SEC Filing | Inseego Corp.

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insg-20220630

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 June 30, 2022


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

For the transition period from to .

Commission File Number: 001-38358


			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.)

9710 Scranton Road, Suite 200
San Diego,	California	92121
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (858) 812-3400

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

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 August 2, 2022 was 107,665,368.

TABLE OF CONTENTS


		Page
PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements	2

	Condensed Consolidated Balance Sheets (Unaudited)	2

	Condensed Consolidated Statements of Operations (Unaudited)	4

	Condensed Consolidated Statements of Comprehensive Loss (Unaudited)	5

	Condensed Consolidated Statements of Stockholders’ Deficit (Unaudited)	6

	Condensed Consolidated Statements of Cash Flows (Unaudited)	8

	Notes to Condensed Consolidated Financial Statements (Unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34

Item 4.	Controls and Procedures	35

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	36

Item 1A.	Risk Factors	36

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 3.	Defaults Upon Senior Securities	36

Item 4.	Mine Safety Disclosures	36

Item 5.	Other Information	36

Item 6.	Exhibits	37

SIGNATURES		38

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

INSEEGO CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and share data)


	June 30, 2022		December 31, 2021
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	21,090	$	46,474
Restricted cash	3,270		3,338
Accounts receivable, net of allowance for doubtful accounts of $343 and $408, respectively	22,491		26,781

Inventories	46,977		37,402

Prepaid expenses and other	10,424		13,624


Total current assets	104,252		127,619
Property, plant and equipment, net of accumulated depreciation of $24,124 and $26,692, respectively	6,930		8,102
Rental assets, net of accumulated depreciation of $6,476 and $5,392, respectively	4,613		4,575
Intangible assets, net of accumulated amortization of $58,807 and $48,404, respectively	46,008		46,995

Goodwill	21,922		20,336
Right-of-use assets, net	6,985		7,839
Other assets	566		377
Total assets	$	191,276	$	215,843
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	45,640	$	48,577
Accrued expenses and other current liabilities	24,298		26,253





Total current liabilities	69,938		74,830
Long-term liabilities:

2025 Notes, net	157,708		157,866



Deferred tax liabilities, net	864		852
Other long-term liabilities	6,456		7,149
Total liabilities	234,966		240,697
Commitments and contingencies
Stockholders’ deficit:
Preferred stock, par value $0.001; 2,000,000 shares authorized:
Series E Preferred stock, par value $0.001; 39,500 shares designated, 25,000 shares issued and outstanding, liquidation preference of $1,000 per share (plus any accrued but unpaid dividends)	—		—
Common stock, par value $0.001; 150,000,000 shares authorized, 107,645,213 and 105,380,533 shares issued and outstanding, respectively	108		105
Additional paid-in capital	787,283		770,619
Accumulated other comprehensive loss	(5,097)		(8,531)
Accumulated deficit	(825,984)		(787,047)



Total stockholders’ deficit	(43,690)		(24,854)
Total liabilities and stockholders’ deficit	$	191,276	$	215,843

See accompanying notes to unaudited condensed consolidated financial statements.

INSEEGO CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net revenues:
IoT & Mobile Solutions	$	54,990	$	51,836	$	109,495	$	94,795
Enterprise SaaS Solutions	6,866		13,857		13,745		28,495
Total net revenues	61,856		65,693		123,240		123,290
Cost of net revenues:
IoT & Mobile Solutions	40,694		39,740		83,597		73,178
Enterprise SaaS Solutions	3,270		5,604		6,503		11,288

Total cost of net revenues	43,964		45,344		90,100		84,466
Gross profit	17,892		20,349		33,140		38,824
Operating costs and expenses:
Research and development	13,619		11,773		32,179		26,328
Sales and marketing	7,721		9,821		17,494		20,825
General and administrative	6,142		7,414		14,380		16,058
Amortization of purchased intangible assets	443		664		887		1,130
Impairment of capitalized software	—		1,197		—		1,197


Total operating costs and expenses	27,925		30,869		64,940		65,538
Operating loss	(10,033)		(10,520)		(31,800)		(26,714)



Loss on debt conversion and extinguishment, net	—		—		(450)		(432)
Interest expense, net	(1,664)		(1,678)		(4,587)		(3,523)
Other (expense) income, net	(982)		(617)		(1,387)		1,117
Loss before income taxes	(12,679)		(12,815)		(38,224)		(29,552)
Income tax (benefit) provision	(303)		228		(625)		449


