September 30,				Nine months ended September 30,				Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021		2023		2022		2023		2022
Stock options, restricted stock and performance stock		2,207		1,147		2,033		1,252		2,211		2,207		2,290		2,033
Total common stock equivalent shares		2,207		1,147		2,033		1,252
Common stock equivalent shares										2,211		2,207		2,290		2,033

~~Note 4. Business Combinations~~

On January 7, 2021, the Company entered into a Stock Purchase Agreement, by and among the Company, NimbeLink Corp., the sellers set forth therein (the Sellers) and Scott Schwalbe in his capacity as seller representative (the Purchase Agreement). NimbeLink is an industrial Internet of Things (IoT) company focused on the design, development and delivery of edge-based cellular connectivity solutions for enterprise customers. The acquisition of NimbeLink supports the Company's transition toward becoming more of a system-level company and will play an important role in the Company's overall growth strategy to broaden market diversification, especially within the industrial IoT space.

~~Pursuant to the Purchase Agreement, at the closing on January 7, 2021, the Company acquired all of the outstanding stock of NimbeLink for an upfront cash purchase price of approximately $15.0~~ ~~million, subject to working capital and other customary adjustments of $1.0~~ ~~million and $0.7~~ ~~million in deferred cash payments due to the Sellers fifteen months after the close of the transaction. In addition, NimbeLink’s former security holders are entitled to receive $8.0~~ ~~million in contingent consideration, due to achieving certain revenue targets in 2021. The Company assumed unvested common stock options of continuing employees and service providers.~~

~~Acquisition Consideration~~

~~The following table summarizes the fair value of purchase consideration to acquire NimbeLink (in thousands):~~

Cash

$
15,991

Deferred payments(1)

728

Contingent consideration(2)

5,986

Replacement options(3)

40

Total purchase consideration

$
22,745

~~(1) The fair value of the holdback payment was determined by discounting to present value, payments totaling $0.7~~ ~~million expected to be made to NimbeLink fifteen months after the close of the transaction.~~

~~(2) The fair value of contingent consideration is based on applying the Monte Carlo simulation method to forecast achievement under various contingent consideration events which may result in up to $~~8 million in payments subject to the acquired business’s satisfying certain revenue targets in 2021. Key inputs in the valuation include forecasted revenue, revenue volatility and discount rate. Underlying forecast mathematics were based on Geometric Brownian Motion in a risk-neutral framework and discounted back to the applicable period in which the accumulative thresholds were achieved at discount rates commensurate with the risk and expected payout term of the contingent consideration.

~~(3) Represents the pre-combination stock compensation expense for replacement options issued to NimbeLink employees.~~

~~Purchase Price Allocation~~

The following is an allocation of purchase price as of the closing date based upon an estimate of the fair value of the assets acquired and liabilities assumed by the Company in the acquisition (in thousands):

Cash

$
1,806

Accounts receivable

1,127

Inventory

1,671

Prepaids and other current assets

141

Property and equipment

151

Right of use assets

402

Other assets

194

Identified intangible assets

14,065

Accounts payable

(654
)
Accrued compensation

(139
)
Accrued expenses and other current liabilities

(432
)
Short-term lease liabilities

(78
)
Long-term lease liabilities

(324
)
Deferred tax liabilities

(2,330
)
Identifiable net assets acquired

15,600

Goodwill

7,145

Total purchase price

$
22,745

~~The following is a summary of identifiable intangible assets acquired and the related expected lives for the finite-lived intangible assets (in thousands):~~

Category

Estimated
life
(in years)

Fair value

Finite-lived intangible assets

Market-related intangibles

5

$
1,700

Customer relationships

5

8,950

Developed technology

12

2,600

Covenants to non-compete

2

115

Indefinite-lived intangible assets

In-process research and development

N/A

700

Total identifiable intangible assets acquired

$
14,065

~~Assumptions in the Allocations of Purchase Price~~

Management prepared the purchase price allocations and in doing so considered or relied in part upon reports of a third party valuation expert to calculate the fair value of certain acquired assets, which primarily included identifiable intangible assets and inventory, and the portions of the purchase consideration expected to be paid to NimbeLink securityholders in the future, as described above. Certain NimbeLink securityholders that are employees are not required to remain employed in order to receive the deferred payments and contingent consideration; accordingly, the fair value of the deferred payments and contingent consideration have been accounted for as a portion of the purchase consideration.
Estimates of fair value require management to make significant estimates and assumptions. Contingent consideration payable as of December 31, 2021, was $~~8.0~~ million. The contingent consideration balance was recorded to deferred purchase price liabilities in other current liabilities in the Company's condensed consolidated balance sheet. The contingent consideration of $~~8.0~~ ~~million and deferred payment of $0.6~~ ~~million were paid in April 2022. The remaining deferred payments balance on September 30, 2022 is $0.1~~ ~~million.~~

The goodwill recognized was attributable primarily to the acquired workforce, expected synergies, and other benefits that the Company believes will result from integrating the operations of the NimbeLink business with the operations of the Company. Certain liabilities included in the purchase price allocations were based on management’s best estimates of the amounts to be paid or settled and based on information available at the time the purchase price allocations were prepared.

The fair value of the customer relationships was determined using the multi-period excess earnings method (MPEEM). MPEEM estimates the value of an intangible asset by quantifying the amount of residual (or excess) cash flows generated by the asset and discounting those cash flows to the present. Future cash flows for contractual and non-contractual customers were estimated based on forecasted revenue and costs, taking into account the growth rates and contributory charges. The fair value of market-related intangible assets, developed technology, and in-process research and development (IPR&D) was determined using the Relief-from-Royalty method. The Relief-from-Royalty method is a specific application of the discounted-cash-flow method, which is a form of the income approach. It is based on the principle that ownership of the intangible asset relieves the owner of the need to pay a royalty to another party in exchange for rights to use the asset. Key assumptions to estimate the hypothetical royalty rate include observable royalty rates, which are royalty rates in negotiated licenses and market-based royalty rates which are royalty rates found in available market data for licenses involving similar assets. Developed technology began amortizing immediately and IPR&D began amortizing upon the completion of each project. During the three months ended March 31, 2021, all IPR&D projects were completed and transferred to developed technology, with a ~~twelve-year~~ estimated life. The fair value of non-compete intangible assets was estimated using the with-and-without method. The with-and-without method estimates the value of an intangible asset by quantifying the loss of economic profits under a hypothetical condition where only the subject intangible does not exist and needs to be re-created. Projected revenues, operating expenses and cash flows were calculated in each "with" and "without" scenario and the difference in the cash flow was discounted to present value. Inventory was valued at net realizable value. Raw materials were valued at book value and finished goods were valued assuming hypothetical revenues from finished goods adjusted for disposal costs, profit attributable to the seller and holding costs. An inventory step-up of $~~0.4~~ ~~million was included in the purchase price allocation above.~~

The Company assumed liabilities in the acquisition which primarily consist of accrued employee compensation and certain operating liabilities. The liabilities assumed in these acquisitions were included in the respective purchase price allocations above.

~~Goodwill recorded in connection with the NimbeLink acquisition was $7.1~~ ~~million. The Company does not expect to deduct any of the acquired goodwill for tax purposes. Also see Note 8,~~ ~~Intangible Assetsfor further information on intangible assets related to the NimbeLink acquisition.~~

Note 5.4. Cash and Cash Equivalents

The following tables show the Company’s cash and cash equivalents by significant investment category (in thousands):


	September 30, 2023		December 31, 2022
Cash	$	9,719	$	8,323
Level 1:
Money market funds		270		3,580
Total	$	9,989	$	11,903

13Restricted Cash

September 30, 2022

Amortized
cost

Gross Unrealized Gains

Gross Unrealized Losses

Estimated fair value

Cash and cash equivalents

Cash

$
2,595

$
—

$
—

$
2,595

$
2,595

Level 1:

Money market funds

6,595

—

—

$
6,595

$
6,595

Total

$
9,190

$
—

$
—

$
9,190

$
9,190

As of September 30, 2023, the Company had $95,000 in cash on deposit to secure certain lease commitments; $40,000 of which is short-term in nature and recorded in prepaid expenses and other current assets and $55,000 of which is restricted for more than twelve months and recorded in other assets in the Company’s consolidated balance sheet. As of December 31, 2022, the Company had $175,000 in cash on deposit to secure certain lease commitments.

December 31, 2021

Amortized
cost

Gross Unrealized Gains

Gross Unrealized Losses

Estimated fair value

Cash and cash equivalents

Cash

$
3,702

$
—

$
—

$
3,702

$
3,702

Level 1:

Money market funds

10,809

—

—

10,809

10,809

Total

$
14,511

$
—

$
—

$
14,511

$
14,511

Note 6.5. Inventory

Inventories are comprised of the following (in thousands):


	September 30, 2022		December 31, 2021		September 30, 2023		December 31, 2022
Raw materials	$	5,210	$	7,908	$	864	$	1,060
Finished goods		4,135		1,041		3,086		3,166
Total Inventory	$	9,345	$	8,949	$	3,950	$	4,226

Consigned inventories, which are included in total inventories, are comprised of the following (in thousands):


	September 30, 2023		December 31, 2022
Raw materials	$	990	$	631
Finished goods		1,580		2,272
Total Consigned Inventory	$	2,570	$	2,903

~~As of September 30, 2022~~Excess and ~~December 31, 2021,~~obsolete inventory reserves were $~~4.1~~1.0 million and $~~3.8~~0.9 million as of ~~raw materials, respectively,~~September 30, 2023 and $~~3.2~~ ~~million and $0.4~~ ~~million of finished goods inventories, respectively, are on consignment at the Company's contract manufacturers.~~December 31, 2022, respectively.

