UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

	FORM 10-Q

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

For the quarterly period ended September 30, 2017

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: 000-31659

	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.)
9605 Scranton Road, Suite 300 San Diego, California		92121
(Address of Principal Executive Offices)		(Zip Code)

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

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    x  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	x
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	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 x

The number of shares of the registrant’s common stock outstanding as of November 2, 2017 was 58,284,508.

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TABLE OF CONTENTS

 

		Page
PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets (Unaudited)	3
	Condensed Consolidated Statements of Operations (Unaudited)	4
	Condensed Consolidated Statements of Comprehensive Loss (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows (Unaudited)	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.	Defaults Upon Senior Securities	35
Item 4.	Mine Safety Disclosures	35
Item 5.	Other Information	36
Item 6.	Exhibits	37
SIGNATURES		39

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PART I—FINANCIAL INFORMATION

Item 1.     Financial Statements.

INSEEGO CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and share data)

	September 30, 2017				December 31, 2016
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	19,587			$	9,894
Restricted cash	411				—
Accounts receivable, net of allowance for doubtful accounts of $1,931 and $1,660, respectively	21,009				22,203
Inventories	20,964				31,142
Prepaid expenses and other	10,680				5,208
Total current assets	72,651				68,447
Property, plant and equipment, net of accumulated depreciation of $27,567 and $25,032, respectively	6,899				8,392
Rental assets, net of accumulated depreciation of $7,685 and $4,112, respectively	6,816				7,003
Intangible assets, net of accumulated amortization of $22,793 and $17,996, respectively	37,617				40,283
Goodwill	34,846				34,428
Other assets	72				163
Total assets	$	158,901			$	158,716
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	30,806			$	31,242
Accrued expenses and other current liabilities	32,501				27,897
DigiCore bank facilities	2,952				3,238
Total current liabilities	66,259				62,377
Long-term liabilities:
Convertible senior notes, net	82,703				90,908
Term loan, net	43,682				—
Deferred tax liabilities, net	4,449				4,439
Other long-term liabilities	10,688				18,719
Total liabilities	207,781				176,443
Commitments and Contingencies
Stockholders’ deficit:
Preferred stock, par value $0.001; 2,000,000 shares authorized and none outstanding	—				—
Common stock, par value $0.001; 150,000,000 shares authorized, 58,259,353 and 54,372,080 shares issued and outstanding, respectively	58				54
Additional paid-in capital	518,338				507,616
Accumulated other comprehensive loss	(1,361		)		(1,409		)
Accumulated deficit	(565,937		)		(524,024		)
Total stockholders’ deficit attributable to Inseego Corp.	(48,902		)		(17,763		)
Noncontrolling interests	22				36
Total stockholders’ deficit	(48,880		)		(17,727		)
Total liabilities and stockholders’ deficit	$	158,901			$	158,716

See accompanying notes to unaudited condensed consolidated financial statements.

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INSEEGO CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

(Unaudited)

 

	Three Months Ended September 30,								Nine Months Ended September 30,
	2017				2016				2017				2016
Net revenues:
Hardware	$	42,810			$	46,096			$	129,221			$	149,402
SaaS, software and services	14,651				14,785				43,542				41,234
Total net revenues	57,461				60,881				172,763				190,636
Cost of net revenues:
Hardware	37,277				32,768				108,097				109,395
SaaS, software and services	3,730				5,189				13,390				13,896
Impairment of abandoned product line, net of recoveries	82				—				1,489				—
Total cost of net revenues	41,089				37,957				122,976				123,291
Gross profit	16,372				22,924				49,787				67,345
Operating costs and expenses:
Research and development	5,099				7,942				16,788				24,248
Sales and marketing	6,181				7,953				20,340				24,062
General and administrative	7,118				14,551				27,249				34,744
Amortization of purchased intangible assets	905				1,008				2,714				2,912
Impairment of purchased intangible assets	—				2,594				—				2,594
Restructuring charges, net of recoveries	3,446				794				5,698				1,685
Total operating costs and expenses	22,749				34,842				72,789				90,245
Operating loss	(6,377		)		(11,918		)		(23,002		)		(22,900		)
Other income (expense):
Interest expense, net	(5,229		)		(3,877		)		(14,266		)		(11,712		)
Other income (expense), net	(1,780		)		(3,560		)		(3,408		)		986
Loss before income taxes	(13,386		)		(19,355		)		(40,676		)		(33,626		)
Income tax provision (benefit)	409				(799		)		1,270				(478		)
Net loss	(13,795		)		(18,556		)		(41,946		)		(33,148		)
Less: Net loss (income) attributable to noncontrolling interests	6				(11		)		33				(24		)
Net loss attributable to Inseego Corp.	$	(13,789	)		$	(18,567	)		$	(41,913	)		$	(33,172	)
Per share data:
Net loss per share:
Basic and diluted	$	(0.23	)		$	(0.34	)		$	(0.72	)		$	(0.62	)
Weighted-average shares used in computation of net loss per share:
Basic and diluted	59,004,520				53,876,795				58,157,171				53,584,410

See accompanying notes to unaudited condensed consolidated financial statements.

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INSEEGO CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

 

	Three Months Ended September 30,								Nine Months Ended September 30,
	2017				2016				2017				2016
Net loss	$	(13,795	)		$	(18,556	)		$	(41,946	)		$	(33,148	)
Foreign currency translation adjustment	(3,224		)		4,044				48				6,639
Total comprehensive loss	$	(17,019	)		$	(14,512	)		$	(41,898	)		$	(26,509	)

 

See accompanying notes to unaudited condensed consolidated financial statements.

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INSEEGO CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2017				2016
Cash flows from operating activities:
Net loss	$	(41,946	)		$	(33,148	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	11,098				10,836
Amortization of acquisition-related inventory step-up	—				1,829
Provision for bad debts, net of recoveries	986				96
Loss on impairment of abandoned product line, net of recoveries	1,489				—
Provision for excess and obsolete inventory	876				2,580
Share-based compensation expense	2,942				3,437
Amortization of debt discount and debt issuance costs	7,840				6,335
Loss on extinguishment of debt	2,035				—
Loss on disposal of assets, net of gain on divestiture and sale of other assets	648				(4,290		)
Loss on impairment of purchased intangible assets	—				2,594
Deferred income taxes	9				(735		)
Non-cash equity earn-out compensation expense	—				2,109
Unrealized foreign currency transaction loss (gain), net	(794		)		3,038
Other	(309		)		183
Changes in assets and liabilities, net of effects from divestiture:
Restricted cash	(411		)		—
Accounts receivable	614				9,881
Inventories	3,637				3,757
Prepaid expenses and other assets	(4,071		)		(6,186		)
Accounts payable	1,968				(7,077		)
Accrued expenses, income taxes, and other	(1,813		)		4,812
Net cash provided by (used in) operating activities	(15,202		)		51
Cash flows from investing activities:
Installment payments related to past acquisitions	—				(3,750		)
Purchases of property, plant and equipment	(1,737		)		(875		)
Proceeds from the sale of property, plant and equipment	182				392
Proceeds from the sale of divested assets	—				11,300
Proceeds from the sale of short-term investments	—				1,210
Purchases of intangible assets and additions to capitalized software development costs	(2,256		)		(2,092		)
Net cash provided by (used in) investing activities	(3,811		)		6,185
Cash flows from financing activities:
Proceeds from term loans	64,917				—
Payment of issuance costs related to term loans	(905		)		—
Repayment of term loan	(20,000		)		—
Repurchase of convertible senior notes	(11,900		)		—
Net repayment of DigiCore bank and overdraft facilities	(620		)		(965		)
Principal payments under capital lease obligations	(613		)		(722		)
Principal payments on mortgage bond	(216		)		(175		)
Taxes paid on vested restricted stock units, net of proceeds from stock option exercises and employee stock purchase plan	(793		)		368
Net cash provided by (used in) financing activities	29,870				(1,494		)
Effect of exchange rates on cash and cash equivalents	(1,164		)		(147		)
Net increase in cash and cash equivalents	9,693				4,595
Cash and cash equivalents, beginning of period	9,894				12,570
Cash and cash equivalents, end of period	$	19,587			$	17,165
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	4,571			$	3,712
Income taxes	$	136			$	92
Supplemental disclosures of non-cash activities:
Transfer of inventories to rental assets	$	4,225			$	3,055
Issuance of common stock under amended earn-out agreement	$	2,638			$	—
Additional debt discount on convertible senior notes	$	3,600			$	—
Term loan debt discount issued in common stock	$	2,340			$	—

See accompanying notes to unaudited condensed consolidated financial statements.

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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 September 30, 2017 and the results of the Company’s operations for the three and nine months ended September 30, 2017 and 2016 are unaudited. The condensed consolidated financial statements reflect all adjustments, consisting of only normal recurring accruals, which are, in the opinion of management, necessary for a fair statement of the results of the interim periods presented. These condensed consolidated financial statements and notes hereto should be read in conjunction with the audited financial statements from which they were derived and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. 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, 2016. 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.

For the three months ended September 30, 2017 and 2016, the Company incurred a net loss of $13.8 million and $18.6 million, respectively. The Company has a history of operating and net losses and overall usage of cash from operating and investing activities. In June 2017, the Company terminated the proposed sale of its MiFi Business (as defined below) due to delays and uncertainty in securing approval of the sale from the Committee on Foreign Investment in the United States (“CFIUS”) (see Note 2, Acquisitions and Divestitures).

During the nine months ended September 30, 2017, the Company commenced certain restructuring initiatives aimed at significantly reducing the Company’s cost of revenues and operating expenses in an effort to increase operating cash flows to eventually be sufficient to offset debt service costs and cash flows from investing activities. During the three months ended September 30, 2017, the Company refinanced its prior credit agreement which was due on May 8, 2018 with a new term loan that matures on August 23, 2020. The Company’s management believes that its cash and cash equivalents, together with anticipated cash flows from operations, will be sufficient to meet its working capital needs for the next twelve months following the filing date of this report. The Company’s ability to transition to attaining profitable operations is dependent upon achieving a level and mix of revenues adequate to support its declining 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 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.

Principles of Consolidation

The 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 U.S. 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 allowance for doubtful accounts receivable, provision for excess and obsolete inventory, valuation of intangible and long-lived assets, valuation of goodwill, valuation of debt obligations, royalty costs, accruals relating to litigation and restructuring, provision for warranty costs, income taxes and share-based compensation expense.

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INSEEGO CORP.

Notes to Condensed Consolidated Financial Statements (Unaudited)

New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (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 May 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which amends the scope of modification accounting for share-based payment arrangements and provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting. This guidance is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted. The Company does not expect this guidance to have a material impact on the Company’s consolidated financial statements upon adoption.

