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00

014

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2022

OR

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

For the transition period from to

Commission File Number: 001-38107

 

ShotSpotter, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

47-0949915

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

39300 Civic Center Dr., Suite 300

Fremont, California

94538

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (510) 794-3100

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

 

 

 

Common stock, par value $0.005 per share

SSTI

The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

As of April 30, 2022 the registrant had 12,141,630 shares of common stock, $0.005 par value per share, outstanding.

 

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Condensed Consolidated Financial Statements

2

 

Condensed Consolidated Balance Sheets

2

 

Condensed Consolidated Statements of Operations

3

 

Condensed Consolidated Statements of Comprehensive Income (Loss)

4

 

Condensed Consolidated Statements of Stockholders’ Equity

5

 

Condensed Consolidated Statements of Cash Flows

6

 

Notes to Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

Item 3.

Qualitative and Quantitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

27

PART II.

OTHER INFORMATION

 

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

57

Item 6.

Exhibits

57

Exhibit Index

58

Signatures

59

 

 

 

1


 

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

ShotSpotter, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,852

 

 

$

15,636

 

Accounts receivable and contract asset, net

 

 

21,256

 

 

 

16,134

 

Prepaid expenses and other current assets

 

 

2,456

 

 

 

2,504

 

Total current assets

 

 

32,564

 

 

 

34,274

 

Property and equipment, net

 

 

18,707

 

 

 

17,409

 

Operating lease right-of-use assets

 

 

3,961

 

 

 

2,323

 

Goodwill

 

 

23,171

 

 

 

2,816

 

Intangible assets, net

 

 

29,220

 

 

 

13,564

 

Other assets

 

 

2,581

 

 

 

1,918

 

Total assets

 

$

110,204

 

 

$

72,304

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

2,449

 

 

$

1,587

 

Deferred revenue, short-term

 

 

33,886

 

 

 

26,235

 

Accrued expenses and other current liabilities

 

 

12,952

 

 

 

6,680

 

Total current liabilities

 

 

49,287

 

 

 

34,502

 

Deferred revenue, long-term

 

 

1,623

 

 

 

474

 

Other liabilities

 

 

10,519

 

 

 

3,513

 

Total liabilities

 

 

61,429

 

 

 

38,489

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Preferred stock: $0.005 par value; 20,000,000 shares authorized; no shares
   issued and outstanding as of March 31, 2022 and December 31, 2021

 

 

 

 

 

 

Common stock: $0.005 par value; 500,000,000 shares authorized;
   
12,141,630 and 11,703,430 shares issued and outstanding as of
   March 31, 2022 and December 31, 2021, respectively

 

 

61

 

 

 

58

 

Additional paid-in capital

 

 

147,277

 

 

 

132,780

 

Accumulated deficit

 

 

(98,398

)

 

 

(98,785

)

Accumulated other comprehensive loss

 

 

(165

)

 

 

(238

)

Total stockholders' equity

 

 

48,775

 

 

 

33,815

 

Total liabilities and stockholders' equity

 

$

110,204

 

 

$

72,304

 

See accompanying notes to condensed consolidated financial statements.

2


 

ShotSpotter, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

Revenues

 

$

21,214

 

 

$

15,013

 

Costs

 

 

 

 

 

 

Cost of revenues

 

 

8,290

 

 

 

6,300

 

Impairment of property and equipment

 

 

 

 

 

25

 

Total costs

 

 

8,290

 

 

 

6,325

 

Gross profit

 

 

12,924

 

 

 

8,688

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

Sales and marketing

 

 

5,576

 

 

 

3,935

 

Research and development

 

 

2,627

 

 

 

1,713

 

General and administrative

 

 

4,289

 

 

 

2,871

 

Total operating expenses

 

 

12,492

 

 

 

8,519

 

Operating income

 

 

432

 

 

 

169

 

Other income (expense), net

 

 

 

 

 

 

Interest income, net

 

 

8

 

 

 

11

 

Other expense, net

 

 

(53

)

 

 

(52

)

Total other income (expense), net

 

 

(45

)

 

 

(41

)

Income before income taxes

 

 

387

 

 

 

128

 

Provision for income taxes

 

 

 

 

 

49

 

Net income

 

$

387

 

 

$

79

 

Net income per share, basic

 

$

0.03

 

 

$

0.01

 

Net income per share, diluted

 

$

0.03

 

 

$

0.01

 

Weighted average shares used in computing adjusted net income per share, basic

 

 

12,156,968

 

 

 

11,584,605

 

Weighted average shares used in computing adjusted net income per share, diluted

 

 

12,315,806

 

 

 

11,898,362

 

 

 

See accompanying notes to condensed consolidated financial statements.

