UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2022

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

For the transition period from __________ to ____________

Commission File Number: 001-38907

Sonim Technologies, Inc.

(Exact -name of -registrant as -specified in its -charter)

Delaware

94-3336783

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

6500 River Place Boulevard, Bldg. 7, S#250,

Austin, TX 78730

(Address of principal executive offices and Zip Code)

Registrant’s telephone number, including area code: (650) 378-8100

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock par value $0.001 per share		SONM		The Nasdaq Stock Market LLC

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, 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.

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

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

As of July 31, 2022, the registrant had 34,319,848 shares of common stock, $0.001 par value per share, issued and outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Unaudited Condensed Consolidated Balance Sheets	1
	Unaudited Condensed Consolidated Statements of Operations	2
	Unaudited Condensed Consolidated Statements of Stockholder’s Equity	3
	Unaudited Condensed Consolidated Statements of Cash Flows	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	26
Signatures		27

SONIM TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

JUNE 30, 2022 AND DECEMBER 31, 2021 (UNAUDITED)

(IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE AND

PER SHARE AMOUNTS)


	June 30, 2022			December 31, 2021
Assets
Cash and cash equivalents	$	18,155		$	11,233
Accounts receivable, net		5,316			10,803
Non-trade receivable		1,258			2,255
Inventory		3,422			5,544
Prepaid expenses and other current assets		3,027			5,852
Total current assets		31,178			35,687
Property and equipment, net		454			534
Right-of-use assets		553			—
Other assets		5,106			4,869
Total assets	$	37,291		$	41,090
Liabilities and stockholders’ equity
Current portion of long-term debt	$	141		$	148
Accounts payable		8,130			9,473
Accrued expenses		12,045			11,353
Other liability for proceeds received for equity not yet issued		6,800			—
Current portion of lease liability		662			—
Deferred revenue		155			11
Total current liabilities		27,933			20,985
Income tax payable		1,435			1,409
Long-term debt, less current portion		—			66
Lease liability		911			—
Total liabilities		30,279			22,460
Commitments and contingencies (Note 9)		-
Stockholders’ equity
Common stock, $0.001 par value per share; 100,000,000 shares authorized: and 19,340,560 and 18,808,855 shares issued and outstanding at June 30, 2022, and December 31, 2021, respectively.		19			19
Preferred stock, $0.001 par value per share, 5,000,000 shares authorized, and no shares issued and outstanding at June 30, 2022, and December 31, 2021, respectively.		—			—
Additional paid-in capital		254,213			253,416
Accumulated deficit		(247,220	)		(234,805	)
Total stockholders’ equity		7,012			18,630
Total liabilities and stockholders’ equity	$	37,291		$	41,090

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

SONIM TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)


	Three Months Ended						Six Months Ended
	June 30						June 30
	2022			2021			2022			2021
Net revenues	$	11,955		$	11,954		$	25,213		$	24,194
Cost of revenues		9,108			9,300			20,838			19,077
Gross profit		2,847			2,654			4,375			5,117
Operating expenses:
Research and development		2,721			3,670			6,889			8,334
Sales and marketing		2,073			2,188			4,243			4,369
General and administrative		1,779			2,379			3,990			4,641
Legal expenses		494			903			555			3,309
Total operating expenses		7,067			9,140			15,677			20,653
Loss from operations		(4,220	)		(6,486	)		(11,302	)		(15,536	)
Interest expense		(35	)		—			(74	)		—
Other income (expense), net		91			(124	)		68			(293	)
Loss before income taxes		(4,164	)		(6,610	)		(11,308	)		(15,829	)
Income tax expense		(61	)		(76	)		(129	)		(137	)
Net loss	$	(4,225	)	$	(6,686	)	$	(11,437	)	$	(15,966	)
Net loss per share, basic and diluted*	$	(0.22	)	$	(1.01	)	$	(0.60	)	$	(2.40	)
Weighted–average shares used in computing net loss per Share, basic and diluted^*		19,283,496			6,650,696			19,197,859			6,641,236

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

*	Reflects the 1-for-10 reverse stock split that became effective on September 15, 2021. Refer to Note 1 – The Company and its Significant Accounting Policies for further information.

SONIM TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

THREE AND SIX MONTHS ENDED JUNE 30, 2022, AND 2021 (UNAUDITED)

(IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE AMOUNTS)


	Common stock				Additional					Total
For the Three Months Ended June 30, 2022	Shares		Amount		Paid-in Capital		Accumulated Deficit			Stockholders’ Equity
Balance at April 1, 2022		19,269,338	$	19	$	253,997	$	(242,995	)	$	11,021
Net settlement of common stock upon release of RSU		71,222		—		—		—			—
Employee and nonemployee stock-based compensation		—		—		216		—			216
Net loss		—		—		—		(4,225	)		(4,225	)
Balance at June 30, 2022		19,340,560	$	19	$	254,213	$	(247,220	)	$	7,012

	Common Stock				Additional
For the Six Months Ended June 30, 2022	Shares		Amount		Paid-in Capital		Accumulated Deficit			Stockholders’ Equity
Balance at January 1, 2022		18,808,885	$	19	$	253,416	$	(234,805	)	$	18,630
Issuance of common stock, net of issuance costs		45,305		—		45		—			45
Issuance of common stock, compensation		415,023		—		253		—			253
Adoption of ASC 842 – leases (See Note 5)		—		—		—		(978	)		(978	)
Net settlement of common stock upon release of RSU		71,347		—		—		—			—
Employee and nonemployee stock-based compensation		—		—		499		—			499
Net loss		—		—		—		(11,437	)		(11,437	)
Balance at June 30, 2022		19,340,560	$	19	$	254,213	$	(247,220	)	$	7,012

			^*		^*
For the Three Months Ended June 30, 2021	Shares^*		Amount^*		Capital^*			Deficit			Equity
Balance at April 1, 2021		6,631,795	$	7	$	224,882		$	(205,458	)	$	19,431
Issuance of common stock upon exercise of ESPP		9,998		—		38			—			38
Net settlement of common stock upon release of RSU		53,538		1		(1	)		—			—
Employee and nonemployee stock-based compensation		—		—		179			—			179
Net loss		—		—		—			(6,686	)		(6,686	)
Balance at June 30, 2021		6,695,331	$	8	$	225,098		$	(212,144	)	$	12,962