In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the measurement of goodwill by eliminating the second step from the goodwill impairment test, which requires the comparison of the implied fair value of goodwill with the current carrying amount of goodwill. Instead, under the amendments in this guidance, an entity shall perform a goodwill impairment test by comparing the fair value of each reporting unit with its carrying amount and an impairment charge is to be recorded for the amount, if any, in which the carrying value exceeds the reporting unit’s fair value. This guidance is effective prospectively for annual periods beginning after December 15, 2019. Early adoption is permitted. The Company is currently assessing the impact of this guidance.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. This guidance is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted. The Company does not expect this guidance to have a material impact on the Company’s consolidated financial statements upon adoption.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit 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. The Company is currently assessing the impact of this guidance.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which affects entities that issue share-based payment awards to their employees. The guidance is designed to identify areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The Company implemented this guidance during the first quarter of 2017. This guidance did not have a material impact on the Company’s consolidated financial statements upon adoption.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which establishes the principles to report transparent and economically neutral information about the assets and liabilities that arise from leases. This guidance results in the Company providing a more faithful representation of the rights and obligations arising from operating and capital leases by requiring lessees to recognize the lease assets and lease liabilities that arise from leases in the statement of financial position and to disclose qualitative and quantitative information about lease transactions, such as information about variable lease payments and options to renew and terminate leases. This guidance is effective prospectively for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently assessing the impact of this guidance.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which provides guidance for revenue recognition. The new guidance will require revenue recognized to represent the transfer of promised goods or services to customers in an amount that reflects the consideration the company expects to receive in exchange for those goods or services. The guidance also requires new, expanded disclosures regarding revenue recognition. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of Effective Date, which deferred the effective date of adoption of ASU 2014-09 to interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606):

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INSEEGO CORP.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Identifying Performance Obligations and Licensing, which clarifies aspects of ASU 2014-09 pertaining to the identification of performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. There are two adoption methods available for implementation of this guidance. Under one method, the guidance is applied retrospectively to contracts for each reporting period presented, subject to allowable practical expedients. Under the other method, the guidance is applied only to the most current period presented, recognizing the cumulative effect of the change as an adjustment to the beginning balance of retained earnings, and also requires additional disclosures comparing the results to the previous guidance.

The Company has established an implementation team, including the utilization of a revenue consultant, to assist with the assessment of the impact of the new guidance on its operations, consolidated financial statements and related disclosures.  The Company is reviewing each of its revenue streams that may be impacted by the adoption of this guidance, including the determination of whether the performance obligations will change as compared to current generally accepted accounting principles.  The Company is also assessing if sales commissions will need to be capitalized upon adoption of the new guidance and evaluating the proper period to amortize these capitalized costs.  The Company intends to complete the evaluation and implementation process during the fourth quarter of 2017 and adopt the new standard on January 1, 2018 using the modified retrospective method.

2. Acquisitions and Divestitures

Acquisitions

DigiCore Holdings Limited (DBA Ctrack)

On June 18, 2015, the Company entered into a transaction implementation agreement (the “TIA”) with DigiCore Holdings Limited (“DigiCore” or “Ctrack”). Pursuant to the terms of the TIA, the Company acquired 100% of the issued and outstanding ordinary shares of DigiCore (with the exception of certain excluded shares, including treasury shares) for 4.40 South African Rand per ordinary share outstanding on October 5, 2015. Upon consummation of the acquisition, DigiCore became an indirect wholly-owned subsidiary of the Company.

R.E.R. Enterprises, Inc.

On March 27, 2015, the Company entered into a merger agreement (“RER Merger Agreement”) with R.E.R. Enterprises, Inc. (“RER”) to acquire all of the issued and outstanding shares of RER and its wholly-owned subsidiary and principal operating asset, Feeney Wireless, LLC, an Oregon limited liability company (collectively, “FW”). The total consideration was approximately $24.8 million and included a cash payment at closing of approximately $9.3 million, the Company’s assumption of $0.5 million in certain transaction-related expenses incurred by FW, and the future issuance of shares of the Company’s common stock valued at $15.0 million (the “Deferred Purchase Price”), which would have been payable in March 2016 pursuant to the original terms of the RER Merger Agreement.

The total consideration of $24.8 million did not include amounts, if any, payable under an earn-out arrangement pursuant to which the Company may have been required to pay up to an additional $25.0 million to the former stockholders of RER contingent upon FW’s achievement of certain financial targets for the years ending December 31, 2015, 2016, and 2017 (the “Earn-Out Arrangement”). Such payments, if any, under the Earn-Out Arrangement would have been payable in either cash or shares of the Company’s common stock at the discretion of the Company, and would have been recorded as compensation expense during the service period earned.

On January 5, 2016, the Company and RER amended certain payment terms of the RER Merger Agreement. Under the amended agreement, the Deferred Purchase Price that was previously payable in shares of the Company’s common stock in March 2016 was agreed to be paid in five cash installments over a four-year period, beginning in March 2016. In addition, the Earn-Out Arrangement was amended as follows: (a) any amount earned under the Earn-Out Arrangement for the achievement of financial targets for the year ended December 31, 2015 would be paid in five cash installments over a four-year period, beginning in March 2016; and (b) in replacement of the potential earn-out contingent upon FW’s achievement of certain financial targets for the years ended December 31, 2016 and 2017 the Company would issue to the former stockholders of RER approximately 2.9 million shares of the Company’s common stock in three equal installments over a three-year period, beginning in March 2017. On March 15, 2017, the Company issued 973,334 shares of its common stock to the former stockholders of RER in satisfaction of the first installment of this obligation. As of the filing date of this report, the March 2017 cash installments have not been paid and the Company is disputing its obligations to make such payments (see Note 10, Commitments and Contingencies).

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INSEEGO CORP.

Notes to Condensed Consolidated Financial Statements (Unaudited)

On March 23, 2017, the name of Feeney Wireless, LLC was changed to Inseego North America, LLC.

As of September 30, 2017, the total amount of Deferred Purchase Price that remained outstanding was $11.3 million and the total amount outstanding pursuant to the Earn-Out Arrangement was $9.8 million, both of which are included in accrued expenses and other current liabilities and in other long-term liabilities in the unaudited condensed consolidated balance sheets.

Divestitures

Modules Business

On April 11, 2016, the Company signed a definitive asset purchase agreement with Telit Technologies (Cyprus) Limited and Telit Wireless Solutions, Inc. (collectively, “Telit”) pursuant to which the Company sold, and Telit acquired, certain hardware modules and related assets for an initial purchase price of $11.0 million in cash, which included $9.0 million that was paid to the Company on the closing date of the transaction, $1.0 million that would be paid to the Company in equal quarterly installments over a two-year period in connection with the provision by the Company of certain transition services and $1.0 million that would be paid to the Company following the satisfaction of certain conditions by the Company, including the assignment of specified contracts and the delivery of certain certifications and approvals. The Company also had the potential to receive an additional cash payment of approximately $3.8 million from Telit related to their purchase of module product inventory from the Company, $1.0 million of which would be paid to the Company in equal quarterly installments over the two-year period following the closing date in connection with the provision by the Company of certain transition services. In addition to the above, the Company may have been entitled to receive a subsequent earn-out payment following the closing of the transaction if certain conditions were met.

On September 29, 2016, the Company entered into a Final Resolution Letter Agreement (the “Final Resolution”) with Telit. Per the Final Resolution, Telit agreed to pay the Company $2.1 million in full satisfaction of their payment obligations under certain sections of the original purchase agreement, including all installment payments, and the Company agreed to ship the remainder of the hardware modules and related assets as soon as practicable. Under the Final Resolution, the aggregate purchase consideration totaled $11.7 million, which consisted of $11.3 million in cash and $0.4 million in net settled Company liabilities.

During the nine months ended September 30, 2017, the Company shipped the remaining hardware modules and related assets due to Telit under the Final Resolution and recognized a related gain of approximately $45,000, which is included in other income (expense), net, in the unaudited condensed consolidated statements of operations.

MiFi Business

On September 21, 2016, the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”), by and among Inseego and Novatel Wireless, Inc. (“Novatel Wireless”), on the one hand, and T.C.L. Industries Holdings (H.K.) Limited and Jade Ocean Global Limited (collectively, the “Purchasers”) on the other hand. The Purchase Agreement related to a proposed sale of the Company’s subsidiary, Novatel Wireless, which included the Company’s MiFi branded hotspots and USB modem product lines (the “MiFi Business”), to the Purchasers for $50.0 million in cash, subject to potential adjustment for Novatel Wireless’s working capital as of the closing date. In June 2017, the Company terminated the Purchase Agreement due to delays and uncertainty in securing approval of the transactions contemplated by the Purchase Agreement from CFIUS. As a result of such termination, the Company will retain its ownership interest in Novatel Wireless and the MiFi Business. The Company intends to retain such business and has no plans to sell it to another party.

3. Balance Sheet Details

Inventories

Inventories consist of the following (in thousands):

	September 30, 2017				December 31, 2016
Finished goods	$	10,888			$	19,277
Raw materials and components	10,076				11,865
Total inventories	$	20,964			$	31,142

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INSEEGO CORP.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Accrued Expenses and Other Current Liabilities

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

	September 30, 2017				December 31, 2016
Royalties	$	2,065			$	1,544
Payroll and related expenses	2,779				5,315
Warranty obligations	526				480
Market development funds and price protection	34				320
Professional fees	1,554				4,793
Bank overdrafts	234				489
Accrued interest	1,685				275
Deferred revenue	1,245				1,656
Restructuring	1,635				837
Acquisition-related liabilities	13,186				7,912
Divestiture-related liabilities	—				463
Other	7,558				3,813
Total accrued expenses and other current liabilities	$	32,501			$	27,897

4. Goodwill and Other Intangible Assets

The balances in goodwill and other intangible assets were primarily a result of the Company’s acquisitions of Ctrack and FW. See Note 4, Goodwill and Other Intangible Assets, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 for a discussion of the components of goodwill and additional information regarding other intangible assets.

5. 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.

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 nine months ended September 30, 2017.

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INSEEGO CORP.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The Company had no financial instruments measured at fair value on a recurring basis as of September 30, 2017.

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, 2016 (in thousands): 

		Balance as of December 31, 2016				Level 1
Assets:
Cash equivalents
Money market funds		$	35			$	35
Total cash equivalents		$	35			$	35

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 $105.1 million in Convertible Notes (as defined below) (see Note 6, 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. The fair value of the liability component of the Convertible Notes, which approximates the carrying value of such notes, was $82.7 million and $90.9 million as of September 30, 2017 and December 31, 2016, respectively.

