Document
false--12-31Q120200001022652falseAccelerated Filertrue12791000119250001601700015795000213300015780000.0010.001150000000150000000819740519617999181974051961799913322300039991000100010000.0010.0010.0010.00120000001000020000003950010000373301000037330 0001022652 2020-01-01 2020-03-31 0001022652 2020-05-04 0001022652 2020-03-31 0001022652 2019-12-31 0001022652 us-gaap:SeriesEPreferredStockMember 2020-03-31 0001022652 us-gaap:SeriesEPreferredStockMember 2019-12-31 0001022652 2019-01-01 2019-03-31 0001022652 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0001022652 2018-12-31 0001022652 us-gaap:AdditionalPaidInCapitalMember 2020-01-01 2020-03-31 0001022652 us-gaap:CommonStockMember 2019-12-31 0001022652 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-03-31 0001022652 us-gaap:NoncontrollingInterestMember 2019-12-31 0001022652 us-gaap:CommonStockMember 2020-01-01 2020-03-31 0001022652 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-12-31 0001022652 us-gaap:NoncontrollingInterestMember 2019-03-31 0001022652 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-03-31 0001022652 us-gaap:CommonStockMember 2018-12-31 0001022652 us-gaap:NoncontrollingInterestMember 2020-03-31 0001022652 us-gaap:NoncontrollingInterestMember 2018-12-31 0001022652 us-gaap:RetainedEarningsMember 2020-01-01 2020-03-31 0001022652 us-gaap:NoncontrollingInterestMember 2019-01-01 2019-03-31 0001022652 us-gaap:PreferredStockMember 2018-12-31 0001022652 us-gaap:RetainedEarningsMember 2019-01-01 2019-03-31 0001022652 us-gaap:AdditionalPaidInCapitalMember 2020-03-31 0001022652 us-gaap:RetainedEarningsMember 2020-03-31 0001022652 us-gaap:SeriesEPreferredStockMember us-gaap:AdditionalPaidInCapitalMember 2020-01-01 2020-03-31 0001022652 us-gaap:CommonStockMember 2019-01-01 2019-03-31 0001022652 us-gaap:PreferredStockMember 2019-12-31 0001022652 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-03-31 0001022652 us-gaap:PreferredStockMember 2020-03-31 0001022652 us-gaap:CommonStockMember 2020-03-31 0001022652 2019-03-31 0001022652 us-gaap:RetainedEarningsMember 2018-12-31 0001022652 us-gaap:AdditionalPaidInCapitalMember 2019-12-31 0001022652 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-03-31 0001022652 us-gaap:CommonStockMember 2019-03-31 0001022652 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0001022652 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-01-01 2020-03-31 0001022652 us-gaap:RetainedEarningsMember 2019-03-31 0001022652 us-gaap:RetainedEarningsMember 2019-12-31 0001022652 us-gaap:AdditionalPaidInCapitalMember 2019-03-31 0001022652 us-gaap:SeriesEPreferredStockMember us-gaap:PreferredStockMember 2020-01-01 2020-03-31 0001022652 us-gaap:SeriesEPreferredStockMember 2020-01-01 2020-03-31 0001022652 us-gaap:NoncontrollingInterestMember 2020-01-01 2020-03-31 0001022652 us-gaap:PreferredStockMember 2019-03-31 0001022652 us-gaap:SeriesEPreferredStockMember 2020-03-06 2020-03-06 0001022652 insg:InseegoNotesMember us-gaap:ConvertibleDebtMember 2020-01-01 2020-03-31 0001022652 insg:CreditAgreementMember us-gaap:LondonInterbankOfferedRateLIBORMember 2020-01-01 2020-03-31 0001022652 insg:SouthOceanFundingLLCMember us-gaap:SeriesEPreferredStockMember 2020-03-31 2020-03-31 0001022652 us-gaap:SeriesEPreferredStockMember 2020-03-06 0001022652 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001022652 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001022652 us-gaap:MoneyMarketFundsMember us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001022652 us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001022652 us-gaap:MoneyMarketFundsMember us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0001022652 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0001022652 us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0001022652 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0001022652 us-gaap:ConvertibleDebtMember 2019-12-31 0001022652 us-gaap:ConvertibleDebtMember 2020-03-31 0001022652 insg:TermLoanMember us-gaap:SecuredDebtMember 2019-12-31 0001022652 insg:TermLoanMember us-gaap:SecuredDebtMember 2020-03-31 0001022652 insg:InseegoNotesMember us-gaap:ConvertibleDebtMember 2017-01-09 2017-01-09 0001022652 insg:InseegoNotesAdditionalConversionsMember us-gaap:ConvertibleDebtMember 2020-01-01 2020-03-31 0001022652 insg:InseegoNotesMember us-gaap:DebtInstrumentRedemptionPeriodOneMember us-gaap:ConvertibleDebtMember 2017-01-09 2017-01-09 0001022652 insg:InseegoNotesMember us-gaap:ConvertibleDebtMember 2017-01-09 0001022652 insg:TermLoanMember us-gaap:SecuredDebtMember 2017-08-23 0001022652 insg:InseegoNotesMember us-gaap:DebtInstrumentRedemptionPeriodTwoMember us-gaap:ConvertibleDebtMember 2017-01-09 2017-01-09 0001022652 srt:MinimumMember insg:TermLoanMember us-gaap:SecuredDebtMember us-gaap:LondonInterbankOfferedRateLIBORMember 2017-08-23 0001022652 insg:NovatelWirelessNotesMember us-gaap:ConvertibleDebtMember 2015-06-10 0001022652 insg:InseegoNotesMember us-gaap:ConvertibleDebtMember 2017-08-23 2017-08-23 0001022652 2020-02-29 0001022652 insg:NovatelWirelessNotesMember us-gaap:ConvertibleDebtMember 2020-02-01 2020-02-29 0001022652 2020-02-01 2020-02-29 0001022652 insg:TermLoanMember us-gaap:SecuredDebtMember us-gaap:LondonInterbankOfferedRateLIBORMember 2017-08-23 2017-08-23 0001022652 insg:InseegoNotesMember us-gaap:DebtInstrumentRedemptionPeriodThreeMember us-gaap:ConvertibleDebtMember 2017-01-09 2017-01-09 0001022652 insg:TermLoanMember us-gaap:SecuredDebtMember 2017-08-23 2017-08-23 0001022652 insg:InseegoNotesMember us-gaap:ConvertibleDebtMember 2020-03-31 0001022652 insg:NovatelWirelessNotesMember us-gaap:ConvertibleDebtMember 2017-01-09 2017-01-09 0001022652 us-gaap:ConvertibleDebtMember 2020-01-01 2020-03-31 0001022652 us-gaap:ConvertibleDebtMember 2019-01-01 2019-03-31 0001022652 insg:TermLoanMember us-gaap:SecuredDebtMember 2019-01-01 2019-03-31 0001022652 insg:TermLoanMember us-gaap:SecuredDebtMember 2020-01-01 2020-03-31 0001022652 us-gaap:RestrictedStockUnitsRSUMember 2020-03-31 0001022652 us-gaap:RestrictedStockUnitsRSUMember 2020-01-01 2020-03-31 0001022652 us-gaap:RestrictedStockUnitsRSUMember 2019-12-31 0001022652 us-gaap:EmployeeStockOptionMember 2020-03-31 0001022652 us-gaap:EmployeeStockOptionMember 2020-01-01 2020-03-31 0001022652 us-gaap:GeneralAndAdministrativeExpenseMember 2020-01-01 2020-03-31 0001022652 us-gaap:CostOfSalesMember 2020-01-01 2020-03-31 0001022652 us-gaap:CostOfSalesMember 2019-01-01 2019-03-31 0001022652 us-gaap:ResearchAndDevelopmentExpenseMember 2020-01-01 2020-03-31 0001022652 us-gaap:SellingAndMarketingExpenseMember 2020-01-01 2020-03-31 0001022652 us-gaap:SellingAndMarketingExpenseMember 2019-01-01 2019-03-31 0001022652 us-gaap:ResearchAndDevelopmentExpenseMember 2019-01-01 2019-03-31 0001022652 us-gaap:GeneralAndAdministrativeExpenseMember 2019-01-01 2019-03-31 0001022652 us-gaap:SeriesEPreferredStockMember 2019-08-09 2019-08-09 0001022652 us-gaap:SeriesEPreferredStockMember 2019-08-09 0001022652 2018-08-06 0001022652 2018-08-06 2018-08-06 0001022652 2019-03-28 0001022652 2019-03-28 2019-03-28 0001022652 insg:UnitedStatesAndCanadaMember 2020-01-01 2020-03-31 0001022652 insg:OtherGeographicRegionsMember 2019-01-01 2019-03-31 0001022652 country:ZA 2019-01-01 2019-03-31 0001022652 insg:OtherGeographicRegionsMember 2020-01-01 2020-03-31 0001022652 country:ZA 2020-01-01 2020-03-31 0001022652 insg:UnitedStatesAndCanadaMember 2019-01-01 2019-03-31 0001022652 insg:CustomerOneMember us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember 2019-01-01 2019-03-31 0001022652 insg:CustomerOneMember us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember 2020-01-01 2020-03-31 0001022652 insg:CustomerOneMember us-gaap:AccountsReceivableMember us-gaap:CustomerConcentrationRiskMember 2020-01-01 2020-03-31 0001022652 insg:CustomerTwoMember us-gaap:AccountsReceivableMember us-gaap:CustomerConcentrationRiskMember 2019-01-01 2019-03-31 0001022652 insg:CustomerOneMember us-gaap:AccountsReceivableMember us-gaap:CustomerConcentrationRiskMember 2019-01-01 2019-03-31 0001022652 2018-07-26 2018-07-26 0001022652 insg:FeeneyWirelessMember 2017-03-15 2017-03-15 xbrli:shares iso4217:USD insg:trading_day insg:Segments iso4217:USD xbrli:shares xbrli:pure
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
 
10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
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: 001-38358
 
INSEEGO CORP.
 
(Exact name of registrant as specified in its charter)
Delaware
 
81-3377646
(State or Other Jurisdiction
of Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
12600 Deerfield Parkway, Suite 100
 

Alpharetta
Georgia
 
30004
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (858812-3400
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
INSG
Nasdaq Global Select Market
Preferred Stock Purchase Rights
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.
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 
The number of shares of the registrant’s common stock outstanding as of May 4, 2020 was 96,222,460.



TABLE OF CONTENTS
 
 
Page
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
 
 
 
 
Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
Item 5.
 
 
Item 6.
 
 




PART I—FINANCIAL INFORMATION
Item 1.     Financial Statements.
INSEEGO CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and share data)
 
March 31,
2020
 
December 31,
2019
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
30,541

 
$
12,074

Accounts receivable, net of allowance for doubtful accounts of $1,578 and $2,133, respectively
27,788

 
19,656

Inventories, net
14,259

 
25,290

Prepaid expenses and other
7,252

 
7,117

Total current assets
79,840

 
64,137

Property, plant and equipment, net of accumulated depreciation of $15,795 and $16,017, respectively
11,543

 
10,756

Rental assets, net of accumulated depreciation of $11,925 and $12,791, respectively
4,772

 
5,385

Intangible assets, net of accumulated amortization of $39,991 and $33,223, respectively
43,049

 
44,392

Goodwill
27,276

 
33,659

Right-of-use assets, net
6,476

 
2,657

Other assets
385

 
387

Total assets
$
173,341

 
$
161,373

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
27,550

 
$
26,482

Accrued expenses and other current liabilities
17,618

 
17,861

Term loan, net
46,911

 

DigiCore bank facilities
122

 
187

Total current liabilities
92,201

 
44,530

Long-term liabilities:
 
 
 
Convertible senior notes, net
44,230

 
101,334

Term loan, net

 
46,538

Deferred tax liabilities, net
2,976

 
3,949

Other long-term liabilities
6,131

 
2,380

Total liabilities
145,538

 
198,731

Commitments and Contingencies

 

Stockholders’ equity (deficit):
 
 
 
Preferred stock, par value $0.001; 2,000,000 shares authorized:
 
 
 
Series E Preferred stock, par value $0.001; 39,500 and 10,000 shares designated, respectively, 37,330 and 10,000 shares issued and outstanding, respectively, liquidation preference of $1,000 per share (plus any accrued but unpaid dividends)

 

Common stock, par value $0.001; 150,000,000 shares authorized, 96,179,991 and 81,974,051 shares issued and outstanding, respectively
96

 
82

Additional paid-in capital
682,047

 
584,862

Accumulated other comprehensive loss
(17,359
)
 
(3,879
)
Accumulated deficit
(636,893
)
 
(618,303
)
Total stockholders’ equity (deficit) attributable to Inseego Corp.
27,891

 
(37,238
)
Noncontrolling interests
(88
)
 
(120
)
Total stockholders’ equity (deficit)
27,803

 
(37,358
)
Total liabilities and stockholders’ equity (deficit)
$
173,341

 
$
161,373

See accompanying notes to unaudited condensed consolidated financial statements.