	Common Stock				Additional
For the Six Months Ended June 30, 2021,	Shares^*		Amount^*		Paid-in Capital^*			Accumulated Deficit			Stockholders’ Equity
Balance at January 1, 2021		6,631,087	$	7	$	224,581		$	(196,178	)	$	28,410
Beginning balance		6,631,087	$	7	$	224,581		$	(196,178	)	$	28,410
Issuance of common stock upon exercise of stock options		708		—		5			—			5
Issuance of common stock upon exercise of ESPP		9,998		—		38			—			38
Net settlement of common stock upon release of RSU		53,538		1		(1	)		—			—
Employee and nonemployee stock-based compensation		—		—		475			—			475
Net loss		—		—		—			(15,966	)		(15,966	)
Balance at June 30, 2021		6,695,331	$	8	$	225,098		$	(212,144	)	$	12,962
Ending balance		6,695,331	$	8	$	225,098		$	(212,144	)	$	12,962

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

*	Reflects the 1-for-10 reverse stock split that became effective on September 15, 2021. Refer to Note 1 – The Company and its Significant Accounting Policies for further information.

SONIM TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2022 AND 2021 (UNAUDITED)

(IN THOUSANDS OF U.S. DOLLARS)


	Six Months Ended
	June 30
	2022			2021
Cash flows from operating activities:
Net loss	$	(11,437	)	$	(15,966	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		390			1,045
Stock-based compensation		752			475
Amortization of lease liability and lease interest expense		(404	)		—
Loss on disposal of asset		—			27
Deferred income taxes		—			(5	)
Bad debt expense (benefit)		2			(45	)
Changes in operating assets and liabilities:
Accounts receivable		5,485			(2,111	)
Non-trade receivable		997			(3,985	)
Inventory		2,122			(544	)
Prepaid expenses and other current assets		2,131			38
Other assets		457			(226	)
Accounts payable		(1,343	)		7,412
Accrued expenses		888			(1,985	)
Warranty liability		(54	)		(237	)
Deferred revenue		144			867
Income tax payable		26			26
Net cash provided by (used in) operating activities		156			(15,214	)
Cash flows from investing activities:
Purchase of property and equipment		(6	)		—
Net cash used in investing activities		(6	)		—
Cash flows from financing activities:
Repayment of debt		(73	)		(74	)
Proceeds from subscription agreement prior to issuance of common stock		6,800			—
Proceeds from issuance of common stock, net of costs		45			—
Proceeds from ESPP purchase of stock		—			38
Proceeds from exercise of stock options		—			5
Net cash provided by (used in) financing activities		6,772			(31	)
Net increase (decrease) in cash and cash equivalents		6,922			(15,245	)
Cash and cash equivalents at beginning of period		11,233			22,141
Cash and cash equivalents at end of period	$	18,155		$	6,896
Supplemental disclosure of cash flow information:
Cash paid for interest	$	74		$	—
Cash paid for income taxes	$	103		$	40
Non-cash operating and financing activities:
Deferred offering costs in accrued expenses	$	694		$	—
Shares issued under bonus plans	$	253		$	—

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

SONIM TECHNOLOGIES, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In thousands of U.S. dollars except share and per share amounts or as otherwise disclosed)

NOTE 1 —The Company and its significant accounting policies

Description of Business —Sonim Technologies, Inc. (Nasdaq: SONM) was incorporated in the state of Delaware on August 5, 1999, and is headquartered in Austin, Texas. The Company is a leading U.S. provider of ultra-rugged mobile phones and accessories designed specifically for task workers physically engaged in their work environments, often in mission-critical roles.

On September 15, 2021, the Company effected a 1-for-10 stock split (the “Reverse Stock Split”) of its issued and outstanding shares of common stock on that date. Additionally, the number of shares of the Company’s common stock subject to outstanding stock options and restricted stock units, the exercise price of all of its outstanding stock options, and the number of shares of common stock reserved for future issuance pursuant to its equity compensation plans were adjusted proportionately in connection with the Reverse Stock Split. The number of authorized shares of common stock under the Company’s Amended and Restated Certificate of Incorporation and the par value per share of its common stock were unchanged. All historical share and per share amounts presented herein have been adjusted retrospectively to reflect these changes.

Liquidity and Ability to Continue as a Going Concern – The Company’s condensed consolidated financial statements account for the continuation of our business as a going concern. The Company is subject to the risks and uncertainties associated with the development and release of new products. The Company’s principal sources of liquidity as of June 30, 2022, consist of existing cash and cash equivalents totaling $18,155, and $10,700 in equity issuance to be paid for in the third quarter of 2022 in connection with the Company’s subscription agreement dated April 13, 2022 . A total of $17,500 has been received of which $6,800 was received prior to June 30, 2022 and $10,700 was received in July and August 2022 (see Note 12). The Company had current assets of $31,178 and current liabilities of $27,933, that included $6,800 that will be satisfied with the issuance of equity. The Company had a net loss for the three months ended June 30, 2022 of $4,225 that raises substantial doubt regarding the Company’s ability to continue as a going concern for a period of at least one year from the date of issuance of these unaudited condensed consolidated financial statements.

To alleviate a potential lack of liquidity, management is currently evaluating various funding alternatives and may seek to raise additional funds through the issuance of equity, mezzanine or debt securities, through arrangements with strategic or investment partners with greater resources or access to funds or through obtaining credit from government or financial institutions. As we seek additional sources of financing, there can be no assurance that such financing would be available to us on favorable terms or at all. Our ability to obtain additional financing in the debt and equity capital markets is subject to several factors, including market and economic conditions, our performance and investor sentiment with respect to us and our industry.

Basis of presentation and preparation

The Company uses the same accounting policies in preparing quarterly and annual financial statements. The condensed consolidated financial statements include the accounts of Sonim Technologies, Inc. and its wholly owned subsidiaries (collectively “Sonim” or the “Company”). Intercompany accounts and transactions have been eliminated. In the opinion of the Company’s management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The preparation of these unaudited condensed consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. Certain prior period amounts in the unaudited condensed consolidated financial statements and accompanying notes have been reclassified to conform to the current period’s presentation. These unaudited condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual audited consolidated financial statements and accompanying notes included in its Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”).