6. Debt

Previous Credit Agreement

On October 31, 2014, the Company entered into a five-year senior secured revolving credit facility in the amount of $25.0 million (the “Revolver”) with Wells Fargo Bank, National Association, as lender. Concurrently with the acquisition of FW, the Company amended the Revolver to include FW as a borrower and Loan Party, as defined by the agreement. On November 17, 2015, the Revolver was amended to increase the maximum borrowing capacity to $48.0 million. On March 20, 2017, at the Company’s request, the financial covenants with respect to liquidity requirements and EBITDA targets, among other things, were amended in order to enable draw-downs by the Company from time to time. In exchange for such accommodations, the aggregate amount available under the Revolver was decreased from $48.0 million to $10.0 million. There was no balance outstanding under the Revolver at December 31, 2016.

The Company terminated the Revolver on May 8, 2017, in connection with the execution of a credit agreement between the Company and Lakestar Semi Inc., a private investment fund managed by Soros Fund Management LLC, dated as of May 8, 2017 (the “Prior Credit Agreement”). The Prior Credit Agreement provided for a $20.0 million secured term loan with a maturity date of May 8, 2018. In conjunction with the closing of the Prior Credit Agreement, the Company received proceeds of $18.0 million, net of a $2.0 million debt discount, and paid issuance costs of approximately $0.4 million.

On August 23, 2017, upon entering into the Credit Agreement described below, the Company used a portion of the proceeds of the new Term Loan (as defined below) to repay all outstanding amounts under and terminate the Prior Credit Agreement. In connection with the termination of the Prior Credit Agreement, the Company recognized a loss on extinguishment of debt of approximately $1.7 million, which is included in other income (expense), net, in the unaudited condensed consolidated statements of operations. There was no early termination fee paid in connection with the termination of the Prior Credit Agreement.

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 (the “Agent”), and 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”). 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 (as defined below) pursuant to the terms of the Note Purchase Agreement (as defined below). The Company paid issuance costs of approximately

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INSEEGO CORP.

Notes to Condensed Consolidated Financial Statements (Unaudited)

$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.

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%. 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.

The Term Loan consisted of the following at September 30, 2017 (in thousands):

Principal	$	48,000
Less: unamortized debt discount and debt issuance costs	(4,318		)
Net carrying amount	$	43,682

The effective interest rate on the Term Loan was 12.50% for the period from the date of issuance through September 30, 2017. The following table sets forth total interest expense recognized related to the Term Loan during the three and nine months ended September 30, 2017 (in thousands):

Contractual interest expense	$	435
Amortization of debt discount	139
Amortization of debt issuance costs	17
Total interest expense	$	591

Convertible Senior Notes

Novatel Wireless Notes

On June 10, 2015, the Company issued $120.0 million of 5.50% convertible senior notes due 2020 (the “Novatel Wireless Notes”). The Company incurred issuance costs of approximately $3.9 million. The Company used a portion of the proceeds from the offering to finance its acquisition of Ctrack, to pay fees and expenses related to the acquisition, and for general corporate purposes.

The Novatel Wireless Notes are governed by the terms of an indenture, dated June 10, 2015 (the “Novatel Wireless Indenture”), between Novatel Wireless, as issuer, the Company and Wilmington Trust, National Association, as trustee. The Novatel Wireless Notes are senior unsecured obligations 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, beginning on December 15, 2015. The Novatel Wireless Notes will mature on June 15, 2020, unless earlier repurchased or converted. The Novatel Wireless Notes will be convertible into cash, shares of the Company’s common stock, or a combination thereof, at the election of the Company, at an initial conversion price of $5.00 per share of the Company’s common stock.

Following the settlement of the exchange offer and consent solicitation described below, approximately $0.2 million aggregate principal amount of Novatel Wireless Notes remain outstanding. In connection with the exchange offer and consent solicitation, the Novatel Wireless Indenture and the Novatel Wireless Notes were amended to, among other things, eliminate certain events of default and substantially all of the restrictive covenants in the Novatel Wireless Indenture and the Novatel Wireless Notes, including the merger covenant, which sets forth certain requirements that must be met for Novatel Wireless to consolidate, merge or sell all or substantially all of its assets, and the reporting covenant, which requires Novatel Wireless to provide certain periodic reports to noteholders. The Novatel Wireless Indenture, as amended, also provides that the form of settlement of any conversions of the Novatel Wireless Notes will be elected by the Company.

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INSEEGO CORP.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Inseego Notes

On January 9, 2017, in connection with the settlement of an exchange offer and consent solicitation with respect to the Novatel Wireless Notes, the Company issued approximately $119.8 million of 5.50% convertible senior notes due 2022 (the “Inseego Notes” and collectively with Novatel Wireless Notes, the “Convertible Notes”). The Inseego Notes were issued in exchange for the approximately $119.8 million aggregate principal amount of outstanding Novatel Wireless Notes that were validly tendered and accepted for exchange and subsequently canceled.

The Inseego Notes are governed by the terms of an indenture, dated January 9, 2017 (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 from, and including, December 15, 2016, at a rate of 5.50% per year, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2017. The Inseego Notes will mature on June 15, 2022, unless earlier converted, redeemed or repurchased.

The Inseego Notes will be convertible into cash, shares of the Company’s common stock, or a combination thereof, at the election of the Company, at an initial conversion rate of 212.7660 shares of common stock per $1,000 principal amount of the Inseego Notes, which corresponds to an initial 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.

At any time 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.

On or after December 15, 2021, the holders may convert any of their Inseego Notes at any time prior to the close of business on the business day immediately preceding the maturity date.

The Company may redeem all or a portion of the Inseego Notes at its option on or after June 15, 2018 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 option of the holders 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.

No “sinking fund” is provided for the Inseego Notes, which means that the Company is not required to periodically redeem or retire the Inseego Notes. If the Company undergoes a “fundamental change” (as defined in the Inseego Indenture), subject to certain conditions, holders may require the Company to repurchase for cash all or part of their Inseego Notes in principal amounts of $1,000, or an integral multiple of $1,000 in excess thereof. The fundamental change repurchase price will be equal to 100% of the principal amount of the Inseego Notes to be repurchased, plus accrued and unpaid interest to, but

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INSEEGO CORP.

Notes to Condensed Consolidated Financial Statements (Unaudited)

excluding, the fundamental change repurchase date, subject to the right of holders as of the close of business on an interest record date to receive the related interest. In addition, every fundamental change is a make-whole fundamental change. As a result, the Company will, in certain circumstances, increase the conversion rate for holders who convert their Inseego Notes in connection with such fundamental change.

The Inseego Indenture contains certain covenants, effective until June 15, 2020, that limit the amount of debt, including secured debt, that may be incurred by the Company or its subsidiaries, and that limit the ability of the Company to pay dividends, repurchase its equity securities or make other 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.

Note Purchase Agreement

On August 23, 2017, in connection with the Credit Agreement described above, the Company and certain of the Lenders entered into a Note Purchase Agreement (the “Note Purchase Agreement”) pursuant to which the Company repurchased approximately $14.9 million of outstanding Inseego Notes from such Lenders in exchange for $11.9 million deemed to have been loaned to the Company pursuant to the Credit Agreement and the accrued and unpaid interest on such notes. In connection with the repurchase of such notes, the Company recognized a loss on extinguishment of debt of approximately $0.3 million, which is included in other income (expense), net, in the unaudited condensed consolidated statements of operations.

The Convertible Notes consisted of the following at September 30, 2017 and December 31, 2016 (in thousands):

	September 30, 2017				December 31, 2016
Liability component:
Principal	$	105,125			$	120,000
Less: unamortized debt discount and debt issuance costs	(22,422		)		(29,092		)
Net carrying amount	$	82,703			$	90,908
Equity component	$	41,905			$	38,305

 

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INSEEGO CORP.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The effective interest rate on the liability component of the Convertible Notes was 19.09% for the nine months ended September 30, 2017. The following table sets forth total interest expense recognized related to the Convertible Notes during the three and nine months ended September 30, 2017 and 2016 (in thousands):

	Three Months Ended September 30,								Nine Months Ended September 30,
	2017				2016				2017				2016
Contractual interest expense	$	1,564			$	1,650			$	4,864			$	4,950
Amortization of debt discount	2,126				1,980				6,586				5,940
Amortization of debt issuance costs	125				132				388				395
Total interest expense	$	3,815			$	3,762			$	11,838			$	11,285

7. 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 September 30,								Nine Months Ended September 30,
	2017				2016				2017				2016
Cost of revenues	$	35			$	49			$	130			$	156
Research and development	225				201				541				662
Sales and marketing	320				170				536				593
General and administrative	214				695				1,566				2,026
Restructuring	169				—				169				—
Total	$	963			$	1,115			$	2,942			$	3,437

Stock Options

The following table summarizes the Company’s stock option activity:

Outstanding — December 31, 2015	6,084,836
Granted	1,051,550
Exercised	(78,384	)
Canceled	(701,799	)
Outstanding — December 31, 2016	6,356,203
Granted	3,877,000
Exercised	—
Canceled	(3,238,251	)
Outstanding — September 30, 2017	6,994,952
Exercisable — September 30, 2017	2,338,157

At September 30, 2017, total unrecognized compensation expense related to stock options was $3.1 million, which is expected to be recognized over a weighted-average period of 1.71 years.

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INSEEGO CORP.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Restricted Stock Units

The following table summarizes the Company’s restricted stock unit (“RSU”) activity:

Non-vested — December 31, 2015	960,203
Granted	2,914,000
Vested	(461,866	)
Forfeited	(436,537	)
Non-vested — December 31, 2016	2,975,800
Granted	1,480,301
Vested	(1,162,453	)
Forfeited	(2,134,777	)
Non-vested — September 30, 2017	1,158,871

At September 30, 2017, total unrecognized compensation expense related to RSUs was $1.3 million, which is expected to be recognized over a weighted-average period of 2.65 years.

8. 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 of 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.

The calculation of basic and diluted EPS was as follows (in thousands, except share and per share data):

	Three Months Ended September 30,								Nine Months Ended September 30,
	2017				2016				2017				2016
Net loss attributable to Inseego Corp.	$	(13,789	)		$	(18,567	)		$	(41,913	)		$	(33,172	)
Weighted-average common shares outstanding	59,004,520				53,876,795				58,157,171				53,584,410
Basic and diluted net loss per share	$	(0.23	)		$	(0.34	)		$	(0.72	)		$	(0.62	)

For the three and nine months ended September 30, 2017, the computation of diluted EPS excluded 10,040,453 shares related to warrants, stock options and RSUs as their effect would have been anti-dilutive. For the three and nine months ended September 30, 2016, the computation of diluted EPS excluded 11,653,167 shares related to warrants, stock options and RSUs as their effect would have been anti-dilutive.

