What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-10 compared with 2023-05-04 · 111 added, 96 removed, 162 unchanged (56% of the section changed)

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the success of our land mobile radio product line;

successful introduction of new products and technologies, including our ability to successfully develop and sell our anticipated new multiband product and other related products in the planned new BKR Series product line and our announced SaaS solution;

competition in the land mobile radio industry;

general economic and business conditions, including federal, state and local government budget deficits and spending limitations, any impact from a prolonged shutdown of the U.S.

Government, and the ongoing effects of the COVID-19 pandemic, inflation, supply-chain constraints, ongoing geopolitical conflicts and related sanctions;

Government, and the ongoing effects of inflation, rising interest rates, bank failures, supply-chain constraints, ongoing geopolitical conflicts and related sanctions;

the availability, terms and deployment of capital;

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our ability to identify potential candidates and consummate acquisition, disposition or investment transactions, and risks incumbent to being a noncontrolling interest stockholder in a corporation;

the impact of general business conditions, including those resulting from the COVID-19 pandemic, inflation, ongoing geopolitical conflicts and related sanctions, on the companies in which we hold investments;

the impact of general business conditions, including those resulting from inflation, rising interest rates, bank failures, ongoing geopolitical conflicts and related sanctions, on the companies in which we hold investments;

impact of our capital allocation strategy;

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our business with manufacturers located in other countries, including changes in the U.S.

Government and foreign governments’ trade and tariff policies, as well as any further impact resulting from the COVID-19 pandemic, inflation, ongoing geopolitical conflicts and related sanctions;

Government and foreign governments’ trade and tariff policies, as well as any further impact resulting from inflation, rising interest rates, bank failures, ongoing geopolitical conflicts and related sanctions;

our inventory and debt levels;

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fluctuation in our operating results and stock price;

acts of war or terrorism, natural disasters and other catastrophic events, such as the COVID-19 pandemic;

acts of war or terrorism, natural disasters, public health crises, and other catastrophic events;

any infringement claims;

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the effect on our stock price and ability to raise equity capital through future sales of shares of our common stock.

Some of these factors and risks have been, and may further be, exacerbated by the COVID-19 pandemic and general economic conditions, including the ongoing military conflict in Ukraine, such as inflationary pressures and disruptions in the global supply chain.

Some of these factors and risks have been, and may further be, exacerbated by general economic conditions, including the ongoing military conflict in Ukraine, such as inflationary pressures and disruptions in the global supply chain.

We assume no obligation to publicly update or revise any forward-looking statements made in this report, whether as a result of new information, future events, changes in assumptions or otherwise, after the date of this report.

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Supply chain constraints limited our ability to manufacture the quantities needed to ship and fulfill all the orders during 2022.

Consequently, approximately 13,000 radio units were carried in backlog as of December 31, 2022, and we fulfilled approximately 66% of these radio units during the first quarter of 2023.

Our backlog of unshipped customer orders was approximately $22.9 million and $27.0 million as of March 31, 2023, and December 31, 2022, respectively.

Consequently, approximately 13,000 radio units were carried in backlog as of December 31, 2022, and we fulfilled approximately 76% of these radio units during the first half of 2023.

Our backlog of unshipped customer orders was approximately $24.0 million and $27.0 million as of June 30, 2023, and December 31, 2022, respectively.

Changes in the backlog are attributed primarily to the timing of orders and their fulfillment.

For the three months ended March 31, 2023, sales grew approximately 184.3% to approximately $18.7 million, compared with $6.6 million for the prior year period.

For the three months ended June 30, 2023, sales grew approximately 56.9% to approximately $19.0 million, compared with $12.1 million for the prior year period.

The growth was attributed primarily to the BKR 5000 product and the fulfillment of the 2022 backlog described above.

Gross profit margins as a percentage of sales for the three months ended March 31, 2023, were 26.1%, compared with 22.4% for the same period of the prior year, generally reflecting improvement in material, component and freight costs.

Selling, general and administrative (“SG&A”) expenses for the three months ended March 31, 2023, totaled approximately $5.9 million (31.4% of sales), compared with $4.9 million (74.7% of sales) last year.

We recognized an operating loss for the three months ended March 31, 2023, of approximately $1.0 million, compared with an operating loss of approximately $3.4 million for the same period for the prior year.

For the three months ended March 31, 2023, we recognized other expenses, net totaling approximately $0.3 million, primarily attributed to interest expense on our Line of Credit and net unrealized losses from our investment in FG Financial Group, Inc.