New accounting pronouncements:

Pronouncements adopted in 2022:

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), as amended, which requires lessees to recognize a liability associated with obligations to make payments under the terms of the arrangement in addition to a right-of-use asset representing the lessee’s right to use, or to control the use of the given asset assumed under the lease. The Company adopted ASC 842 on January 1, 2022. The adoption of ASC 842 resulted in the recording of right-of-use assets, lease liability, and the derecognition of deferred lease liabilities, with the offset to equity. Beginning in 2022, the Company records the amortization of the right-of-use assets, with a corresponding reduction in rent expense. These changes were not applied to periods prior to 2022 and make comparison of the Company’s consolidated financial statements between periods difficult or impossible because of the differences in accounting standards used. See Note 5 for further information.

NOTE 2 —Revenue recognition

The Company recognizes revenue primarily from the sale of products, which are primarily mobile phones and related accessories, and the majority of the Company’s contracts include only one performance obligation, namely the delivery of product. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is defined as the unit of account for revenue recognition under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. The Company also recognizes revenue from other contracts that may include a combination of products and non-recurring engineering (NRE) services or from the provision of solely NRE services. Where there is a combination of products and NRE services, the Company accounts for the promises as individual performance obligations if they are concluded as distinct. Performance obligations are considered distinct if they are both capable of being identified and distinct within the context of the contract. In determining whether performance obligations meet the criteria for being distinct, the Company considers a number of factors, such as the degree of interrelation and interdependence between obligations, and whether or not the good or service significantly modifies or transforms another good or service in the contract. During the three months ended June 30, 2022, and 2021, the Company did not have any contracts in which the products and NRE services were concluded to be a single performance obligation. In certain cases, the Company may offer tiered pricing based on volumes purchased for specific products. To date, all tiered pricing provisions have fallen into observable ranges of pricing to existing customers, thus, not resulting in any material right which could be concluded as its own performance obligation. In addition, the Company does not offer material post-contract support services to its customers.

SONIM TECHNOLOGIES, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In thousands of U.S. dollars except share and per share amounts or as otherwise disclosed)

Net revenue for an individual contract is recognized at the related transaction price, which is the amount the Company expects to be entitled to in exchange for transferring the goods and/or services. The transaction price for product sales is calculated as the product selling price, net of variable consideration, which may include estimates for marketing development funds, sales incentives, and price protection and stock rotation rights. The Company records reductions to net revenues related to future product returns based on the Company’s expectations and historical experience. Typically, variable consideration does not need to be constrained as estimates are based on specific contract terms. However, the Company continues to assess variable consideration estimates such that it is probable that a significant reversal of revenue will not occur. The transaction price for a contract with multiple performance obligations is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices for products are determined based on the prices charged to customers, which are directly observable. Standalone selling price of the professional services are mostly based on time and materials. The Company determines its estimates of variable consideration based on historical collection experience with similar payor classes, aged accounts receivable by payor class, terms of payment agreements, correspondence from payors related to revenue audits or reviews, the Company’s historical settlement activity of audited and reviewed claims and current economic conditions using the portfolio approach. Revenue is recognized only to the extent that it is probable that a significant reversal of the cumulative amount recognized will not occur in future periods.

Revenue is then recognized for each distinct performance obligation as control is transferred to the customer. Revenue attributable to hardware is recognized at the time control of the product transfers to the customer. Control is generally transferred when the Company has a present right to payment and title and the significant risks and rewards of ownership of products or services are transferred to its customers. For most of the Company’s revenue attributable to hardware, control transfers when products are shipped. Revenue attributable to professional services is recognized as the Company performs the professional services for the customer.

Disaggregation of revenue

The following table presents our net revenue disaggregated by product category:


	Three Months Ended				Six Months Ended
	June 30				June 30
	2022		2021		2022		2021
Smartphones	$	5,862	$	3,946	$	9,449	$	8,315
Feature Phones		6,001		7,780		14,838		14,339
Accessories / Other		92		228		926		1,540
Revenue	$	11,955	$	11,954	$	25,213	$	24,194

Shipping and handling costs

The Company has elected to account for shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the associated products. These costs are included in cost of revenues.

Distributor returns allowance

The Company records reductions to net revenues related to future distributor product returns based on the Company’s expectation. The Company had allowances for distributor product returns totaling approximately $0 and $237 as of June 30, 2022 and 2021.

SONIM TECHNOLOGIES, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In thousands of U.S. dollars except share and per share amounts or as otherwise disclosed)

Contract costs

Applying the practical expedient, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred when the amortization period of the assets that otherwise would have been recognized is one year or less. These costs are included in sales and marketing expenses.

The non-recurring costs associated with design and development of new products for technical approval, represent costs to fulfill a contract pursuant to ASC 340-40 Other Assets and Deferred Costs. Accordingly, the Company capitalizes these non-recurring engineering costs and amortizes such costs over the estimated period of time over which they are expected to be recovered, which is typically 4 years, the estimated life of a particular model phone.

The total capitalized costs to fulfill a contract is primarily associated with Company’s XP8 and XP3plus phones. As of June 30, 2022, and December 31, 2021, the total costs to fulfill a contract included in other assets were $1,909 and $2,345, respectively.

Contract balances

The Company records accounts receivable when it has an unconditional right to consideration. Contract liabilities are recorded when cash payments are received or due in advance of performance. Contract liabilities consist of advance payments and deferred revenue, where the Company has unsatisfied performance obligations. Contract liabilities are presented as a component of deferred revenue on the condensed consolidated balance sheets. As of June 30, 2022 and December 31, 2021, the contract liabilities were $155 and $11, respectively.

NOTE 3 —Fair value measurement

The fair value measurements standard establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under the standard are described below:

Level 1—Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.

Level 2—Inputs to the valuation methodology include:

	●	Quoted market prices for similar assets or liabilities in active markets;

	●	Quoted prices for identical or similar assets or liabilities in inactive markets;

	●	Inputs other than quoted prices that are observable for the asset or liability;

	●	Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.

Level 3—Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The assets or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

The following is a description of the valuation methodologies used for assets and liabilities measured at fair value. There have been no changes in the methodologies used at June 30, 2022, and December 31, 2021.

Money market funds are classified within level 1 of the fair value hierarchy because they are valued using quoted market prices.