3


 

ShotSpotter, Inc.

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Net income

 

$

387

 

 

$

79

 

Other comprehensive income (loss):

 

 

 

 

 

 

Change in foreign currency translation adjustment

 

 

73

 

 

 

(17

)

Comprehensive income

 

$

460

 

 

$

62

 

 

See accompanying notes to condensed consolidated financial statements.

4


 

ShotSpotter, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share data)

(Unaudited)

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders'
Equity/

 

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

(Deficit)

 

Balance at January 1, 2022

 

 

11,703,430

 

 

$

58

 

 

$

132,780

 

 

$

(98,785

)

 

$

(238

)

 

$

33,815

 

Exercise of stock options

 

 

8,528

 

 

 

 

 

 

13

 

 

 

 

 

 

 

 

 

13

 

Repurchase of common stock

 

 

(57,623

)

 

 

 

 

 

(1,634

)

 

 

 

 

 

 

 

 

(1,634

)

Issuance of common stock from RSUs vested

 

 

22,755

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for acquisition

 

 

464,540

 

 

3

 

 

 

14,263

 

 

 

 

 

 

 

 

 

14,266

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,855

 

 

 

 

 

 

 

 

 

1,855

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

73

 

 

 

73

 

Net income

 

 

 

 

 

 

 

 

 

 

387

 

 

 

 

 

 

387

 

Balance at March 31, 2022

 

 

12,141,630

 

 

$

61

 

 

$

147,277

 

 

$

(98,398

)

 

$

(165

)

 

$

48,775

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders'
Equity/

 

 

 

Shares

 

 

Par Value

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

(Deficit)

 

Balance at January 1, 2021

 

 

11,538,998

 

 

$

58

 

 

$

128,771

 

 

$

(94,354

)

 

$

(170

)

 

$

34,305

 

Exercise of stock options

 

 

60,600

 

 

 

 

 

 

213

 

 

 

 

 

 

 

 

 

213

 

Issuance of common stock in connection with exercise of warrants

 

 

50,716

 

 

 

 

 

 

8

 

 

 

 

 

 

 

 

 

8

 

Issuance of common stock from RSUs vested

 

 

24,332

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase of common stock

 

 

(56,162

)

 

 

 

 

 

(2,192

)

 

 

 

 

 

 

 

 

(2,192

)

Stock-based compensation

 

 

 

 

 

 

 

 

1,375

 

 

 

 

 

 

 

 

 

1,375

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17

)

 

 

(17

)

Net income

 

 

 

 

 

 

 

 

 

 

 

79

 

 

 

 

 

 

79

 

Balance at March 31, 2021

 

 

11,618,484

 

 

$

58

 

 

$

128,175

 

 

$

(94,275

)

 

$

(187

)

 

$

33,771

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

5


 

ShotSpotter, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

387

 

 

$

79

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

 

Depreciation of property and equipment

 

 

1,487

 

 

 

1,393

 

Amortization of intangible assets

 

 

695

 

 

 

259

 

Impairment of property and equipment

 

 

 

 

 

25

 

Stock-based compensation

 

 

1,855

 

 

 

1,375

 

Provision for accounts receivable

 

 

77

 

 

 

44

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable and contract asset

 

 

(4,976

)

 

 

(3,929

)

Prepaid expenses and other assets

 

 

(439

)

 

 

134

 

Accounts payable

 

 

 

 

 

145

 

Accrued expenses and other current liabilities

 

 

(1,220

)

 

 

(1,451

)

Deferred revenue

 

 

3,417

 

 

 

430

 

Net cash provided by (used in ) operating activities

 

 

1,283

 

 

 

(1,496

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of property and equipment

 

 

(1,900

)

 

 

(1,233

)

Investment in intangible and other assets

 

 

(8

)

 

 

(13

)

Business acquisition, net of cash acquired

 

 

(4,618

)

 

 

15

 

Net cash used in investing activities

 

 

(6,526

)

 

 

(1,231

)