9. Geographic Information and Concentrations of Risk

Geographic Information

The following table details the geographic concentration of the Company’s net revenues based on shipping destination:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
United States and Canada	73.2	%		72.4	%		72.9	%		74.6	%
South Africa	17.0			17.7			17.2			15.3
Other	9.8			9.9			9.9			10.1
	100.0	%		100.0	%		100.0	%		100.0	%

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INSEEGO CORP.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Concentrations of Risk

For the three months ended September 30, 2017, two customers accounted for 48.0% and 14.9% of net revenues, respectively. For the three months ended September 30, 2016, one customer accounted for 55.3% of net revenues. For the nine months ended September 30, 2017, two customers accounted for 49.6% and 11.4% of net revenues, respectively. For the nine months ended September 30, 2016, one customer accounted for 54.6% of net revenues.

As of September 30, 2017, one customer accounted for 37.9% of accounts receivable, net.

10. 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 is indirectly participating 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 27, 2015, a patent infringement action was brought against Novatel Wireless by Carucel Investments, L.P. (“Carucel”), a non-practicing entity (Carucel Investments, L.P. v. Novatel Wireless, Inc., et al., U.S.D.C. S.D. Florida, Civil Action No. 0:15-cv-61116-BB). The complaint alleged that certain MiFi mobile hotspots manufactured by Novatel Wireless infringed claims of patents owned by Carucel. On April 10, 2017, judgment was entered in favor of Novatel Wireless. Carucel has filed to appeal certain orders in the litigation. The Company does not believe there is merit to an appeal by Carucel and intends to vigorously defend the appeal. However, there can be no assurance as to the ultimate outcome of any appeal or other future judgment in this case, and an adverse judgment could have a material adverse effect on the Company’s 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. The Company has suspended payments due to the former stockholders of RER pursuant to the Earn-Out Arrangement and the Deferred Purchase Price pending the outcome of this litigation. There can be no assurance as to the ultimate outcome of the future judgment in this case, and an adverse judgment could have a material adverse effect on the Company’s consolidated results of operations or financial condition.

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.

11. Income Taxes

The Company’s effective income tax rate was 3.1% and (4.1)% for the three months ended September 30, 2017 and 2016, respectively, and 3.1% and (1.4)% for the nine months ended September 30, 2017 and 2016, respectively. The Company’s effective income tax rates are significantly lower than the statutory tax rate primarily due to an increase in the Company’s valuation allowance related to its U.S.-based deferred tax amounts, resulting from carryforward net operating losses generated during the three and nine months ended September 30, 2017 and 2016.

Pursuant to Internal Revenue Code Sections 382 and 383, annual use of the Company’s net operating loss and research and development credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period.

12. Restructuring

In August 2015, the Company approved a restructuring initiative to better position the Company to operate in current market conditions and more closely align operating expenses with revenues, which included employee severance costs and facility exit related costs. In the fourth quarter of 2015, the Company commenced certain initiatives relating to the

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INSEEGO CORP.

Notes to Condensed Consolidated Financial Statements (Unaudited)

reorganization of executive level management (collectively, the “2015 Initiatives”). The Company continued these initiatives in 2016 with a reduction-in-force and the completion of the closure of its facility in Richardson, TX. The 2015 Initiatives are expected to cost a total of approximately $6.0 million and be completed when the Richardson, TX lease expires in June 2020.

In February and June 2017, the Company commenced certain restructuring initiatives intended to continue to improve its strategic focus on its most profitable business lines and consolidate operations of its subsidiaries with those of the Company, including reductions-in-force, further reorganization of executive level management and the consolidation of certain of its facilities (the “2017 Initiatives”). The 2017 Initiatives are expected to cost a total of approximately $5.2 million and be completed when the San Diego, CA lease expires in December 2019.

The following table sets forth activity in the restructuring liability for the nine months ended September 30, 2017 (in thousands):

	Balance at December 31, 2016				Costs Incurred				Payments				Non-cash				Balance at September 30, 2017					Cumulative Costs Incurred to Date
2015 Initiatives
Employee Severance Costs	$	455			$	—			$	(410	)		$	—			$	45				$	4,130
Facility Exit Related Costs	588				827				(355		)		—				1,060					1,693
2017 Initiatives
Employee Severance Costs	—				2,946				(2,574		)		—				372					2,946
Facility Exit Related Costs	—				1,270				(108		)		91				1,253					1,270
Other Related Costs	—				655				(296		)		(169		)		190					655
Total	$	1,043			$	5,698			$	(3,743	)		$	(78	)		$	2,920				$	10,694

The balance of the restructuring liability at September 30, 2017 consists of approximately $1.6 million in current liabilities and $1.3 million in long-term liabilities.

During the nine months ended September 30, 2017, the Company wrote down the value of certain inventory by approximately $1.5 million, net of recoveries from a related legal settlement, related to the abandonment of certain product lines that management decided to exit. The Company accounted for the adjustment in accordance with the ASC 330, Inventory, and included the adjustment in impairment of abandoned product line, net of recoveries, within cost of net revenues in the unaudited condensed consolidated statements of operations.

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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, machine-to-machine (“M2M”) products, and telematics, vehicle tracking and fleet management products;

•	our ability to develop and timely introduce new products successfully;

•	our dependence on a small number of customers for a substantial portion of our revenues;

•

our ability to integrate the operations 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) (“FW” or “INA”)), DigiCore Holdings Limited (“DigiCore” or “Ctrack”), and any business, products, technologies or personnel that we may acquire in the future, including: (i) our ability to retain key personnel from the acquired company or business; and (ii) our ability to realize the anticipated benefits of the acquisition;

•	our ability to realize the benefits of recent divestiture and reorganization transactions;

•	our ability to realize the benefits of recent restructuring activities and cost-reduction initiatives including reductions-in-force, reorganization of executive level management and the consolidation of certain of our facilities;

•	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 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 used in our solutions;

•	the continuing impact of uncertain global economic conditions on the demand for our products;

•	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 M2M markets;

•	demand for fleet and vehicle 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 products;

•	our continued ability to license necessary third-party technology for the development and sale of our products;

•	the introduction of new products that could contain errors or defects;

•	doing business abroad, including foreign currency risks;

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•	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, 2016. 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 and “N4A” are trademarks or registered trademarks of Inseego. “Novatel Wireless”, the Novatel Wireless logo, “MiFi”, “MiFi Intelligent Mobile Hotspot”, “MiFi OS”, “MiFi Powered”, “MiFi Home” and “MiFi Freedom. My Way.” are trademarks or registered trademarks of Novatel Wireless, Inc. (“Novatel Wireless”). “DigiCore”, “Ctrack” and the Ctrack logo are trademarks or registered trademarks of DigiCore. “FW”, “Crossroads” and the Feeney Wireless logo are trademarks or registered trademarks of INA. 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.

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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 audited 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, 2016 contained in our Annual Report on Form 10-K for the year ended December 31, 2016.

Business Overview

We are a leader in the design and development of products and solutions that simplify the Internet of Things (“IoT”), delivering innovative hardware and cloud-based, SaaS services to carriers, distributors, retailers, original equipment manufacturers (“OEMs”) and vertical markets worldwide. We sell mobile broadband solutions, branded as MiFi® products, through national wireless carriers and their distributors in the United States and Canada. We sell telematics solutions globally under the Ctrack brand, including our fleet management, asset tracking and monitoring, stolen vehicle recovery and usage-based insurance platforms. We also sell connectivity solutions and device management services. Our products and solutions provide anywhere, anytime communications and analytics for consumers and businesses of all sizes, with approximately 700,000 global subscribers as of September 30, 2017, including approximately 465,000 subscribers for our Ctrack branded fleet management and vehicle telematics solutions and approximately 235,000 subscribers for our connectivity and device management services.

We have invented and reinvented ways in which the world stays connected and accesses information. With multiple first-to-market innovations and a strong and growing portfolio of hardware and software innovations for IoT, our companies have been advancing technology and driving industry transformation for over 30 years. It is this proven expertise and commitment to quality and innovation that makes us a preferred global partner of operators, distributors, system integrators, businesses and consumers.  

Our telematics customer base is comprised of wireless operators, distributors, OEMs and companies in various vertical markets. Fleet management customers include global enterprises such as BHP Billiton, Super Group, Mammoet, and Australia Post. Customers of our government, local council and municipality asset management platforms include Thames Water and the City of Ekurhuleni. Airport asset tracking customers include KLM Equipment Services and Hanover Airport. Usage-based insurances customers include Discovery Insure and Cross Country Insurance Consultants. Our largest vehicle tracking customer is the South African Police Service.

We have strategic technology, development and marketing relationships with several of our customers and partners. Our strong customer and partner relationships provide us with the opportunity to expand our market reach and sales. We partner with leading OEMs, telecom groups and installation partners which allows us to offer customers integrated and holistic solutions. Ctrack uses leading cellular providers such as AT&T, Sprint, T-Mobile, Vodafone, MTN, Telstra and Optus to ensure the optimal real-time visibility of tracked vehicles and systems, supported by accurate and sophisticated mapping services such as the HERE Open Location Platform.

Our Sources of Revenue

SaaS, Software and Services

Inseego sells SaaS, software and services solutions across multiple IoT vertical markets, including fleet management and vehicle telematics, usage-based insurance, stolen vehicle recovery, asset tracking and monitoring, business connectivity and device management. Our platforms are device-agnostic and provide a standardized, scalable way to order, connect and manage remote assets and 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.

Our SaaS delivery platforms include (i) our Ctrack platforms, which provide fleet, vehicle, asset and other SaaS telematics, (ii) our Crossroads platform, which provides easy IoT device management and service enablement and (iii) our Device Management Solutions, a hosted SaaS platform that helps organizations manage the selection, deployment and spend of their wireless assets, saving money on personnel and telecom expenses.

Hardware

We provide intelligent wireless hardware products for the worldwide mobile communications market. Our hardware products address multiple vertical markets for our customers including fleet and commercial telematics, after-market telematics, remote monitoring and control, security and connected home and wireless surveillance systems. Our broad range of products principally includes intelligent mobile hotspots, wireless routers for IoT, 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 also configure and manage our hardware remotely. Our products currently operate on every major cellular wireless technology platform. Our mobile hotspots are actively used by millions of customers annually

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to provide subscribers with secure and convenient high-speed access to corporate, public and personal information through the Internet and enterprise networks. Our wireless routers and USB modems serve as gateways to the rapidly growing and underpenetrated IoT segment. Our telematics and mobile 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.