SONIM TECHNOLOGIES, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In thousands of U.S. dollars except share and per share amounts or as otherwise disclosed)

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The following tables sets forth by level, within the fair value hierarchy, the Company’s assets at fair value:


	June 30, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds *	$	1,501	$	—	$	—	$	1,501


	December 31, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds *	$	1,500	$	—	$	—	$	1,500

*	Included in cash and cash equivalents on the condensed consolidated balance sheets.

NOTE 4 —Significant Balance Sheet Components

Accounts Receivable consists of the following:

Schedule of Accounts Receivable


	June 30, 2022			December 31, 2021
Trade receivables	$	6,250		$	11,735
Allowance for doubtful accounts		(934	)		(932	)
Accounts receivable, net		5,316			10,803
Vendor non-trade receivables		1,258			2,255
Total accounts receivable	$	6,574		$	13,058

The Company has non-trade receivables from a manufacturing vendor resulting from the sale of components to this vendor who manufactures and assembles final products for the Company.

The Company analyzes the need for reserves for potential credit losses and records allowances for doubtful accounts when necessary. The Company had allowances for such losses totaling approximately $934 and $932 as of June 30, 2022 and December 31, 2021, respectively. In July 2022, the Company reached a settlement for a customer of a $912 trade receivable that was fully reserved for in the June 30, 2022 allowance for doubtful accounts. The Company received $91 in cash and the remaining receivable was written off to the allowance for doubtful accounts.

Inventory consists of the following:

Schedule of Inventory

	June 30, 2022		December 31, 2021
Finished goods	$	2,466	$	2,952
Raw materials		560		1,986
Accessories		396		606
Inventory, Net	$	3,422	$	5,544

Distributor returns allowance

The Company records reductions to cost of goods sold related to future distributor product returns based on the Company’s expectation. The Company had inventory related to distributor product returns totaling approximately $41 and $229 as of June 30, 2022 and December 31, 2021 respectively.

SONIM TECHNOLOGIES, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In thousands of U.S. dollars except share and per share amounts or as otherwise disclosed)

Other assets consisted of the following:

Schedule of Other Assets

	June 30, 2022		December 31, 2021
Deferred NRE	$	1,909	$	2,345
Advances to third party manufacturers		2,000		2,000
Deposits		425		431
Costs for equity transaction that closed in 3^rd quarter (Note 12)		694		—
Other		78		93
Total Other Assets	$	5,106	$	4,869

Accrued Expenses consisted of the following:

Schedule of Accrued Expenses

	June 30, 2022		December 31, 2021
Customer allowances	$	3,652	$	3,148
Employee-related liabilities		754		1,893
Warranties		933		836
Accrual for goods received not invoiced		180		668
Contractual obligations		1,035		1,035
Royalties		1,165		1,210
Research and development		3,000		1,158
Shipping		205		157
Returns allowance		64		390
Legal		167		517
Costs for equity transaction that closed in 3^rd quarter (Note 12)		694		—
Other		196		341
Accrued liabilities, current	$	12,045	$	11,353

Other liability for proceeds received for equity not yet issued of $6,800 are payments received per the subscription agreement (see Note 12). The liability was relieved when stock was issued to the investors following the first close of the subscription agreement on July 13, 2022.

NOTE 5 —Leases

The Company adopted ASU 2016-02 on January 1, 2022. The Company elected to use “the effective date” method where the comparative reporting periods is unchanged from legacy US GAAP. The Company elected the package of practical expedients to not reassess the classifications of existing leases and to not reassess if initial direct costs qualify for capitalization. The Company identified and continued to classify six leases as operating leases at January 1, 2022. All of the Company’s leases are for office space. The Company has elected the practical expedient to not separate lease components from non-lease components for all leases.

At adoption of ASC 842, the Company determined the fair value of the lease liability for each of the four operating leases (excluding the short-term leases) as the net present value of future lease payments using the Company’s incremental borrowing rate of 8.5%. The incremental borrowing rate was determined by management as the interest rate that the Company would pay for a loan with a repayment stream that is the same as the lease payment stream and for a loan that is secured by the underlying lease assets. The Company determined that the incremental rate was 8.5% for all four leases at January 1, 2022. An ROU asset that represents the Company’s right to use the leased asset, was established at adoption for the same amount as the lease liability. Per ASC 842, ROU assets were reduced by $142 with the derecognition of deferred lease liabilities from December 31, 2021.

One of the Company’s ROU assets is part of an asset group that had indicators of impairment (sublease income that is significantly less than the head lease obligation) as of December 31, 2021 and accordingly subject to an impairment analysis under ASC 360 at that time. At December 31, 2021 the amount of leasehold improvements and other recorded assets related to the asset group were not significant and as a result no impairment was required prior to adoption of ASC 842; however, had the recorded assets of the group at December 31, 2021 been significant an impairment charge would have been required. Upon adoption of ASC 842 and the recording of the ROU asset within this asset group, the Company reassessed impairment under ASC 360. As a result of this assessment, it was determined that as of the adoption date the fair value of the asset group was less than the recorded carrying value upon adoption and an impairment related to the ROU asset of $978 was required. Since all impairment conditions and events were present at December 31, 2021 as well as the adoption date, the Company recognized the impairment of $978 as an adjustment to beginning of the year retained earnings upon the adoption date.

SONIM TECHNOLOGIES, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In thousands of U.S. dollars except share and per share amounts or as otherwise disclosed)

The Company entered into a sublease for the above property in September 2021 that had sublease income that was significantly less than the head lease payments. This sublease is for 13 months which, at the option of the subtenant, can be extended for 12 additional months. In determining the fair value of the ROU asset, the Company assumed that the subtenant will extend the lease because the sublease payments are less than market value. The Company determined that the fair value of the ROU asset as the sum of the sublease payments for the 25 months of the sublease. The Company is amortizing this ROU asset as sublease payments are received.

The Company elected the practical expedient for short-term leases for two leases that had terms of one year or less. ROU assets and lease liabilities were not established for these two short-term leases and rent payments are recorded as rent expense.