3




INSEEGO CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
 
 
Three Months Ended
March 31,
 
2020
 
2019
Net revenues:
 
 
 
IoT & Mobile Solutions
$
40,381

 
$
32,781

Enterprise SaaS Solutions
16,459

 
15,775

Total net revenues
56,840

 
48,556

Cost of net revenues:
 
 
 
IoT & Mobile Solutions
32,864

 
27,600

Enterprise SaaS Solutions
6,749

 
6,196

Total cost of net revenues
39,613

 
33,796

Gross profit
17,227

 
14,760

Operating costs and expenses:
 
 
 
Research and development
8,224

 
3,485

Sales and marketing
8,755

 
6,391

General and administrative
7,162

 
6,474

Amortization of purchased intangible assets
826

 
871

Total operating costs and expenses
24,967

 
17,221

Operating loss
(7,740
)
 
(2,461
)
Other income (expense):
 
 
 
Inducement expense
(7,933
)
 

Interest expense, net
(3,380
)
 
(5,075
)
Other income, net
978

 
313

Loss before income taxes
(18,075
)
 
(7,223
)
Income tax provision
91

 
248

Net loss
(18,166
)
 
(7,471
)
Less: Net income attributable to noncontrolling interests
(32
)
 
(14
)
Net loss attributable to Inseego Corp.
(18,198
)
 
(7,485
)
Series E preferred stock dividends
(392
)
 

Net loss attributable to common shareholders
$
(18,590
)
 
$
(7,485
)
Per share data:
 
 
 
Net loss per common share:
 
 
 
Basic and diluted
$
(0.20
)
 
$
(0.10
)
Weighted-average shares used in computation of net loss per common share:
 
 
 
Basic and diluted
90,874,347

 
74,366,879


See accompanying notes to unaudited condensed consolidated financial statements.

4



INSEEGO CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
 
 
Three Months Ended
March 31,
 
2020
 
2019
Net loss
$
(18,166
)
 
$
(7,471
)
Foreign currency translation adjustment
(13,480
)
 
(583
)
Total comprehensive loss
$
(31,646
)
 
$
(8,054
)
 
See accompanying notes to unaudited condensed consolidated financial statements.


5




 
INSEEGO CORP.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands)
(Unaudited)

 
Preferred Stock
 
Common Stock
 
Additional
Paid-in Capital
 
Accumulated
Other
Comprehensive Income (Loss)
 
Accumulated Deficit
 
Noncontrolling Interests
 
Total
Stockholders’ Equity (Deficit)
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
Balance, December 31, 2018

 
$

 
73,980

 
$
74

 
$
546,230

 
$
(4,877
)
 
$
(577,817
)
 
$
(135
)
 
$
(36,525
)
Net income (loss)

 

 

 

 

 

 
(7,485
)
 
14

 
(7,471
)
Foreign currency translation adjustment

 

 

 

 

 
(583
)
 

 

 
(583
)
Exercise of stock options and vesting of restricted stock units

 

 
497

 
1

 
398

 

 

 

 
399

Taxes withheld on net settled vesting of restricted stock units

 

 

 

 
(112
)
 

 

 

 
(112
)
Exercise of warrants

 
 
 
4,222

 
4

 
10,635

 

 

 

 
10,639

Share-based compensation

 

 

 

 
1,057

 

 

 

 
1,057

Balance, March 31, 2019

 
$

 
78,699

 
$
79

 
$
558,208

 
$
(5,460
)
 
$
(585,302
)
 
$
(121
)
 
$
(32,596
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2019
10

 
$

 
81,974

 
$
82

 
$
584,862

 
$
(3,879
)
 
$
(618,303
)
 
$
(120
)
 
$
(37,358
)
Net income (loss)

 

 

 

 

 

 
(18,198
)
 
32

 
(18,166
)
Foreign currency translation adjustment

 

 

 

 

 
(13,480
)
 

 

 
(13,480
)
Exercise of stock options and vesting of restricted stock units

 

 
129

 

 
49

 

 

 

 
49

Taxes withheld on net settled vesting of restricted stock units

 

 

 

 
(73
)
 

 

 

 
(73
)
Issuance of Series E preferred shares
27

 

 

 

 
27,330

 

 

 

 
27,330

Issuance of common shares in connection with the Notes Exchange

 

 
13,739

 
14

 
66,073

 

 

 

 
66,087

Exercise of warrants

 

 
338

 

 
1,861

 

 

 

 
1,861

Share-based compensation

 

 

 

 
1,553

 

 

 

 
1,553

Series E preferred stock dividends

 

 

 

 
392

 

 
(392
)
 

 

Balance, March 31, 2020
37

 
$

 
96,180

 
$
96

 
$
682,047

 
$
(17,359
)
 
$
(636,893
)
 
$
(88
)
 
$
27,803



See accompanying notes to unaudited condensed consolidated financial statements.

6



INSEEGO CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Three Months Ended
March 31,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Net loss
$
(18,166
)
 
$
(7,471
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
4,500

 
3,439

Provision for bad debts, net of recoveries
15

 
230

Provision for excess and obsolete inventory, net of recoveries
33

 
309

Share-based compensation expense
1,553

 
1,057

Amortization of debt discount and debt issuance costs
1,697

 
2,443

Fair value of inducement shares issued in Notes Exchange
7,933

 

Deferred income taxes
2

 
(18
)
Other
(514
)
 
120

Changes in assets and liabilities:
 
 
 
Accounts receivable
(8,590
)
 
(3,290
)
Inventories
8,876

 
(7,850
)
Prepaid expenses and other assets
(983
)
 
314

Accounts payable
1,921

 
3,509

Accrued expenses, income taxes, and other
2,051

 
2,175

Net cash provided by (used in) operating activities
328

 
(5,033
)
Cash flows from investing activities:
 
 
 
Purchases of property, plant and equipment
(567
)
 
(428
)
Proceeds from the sale of property, plant and equipment
163

 
50

Additions to capitalized software development costs and purchases of intangible assets
(4,453
)
 
(3,942
)
Net cash used in investing activities
(4,857
)
 
(4,320
)
Cash flows from financing activities:
 
 
 
Gross proceeds received from issuance of Series E preferred stock
25,000

 

Proceeds from the exercise of warrants to purchase common stock
1,861

 
10,639

Net repayment of DigiCore bank and overdraft facilities
134

 
(35
)
Principal payments under finance lease obligations
(657
)
 
(268
)
Taxes paid on vested restricted stock units, net of proceeds from stock option exercises
(24
)
 
287

Net cash provided by financing activities
26,314

 
10,623

Effect of exchange rates on cash
(3,318
)
 
(407
)
Net increase in cash, cash equivalents and restricted cash
18,467

 
863

Cash, cash equivalents and restricted cash, beginning of period
12,074

 
31,076

Cash, cash equivalents and restricted cash, end of period
$
30,541

 
$
31,939

Supplemental disclosures of cash flow information:
 
 
 
Cash paid (received) during the year for:
 
 
 
Interest
$
124

 
$
1,200

Income taxes
$
(352
)
 
$
48

Supplemental disclosures of non-cash activities:
 
 
 
Transfer of inventories to rental assets
$
727

 
$
791

Capital expenditures financed through accounts payable
$
1,934

 
$
2,232

Right-of-use assets obtained in exchange for operating leases liabilities
$
4,217

 
$
3,554

Preferred Stock issued in extinguishment of term loan accrued interest
$
2,330

 
$

Debt discount and issuance costs extinguished in notes conversion
$
1,728

 
$

Inseego Notes conversion to equity
$
59,907

 
$

Novatel Wireless Notes conversion to equity
$
250

 
$

 
 
 
 
See accompanying notes to unaudited condensed consolidated financial statements.

7




INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)

 
1. Basis of Presentation
The information contained herein has been prepared by Inseego Corp. (the “Company”) in accordance with the rules of the Securities and Exchange Commission (the “SEC”). The information at March 31, 2020 and the results of the Company’s operations for the three months ended March 31, 2020 and 2019 are unaudited. The condensed consolidated financial statements reflect all adjustments, consisting of only normal recurring accruals, except otherwise disclosed herein, which are, in the opinion of management, necessary for a fair statement of the results of the interim periods presented. These unaudited condensed consolidated financial statements and notes hereto should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The year-end condensed consolidated balance sheet data as of December 31, 2019 was derived from the Company’s audited consolidated financial statements and may not include all disclosures required by accounting principles generally accepted in the United States. Certain prior period amounts were reclassified to conform to the current period presentation. These reclassifications did not affect total revenues, costs and expenses, net income (loss), assets, liabilities or stockholders’ deficit. Except as set forth below, the accounting policies used in preparing these unaudited condensed consolidated financial statements are the same as those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The results of operations for the interim periods presented are not necessarily indicative of results to be expected for any other interim period or for the year as a whole.
The global outbreak of COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the U.S. Government in March 2020 and has negatively impacted the U.S. and global economy, disrupted global supply chains, resulted in significant travel and transport restrictions, including mandated closures and orders to “shelter-in-place,” and created significant disruption of the financial markets. The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S. government, state and local government officials, and international governments to prevent disease spread, all of which are uncertain and cannot be predicted.
Liquidity
As of March 31, 2020, the Company had available cash and cash equivalents totaling $30.5 million and a working capital deficit of $12.4 million
In order to make continued investments in its growth plan, on March 6, 2020, the Company issued and sold 25,000 shares of Fixed-Rate Cumulative Perpetual Preferred Stock, Series E, par value $0.001 per share (the “Series E Preferred Stock”), for an aggregate purchase price of $25.0 million.
Under the terms of the indenture governing the Inseego Notes (as defined below), both the Company and the holders have rights with respect to conversion or redemption based on the value of the underlying stock. In the first quarter of 2020, $59.9 million of the Inseego Notes were exchanged for common stock.
Under the terms of the indenture governing the Inseego Notes, each holder of the notes has the right to require the Company to repurchase its notes for cash on June 15, 2020 (the “Optional Repurchase Date”). In March 2020, substantially all of the remaining Inseego Note holders waived this right.
Under the terms of the Credit Agreement (as defined below), interest is paid based on the three-month LIBOR plus 7.65 percent, payable in cash. In the first quarter of 2020, the Credit Agreement was amended such that any interest payment due will be made in shares of Series E Preferred Stock. In accordance with the amended Credit Agreement, the Company issued 2,330 shares of Series E Preferred Stock in satisfaction of accrued interest due under the Term Loan as of March 31, 2020.
The Credit Agreement has a maturity date of August 23, 2020. On March 10, 2020, the Company entered into a letter agreement (the “Letter Agreement”) with South Ocean Funding, LLC (“South Ocean”), the Lender holding all of the aggregate principal amount currently outstanding under the Credit Agreement, which provides: (i) that the Company and South Ocean will work together, in good faith, to reach an agreement to amend or refinance the Credit Agreement in order to extend the maturity of the Credit Agreement until a date after March 15, 2021; and (ii) should an agreement not be reached to amend or refinance the Credit Agreement prior to August 23, 2020, upon request of the Company, the maturity date of the Credit Agreement will be extended to no earlier than March 15, 2021.

Based on the above, the Company’s management does not believe that its current cash and cash equivalents, together with anticipated cash flows from operations, will be sufficient to meet its working capital needs, including any required repayment of the Credit Agreement, without additional sources of cash. These circumstances, unless mitigated, raise substantial doubt about

8




INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)

the Company’s ability to continue as a going concern. The Company’s plan to mitigate the substantial doubt as to its ability to continue as a going concern is through the restructuring of its existing debt or issuance of additional debt or equity securities.
The Company’s liquidity could be impaired if there is any interruption in its business operations, a material failure to satisfy its contractual commitments or a failure to generate revenue from new or existing products. Ultimately, the Company’s ability to attain profitability and to generate positive cash flow is dependent upon achieving a level of revenues adequate to support its evolving cost structure and increasing working capital needs. If events or circumstances occur such that the Company does not meet its operating plan as expected, the Company may be required to raise additional capital, reduce planned research and development activities, incur additional restructuring charges or reduce other operating expenses which could have an adverse impact on its ability to achieve its intended business objectives. There can be no assurance that any required or desired restructuring or financing will be available on terms favorable to the Company, or at all. In addition, in order to obtain additional borrowings, the Company must comply with certain requirements under the Credit Agreement and the Inseego Indenture (as defined below). If additional funds are raised by the issuance of equity securities or securities convertible into equity, Company stockholders could experience dilution of their ownership interests and securities issued may have rights senior to those of the holders of the Company’s common stock. If additional funds are raised by the issuance of debt securities, the Company may be subject to additional limitations on its operations.
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly- and majority-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Segment Information
Management has determined that the Company has one reportable segment. The Chief Executive Officer, who is also the Chief Operating Decision Maker, does not manage any part of the Company separately, and the allocation of resources and assessment of performance is based solely on the Company’s consolidated operations and operating results.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent liabilities. Actual results could differ materially from these estimates. Significant estimates include revenue recognition, capitalized software costs, allowance for doubtful accounts receivable, provision for excess and obsolete inventory, valuation of intangible and long-lived assets, valuation of goodwill, royalty costs, accruals relating to litigation, income taxes, share-based compensation expense and the Company’s ability to continue as a going concern.
Revenue Recognition
Sources of Revenue
The Company generates revenue from a broad range of product sales including intelligent wireless hardware products for the worldwide mobile communications and industrial Internet of Things (“IoT”) markets. The Company’s products principally include intelligent mobile hotspots, wireless routers for IoT applications, USB modems, integrated telematics and mobile tracking hardware devices, which are supported by applications software and cloud services designed to enable customers to easily analyze data insights and configure and manage their hardware.
The Company classifies its revenues from the sale of its products and services into two distinct groupings, specifically IoT & Mobile Solutions and Enterprise SaaS Solutions. Both IoT & Mobile Solutions and Enterprise SaaS Solutions revenues include any hardware and software required for the respective solution.
IoT & Mobile Solutions. The IoT & Mobile Solutions portfolio is comprised of end-to-end edge to cloud solutions including 4G LTE mobile broadband gateways, routers, modems, hotspots, HD quality VoLTE based wireless home phones, cloud management software and an advanced portfolio of 5G products. The solutions are offered under the MiFi™ brand for consumer and enterprise markets, and under the Skyus brand for industrial IoT markets.
Enterprise SaaS Solutions. The Enterprise SaaS Solutions consist of various subscription offerings to gain access to the Company’s Ctrack telematics platforms, which provide fleet vehicle, aviation ground vehicle and asset tracking and performance information, and other telematics applications, and the Company’s Device Management System (“DMS”), a

