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Significant Accounting Policies | 12 Months Ended
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Dec. 31, 2018
Accounting Policies [Abstract] |
Significant Accounting Policies |
(1) | Significant Accounting Policies
| (a) | Description of Business
Airgain, Inc. (the Company) was incorporated in the State of California on March 20, 1995 and reincorporated in the State of Delaware on August 15, 2016. The Company is a leading provider of advanced antenna technologies used to enable high performance wireless networking across a broad range of devices and markets, including Consumer, Enterprise and Automotive. The Company designs, develops, and engineers its antenna products for original equipment and design manufacturers worldwide. The Company’s headquarters is in San Diego, California with office space and research, design and test facilities in the United States, United Kingdom, Korea, China and Taiwan.
| (b) | Basis of Presentation
The financial statements of the Company have been prepared in conformity with U.S. generally accepted accounting principles (GAAP).
| (c) | Recently Issued Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 is effective for fiscal years beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021. Early adoption is permitted. The Company adopted this standard during the year ended December 31, 2018 on a prospective basis. The impact on the financial statements are immaterial. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement: Disclosure Framework – Changes to Disclosure for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. The Company adopted this standard during the year ended December 31, 2018 on a prospective basis. The impact on the financial statements are immaterial. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods and services to customers. The standard will replace most existing revenue recognition guidance in GAAP when it becomes effective. ASU 2014-09 is effective for reporting periods beginning after December 15, 2018, and interim periods in fiscal years beginning after December 15, 2019. The Company will adopt the new guidance for fiscal year 2019. The Company is in the process of finalizing their new accounting policies, processes, and internal controls necessary to support the requirements of ASU 2014-09. The Company has not yet selected a transition method, nor has determined the effect of the standard on our ongoing financial reporting. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use assets. ASU 2016-02 is effective for annual periods beginning after December 15, 2019, and interim periods in fiscal years beginning after December 15, 2020. The Company is evaluating the effect that ASU 2016-02 will have on its financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on the Company’s ongoing financial reporting.
| (d) | Segment Information
The Company’s operations are located primarily in the United States, and most of its assets are located in San Diego, California and Scottsdale, Arizona. The Company operates in one segment related to the sale of antenna products. The Company’s chief operating decision-maker is its chief executive officer, who reviews operating results on an aggregate basis and manages the Company’s operations as a single operating segment.
| (e) | Cash Equivalents and Short-Term Investments
Cash equivalents are comprised of short-term, highly liquid investments with maturities of 90 days or less at the date of purchase. Short-term investments consist predominantly of commercial paper, corporate debt securities, U.S. Treasury securities and asset backed securities. The Company classifies short-term investments based on the facts and circumstances surrounding the investments at the time of purchase and evaluates such classification as of each balance sheet date. All short-term investments are classified as available-for-sale securities as of December 31, 2018 and are recorded at estimated fair value. Unrealized gains and losses for available-for-sale securities are included in accumulated other comprehensive income, a component of stockholders’ equity. Realized gains and losses are included in other income, in the statement of operations. The Company evaluates its investments to determine whether those with unrealized loss positions are other than temporarily impaired. Impairments are considered to be other than temporary if they are related to deterioration in credit risk or if it is likely that the Company will sell the securities before recovery of their cost basis.
| (f) | Trade Accounts Receivable
Trade accounts receivable is adjusted for all known uncollectible accounts. The policy for determining when receivables are past due or delinquent is based on the contractual terms agreed upon. Accounts are written off once all collection efforts have been exhausted. An allowance for doubtful accounts is established when, in the opinion of management, collection of the account is doubtful. The allowance for doubtful accounts was $0 as of December 31, 2018 and December 31, 2017.