On January 1, 2022 the Company began recording all lease payments as the payment of lease interest expense and a reduction of the lease liability for the four leases that are not short-term. ROU assets are amortized over the life of the Company’s lease. The following table shows the activity of the ROU assets and lease liability for the six months ending on June 30, 2022:

	Lease Liability
Balance, December 31, 2021	$	—
Adoption of ASC 842		1,976
Principal payments		(403	)
Balance, June 30, 2022		1,573
Less short-term portion		(662	)
Long term lease liability	$	911

	ROU Assets
Balance, December 31, 2021	$	—
Adoption of ASC 842		1,976
Derecognition of deferred rent liability		(142	)
Impairment of ROU asset		(978	)
Amortization		(303	)
Balance, June 30, 2022	$	553

Future minimum lease payments under noncancelable operating lease commitments are as follows as of June 30, 2022:

Year Ending, December 31^st,
2022	$	438
2023		553
2024		467
2025		296
Total undiscounted minimum lease commitments	$	1,754
Effect of discounting		(181	)
Lease liabilities at June 30, 2022	$	1,573

In connection with leases, for the six months ended June 30, 2022, the Company recognized $266 for the amortization of ROU assets, $74 for interest expense on lease liabilities, and $70 of rent expense was included in Cost of Revenues. Variable lease payments, including reimbursements to the landlord for property taxes and operating expenses, of approximately $140 and short-term rent payments of $7 were included in rent expense for the six months ended June 30, 2022, and were offset by $66 in sublease income. The Company does not have any lease extension or termination options on any lease. The Company’s sublease does have a one year extension option, at the option of the subtenant, that the Company expects to be executed and is included in the value of the ROU asset. There are no residual value guarantees in any lease. The weighted average remaining lease term of the operating leases is approximately 2.7 years. The weighted average of the discount rate for both the discount rate used to calculate the lease liabilities and the remaining balance of the lease payments for each lease as of June 30, 2022 is 8.5%.

SONIM TECHNOLOGIES, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In thousands of U.S. dollars except share and per share amounts or as otherwise disclosed)

NOTE 6 —Long-Term Debt

In 2014 and 2017, the Company entered into agreements with one of its suppliers, whereby certain of its trade payables for royalties and royalty up-front payments were converted to payment plans. In December 2018, the Company amended its accounts payable financing agreements, effective January 1, 2019, which provides for the $736 outstanding balance to be paid in twenty equal quarterly installments. The amounts due under these agreements are paid in quarterly installments over periods from two to four years, with interest ranging up to 8%. Remaining balances are $141 and $214 at June 30, 2022 and December 31, 2021, respectively.

NOTE 7 —Stock-based Compensation

Stock-based compensation expense for the three and six months ended June 30, 2022, and 2021 is as follows:


	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2022			2021		2022			2021
Cost of revenues	$	9		$	16	$	20		$	32
Sales and marketing		(28	)		55		(2	)		111
General and administrative		240			63		465			237
Research and development		(5	)		45		16			95
Stock-based compensation expense	$	216		$	179	$	499		$	475

Stock Options:

Stock option activity for the six months ended June 30, 2022, is set forth in the table below and reflects the 1-for-10 Reverse Stock Split that became effective on September 15, 2021:

Summary of Stock Option Activity

				Weighted average		Weighted average remaining
				exercise price		contractual life		Aggregate Intrinsic
	Options			per share		(in years)		Value*
Outstanding at January 1, 2022		95,413		$	40.00		6.73	$	0
Options granted		—		$	—
Options exercised		—		$	—
Options forfeited		(6,519	)	$	26.84
Options expired		(5,538	)	$	58.78
Outstanding at June 30, 2022		83,356		$	39.78		5.28	$	0


Exercisable at June 30, 2022		60,860		$	42.19		4.48	$	0

*	The intrinsic value is calculated as the difference between the exercise price and the fair value of the common stock on the balance sheet date.

As of June 30, 2022, there was approximately $826 of unamortized stock-based compensation cost related to unvested stock options, which is expected to be recognized over a weighted average period of approximately two years.

SONIM TECHNOLOGIES, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In thousands of U.S. dollars except share and per share amounts or as otherwise disclosed)

Restricted Stock Units:

Restricted stock units’ (“RSU”) activity for the six months ended June 30, 2022, is set forth in the table below and reflects the 1-for-10 Reverse Stock Split that became effective on September 15, 2021:

Summary of Outstanding RSU's

	RSUs
Outstanding at January 1, 2022		347,110
Granted		—
Released		(71,347	)
Forfeited		(40,661	)
Outstanding at June 30, 2022		235,102

NOTE 8 —Income Taxes

In determining quarterly provisions for income taxes, the Company uses the annual estimated effective tax rate applied to the actual year-to-date profit or loss, adjusted for discrete items arising in that quarter. The Company’s annual estimated effective tax rate differs from the U.S. federal statutory rate primarily as a result of state taxes, foreign taxes, and changes in the Company’s valuation allowance against its deferred tax assets. For the three months ended June 30, 2022, and 2021, the Company recorded provisions for income taxes of $61 and $76, respectively.

NOTE 9 —Commitments and Contingencies

The terms and conditions of applicable bylaws, certificates or articles of incorporation, agreements or applicable law may obligate Sonim under certain circumstances to indemnify its current and former directors, officers or employees, and underwriters, with respect to certain of the matters described below and Sonim has been advancing legal fees and costs to certain current and former directors, officers, employees and underwriters in connection with certain matters describe below.

Third Party Designer Commitments—The aggregate amount of noncancelable outsourced third-party designer services for our next generation phones as of June 30, 2022 and December 31, 2021, was approximately $2,447 and $6,460, respectively, and were related to the XP5plus and the XP10.

Purchase Commitments—The aggregate amount of noncancelable purchase orders as of June 30, 2022 and December 31, 2021, was approximately $8,940 and $5,663, respectively, and are related to the purchase of components of our devices.

Royalty Payments— The Company is required to pay per unit royalties to wireless essential patent holders and other providers of integrated technologies on mobile devices delivered, which, in aggregate, amount to less than 5% of net revenues associated with each unit and expire between 2022 and 2026. Royalty expense for the six months ended June 30, 2022, and 2021 was $807 and $845, respectively and is included in Cost of Revenues. The Company may be required to pay additional royalties to additional patent holder and technology providers on future products.