Note 7.6. Property and Equipment

Depreciation and amortization of property and equipment is calculated on the straight-line method based on the shorter of the estimated useful life or the term of the lease for tenant improvements and three to ~~fifteen~~ten years for all other property and equipment. Property and equipment consist of the following (in thousands):


	September 30, 2022			December 31, 2021			September 30, 2023			December 31, 2022
Manufacturing and testing equipment							$	5,261		$	5,194
Leasehold improvements								848			848
Computers and software	$	641		$	657			752			703
Furniture, fixtures, and equipment		409			398			427			409
Manufacturing and testing equipment		5,248			4,700
Construction in process		34			40			55			16
Leasehold improvements		979			932
Property and equipment, gross		7,311			6,727			7,343			7,170
Less accumulated depreciation		(4,494	)		(4,029	)		(4,889	)		(4,405	)
Property and equipment, net	$	2,816		$	2,698		$	2,454		$	2,765

Depreciation expense was $0.2 million ~~and $0.1~~ ~~million~~ for each of the three months ended September 30, ~~2022~~2023 and ~~2021, respectively,~~2022 and $0.5 million ~~and $0.4~~ ~~million~~ for each of the nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

Note 8.7. Intangible Assets and Goodwill

Other Intangible Assets

The following is a summary of the Company’s acquired other intangible assets (dollars in thousands):


	September 30, 2022							September 30, 2023
	Weighted average amortization period (in years)	Gross carrying amount		Accumulated amortization		Net carrying amount		Weighted average amortization period (in years)	Gross carrying amount		Accumulated amortization		Net carrying amount
Market related intangibles	5	$	1,820	$	709	$	1,111	5	$	1,820	$	1,049	$	771
Customer relationships	7		13,780		6,152		7,628	7		13,780		8,425	$	5,355
Developed technologies	11		4,380		1,174		3,206	11		4,380		1,529	$	2,851
Covenants to non-compete	2		115		100		15	2		115		115	$	—
Total intangible assets, net		$	20,095	$	8,135	$	11,960		$	20,095	$	11,118	$	8,977


	December 31, 2021							December 31, 2022
	Weighted average amortization period (in years)	Gross carrying amount		Accumulated amortization		Net carrying amount		Weighted average amortization period (in years)	Gross carrying amount		Accumulated amortization		Net carrying amount
Market related intangibles	5	$	1,820	$	454	$	1,366	5	$	1,820	$	795	$	1,025
Customer relationships	7		13,780		4,447		9,333	7		13,780		6,720		7,060
Developed technologies	11		4,380		908		3,472	11		4,380		1,263		3,117
Covenants to non-compete	2		115		57		58	2		115		114		1
Total intangible assets, net		$	20,095	$	5,866	$	14,229		$	20,095	$	8,892	$	11,203

Estimated annual amortization of intangible assets for the next five years and thereafter is shown in the following table (in thousands):


	Estimated future amortization		Estimated future amortization
2022 (remaining three months)	$	757
2023		2,969
2023 (remaining three months)			$	742
2024		2,968		2,968
2025		2,958		2,958
2026		557		557
2027				356
Thereafter		1,751		1,396
Total	$	11,960	$	8,977

Actual amortization expense to be reported in future periods could differ from these estimates as a result of acquisitions, divestitures, and asset impairments, among other factors. Amortization expense was $0.7 million and $0.8 million ~~each of~~for the three months ended September 30, 2023 and 2022, ~~and 2021 and~~respectively. Amortization expense was $~~2.3~~2.2 million and $~~2.2~~2.3 million for the nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

No impairment losses were recorded against the other intangibles during the three months ended September 30, 2023 and 2022.

During the three months ended September 30, 2023, the Company had a decline in its market capitalization, as reflected in a material decline in share price. The decline in market capitalization indicated that the carrying value of the Company's intangible assets composed of acquired intangibles, developed technologies, customer relationships and non-compete agreements may not be recoverable.

Accordingly under ASC 360, the Company performed an interim impairment test to determine the recoverability of the assets group by comparing the future undiscounted cash flows expected from the use of the asset group to the carrying value at September 30, 2023. The Company determined under ASC 360-10-55-24 that the reporting unit is the asset group for the purposes of assessing impairment of the intangible assets. The cash flows of the intangible assets are dependent on the reporting entity as a whole. The cash flows of other assets and liabilities in various departments of the Company such as research, administrative and sales and marketing contribute to the generation of cash flows from the intangible assets. The recoverability test indicated that the future expected cash flows materially exceed the asset group carrying value. Therefore, the Company did not proceed with the third step to determine the fair value of the intangible assets and compare fair value against the carrying value. Based on the assessment performed, we determined that the intangible asset carrying values are not impaired as of September 30, 2023 and the useful lives remain appropriate.

No impairment losses were recorded against the goodwill during the three months ended September 30, 2023 and 2022.

The decline in the Company's market share price during the three months ended September 30, 2023 was a triggering event that indicated that the fair value of the entity may be below its carrying amount. As a result of the triggering event, the Company performed a qualitative assessment by comparing the margin between the market capitalization and the carrying value at September 30, 2023 and at December 31, 2022. The qualitative assessment showed a significant decline in the margin between the market capitalization and the carrying value. Therefore, the Company proceeded to perform a quantitative assessment.

The quantitative impairment test compares the fair value of the reporting unit to its carrying amount, including goodwill. To determine the fair value of the reporting unit, the Company engaged a valuation consulting firm to assist management for purposes of impairment testing under ASC 350. The Company estimated the fair value of our reporting unit using a weighting of the market and income approaches. For the market approach, we used the guideline public company method. Under this method we utilize information from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit to derive an indication of value. For the income approach, we used a discounted cash flow methodology to derive an indication of value, which required management to make estimates and assumptions related to forecasted revenues, gross profit margins, operating income margins, working capital cash flow, income tax rates, EBITDA, perpetual growth rates, and long-term discount rates, among others. We then applied a weighting to the indicated values computed from the market and income approaches to derive the fair values of the reporting unit. Forecasts of future cash flows were based on our best estimate of future net sales and operating expenses, based primarily on customer forecasts, industry trade organization data and general economic conditions. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. Based

on the analysis performed, the Company determined the fair value of the reporting unit is greater than the carrying value. Therefore, there is no goodwill impairment charge as of September 30, 2023.

Certain future events and circumstances, including adverse changes in the business and economic conditions and changes in customer behavior could result in changes to our assumptions and judgments used in the impairment tests. A downward revision of these assumptions could cause the total fair value of our goodwill and intangible assets to fall below carrying values and a non-cash impairment charge would be required. Such a charge may have a material effect on the consolidated financial statements.

Note 9.8. Accrued Liabilities and Other

Accrued liabilities and other is comprised of the following (in thousands):


	September 30, 2022		December 31, 2021		September 30, 2023		December 31, 2022
Advanced payments from contract manufacturers	$	979	$	682
Accrued expenses		841		1,277	$	879	$	815
VAT payable		339		339		339		339
Accrued income taxes		220		258		201		166
Advanced payments from contract manufacturers						124		210
Contract liabilities		313		79		—		32
Goods received not invoiced						821		529
Other current liabilities		315		198		174		524
Accrued liabilities and other	$	3,007	$	2,833	$	2,538	$	2,615

Note ~~11.~~9. Leases

Operating leases

The Company adopted ASC 842, which became effective on January 1, 2021, using the effective date transition method, which requires a cumulative-effect adjustment to the opening balance of retained earnings on the effective date. As a result of adopting ASC 842, the Company recognized right-of-use assets and lease liabilities of $~~3.2~~ ~~million and $3.5~~ ~~million, respectively, as of January 1, 2021. There was no impact to opening retained earnings or to the condensed consolidated statement of operations from the adoption of ASC 842.~~

The Company has made certain assumptions and ~~judgements~~judgments when applying ASC 842, ~~including the adoption of the package of practical expedients available for transition.~~ ~~The practical expedients did not require~~ the Company ~~to reassess (i) whether expired or existing contracts contained leases, (ii) lease classification for expired or existing leases and (iii) previously capitalized initial direct costs.~~ ~~The Company also~~ elected not to recognize right-of-use assets and lease liabilities for short-term leases (lease terms of twelve months or less).

Operating lease arrangements primarily consist of office, warehouse and test house leases expiring during different years through 2025. The facility leases have original lease terms of approximately ~~two~~one to five ~~year~~yearss and may contain options to extend up to 5 years and/or terminate early. Options to extend are included in leased right-of-use assets and lease liabilities in the consolidated balance sheet when ~~the Company is~~we are reasonably certain ~~it will~~to renew a lease. Since the implicit rate of such leases is unknown and ~~the Company~~we may not be reasonably certain to renew ~~its~~ leases, the Company has elected to apply a collateralized incremental borrowing rate to facility leases on the original lease term in calculating the present value of future lease payments. As of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the weighted average discount rate for operating leases was ~~3.9~~3.8% and ~~3.6~~3.9%, respectively and the weighted average remaining lease term for operating leases was ~~2.9~~2.0 years and ~~3.7~~2.7 years, respectively.