| (g) | Inventory
The majority of the Company’s products are manufactured by third parties that retain ownership of the inventory until title is transferred to the customer at the shipping point. In certain instances, shipping terms are delivery at place and the Company is responsible for arranging transportation and delivery of goods ready for unloading at the named place. The Company bears all risk involved in bringing the goods to the named place and records the related inventory in transit to the customer as inventory on the accompanying balance sheet. With the acquisition of substantially all of the assets of Antenna Plus, LLC (Antenna Plus), in April 2017, the Company began manufacturing products at its Scottsdale, Arizona and Shullsburg, Wisconsin locations. In July 2017, the Company relocated all of its product manufacturing operations in Shullsburg, Wisconsin to the Scottsdale, Arizona facility. See Note 4 for additional information relating to the Company’s acquisition of the Antenna Plus assets. Inventory is stated at the lower of cost or net realizable value. For items manufactured by the Company, cost is determined using the weighted average cost method. For items manufactured by third parties, cost is determined using the first-in, first-out method (FIFO). Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period. As of December 31, 2018, the Company’s inventories consist primarily of raw materials. Provisions for excess and obsolete inventories are estimated based on product life cycles, quality issues, and historical experience. As of December 31, 2018 and December 31, 2017, there was no provision for excess and obsolete inventories.
| (h) | Property and Equipment
Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets, generally three years. The estimated useful lives for leasehold improvements is determined as either the estimated useful life of the asset or the lease term, whichever is shorter. Depreciation of assets that are recorded under operating leases are included in depreciation expense. Maintenance and repairs are expensed as incurred. Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. When assets are sold, or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included as a non-operating expense.
| (i) | Goodwill
Goodwill, which has an indefinite useful life, represents the excess of cost over fair value of net assets acquired. The change in the carrying value of goodwill during the year ended December 31, 2017, was due to an acquisition during 2017. See Note 5. The Company reviews goodwill for impairment annually on December 1st and whenever events or changes in circumstances indicate that goodwill may be impaired. The Company completed its annual assessment for goodwill impairment in December 2018 and determined that goodwill is not impaired as of December 31, 2018.
| (j) | Long-lived Assets
The Company’s identifiable intangible assets are comprised of acquired developed technologies, customer relationships, tradenames and non-compete agreements. The cost of the identifiable intangible assets with finite lives is amortized on a straight-line basis over the assets’ respective estimated useful lives. The Company periodically re-evaluates the original assumptions and rationale utilized in the establishment of the carrying value and estimated lives of long-lived assets and finite-lived intangible assets. Long- lived assets and finite-lived intangibles are assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an asset is considered to be impaired, the impairment recognized is equal to the amount by which the carrying value of the asset exceeds its fair value.
| (k) | Revenue Recognition
The Company generates revenue primarily from the sale of its antenna products. The Company recognizes revenue when products are shipped and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is reasonably assured, persuasive evidence of an arrangement exists, and the sales price is fixed or determinable. Title and risk of loss transfer to customers either when the products are shipped to or received by the customer, based on the terms of the specific agreement with the customer. A portion of the Company’s sales are made through distributors under agreements allowing for pricing credits and/or rights of return under certain circumstances. Pricing credits and returns under these provisions have been insignificant; accordingly, the Company’s allowance for sales returns and pricing credits was insignificant for the years ended December 31, 2018, 2017 and 2016. To date, services revenues have been immaterial as a percentage of total revenues. Service revenues are recognized ratably over the term of the agreement.
| (l) | Shipping and Transportation Costs
Shipping and other transportation costs are expensed as incurred. Shipping and other transportation costs were $433,234, $462,297 and $321,093 for the years ended December 31, 2018, 2017 and 2016, respectively. These costs are included in general and administrative expenses in the accompanying statements of operations.
| (m) | Research and Development Costs
Costs incurred in connection with research and development are expensed as incurred.
| (n) | Advertising Costs
Advertising costs are expensed as incurred and included in sales and marketing expenses. Advertising costs were $2,525,626, $15,867 and $0, for the years ended December 31, 2018, 2017 and 2016, respectively.
| (o) | Income Taxes
The Company records income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. When applicable, a valuation allowance is established to reduce any deferred tax asset when it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest related to unrecognized tax benefits in interest expense and penalties in general and administrative expenses.
| (p) | Stock-Based Compensation
The Company recognizes all employee stock-based compensation as a cost in the financial statements. Equity classified awards are measured at the grant-date fair value of the award. The Company estimates the grant-date fair value using the Black-Scholes-Merton option-pricing model. The Company recognizes forfeitures when incurred. Compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. Stock-based compensation expense for the years ended December 31, 2018, 2017 and 2016 was $2,910,070, $736,066 and $298,535, respectively.