Securities Litigation—On September 20, 2019, a purported Sonim stockholder who allegedly purchased stock registered in Sonim’s initial public offering (“IPO”) filed a putative class action complaint in the Superior Court of the State of California, County of San Mateo, captioned Pearson v. Sonim Technologies, Inc., et al., Case No. 19CIV05564, on behalf of himself and others who purchased shares of Sonim registered in the IPO (the “Pearson Action”). On October 4 and 16, 2019, two additional purported class action complaints substantially similar to the Pearson Action were filed on behalf of different plaintiffs yet the same putative class of Sonim stockholders, in the same court as the Pearson Action (the “‘33 Act State Court Actions”). The defendants asked the Superior court to dismiss the “33 Act State Court Actions based on the provision in the Company’s Amended and Restated Certificate of Incorporation requiring stockholders to file and litigate in federal court any claims under the Securities Act of 1933. On December 7, 2020, the Superior Court entered an order granting defendants’ motion to dismiss. On October 7, 2019, a substantially similar putative class action lawsuit was filed in the United States District Court for the Northern District of California (the “‘33 Act Federal Action”). All four complaints allege violations of the Securities Act of 1933 by Sonim and certain of its current and former officers and directors for, among other things, alleged false or misleading statements and omissions in the registration statement issued in connection with the IPO, relating primarily to an alleged failure to disclose software defects in Sonim’s phones and alleged misstatements about performance characteristics of Sonim’s phones. In July 2020, the Company entered into an agreement with the Lead Plaintiff in the ‘33 Act Federal Action to settle that case on a class wide basis for $2.0 million. As a result, the Company paid out the $2.0 million settlement as of December 31, 2020. On March 5, 2021, the court presiding over the ‘33 Act Federal Action granted final approval of the settlement.

SONIM TECHNOLOGIES, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In thousands of U.S. dollars except share and per share amounts or as otherwise disclosed)

Securities and Exchange Commission Formal Order of Private Investigation: In March 2020, the Company received a voluntary document request from the SEC San Francisco Regional office, and in August 2020, the Company was informed that the SEC Staff was conducting a formal investigation into events that occurred in 2018-2019. The Company has been cooperating in the SEC’s ongoing investigation. In October 2021, the Company and the SEC Staff began discussions regarding a potential resolution of the investigation. These discussions are ongoing. The Company is unable to predict the likely outcome of the investigation, including whether it can be resolved through settlement negotiations, or determine its potential impact, if any, on the Company.

Derivative litigation—On September 21, 2020, the Company, and certain of its current and former directors and officers were sued by a stockholder on behalf of our Company in a derivative action in the United States District Court for the District of Delaware, captioned Kusiak v. Plaschke, et al., Case No 20-cv-1270-MN (“Kusiak”). The Kusiak complaint was based largely on the same underlying factual allegations as the ‘33 Act Federal Action. The Company filed a motion to dismiss the Kusiak derivative action based on plaintiff’s failure to make a litigation demand on Sonim’s directors. On February 1, 2021, plaintiff in Kusiak voluntarily dismissed the action without prejudice.

On February 1, 2021, the same plaintiffs’ lawyers in the Kusiak action filed a new derivative action in the United States District Court for the District of Delaware against the Company and certain of its current and former directors and officers, captioned Gupta v. Plaschke, et al., Case No. 1:21-cv-130-MN (“Gupta”). The allegations in the Gupta complaint are generally similar to those in the Kusiak action. On March 29, 2022, Judge Dawson granted Defendants’ motion to dismiss and gave the plaintiff 14 days to file an amended complaint. No amended complaint was filed and on April 14, 2022 the federal court dismissed the action with prejudice.

General litigation—The Company is involved in various other legal proceedings arising in the normal course of business. The Company does not believe that the ultimate resolution of these other matters will have a material adverse effect on its consolidated financial position, results of operations, or cash flows.

The results of any future litigation cannot be predicted with certainty and, regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management time and resources and other factors.

Indemnification—Under the terms of its agreements with wireless carriers and other partners, the Company has agreed to provide indemnification for intellectual property infringement claims related to Company’s product sold by them to their end customers. From time to time, the Company receives notices from these wireless carriers and other partners of a claim for infringement of intellectual property rights potentially related to their products. These infringement claims have been settled, dismissed, have not been further pursued by the customers, or are pending for further action by the Company.

Contingent severance obligations—The Company has agreements in place with certain key employees (Executive Severance Arrangements) guaranteeing severance payments under certain circumstances. Generally, in the event of termination by the Company without cause, termination due to death or disability, or resignation for good reason, the Company is obligated to the pay the employees in accordance to the terms of the agreements. On May 31, 2021, the Company and Tom Wilkinson agreed that he will cease serving as the Company’s Chief Executive Officer. In connection with his departure, the Company entered into a Separation and Release Agreement with him pursuant to which he will continue to be paid his base salary of $400, the rate in effect on the effective date for a period of twelve months, subject to tax withholding and any other authorized deductions.

In connection with the First Closing on July 13, 2022, Robert Tirva, then Company’s Chief Financial Officer and President, resigned and became eligible for one million dollars in severance payments over the next twenty months (Note 12).

On December 11, 2019, the Board of Directors approved the Sonim Technologies Inc. Transaction Bonus Plan (the “Plan”) that is intended to incentivize Company employees who are in a position to significantly impact the value received by the Company’s stockholders in a change of control transaction. Pursuant to the Plan, upon consummation of a change of control transaction, 10% of the consideration payable to Company stockholders, after deducting transaction expenses, will be distributed to Plan participants, including the Company’s named executive officers. The Plan has a three-year term and may be extended by the administrator of the Plan. Subject to the terms of the Plan, participants must be continuously providing services to the Company through the date of the closing of a change in control transaction to be eligible to receive a bonus thereunder, except in the event of death or disability or involuntary termination without cause as further described in Section 5(c) and 5(d) of the Plan, and payment is contingent upon delivery and non-revocation of a general release of claims.

The Board of Directors approved annual bonus payments to certain executives for the 2021 year in January 2022, and payments in cash and stock were made in January and February of 2022 to the executives.