We sell our intelligent mobile hotspots primarily to wireless operators either directly or through strategic relationships. Our mobile-hotspot customer base is comprised of wireless operators, including Verizon Wireless and T-Mobile, as well as distributors and various companies in other vertical markets.

We sell our wireless routers for IoT and integrated telematics and mobile tracking hardware devices through our direct sales force and through distributors. The customer base for our wireless routers for IoT and integrated telematics and mobile tracking hardware devices is comprised of transportation companies, industrial companies, manufacturers, application service providers, system integrators and distributors, and enterprises in various industries, including fleet and vehicle transportation, energy and industrial automation, security and safety, medical monitoring and government.

The hardware used in our solutions is produced by contract manufacturers. Their services include component procurement, assembly, testing, quality control and fulfillment. Our contract manufacturers include Inventec Appliances Corporation and AsiaTelco Technologies Co. Under our manufacturing agreements, contract manufacturers provide us with services including component procurement, product manufacturing, final assembly, testing, quality control and fulfillment.

Our hardware products are managed through a structured life cycle process, from identifying initial customer requirements through development and commercial introduction to eventual phase-out. During product development, emphasis is placed on innovation, time-to-market, performance, meeting industry standards and customer product specifications, ease of integration, cost reduction, manufacturability, quality and reliability.

Divestiture Activities

Modules Business

On April 11, 2016, we signed a definitive asset purchase agreement with Telit Technologies (Cyprus) Limited and Telit Wireless Solutions, Inc. (collectively, “Telit”) pursuant to which we sold, and Telit acquired, certain hardware modules and related assets (the “Modules Business”) for an initial purchase price of $11.0 million in cash, which included $9.0 million that was paid to us on the closing date of the transaction, $1.0 million that would be paid to us in equal quarterly installments over a two-year period in connection with the provision by us of certain transition services and $1.0 million that would be paid to us following the satisfaction of certain conditions by us, including the assignment of specified contracts and the delivery of certain certifications and approvals. We also had the potential to receive an additional cash payment of approximately $3.8 million from Telit related to their purchase of module product inventory from us, $1.0 million of which would be paid to us in equal quarterly installments over the two-year period following the closing date in connection with the provision by us of certain transition services. In addition to the above, we may have been entitled to receive a subsequent earn-out payment following the closing of the transaction if certain conditions were met.

On September 29, 2016, we entered into a Final Resolution Letter Agreement (the “Final Resolution”) with Telit. Per the Final Resolution, Telit agreed to pay us $2.1 million in full satisfaction of their payment obligations under certain sections of the original purchase agreement, including all installment payments, and we agreed to ship the remainder of the hardware modules and related assets as soon as practicable. Under the Final Resolution, the aggregate purchase consideration totaled $11.7 million, which consisted of $11.3 million in cash and $0.4 million in net settled Company liabilities.

During the nine months ended September 30, 2017, we shipped all remaining hardware modules and related assets, which fulfilled all of our outstanding obligations pursuant to the asset purchase agreement, as amended, and we recognized a gain of approximately $45,000 in connection with such fulfillment, which is included in other income (expense), net, in the unaudited condensed consolidated statements of operations.

MiFi Business

On September 21, 2016, we entered into a Stock Purchase Agreement (the “Purchase Agreement”), by and among Inseego and Novatel Wireless, on the one hand, and T.C.L. Industries Holdings (H.K.) Limited and Jade Ocean Global Limited (collectively, the “Purchasers”) on the other hand. The Purchase Agreement related to the proposed sale of our subsidiary, Novatel Wireless, which included the Company’s MiFi branded hotspots and USB modem product lines (the “MiFi Business”), to the Purchasers for $50.0 million in cash, subject to potential adjustment for Novatel Wireless’s working capital as of the closing date. In June 2017, we terminated the Purchase Agreement due to delays and uncertainty in securing approval of the transactions contemplated by the Purchase Agreement from the Committee on Foreign Investment in the United States. As a

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result of such termination, we will retain our ownership interest in Novatel Wireless and the MiFi Business. We intend to retain such business and have no plans to sell it to another party.

Factors Which May Influence Future Results of Operations

Net Revenues. We believe that our future net revenues will be influenced largely by the global demand for SaaS solutions for telematics, including our Ctrack fleet management, asset tracking and monitoring, stolen vehicle recovery, and usage-based insurance platforms. Our future net revenues will also be influenced by the demand in North America for our business connectivity solutions and device management services, as well as customer acceptance of our new products that address our markets and our ability to meet customer demand. Factors that could potentially affect customer demand for our products include the following:

•	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;

•	rate of change to new products;

•	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. We continue to develop and maintain strategic relationships with wireless industry leaders such as Verizon Wireless, T-Mobile, AT&T, Sprint, Vodafone, MTN, Telstra and Optus. 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 our cancellation of purchase orders, and costs related to outside services. Also included in cost of net revenues are costs related to inventory adjustments, including the FW and Ctrack acquisition-related amortization in 2016 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 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.

We have undertaken certain restructuring activities and cost-reduction initiatives over the years 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 part of our business strategy, we review acquisition 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 and/or borrowing additional funds in order to provide the purchase

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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 Annual Report on Form 10-K for the year ended December 31, 2016, 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 Annual Report on Form 10-K for the year ended December 31, 2016. 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 September 30, 2017 Compared to Three Months Ended September 30, 2016

Net revenues. Net revenues for the three months ended September 30, 2017 were $57.5 million, compared to $60.9 million for the same period in 2016.

The following table summarizes net revenues by our two product categories (in thousands):

		Three Months Ended September 30,								Change
Product Category		2017				2016				$				%
Hardware		$	42,810			$	46,096			$	(3,286	)		(7.1	)%
SaaS, software and services		14,651				14,785				(134		)		(0.9	)%
Total		$	57,461			$	60,881			$	(3,420	)		(5.6	)%

Hardware. The decrease in hardware net revenues is primarily a result of reduced sales related to the divested Modules Business, as well as our ongoing transition away from sales of certain lower margin hardware products through INA and Ctrack to focus more on a recurring revenue business model.

SaaS, software and services. The SaaS, software and services net revenues remained consistent period over period.

Cost of net revenues. Cost of net revenues for the three months ended September 30, 2017 was $41.1 million, or 71.5% of net revenues, compared to $38.0 million, or 62.3% of net revenues, for the same period in 2016.

The following table summarizes cost of net revenues by our two product categories (in thousands):

		Three Months Ended September 30,								Change
Product Category		2017				2016				$				%
Hardware		$	37,277			$	32,768			$	4,509			13.8	%
SaaS, software and services		3,730				5,189				(1,459		)		(28.1	)%
Impairment of abandoned product line, net of recoveries		82				—				82				100.0	%
Total		$	41,089			$	37,957			$	3,132			8.3	%

Hardware. The increase in hardware cost of net revenues is primarily a result of increased costs per unit on new products released in 2017, as well as the one-time sale of certain legacy MiFi products at cost in order to improve our liquidity.

SaaS, software and services. The decrease in SaaS, software and services cost of net revenues is primarily a result of our cost containment initiatives and product mix.

Impairment of abandoned product line, net of recoveries. The impairment of abandoned product line reflects an additional write down of the value of certain inventory related to product lines that were abandoned during the fourth quarter of 2016.

Gross profit. Gross profit for the three months ended September 30, 2017 was $16.4 million, or a gross margin of 28.5%, compared to $22.9 million, or a gross margin of 37.7% for the same period in 2016. The decrease in gross profit was primarily

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attributable to the changes in net revenues and cost of net revenues as discussed above. The decrease in gross margin was primarily a result of the one-time sale of certain legacy MiFi products at cost in order to improve our liquidity, as well as decreased gross margins related to the MiFi Business.

Research and development expenses. Research and development expenses for the three months ended September 30, 2017 were $5.1 million, or 8.9% of net revenues, compared to $7.9 million, or 13.0% of net revenues, for the same period in 2016. The decrease in research and development expenses was primarily a result of our cost containment initiatives, including reductions in our workforce over the past 21 months.

Sales and marketing expenses. Sales and marketing expenses for the three months ended September 30, 2017 were $6.2 million, or 10.8% of net revenues, compared to $8.0 million, or 13.1% of net revenues, for the same period in 2016. The decrease was primarily a result of our cost containment initiatives, including reductions in our workforce over the past 21 months.

General and administrative expenses. General and administrative expenses for the three months ended September 30, 2017 were $7.1 million, or 12.4% of net revenues, compared to $14.6 million, or 23.9% of net revenues, for the same period in 2016. The decrease was primarily a result of our cost containment initiatives, including reductions in our workforce over the past 21 months.

Amortization of purchased intangible assets. The amortization of purchased intangible assets for the three months ended September 30, 2017 and 2016 was $0.9 million and $1.0 million, respectively.

Impairment of purchased intangible assets. During the three months ended September 30, 2016, we recorded an impairment loss of $2.6 million primarily related to the developed technologies acquired through our acquisition of FW. We did not have an impairment loss during the same period in 2017.

Restructuring charges. Restructuring expenses for the three months ended September 30, 2017 and 2016 were $3.4 million and $0.8 million, respectively, and primarily consisted of severance costs incurred in connection with the reduction of our workforce, as well as facility exit related costs.

Interest expense, net. Interest expense, net, for the three months ended September 30, 2017 was $5.2 million, compared to interest expense, net, of $3.9 million for the same period in 2016. The increase in interest expense is primarily a result of the increase in the amortization of debt discount related to the increase in the fair value of the embedded conversion feature of the Inseego Notes (as defined below), as well as the interest expense and amortization of the debt discount and debt issuance costs related to our Term Loan and Prior Credit Agreement, as discussed below.

Other income (expense), net. Other expense, net, for the three months ended September 30, 2017 was $1.8 million, which primarily consisted of a loss on extinguishment of debt related to the repayment of the Prior Credit Agreement and repurchase of certain of our Inseego Notes. Other expense, net, for the three months ended September 30, 2016 was $3.6 million, which primarily consisted of a decrease in the gain recognized in the second quarter of 2016 resulting from the Final Resolution related to our sale of certain hardware modules and related assets to Telit, as well as net unrealized foreign currency losses primarily related to outstanding intercompany loans that Ctrack has with certain of its wholly-owned subsidiaries, which are re-measured at each reporting period.

Income tax provision (benefit). Income tax provision for the three months ended September 30, 2017 was $0.4 million, which primarily related to certain of our profitable entities in foreign jurisdictions. Income tax benefit for the same period in 2016 was $0.8 million, which primarily related to a reduction in our valuation allowance related to the purchase accounting for certain intangible assets, partially offset by income tax provision related to our profitable entities in foreign jurisdictions.