9




INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)

hosted software-as-a-service (“SaaS”) platform that helps organizations manage the selection, deployment and spend of their customer’s wireless assets, helping them save money on personnel and telecom expenses.
Contracts with Customers
The Company routinely enters into a variety of agreements with customers, including quality agreements, pricing agreements and master supply agreements which outline the general commercial terms and conditions under which the Company does business with a specific customer, including shipping terms and pricing for the products and services that the Company offers. The Company also sells to some customers solely based on purchase orders. The Company has concluded, for the vast majority of its revenues, that its contracts with customers are either a purchase order or the combination of a purchase order with a master supply agreement.
The Company determines revenue recognition through the following five steps:
1)
identification of the contract, or contracts, with a customer;
2)
identification of the performance obligations in the contract;
3)
determination of the transaction price;
4)
allocation of the transaction price to the performance obligations in the contract; and
5)
recognition of revenue when, or as, performance obligations are satisfied.
The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
The Company’s performance obligations are established when a customer submits a purchase order notification (in writing, electronically or verbally) for goods and services, and the Company accepts the order. The Company identifies performance obligations as the delivery of the requested product or service in appropriate quantities and to the location specified in the customer’s contract and/or purchase order. The Company generally recognizes revenue upon the satisfaction of these criteria when control of the product or service has been transferred to the customer at which time it has an unconditional right to receive payment. The Company’s prices are fixed and have no history of being affected by contingent events that could impact the transaction price. The Company does not offer price concessions and does not accept payment that is less than the price stated when it accepts the purchase order.
Revenue Recognition
Revenue is recognized upon transfer of control of products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company enters into contracts that may include various combinations of products and services which are generally capable of being distinct and accounted for as separate performance obligations.
Hardware. Hardware revenue from the sale of the Company’s IoT & Mobile Solutions devices is recognized when the Company transfers control to the customer, typically at the time when the product is delivered, shipped or installed at which time the title passes to the customer, and there are no further performance obligations with regards to the hardware device.

10




INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)

SaaS and Other Services. SaaS subscription revenue is recognized over time on a ratable basis over the contract term beginning on the date that its service is made available to the customer. Subscription periods range from monthly to multi-year, with the majority of contracts being one to three years. Telematics includes a device which collects and transmits the information from the vehicle or other asset. The Company’s customers have an option to purchase the monitoring device or lease it over the term of the contract. If the customer purchases the hardware device, the Company recognizes the revenue at a point in time as discussed above in the hardware revenue recognition disclosure. Prior to adoption of the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”), on January 1, 2019, if the customer chose to lease the monitoring device, the Company accounted for the monitoring device lease as an operating lease, recognized the revenue for the monitoring device lease over the term of the contract and recorded such revenue in accordance with the previous lease accounting guidance in ASC 840, Leases. Under the new standard, because the Company’s rental asset lease contracts qualify as operating leases under ASC 842 and the contracts also include services to operate the underlying asset, and to maintain the asset, the Company has elected the practical expedient to combine the lease and the non-lease components because the service is the predominant element in the eyes of the customer and the pattern of service delivery is the same for both elements. The Company recognizes revenue over time on a ratable basis over the term of the contract.
Maintenance and support services revenue. Periodically, the Company sells separately-priced warranty contracts that extend beyond the Company’s base warranty period. The separately priced service contracts range from 12 months to 36 months. The Company typically receives payment at the inception of the contract and recognizes revenue as earned on a straight-line basis over the term of the contract.
Professional services revenue. From time to time, the Company enters into special engineering design service agreements. Revenues from engineering design services are specifically designed to meet specifications of a particular product, and therefore do not create an asset with an alternative use. The Company recognizes revenue based on the achievement of certain applicable milestones and the amount of payment the Company believes it is entitled to at the time.
With respect to revenue related to third party product sales or other arrangements that involve the services of another party, for which the Company does not control the sale or service and acts as an agent to the transaction, the Company recognizes revenue on a net basis. The portion of the gross amount billed to customers that is remitted by the Company to another party is not reflected as revenue.
Multiple Performance Obligations
The Company’s contracts with customers may include commitments to transfer multiple products and services to a customer. When hardware, software and services are sold in various combinations, judgment is required to determine whether each performance obligation is considered distinct and accounted for separately, or not distinct and accounted for together with other performance obligations.
In instances where the software elements included within hardware for various products are considered to be functioning together with non-software elements to provide the tangible product’s essential functionality, these arrangements are accounted for as a single distinct performance obligation.
Judgment is required to determine the stand-alone selling price (“SSP”) for each distinct performance obligation. When available, the Company uses observable inputs to determine SSP. In instances where SSP is not directly observable, such as when the Company does not sell the product or service separately, it determines the SSP based on a cost-plus model as market and other observable inputs are seldom present based on the proprietary nature of the Company’s products.
Contract Liabilities
Timing of revenue recognition may differ from the timing of invoicing to customers. If customers are invoiced for subscription services in advance of the service period, deferred revenue liabilities, or contract liabilities, are recorded. Deferred revenue liabilities, or contract liabilities, are also recorded when the Company collects payments in advance of performing the services.
Contract Assets
The Company capitalizes sales commissions earned by its sales force when they are considered to be incremental and recoverable costs of obtaining a contract with a customer. These costs are deferred and then amortized over a period of benefit. There were no significant amounts of assets recorded related to contract costs as of March 31, 2020.

11




INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)

Applying the practical expedient in paragraph ASC 340-40-25-4, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in selling, general, and administrative expenses.
Significant Judgments in the Application of the Guidance in ASC 606
Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. The Company considered the performance obligations in its customer master supply agreements and determined that, for the majority of its revenue, the Company generally satisfies performance obligations at a point in time upon delivery of the product to the customer.
Revenues from the Company’s SaaS subscription services represent a single promise to provide continuous access to its software solutions and their processing capabilities in the form of a service through one of the Company’s data centers or a hosted data center. As each day of providing access to the software is substantially the same, and the customer simultaneously receives and consumes the benefits as access is provided, the Company has determined that its subscription services arrangements include a single performance obligation comprised of a series of distinct services. The Company’s SaaS subscriptions also include an unspecified volume of call center support and any remote system diagnostic and software upgrades as needed. These services are combined with the recurring monthly subscription service since they are highly interrelated and interdependent. Revenue from the Company’s subscription services is recognized over time on a ratable basis over the contract term beginning on the date that the service is made available to the customer.
Shipping and Handling Charges

Fees charged to customers for shipping and handling of products are included in product revenues, and costs for shipping and handling of products are included as a component of cost of sales.
New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB, which are adopted by the Company as of the specified date. Unless otherwise discussed, management believes the impact of recently issued standards, some of which are not yet effective, will not have a material impact on the Company’s consolidated financial statements upon adoption.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify the accounting for income taxes. The amendment eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. The amendment also clarifies existing guidance related to the recognition of franchise tax, the evaluation of a step up in the tax basis of goodwill, and the effects of enacted changes in tax laws or rates in the effective tax rate computation, among other clarifications. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company early adopted the pronouncement effective for the fourth quarter 2019, the impact of which was not material to the 2019 consolidated financial statements.
In June 2016, the FASB issued Accounting Standard Update (“ASU”) 2016-13, Financial InstrumentsCredit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected credit losses for financial assets held. This guidance is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted. There was no impact from the adoption of this pronouncement to the Company’s condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either financing or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification determines whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less are accounted for similar to previous guidance for operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to previous guidance for sales-type leases, direct financing leases and operating leases. The Company adopted the standard on January 1, 2019, the date it became effective for public companies, using the modified retrospective approach whereby the cumulative effect of adoption was recognized on the adoption date and prior periods were not restated. There was no net cumulative effect adjustment to retained earnings as of January 1, 2019 as a result of this adoption. Upon adoption, the Company elected the package of practical expedients permitted within the standard, which among other things, allows for the carryforward of historical lease

12




INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)

classification. The Company also elected the practical expedient provided in a subsequent amendment to the standard that removed the requirement to separate lease and non-lease components, provided certain conditions were met. Refer to Note 10, Leases, for the impact of the adoption of this guidance on the Company’s condensed consolidated financial statements.
2. Financial Statement Details
Inventories, net
Inventories, net, consist of the following (in thousands):
 
March 31,
2020
 
December 31,
2019
Finished goods
$
9,602

 
$
21,229

Raw materials and components
4,657

 
4,061

Total inventories, net
$
14,259

 
$
25,290


Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following (in thousands):
 
March 31,
2020
 
December 31,
2019
Royalties
$
1,646

 
$
1,415

Payroll and related expenses
3,572

 
2,716

Professional fees
280

 
483

Accrued interest
713

 
1,543

Deferred revenue
2,317

 
2,235

Operating lease liabilities
1,121

 
1,101

Acquisition-related liabilities
1,000

 
1,000

Other
6,969

 
7,368

Total accrued expenses and other current liabilities
$
17,618

 
$
17,861


Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows (in thousands):
 
March 31,
2020
 
December 31,
2019
 
March 31,
2019
 
December 31,
2018
Cash and cash equivalents
$
30,541

 
$
12,074

 
$
31,878

 
$
31,015

Restricted cash

 

 
61

 
61

Total cash, cash equivalents and restricted cash
$
30,541

 
$
12,074

 
$
31,939

 
$
31,076


3. Fair Value Measurement of Assets and Liabilities
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). A fair value measurement reflects the assumptions market participants would use in pricing an asset or liability based on the best available information. These assumptions include the risk inherent in a particular valuation technique (such as a pricing model) and the risks inherent in the inputs to the model.

13




INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)

The Company classifies inputs to measure fair value using a three-level hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The categorization of financial instruments within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) and is defined as follows:
Level 1:
Pricing inputs are based on quoted market prices for identical assets or liabilities in active markets (e.g., NYSE or NASDAQ). Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2:
Pricing inputs include benchmark yields, trade data, reported trades and broker dealer quotes, two-sided markets and industry and economic events, yield to maturity, Municipal Securities Rule Making Board reported trades and vendor trading platform data. Level 2 includes those financial instruments that are valued using various pricing services and broker pricing information including Electronic Communication Networks and broker feeds.
Level 3:
Pricing inputs include significant inputs that are generally less observable from objective sources, including the Company’s own assumptions.
The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. There have been no transfers of assets or liabilities between fair value measurement classifications during the three months ended March 31, 2020.
The following table summarizes the Company’s financial instruments measured at fair value on a recurring basis in accordance with the authoritative guidance for fair value measurements as of March 31, 2020 (in thousands):
 
Balance as of
March 31, 2020
 
Level 1
Assets:
 
 
 
Cash equivalents
 
 
 
Money market funds
$
126

 
$
126

Total cash equivalents
$
126

 
$
126


The following table summarizes the Company’s financial instruments measured at fair value on a recurring basis in accordance with the authoritative guidance for fair value measurements as of December 31, 2019 (in thousands):
 
Balance as of
December 31, 2019
 
Level 1
Assets:
 
 
 
Cash equivalents
 
 
 
Money market funds
$
126

 
$
126

Total cash equivalents
$
126

 
$
126


Other Financial Instruments
The Company’s financial assets and liabilities are carried at fair value or at amounts that, because of their short-term nature, approximate current fair value, with the exception of its $45.0 million in Convertible Notes (as defined below) (see Note 4, Debt). The Company carries its Convertible Notes at amortized cost. The debt and equity components of the Convertible Notes were measured using Level 3 inputs and are not measured on a recurring basis. It is not practicable to determine the fair value of the Convertible Notes due to the lack of information available to calculate the fair value of such notes. The carrying value of the liability component of the Convertible Notes was $44.2 million and $101.3 million as of March 31, 2020 and December 31, 2019, respectively.
4. Debt
Term Loan
On August 23, 2017, the Company and certain of its direct and indirect subsidiaries (the “Guarantors”) entered into a credit agreement (the “Credit Agreement”) with Cantor Fitzgerald Securities, as administrative agent and collateral agent, and