Gross profit margins as a percentage of sales for the three months ended June 30, 2023, were 27.4%, compared with 14.2% for the prior year, generally reflecting higher production volumes and improvement in material, component and freight costs.

Selling, general and administrative (“SG&A”) expenses for the three months ended June 30, 2023, totaled approximately $6.0 million (31.5% of sales), compared with $5.4 million (44.6% of sales) last year.

We recognized an operating loss for the three months ended June 30, 2023, of approximately $0.8 million, compared with an operating loss of approximately $3.7 million for the same period for the prior year.

For the three months ended June 30, 2023, we recognized other expenses, net totaling approximately $0.6 million, primarily attributed to net unrealized losses from our investment in FG Financial Holdings, LLC.

and interest expense on our Line of Credit.

This compares with other expenses, net totaling $0.7 million for the same period last year, which was also primarily related to an unrealized loss from the investment in FG Financial Group, Inc.

For the three months ended March 31, 2023, the pretax loss totaled approximately $1.3 million, compared with pretax loss of approximately $3.9 million for same period of the prior year.

We recognized no tax expense for the three months ended March 31, 2023, and for the same period of the prior year.

The net loss for the three months ended March 31, 2023, totaled approximately $1.3 million ($0.07 per basic and diluted share), compared with net loss of approximately $3.9 million ($0.23 per basic and diluted share) for the same period last year.

The primary factor for the improvement for the three months ended March 31, 2023, compared to the same period last year was due to production issues experienced last year related to electronic component shortages from supply chain disruptions.

As of March 31, 2023, working capital totaled approximately $12.5 million, of which $13.6 million was comprised of cash, cash equivalents and trade receivables.

For the three months ended June 30, 2023, the pretax loss totaled approximately $1.3 million, compared with pretax loss of approximately $4.3 million for same period of the prior year.

For the six months ended June 30, 2023, the pretax loss totaled approximately $2.6 million, compared with pretax loss of approximately $8.3 million for same period of the prior year.

We recognized no tax expense for the three and six-month periods ended June 30, 2023, and for the same period of the prior year.

The net loss for the three months ended June 30, 2023, totaled approximately $1.3 million ($0.39 per basic and diluted share), compared with net loss of approximately $4.3 million ($1.28 per basic and diluted share) for the same period last year.

The primary factors for the improvement for the three months ended June 30, 2023, compared to the same period last year, were higher production volumes and lower raw material and freight costs related to electronic component shortages from supply chain disruptions.

The net loss for the six months ended June 30, 2023, totaled approximately $2.6 million ($0.77 per basic and diluted share), compared with net loss of approximately $8.3 million ($2.45 per basic and diluted share) for the six-month period last year.

The primary factors for the improvement for the six-months ended June 30, 2023, compared to the same period last year were higher production volumes and lower raw material and freight costs related to electronic component shortages from supply chain disruptions.

As of June 30, 2023, working capital totaled approximately $12.4 million, of which $11.9 million was comprised of cash, cash equivalents and trade receivables.

This compares with working capital totaling approximately $13.2 million at 2022 year-end, which included $12.5 million of cash, cash equivalents and trade receivables.

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All reports that the Company files with or furnishes to the SEC are also available free of charge via the SEC’s website at http://www.sec.gov.

Impact of COVID-19 Pandemic and Supply Chain

We received record customer orders of approximately $70 million in 2022.

Worldwide shortages of materials, particularly semiconductors and integrated circuits, resulting in part from the impact of COVID-19 have resulted in limited supplies, extended lead times, and increased our costs and inventory levels for certain components used in our products.

While, generally, we have been able to procure the material necessary to manufacture our products and fulfill customer orders in 2022, we have experienced some delays and longer delivery times within our supply chain.

While the progression and duration of these shortages is not known with certainty, they may last for several quarters or years.

The impact on our operations of such shortages, or additional shortages that may surface, is uncertain, but could potentially impact our future sales, manufacturing operations and financial results.

Continued progression of these circumstances could result in a decline in customer orders, as our customers could shift purchases to lower-priced or other perceived value offerings or reduce their purchases and inventories due to decreased budgets, reduced access to credit or various other factors, and impair our ability to manufacture our products, which could have a material adverse impact on our results of operations and cash flow.

While the current impacts of COVID-19 are reflected in our results of operations, we cannot at this time separate the direct COVID-19 impacts from other factors that cause our performance to vary from quarter to quarter.

The ultimate duration and impact of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows is dependent on future developments, including the duration and severity of the pandemic, and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time.

Our results of operations in future periods may continue to be adversely impacted by the COVID-19 pandemic and its negative effects on global economic conditions.