Net loss (income) attributable to noncontrolling interests. For the three months ended September 30, 2017, net loss attributable to noncontrolling interests was $6,000, compared to net income attributable to noncontrolling interest of $11,000 for the same period in 2016.

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Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016

Net revenues. Net revenues for the nine months ended September 30, 2017 were $172.8 million, compared to $190.6 million for the same period in 2016.

The following table summarizes net revenues by our two product categories (in thousands):

		Nine Months Ended September 30,								Change
Product Category		2017				2016				$				%
Hardware		$	129,221			$	149,402			$	(20,181	)		(13.5	)%
SaaS, software and services		43,542				41,234				2,308				5.6	%
Total		$	172,763			$	190,636			$	(17,873	)		(9.4	)%

Hardware. The decrease in hardware net revenues is primarily a result of the divestiture of the Modules Business in the second quarter of 2016 and the abandonment of certain legacy Enfora product lines, as well as reduced sales related to the MiFi Business.

SaaS, software and services. The increase in SaaS, software and services net revenues is primarily a result of our increased subscriber base as we continue to build a recurring revenue business.

Cost of net revenues. Cost of net revenues for the nine months ended September 30, 2017 was $123.0 million, or 71.2% of net revenues, compared to $123.3 million, or 64.7% of net revenues, for the same period in 2016.

The following table summarizes cost of net revenues by our two product categories (in thousands):

		Nine Months Ended September 30,								Change
Product Category		2017				2016				$				%
Hardware		$	108,097			$	109,395			$	(1,298	)		(1.2	)%
SaaS, software and services		13,390				13,896				(506		)		(3.6	)%
Impairment of abandoned product line, net of recoveries		1,489				—				1,489				100.0	%
Total		$	122,976			$	123,291			$	(315	)		(0.3	)%

Hardware. The decrease in hardware cost of net revenues is primarily a result of reduced revenues, partially offset by increased costs per unit on new products released in 2017 and the one-time sale of certain legacy MiFi products at cost in order to improve our liquidity in the third quarter of 2017.

SaaS, software and services. The decrease in SaaS, software and services cost of net revenues is primarily a result of our cost containment initiatives and product mix.

Impairment of abandoned product line, net of recoveries. The impairment of abandoned product line reflects the additional write down in the second quarter of 2017 of the value of certain inventory related to product lines which were abandoned during the fourth quarter of 2016, net of recoveries from a related legal settlement.

Gross profit. Gross profit for the nine months ended September 30, 2017 was $49.8 million, or a gross margin of 28.8%, compared to $67.3 million, or a gross margin of 35.3%, for the same period in 2016. The decrease in gross profit was primarily a result of the changes in net revenues and cost of net revenues as discussed above. The decrease in gross margin was primarily a result of decreased gross margins related to the MiFi Business, as well as the impairment of an abandoned product line as it had no related revenue.

Research and development expenses. Research and development expenses for the nine months ended September 30, 2017 were $16.8 million, or 9.7% of net revenues, compared to $24.2 million, or 12.7% of net revenues, for the same period in 2016. The decrease was primarily a result of our cost containment initiatives, including reductions in our workforce over the past 21 months.

Sales and marketing expenses. Sales and marketing expenses for the nine months ended September 30, 2017 were $20.3 million, or 11.8% of net revenues, compared to $24.1 million, or 12.6% of net revenues, for the same period in 2016. The decrease was primarily a result of our cost containment initiatives, including reductions in our workforce over the past 21 months.

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General and administrative expenses. General and administrative expenses for the nine months ended September 30, 2017 were $27.2 million, or 15.8% of net revenues, compared to $34.7 million, or 18.2% of net revenues, for the same period in 2016. General and administrative expenses decreased for the nine months ended September 30, 2017 primarily a result of our cost containment initiatives, including reductions in our workforce over the past 21 months.

Amortization of purchased intangible assets. The amortization of purchased intangible assets for the nine months ended September 30, 2017 and 2016 was $2.7 million and $2.9 million, respectively.

Impairment of purchased intangible assets. During the nine months ended September 30, 2016, we recorded an impairment loss of $2.6 million primarily related to the developed technologies acquired through our acquisition of FW. We did not have an impairment loss during the same period in 2017.

Restructuring charges, net of recoveries. Restructuring charges, net of recoveries, for the nine months ended September 30, 2017 and 2016 were $5.7 million and $1.7 million, respectively, and predominantly consisted of severance costs incurred in connection with the reduction of our workforce, as well as facility exit related costs.

Interest expense, net. Interest expense, net for the nine months ended September 30, 2017 was $14.3 million, compared to $11.7 million for the same period in 2016. The increase in interest expense is primarily a result of the increase in the amortization of debt discount related to the increase in the fair value of the embedded conversion feature of the Inseego Notes, as well as the interest expense and amortization of the debt discount and debt issuance costs related to our Term Loan and Prior Credit Agreement, as discussed below.

Other income (expense), net. Other expense, net, for the nine months ended September 30, 2017 was $3.4 million, which primarily consisted of a loss on extinguishment of debt related to the repayment of the Prior Credit Agreement and repurchase of certain of our Inseego Notes, as well as the termination of the Revolver (as defined below). Other income, net, for the nine months ended September 30, 2016 was $1.0 million, which primarily consisted of a gain related to the sale of our Modules Business, partially offset by net unrealized foreign currency losses primarily related to outstanding intercompany loans that Ctrack has with certain of its wholly-owned subsidiaries, which are re-measured at each reporting period.

Income tax provision (benefit). Income tax provision for the nine months ended September 30, 2017 was $1.3 million, which primarily related to certain of our profitable entities in foreign jurisdictions. Income tax benefit for the same period in 2016 was $0.5 million, which primarily related to a reduction in our valuation allowance related to the purchase accounting for certain intangible assets, partially offset by income tax provision related to our profitable entities in foreign jurisdictions.

Net loss (income) attributable to noncontrolling interests. Net loss attributable to noncontrolling interests was $33,000 for the nine months ended September 30, 2017, compared to net income attributable to noncontrolling interest of $24,000 for the same period in 2016.

Liquidity and Capital Resources

Our principal sources of liquidity are our existing cash and cash equivalents and cash generated from operations.

Previous Credit Agreements

On October 31, 2014, we entered into a five-year senior secured revolving credit facility in the amount of $25.0 million (the “Revolver”) with Wells Fargo Bank, National Association, as lender. On November 17, 2015, the Revolver was amended to increase the maximum borrowing capacity to $48.0 million. On March 20, 2017, at our request, the financial covenants with respect to liquidity requirements and EBITDA targets, among other things, were amended in order to enable draw-downs by the Company from time to time. In exchange for such accommodations, the aggregate amount available under the Revolver was decreased from $48.0 million to $10.0 million.

We terminated the Revolver on May 8, 2017, in connection with the execution of a Credit Agreement with Lakestar Semi Inc., a private investment fund managed by Soros Fund Management LLC, dated as of May 8, 2017 (the “Prior Credit Agreement”). The Prior Credit Agreement provided for a $20.0 million secured term loan with a maturity date of May 8, 2018.

On August 23, 2017, upon entering into the Credit Agreement described below, we used a portion of the proceeds of the new Term Loan (as defined below) to repay all outstanding amounts under and terminate the Prior Credit Agreement. In connection with the termination of the Prior Credit Agreement, we recognized a loss on extinguishment of debt of approximately $1.7 million, which is included in other income (expense), net, in the unaudited condensed consolidated statements of operations. There was no early termination fee paid in connection with the termination of the Prior Credit Agreement.

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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 (the “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”). In conjunction with the closing of the Term Loan, we received proceeds of $46.9 million, $35.0 million of which was funded to us in cash on the closing date, net of approximately $1.1 million related to an original issue discount and commitment fee, and the remaining $11.9 million of which was funded through our repurchase and cancellation of approximately $14.9 million of our outstanding Inseego Notes pursuant to the terms of the Note Purchase Agreement (as defined below). Additionally, in conjunction with the closing of the Term Loan, we issued 2,000,000 shares of our common stock to the Lenders with a market value of approximately $2.3 million, accrued an exit fee of approximately $0.6 million, and paid issuance costs of approximately $0.5 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.

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%. 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.

Convertible Senior Notes

On June 10, 2015, Novatel Wireless issued $120.0 million of 5.50% senior convertible notes due 2020 previously issued by Novatel Wireless (the “Novatel Wireless Notes”) which are 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 Wireless Notes are senior unsecured obligations of Novatel Wireless 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, beginning on December 15, 2015. The Novatel Wireless Notes will mature on June 15, 2020, unless earlier repurchased or converted. The Novatel Wireless Notes will be convertible into cash, shares of our common stock, or a combination thereof, at our election, at an initial conversion price of $5.00 per share of our common stock.

On January 9, 2017, in connection with the settlement of an exchange offer and consent solicitation with respect to the Novatel Wireless Notes, the Company issued $119.8 million aggregate principal amount of the 5.50% senior convertible notes due 2022 (the “Inseego Notes” and collectively with the Inseego Notes, the “Convertible Notes”). The Inseego Notes were issued in exchange for the $119.8 million aggregate principal amount of outstanding Novatel Wireless Notes that were validly tendered and accepted for exchange and subsequently canceled. The Inseego Notes are governed by the terms of an indenture, dated January 9, 2017 (the “Inseego Indenture”), between the Company, as issuer, and Wilmington Trust, National Association, as 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, beginning on June 15, 2017. The Inseego Notes permit the Company to have a senior credit facility up to a maximum amount of $48.0 million.

The exchange of the Novatel Wireless Notes for the Inseego Notes was treated as a debt modification in accordance with applicable FASB guidance and 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 Inseego Notes will mature on June 15, 2022, unless earlier converted, redeemed or repurchased. The Inseego Notes will be convertible into cash, shares of our common stock, or a combination thereof, at our election, at an initial conversion price of $4.70 per share of our common stock.

On August 23, 2017, in connection with the Credit Agreement described above, we entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with the Lenders pursuant to which we repurchased approximately $14.9 million of outstanding Inseego Notes from such Lenders in exchange for $11.9 million deemed to have been loaned to us pursuant to the Credit Agreement and the accrued and unpaid interest on such notes. In connection with the repurchase of such notes, we recognized a loss on extinguishment of debt of approximately $0.3 million, which is included in other income (expense), net, in the unaudited condensed consolidated statements of operations.