The Company has entered into various short-term operating leases, primarily for test houses and office equipment with initial terms of 12 months or ~~less~~.less. These short-term leases are not recorded on the Company's consolidated balance sheet and the related short-term lease expense was $~~21,000~~23,000 and $~~43,000~~21,000,for the three months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively. Total operating lease cost was $~~0.2~~0.3 million and $~~0.3~~0.2 million for the three months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and $0.8 million ~~and $1.0~~ ~~million~~ for each of the nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

The table below presents aggregate future minimum payments due under leases, reconciled to lease liabilities included in the consolidated balance sheet as of September 30, ~~2022~~2023 (in thousands):


	Estimated future lease obligation
2023 (remaining three months)	$	266
2024		902
2025		687
Total minimum payments		1,855
Less imputed interest		(70	)
Less unrealized translation gain		2
Total lease liabilities		1,787
Less short-term lease liabilities		(909	)
Long-term lease liability	$	878

1615

Estimated future lease obligation

2022 (remaining three months)

$
258

2023

974

2024

902

2025

687

Total minimum payments

2,821

Less imputed interest

(158
)
Less unrealized translation gain

7

Total lease liabilities

2,670

Less short-term lease liabilities

(888
)
Long-term lease liability

$
1,782

Note ~~12. Treasury Stock~~

~~In 2019 the Company’s Board of Directors (the Board) approved a share repurchase program (the Program) pursuant to which the Company could purchase up to $7.0~~ million of shares of its common stock. The repurchases under the Program were made from time to time in the open market or in privately negotiated transactions and were funded from the Company’s working capital. Repurchases were made in compliance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended, subject to market conditions, available liquidity, cash flow, applicable legal requirements and other factors. The Program expired in September 2021.

Note ~~14.~~11. Stockholders’ Equity

In August 2016, the Company's Board adopted the 2016 Equity Inventive Plan (the 2016 Plan) for employees, directors and consultants. In February 2021, the Board adopted the 2021 Employment Inducement Incentive Award Plan (Inducement Plan), which provides for grants of equity-based ~~awards, of which~~ ~~300,000~~ ~~shares were initially reserved under the Inducement Plan. In connection with the NimbeLink acquisition, the Company assumed the NimbeLink Corp 2016 Stock Incentive Plan and stock options to purchase~~ ~~22,871~~ ~~shares of common stock issuable thereunder.~~awards.

The following table presents common stock reserved for future issuance(1) (in thousands):


	September 30, 2022		December 31, 2021		September 30, 2023		December 31, 2022
Stock options issued and outstanding		1,978		2,000		2,046		2,065
Stock awards issued and outstanding		483		—		764		581
Authorized for grants under the 2016 Equity Incentive Plan(2)		549		332		423		507
Authorized for grants under the Inducement Plan(3)		40		81		335		294
Authorized for grants under the 2016 Employee Stock Purchase Plan(4)		378		326		440		378
		3,428		2,739		4,008		3,825

(1) The table above excludes 541,000 treasury stock shares as of September 30, ~~2022~~2023 and December 31, ~~2021.~~2022.

(2) On January 1, ~~2022,~~2023, the number of authorized shares in the 2016 Plan increased by ~~404,000~~431,000 shares pursuant to the evergreen provisions of the 2016 Plan.

(3) On February 5, 2021, 300,000 shares were authorized pursuant to the terms of the Inducement ~~Plan;~~ ~~76,000~~ ~~shares were issued under the Inducement Plan during the nine months ended September 30, 2022.~~Plan.

(4) On January 1, ~~2022,~~2023, the number of authorized shares in the 2016 Employee Stock Purchase Plan increased by 100,000 shares pursuant to the evergreen provisions of the 2016 Employee Stock Purchase Plan.

Note ~~15.~~12. Stock Based Compensation

Stock-based compensation expense

Stock-based compensation is recorded in the consolidated statements of operations as follows (in thousands):


	Three months ended September 30,				Nine months ended September 30,				Three months ended September 30,					Nine months ended September 30,
	2022		2021		2022		2021		2023			2022		2023		2022
Cost of goods sold	$	36	$	1	$	71	$	3	$	29		$	36	$	73	$	71
Research and development		255		211		800		591		230			255		747		800
Sales and marketing(1)		273		230		856		658		(223	)		273		53		856
General and administrative		556		626		1,848		1,752		487			556		1,599		1,848
Total stock-based compensation expense	$	1,120	$	1,068	$	3,575	$	3,004	$	523		$	1,120	$	2,472	$	3,575

(1) In the quarter ending September 30, 2023, the company recorded $0.2 million stock based compensation expense reversals that were non-vested and previously recognized expense in the sales and marketing department due to terminations.

Stock Options

The following table summarizes the outstanding stock option activity during the period indicated (shares in thousands):

Weighted average

Number of
stock options

Exercise
price

Remaining contractual term (in years)

Balance at December 31, 2021

2,000

$
12.79

7.3

Granted

314

$
9.23

Exercised

(9
)

$
2.30

Expired/Forfeited

(327
)

$
13.38

Balance at September 30, 2022

1,978

$
12.18

6.7

Vested and exercisable at September 30, 2022

1,334

$
11.33

5.8

Vested and expected to vest at September 30, 2022

1,978

$
12.18

6.7


				Weighted average
	Number of stock options			Exercise price		Remaining contractual term (in years)		Aggregate Intrinsic Value (in thousands)
Balance at December 31, 2022		2,065		$	11.78		6.7	$	758.00
Granted		297		$	5.56
Exercised		(12	)	$	2.30			$	40.00
Expired/Forfeited		(304	)	$	13.65
Balance at September 30, 2023		2,046		$	10.65		6.2	$	281.00

Vested and exercisable at September 30, 2023		1,461		$	11.36		5.2	$	281.00
Vested and expected to vest at September 30, 2023		2,046		$	10.65		6.2	$	281.00

The weighted average grant date fair value of options granted during the nine months ended September 30, ~~2022~~2023 was $~~4.87~~2.84. The grant-date fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option-pricing model. For stock options vested and expected to vest, the aggregate intrinsic value as of September 30, ~~2022 and December 31, 2021,~~2023 was $~~0.9~~0.3 ~~million and $2.2~~ ~~million, respectively.~~million.

At September 30, ~~2022,~~2023, there was $~~3.9~~2.3 million of unrecognized compensation cost related to unvested stock options granted under the Company’s equity plans that is expected to be recognized over the next ~~2.4~~2.5 years.

1817

Restricted Stock

The following table summarizes the Company's restricted stock unit (RSU) activity during the period indicated (shares in thousands):


	Restricted stock units			Weighted average grant date fair value		Restricted stock units			Weighted average grant date fair value
Balance at December 31, 2021		333		$	17.55
Balance at December 31, 2022							444		$	11.78
Grants		147		$	9.02		653		$	5.16
Vested and released		(85	)	$	17.71		(287	)	$	8.17
Forfeited		(86	)	$	15.51		(138	)	$	9.28
Balance at September 30, 2022		309		$	14.01
Balance at September 30, 2023							672		$	7.41

As of September 30, ~~2022,~~2023, there was $~~3.3~~3.9 million of total unrecognized compensation cost related to unvested restricted stock units having a weighted average remaining contractual term of ~~2.6~~3.0 years.

Performance Stock Units

The following table summarizes the Company's performance stock unit (PSU) activity during the period indicated (shares in thousands):


	Performance stock units		Weighted average grant date fair value		Performance stock units			Weighted average grant date fair value
Balance at December 31, 2021		—	$	—
Balance at December 31, 2022						137		$	2.09
Grants		174	$	2.20		—		$	—
Vested and released		—	$	—		—		$	—
Forfeited		—	$	—		(45	)	$	2.20
Balance at September 30, 2022		174	$	2.20
Balance at September 30, 2023						92		$	2.03

Service as well as market and performance conditions determine the number of PSUs that the holder will earn from 0% to 150% of the target number of shares. The percentage received is based on the Company common stock price targets over a three-year service period. Additionally, the Company must achieve or exceed 75% of the year to date revenue target measured at the end of the quarter in which the price target is achieved. As of September 30, ~~2022,~~2023, there was $~~0.3~~0.1 million of total unrecognized compensation cost related to unvested PSUs having a weighted average remaining contractual term of 1.5 years.

We estimate the fair value of PSUs with a market condition using a Monte Carlo simulation model as of the date of grant using historical volatility.

Share-Settled Obligation

~~Share-based compensation expense for~~During the ~~three and~~ nine months ended September 30, ~~2022 was~~2023, the Company settled $~~0.2~~0.9 million ~~and $0.5~~ ~~million, respectively for the liability classified restricted stock unit payout obligation~~ related to the 2022 ~~executive~~ bonus ~~accrual. The bonus accrual is based on probable achievement on financial and other performance targets.~~awards by granting 187,200 immediately vested RSUs.

Employee Stock Purchase Plan (ESPP)

The Company maintains the 2016 Employee Stock Purchase Plan (ESPP) that provides employees an opportunity to purchase common stock through payroll deductions. The ESPP is implemented through consecutive 6-month offering periods commencing on March 1 and September 1 of each year. The purchase price is set at 85% of the fair market value of the Company's common stock on either the first or last trading day of the offering period, whichever is lower. Annual contributions are limited to the lower of 20% of an employee's eligible compensation or such other limits as apply under Section 423 of the Internal Revenue Code. The ESPP is intended to qualify as an employee stock purchase plan for purposes of Section 423 of the Internal Revenue Code.

Based on the 15% discount and the fair value of the option feature of the ESPP, it is considered compensatory. Compensation expense is calculated using the fair value of the employees’ purchase rights under the Black-Scholes model. The Company currently uses authorized and unissued shares to satisfy share award exercises.