Second Quarter and Six Months Summary

We may experience fluctuations in our quarterly results, in part, due to governmental customer spending patterns that are influenced by government fiscal year-end budgets and appropriations.

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Such increases in sales may cause quarterly variances in our cash flow from operations and overall financial condition.

First Quarter Summary

Customer demand and orders for our products continued to be strong during the three months ended March 31, 2023.

Supply chain constraints limited our ability to manufacture the quantities needed to ship and fulfill all of the orders that we received in 2022.

Consequently, we had approximately 13,000 radio units that were carried in backlog as of December 31, 2022, and we fulfilled approximately 66% of these radio units during the three months ended March 31, 2023.

Overall, our revenues for the three months ended March 31, 2023, increased significantly compared with the same period of last year.

For the first quarter 2023, sales increased 184.3% to approximately $18.7 million, compared with approximately $6.6 million of sales for the first quarter last year.

Gross profit margin as a percentage of sales for the first quarter of 2023 was approximately 26.1%, compared with 22.4% for the same period of last year, generally reflecting improvements in supply chain material costs and freight, and increased production volumes compared to the first quarter last year.

Selling, general and administrative (“SG&A”) expenses for the first quarter of 2023 totaled approximately $5.9 million, which was 19.7% higher than the SG&A expenses of approximately $4.9 million for the first quarter last year.

The increase in SG&A expenses is attributed primarily to sales staffing and strategic and marketing initiatives.

These factors yielded an operating loss of approximately $1.0 million for the three-month period ended March 31, 2023, compared with an operating loss of approximately $3.4 million for the same quarter last year, which improved primarily due to reduced supply chain material challenges compared to the same period last year.

For the first quarter of 2023, we recognized a net unrealized loss totaling approximately $0.1 million on our investment in FG Financial Group, Inc.

made through FG Holdings, LLC.

We received record customer orders of approximately $70 million in 2022.

Customer demand and orders for our products continued to be strong during the three months ended June 30, 2023.

While, generally, we have been able to procure the material necessary to manufacture our products and fulfill customer orders, we have experienced some delays and longer delivery times within our supply chain in the year ended December 31, 2022.

The impact on our operations of such shortages, or additional shortages that may surface, is uncertain, but could potentially impact our future sales, manufacturing operations and financial results.

These supply chain constraints and material shortages limited our ability to manufacture the quantities needed to ship and fulfill all of the orders that we received in 2022.

Consequently, we had approximately 13,000 radio units that were carried in backlog as of December 31, 2022, and we fulfilled approximately 76% of these radio units during the six-months ended June 30, 2023.

Overall, our revenues for the three months ended June 30, 2023, increased compared with the same period of last year.

For the second quarter 2023, sales increased 56.9% to approximately $19.0 million, compared with approximately $12.1 million of sales for the second quarter last year.

The improvement in sales for the six-months ended June 30, 2023, increased 101.7% compared to the same six-month period last year.

Gross profit margin as a percentage of sales for the second quarter of 2023 was approximately 27.4%, compared with 14.2% for the same period of last year, generally reflecting improvements in increased production volumes and improvements in supply chain material costs and freight compared to the second quarter last year.

Gross profit margin as a percentage of sales for the six months ended June 30, 2023, was approximately 26.8%, compared with 17.1% for the same period of last year, generally reflecting improvements in supply chain material and freight costs and increased production volumes.

Selling, general and administrative (“SG&A”) expenses for the second quarter of 2023 totaled approximately $6.0 million, which was 10.8% higher than the SG&A expenses of approximately $5.4 million for the second quarter last year, while SG&A expenses for the six-month period ended June 30, 2023, increased 15.0% compared to the same period last year.

The increase in SG&A expenses is attributed primarily to sales and engineering costs related to the BKR 9000 product introduction.

These factors yielded an operating loss of approximately $0.8 million for the three-month period ended June 30, 2023, compared with an operating loss of approximately $3.7 million for the same quarter last year, which improved primarily due to higher production volumes and reduced supply chain material challenges compared to the same period last year.

For the second quarter of 2023, we recognized a net unrealized loss totaling approximately $0.4 million on our investment in FG Financial Holdings, LLC., or “FG Holding”.

This compares with an unrealized loss of approximately $0.6 million on the investment in FG Financial Group, Inc.

made through FG 1347 Holdings, LP, for the first quarter of last year.

Net loss for the three months ended March 31, 2023, was approximately $1.3 million ($0.07 per basic and diluted share), compared with a net loss of approximately $3.9 million ($0.23 per basic and diluted share) for the same quarter last year.