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As of the filing date of this report, the following aggregate principal amounts remain outstanding (in thousands):

Inseego Notes	$	104,875
Novatel Wireless Notes	250
Total	$	105,125

RER Amendment

Pursuant to the amended merger agreement with respect to our acquisition of FW, we 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. We also agreed to pay a total of approximately $6.1 million in cash over a four-year period, beginning in March 2016, of which approximately $4.6 million remains unpaid, related to the earn-out provisions of the amended merger agreement (see Note 2, Acquisitions and Divestitures, to the unaudited condensed consolidated financial statements included with this report). As of the filing date of this report, the March 2017 cash installment of $5.3 million has not been paid and the Company is disputing its obligation to make such payment (see Note 10, Commitments and Contingencies, to the unaudited condensed consolidated financial statements included with this report).

Historical Cash Flows

The following table summarizes our condensed consolidated statements of cash flows for the periods indicated (in thousands): 

	Nine Months Ended September 30,
	2017				2016
Net cash provided by (used in) operating activities	$	(15,202	)		$	51
Net cash provided by (used in) investing activities	(3,811		)		6,185
Net cash provided by (used in) financing activities	29,870				(1,494		)
Effect of exchange rates on cash and cash equivalents	(1,164		)		(147		)
Net increase in cash and cash equivalents	9,693				4,595
Cash and cash equivalents, beginning of period	9,894				12,570
Cash and cash equivalents, end of period	$	19,587			$	17,165

Operating activities. Net cash used in operating activities was $15.2 million for the nine months ended September 30, 2017, compared to net cash provided by operating activities of $0.1 million for the same period in 2016. Net cash used in operating activities for the nine months ended September 30, 2017 was primarily attributable to the net loss in the period, partially offset by non-cash charges for depreciation and amortization, including the amortization of debt discount and debt issuance costs, loss on impairment of abandoned product line, loss on extinguishment of debt and share-based compensation expense. Net cash provided by operating activities for the nine months ended September 30, 2016 was primarily attributable to net cash provided by working capital, non-cash charges for depreciation and amortization, including the amortization of the acquisition-related inventory step up and debt discount and debt issuance costs, equity earn-out compensation expense, net unrealized foreign currency transaction losses, loss on impairment of purchased intangible assets, provision for excess and obsolete inventory and share-based compensation expense, partially offset by the net loss in the period and a gain on the divestiture of certain hardware modules and related assets.

Investing activities. Net cash used in investing activities during the nine months ended September 30, 2017 was $3.8 million, compared to net cash provided by investing activities of $6.2 million for the same period in 2016. Cash used in investing activities during the nine months ended September 30, 2017 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 solutions. Net cash provided by investing activities for the same period in 2016 was primarily attributable to the sale of certain hardware modules and related assets as well as the sale of certain short-term investments, partially offset by an installment payment related to our acquisition of FW and the capitalization of certain costs related to the research and development of software to be sold in our solutions.

Financing activities. Net cash provided by financing activities during the nine months ended September 30, 2017 was $29.9 million, compared to net cash used in financing activities $1.5 million for the same period in 2016. Net cash provided by financing activities during the nine months ended September 30, 2017 was primarily related to proceeds from the Term Loan, partially offset by the repurchase of certain Inseego Notes, payment of issuance costs related to the Term Loan and Prior Credit Agreement, net repayments of DigiCore bank and overdraft facilities, principal payments under capital lease obligations and

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taxes paid on vested restricted stock units. Net cash used in financing activities for the same period in 2016 was primarily related to principal payments under capital lease obligations and a mortgage bond, partially offset by proceeds from stock option exercises and employee stock purchase plan, net of taxes paid on vested restricted stock units.

Other Liquidity Needs

As of September 30, 2017, we had available cash and cash equivalents totaling $19.6 million and working capital of $6.4 million.

The restructuring announced in June 2017 is aimed at significantly reducing our cost of revenues and operating expenses in an effort to increase operating cash flows to eventually be sufficient to offset debt service costs and cash flows from investing activities. Our ability to transition to attaining more profitable operations and generating positive cash flow is dependent upon achieving a level of revenues adequate to support our evolving cost structure. If events or circumstances occur such that we do not meet our operating plan as expected, we may be required to reduce planned research and development activities, incur additional restructuring charges or reduce other operating expenses which could have an adverse impact on our ability to achieve our intended business objectives. We believe that our cash and cash equivalents, together with anticipated cash flows from operations, will be sufficient to meet our working capital needs for the next twelve months following the filing date of this report.

Our liquidity could be impaired if there is any interruption in our business operations, a material failure to satisfy our contractual commitments or a failure to generate revenue from new or existing products.

We may decide to raise additional funds to accelerate development of new and existing services and products, to respond to competitive pressures or to acquire complementary products, businesses or technologies. There can be no assurance that any required or desired additional financing will be available on terms favorable to us, or at all. In addition, in order to obtain additional borrowings, we must comply with certain requirements under the Credit Agreement. If additional funds are raised by the issuance of equity securities, our stockholders could experience dilution of their ownership interests and securities issued may have rights senior to those of the holders of our common stock. If additional funds are raised by the issuance of debt securities, we may be subject to certain limitations on our operations.

Contractual Obligations and Commercial Commitments

Except as described above, during the nine months ended September 30, 2017, there were no material changes to our contractual obligations and commercial commitments from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.

Off-Balance Sheet Arrangements

We do not engage in any off-balance sheet arrangements.

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.

Market risk is the risk of potential economic loss principally arising from adverse changes in the fair value of financial instruments. The major components of market risk affecting us are interest rate risk, global credit risk and foreign currency exchange rate risk.

Since December 31, 2016, there have been no material changes in the quantitative or qualitative aspects of our market risk profile. For additional information regarding the Company’s exposure to certain market risks, see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” included in our Annual Report on Form 10-K for the year ended December 31, 2016.

Item 4.	Controls and Procedures.

The Company maintains disclosure controls and procedures, as defined in Rule 13a-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 Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective because of the material weaknesses in internal control over

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financial reporting described in Part II, Item 9A of the Annual Report on Form 10-K for the year ended December 31, 2016, which primarily resulted from a lack of sufficient resources in key accounting and financial reporting roles within the organization necessary to prepare financial statements in time to meet regulatory filing requirements.

During the period covered by this Quarterly Report on Form 10-Q, we initiated an active program to: (a) hire additional employees and upgrade certain accounting positions to provide further support to our finance and accounting team; (b) provide additional functional and system training to employees; (c) document and formalize our accounting policies and internal control processes and to help strengthen supervisory reviews by our management; and (d) design and implement monthly manual controls to manage our financial reporting close processes and to help ensure timely preparation of financial statements. Although we had not fully remediated this material weakness as of September 30, 2017, we continue to actively engage in the implementation of these and other remediation efforts to address this material weakness.

Except as discussed above, there were no changes in the Company’s internal control over financial reporting, as defined in Rule 13a-15(f) promulgated under the Exchange Act, during the three months ended September 30, 2017, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II—OTHER INFORMATION

Item  1.	Legal Proceedings.

The disclosure in Note 10, 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.

There have been no material changes in our risk factors from those disclosed in “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, except for the risk factors listed below.

An assertion by a third party that we are infringing its intellectual property could subject us to costly and time-consuming litigation or expensive licenses and our business could be harmed.

The technology industries involving mobile data communications, IoT devices, software and services are characterized by the existence of a large number of patents, copyrights, trademarks and trade secrets and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. Much of this litigation involves patent holding companies or other adverse patent owners who have no relevant product revenues of their own, and against whom our own patent portfolio may provide little or no deterrence. For example, one such entity, Carucel Investments, L.P. (“Carucel”) filed a claim seeking approximately $43.0 million in royalties and damages related to past sales of MiFi mobile hotspots. After a trial in April 2017, a jury found that our products did not infringe Carucel’s patents, but Carucel is appealing the verdict and there can be no assurances as to the ultimate outcome of this litigation. Moreover, this is just one of several patent infringement lawsuits from non-practicing entities that are brought against us or our subsidiaries each year in the ordinary course of business.

We cannot assure you that we or our subsidiaries will prevail in any current or future intellectual property infringement or other litigation given the complex technical issues and inherent uncertainties in such litigation. Defending such claims, regardless of their merit, could be time-consuming and distracting to management, result in costly litigation or settlement, cause development delays, or require us or our subsidiaries to enter into royalty or licensing agreements. In addition, we or our subsidiaries could be obligated to indemnify our customers against third parties’ claims of intellectual property infringement based on our products or solutions, as is the case in the Carucel litigation for which Novatel Wireless may be obligated to indemnify its customer, Verizon Wireless if Carucel’s infringement claim ultimately result in any liability. If our products or solutions violate any third-party intellectual property rights, we could be required to withdraw them from the market, re-develop them or seek to obtain licenses from third parties, which might not be available on reasonable terms or at all. Any efforts to re-develop our products or solutions, obtain licenses from third parties on favorable terms or license a substitute technology might not be successful and, in any case, might substantially increase our costs and harm our business, financial condition and operating results. Withdrawal of any of our products or solutions from the market could harm our business, financial condition and operating results.

In addition, we incorporate open source software into our products and solutions. Given the nature of open source software, third parties might assert copyright and other intellectual property infringement claims against us based on our use of certain open source software programs. The terms of many open source licenses to which we are subject have not been interpreted by U.S. courts or courts of other jurisdictions, and there is a risk that those licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to commercialize our products and solutions. In that event, we could be required to seek licenses from third parties in order to continue offering our products and solutions, to re-develop our solutions, to discontinue sales of our solutions, or to release our proprietary software source code under the terms of an open source license, any of which could adversely affect our business.

Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt.

Our ability to make scheduled payments of the principal of, to pay interest on, or to refinance our indebtedness, including our Term Loan and our Inseego Notes, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt and other fixed charges, fund working capital needs and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, refinancing or restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive.

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If we are unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments, or if we fail to comply with the various requirements of our existing indebtedness or any other indebtedness which we may incur in the future, we would be in default, which could permit the holders of our indebtedness, including the Inseego Notes, to accelerate the maturity of such indebtedness. Any default under such indebtedness could have a material adverse effect on our business, results of operations and financial condition.

The Credit Agreement relating to our Term Loan contains customary operational covenants, our failure to comply with which could result in a default under the Credit Agreement as well as a cross-default under the Inseego Indenture.

The Credit Agreement for our Term Loan contains usual and customary restrictive covenants relating to the management and operation of our business, and it is likely that any future debt arrangements we may enter into would contain similar covenants. Failure to comply with any of the covenants under the Credit Agreement or any other debt agreement could result in a default under such an agreement and a cross-default under the Inseego Indenture, which could permit the holders of the Inseego Notes to accelerate the maturity of such indebtedness. Any default or cross-default under such indebtedness could have a material adverse effect on our business, results of operations and financial results.