Net loss	(12,376)		(13,043)		(37,599)		(30,001)
Less: Net income attributable to noncontrolling interests	—		—		—		(214)
Net loss attributable to Inseego Corp.	(12,376)		(13,043)		(37,599)		(30,215)
Series E preferred stock dividends	(677)		(886)		(1,338)		(1,753)
Net loss attributable to common stockholders	$	(13,053)	$	(13,929)	$	(38,937)	$	(31,968)
Per share data:
Net loss per common share:


Basic and diluted	$	(0.12)	$	(0.14)	$	(0.37)	$	(0.31)


Weighted-average shares used in computation of net loss per common share:
Basic and diluted	107,511,660		102,935,213		106,585,684		102,157,146

See accompanying notes to unaudited condensed consolidated financial statements.

INSEEGO CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net loss	$	(12,376)	$	(13,043)	$	(37,599)	$	(30,001)
Foreign currency translation adjustment	536		2,425		3,434		693

Total comprehensive loss	$	(11,840)	$	(10,618)	$	(34,165)	$	(29,308)
Comprehensive income attributable to noncontrolling interests	—		—		—		(214)
Comprehensive loss attributable to Inseego Corp.	$	(11,840)	$	(10,618)	$	(34,165)	$	(29,522)

See accompanying notes to unaudited condensed consolidated financial statements.

INSEEGO CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(In thousands)

(Unaudited)


	Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interests		Total Stockholders’ Equity (Deficit)
	Shares	Amount		Shares	Amount
Balance, March 31, 2021	35	$	—	102,773	$	103	$	757,352	$	(750,221)	(8,704)		$	7	$	(1,463)
Net loss	—	—		—	—		—		(13,043)		—		—		(13,043)
Foreign currency translation adjustment	—	—		—	—		—		—		2,425		—		2,425
Exercise of stock options, vesting of restricted stock units and stock issued under employee stock purchase plan	—	—		336	—		1,282		—		—		—		1,282
Taxes withheld on net settled vesting of restricted stock units	—	—		—	—		(356)		—		—		—		(356)

Issuance of common shares in connection with a public offering, net of issuance costs	—	—		—	—		(59)		—		—		—		(59)
Share-based compensation	—	—		—	—		2,307		—		—		—		2,307
Net noncontrolling interest acquired	—	—		—	—		—		—		—		1		1
Series E preferred stock dividends	—	—		—	—		886		(886)		—		—		—

Balance, June 30, 2021	35	$	—	103,109	$	103	$	761,412	$	(764,150)	$	(6,279)	$	8	$	(8,906)

Balance, March 31, 2022	25	$	—	107,389	$	107	$	784,267	$	(812,931)	$	(5,633)	$	—	$	(34,190)
Net loss	—	—		—	—		—		$	(12,376)	—		—		(12,376)
Foreign currency translation adjustment	—	—		—	—		—		$	—	536		—		536

Exercise of stock options, vesting of restricted stock units and stock issued under employee stock purchase plan	—	—		256	1		74		$	—	—		—		75
Taxes withheld on net settled vesting of restricted stock units	—	—		—	—		(22)		$	—	—		—		(22)
Share-based compensation	—	—		—	—		2,287		$	—	—		—		2,287
Series E preferred stock dividends	—	—		—	—		677		(677)		—		—		—

Balance, June 30, 2022	25	$	—	107,645	$	108	$	787,283	$	(825,984)	$	(5,097)	$	—	$	(43,690)

INSEEGO CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(In thousands)

(Unaudited)


	Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interests		Total Stockholders’ Deficit
	Shares	Amount		Shares	Amount



















Balance, December 31, 2020	35	$	—	99,399	$	99	$	711,487	$	(732,422)	$	(6,972)	$	(91)	$	(27,899)
Net loss	—	—		—	—		—		(30,215)		—		214		(30,001)
Foreign currency translation adjustment	—	—		—	—		—		—		693		—		693

Exercise of stock options, vesting of restricted stock units and stock issued under employee stock purchase plan	—	—		1,765	2		2,842		—		—		—		2,844
Taxes withheld on net settled vesting of restricted stock units	—	—		—	—		(825)		—		—		—		(825)








Issuance of common shares in connection with the conversion of 2025 Notes	—	—		429	1		5,382		—		—		—		5,383
Issuance of common shares in connection with a public offering, net of issuance costs	—	—		1,516	1		29,368		—		—		—		29,369