During the nine months ended September 30, ~~2022,~~2023, the Company received $~~0.4~~0.2 million from the issuance of ~~47,852~~38,400 shares under the ESPP.

Note ~~17.~~14. Concentration of Credit Risk

Concentration of Sales and Accounts Receivable

The following represents customers that accounted for 10% or more of total revenue:


	Three months ended September 30,						Nine months ended September 30,						Three months ended September 30,						Nine months ended September 30,
	2022			2021			2022			2021			2023			2022			2023			2022
Customer A		13	%		13	%		17	%		13	%		22	%		1	%		15	%		16	%
Customer B		12	%		4	%		12	%		3	%		12	%		12	%		10	%		12	%
Customer C		12	%		8	%		13	%		15	%		8	%		12	%		16	%		13	%
Customer D		9	%		14	%		7	%		8	%

The following represents customers that accounted for 10% or more of total trade accounts receivable:


	September 30, 2022			December 31, 2021			September 30, 2023			December 31, 2022
Customer A		18	%		29	%		14	%		3	%
Customer B		16	%		11	%		12	%		12	%
Customer C		13	%		3	%		12	%		15	%
Customer D								11	%		2	%
Customer E								10	%		0	%

The allowance for credit losses as of September 30, 2023 and December 31, 2022 was not material.

Concentration of Purchases

During the ~~three and~~ nine months ended September 30, ~~2022,~~2023, the Company’s products were primarily manufactured by ~~five~~six contract manufacturers with locations in China, Mexico, Minnesota, and ~~Vietnam and at~~Vietnam.

Concentration of Cash

The bank where most of the Company’s ~~Arizona facility (see Note 16).~~cash was held was placed into receivership with the FDIC on March 10, 2023. The Company’s cash deposits exceeded the FDIC insured limits at that time. However, the Treasury, the Federal Reserve, and the FDIC, as receiver, jointly released a statement that depositors at this specific bank would have access to their funds, including funds in excess of standard FDIC insurance limits. The Company has not experienced losses on these accounts. In the second quarter of 2023, the Company moved most of the deposits out of this institution to several accounts at a larger institutional bank.

Concentration of Property and Equipment

The Company’s property and equipment, net by geographic region, are as follows (in thousands):


	September 30, 2022		December 31, 2021		September 30, 2023		December 31, 2022
North America	$	2,494	$	2,288	$	2,227	$	2,469
Asia Pacific (APAC)		152		217		93		138
Europe, Middle East and Africa (EMEA)		170		193		134		158
Property and equipment, net	$	2,816	$	2,698	$	2,454	$	2,765

Note ~~18. Disaggregated~~15. Revenue

Disaggregated ~~revenue~~revenues are as follows (in thousands):


	Three months ended September 30,				Nine months ended September 30,				Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021		2023		2022		2023		2022
By Sales Channel:
Distributors and resellers	$	6,851	$	8,076	$	28,417	$	31,101
OEM/ODM/Contract manufacturer		7,164		2,014		13,818		7,193
Other		5,183		5,365		13,771		11,835
Total sales	$	19,198	$	15,455	$	56,006	$	50,129

By Market Group:
Enterprise									$	6,791	$	6,747	$	22,594	$	24,496
Consumer	$	7,334	$	4,599	$	19,377	$	23,800		4,404		7,334		15,725		19,377
Enterprise		6,747		8,698		24,496		19,231
Automotive		5,117		2,158	$	12,133		7,098		2,501		5,117		7,651		12,133
Total sales	$	19,198	$	15,455	$	56,006	$	50,129	$	13,696	$	19,198	$	45,970	$	56,006

By Geography:
North America									$	8,261	$	11,128	$	27,867	$	34,031
China (including Hong Kong and Taiwan)	$	7,443	$	5,916	$	20,170	$	25,025		4,961		7,443		16,989		20,170
North America		11,128		8,927		34,031		23,061
Rest of the world		627		612		1,805		2,043		474		627		1,114		1,805
Total sales	$	19,198	$	15,455	$	56,006	$	50,129	$	13,696	$	19,198	$	45,970	$	56,006

Revenue generated from the United States was $~~11.0~~8.2 million and $~~8.8~~11.0 million for the three months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively and $~~33.7~~27.6 million and $~~22.5~~33.7 million for the nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

Liability for potential rights of return was approximately $0.1 million and $0.3 million as of September 30, 2023 and December 31, 2022, respectively and is included within accrued liabilities in the accompanying unaudited condensed consolidated balance sheets.

The deferred revenues that are recorded as contract liabilities were $25,000 and $0.2 million as of September 30, 2023 and December 31, 2022, respectively.

Note ~~19.~~16. Subsequent Events

~~Appointment of Chief Financial Officer and Secretary~~

On October 17, 2022, the board of directors of the Company appointed Michael Elbaz as the Company’s Chief Financial Officer and Secretary. Upon his appointment, Mr. Elbaz replaced Jacob Suen, the Company’s President and Chief Executive Officer, as principal financial and accounting officer for filings under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended.

~~Appointment of Chief Revenue Officer~~

On November 9, 2022, the board of directors of the Company appointed Morad Sbahi as the Company’s Chief Revenue Officer. Mr. Sbahi previously was the Company’s Senior Vice President of Global Product and Marketing.None.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis and the interim unaudited condensed consolidated financial statements included in this quarterly report on Form 10-Q should be read in conjunction with the financial statements and notes thereto for the year ended December 31, ~~2021~~2022 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical fact contained in this quarterly report, including statements regarding our future operating results, financial position and cash flows, ~~the impact of COVID-19,~~ our business strategy and plans, and our objectives for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “would,” “could,” “should,” “expect,” “plan,” “anticipate,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this quarterly report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, operating results, business strategy, short-term and long-term business operations and objectives. These forward-looking statements speak only as of the date of this quarterly report and are subject to a number of risks, uncertainties and assumptions, including those described in Part II, Item 1A, “Risk Factors.” The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

Airgain is a leading provider of wireless connectivity solutions that creates and delivers embedded components, external antennas, and integrated systems across the globe. Airgain simplifies wireless connectivity across a diverse set of devices and markets, from solving complex connectivity issues to speeding time to market to enhancing wireless signals. ~~We segment our~~Our product offering ~~into~~includes three distinct sub-brands. Airgain ~~Embedded~~Embedded™ represents our embedded modems, antennas, and development kits that ~~are designed to~~ help design teams bring connected products to market quickly. Airgain ~~Integrated~~Antenna+™ represents our ~~fully-integrated, off-the-shelf~~external antennas, such as our fleet and Internet of things (IoT) antennas, that help enhance wireless signals in some of the harshest environments. Airgain Integrated™ represents our fully integrated products, such as our asset trackers, 5G connectivity solutions, and AirgainConnect® platform, that help solve connectivity issues in an organization’s operating environment. ~~Airgain Antenna+ represents our external antennas, such as our fleet and IoT antennas, that help enhance wireless signals in some of the harshest environments.~~ Our mission is to connect the world through optimized, integrated wireless solutions.

As a wireless connectivity solution provider with a rich history in radio frequency (RF) technology, we are leveraging our expertise in embedded antennas and embedded modems to effectively transition from a ~~components~~component provider to a wireless systems provider. In 2020, we announced our patented ~~new~~vehicle networking flagship platform – ~~AirgainConnect®.~~AirgainConnect. Our first product from this platform, the AC-HPUE™ antenna-modem, offers a novel solution for our public safety and automotive fleet markets by ~~vastly~~ improving vehicle networking ~~capabilities. We~~capabilities and we are ~~currently designing the~~developing our next generation products directed towards a broader vehicle market size. We have also designed an entire line of cellular-based, ruggedized asset trackers that deliver real-time location and condition data on assets, whether they are indoors, outdoors or in transit. In addition, we have a robust custom products offering where we design and build integrated products such as cellular routers, large venue WiFi access points, and external cellular modem modules for major original equipment manufacturers (OEMs). Finally, our advanced development team expects to roll out several new products this year designed to improve the ~~AirgainConnect platform, leveraging~~5G customer experience, further helping enable our ~~learnings from~~move into a leadership position in the ~~AC-HPUE deployment, where such products are intended to target domestic applications beyond first responders~~new wave of technologies and ~~will also target international markets.~~platforms.

~~On January 7, 2021,~~After a significant shift in 2022, we ~~purchased 100% of the outstanding shares of Minnesota-based NimbeLink Corp. NimbeLink is an industrial Internet of Things, or IIoT, company focused on the design, development,~~transitioned to a fabless model where we use third parties to manufacture our products while maintaining oversight for critical quality, test, and delivery of cellular solutions for enterprise customers. NimbeLink provides carrier-certified embedded modems and asset tracking solutions that minimize or often eliminate RF design and certification time from project schedules, significantly reducing costs and time to market.calibration functions. In addition, we maintain a deliberate

~~The acquisition of NimbeLink supports our transition toward becoming more of a system-level company~~intellectual property strategy that includes patent and ~~will play an important role~~trademark filings in ~~our overall growth strategy to broaden market diversification, particularly within~~multiple jurisdictions including the industrial IoT space. NimbeLink’s industrial IoT expertise fits squarely into one of our targeted enterprise submarkets. Our worldwide salesforce offers an opportunity to expand the reach of NimbeLink productsUnited States and also provides access to considerable design opportunities that were previously unavailable for NimbeLink products. The result is a substantial increase in the opportunities for us in the enterprise market and a more diverse offering of products and expertise for our customers.other commercially significant markets.