The indebtedness under our Credit Agreement is secured by certain of our assets, including the equity interests of certain of our direct and indirect subsidiaries. As a result of this security interest, such assets would only be available to satisfy claims of our general creditors or to holders of our equity securities if we were to become insolvent to the extent that the value of such assets exceeded the amount of our indebtedness and other obligations under the Credit Agreement.

Indebtedness under our Credit Agreement is secured by a lien on certain of our assets, including the equity interests of certain of our direct and indirect subsidiaries. Accordingly, if an event of default were to occur under the Credit Agreement, such as a bankruptcy, insolvency, liquidation or other reorganization, the Lenders would have a priority right to such assets, to the exclusion of our general creditors. In that event, such assets would first be used to repay in full all indebtedness and other obligations under the Credit Agreement, resulting in all or a portion of such assets being unavailable to satisfy the claims of our unsecured creditors. Only after satisfying the claims of our unsecured creditors and our subsidiaries’ unsecured creditors would any amount be available for distribution to holders of our equity securities.

If our restructuring activities fail to achieve targeted cost and expense reductions our business and financial performance may be adversely affected.

In June 2017, we announced a restructuring plan aimed at reducing our cost of revenues and operating expenses. This restructuring plan was designed to improve our strategic focus on our most profitable business lines and consolidate operations of certain of our subsidiaries with those of the Company, including reductions-in-force, further reorganization of executive level management and the consolidation of certain of our facilities. During the period covered by this Quarterly Report on Form 10-Q, we incurred $3.4 million of restructuring charges and decreased other operating expenses by $2.1 million. While we expect to continue with our cost and expense reductions we face a variety of risks and uncertainties relating to the effectiveness of such activities. Any delays in the implementation of our restructuring plan or unforeseen expenses related to such activities could have a material adverse effect on our business, results of operations and financial condition.

Our decision to terminate the Purchase Agreement governing the proposed sale of our MiFi Business and retain ownership of that business could have adverse effects on our business, results of operations and the trading price of our common stock.

In June 2017, we terminated the Purchase Agreement governing the proposed sale of our MiFi Business due to delays and uncertainty in securing approval of the transactions contemplated by the Purchase Agreement from CFIUS. As a result of such termination, we will retain our ownership interest in Novatel Wireless and the MiFi Business. While we believe that market opportunities and the underlying business fundamentals of the MiFi Business have significantly improved since we decided to seek the sale of the business in early 2016 we expect to face significant challenges as we drive that business toward profitability.

The MiFi Business has relatively low gross margins and operates in a very competitive market environment. While our MiFi hotspot products tend to have advanced features which often enable them to be sold at premium prices when they are first introduced, we also have higher costs than most of our competitors due to our small scale and heavy use of U.S.-based engineers in product development. Most of our competitors have substantially greater resources and scale, as would be expected in the relatively mature, consumer electronics product categories which comprise our MiFi Business. Our wireless data modem and mobile hotspots, for example, compete against similar products offered by Huawei, ZTE, Sierra Wireless, TCL, Franklin Wireless and NetGear. More broadly, those products also compete against wireless handset manufacturers such as HTC, Apple, LG and Samsung, which all offer mobile hotspot capability as a feature of their cellular smartphones. Failure to manage these challenges, or failure of our MiFi product or service offerings to be successful and profitable, could have a material adverse effect on our financial condition and results of operations.

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Our decision to retain the MiFi Business means that we will continue to depend upon Verizon Wireless for a substantial portion of our revenues, and our business would be negatively affected by an adverse change in our dealings with this customer.

Historically, as a result of the significant revenues associated with our MiFi Business, sales to Verizon Wireless accounted for 54%, 54% and 52% of our consolidated net revenues for the years ended December 31, 2016, 2015 and 2014, respectively. For the three months ended September 30, 2017, sales to Verizon Wireless accounted for 48.0% of our consolidated net revenues. While we have accelerated our engagements with prospective new MiFi customers, we expect that Verizon Wireless will continue to account for a substantial portion of our net revenues, and any impairment of our relationship with Verizon Wireless would adversely affect our business.

Uncertainties relating to recent changes in our management team may adversely affect our operations.

During recent periods, certain members of our management team have resigned from their positions as officers or managers. While we expect to engage in an orderly transition process as we integrate newly appointed officers and managers, we face a variety of risks and uncertainties relating to these resignations and new appointments, including diversion of management attention from business concerns, failure to retain other key personnel or inability to hire new key personnel.

If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to report our financial results timely and accurately, which could adversely affect investor confidence in the Company, and in turn, our results of operations and our stock price.

Effective internal controls are necessary for us to provide reliable financial reports and operate successfully as a public company. Section 404 of the Sarbanes-Oxley Act of 2002 requires that companies evaluate and report on their systems of internal control over financial reporting.

Our management has concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2017 as a result of the material weakness in internal control over financial reporting that was identified in the year ended December 31, 2016 resulting primarily from a lack of sufficient resources in key accounting and financial reporting roles within the organization necessary to prepare financial statements in time to meet regulatory filing requirements. Notwithstanding the material weakness that continued to exist as of September 30, 2017, our management believes that there are no material inaccuracies or omissions of material fact in the Company’s financial statements and, to the best of its knowledge, believes that the consolidated financial statements for the three and nine months ended September 30, 2017 fairly present in all material respects the Company’s financial position, results of operations, and cash flows in accordance with accounting principles generally accepted in the U.S.

During the period covered by this Quarterly Report on Form 10-Q, we initiated an active program to: (a) hire additional employees and upgrade certain accounting positions to provide further support to our finance and accounting team; (b) provide additional functional and system training to employees; (c) document and formalize our accounting policies and internal control processes and to help strengthen supervisory reviews by our management; and (d) design and implement monthly manual controls to manage our financial reporting close processes and to help ensure timely preparation of financial statements. Although we believe that these corrective steps will enable management to conclude that the internal controls over our financial reporting are effective at year end, we cannot provide assurance that these steps will be sufficient and we may be required to expend additional resources to remediate the material weakness. A failure to maintain effective internal controls could cause a delay in compliance with our reporting obligations, SEC rules and regulations or Section 404 of the Sarbanes Oxley Act of 2002, which could subject us to a variety of administrative sanctions, including, but not limited to, SEC enforcement action, ineligibility for short form registration, the suspension or delisting of our common stock from the stock exchange on which it is listed and the inability of registered broker-dealers to make a market in our common stock, which could adversely affect our business and the trading price of our common stock.

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

There were no unregistered sales of the Company’s equity securities during the three-month period ended September 30, 2017 that were not previously disclosed in a Current Report on Form 8-K.

Item  3.	Defaults Upon Senior Securities.

None.

Item 4.	Mine Safety Disclosures.

Not applicable.

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Item 5.	Other Information.

None.

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Item 6.	Exhibits.

Exhibit No.		Description
2.1*		Agreement and Plan of Merger, dated March 27, 2015, by and among Novatel Wireless, Inc., Duck Acquisition, Inc., R.E.R. Enterprises, Inc., the stockholders of R.E.R. Enterprises, Inc. and Ethan Ralston, as the representative of the stockholders of R.E.R. Enterprises, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed April 1, 2015).
2.2		Amendment No. 1 to Agreement and Plan of Merger, dated January 5, 2016, by and among Novatel Wireless, Inc., Duck Acquisition, Inc., R.E.R. Enterprises, Inc., certain stockholders of R.E.R. Enterprises, Inc. and Ethan Ralston, as the representative of the R.E.R. stockholders (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed January 11, 2016).
2.3*		Transaction Implementation Agreement, dated June 18, 2015, by and between Novatel Wireless, Inc. and DigiCore Holdings Limited (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed June 24, 2015).
2.4*		Asset Purchase Agreement, dated April 11, 2016, by and among Novatel Wireless Inc. and Telit Technologies (Cyprus) Limited and Telit Wireless Solutions, Inc. (incorporated by reference to Exhibit 2.5 to the Company’s Quarterly Report on Form 10-Q, filed May 10, 2016).
2.5		Final Resolution Letter Agreement, dated September 29, 2016, by and among Novatel Wireless Inc. and Telit Technologies (Cyprus) Limited and Telit Wireless Solutions, Inc. (incorporated by reference to Exhibit 2.5 to the Company’s Quarterly Report on Form 10-Q, filed November 9, 2016).
2.6*		Stock Purchase Agreement, dated September 21, 2016, by and among Novatel Wireless, Inc., Inseego Corp. (formerly Vanilla Technologies, Inc.), T.C.L. Industries Holdings (H.K.) Limited and Jade Ocean Global Limited (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed September 22, 2016).
3.1		Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed November 9, 2016).
3.2		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed November 9, 2016).
10.1**		Credit Agreement, dated as of August 23, 2017, by and among Inseego Corp. and certain of its direct and indirect subsidiaries, Cantor Fitzgerald Securities, as Agent, and certain funds managed by Highbridge Capital Management, LLC, as Lenders.
10.2**		Security and Pledge Agreement, dated as of August 23, 2017, by and among Inseego Corp and certain of its direct and indirect subsidiaries, as Guarantors, and Cantor Fitzgerald Securities, as Agent.
10.3**		Note Purchase Agreement, dated as of August 23, 2017, by and among Inseego Corp., 1992 MSF International LTD. and 1992 Tactical Credit Master Fund, L.P.
10.4		Offer Letter, dated August 11, 2017, by and between the Company and Stephen Smith with an employment start date of August 21, 2017 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed August 21, 2017).
10.5		Change in Control and Severance Agreement, effective August 21, 2017, by and between the Company and Stephen Smith (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed August 21, 2017).
10.6		Form of Indemnification (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed August 21, 2017).
10.7**		2017 (Second Half) Inseego Corporate Bonus Plan.
10.8**		Amendment to Offer Letter, dated October 26, 2017, by and between the Company and Dan Mondor.
31.1**		Certification of our Principal Executive Officer adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2**		Certification of our Principal Financial Officer adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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Exhibit No.		Description
101**		The following financial statements and footnotes from the Inseego Corp. Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 formatted in eXtensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Comprehensive Loss; (iv) Condensed Consolidated Statements of Cash Flows; and (v) the Notes to Condensed Consolidated Financial Statements.
*		Certain schedules and exhibits to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished supplementally to the SEC upon request.
**		Filed herewith.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: November 7, 2017		Inseego Corp.
		By:		/s/    DAN MONDOR
				Dan Mondor
				Chief Executive Officer

 

		By:		/s/    STEPHEN SMITH
				Stephen Smith
				Chief Financial Officer

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