Share-based compensation	—	—		—	—		11,405		—		—		—		11,405
Series E preferred stock dividends	—	—		—	—		1,753		(1,753)		—		—		—
Net noncontrolling interest acquired	—	—		—	—		—		240		—		(115)		125
Balance, June 30, 2021	35	—		103,109	$	103	$	761,412	$	(764,150)	$	(6,279)	$	8	$	(8,906)



Balance, December 31, 2021	25	$	—	105,381	$	105	$	770,619	$	(787,047)	$	(8,531)	$	—	$	(24,854)
Net loss	—	—		—	—		—		(37,599)		—		—		(37,599)
Foreign currency translation adjustment	—	—		—	—		—		—		3,434		—		3,434
Adjustment relating to extinguishment of 2022 Notes							1,728		—		—		—		1,728
Exercise of stock options, vesting of restricted stock units and stock issued under employee stock purchase plan	—	—		2,269	3		148		—		—		—		151
Taxes withheld on net settled vesting of restricted stock units	—	—		(5)	—		(36)		—		—		—		(36)










Share-based compensation	—	—		—	—		13,486		—		—		—		13,486
Series E preferred stock dividends	—	—		—	—		1,338		(1,338)		—		—		—


Balance, June 30, 2022	25	$	—	107,645	$	108	$	787,283	$	(825,984)	$	(5,097)	$	—	$	(43,690)

INSEEGO CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Six Months Ended June 30,
	2022		2021
Cash flows from operating activities:
Net loss	$	(37,599)	$	(30,001)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	13,955		13,051
(Recoveries) provision for bad debts	(15)		266
Impairment of capitalized software	—		1,197
Provision for excess and obsolete inventory	896		496
Share-based compensation expense	13,486		11,405

Amortization of debt discount and debt issuance costs	2,022		746
Fair value adjustment on derivative instrument	(902)		(1,823)
Loss on debt conversion and extinguishment, net	450		432

Deferred income taxes	(96)		38
Right-of-use assets	1,070		883
Other	—		(330)
Changes in assets and liabilities, net of effects of divestiture:
Accounts receivable	5,239		6,483
Inventories	(10,148)		(834)
Prepaid expenses and other assets	3,100		1,158
Accounts payable	(6,207)		(16,015)
Accrued expenses, income taxes, and other	(1,740)		2,180
Operating lease liabilities	(1,109)		(1,362)
Net cash used in operating activities	(17,598)		(12,030)
Cash flows from investing activities:
Acquisition of noncontrolling interest	—		(116)
Purchases of property, plant and equipment	(1,059)		(2,455)
Proceeds from the sale of property, plant and equipment	—		506

Additions to capitalized software development costs	(6,222)		(15,369)
Net cash used in investing activities	(7,281)		(17,434)
Cash flows from financing activities:


Net borrowing of bank and overdraft facilities	(139)		295
Principal payments under finance lease obligations	(62)		(2,173)
Proceeds from a public offering, net of issuance costs	—		29,369
Principal payments on financed assets	(1,231)		—
Proceeds from stock option exercises and employee stock purchase plan, net of taxes paid on vested restricted stock units	115		2,020
Net cash (used in) provided by financing activities	(1,317)		29,511
Effect of exchange rates on cash	744		321
Net (decrease) increase in cash, cash equivalents and restricted cash	(25,452)		368
Cash, cash equivalents and restricted cash, beginning of period	49,812		40,015
Cash, cash equivalents and restricted cash, end of period	$	24,360	$	40,383
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	2,631	$	2,782
Income taxes	$	26	$	252

Supplemental disclosures of non-cash activities:
Transfer of inventories to rental assets	$	134	$	3,403
Capital expenditures financed through accounts payable or accrued liabilities	$	3,228	$	3,641
Right-of-use assets obtained in exchange for operating leases liabilities	$	158	$	148





2025 Notes conversion, including shares issued in satisfaction of interest make-whole payment	$	—	$	5,383

See accompanying notes to unaudited condensed consolidated financial statements.

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 June 30, 2022 and the results of the Company’s operations for the three and six months ended June 30, 2022 and 2021 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, 2021. The year-end condensed consolidated balance sheet data as of December 31, 2021 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 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, 2021. 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.

Risks and Uncertainties

In December 2019, the novel coronavirus (“COVID-19”) was reported to have surfaced in Wuhan, China, resulting in shutdowns of manufacturing and commerce globally in the months that followed. Since then, the COVID-19 pandemic has spread worldwide, and has resulted in authorities implementing numerous measures to try to contain the disease or slow its spread, such as travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns. The extent of the impact of the COVID-19 pandemic on the Company’s 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 the spread of the disease, all of which are uncertain and cannot be predicted.