The consumer market encompasses a large and growing audience of consumers using wireless-enabled devices. Our antennas are deployed in consumer access points, wireless gateways, Wi-Fi Mesh systems and extenders, smart TVs, smart home devices, and set-top boxes. Additionally, our antennas support a comprehensive array of coveted technologies, including WLAN, Wi-Fi, LTE, 5G and LPWAN. In addition, our embedded modems provide critical connectivity for consumer products that include smart coffee makers, smart refrigerators, aerial drones, e-bikes and e-scooters, and more.Airgain’s core business primarily focuses on the following three key markets:

With our internal antennas, our design ~~teams~~team partner with customers from the early stages of antenna prototyping to device throughput testing in order to facilitate optimal performance and a significant reduction in time to market. Our capabilities include design, custom engineering support, integration, and ~~OTA~~over-the-air (OTA) testing. Leveraged in combination, these capabilities have resulted in a strong reputation across the OEM, ODM and chipset manufacturer ecosystem. Our competencies and strengths have helped us secure design wins used in multiple reference designs from leading Wi-Fi chipset vendors, OEMs, ODMs, chipset manufacturers and service providers who rely on these reference designs and our engineering skills to deliver superior throughput performance. We view our relationship with OEM, ODM, chipset manufacturers and service providers as an important attribute to our long-term strategy and success.

With our embedded modems, we offer customer design teams the ability to speed time to market by avoiding the cost and time delays of carrier certification. We combine cellular modules with the electronics and firmware to achieve end-device certification with major carriers. In addition, we offer the ability to futureproof their designs with the ability to update firmware remotely and swap module vendors, all without changing the pin design. By leveraging our embedded modems, customers designing cellular-connected products remove complexity from the design process, reducing the need for large RF engineering teams and launching products much quicker to take advantage of market opportunities.

Growth in demand for LTE, 5G, Wi-Fi 6/6E/7, LPWAN, IoT, HPUE, and many other technologies are driving significant increases in demand for our products. Every connected product needs a modem or wireless protocol and an antenna. As wireless technologies advance, the need for additional antennas and modems grows. In addition, as the trend toward smart homes, buildings, factories, and cities grows, connectivity becomes the backbone of life as we know it. From a police car patrolling the streets to a tractor plowing a farmer’s field, our world is more connected than it has ever been. With our broad portfolio of products that make wireless simple, Airgain is connecting the world.

Macroeconomic conditions have continued to create demand softness industrywide, including downward pressures relating to the anticipated service provider shift from WiFi 6E to WiFi 7. This demand softness combined with excess inventories in our channels and those of our direct customers, drove year-over-year declines in our Enterprise, Automotive and Consumer markets. These conditions have worsened in the second half of the fiscal year and, coupled with a delay in the completion of an Enterprise project, contributed to a material sales decline in the second half of the year compared to the first half of the year.These conditions have led to a reduction in visibility to customer demand and an increase in volatility in the management of our business. We remain focused on the execution of our strategic product initiatives and operational efficiencies, as they lay out the foundation of our revenue and profitability growths when market conditions improve.

The United States and other countries around the world are experiencing a major health pandemic related to COVID-19, which has created considerable instability and disruption in the U.S. and world economies. The continued spread of COVID-19 and its related effects on our business have had a material and adverse effect on our business operations. Through the date of this filing, these disruptions or restrictions include restrictions on our ability to travel to certain locations, temporary closures of our customer or supplier facilities, and through third quarter 2022 disruptions with certain components in our supply chain located in Asia as well as those of our customers. To address these challenges, we have identified and will continue to identify proactive purchases of long lead time inventory to mitigate global supply chain issues. Such disruptions to our customers have had a negative impact on our sales and operating results during 2022 and may continue to have a negative effect on our operating results in future quarters.

The impact of the COVID-19 pandemic on the U.S. and world economies generally, and our future results in particular, could be significant and will largely depend on future developments, which are highly uncertain and cannot be predicted.

We believe that our performance and future success depend upon several factors including ~~continuing effects~~macroeconomic and geopolitical uncertainties, epidemic diseases, impact of ~~COVID-19~~inflation on ~~our customer product rollouts, continuation of the global supply shortages,~~consumer spending, and our ability to ~~mitigate against such shortages through proactive advance purchases of long lead time inventory, the growth in sales of AC-HPUE~~transition from a component provider to a wireless systems provider and ~~follow on products in the AirgainConnect family, or other related products, continued improved performance of~~to develop technology leadership and expand our ~~contract manufacturers and success in expanding NimbeLink opportunities and sales.~~markets.

Our performance and future success also depend on factors such as ~~manufacturing costs,~~ continued investments in our growth, our ability to expand into growing addressable markets, including consumer, enterprise, and automotive, the average selling prices of our products per device, ~~the number of antennas per device,~~manufacturing costs and our ability to diversify the number of devices that incorporate our antenna products. Our customers are price conscious, and our operating results are affected by pricing pressure which may force us to lower prices below our established list prices. In addition, a few end-customer devices which incorporate our antenna products comprise a significant amount of our sales, and the discontinuation or modification of such devices may materially and adversely affect our sales and results of operations. Our ability to maintain or increase our sales depends on, among other ~~things,~~ things:

In addition, inflation generally affects us by increasing our raw material and employee-related costs and other expenses. Our financial condition and results of operations may also be impacted by other factors we may not be able to control, such as uncertain global economic conditions, health pandemics and epidemic diseases, global trade disputes or political instability, as well as conflicts around the world. We do not believe that such factors had a material adverse impact on our results of operations during the ~~three~~nine months ended September 30, ~~2022.~~2023.

While each of these areas presents significant opportunities for us, they also pose significant risks and challenges we must successfully address. We discuss many of these risks, uncertainties and other factors in greater detail in the section entitled “Risk Factors” included in this quarterly report on Form 10-Q and in Item 1A of our Annual Report on Form 10-K.

Our operating results historically have not been subject to significant seasonal variations. However, our operating results are affected by how customers make purchasing decisions around local holidays in China. Although it is difficult to make broad generalizations, our sales tend to be lower in the first quarter of each year compared to other quarters due to the Lunar New Year. General weakening of economic conditions may contribute to slower sales. Results for any quarter may not be indicative of the results that may be achieved for the full fiscal year and these patterns may change ~~because~~as a result of general customer demand or product cycles.

We primarily generate revenue from the sales of our products. We recognize revenue to depict the transfer of control over promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled for those goods or services. We generally recognize product sales at the time of shipment to our customers, provided that all other revenue recognition criteria have been met. Although currently ~~insignificant,~~immaterial, we also generate service revenue from agreements to provide design, engineering, and testing services as well as subscription revenue from the sale of data plans.

The cost of goods sold reflects the cost of producing antenna, embedded modem and asset tracking products that are shipped for our customers’ devices as well as costs incurred for service agreements. This primarily includes manufacturing costs of our products payable to our third-party contract manufacturers, as well as manufacturing costs incurred at our facility in Arizona, prior to closure in March 2022. The cost of goods sold that we generate from services ~~provided to customers~~and subscription revenues primarily includes personnel costs and the cost to maintain data lines.

Our operating expenses are classified into three categories: research and development, sales and marketing, ~~and~~ general and ~~administrative.~~administrative and subscription revenues. The largest component ~~for these categories~~of expense is personnel costs, which includes salaries, employee benefit costs, bonuses, and stock-based compensation. ~~Each of the three categories~~Operating expenses also include ~~allocation of~~allocated overhead costs for depreciation of equipment, facilities and information ~~technology expenses. Allocation of~~technology. Allocated costs for facilities ~~expenses consists~~consist of amortization of leasehold improvements as well as rent and utility expenses and taxes. Operating expenses are generally recognized as incurred.

Research and Development. Research and development expenses primarily consist of personnel and facility-related costs attributable to our engineering research and development personnel. These expenses include work related to the design, engineering and testing of antenna and modem designs and antenna integration, validation and testing of customer devices. These expenses include salaries, including stock-based compensation, benefits, bonuses, travel, communications, and similar costs, and depreciation and allocated costs for certain facilities. We may also incur expenses from consultants and for prototyping new antenna solutions. We expect research and development expenses to increase in absolute dollars in future periods as we continue to invest in the development of new solutions and markets, ~~and as we invest in improving efficiencies within our supply chain,~~ although our research and development expense may fluctuate as a percentage of total sales.

Sales and Marketing. Sales and marketing expenses primarily consist of personnel and facility-related costs for our sales, marketing, and business development personnel, stock-based compensation and bonuses earned by our sales personnel, and commissions earned by our third-party sales representative firms. Sales and marketing expenses also ~~includes~~include the costs of trade shows, advertising, marketing programs, promotional materials, demonstration equipment, travel, recruiting, and allocated costs for certain facilities. We expect sales and marketing expenses to fluctuate as a percentage of total sales.

General and Administrative. General and administrative expenses primarily consist of personnel and ~~facility-related~~facility related costs for our ~~executives,~~executive, legal, human resource finance, and administrative personnel, including stock-based compensation, as well as legal, accounting, and other professional services fees, depreciation, and other corporate expenses. We expect general and administrative expenses to fluctuate ~~over the next several quarters~~ as we grow our operations.

Interest Income, net. Interest income consists of interest from our cash and cash equivalents offset by interest expense which consists of interest charges on credit card charges and certain vendor bills.