14




INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)

certain funds managed by Highbridge Capital Management, LLC, as lenders (the “Lenders”). Pursuant to the Credit Agreement, the Lenders provided the Company with a term loan in the principal amount of $48.0 million (the “Term Loan”) with a maturity date of August 23, 2020 (the “Maturity Date”). Related parties currently hold 100% of the principal amount.
In conjunction with the closing of the Term Loan, the Company received proceeds of $46.9 million, $35.0 million of which was funded to the Company in cash on the closing date, net of an original issue discount and commitment fee, and the remaining $11.9 million of which was funded through the Company’s repurchase and cancellation of approximately $14.9 million of its outstanding Inseego Notes pursuant to the terms of a note purchase agreement, dated August 23, 2017, by and among the Company and the lenders. The Company paid issuance costs of approximately $0.5 million. Additionally, the Company issued shares of its common stock and accrued an exit fee, which, when combined with the original debt discount and commitment fee, resulted in a total debt discount of approximately $4.0 million.
The Term Loan is secured by a first priority lien on substantially all of the assets of the Company and the Guarantors, including equity interests in certain of the Company’s direct and indirect subsidiaries, in each case subject to certain customary exceptions and permitted liens. The Credit Agreement includes customary representations and warranties, a material adverse change clause, as well as customary reporting and financial covenants, including a restriction on the Company’s capital expenditures. The Company obtained a waiver of the capital expenditure restriction from the lender during the quarter ended March 31, 2020. As a result of the waiver, as of March 31, 2020, the Company was in compliance with all financial covenants under the Credit Agreement. On March 9, 2020, the Company and the lender entered into an amendment to the Credit Agreement, which among other things, amended certain financial covenants set forth therein and permits the use of the Company’s Series E Preferred Stock to make certain payments, including interest payments, due thereunder.
The Term Loan bears interest at a rate per annum equal to the three-month LIBOR, but in no event less than 1.00%, plus 7.625% (9.238% at March 31, 2020). Interest on the Term Loan is payable on the last business day of each calendar quarter and on the Maturity Date. Principal on the Term Loan is payable on the Maturity Date.
On March 10, 2020, the Company entered into a letter agreement (the “Letter Agreement”) with South Ocean, the lender holding all of the aggregate principal amount currently outstanding under the Credit Agreement, which provides: (i) that the Company and South Ocean will work together, in good faith, to reach an agreement to amend or refinance the Credit Agreement in order to extend the Maturity Date of the Credit Agreement until a date after March 15, 2021; and (ii) should an agreement not be reached to amend or refinance the Credit Agreement prior to August 23, 2020, upon request of the Company, the Maturity Date of the Credit Agreement will be extended to no earlier than March 15, 2021. Principal on the Term Loan is payable on the Maturity Date.
On March 31, 2020, Inseego Corp. issued 2,330 shares of Series E Preferred Stock to South Ocean, the lender holding all of the aggregate principal amount currently outstanding under the Credit Agreement in satisfaction of all accrued interest under the Credit Agreement. Accordingly, there was no interest payable on the Term Loan as of March 31, 2020.
The Term Loan consists of the following (in thousands):
 
March 31,
2020
 
December 31, 2019
Principal
$
47,500

 
$
47,500

Less: unamortized debt discount and debt issuance costs
(589
)
 
(962
)
Net carrying amount
$
46,911

 
$
46,538


The effective interest rate on the Term Loan was 12.99% for the three months ended March 31, 2020. The following table sets forth total interest expense recognized related to the Term Loan (in thousands):
 
Three Months Ended
March 31,
 
2020
 
2019
Contractual interest expense
$
1,151

 
$
1,180

Amortization of debt discount
333

 
333

Amortization of debt issuance costs
40

 
40

Total interest expense
$
1,524

 
$
1,553



15




INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)

Convertible Senior Notes
Novatel Wireless Notes
On June 10, 2015, Novatel Wireless, Inc., a wholly owned subsidiary of Inseego Corp. (“Novatel Wireless”), issued $120.0 million of 5.50% convertible senior notes due 2020 (the “Novatel Wireless Notes”), which were governed by the terms of an indenture, dated June 10, 2015, between Novatel Wireless, as issuer, Inseego and Wilmington Trust, National Association, as trustee, as amended by certain supplemental indentures (the “Novatel Indenture”). On January 9, 2017, in connection with the settlement of an exchange offer and consent solicitation with respect to the Novatel Wireless Notes (the “Note Exchange”), approximately $119.8 million aggregate principal amount of outstanding Novatel Wireless Notes that were validly tendered and accepted for exchange and subsequently canceled. In February 2020, the holders of the remaining $250,000 of the aggregate principal amount of Novatel Wireless Notes that remained outstanding following the Note Exchange, converted their Novatel Wireless Notes into 50,000 shares of Company common stock, at the conversion price of $5.00 per share, in accordance with the terms of the Novatel Indenture. Accordingly, no Novatel Wireless Notes were outstanding as of March 31, 2020.
Inseego Notes
On January 9, 2017, in connection with the Note Exchange, the Company issued approximately $119.8 million aggregate principal amount of 5.50% convertible senior notes due 2022 (the “Inseego Notes”, and together with the Novatel Wireless Notes, the “Convertible Notes”).
The Inseego Notes are governed by the terms of an indenture, dated January 9, 2017 (as amended by certain supplemental indentures,the “Inseego Indenture”), between the Company, as issuer, and Wilmington Trust, National Association, as trustee (the “Trustee”). The Inseego Notes are senior unsecured obligations of the Company and bear interest at a rate of 5.50% per year, payable semi-annually in arrears on June 15 and December 15 of each year. The Inseego Notes will mature on June 15, 2022, unless earlier converted, redeemed or repurchased.
The Inseego Notes will be convertible by the holders into cash, shares of the Company’s common stock, or a combination thereof, at the election of the Company, at any time on or after December 15, 2021 and prior to the close of business on the business day immediately preceding the maturity date.
Prior to the close of business on the business day immediately preceding December 15, 2021, holders may convert their Inseego Notes at their option only under the following circumstances:
(i)
during any calendar quarter (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter equals or exceeds 130% of the conversion price on such trading day;
(ii)
during the five consecutive business day period immediately after any five consecutive trading day period (the “Measurement Period”) in which the trading price per $1,000 principal amount of the Inseego Notes for each trading day of the Measurement Period was less than 98% of the product of the last reported sale price per share of the Company’s common stock and the conversion rate on each such trading day;
(iii)
upon the occurrence of certain corporate events specified in the Inseego Indenture; or
(iv)
if the Company has called the Inseego Notes for redemption.

Because the sale price condition (as defined in the Inseego Indenture), was satisfied during December 2019, the Inseego Notes were convertible during the first quarter of 2020. The sale price condition was not satisfied as of March 31, 2020. Accordingly, the Inseego Notes are not currently convertible.

The conversion rate for the Inseego Notes is 212.7660 shares of common stock per $1,000 principal amount of the Inseego Notes, which corresponds to a conversion price of $4.70 per share of the Company’s common stock. The conversion rate is subject to adjustment from time to time upon the occurrence of certain events, including, but not limited to, the issuance of stock dividends and payment of cash dividends.
The Company may redeem all or a portion of the Inseego Notes at its option if the last reported sale price per share of the Company’s common stock equals or exceeds 140% of the conversion price for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the trading day immediately prior to the date on which the Company provides written notice of redemption, at a redemption price equal to 100% of the principal amount of the Inseego Notes to be redeemed, plus any accrued and unpaid interest on such Inseego Notes, subject to the right of holders as of

16




INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)

the close of business on an interest record date to receive the related interest. In addition, if the Company calls the Inseego Notes for redemption, a “make-whole fundamental change” (as defined in the Inseego Indenture) will be deemed to occur. As a result, the Company will, in certain circumstances, increase the conversion rate for holders who convert their Inseego Notes in connection with such redemption.
The Inseego Notes are subject to repurchase by the Company at the election of each holder on June 15, 2020 (the “Optional Repurchase Date”) at a repurchase price in cash equal to 100% of the principal amount of the Inseego Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the Optional Repurchase Date, subject to the right of holders of the Inseego Notes on a record date to receive interest through the corresponding interest payment date. On March 6, 2020, the holders of substantially all of the outstanding indebtedness under the notes agreed to waive their optional right to require the Company to repurchase the notes on the Optional Repurchase Date.
On March 3, 2020 the Company and the Trustee entered into a First Supplemental Indenture which eliminated certain covenants in the Inseego Indenture prohibiting the incurrence of certain indebtedness and certain restricted payments.
The Inseego Indenture also provides for customary events of default. If an event of default (other than certain events of bankruptcy, insolvency or reorganization involving the Company) occurs and is continuing, the Trustee, by notice to the Company, or the holders of at least 25% in principal amount of the outstanding Inseego Notes, by notice to the Company and the Trustee, may declare the principal and accrued and unpaid interest on the outstanding Inseego Notes to be immediately due and payable. Upon the occurrence of certain events of bankruptcy, insolvency or reorganization involving the Company, 100% of the principal and accrued and unpaid interest of the Inseego Notes will automatically become immediately due and payable. Notwithstanding the foregoing, the Inseego Indenture provides that, to the extent the Company elects and for up to 60 days, the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants consists exclusively of the right to receive special interest on the Inseego Notes at a rate equal to 0.50% per annum on the principal amount of the outstanding Inseego Notes.
Because the exchange of the Novatel Wireless Notes for the Inseego Notes described above was treated as a debt modification in accordance with applicable FASB guidance (it was between a parent and a subsidiary company and for substantially identical notes), the Company did not recognize a gain or loss with respect to the issuance of the Inseego Notes. In accordance with authoritative guidance, the Company recognized $3.6 million as an additional component of debt discount and additional paid-in capital attributed to the increase in the fair value of the embedded conversion feature of the Inseego Notes before and after modification. The Company will amortize the debt discount on the Inseego Notes as a component of interest expense using the effective interest method through June 2020.
During the three months ended March 31, 2020, the Company entered into privately-negotiated exchange agreements with certain investors holding the Inseego Notes. Pursuant to the exchange agreements, the investors exchanged $59.9 million in aggregate principal amount of outstanding Inseego Notes for 13,688,876 shares of the Company’s common stock, par value $0.001 per share. The investors agreed to waive any accrued but unpaid interest on the exchanged Inseego Notes.

Included in the 13,688,876 shares of common stock issued in the exchange transactions described above were 942,706 shares valued at $7.9 million on the date of issuance at fair value, which were issued pursuant to the terms of the privately-negotiated exchange agreements and were in excess of the consideration issuable under the original conversion terms of the exchanged Inseego Notes. ASC 470 - “Debt” requires the recognition through earnings of an inducement charge equal to the fair value of the consideration delivered in excess of the consideration issuable under the original conversion terms. This resulted in a non-cash charge of $7.9 million for the three months ended March 31, 2020, which was recorded as inducement expense in the condensed consolidated statement of operations.

At March 31, 2020, substantially all of the Inseego Notes were held by related parties
The Convertible Notes consist of the following (in thousands):
 
March 31,
2020
 
December 31,
2019
Liability component:
 
 
 
Principal
$
44,968

 
$
105,125

Less: unamortized debt discount and debt issuance costs
(738
)
 
(3,791
)
Net carrying amount
$
44,230

 
$
101,334

 

17




INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)

The effective interest rate on the liability component of the Convertible Notes was 10.76% for the three months ended March 31, 2020. The following table sets forth total interest expense recognized related to the Convertible Notes (in thousands):
 
Three Months Ended
March 31,
 
2020
 
2019
Contractual interest expense
$
618

 
$
1,446

Amortization of debt discount
1,252

 
1,956

Amortization of debt issuance costs
72

 
114

Total interest expense
$
1,942

 
$
3,516


5. Share-based Compensation
The Company included the following amounts for share-based compensation awards in the unaudited condensed consolidated statements of operations (in thousands):
 
Three Months Ended
March 31,
  
2020
 
2019
Cost of revenues
$
228

 
$
123

Research and development
292

 
175

Sales and marketing
463

 
214

General and administrative
570

 
545

Total
$
1,553

 
$
1,057


Stock Options
The following table summarizes the Company’s stock option activity:
Outstanding — December 31, 2019
9,044,304

Granted
939,750

Exercised
(30,079
)
Canceled
(176,687
)
Outstanding — March 31, 2020
9,777,288

Exercisable — March 31, 2020
3,984,801


At March 31, 2020, total unrecognized compensation expense related to stock options was $11.7 million, which is expected to be recognized over a weighted-average period of 2.87 years.
Restricted Stock Units
The following table summarizes the Company’s restricted stock unit (“RSU”) activity:
Non-vested — December 31, 2019
400,315

Granted
46,156

Vested
(151,467
)
Non-vested — March 31, 2020
295,004


At March 31, 2020, total unrecognized compensation expense related to RSUs was $0.7 million, which is expected to be recognized over a weighted-average period of 1.33 years.
6. Earnings Per Share
Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net income (loss) attributable to Inseego Corp. by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock using the treasury stock method. Potentially dilutive securities (consisting primarily of the Convertible Notes calculated using the if-