Cash flows from financing activities:

 

 

 

 

 

 

Payment of contingent consideration liability

 

 

 

 

 

(403

)

Proceeds from exercise of stock options

 

 

13

 

 

 

213

 

Repurchases of common stock

 

 

(1,634

)

 

 

(2,192

)

Proceeds from exercise of warrants

 

 

 

 

 

8

 

Net cash used in financing activities

 

 

(1,621

)

 

 

(2,374

)

Decrease in cash, cash equivalents and restricted cash

 

 

(6,864

)

 

 

(5,101

)

Effect of exchange rate on cash and cash equivalents

 

 

80

 

 

 

(2

)

Cash, cash equivalents and restricted cash at beginning of year

 

 

15,636

 

 

 

16,043

 

Cash, cash equivalents and restricted cash at end of year

 

$

8,852

 

 

$

10,940

 

 

 

 

 

 

 

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

Cash paid for income taxes

 

$

 

 

$

 

Supplemental disclosure of non-cash financing activities:

 

 

 

 

 

 

Property and equipment purchases included in accounts payable

 

$

731

 

 

$

590

 

Fair value of contingent consideration

 

$

12,400

 

 

$

 

Fair value of common stock issued as consideration for business acquisition

 

$

14,266

 

 

$

 

See accompanying notes to condensed consolidated financial statements.

6


 

ShotSpotter, Inc.

Notes to Condensed Consolidated Financial Statements

Note 1. Organization and Description of Business

ShotSpotter, Inc. (the “Company”) provides precision-policing solutions for law enforcement and security personnel to help prevent and reduce gun violence and make cities, campuses and facilities safer. The Company’s flagship product, ShotSpotter Respond is the leading outdoor gunshot detection, location and alerting system trusted by over 130 cities as of March 31, 2022. ShotSpotter Connect creates crime forecasts designed to enable more precise and effective use of patrol resources to deter crime. The Company’s case management solution, ShotSpotter Investigate, and search and analysis solution, COPLINK X, are cloud-based investigative platforms to help law enforcement agencies modernize every phase of an investigation and accelerate case work with easy-to-use software tools. The Company offers its solutions on a Software as a Service, ("SaaS"), subscription model to its customers. ShotSpotter Labs is the Company’s effort to support innovative uses of its technology to help protect wildlife and the environment.

The Company’s principal executive offices are located in Fremont, California. The Company has five wholly-owned subsidiaries.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated financial statements include the results of the Company and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated upon consolidation.

The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the consolidated financial statements filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (“Annual Report”) filed with the SEC on March 29, 2022.

In the opinion of management, the accompanying condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive income (loss), stockholders’ equity and cash flows for the interim periods, but are not necessarily indicative of the results of operations or cash flows to be anticipated for the full year 2022 or any future period. The Company has evaluated subsequent events occurring after the date of the condensed consolidated financial statements for events requiring recording or disclosure in the condensed consolidated financial statements.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its significant estimates, including the valuation of accounts receivable, the lives and realization of tangible and intangible assets, contingent consideration liabilities, stock-based compensation expense, customer life, accounting for revenue recognition, contingent liabilities related to legal matters, and income taxes including deferred taxes and any related valuation allowance. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions it believes to be reasonable under the circumstances. Actual results could differ from those estimates and such differences could be material to the Company’s financial position and results of operations.

7


 

The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. In the event the Company determines that it would be able to realize its deferred assets in the future in excess of their net recorded amount, the Company makes an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

Concentrations of Risk

Credit Risk – Financial instruments that potentially subject the Company to concentration of credit risk consisted primarily of cash and cash equivalents and accounts receivable from trade customers. The Company maintains its cash deposits at two domestic and four international financial institutions. The Company is exposed to credit risk in the event of default by a financial institution to the extent that cash and cash equivalents are in excess of the amount insured by the Federal Deposit Insurance Corporation and other local country government agencies. The Company generally places its cash and cash equivalents with high-credit quality financial institutions. To date, the Company has not experienced any losses on its cash and cash equivalents.

Concentration of Accounts Receivable and Contract Asset – At March 31, 2022, two customers accounted for 38% and 15% of the Company’s total accounts receivable, respectively. At December 31, 2021, one customer accounted for 65% of the Company’s total accounts receivable.