Other Expense.~~Expense.~~ Other expense consists of the loss from disposal of property and equipment, realized foreign exchange gains or losses, and other expenses.

Provision for income taxes consists of federal ~~state,~~ and ~~foreign~~state income taxes. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled

reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax-planning strategies in making this assessment. It is difficult for us to project future taxable income as the timing and size of sales of our products are variable and difficult to predict. We concluded that it is not more likely than not that we will utilize our deferred tax assets other than those that are offset by reversing temporary differences.

The following tables set forth our operating results for the periods presented and as a percentage of our total sales for those periods. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods.


	Three months ended September 30,						Nine months ended September 30,						Three months ended September 30,						Nine months ended September 30,
	2022			2021			2022			2021			2023			2022			2023			2022
Statement of Operations Data:
Statement of Operations Data (in thousands):
Sales	$	19,198		$	15,455		$	56,006		$	50,129		$	13,696		$	19,198		$	45,970		$	56,006
Cost of goods sold		11,755			9,909			33,902			30,387			8,460			11,755			28,137			33,902
Gross profit		7,443			5,546			22,104			19,742			5,236			7,443			17,833			22,104
Operating expenses:
Research and development		2,901			2,698			9,117			8,130			2,298			2,901			7,337			9,117
Sales and marketing		2,808			2,484			8,552			7,412			1,704			2,808			6,875			8,552
General and administrative		2,998			3,307			9,738			10,201			3,144			2,998			10,533			9,738
Change in fair value of contingent consideration		—			103			—			1,660
Total operating expenses		8,707			8,592			27,407			27,403			7,146			8,707			24,745			27,407
Loss from operations		(1,264	)		(3,046	)		(5,303	)		(7,661	)		(1,910	)		(1,264	)		(6,912	)		(5,303	)
Other (income) expense		(17	)		(7	)		2			(6	)		(33	)		(17	)		(52	)		2
Loss before income taxes		(1,247	)		(3,039	)		(5,305	)		(7,655	)		(1,877	)		(1,247	)		(6,860	)		(5,305	)
Income tax expense (benefit)		52			30			134			(2,214	)
Income tax expense														4			52			84			134
Net loss	$	(1,299	)	$	(3,069	)	$	(5,439	)	$	(5,441	)	$	(1,881	)	$	(1,299	)	$	(6,944	)	$	(5,439	)


	Three months ended September 30,						Nine months ended September 30,						Three months ended September 30,						Nine months ended September 30,
	2022			2021			2022			2021			2023			2022			2023			2022
Statements of Operations Data:
Sales		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Cost of goods sold		61.2			64.1			60.5			60.6			61.8			61.2			61.2			60.5
Gross profit		38.8			35.9			39.5			39.4			38.2			38.8			38.8			39.5
Operating expenses:
Research and development		15.1			17.4			16.3			16.2			16.8			15.1			16.0			16.3
Sales and marketing		14.6			16.1			15.2			14.8			12.4			14.7			15.0			15.3
General and administrative		15.6			21.4			17.4			20.4			22.9			15.6			22.8			17.4
Change in fair value of contingent consideration		—			0.7			-			3.3
Total operating expenses		45.4			55.6			48.9			54.7			52.1			45.4			53.8			49.0
Loss from operations		(6.6	)		(19.7	)		(9.5	)		(15.3	)		(13.9	)		(6.6	)		(15.0	)		(9.5	)
Other (income) expense		(0.1	)		(0.0	)		0.0			(0.0	)		(0.2	)		(0.1	)		(0.1	)		0.0
Loss before income taxes		(6.5	)		(19.7	)		(9.5	)		(15.3	)		(13.7	)		(6.5	)		(14.9	)		(9.5	)
Income tax expense (benefit)		0.3			0.2			0.2			(4.4	)
Income tax expense														0.0			0.3			0.2			0.2
Net loss		(6.8	)%		(19.9	)%		(9.7	)%		(10.9	)%		(13.7	)%		(6.8	)%		(15.1	)%		(9.7	)%

Comparison of the Three and Nine Months Ended September 30, ~~2022~~2023 and ~~2021~~2022 (dollars in thousands)

~~Sales increased~~ for the three months ended September 30, ~~2022,~~2023 decreased $5.5 million or 28.7% compared to the same period in the prior year. ~~Revenue from our consumer~~Consumer market ~~increased $2.7~~sales decreased $2.9 million to ~~$7.3~~$4.4 million for the ~~current quarter~~three months ended September 30, 2023 from ~~$4.6~~$7.3 million ~~for~~during the same period in the prior year ~~primarily~~ due to ~~easing of global supply shortages impacting~~demand softness with our ~~customers' product rollout~~cable and ~~sales. Revenue for our automotive~~broadband operators. Automotive market ~~increased $2.9~~sales decreased $2.6 million, to ~~$5.1~~$2.5 million for the ~~current quarter,~~three months ended September 30, 2023, from ~~$2.2~~$5.1 million ~~for~~during the same period in the prior year ~~primarily~~driven by a decrease in aftermarket sales due to ~~higher aftermarket~~customer inventory correction, and a decrease in AirgainConnect HPUE sales. ~~These increases~~Enterprise market sales were ~~partially offset by a $1.9 million decrease of our enterprise market revenue to~~flat for the three months ended September 30, 2023 with $6.8 million ~~for the current quarter from $8.7 million for~~during the same period in the prior ~~year, primarily due to lower sales of industrial IoT products and enterprise Wi-Fi access point products.~~year.

Sales ~~increased~~ for the nine months ended September 30, ~~2022,~~2023 decreased $10.0 million or 17.9% compared to the same period in the prior year. ~~Revenue from our enterprise~~Consumer market ~~increased $5.3~~sales decreased $3.7 million to ~~$24.5 million for the current nine months from $19.2 million for the same period in the prior year, primarily due~~$15.7 to higher revenues generated from the sale of industrial IoT products and enterprise Wi-Fi access point products during the first half of 2022. Revenue for our automotive market increased $5.0 to $12.1 million for the current nine months, from $7.1 million for the same period in the prior year, primarily due to higher aftermarket and AC-HPUE sales. These increases were offset by a $4.4 million decrease of our consumer market revenue to $19.4 million for the current nine months from $23.8 million for the same period in the prior year, primarily due to weakness caused by global supply shortages impacting our customers' product sales during the first half of 2022.

Cost of goods sold increased $1.8 million for the three months ended September 30, 2022 compared to the same period in the prior year. This increase was mainly due to sales growth, but at a lower pace due to favorable sales mix and lower manufacturing costs.

~~Cost of goods sold increased $3.5~~ million for the nine months ended September 30, ~~2022 compared to~~2023 from $19.4 million during the same period in the prior ~~year. This increase was mainly~~year due to demand softness. Automotive market sales ~~growth, but grew at~~decreased $4.4 million to $7.7 million for the nine months ended September 30, 2023, from $12.1 million during the same period in the prior year driven by a ~~lower rate~~decrease in aftermarket sales due to customer inventory correction and a decrease in AirgainConnect HPUE sales. Enterprise market sales decreased $1.9 million, to $22.6 million for the ~~first quarter 2021~~nine months ended September 30, 2023 from $24.5 million during the same period in the prior year, driven by lower sales of embedded modems due to channel inventory ~~step-up adjustment~~correction, partially offset by higher sales of ~~$0.4 million and overall lower manufacturing costs in 2022.~~IOT products.

~~Gross profit as a percentage~~Cost of ~~sales increased by 2.9%~~goods sold for the three months ended September 30, ~~2022 compared to the same period in the prior year, primarily due to a favorable consumer revenue mix and aftermarket margin improvements.~~

Gross profit as a percentage of sales increased by 0.1% for the nine months ended September 30, 2022 compared to the same period in the prior year as unfavorable consumer revenue mix was offset by the effect of first quarter 2021 inventory step-up adjustment and gross margin improvements.

~~Research and development expense increased $0.2~~2023 decreased $3.3 million or ~~7.5% for the three months ended September 30, 2022,~~28.0% compared to the same period in the prior year. The ~~increase~~decline was primarily due to ~~higher product development expenses.~~sales decline.

~~Research and development expense increased $1.0 million or 12.1%~~Cost of goods sold for the nine months ended September 30, ~~2022,~~2023 decreased $5.8 million or 17.0% compared to the same period in the prior year. The ~~increase~~decline was ~~primarily~~ due to ~~higher personnel-related costs. Contributing to the increase of research and development expense was higher product development and engineering service expenses.~~sales decline.

Gross profit for the three months ended September 30, ~~2022,~~2023 decreased $2.2 million or 29.7%, compared to the same period in the prior ~~year. The increase was primarily due to higher people costs and increased advertising and tradeshow expenses.~~

~~Sales and marketing expense increased $1.1 million or 15.4%,~~year, driven by lower sales. Gross profit as a percentage of sales for the ~~nine~~three months ended September 30, ~~2022,~~2023 decreased by 60 basis points compared to the same period in the prior ~~year. The increase was primarily~~year due to ~~higher people costs~~an unfavorable sales mix and ~~advertising, tradeshows and external services.~~lower enterprise margin, partially offset by lower indirect costs.

~~General~~Gross profit for the nine months ended September 30, 2023 decreased $4.3 million or 19.3%, compared to the same period in the prior year, driven by lower sales and ~~Administrative~~an unfavorable product mix. Gross profit as a percentage of sales for the nine months ended September 30, 2023 decreased by 70 basis points compared to the same period in the prior year due to lower enterprise margin, partially offset by lower indirect costs.