18




INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)

converted and treasury stock method and warrants, stock options and RSUs calculated using the treasury stock method) are excluded from the diluted EPS computation in loss periods and when the applicable exercise price is greater than the market price on the period end date as their effect would be anti-dilutive.
For the three months ended March 31, 2020, the computation of diluted EPS excluded 22,028,548 shares related to the Convertible Notes, warrants, stock options and RSUs as their effect would have been anti-dilutive. For the three months ended March 31, 2019, the computation of diluted EPS excluded 35,706,077 shares primarily related to the Convertible Notes, warrants, stock options and RSUs as their effect would have been anti-dilutive.
7. Private Placements
Common Stock
On August 6, 2018, the Company completed a private placement of 12,062,000 shares of common stock, par value $0.001 per share, and warrants to purchase an additional 4,221,700 shares of common stock (the “2018 Warrants”), subject to adjustment for stock splits, reverse stock splits, stock dividends and similar transactions, to certain accredited investors. On March 28, 2019, the 2018 Warrants were exercised at an exercise price of $2.52 per share, for aggregate cash proceeds to the Company of approximately $10.6 million. In connection with the exercise of the 2018 Warrants, on March 28, 2019, the Company issued additional warrants to purchase 2,500,000 shares of common stock (the “2019 Warrants”) to the accredited investors. Each 2019 Warrant has an initial exercise price of $7.00 per share, subject to adjustment for stock splits, reverse stock splits, stock dividends and similar transactions, will be exercisable at any time on or after September 28, 2019, and will expire on June 30, 2022. The 2019 Warrants may be exercisable on a cashless exercise basis if, and only if, the shares of common stock underlying such warrants cannot be immediately resold pursuant to an effective registration statement or Rule 144 of the Securities Act of 1933, as amended, without volume or manner of sale restrictions.
During the first quarter of 2020, the Company received $1.9 million in net cash proceeds from the exercise of 338,454 of the Company’s common stock purchase warrants issued in 2015.
The Company assessed the terms of the warrants under ASC 815, Derivatives and Hedges. Pursuant to this guidance, the Company has determined that the warrants do not require liability accounting and has classified the warrants as equity.
Preferred Stock
On August 9, 2019, the Company completed a private placement of 10,000 shares of Series E Preferred Stock for an aggregate purchase price of $10.0 million in accordance with the terms and provisions of a Securities Purchase Agreement, dated August 9, 2019, by and among the Company and certain accredited investors. Each share of Series E Preferred Stock entitles the holder thereof to receive, when, as and if declared by the Company out of assets legally available therefor, cumulative cash dividends at an annual rate of 9.00% payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, beginning on October 1, 2019. If dividends are not declared and paid in any quarter, or if such dividends are declared but holders of the Series E Preferred Stock elect not to receive them in cash, the quarterly dividend will be deemed to accrue and will be added to the Series E Base Amount. The Series E Preferred Stock has no voting rights unless otherwise required by law. The Series E Preferred Stock is perpetual and has no maturity date. However, the Company may, at its option, redeem shares of the Series E Preferred Stock, in whole or in part, on or after July 1, 2022, at a price equal to 110% of the Series E Base Amount plus (without duplication) any accrued and unpaid dividends. The “Series E Base Amount” means $1,000 per share, plus any accrued but unpaid dividends, whether or not declared by the Company’s board of directors, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series E Preferred Stock. In the event of a liquidation, dissolution or winding up of the Company, the holders of the Series E Preferred Stock will be entitled to receive, after satisfaction of liabilities to creditors and subject to the rights of holders of any senior securities, but before any distribution of assets is made to holders of common stock or any other junior securities, the Series E Base Amount plus (without duplication) any accrued and unpaid dividends.
On March 6, 2020, the Company issued and sold an additional 25,000 shares of Series E Preferred Stock for an aggregate purchase price of $25.0 million. The terms of the Series E Preferred Stock are consistent with the terms described above.
On March 31, 2020, Inseego Corp. issued 2,330 shares of Series E Preferred Stock to South Ocean, the lender holding all of the aggregate principal amount currently outstanding under the Credit Agreement, in satisfaction of certain deferred interest obligations pursuant to the terms and conditions of the Credit Agreement.

19




INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)

8. Geographic Information and Concentrations of Risk
Geographic Information
The following table details the Company’s net revenues by geographic region based on shipping destination (in thousands):
 
Three Months Ended
March 31,
 
2020
 
2019
United States and Canada
$
42,350

 
$
33,494

South Africa
8,238

 
8,369

Other
6,252

 
6,693

Total
$
56,840

 
$
48,556


Concentrations of Risk
For the three months ended March 31, 2020 and 2019, one customer accounted for 53.4% and 53.3% of net revenues, respectively.
As of March 31, 2020, one customer accounted for 42.0% of accounts receivable, net. As of December 31, 2019, two customers accounted for 25.0% and 11.2% of accounts receivable, net, respectively.
9. Commitments and Contingencies
Legal
The Company is, from time to time, party to various legal proceedings arising in the ordinary course of business. For example, the Company is currently named as a defendant or co-defendant in some patent infringement lawsuits in the U.S. and may be required to indirectly participate in other U.S. patent infringement actions pursuant to its contractual indemnification obligations to certain customers. Based on an evaluation of these matters and discussions with the Company’s intellectual property litigation counsel, the Company currently believes that liabilities arising from or sums paid in settlement of these existing matters, if any, would not have a material adverse effect on its consolidated results of operations or financial condition.
On May 11, 2017, the Company initiated a lawsuit against the former stockholders of RER in the Court of Chancery of the State of Delaware seeking recovery of damages for civil conspiracy, fraud in the inducement, unjust enrichment and breach of fiduciary duty. On January 16, 2018, the former stockholders of RER filed an answer and counterclaim in the matter seeking recovery of certain deferred and earn-out payments allegedly owed to them by the Company in connection with the Company’s acquisition of RER. On July 26, 2018, the Company and the former stockholders of RER entered into a mutual general release and settlement agreement (the “Settlement Agreement”) pursuant to which the parties agreed to release all claims against each other and the Company agreed to (i) pay the former stockholders of RER $1.0 million in cash by August 17, 2018, (ii) immediately instruct its transfer agent to permit the transfer or sale of 973,333 shares of the Company’s common stock that the Company had issued to the former stockholders of RER in March 2017, (iii) immediately issue 500,000 shares of the Company’s common stock to the former stockholders of RER, (iv) within 12 months following the execution of the Settlement Agreement, deliver to the former stockholders of RER an additional $1.0 million in cash, common stock, or a combination thereof, at the Company’s option, (v) within 24 months following the execution of the Settlement Agreement deliver to the former stockholders of RER an additional $1.0 million in cash, common stock, or a combination thereof, at the Company’s option, and (vi) file one or more registration statements with respect to the resale of the shares of the Company’s common stock issued to the former stockholders of RER pursuant to the Settlement Agreement. The Company’s remaining liability under the Settlement Agreement at March 31, 2020 consists of approximately $1.0 million in current liabilities.
Indemnification
In the normal course of business, the Company periodically enters into agreements that require the Company to indemnify and defend its customers for, among other things, claims alleging that the Company’s products infringe third-party patents or other intellectual property rights. The Company’s maximum exposure under these indemnification provisions cannot be estimated but the Company does not believe that there are any matters individually or collectively that would have a material adverse effect on its consolidated results of operations or financial condition.

20




INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)

10. Leases
Lessee
The Company is a lessee in lease agreements for office space, automobiles and certain equipment. Certain of the Company’s leases contain provisions that provide for one or more options to renew at the Company’s sole discretion. The majority of the Company’s leases are comprised of fixed lease payments, with a small percentage of its real estate leases including lease payments subject to a rate or index which may be variable. Certain real estate leases also include executory costs such as common area maintenance (non-lease component). As a practical expedient permitted under ASC 842, the Company has elected to account for the lease and non-lease components as a single lease component. Lease payments, which may include lease components and non-lease components, are included in the measurement of the Company’s lease liabilities to the extent that such payments are either fixed amounts or variable amounts based on a rate or index (fixed in substance) as stipulated in the lease contract.
None of the Company’s lease agreements contain any material residual value guarantees or material restrictive covenants. As a result of the Company’s election of the package of practical expedients permitted within ASC 842, which among other things, allows for the carryforward of historical lease classification, all of the Company’s lease agreements in existence at the date of adoption that were classified as operating leases under ASC 840 have been classified as operating leases under ASC 842. Lease expense for payments related to the Company’s operating leases is recognized on a straight-line basis over the related lease term, which includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.
Right-of-use assets represent the Company’s right to use an underlying asset during the lease term and lease liabilities represent the Company’s obligation to make lease payments as specified in the lease. Right-of-use assets and lease liabilities related to the Company’s operating leases are recognized at the lease commencement date based on the present value of the remaining lease payments over the lease term. When the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available surrounding the Company’s borrowing rates at the lease commencement date in determining the present value of lease payments. The right-of-use asset also includes any lease payments made at or before lease commencement less any lease incentives. As of March 31, 2020, the Company had right-of-use assets of $6.5 million and lease liabilities related to its operating leases of $6.7 million. Right-of-use assets are included in right-of-use assets, net, on the condensed consolidated balance sheet and lease liabilities related to the Company’s operating leases are included in accrued expenses and other liabilities and other long-term liabilities on the condensed consolidated balance sheet. As of March 31, 2020, the Company’s weighted-average remaining lease term and weighted-average discount rate related to its operating leases were 5.7 years and 9.1%, respectively.
During the three months ended March 31, 2020 and 2019, the cash paid for amounts included in the measurement of lease liabilities related to the Company’s operating leases was approximately $0.3 million and $0.5 million, respectively, which is included as an operating cash outflow within the consolidated statements of cash flows. During the three months ended March 31, 2020 and 2019, the operating lease costs related to the Company’s operating leases were approximately $0.3 million and $0.5 million, respectively, which is included in operating costs and expenses in the condensed consolidated statements of operations. During the three months ended March 31, 2020, the Company entered into a lease agreement for its new corporate offices for which a right-of-use asset was recorded in exchange for a new lease liability.
The future minimum payments under operating leases were as follows at March 31, 2020 (in thousands):
2020 (remainder)
$
1,073

2021
1,718

2022
1,463

2023
1,145

2024
1,015

Thereafter
2,425

Total minimum operating lease payments
8,839

Less: amounts representing interest
(2,115
)
Present value of net minimum operating lease payments
6,724

Less: current portion
(1,121
)
Long-term portion of operating lease obligations
$
5,603



The current and long term portion of operating lease obligations are classified within accrued expenses and other current liabilities and other long-term liabilities, respectively, on the condensed consolidated balance sheets.

21




INSEEGO CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)


Lessor
Prior to January 1, 2019, and as previously disclosed in the Company’s Form 10-K for the year ended December 31, 2018, the Company derived revenue from customers who lease the Company’s monitoring devices. The Company recorded such revenue in accordance with the previous lease accounting guidance ASC 840, Leases, and determined that the leases qualify as operating leases.
Monitoring device leases in which the Company serves as lessor are classified as operating leases. Accordingly, rental devices are carried at historical cost less accumulated depreciation and impairment, if any, and are included in rental assets, net, on the condensed consolidated balance sheets.
Since the lease components meet the criteria for an operating lease under ASC 842, the Company has elected the practical expedient to combine the lease and the non-lease components because the service is the predominant element in the eyes of the customer and the pattern of service delivery is the same for both elements. The Company will account for the combined component as a single performance obligation under ASC 606, Revenue from Contracts with Customers.
11. Income Taxes
On March 27, 2020, the President signed into law the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which, along with earlier issued IRS guidance, provides for the deferral of certain taxes. The Company will continue to assess the impact of the CARES Act, as well as any ongoing government guidance related to the coronavirus disease 2019 (“COVID-19”) that may be issued.
The Company’s income tax provision of $0.1 million and $0.2 million for the three months ended March 31, 2020 and 2019, respectively, primarily consists of foreign income taxes at certain of the Company’s international entities and minimum state taxes for its U.S.-based entities. The Company has income tax expense rather than an expected benefit based on statutory rates primarily due to full valuation allowances at most of its entities.