Concentration of Revenues – For the three months ended March 31, 2022, two customers accounted for 38% and 10% of the Company’s total revenues, respectively. For the three months ended March 31, 2021, two customers accounted for 34% and 13% of the Company’s total revenues, respectively.

Concentration of Suppliers The Company relies on a limited number of suppliers and contract manufacturers. In particular, a single supplier is currently the sole manufacturer of the Company’s proprietary sensors.

 

Note 3. Revenue Related Disclosures

The changes in deferred revenue were as follows (in thousands):

 

 

Three Months Ended March 31,

 

 

2022

 

 

2021

 

Beginning balance

$

26,709

 

 

$

24,578

 

   Deferred revenues acquired (Note 4 - Business Acquisitions)

$

5,382

 

 

$

 

   New billings

 

24,527

 

 

 

15,432

 

   Revenue recognized during the year from beginning balance

 

(9,825

)

 

 

(10,103

)

   Revenue recognized during the year from new billings

 

(11,292

)

 

 

(4,898

)

   Foreign currency impact

 

8

 

 

 

(1

)

Ending balance

$

35,509

 

 

$

25,008

 

 

 

The following table presents remaining performance obligations for contractually committed revenues as of March 31, 2022 (in thousands):

 

2022

 

 

$

40,844

 

2023

 

 

 

34,805

 

2024

 

 

 

23,213

 

Thereafter

 

 

 

12,954

 

Total

 

 

$

111,816

 

 

 

 

 

 

 

8


 

The timing of certain revenue recognition included in the table above is based on estimates of go-live dates for contracts not yet live. Contractually committed revenue includes deferred revenue as of March 31, 2022 and amounts under contract that will be invoiced after March 31, 2022.

During the three months ended March 31, 2022, the Company recognized revenues of $20.8 million from customers in the United States, and $0.4 million from customers in the Bahamas and South Africa. During the three months ended March 31, 2021, the Company recognized revenues of $14.8 million from customers in the United States, and $0.2 million from customers in the Bahamas and South Africa.

During the three months ended March 31, 2022, the Company recognized revenues of $19.0 million from monthly subscription, maintenance and support services, and $2.2 million from professional software development services. During the three months ended March 31, 2021, the Company recognized revenues of $13.3 million from monthly subscription, maintenance and support services, and $1.7 million from professional software development services.

Note 4. Business Acquisitions

In October 2021, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts from Customers. ASU 2021-08 aimed to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to recognition of an acquired contract liability and the effect of payment terms on subsequent revenue recognized by the acquirer. These amendments were effective prospectively for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted this ASU on January 1, 2022.

 

On January 3, 2022, the Company completed the acquisition of 100% of the membership interests in Forensic Logic, LLC (“Forensic Logic”) for purchase consideration of $4.9 million in cash, subject to working capital adjustments, and $14.3 million in 464,540 shares of ShotSpotter common stock based on the closing price on the date of acquisition. The purchase consideration also included a contingent earnout agreement. Up to $9.5 million in contingent earnout will be payable based on Forensic Logic’s revenues generated during 2022. An additional amount up to $10.5 million contingent earnout will be payable based on Forensic Logic’s revenues during 2023. The amounts are payable within approximately 120 days after the end of 2022 and 2023, respectively. The estimated fair value of the contingent earnout on the date of acquisition is $12.4 million, resulting in a total estimated purchase consideration of $31.6 million. The acquisition will enable the Company to broaden its suite of precision policing solutions and cloud-based investigative platforms to offer its customers.

 

The following table summarizes the allocation of the purchase price as of the acquisition date, January 3, 2022 (in thousands):

 

Cash and cash equivalents

 

 

$

303

 

Accounts receivable and contract asset, net

 

 

 

220

 

Property and equipment, net

 

 

 

200

 

Operating lease right-of-use asset

 

 

 

1,893

 

Software technology

 

 

 

7,140

 

Tradename

 

 

 

1,000

 

Customer relationships

 

 

 

8,200

 

Goodwill

 

 

 

20,355

 

Other asset

 

 

 

186

 

Accrued expenses and other current liabilities

 

 

 

(635

)

Operating lease liabilities

 

 

 

(1,893

)

Deferred revenue

 

 

 

(5,382

)

Total estimated consideration

 

 

$

31,587

 

 

The purchase price allocation above is final except for measure period adjustments which may be required in the future following purchase price adjustments related to working capital true-up. Goodwill primarily represents the value of cash flows from future customers and the employee workforce. The Company expects to deduct the amortization of goodwill and intangible assets for tax purposes. A portion of the amortization deduction will commence upon settlement of contingent consideration and contingent liabilities. The Company valued the intangible assets using income-based

9


 

approaches. Significant assumptions included forecasts of revenues, cost of revenues, research and development expense, sales and marketing expense, general and administrative expense, technology lives, royalty rates, working capital rates, customer attrition rates and other estimates. The Company discounted the cash flows at 24%, reflecting the risk profile of the assets.