Operating expenses for the three months ended September 30, ~~2022,~~2023 decreased $1.6 million or 17.9% compared to the same period in the prior year. The decrease was primarily ~~due to~~driven by lower ~~people costs~~employee compensation and ~~outsourced services.~~lower marketing expenses.

~~General and administrative expense decreased $0.5 million or 4.5%~~Operating expenses for the nine months ended September 30, ~~2022,~~2023 decreased $2.7 million or 9.7% compared to the same period in the prior year. The decrease was ~~due to~~primarily driven by lower ~~people costs~~employee compensation expenses and ~~higher general and administrative expense allocation to other departments.~~outsourced service expenses.

During the three and nine months ended September 30, 2021, we recorded a change in fair value of contingent consideration related to the NimbeLink acquisition of $1.7 million based on the forecasted revenue targets as of September 30, 2021.

Other expense for the three and nine months ended September 30, ~~2022,~~2023, consists primarily of ~~credit card interest expense.~~foreign currency transaction losses.

Income tax expense for the three months ended September 30, 2023 decreased $48,000 or 92.31% compared to the same period in the prior year.

Income tax expense for the nine months ended September 30, 2023 decreased $0.1 million or 37.3% compared to the same period in the prior year.

We had cash and cash equivalents of ~~$9.2~~$10.0 million at September 30, ~~2022.~~2023.

~~Before~~Prior to 2013 ~~we had incurred net losses in each year since our inception~~ and ~~have incurred net losses~~ for the years ended 2018, 2020, 2021 and ~~2021.~~2022, we have incurred net losses. As a result, we ~~had~~have an accumulated deficit of ~~$62.9~~$73.0 million at September 30, ~~2022.~~2023.

Since inception, we have primarily financed our operations and capital expenditures through private sales of preferred stock, public offerings of our common stock and cash flows from our operations. We have raised an aggregate of $29.5 million in net proceeds from the issuance of our preferred stock and convertible promissory notes and $37.0 million from the sale of common stock in our public offerings.

OnIn February ~~18,~~ 2022, we and our subsidiary NimbeLink Corp entered into a loan and security agreement with Silicon Valley Bank, pursuant to which we together ~~have~~had a revolving line of credit for $4.0 million. ~~As of September 30, 2022, there was no balance owed on the line of credit.~~ The line of credit will only allow for maximum advances of 80% of the aggregate face amount of certain eligible receivables. The line of credit bears an interest rate of WSJ prime (currently 3.25%) plus 1.75%,and maturesexpired in February 2023. ~~The lender has a first security interest in all of our and NimbeLink’s assets, excluding intellectual property, for which the lender has received a negative pledge.~~

On January 7, 2021, as a result of the Nimbelink acquisition, we assumed a revolving line of credit, or the Line of Credit, with Choice Financial Group, or Choice, whereby Choice had made available to Airgain a secured credit facility of up to the lesser of (1) $1.5 million or (2) the sum of (a) 80% of the aggregate amount of third party accounts receivable balances, excluding progress billings, foreign receivables, accounts subject to dispute or setoff and doubtful accounts (Eligible Accounts) aged less than 90 days, net of 10% allowance, and (b) 25% of raw materials and finished goods, except those held at named contract manufacturer, after a 10% reserve for excess and obsolete inventory. Amounts borrowed under the Line of Credit bore interest at the prime rate plus 1%, payable monthly. The facility was secured by a commercial guarantee and a lien over the property of NimbeLink including inventory, equipment, accounts receivable, investments, deposit accounts, other rights to payment and performance and general intangibles. In April 2021, we closed the Line of Credit with Choice.

In September 2019, our Board of Directors, or the Board, approved a share repurchase program, or the 2019 Program, pursuant to which we could purchase up to $7.0 million of shares of its common stock over the 12 month period following the establishment of the program. The repurchases under the 2019 Program were made from time to time in the open market or in privately negotiated transactions and were funded from our working capital. Repurchases were made in compliance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended, subject to market conditions, available liquidity, cash flow, applicable legal requirements and other factors. In September 2020, the Board approved an extension

~~to the 2019 Program for an additional 12 month period ending September 9, 2021. Upon expiration of the program, our Board has not authorized a new repurchase program, but may do so in the future.~~

We plan to continue to invest for long-term growth, including expanding our sales force and engineering ~~organizations~~ and making additional capital expenditures to further penetrate markets both in the United States and internationally, as well as expanding our research and development for new product offerings and technology solutions. We anticipate that these investments will continue to increase in absolute dollars. We believe that our existing cash and cash equivalents balance together with cash proceeds from operations will be sufficient to meet our working capital requirements for at least the next 12 months.

The following table presents a summary of our cash flow activity for the periods set forth below (in thousands):

Net cash ~~provided by~~used in operating activities. Net cash ~~provided~~used by operating activities was ~~$2.1~~$1.4 million for the nine months ended September 30, ~~2022.~~2023. This was primarily driven by ~~$6.4~~the net loss of $6.9 million offset by $5.2 million in non-cash expenses and ~~$1.1~~a $0.4 million net change in operating assets and ~~liabilities, offset by the net loss of $5.4 million.~~liabilities.

Net cash used in investing activities. Net cash used in investing activities of ~~$0.6~~$0.2 million for the nine months ended September 30, ~~2022,~~2023 was ~~primarily~~ for purchases of property and equipment.

Net cash used in financing activities. Net cash used in financing activities of ~~$6.8~~$0.5 million for the nine months ended September 30, ~~2022,~~2023, was primarily to pay ~~business acquisition,~~taxes for net share settlement of restricted stock units, partially offset by proceeds from common stock issuances under the ~~ESPP~~ESPP.

On March 27, 2020, the Coronavirus Aid, Relief, and ~~offset by~~Economic Security Act (CARES Act) was signed into law providing an employee retention credit (ERC), which is a refundable tax credit against certain employment taxes on qualified wages. The Taxpayer Certainty and Disaster Tax Relief Act of 2020, the American Rescue Plan Act of 2021 and the Infrastructure Investment and Jobs Act amended the qualifications for eligible employers who could apply and extended the availability of the ERC employment taxes on qualified wages paid after December 31, 2020 through September 30, 2021. We believe that we qualify for application of the ERC on qualified wages from the ~~net restricted shares issued upon vesting.~~second quarter of 2020 through the third quarter of 2021.

In August 2023, we applied for ERC refunds, totaling $2.5 million, net of professional fees. Pending the Internal Revenue Service’s (IRS) review and determination of our eligibility, we anticipate receiving the ERC refunds within the next nine months. However, there can be no assurance we will ultimately receive the amounts we currently expect, if any, or the timeframe of any such receipt, based on IRS review or otherwise.

There have been no material changes outside the ordinary course of our business during the nine months ended September 30, ~~2022,~~2023, to the information regarding our contractual obligations that was disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

We do not have any off-balance sheet arrangements (as defined by applicable regulations of the Securities and Exchange Commission) that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

Our management’s discussion and analysis of financial condition and operating results is based on our ~~unaudited condensed~~ consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported sales and expenses during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions.

There were no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Significant Judgments and Estimates,” in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

During the three months ended September 30, 2023, the Company had a decline in its market capitalization due to a current and near term demand softness in the wireless connectivity space, as reflected in a material decline in share price.

The decline in market capitalization indicated that the carrying value of the Company's intangible assets composed of acquired intangibles, developed technologies, customer relationships and non-compete agreements may not be recoverable.

Accordingly, the Company performed an interim impairment test to determine the recoverability of the assets group by comparing the future undiscounted cash flows expected from the use of the asset group to the carrying value at September 30, 2023. The recoverability test indicated that the future expected cash flows materially exceed the asset group carrying value. Therefore, the Company did not proceed with the third step to determine the fair value of the intangible assets and compare fair value against the carrying value. Based on the assessment performed, we determined that the intangible asset carrying values are not impaired as of September 30, 2023 and the useful lives remain appropriate.

The quantitative impairment test compares the fair value of the reporting unit to its carrying amount, including goodwill. To determine the fair value of the reporting unit, the Company engaged a valuation consulting firm to assist management for purposes of impairment testing. The Company estimated the fair value of our reporting unit using a weighting of the market and income approaches. For the market approach, we used the guideline public company method. Under this method we utilize information from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit to derive an indication of value. For the income approach, we used a discounted cash flow methodology to derive an indication of value, which required management to make estimates and assumptions related to forecasted revenues, gross profit margins, operating income margins, working capital cash flow, income tax rates, EBITDA, perpetual growth rates, and long-term discount rates, among others. Forecasts of future cash flows were based on our best estimate of future net sales and operating expenses, based primarily on customer forecasts, industry trade organization data and general economic conditions. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. Based on the analysis performed, the Company determined the fair value of the reporting unit is greater than the carrying value. Therefore, there is no goodwill impairment charge as of September 30, 2023.

carrying values and a non-cash impairment charge would be required. Such a charge may have a material effect on the consolidated financial statements.

See Note 2, “Summary of Significant Accounting Policies” within the unaudited condensed consolidated financial statements.

We are a smaller reporting company as defined by Rule 12b-2 of the ~~Securities Exchange Act of 1934, as amended, or the~~ Exchange Act and are not required to provide the information under this item.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this quarterly report on Form 10-Q. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the nine months ended September 30, ~~2022,~~2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

From time to time, we may be a party to legal proceedings and subject to claims incident in the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, we believe that the final outcome of these matters will not have a material adverse effect on our financial condition or business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.