22





Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward Looking Statements
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). You should not place undue reliance on these statements. These forward-looking statements include statements that reflect the views of our senior management with respect to our current expectations, assumptions, estimates and projections about Inseego and our industry. These forward-looking statements speak only as of the date of this report. We disclaim any undertaking to publicly update or revise any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Statements that include the words “may,” “could,” “should,” “would,” “estimate,” “anticipate,” “believe,” “expect,” “preliminary,” “intend,” “plan,” “project,” “outlook,” “will” and similar words and phrases identify forward-looking statements. Forward-looking statements address matters that involve risks and uncertainties that could cause actual results to differ materially from those anticipated in these forward-looking statements as of the date of this report. We believe that these factors include those related to:
our ability to compete in the market for wireless broadband data access products, wireless modem products, and asset management, monitoring, telematics, vehicle tracking and fleet management products;
our ability to develop and introduce new products and services successfully;
our ability to meet the price and performance standards of the evolving 5G New Radio (“5G NR”) products and technologies;
our ability to expand our customer reach/reduce customer concentration;
our ability to grow the Internet of Things (“IoT”) and mobile portfolio outside of North America;
our ability to grow our Ctrack/asset tracking solutions within North America;
our dependence on a small number of customers for a substantial portion of our revenues;
our ability to make scheduled payments of the principal of, to pay interest on, or to refinance our indebtedness, including our term loan and convertible notes obligations;
our ability to introduce and sell new products that comply with current and evolving industry standards and government regulations;
our ability to develop and maintain strategic relationships to expand into new markets;
our ability to properly manage the growth of our business to avoid significant strains on our management and operations and disruptions to our business;     
our reliance on third parties to manufacture our products;
our contract manufacturer’s ability to secure necessary supply to build our devices;
our ability to mitigate the impact of tariffs or other government-imposed sanctions;
our ability to accurately forecast customer demand and order the manufacture and timely delivery of sufficient product quantities;
our reliance on sole source suppliers for some products and devices used in our solutions;
the continuing impact of uncertain global economic conditions on the demand for our products;
the impact of geopolitical instability on our business;
the emergence of global public health emergencies, such as the recent outbreak of the 2019 novel coronavirus (2019-nCoV), now known as “COVID-19”, which could extend lead times in our supply chain and lengthen sales cycles with our customers;
direct and indirect effects of COVID-19 on our employees, customers and supply chain and the economy and financial markets;


23



the impact that new or adjusted tariffs may have on the costs of components or our products, and our ability to sell products internationally;
our ability to be cost competitive while meeting time-to-market requirements for our customers;
our ability to meet the product performance needs of our customers in wireless broadband data access in industrial IoT markets;
demand for fleet, vehicle and asset management software-as-a-service (“SaaS”) telematics solutions;
our dependence on wireless telecommunication operators delivering acceptable wireless services;
the outcome of any pending or future litigation, including intellectual property litigation;
infringement claims with respect to intellectual property contained in our solutions;
our continued ability to license necessary third-party technology for the development and sale of our solutions;
the introduction of new products that could contain errors or defects;
conducting business abroad, including foreign currency risks;
the pace of 5G wireless network rollouts globally and their adoption by customers;
our ability to make focused investments in research and development; and
our ability to hire, retain and manage additional qualified personnel to maintain and expand our business.
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this and other reports we file with or furnish to the Securities and Exchange Commission (“SEC”), including the information in “Item 1A. Risk Factors” included in Part I of our Annual Report on Form 10-K for the year ended December 31, 2019 (“Form 10-K”). If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate.
Trademarks
“Inseego”, the Inseego logo, “DigiCore”, “Novatel Wireless”, the Novatel Wireless logo, “MiFi”, “MiFi Intelligent Mobile Hotspot”, “Ctrack”, the Ctrack logo, “Inseego North America”, and “Skyus” are trademarks or registered trademarks of Inseego and its subsidiaries. Other trademarks, trade names or service marks used in this report are the property of their respective owners.
As used in this report on Form 10-Q, unless the context otherwise requires, the terms “we,” “us,” “our,” the “Company” and “Inseego” refer to Inseego Corp., a Delaware corporation, and its wholly owned subsidiaries.


24



The following information should be read in conjunction with the condensed consolidated financial statements and the accompanying notes included in Part I, Item 1 of this report, as well as the annual consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2019, contained in our Form 10-K.
Business Overview
Inseego Corp. is a leader in the design and development of fixed and mobile wireless solutions (advanced 4G and 5G NR), Industrial IoT (“IIoT”) and cloud solutions for large enterprise verticals, service providers and small and medium-sized businesses around the globe. Our customers include wireless service providers, Fortune 500 enterprises, consumers, governments and first responders. Our product portfolio consists of fixed and mobile device-to-cloud solutions that provide compelling, intelligent, reliable and secure end-to-end IoT services with deep business intelligence. Inseego’s products and solutions, designed and developed in the U.S., power mission critical applications with a “zero unscheduled downtime” mandate, such as our 5G fixed wireless access (“FWA”) gateway solutions, 4G and 5G mobile broadband, IIoT applications such as SD WAN failover management, asset tracking and fleet management services. Our solutions are powered by our key wireless innovations in mobile and FWA technologies, including a suite of products employing the 5G NR standards, and purpose-built SaaS cloud platforms.
We have been at the forefront of the ways in which the world stays connected and accesses information, and protects, and derives intelligence from that information. With multiple first-to-market innovations across a number of wireless technologies, including 5G, and a strong and growing portfolio of hardware and software innovations for IIoT solutions, Inseego has been advancing technology and driving industry transformations for over 30 years. It is this proven expertise, commitment to quality, obsession with innovation and a relentless focus on execution that makes us a preferred global partner of service providers, distributors, value-added resellers, system integrators, and enterprises worldwide.
Our Sources of Revenue
We provide intelligent wireless 3G, 4G and 5G hardware products for the worldwide mobile communications and in IIoT markets. Our hardware products address multiple vertical markets including private LTE/5G networks, the First Responders Network Authority/Firstnet, SD-WAN, telematics, remote monitoring and surveillance, and fixed wireless access and mobile broadband devices. Our broad range of products principally includes intelligent 4G and 5G fixed wireless routers and gateways, and mobile hotspots, and wireless gateways and routers for IIoT applications, Gb speed 4G LTE hotspots and USB modems and integrated telematics and mobile tracking hardware devices, which are supported by applications software and cloud services designed to enable customers to easily analyze data insights and configure/manage their hardware remotely. Our products currently operate on most major global cellular wireless networks. Our mobile hotspots sold under the MiFi brand have been sold to millions of end users, and provide subscribers with secure and convenient high-speed access to corporate, public and personal information through the Internet and enterprise networks. Our wireless standalone and USB modems and gateways allow us to address the rapidly growing and underpenetrated IoT market segments. Our telematics and mobile asset tracking hardware devices collect and control critical vehicle data and driver behaviors, and can reliably deliver that information to the cloud, all managed by our services enablement platforms.
Our MiFi customer base is comprised of wireless operators to whom we provide intelligent fixed and mobile wireless devices. These wireless operators include Verizon Wireless, AT&T, and Sprint in the United States, Rogers in Canada, Telstra in Australia, as well as other international wireless operators, distributors and various companies in other vertical markets and geographies.
We sell our wireless routers for IIoT, integrated telematics and mobile tracking hardware devices through our direct sales force, value-added resellers and through distributors. The customer base for our IIoT products is comprised of transportation companies, industrial enterprises, manufacturers, application service providers, system integrators and distributors in various industries, including fleet and vehicle transportation, aviation ground service management, energy and industrial automation, security and safety, medical monitoring and government. Integrated telematics and asset tracking devices are also sold under our Ctrack brand and provided as part of our integrated SaaS solutions.
Inseego sells SaaS, software and services solutions across multiple mobile and IIoT vertical markets, including fleet management, vehicle telematics, stolen vehicle recovery, asset tracking, monitoring, business connectivity and subscription management. Our SaaS platforms are device-agnostic and provide a standardized, scalable way to order, connect and manage remote assets and to improve business operations. The platforms are flexible and support both on-premise server or cloud-based deployments and are the basis for the delivery of a wide range of IoT services in multiple industries.

25



Our SaaS delivery platforms include our Ctrack platforms, which provide fleet, vehicle, aviation, asset and other telematics applications, and our Device Management Solutions, a hosted SaaS platform that helps organizations manage the selection, deployment and spend of their wireless assets by helping them to save money on personnel and telecom expenses.
Factors Which May Influence Future Results of Operations
Net Revenues. We believe that our future net revenues will be influenced by a number of factors including:
economic environment and related market conditions;
increased competition from other fleet and vehicle telematics solutions, as well as suppliers of emerging devices that contain wireless data access or device management features;
acceptance of our products by new vertical markets;
growth in the aviation ground vertical;
rate of change to new products;
phase-out of earlier generation wireless technologies (such as 3G);
deployment of 5G infrastructure equipment;
adoption of 5G end point products;
competition in the area of 5G technology;
trade protection measures (such as tariffs and duties) and import or export licensing requirements;
our contract manufacturer’s ability to secure necessary supply to build our devices;
product pricing; and
changes in technologies.
Our revenues are also significantly dependent upon the availability of materials and components used in our hardware products.
We anticipate introducing additional products during the next twelve months, including SaaS telematics solutions and additional service offerings, IIoT hardware and services, and other mobile and fixed wireless devices targeting the emerging 5G market. We continue to develop and maintain strategic relationships with service providers and other wireless industry leaders such as Verizon Wireless, T-Mobile, Sprint, and Qualcomm. Through strategic relationships, we have been able to maintain market penetration by leveraging the resources of our channel partners, including their access to distribution resources, increased sales opportunities and market opportunities.
Cost of Net Revenues. Cost of net revenues includes all costs associated with our contract manufacturers, distribution, fulfillment and repair services, delivery of SaaS services, warranty costs, amortization of intangible assets, royalties, operations overhead, costs associated with cancellation of purchase orders and costs related to outside services. Also included in cost of net revenues are costs related to inventory adjustments, including acquisition-related amortization of the fair value of inventory, as well as any write downs for excess and obsolete inventory and abandoned product lines. Inventory adjustments are impacted primarily by demand for our products, which is influenced by the factors discussed above.
Operating Costs and Expenses. Our operating costs consist of three primary categories: research and development; sales and marketing; and general and administrative costs.
Research and development is at the core of our ability to produce innovative, leading-edge products. These expenses consist primarily of engineers and technicians who design and test our highly complex products and the procurement of testing and certification services.
Sales and marketing expenses consist primarily of our sales force and product-marketing professionals. In order to maintain strong sales relationships, we provide co-marketing, trade show support and product training. We are also engaged in a wide variety of marketing activities, such as awareness and lead generation programs as well as product marketing. Other marketing initiatives include public relations, seminars and co-branding with partners.
General and administrative expenses include primarily corporate functions such as accounting, human resources, legal, administrative support and professional fees. This category also includes the expenses needed to operate as a publicly-traded company, including compliance with the Sarbanes-Oxley Act of 2002, as amended, SEC filings, stock exchange fees and investor relations expense. Although general and administrative expenses are not directly related to revenue levels, certain expenses, such as legal expenses and provisions for bad debts, may cause significant volatility in future general and administrative expenses which may, in turn, impact net revenue levels.

26



We have undertaken certain restructuring activities and cost reduction initiatives in an effort to better align our organizational structure and costs with our strategy. Restructuring charges consist primarily of severance costs incurred in connection with the reduction of our workforce and facility exit-related costs, as well as discontinued operations, if any.
As part of our business strategy, we may review acquisition or divestiture opportunities that we believe would be advantageous or complementary to the development of our business. Given our current cash position and recent losses, any additional acquisitions we make would likely involve issuing stock in order to provide the purchase consideration for the acquisitions. If we make any additional acquisitions, we may incur substantial expenditures in conjunction with the acquisition process and the subsequent assimilation of any acquired business, products, technologies or personnel.
Critical Accounting Policies and Estimates
In the notes to our consolidated financial statements and in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Form 10-K, we have disclosed those accounting policies that we consider to be significant in determining our results of operations and financial condition. There have been no material changes to those policies that we consider to be significant since the filing of our Form 10-K. The accounting principles used in preparing our unaudited condensed consolidated financial statements conform in all material respects to accounting principles generally accepted in the U.S.
Results of Operations
Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019
Net revenues. Net revenues for the three months ended March 31, 2020 were $56.8 million, compared to $48.6 million for the same period in 2019.
The following table summarizes net revenues by our two product categories (in thousands):
 
 
Three Months Ended
March 31,
 
Change
Product Category
 
2020
 
2019
 
$
 
%
IoT & Mobile Solutions
 
$
40,381

 
$
32,781

 
$
7,600

 
23.2
%
Enterprise SaaS Solutions
 
16,459

 
15,775

 
684

 
4.3
%
Total
 
$
56,840

 
$
48,556

 
$
8,284

 
17.1
%
IoT & Mobile Solutions. The increase in IoT & Mobile Solutions net revenues is primarily a result of increased sales in our LTE gigabit hotspots and USB modems, the introduction of our 5G hotspot related to our MiFi business, and higher IoT sales.
Enterprise SaaS Solutions. The increase in Enterprise SaaS Solutions net revenues is primarily a result of increased Device Management System and Ctrack system revenues, partially offset by the effect of strengthening U.S. Dollar foreign exchange rates on international sales.
Cost of net revenues. Cost of net revenues for the three months ended March 31, 2020 was $39.6 million, or 69.7% of net revenues, compared to $33.8 million, or 69.6% of net revenues, for the same period in 2019.
The following table summarizes cost of net revenues by our two product categories (in thousands):
 
 
Three Months Ended
March 31,
 
Change
Product Category
 
2020
 
2019
 
$
 
%
IoT & Mobile Solutions
 
$
32,864

 
$
27,600

 
$
5,264

 
19.1
%
Enterprise SaaS Solutions
 
6,749

 
6,196

 
553

 
8.9
%
Total
 
$
39,613

 
$
33,796

 
$
5,817

 
17.2
%
IoT & Mobile Solutions. The increase in IoT & Mobile Solutions cost of net revenues is primarily a result of the increased sales in our LTE gigabit hotspots, USB modems, 5G hotspots, and IoT products as well as associated expenses such as freight and royalties.