 

Acquisition-related expenses totaled $0.6 million, of which $0.1 million is included in general and administrative expense for the quarter ended March 31, 2022 and the remainder was incurred during the year ended December 31, 2021.

 

The unaudited pro forma combined revenue and net income presented below have been prepared as if the Company had acquired Forensic Logic on January 1, 2021. The unaudited pro forma financial information has been derived from the consolidated statements of operations of the Company and Forensic Logic for the below period. The historical financial information has been adjusted in the unaudited combined pro forma information based upon currently available information and certain estimates and assumptions. The actual effect of the transactions ultimately may differ from the pro forma adjustments included herein. However, management believes that the assumptions used to prepare the pro forma adjustments provide a reasonable basis for presenting the significant effects of the transactions as currently contemplated and that the pro forma adjustments are factually supportable, give appropriate effect to the expected impact of events that are directly attributable to the transactions, and reflect those items expected to have a continuing impact on the Company. The unaudited pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1, 2021.

 

The unaudited pro forma combined revenue and net loss for the three months ended March 31, 2021 would have been $16.4 million and $1.1 million, respectively.

Note 5. Fair Value Measurements

In October 2018, upon the acquisition of certain technology, referred to as HunchLab, from Azavea, Inc., the Company recognized a contingent consideration liability classified within Level III of the fair value hierarchy because some of the inputs used in its measurement were neither directly nor indirectly observable. In February 2021, based on the relevant revenues earned during the three-year contingent consideration period, the Company paid $0.4 million, resulting in a reduction of the contingent consideration liability.

In November 2020, using a Monte Carlo Simulation approach, the Company estimated the fair value of the contingent consideration at the acquisition date of LEEDS to be $0.2 million. During the fourth quarter of fiscal 2021, the fair value of the contingent consideration was increased by $1.3 million based upon estimated 2022 revenue targets, representing an adjustment to the most likely outcome expected for the liability. There have been no changes in the assumptions or fair value of the LEEDS contingent consideration liability during the three months ended March 31, 2022.

 

In January 2022, using a Monte Carlo Simulation approach, the Company estimated the fair value of the contingent consideration liability classified within Level III of the fair value hierarchy at the acquisition of Forensic Logic to be $12.4 million.

The changes in the fair value of contingent consideration liability for the three months ended March 31, 2022 and 2021 are as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Beginning balance

 

$

1,500

 

 

$

573

 

Payment of contingent consideration liability

 

 

 

 

 

(403

)

Change in fair value of contingent consideration

 

 

 

 

 

 

Contingent consideration - Forensic Logic ( Note 4 - Business Acquisitions)

 

 

12,400

 

 

 

 

Ending balance

 

$

13,900

 

 

$

170

 

 

There were no transfers into or out of Level III during the three months ended March 31, 2022 and 2021. As of March 31, 2022, contingent consideration of $6.7 million is included in Accrued expenses and other current liabilities in the condensed consolidated balance sheet as it is forecasted that the achievement of milestones will occur within the next 12 months, and $7.2 million is included in Other liabilities in the condensed consolidated balance sheet.

10


 

Note 6. Goodwill

The change in goodwill is as follows (in thousands):

 

 

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Beginning balance

$

2,816

 

 

$

2,811

 

Acquisition of Forensic Logic (see Note 4—Business Acquisitions)

 

20,355

 

 

 

 

Change during the period

 

 

 

 

5

 

Ending balance

$

23,171

 

 

$

2,816

 

 

 

 

 

 

 

 

Note 7. Intangible Assets, net

 

Intangible assets consist of the following (in thousands):

 

 

March 31, 2022

 

 

Gross

 

 

Accumulated Amortization

 

 

Net

 

Customer relationships

$