A description of the risk factors associated with our business is included in Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. There have been no material changes to such risk factors. In evaluating our business, you should carefully consider the risk factors discussed in our Annual Report on Form ~~10-K, other than as set forth below.~~10-K. The occurrence of any of the risks discussed in such filings, or other events that we do not currently anticipate or that we currently deem immaterial, could harm our business, prospects, financial condition and results of operations. In that case the trading price of our common stock could decline, and you may lose all or part of your investment.

~~Our future success depends on our ability to develop and successfully introduce new and enhanced products and services for the wireless market that meet the needs of our customers.~~

Our sales depend on our ability to anticipate our existing and prospective customers’ needs and develop products that address those needs. Our future success will depend on our ability to introduce new products for the wireless market, anticipate improvements and enhancements in wireless technology and wireless standards, and to develop products that are competitive in the rapidly changing wireless industry. In furtherance of these efforts, we expect to invest significantly in ongoing research and development. If we do not adequately fund our research and development efforts, or if our research and development investments do not translate into material enhancements to our antenna products, we may not be able to compete effectively and our business, results of operations, and financial condition may be harmed. As we transition to a wireless systems solutions provider, we anticipate the need to increase our investment in research and development to stay on the leading edge of next generation development and to alight ourselves with the rapidly evolving technology needs of the industry. Moreover, the introduction of new products and product enhancements will require coordination of our efforts with those of our customers, suppliers, and manufacturers to rapidly achieve volume production and to support those products when they are in the field. We expect these coordination efforts to increase substantially in the future as we work with chipset vendors and OEM partners on new proof-of-concept and reference designs earlier in the development cycle. If we fail to coordinate these efforts, develop product enhancements or introduce new products that meet the needs of our customers as scheduled, our operating results will be materially and adversely affected, and our business and prospects will be harmed. We cannot assure that product introductions will meet the anticipated release schedules or that our wireless products will be competitive in the market.

In May 2020 we announced the AirgainConnect platform, including AirgainConnect AC-HPUE, an integrated FirstNet Ready™ high-power LTE modem. The introduction of the AirgainConnect platform represents a new platform that integrates high-power mobile modem technology with an antenna into the same package, enabling performance for 4G and 5G communications. The introduction of the new AirgainConnect platform, and the transition to a more expansive level of advanced product solutions, will require coordination of efforts and increased time and resources. If we fail to gain market acceptance with our customers, suppliers and manufacturers, our operating results will be materially and adversely affected, and our business and prospects will be harmed. In the third quarter of 2022, AT&T ceased special promotional service credits related to our AC-HPUE product, which has adversely affected and may continue to adversely affect sales of that product. In addition, while we plan to rollout follow-on products for the AirgainConnect platform, we may not ~~[MB(2]~~ ~~be able to successfully develop such products and, even if do, such products may not achieve meaningful market acceptance.~~

Furthermore, given the rapidly evolving nature of the wireless market, there can be no assurance our products and technology will not be rendered obsolete by alternative or competing technologies. The markets in which we operate are characterized by changing technology and evolving industry standards, which includes the introduction and implementation of Wi-Fi 6 and emerging 5G cellular standards. Despite years of experience in meeting customer design requirements with the latest in technological solutions, we may not be successful in identifying, developing and marketing products or systems that respond to rapid technological change, evolving technical standards and systems developed by others. Our competitors may develop technology that better meets the needs of our customers. If we do not continue to

develop, manufacture and market innovative technologies or applications that meet customers’ requirements, sales may suffer, and our business may not continue to grow in line with historical rates or at all.

Effective November 7, 2022, our board of directors of appointed Morad Sbahi as our Chief Revenue Officer. Mr. Sbahi previously was our Senior Vice President of Global Product and Marketing from February 2021 until his appointment as Chief Revenue Officer. Prior to that, Mr. Sbahi served as the Vice President of Corporate Strategy since February 2020 and General Manager of EMEA from 2013-2020. Before joining Airgain, Mr. Sbahi served as General Manager, EMEA for SMC Networks, Inc., and in other management positions with Broadcom, Texas Instruments, Applied Micro Circuits, and Ubee Interactive. Mr. Sbahi holds a BS in electrical engineering from Virginia Tech and an MBA from the Warwick Business School.

There are no family relationships between Mr. Sbahi and any director or executive officer of the company, and he has no direct or indirect material interest in any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K.

In connection with this new role, we entered into an amendment to his employment agreement. dated February 18, 2021, or the Employment Agreement, reflecting his new position, pursuant to which he will receive an annual base salary of $275,000 and will be eligible to receive an annual incentive bonus at an initial target of 60% of his annual base salary. Mr. Sbahi’s annual bonus for 2022 will be prorated for the portion of the year in his new position.

In connection with the commencement of his new role on November 9, 2022, Mr. Sbahi received stock options to purchase up to 50,000 shares of our common stock under our 2016 Incentive Award Plan. or the Plan. The stock options have an exercise price per share equal to the closing price of our common stock on the Nasdaq Stock Market on the date of grant. The stock options will vest over a four-year period, subject to Mr. Sbahi’s continued service to us through the applicable vesting dates. The stock options have a term of ten years from the date of grant. In addition, in connection with his new role, on November 9, 2022, Mr. Sbahi received 50,000 restricted stock units, or RSUs, under the Plan. The RSUs will vest over a four-year period, subject to Mr. Sbahi’s continued service to us through the applicable vesting dates. The stock options and RSUs shall become fully vested in connection with certain qualifying terminations of service within 60 days prior to or following a change in control of the company, as described in the Employment Agreement.

The foregoing description of the amendment to Mr. Sbahi’s Employment Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the amendment, which will be filed as an exhibit to the Company’s Annual Report on Form 10-K to be filed with respect to the fiscal year ended December 31, 2022, and his existing Employment Agreement, which was filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, filed with the SEC on May 6, 2021.

* These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Delaware		95-4523882
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

3611 Valley Centre Drive, Suite 150 San Diego, CA		92130
(Address of Principal Executive Offices)		(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.0001 per share	AIRG	Nasdaq Capital Market



	Page
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets	3
Condensed Consolidated Statements of Operations	4
Condensed Consolidated Statements of Comprehensive Loss	5
Condensed Consolidated Statements of Stockholders’ Equity	6
Condensed Consolidated Statements of Cash Flows	7
Notes to Condensed Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3. Quantitative and Qualitative Disclosures about Market Risk	31
Item 4. Controls and Procedures	31


PART II. OTHER INFORMATION
Item 1. Legal Proceedings	32
Item 1A. Risk Factors	32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3332
Item 3. Defaults Upon Senior Securities	3332
Item 4. Mine Safety Disclosures	3332
Item 5. Other Information	3332
Item 6. Exhibits	3432

SIGNATURES	3534


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐


Cash	$	15,991
Deferred payments(1)		728
Contingent consideration(2)		5,986
Replacement options(3)		40
Total purchase consideration	$	22,745


Cash	$	1,806
Accounts receivable		1,127
Inventory		1,671
Prepaids and other current assets		141
Property and equipment		151
Right of use assets		402
Other assets		194
Identified intangible assets		14,065
Accounts payable		(654	)
Accrued compensation		(139	)
Accrued expenses and other current liabilities		(432	)
Short-term lease liabilities		(78	)
Long-term lease liabilities		(324	)
Deferred tax liabilities		(2,330	)
Identifiable net assets acquired		15,600
Goodwill		7,145
Total purchase price	$	22,745


Category	Estimated life (in years)	Fair value
Finite-lived intangible assets
Market-related intangibles	5	$	1,700
Customer relationships	5		8,950
Developed technology	12		2,600
Covenants to non-compete	2		115
Indefinite-lived intangible assets
In-process research and development	N/A		700
Total identifiable intangible assets acquired		$	14,065


	September 30, 2022
	Amortized cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated fair value		Cash and cash equivalents
Cash	$	2,595	$	—	$	—	$	2,595	$	2,595
Level 1:
Money market funds		6,595		—		—	$	6,595	$	6,595
Total	$	9,190	$	—	$	—	$	9,190	$	9,190


	Severance and Exit Costs
	(In thousands)
Balance at December 31, 2022	$	—
Accrued to expense		205
Payments		(92	)
Balance at March 31, 2023	$	113
Accrued to expense		365
Payments		(71	)
Balance at June 30, 2023	$	407
Accrued to expense		(22	)
Payments		(385	)
Balance at September 30, 2023	$	—


Exhibit Number		Description

3.1(1)		Amended and Restated Certificate of Incorporation

3.2(2)		Amended and Restated Bylaws

4.1(3)		Specimen stock certificate evidencing the shares of common stock

31.1*31.1		Certification of Principal Executive Officer pursuant to Rules 13a-14 and 15d-14 promulgated pursuant to the Securities Exchange Act of 1934, as amended

31.2*31.2		Certification of Principal Financial Officer pursuant to Rules 13a-14 and 15d-14 promulgated pursuant to the Securities Exchange Act of 1934, as amended

32.1*		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document

101.SCH		Inline XBRL Taxonomy Extension Schema Document


101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)


		AIRGAIN, INC.

Date: November ~~14, 2022~~9, 2023		/s/ Jacob Suen
		Jacob Suen President and Chief Executive Officer (principal executive officer)




Date: November ~~14, 2022~~9, 2023		/s/ Michael Elbaz
		Michael Elbaz Chief Financial Officer (principal financial and accounting officer)