27



Enterprise SaaS Solutions. Enterprise SaaS Solutions cost of net revenues increased as a result of higher costs to service Device Management System and increased Ctrack system revenues, partially offset by the effect of strengthening U.S. Dollar foreign exchange rates on international costs.
Gross profit. Gross profit for the three months ended March 31, 2020 was $17.2 million, or a gross margin of 30.3%, compared to $14.8 million, or a gross margin of 30.4%, for the same period in 2019. The increase in gross profit was primarily attributable to the increase in IoT & Mobile Solutions revenues, improvements in MiFi gross margins, and the effect of strengthening U.S. Dollar foreign exchange rates.
Research and development expenses. Research and development expenses for the three months ended March 31, 2020 were $8.2 million, or 14.5% of net revenues, compared to $3.5 million, or 7.2% of net revenues, for the same period in 2019. The increase was primarily a result of increased staffing, test units, and other development spending related to 5G product programs.
Sales and marketing expenses. Sales and marketing expenses for the three months ended March 31, 2020 were $8.8 million, or 15.4% of net revenues, compared to $6.4 million, or 13.2% of net revenues, for the same period in 2019. The increase was primarily a result of an increase in employment costs attributable to an increase in headcount.
General and administrative expenses. General and administrative expenses for the three months ended March 31, 2020 were $7.2 million, or 12.6% of net revenues, compared to $6.5 million, or 13.3% of net revenues, for the same period in 2019. The increase was primarily a result of an increase in employment costs attributable to an increase in headcount and non-recurring legal fees.
Amortization of purchased intangible assets. Amortization of purchased intangible assets for the three months ended March 31, 2020 and 2019 was $0.8 million and $0.9 million, respectively.
Inducement expense. The inducement expense of $7.9 million for the three months ended March 31, 2020 is related to the fair value of inducement shares issued in the privately-negotiated exchange transactions with certain holders of the Inseego Notes.
Interest expense, net. Interest expense, net, for the three months ended March 31, 2020 and 2019 was $3.4 million and $5.1 million, respectively. The decrease in interest expense was due to the reduction in debt associated with the conversion of debt into equity in the three months ended March 31, 2020.
Other income, net. Other income, net, for the three months ended March 31, 2020 and 2019 was $1.0 million and $0.3 million, respectively, which primarily consisted of foreign currency transaction gains and losses.
Income tax provision. Income tax provision for the three months ended March 31, 2020 and 2019 was $0.1 million and $0.2 million, respectively, which primarily related to certain of our profitable entities in foreign jurisdictions.
Net income attributable to noncontrolling interests. Net income attributable to noncontrolling interests for the three months ended March 31, 2020 was $32,000, compared to a net income attributable to noncontrolling interests of $14,000 for the same period in 2019.
Series E preferred stock dividends. During the three months ended March 31, 2020, we recorded dividends of $0.4 million on our Fixed-Rate Cumulative Perpetual Preferred Stock, Series E, par value $0.001 per share (the “Series E Preferred Stock”).
We did not have Series E Preferred Stock dividends during the same period in 2019.
Liquidity and Capital Resources
Our principal sources of liquidity are our existing cash and cash equivalents and cash generated from operations and financing sources. As of March 31, 2020, we had cash and cash equivalents of $30.5 million compared with cash and cash equivalents of $12.1 million as of December 31, 2019.
On August 6, 2018, the Company completed a private placement of 12,062,000 shares of common stock and warrants to purchase an additional 4,221,700 shares of common stock (the “2018 Warrants”).
On March 28, 2019, the 2018 Warrants were exercised at an exercise price of $2.52 per share, for aggregate cash proceeds to the Company of approximately $10.6 million. In connection with the exercise of the 2018 Warrants, on March 28, 2019, the Company issued additional warrants to purchase 2,500,000 shares of common stock. The new warrants have an initial exercise

28



price of $7.00 per share, subject to adjustment for stock splits, reverse stock splits, stock dividends and similar transactions, will be exercisable at any time on or after September 28, 2019, and will expire on June 30, 2022.
On March 6, 2020, the Company completed a private placement of 25,000 additional shares of Series E Preferred Stock, for an aggregate purchase price of $25.0 million in accordance with the terms and provisions of a Securities Purchase Agreement, dated March 6, 2020, by and among the Company and an accredited investor.
Term Loan
On August 23, 2017, we, and certain of our direct and indirect subsidiaries (the “Guarantors”), entered into a credit agreement (the “Credit Agreement”) with Cantor Fitzgerald Securities, as administrative agent and collateral agent, and certain funds managed by Highbridge Capital Management, LLC, as lenders (the “Lenders”). Pursuant to the Credit Agreement, the Lenders provided us with a term loan in the principal amount of $48.0 million (the “Term Loan”) with a maturity date of August 23, 2020 (the “Maturity Date”). Related parties currently hold 100% of the principal amount.
In conjunction with the closing of the Term Loan, the Company received proceeds of $46.9 million, $35.0 million of which was funded to the Company in cash on the closing date, net of an original issue discount and commitment fee, and the remaining $11.9 million of which was funded through the Company’s repurchase and cancellation of approximately $14.9 million of its outstanding Inseego Notes pursuant to the terms of the Note Purchase Agreement (as defined below). The Company paid issuance costs of approximately $0.5 million. Additionally, the Company issued shares of its common stock and accrued an exit fee, which, when combined with the original debt discount and commitment fee, resulted in a total debt discount of approximately $4.0 million.
The Term Loan is secured by a first priority lien on substantially all of the assets of the Company and the Guarantors, including equity interests in certain of our direct and indirect subsidiaries, in each case subject to certain customary exceptions and permitted liens. The Credit Agreement includes customary representations and warranties, a material adverse change clause, as well as customary reporting and financial covenants, including a restriction on the Company’s capital expenditures. The Company obtained a waiver of the capital expenditure restriction from the lender during the quarter ended March 31, 2020. As a result of the waiver, as of March 31, 2020, the Company was in compliance with all financial covenants under the Credit Agreement. On March 9, 2020, we entered into an amendment to the Credit Agreement, which among other things, amended certain financial covenants set forth therein and permits the use of our Series E Preferred Stock to make certain payments, including interest payments, due thereunder.
On March 31, 2020, Inseego Corp. issued 2,330 shares of Series E Preferred Stock to South Ocean, the lender holding all of the aggregate principal amount currently outstanding under the Credit Agreement in satisfaction of all accrued interest under the Credit Agreement. Accordingly, there was no interest payable on the Term Loan as of March 31, 2020.
On March 10, 2020, the Company entered into a letter agreement (the “Letter Agreement”) with South Ocean, which provides: (i) that the Company and South Ocean will work together, in good faith, to reach an agreement to amend or refinance the Credit Agreement in order to extend the Maturity Date of the Credit Agreement until a date after March 15, 2021; and (ii) should an agreement not be reached to amend or refinance the Credit Agreement prior to August 23, 2020, upon request of the Company, the Maturity Date of the Credit Agreement will be extended to no earlier than March 15, 2021. Principal on the Term Loan is payable on the Maturity Date.
The Term Loan bears interest at a rate per annum equal to the three-month LIBOR, but in no event less than 1.00%, plus 7.625% (9.238% at March 31, 2020). Interest on the Term Loan is payable on the last business day of each calendar month and on the Maturity Date. Principal on the Term Loan is payable on the Maturity Date.
Related parties currently hold 100% of the principal amount.
Convertible Senior Notes
On June 10, 2015, Novatel Wireless, Inc., a wholly owned subsidiary of Inseego Corp. (“Novatel Wireless”), issued $120.0 million of 5.50% convertible senior notes due 2020 (the “Novatel Wireless Notes”), which were governed by the terms of an indenture, dated June 10, 2015, between Novatel Wireless, as issuer, Inseego and Wilmington Trust, National Association, as trustee, as amended by certain supplemental indentures (the “Novatel Indenture”). On January 9, 2017, in connection with the settlement of an exchange offer and consent solicitation with respect to the Novatel Wireless Notes (the “Note Exchange”), approximately $119.8 million aggregate principal amount of outstanding Novatel Wireless Notes that were validly tendered and accepted for exchange and subsequently canceled. In February 2020, the holders of the remaining $250,000 of the aggregate principal amount of Novatel Wireless Notes that remained outstanding following the Note Exchange, converted their Novatel Wireless Notes into 50,000 shares of our common stock, at the conversion price of $5.00 per share, in accordance with the terms of the Novatel Indenture. Accordingly, no Novatel Wireless Notes were outstanding as of March 31, 2020.

29



On January 9, 2017, in connection with the Note Exchange, we issued approximately $119.8 million aggregate principal amount of 5.50% convertible senior notes due 2022 (the “Inseego Notes”).
The Inseego Notes are governed by the terms of an indenture, dated January 9, 2017 (as amended by certain supplemental indentures, the “Inseego Indenture”), between the Company, as issuer, and Wilmington Trust, National Association, as trustee (the “Trustee). The Inseego Notes are senior unsecured obligations of the Company and bear interest at a rate of 5.50% per year, payable semi-annually in arrears on June 15 and December 15 of each year. The Inseego Notes will mature on June 15, 2022, unless earlier converted, redeemed or repurchased.
The Inseego Notes will be convertible by the holders into cash, shares of the Company’s common stock, or a combination thereof, at the election of the Company, at any time on or after December 15, 2021 and prior to the close of business on the business day immediately preceding the maturity date.
Prior to the close of business on the business day immediately preceding December 15, 2021, holders may convert their Inseego Notes at their option only under the following circumstances:
(i)
during any calendar quarter (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter equals or exceeds 130% of the conversion price on such trading day;
(ii)
during the five consecutive business day period immediately after any five consecutive trading day period (the “Measurement Period”) in which the trading price per $1,000 principal amount of the Inseego Notes for each trading day of the Measurement Period was less than 98% of the product of the last reported sale price per share of the Company’s common stock and the conversion rate on each such trading day;
(iii)
upon the occurrence of certain corporate events specified in the Inseego Indenture; or
(iv)
if the Company has called the Inseego Notes for redemption.

Because the sale price condition (as defined in the Inseego Indenture) was satisfied during December 2019, the Inseego Notes were convertible during the first quarter of 2020. The sale price condition was not satisfied as of March 31, 2020. Accordingly, the Inseego Notes are not currently convertible.

The conversion rate for the Inseego Notes is 212.7660 shares of common stock per $1,000 principal amount of the Inseego Notes, which corresponds to a conversion price of $4.70 per share of our common stock. The conversion rate is subject to adjustment from time to time upon the occurrence of certain events, including, but not limited to, the issuance of stock dividends and payment of cash dividends.
We may redeem all or a portion of the Inseego Notes at its option if the last reported sale price per share of the Company’s common stock equals or exceeds 140% of the conversion price for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the trading day immediately prior to the date on which the Company provides written notice of redemption, at a redemption price equal to 100% of the principal amount of the Inseego Notes to be redeemed, plus any accrued and unpaid interest on such Inseego Notes, subject to the right of holders as of the close of business on an interest record date to receive the related interest. In addition, if the Company calls the Inseego Notes for redemption, a “make-whole fundamental change” (as defined in the Inseego Indenture) will be deemed to occur. As a result, the Company will, in certain circumstances, increase the conversion rate for holders who convert their Inseego Notes in connection with such redemption.
The Inseego Notes are subject to repurchase by the Company at the election of each holder on June 15, 2020 (the “Optional Repurchase Date”) at a repurchase price in cash equal to 100% of the principal amount of the Inseego Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the Optional Repurchase Date, subject to the right of holders of the Inseego Notes on a record date to receive interest through the corresponding interest payment date. On March 6, 2020, the holders of substantially all of the outstanding indebtedness under the notes agreed to waive their optional right to require the Company to repurchase the notes on the Optional Repurchase Date.
On March 3, 2020 the Company and the Trustee entered into a First Supplemental Indenture which eliminated certain covenants in the Inseego Indenture prohibiting the incurrence of certain indebtedness and certain restricted payments.
The Inseego Indenture also provides for customary events of default. If an event of default (other than certain events of bankruptcy, insolvency or reorganization involving the Company) occurs and is continuing, the Trustee, by notice to the Company, or the holders of at least 25% in principal amount of the outstanding Inseego Notes, by notice to the Company and the Trustee, may declare the principal and accrued and unpaid interest on the outstanding Inseego Notes to be immediately due and payable. Upon the occurrence of certain events of bankruptcy, insolvency or reorganization involving the Company, 100%

30



of the principal and accrued and unpaid interest of the Inseego Notes will automatically become immediately due and payable. Notwithstanding the foregoing, the Inseego Indenture provides that, to the extent the Company elects and for up to 60 days, the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants consists exclusively of the right to receive special interest on the Inseego Notes at a rate equal to 0.50% per annum on the principal amount of the outstanding Inseego Notes.
Because the exchange of the Novatel Wireless Notes for the Inseego Notes described above was treated as a debt modification in accordance with applicable FASB guidance (it was between a parent and a subsidiary company and for substantially identical notes), the Company did not recognize a gain or loss with respect to the issuance of the Inseego Notes. In accordance with authoritative guidance, the Company recognized $3.6 million as an additional component of debt discount and additional paid-in capital attributed to the increase in the fair value of the embedded conversion feature of the Inseego Notes before and after modification. The Company will amortize the debt discount on the Inseego Notes as a component of interest expense using the effective interest method through June 2020.
During the three months ended March 31, 2020, the Company entered into privately-negotiated exchange agreements with certain investors holding the Inseego Notes. Pursuant to the exchange agreements, the investors exchanged $59.9 million in aggregate principal amount of outstanding Inseego Notes for 13,688,876 shares (“Exchange Shares”) of the Company’s common stock, par value $0.001 per share. The investors agreed to waive any accrued but unpaid interest on the exchanged Inseego Notes.