In addition, a global semiconductor supply shortage is having wide-ranging effects across the technology industry. This semiconductor shortage has not materially impacted the Company but may impact the Company’s customers, and may negatively impact the supply of materials needed for our testing and production timeline. Our suppliers, contract manufacturers, and our customers are all taking actions to reduce the impact of the semiconductor shortage; however, if the shortage persists, the impact on our business could be material.

Liquidity

As of June 30, 2022, the Company had available cash and cash equivalents totaling $21.1 million, excluding restricted cash of $3.3 million.

On August 5, 2022, Inseego Corp. (“Inseego” or the “Company”) entered into a Loan and Security Agreement (the “Credit Agreement”), by and among Siena Lending Group LLC, as lender (“Lender”), Inseego Wireless, Inc., a Delaware corporation (“Inseego Wireless”), and Inseego North America LLC, an Oregon limited liability company, as borrowers (“Inseego North America” and, together with Inseego Wireless, the “Borrowers”), and the Company, as guarantor (together with the Borrowers, the “Loan Parties”). The Credit Agreement establishes a secured asset-backed revolving credit facility which is comprised of a $50 million revolving credit facility (the “Credit Facility”), with a minimum draw of $4.5 million upon execution of the Credit Agreement. The Credit Facility matures on December 31, 2024. Availability under the Credit Facility is determined by a Borrowing Base (as defined in the Credit Agreement) comprised of a percentage of eligible accounts receivable and eligible inventory of the Borrowers. The Borrowers’ obligations under the Credit Agreement are guaranteed by the Company. The Loan Parties’ obligations under the Credit Agreement are secured by a continuing security interest in all property of each Loan Party, subject to certain Excluded Collateral (as defined in the Credit Agreement).

Borrowings under the Credit Facility may take the form of base rate loans or Secured Overnight Financing Rate (“SOFR”) loans. SOFR loans will bear interest at a rate per annum equal to Term SOFR (as defined in the Credit Agreement) plus an adjustment based on the outstanding amount for a preceding month. If the outstanding amount for a preceding month is less than $15 million, the interest rate on the Credit Agreement is Term SOFR (as defined in the Credit Agreement) plus 3.50%, with a Term SOFR floor of 1.00%. If the outstanding amount for a preceding month is greater than $15 million, the interest rate is calculated by Term SOFR plus 4.00%, with a Term SOFR floor of 1.00%. If the outstanding amount for a preceding month is greater than $25 million, the interest rate is calculated by Term SOFR plus 5.50%, with a Term SOFR floor of 1.00%. The Credit Agreement is also subject to closing costs and financial covenants.

INSEEGO CORP.

Notes to Condensed Consolidated Financial Statements (Unaudited)

On July 30, 2021, the Company completed the sale of its Ctrack business operations in Africa, Pakistan and the Middle East (together “Ctrack South Africa”). Initial cash proceeds of approximately $36.6 million were received. Net cash proceeds received were $31.5 million, net of cash divested of $5.0 million. Final cash proceeds were subject to certain post-closing working capital adjustments which totaled $2.6 million, out of which $2.2 million was received on October 29, 2021, and the remaining $0.4 million was offset with the Company’s existing accounts payable balance to an affiliate of Convergence Partners (“Convergence”), an investment management firm in South Africa.

On January 25, 2021, the Company entered into an Equity Distribution Agreement with Canaccord Genuity LLC (the “Agent”), pursuant to which the Company may offer and sell, from time to time, through or to the Agent, up to $40.0 million of shares of its common stock (the “ATM Offering”). In January 2021, the Company sold 1,516,073 shares of common stock, at an average price of $20.11 per share, for net proceeds of $29.4 million, after deducting underwriter fees and discounts of $0.9 million, and other offering fees, pursuant to the ATM Offering.

The Company has a history of operating and net losses and overall usage of cash from operating and investing activities. The Company’s management believes that its cash and cash equivalents, together with anticipated cash flows from operations, will be sufficient to meet its cash flow needs for the next twelve months from the filing date of this report. The Company’s ability to attain more profitable operations and continue to generate positive cash flow is dependent upon achieving a level and mix of revenues adequate to support its evolving cost structure. If events or circumstances occur such that the Company does not meet its operating plan as expected, or if the Company becomes obligated to pay unforeseen expenditures as a result of ongoing litigation, the Company may be required to raise 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.