SONIM TECHNOLOGIES, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In thousands of U.S. dollars except share and per share amounts or as otherwise disclosed)

NOTE 10 —Net Loss Per Share Attributable to Common Stockholders

The following table sets forth the computation of the Company’s basic and diluted net loss per share attributable to common stockholders for the three and six months ended:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
Numerator:
Net loss	$	(4,225	)	$	(6,686	)	$	(11,437	)	$	(15,966	)
Denominator:
Weighted-average shares used in computing net loss per share, basic and diluted		19,283,496			6,650,696			19,197,859			6,641,236
Net loss per share, basic and diluted	$	(0.22	)	$	(1.01	)	$	(0.60	)	$	(2.40	)

The dilutive common shares that were excluded from the calculation of diluted net loss per share because their effect would have been antidilutive for the period are presented in the table below. The table also reflects the 1-for-10 Reverse Stock Split that became effective on September 15, 2021:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Shares subject to options to purchase common stock		83,356		125,946		83,356		125,946
Unvested restricted stock units		235,102		209,848		235,102		209,848
Shares subject to warrants to purchase common Stock		2		2		2		2
Total		318,460		335,796		318,460		335,796

NOTE 11 —Segment and Geographic Information

The Company operates in one reporting segment. Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker, who is the chief executive officer, in deciding how to allocate resources and assessing performance. The Company’s chief operating decision maker allocates resources and assesses performance based upon discrete financial information at the consolidated level.

The following table summarizes the revenue by region based on ship-to destinations for the three and six months ended:

Summary of Revenue by Region


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
U.S.	$	8,520	$	8,111	$	19,920	$	16,738
Canada and Latin America		2,896		3,772		4,277		7,115
Europe and Middle East		536		66		893		327
Asia Pacific		3		5		123		14
Total revenues	$	11,955	$	11,954	$	25,213	$	24,194

SONIM TECHNOLOGIES, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In thousands of U.S. dollars except share and per share amounts or as otherwise disclosed)

The following table summarizes the composition of revenues for the three and six months ended:

Schedule of Composition of Revenues


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Product Sales	$	11,943	$	11,913	$	25,187	$	24,151
Services		12		41		26		43
Total revenues	$	11,955	$	11,954	$	25,213	$	24,194

Revenue from customers with concentration greater than 10% in the three and six months ended June 30, 2022 and 2021 accounted for approximately the following percentages of total revenues:

	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Customer A		*			14	%		*			12	%
Customer B		15	%		14	%		14	%		24	%
Customer C		13	%		13	%		*			13	%
Customer D		*			*			21	%		*
Customer E		51	%		41	%		41	%		31	%

*	Customer revenue did not exceed 10% in the respective period.

NOTE 12 —Subsequent Events

On April 13, 2022, the Company entered into a subscription agreement (the “Subscription Agreement”) with AJP Holding Company, LLC (“AJP”) whereby, subject to the terms thereof, AJP agreed to purchase from the Company an aggregate of 20,833,333 shares of the Company’s common stock (the “Purchased Shares”) for a purchase price of $0.84 per share, for an aggregate purchase price of $17.5 million.

Pursuant to the terms and conditions set forth in the Subscription Agreement, the Purchased Shares will be issued in two tranches: (i) 14,880,952 shares of the Company’s common stock (the “Initial Shares”) will be issued in consideration for an aggregate purchase price of $12.5 million (“First Closing”) and (ii) 5,952,381 shares will be issued for an aggregate purchase of $5.0 million.

The first closing was completed on July 13, 2022. Prior to June 30, 2022, $6.8 million was received and is recorded as a liability on the balance sheet at June 30, 2022. On July 12, 2022 the remaining $5.7 million was received for the first closing and 14,880,952 shares of the Company’s common stock were issued to AJP and their designees.

Between August 1, 2022 and August 3, 2022, $5 million was received for the “Second Closing”. On August 8, 2022, the Second Closing was completed and 5,952,381 shares of the Company’s common stock were issued to AJP and their designees.

In connection with the closings, the Company incurred approximately $3 million of expenses which will be offset against the proceeds in the third quarter of 2022.

Completion of the First Closing was subject to the satisfaction of several conditions, including: (i) approval of the Subscription Agreement by the requisite vote of the Company’s stockholders; (ii) resignation of all members of the Board of Directors, other than the Continuing Directors; and (iii) certain other customary conditions. These conditions were met as of July 13, 2022.

Upon completion of the transaction, AJP will own approximately 52% of Sonim’s post-transaction outstanding capital stock based on an estimated 19.3 million shares outstanding prior to the transaction. The agreement with AJP will also include a transition of the management team and Peter Liu, the Company’s Executive Vice President for Global Operations and Engineering, was appointed Chief Executive Officer, effective April 14, 2022. Peter Liu is part of the investment group at AJP.

On July 13, 2022, Robert Tirva, the CFO and President of the Company, resigned and became eligible for $1 million in severance payments over 20 months if he meets certain requirements. The severance costs were charged to expense as of the severance date. On July 13, 2022, the Company appointed Clay Crolius as Chief Financial Officer.

On July 13, 2022 two of the Company’s Board Members resigned and the remaining Board of Directors appointed three new Board Members, including a representative of AJP. On July 14, 2022 the Board of Directors appointed two additional Board Members including Peter Liu, the Company’s Chief Executive Officer.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K, as amended, for the year ended December 31, 2021. Certain statements in this report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those forward-looking statements include all statements that are not historical statements of fact and those regarding our intent, belief or expectations, including, but not limited to, statements regarding our business strategies, growth prospects, operating and financial performance, plans, estimates and projections. These statements are based on management’s current expectations and beliefs and on information currently available to us. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements involve risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements, including but not limited to:

	●	We are not in compliance with the listing standards of the Nasdaq Stock Market and as a result our common stock may become delisted;
	●	We may not be able to continue to develop solutions to address user needs effectively, including our next generation products, which would materially adversely affect our liquidity and our ability to continue operations;
	●	We have not been profitable in recent years and may not achieve or maintain profitability in the future;
	●	We rely on our channel partners to generate a substantial majority of our revenues;
	●	A small number of customers account for a significant portion of our revenue;
	●	We are materially dependent on some customer relationships that are characterized by product award letters and the loss of such relationships could harm our business and operating results;
	●	Our business is difficult to evaluate because we have a limited operating history in our markets;
	●	We continue to restructure and transform our business and there is no guarantee that our restructuring or transformation will be successful or achieve the desired results;
	●	Our quarterly results may vary significantly from period to period;
	●	We rely primarily on third-party contract manufacturers and partners;
	●	If our products contain defects or errors, we could incur significant unexpected expenses, experience product returns and lost sales, experience product recalls, suffer damage to our brand and reputation, and be subject to product liability or other claims;