Included in the 13,688,876 shares of common stock issued in the exchange transactions described above were 942,706 shares valued at $7.9 million on the date of issuance at fair value, which were issued pursuant to the terms of the privately-negotiated exchange agreements and were in excess of the consideration issuable under the original conversion terms of the exchanged Inseego Notes. ASC 470 - “Debt” requires the recognition through earnings of an inducement charge equal to the fair value of the consideration delivered in excess of the consideration issuable under the original conversion terms. This resulted in a non-cash charge of $7.9 million for the three months ended March 31, 2020, which was recorded as inducement expense in the condensed consolidated statement of operations.
Settlement Agreement
Pursuant to the amended merger agreement with respect to our acquisition of R.E.R. Enterprises, Inc. (“RER”) and its wholly-owned subsidiary and principal operating asset, Feeney Wireless, LLC (which has been renamed Inseego North America, LLC, the Company agreed to pay a total of $15.0 million in deferred purchase price in five cash installments over a four-year period, beginning in March 2016. The Company also agreed to provide earn-out consideration to the former stockholders of RER in the form of $6.1 million in cash over a four-year period, beginning in March 2016, and issuance of up to 2,920,000 shares of the Company’s common stock in three equal annual installments, beginning in March 2016, contingent upon retention of certain key personnel of RER.
On May 11, 2017, the Company initiated a lawsuit against the former stockholders of RER in the Court of Chancery of the State of Delaware seeking recovery of damages for civil conspiracy, fraud in the inducement, unjust enrichment and breach of fiduciary duty. On January 16, 2018, the former stockholders of RER filed an answer and counterclaim in the matter seeking recovery of certain deferred and earn-out payments allegedly owed to them by the Company in connection with the Company’s acquisition of RER. On July 26, 2018, the Company and the former stockholders of RER entered into a mutual general release and settlement agreement (the “Settlement Agreement”) pursuant to which the parties agreed to release all claims against each other and the Company agreed to (i) pay the former stockholders of RER $1.0 million in cash by August 17, 2018, (ii) immediately instruct its transfer agent to permit the transfer or sale of 973,333 shares of the Company’s common stock that the Company had issued to the former stockholders of RER in March 2017, (iii) immediately issue 500,000 shares of the Company’s common stock to the former stockholders of RER, (iv) within 12 months following the execution of the Settlement Agreement, deliver to the former stockholders of RER an additional $1.0 million in cash, common stock, or a combination thereof, at the Company’s option, (v) within 24 months following the execution of the Settlement Agreement deliver to the former stockholders of RER an additional $1.0 million in cash, common stock, or a combination thereof, at the Company’s option, and (vi) file one or more registration statements with respect to the resale of the shares of the Company’s common stock issued to the former stockholders of RER pursuant to the Settlement Agreement. The Company’s remaining liability under the Settlement Agreement at March 31, 2020 consists of approximately $1.0 million in current liabilities.
Rights Agreement
On January 22, 2018, the Company entered into the Rights Agreement and issued a preferred share purchase right (a “Right”) to each of the stockholders of record of each share of the Company’s common stock outstanding on February 2, 2018. Each Right entitles the registered holder, under certain circumstances, to purchase from the Company one one-thousandth of a share of Series D Preferred Stock, par value $0.001 per share (the “Preferred Shares”), of the Company, at a price of $10.00 per

31



one one-thousandth of a Preferred Share represented by a Right, subject to adjustment. The description and terms of the Rights are set forth in the Rights Agreement.
The Rights are not exercisable until the Distribution Date (as defined in the Rights Agreement). The Rights will expire on the earlier of (i) the close of business on January 22, 2021, (ii) the time at which the Rights are redeemed and (iii) the time at which the Rights are exchanged.
Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends.
In connection with an issuance of warrants, on March 28, 2019, we entered into Amendment No. 3 to the Rights Agreement, dated January 22, 2018, as amended from time to time, between us and Computershare Trust Company, N.A., as rights agent, for the purpose of modifying the definition of “Acquiring Person” under the Rights Agreement to permit each of North Sound Trading, L.P. and Golden Harbor Ltd. (together the “Investors”) to remain a Grandfathered Stockholder (as defined in the Rights Agreement) and not be deemed an “Acquiring Person” under the Rights Agreement.

The Investors will remain Grandfathered Stockholders as long as they do not acquire, after the date of the Third Amendment to Rights Agreement, beneficial ownership of our securities (other than as a result of any adjustment provision or the accrual of interest under any outstanding convertible notes) equal to more than 0.50% of the then-outstanding common stock.
Historical Cash Flows
The following table summarizes our unaudited condensed consolidated statements of cash flows for the periods indicated (in thousands): 
 
Three Months Ended
March 31,
 
2020
 
2019
Net cash provided by (used in) operating activities
$
328

 
$
(5,033
)
Net cash used in investing activities
(4,857
)
 
(4,320
)
Net cash provided by financing activities
26,314

 
10,623

Effect of exchange rates on cash
(3,318
)
 
(407
)
Net increase in cash, cash equivalents and restricted cash
18,467

 
863

Cash, cash equivalents and restricted cash, beginning of period
12,074

 
31,076

Cash, cash equivalents and restricted cash, end of period
$
30,541

 
$
31,939

Operating activities. Net cash provided by operating activities was $0.3 million for the three months ended March 31, 2020, compared to net cash used in operating activities of $5.0 million for the same period in 2019. Net cash provided by operating activities for the three months ended March 31, 2020 was primarily attributable to the net loss in the period and net cash used for working capital, partially offset by non-cash charges for the fair value of inducement shares issued in the privately-negotiated exchange transactions with certain holders of the Inseego Notes, depreciation and amortization, including the amortization of debt discount and debt issuance costs, and share-based compensation expense. Net cash used in operating activities for the three months ended March 31, 2019 was primarily attributable to the net loss in the period and net cash used in working capital, partially offset by non-cash charges for depreciation and amortization, including the amortization of debt discount and debt issuance costs, provision for excess and obsolete inventory and share-based compensation expense.
Investing activities. Net cash used in investing activities during the three months ended March 31, 2020 was $4.9 million, compared to net cash used in investing activities of $4.3 million for the same period in 2019. Cash used in investing activities during the three months ended March 31, 2020 was primarily related to the purchases of property, plant and equipment and capitalization of certain costs related to the research and development of software to be sold in our products, in large part due to the increase in development in support of 5G products and services. Cash used in investing activities during the same period in 2019 was primarily related to the purchases of property, plant and equipment and capitalization of certain costs related to the research and development of software to be sold in our products.
Financing activities. Net cash provided by financing activities during the three months ended March 31, 2020 was $26.3 million, compared to net cash provided by financing activities of $10.6 million for the same period in 2019. Net cash provided by financing activities during the three months ended March 31, 2020 was primarily related to proceeds received from the issuance and sale of Series E Preferred Stock and the exercise of warrants to purchase common stock, partially offset by net repayments of bank and overdraft facilities of DigiCore Holdings Limited, principal payments under finance lease obligations and taxes paid on vested restricted stock units. Net cash provided by financing activities for the same period in 2019 was

32



primarily related to proceeds received from the exercise of warrants to purchase common stock and proceeds received from stock option exercises, partially offset by principal payments under finance lease obligations and taxes paid on vested restricted stock units.
Other Liquidity Needs
Under the terms of the indenture governing the Inseego Notes, each holder of the notes has the right to require the Company to repurchase its notes for cash on June 15, 2020 (“the Optional Repurchase Date”). On March 6, 2020, the holders of substantially all of the outstanding indebtedness under the Inseego Notes agreed to waive their optional right to require the Company to repurchase the Inseego Notes on the Optional Repurchase Date.

The Credit Agreement has a maturity date of August 23, 2020. On March 10, 2020, the Company entered into a letter agreement (the “Letter Agreement”) with South Ocean, the lender holding all of the aggregate principal amount currently outstanding under the Credit Agreement, which provides: (i) that the Company and South Ocean will work together, in good faith, to reach an agreement to amend or refinance the Credit Agreement in order to extend the maturity of the Credit Agreement until a date after March 15, 2021; and (ii) should an agreement not be reached to amend or refinance the Credit Agreement prior to August 23, 2020, upon request of the Company, the maturity date of the Credit Agreement will be extended to no earlier than March 15, 2021.

Based on the above, the Company’s management does not believe that its current cash and cash equivalents, together with anticipated cash flows from operations, will be sufficient to meet its working capital needs, including any required repayment of the Credit Agreement, without additional sources of cash. These circumstances, unless mitigated, raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s plan to mitigate the substantial doubt as to its ability to continue as a going concern is through the restructuring of its existing debt or issuance of additional debt or equity securities.
The Company’s liquidity could be compromised if there is any interruption in its business operations, a material failure to satisfy its contractual commitments or a failure to generate revenue from new or existing products. Ultimately, the Company’s ability to attain profitability and to generate positive cash flow is dependent upon achieving a level of revenues adequate to support its evolving cost structure and increasing working capital needs. If events or circumstances occur such that the Company does not meet its operating plan as expected, the Company may be required to raise additional capital, reduce planned research and development activities, incur additional restructuring charges or reduce other operating expenses which could have an adverse impact on the Company’s ability to achieve its intended business objectives. There can be no assurance that any required or desired restructuring or financing will be available on terms favorable to the Company, or at all. In addition, in order to obtain additional borrowings, the Company must comply with certain requirements under the Credit Agreement and the Inseego Indenture. If additional funds are raised by the issuance of equity securities, Company stockholders could experience dilution of their ownership interests and securities issued may have rights senior to those of the holders of the Company’s common stock. If additional funds are raised by the issuance of debt securities, the Company may be subject to additional limitations on its operations.
The global outbreak of COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the U.S. Government in March 2020 and has negatively impacted the U.S. and global economy, disrupted global supply chains, resulted in significant travel and transport restrictions, including mandated closures and orders to “shelter-in-place,” and created significant disruption of the financial markets. The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S. government, state and local government officials, and international governments to prevent disease spread, all of which are uncertain and cannot be predicted.

On March 27, 2020, the President of the United States signed and enacted into law the CARES Act, a $2 trillion economic relief bill. We are evaluating the impact of the CARES Act including related stimulus and economic relief actions on our business.
Off-Balance Sheet Arrangements
We do not engage in any off-balance sheet arrangements.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.

33




Item 4.
Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Exchange Act, that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act 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 the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
As required by Rule 13a-15(b) promulgated under the Exchange Act, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of March 31, 2020, the end of the period covered by this report. Based on the foregoing, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of March 31, 2020.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, during the three months ended March 31, 2020, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

34




PART II—OTHER INFORMATION
Item  1.
Legal Proceedings.
The disclosure in Note 9, Commitments and Contingencies, in the accompanying unaudited condensed consolidated financial statements includes a discussion of our legal proceedings and is incorporated herein by reference.
The Company is also engaged in various other legal actions arising in the ordinary course of our business and, while there can be no assurance, the Company currently believes that the ultimate outcome of these other legal actions will not have a material adverse effect on its business, results of operations, financial condition or cash flows.
Item  1A.
Risk Factors.
Except as set forth below, there have been no material changes in our risk factors from those disclosed in “Item 1A. Risk Factors” of the Form 10-K.
The effects of COVID-19 and other potential future public health crises, epidemics, pandemics or similar events on our business, operating results and cash flows are uncertain.
The global outbreak of COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the U.S. Government in March 2020 and has negatively impacted the U.S. and global economy, disrupted global supply chains, resulted in significant travel and transport restrictions, including mandated closures and orders to “shelter-in-place,” and created significant disruption of the financial markets. The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S. government, state and local government officials, and international governments to prevent disease spread, all of which are uncertain and cannot be predicted.

As a result, temporary precautionary measures intended to help minimize the risk of the pandemic to our employees and to comply with government mandated closures and “shelter-in-place” orders have been put in place, including temporarily requiring most employees to work remotely, suspending all non-essential travel worldwide for our employees, and suspending employee attendance at industry events and in-person work-related meetings. These efforts could negatively affect our business. While most of our global operations have continued to operate, facility closures or work slowdowns or temporary stoppages could occur. In addition, different countries have different practices and policies that can affect our international operations and the operations of our suppliers and customers. For example, our business in South Africa has not been able to perform new domestic installations or installations in other jurisdictions in observance of such countries’ COVID-19 policies, which we believe may adversely impact revenues from Ctrack. Any impact is dependent on the length of the closure.

We rely on contract manufacturers and other companies to provide materials, components and products that we sell to our customers. The spread of COVID-19 could negatively affect the operations at our third-party manufacturers, which could result in delays or disruptions in the supply of our products and could impact our ability to meet customer demand. If we are not able to implement alternatives or other mitigations with respect to suppliers that may have potential delivery impacts due to COVID-19, our sales and financial results could be adversely impacted.

The COVID-19 outbreak is a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect longer-term demand for our products and likely impact our operating results. The impact of COVID-19 could worsen if there is an extended duration of any COVID-19 outbreak or a resurgence of COVID-19 infection in affected regions after they have begun to experience improvement. Prolonged impacts of COVID-19 could result in delays in payment by customers, the speed of regulatory approvals such as FCC and other licenses that are needed for releases of new products, and delays in new 5G network rollouts. Current limitations on travel to customer locations could impact international orders.

Item  2.
Unregistered Sales of Equity Securities and Use of Proceeds.
None, except as previously disclosed in the Company’s Current Reports on Form 8-K, and except for the issuances of common stock described below.

Pursuant to privately-negotiated exchange agreements (each, an “Exchange Agreement”) with various investors holding Inseego Notes, certain investor exchanged the aggregate principal amount of outstanding Inseego Notes set forth in the table below (the “Exchanged Notes”) for shares of the Company’s common stock, par value $0.001 per share (“Exchange Shares”), in the amounts set forth in the table below:

35