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. 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. Additionally, the Company is uncertain of the full extent to which the COVID-19 pandemic will impact the Company’s business, operations and financial results.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-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. Estimates are assessed each period and updated to reflect current information, such as the economic considerations related to the impact that the COVID-19 pandemic could have on our significant accounting estimates. Significant estimates include revenue recognition, capitalized software costs, allowance for credit losses, provision for excess and obsolete inventory, valuation of intangible and long-lived assets, valuation of goodwill, valuation of derivatives, accruals relating to litigation, income taxes and share-based compensation expense.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents include highly liquid investments with original maturities of three months or less. The Company’s cash and cash equivalents are generally held with large financial institutions worldwide to reduce the amount of exposure to any credit risk. Restricted cash consists of Company funds in escrow with a financial institution as collateral for potential future uninsured warranty claims related to the divestiture of Ctrack South Africa. Cash, cash equivalents and restricted cash are recorded at market value, which approximates cost. Gains and losses associated with the Company’s foreign currency denominated demand deposits are recorded as a component of other income, net, in the consolidated statements of operations. The following table provides a reconciliation of cash, cash equivalents and restricted cash as reported within the consolidated balance sheets to “Cash, cash equivalents, and restricted cash, end of period” as reported within the consolidated

INSEEGO CORP.

Notes to Condensed Consolidated Financial Statements (Unaudited)

statements of cash flows (in thousands):


	June 30, 2022		December 31, 2021

Cash and cash equivalents	$	21,090	$	46,474
Restricted cash	3,270		3,338
Cash, cash equivalents and restricted cash, end of period	$	24,360	$	49,812

Recently Adopted Accounting Pronouncements

In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40)-Accounting For Convertible Instruments and Contracts in an Entity's Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted net income per share calculation in certain areas. The new guidance is effective for annual and interim periods beginning after December 15, 2021. The Company adopted this standard in the first quarter of fiscal 2022 and it did not have an impact to the condensed consolidated financial statements.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). The new ASU addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. This amendment is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company adopted this standard in the first quarter of fiscal 2022 and it did not have an impact to the condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

Other than the above mentioned recently adopted accounting pronouncements, there have been no recent accounting pronouncements, changes in accounting pronouncements or recent accounting pronouncements not yet adopted during the six months ended June 30, 2022 that are of significance or potential significance to the Company’s financial position, results of operations and cash flows.

2. Financial Statement Details

Inventories

Inventories, net, consist of the following (in thousands):


	June 30, 2022		December 31, 2021
Finished goods	$	38,978	$	33,112
Raw materials and components	7,999		4,290
Total inventories	$	46,977	$	37,402

INSEEGO CORP.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Prepaid expenses and other

Prepaid expenses and other consists of the following (in thousands):


	June 30, 2022		December 31, 2021

Rebate receivables	$	3,569	$	6,398
Receivables from contract manufacturers	1,671		2,626
Software licenses	1,777		1,261
Insurance	368		1,269
Deposits	1,006		1,023
Financed assets	655		323
Other	1,378		724
	$	10,424	$	13,624

Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):


	June 30, 2022		December 31, 2021
Royalties	$	1,762	$	2,243
Payroll and related expenses	9,092		9,326
Warranty obligations	480		473
Professional fees	548		502
Bank overdrafts	231		370
Accrued interest	877		877


Contract liabilities	5,042		3,832
Operating lease liabilities	1,580		1,769
Accrued contract manufacturing liabilities	999		927
Liabilities related to financed assets	272		1,593
Value added tax payables	394		642
Other	3,021		3,699
Total accrued expenses and other current liabilities	$	24,298	$	26,253

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.

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.

INSEEGO CORP.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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 fair market value for level 3 securities may be highly sensitive to the use of unobservable inputs and subjective assumptions. Generally, changes in significant unobservable inputs may result in significantly lower or higher fair value measurements.

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 six months ended June 30, 2022 or 2021.

The following tables summarize 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 June 30, 2022 and December 31, 2021 (in thousands):


	June 30, 2022						December 31, 2021
	Total Fair Value		Level 3		Level 1		Total Fair Value		Level 3		Level 1
Assets
Cash equivalents
Money market funds	$	—	$	—	$	—	$	126	$	—	$	126
Total assets	$	—	$	—	$	—	$	126	$	—	$	126
Liabilities
2025 Notes
Interest make-whole payment	$	24	$	24	$	—	$	926	$	926	$	—
Total liabilities	$	24	$	24	$	—	$	926	$	926	$	—

The fair value of the interest make-whole payment derivative liability was determined using a Monte Carlo model with the following key assumptions:


	June 30, 2022		December 31, 2021
Volatility	50	%	50	%
Stock price	$1.89 per share		$