| (q) | Fair Value Measurements
The carrying values of the Company’s financial instruments, including cash, trade accounts receivable, accounts payable, and accrued liabilities approximate their fair values due to the short maturity of these instruments. Fair value measurements are market-based measurements, not entity-specific measurements. Therefore, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. The Company follows a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values. The basis for fair value measurements for each level within the hierarchy is described below:
| • | Level 1: Quoted prices in active markets for identical assets or liabilities.
| • | Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
| • | Level 3: Valuations derived from valuation techniques in which one or more significant inputs are unobservable in active markets.
| (r) | Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include valuation of the preferred redeemable convertible stock warrant liability, stock- based compensation and intangible assets.
| (s) | Accumulated Other Comprehensive Loss
Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). Accumulated other comprehensive loss on the balance sheet at December 31, 2018 and December 31, 2017 includes unrealized gains and losses on the Company’s available-for-sale securities.
| (t) | Net Income (Loss) Per Share
Basic net income (loss) per share is calculated by dividing net income (loss) available to common stockholders by the weighted average shares of common stock outstanding for the period. Diluted net income (loss) per share is calculated by dividing net income (loss) by the weighted average shares of common stock outstanding for the period plus amounts representing the dilutive effect of securities that are convertible into common stock. Preferred dividends are deducted from net income (loss) in arriving at net income (loss) attributable to common stockholders. The Company calculates diluted earnings (loss) per common share using the treasury stock method and the as-if-converted method, as applicable. The following table presents the computation of net income or loss per share:
|  | For the Year Ended December 31, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Numerator: |  |  |  |  |  |  |  |  |  |  |  |
Net income (loss) |  | $ | (2,584,320 | ) |  | $ | 1,141,255 |  |  | $ | 3,733,707 |
Accretion of dividends on preferred stock |  |  | — |  |  |  | — |  |  |  | (1,537,021 | )
Net income (loss) attributable to common stockholders - basic |  | $ | (2,584,320 | ) |  | $ | 1,141,255 |  |  | $ | 2,196,686 |
Accretion of dividends on preferred stock |  |  | — |  |  |  | — |  |  |  | 125,205 |
Adjustment for change in fair value of warrant liability |  |  | — |  |  |  | — |  |  |  | (460,289 | )
Net income (loss) attributable to common stockholders - diluted |  | $ | (2,584,320 | ) |  | $ | 1,141,255 |  |  | $ | 1,861,602 |
Denominator: |  |  |  |  |  |  |  |  |  |  |  |
Weighted average common shares outstanding |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 9,520,947 |  |  |  | 9,485,271 |  |  |  | 3,373,316 |
Diluted |  |  | 9,520,947 |  |  |  | 10,361,373 |  |  |  | 4,667,503 |
Net income (loss) per share: |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | (0.27 | ) |  | $ | 0.12 |  |  | $ | 0.65 |
Diluted |  | $ | (0.27 | ) |  | $ | 0.11 |  |  | $ | 0.40 |
Basic and diluted weighted average common shares outstanding for the year ended December 31, 2018 were the same. Diluted weighted average common shares outstanding for the year ended December 31, 2017 includes 1,532 warrants and 874,571 options outstanding. Diluted weighted average common shares outstanding for the year ended December 31, 2016 includes 577,529 options outstanding and 716,658 preferred shares. Potentially dilutive securities not included in the calculation of diluted net income (loss) per share because to do so would be anti-dilutive are as follows (in common stock equivalent shares):
|  | For the Year Ended December 31, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Preferred redeemable convertible stock, including accumulated dividends |  |  | — |  |  |  | — |  |  |  | 2,406,894 |
Employee stock options |  |  | 978,464 |  |  |  | 513,869 |  |  |  | — |
Warrants outstanding |  |  | 51,003 |  |  |  | — |  |  |  | 51,003 |
Total |  |  | 1,029,467 |  |  |  | 513,869 |  |  |  | 2,457,897 |

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