	●	We are required to undergo a lengthy customization and certification process for each wireless carrier customer;
	●	Our dependence on third-party suppliers for key components of our products could delay shipment of our products and reduce our sales;
	●	We are dependent on the continued services and performance of a concentrated and limited group of senior management and other key personnel;
	●	We face risks related to health epidemics, pandemics and other outbreaks, including the COVID-19 pandemic;
	●	Changes in laws and regulations concerning the use of telecommunication bandwidth could increase our costs and adversely impact our business;
	●	If we are unable to successfully protect our intellectual property, our competitive position may be harmed;
	●	Others may claim that we infringe on their intellectual property rights, which may result in costly and time-consuming litigation and could delay or otherwise impair the development and commercialization of our products;
	●	We have identified one material weakness in our internal control over financial reporting which, if not remediated, could result in material misstatements in our financial statements;

The above is not a complete list of factors or events that could cause actual results to differ from our expectations, and we cannot predict all of them. Although we believe that we have a reasonable basis for each forward-looking statement contained in this report, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain. You should review the “Risk Factors” contained in Part I, Item 1A. of our Annual Report on Form 10-K, for the year ended December 31, 2021, and Part II, Item 1A of this Quarterly Report on Form 10-Q for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this Quarterly Report on Form 10-Q. As a result of these factors, we cannot assure you that the forward-looking statements in this report will prove to be accurate. Furthermore, if the forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Company Overview

We are a leading U.S. provider of ultra-rugged mobile devices, including phones and accessories designed specifically for task workers physically engaged in their work environments, often in mission-critical roles. We currently sell our ruggedized mobile phones and accessories to the three largest wireless carriers in the United States— AT&T, T-Mobile and Verizon—as well as the three largest wireless carriers in Canada—Bell, Rogers and Telus Mobility. We also sell our ruggedized phones and accessories through distribution channels in North America, South America and Europe. Our devices and accessories connect workers with voice, data and workflow applications in two end markets: industrial enterprise and public sector.

Factors Affecting Our Results of Operations

We believe that the growth and future success of our business depend on many factors. While these factors present significant opportunities for our business, they also pose important challenges that we must successfully address in order to improve our results of operations.

Research and Development

We believe that our performance is significantly dependent on the investments we make in research and development and that we must continue to develop and introduce innovative and high quality, new products on a two to three-year cycle. Our partnerships with ODMs are expected to enable us to shift between different types and numbers of devices under development without the need to adjust the size of our internal team.

While the hardware design of our devices is generally the same for all wireless carriers, each device must be configured to conform to the requirements of each wireless carrier’s network, resulting in higher development expenses as the number of wireless carriers we sell through increases. In addition to the design and configuration costs, each device must undergo a multi-month technical approval process at each carrier before it can be certified to be stocked at such carrier. The approval process for each device for each carrier has historically cost between $1-2 million. Prior to commencement of development of a product for certification, we generally do not receive any purchase orders or commitments. Following a carrier’s review of product concepts, we may receive a product award letter from that carrier to move forward with the development and certification process, at which time we may begin receiving advance purchase orders or commitments. Since the timing of when we seek technical approval with our wireless carriers tends to be cyclical in nature, quarter-over-quarter expenditures may vary significantly depending on the number of approvals in process during the quarter. If we fail to innovate and enhance our product offerings, our brand, market position and revenues may be adversely affected. If our research and development efforts are not successful, we will not recover these investments that we make.

New Customer Acquisitions

We are focused on continuing to acquire new customers, both in North America and overseas, to support our long-term growth. Historically, we have been dependent on a small number of wireless carriers distributing our products. We have invested, and expect to continue to invest, in our sales and marketing efforts to drive new customer acquisition. In particular, a key part of our strategy is to further expand the use of our solutions over dedicated LTE networks in the public safety market. In addition, we are developing products that will take advantage of the enhanced capabilities of our customers’ 5G networks. We also plan to continue to invest in international expansion. As a result, we expect our sales and marketing costs to increase as we seek to acquire new customers. Sales and marketing investments will often occur in advance of any sales benefits from these activities, and it may be difficult for us to determine if we are efficiently allocating our sales and marketing resources.

New Product Introduction and Seasonality

We have historically experienced lower net revenue in the quarters leading up to new product introductions, as the revenue decline of legacy products does not perfectly match the revenue ramp up of new products. New product introductions can significantly impact net revenue, gross profit and operating expenses. The timing of product introductions can also impact our net revenue as our wireless carrier customers prepare for a new product launch, and channel inventory of an older product often declines as the launch of a newer product approaches. Net revenue can also be affected when consumers and distributors anticipate a new product introduction. However, neither historical seasonal patterns nor historical patterns of product or service introductions should be considered reliable indicators of our future pattern of product or service introductions, future net sales or financial performance.

Recent Developments

Agreement with AJP Holding Company, LLC

On April 13, 2022, we entered into a Subscription Agreement (the “Subscription Agreement”) with AJP Holding Company, LLC (“AJP”), a Delaware limited liability company (“Purchaser”), pursuant to which Purchaser has agreed to purchase from Sonim an aggregate of 20,833,333 shares of our common stock for a purchase price of $17,500,000 (the “Purchased Shares”). Additionally, pursuant to the Subscription Agreement, on April 13, 2022, Peter Liu, who had served as Sonim’s Executive VP for Global Operations and Engineering since September 2010, was appointed Chief Executive Officer of Sonim.

Pursuant to the terms and conditions set forth in the Subscription Agreement, on July 13, 2022, 14,880,952 shares of our common stock (the “Initial Shares”) were issued in consideration for an aggregate purchase price of $12,500,000 (“First Closing”), of which 952,381 shares were issued to Mr. Liu Concurrent with the First Closing, all members of our board of directors (the “Board”), other than two Continuing Directors (as defined in the Subscription Agreement) resigned and three new members were appointed by the remaining members of our Board. In connection with the First Closing, Robert Tirva, then Company’s Chief Financial Officer and President, resigned and is eligible for one million dollars in severance payments over the next twenty months. Additionally, on July 13, 2022, the Board appointed Clay Crolius as Chief Financial Officer of the Company.

Shortly thereafter, on July 14, 2022, the Board convened and expanded its size to seven directors having appointed two more members including one independent director.

SEC Form 10-Q filed by Sonim Technologies Inc.