As of March 31, 2023, working capital totaled approximately $12.5 million, of which approximately $13.6 million was comprised of cash, cash equivalents and trade receivables.

made through FG 1347 Holdings, LP, for the second quarter of last year.

For the six months ended June 30, 2023, we recognized a net unrealized loss totaling approximately $0.5 million on our investment in FG Financial Holdings, LLC.

compared with an unrealized loss of approximately $1.1 million on the investment in FG Financial Group, Inc.

made through FG 1347 Holdings, LP, for last year’s six-month period.

Net loss for the three months ended June 30, 2023, was approximately $1.3 million ($0.39 per basic and diluted share), compared with a net loss of approximately $4.3 million ($1.28 per basic and diluted share) for the same quarter last year.

For the six months ended June 30, 2023, our net loss totaled approximately $2.6 million ($0.77 per basic and diluted share), compared with a net loss of approximately $8.3 million ($2.45 per basic and diluted share) for the same period last year.

As of June 30, 2023, working capital totaled approximately $12.4 million, of which approximately $11.9 million was comprised of cash, cash equivalents and trade receivables.

As of December 31, 2022, working capital totaled approximately $13.2 million, of which approximately $12.5 million was comprised of cash, cash equivalents and trade receivables.

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Three Months Ended

March 31, 2022

Percentage of Sales

Six Months Ended

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

Cost of products

Selling, general and administrative expenses

Other (expense) income

(Loss) income before income taxes

Other income (expense)

Loss before income taxes

Income tax (expense) benefit

Net (loss) income

For the first quarter ended March 31, 2023, net sales increased 184.3% to approximately $18.7 million, compared with approximately $6.6 million for the same quarter last year.

For the second quarter ended June 30, 2023, net sales increased 56.9% to approximately $19.0 million, compared with approximately $12.1 million for the same quarter last year.

Sales for the six months ended June 30, 2023, totaled approximately $37.7 million, compared with approximately $18.7 million for the six-month period last year.

Customer demand and orders for our products continued to be strong, reflecting the acceptance by the marketplace for our BKR 5000 product.

We were able to fulfill approximately 66% of the radio units in backlog as of December 31, 2022, during the first quarter of this year.

We were able to fulfill approximately 76% of the radio units in backlog as of December 31, 2022, during the first six months of this year.

The supply chain issues experienced in 2022 have improved significantly, but the precise impact on sales and shipments for the remainder of 2023 cannot be quantified, hence we anticipate maintaining an elevated level of inventory.

Sales for the three months ended March 31, 2023, were attributed primarily to the backlog carried over from 2022 (described above) to certain state and local public safety opportunities, as well as federal wildland fire related agencies.

From a product perspective, the primary contributor to orders and shipments during the first quarter was our BKR 5000 portable radio and related accessories.

The BKR Series is envisioned as a comprehensive line of new products, which will include new models in coming quarters.

Sales for the second quarter ended June 30, 2023, were attributed primarily to certain state and local public safety opportunities, as well as federal wildland fire related agencies.

From a product perspective, the primary contributor to orders and shipments during the second quarter was our BKR 5000 portable radio and related accessories.

The BKR Series is envisioned as a comprehensive line of new products, which includes new models such as the BKR 9000, which achieved FCC P25 compliance testing and its first sales in the second quarter.

The timing of developing additional BKR Series products and bringing them to market could be impacted by various factors, including potential impacts on our supply chain as a result of various electronic component suppliers.

BKR Series products, we believe, should increase our addressable market by expanding the number of federal and other public safety customers that may purchase our products.

We believe that the BKR Series products should increase our addressable market by expanding the number of federal and other public safety customers that may purchase our products.

However, the timing and size of orders from agencies at all levels can be unpredictable and subject to budgets, priorities, and other factors.

Accordingly, we cannot assure that sales will occur under particular contracts, or that our sales prospects will otherwise be realized.

While the potential impacts of material shortages, lead-times, the COVID-19 pandemic, the current inflationary environment and ongoing geopolitical conflict and related sanctions in coming months and quarters remain uncertain, such effects have the potential to adversely impact our customers and our supply chain.

While the potential impacts of material shortages, lead-times, the current inflationary environment and ongoing geopolitical conflict and related sanctions in coming months and quarters remain uncertain, such effects have the potential to adversely impact our customers and our supply chain.

Such negative effects on our customers and suppliers could adversely affect our future sales, gross profit margins, operations, and financial results.

Cost of Products and Gross Profit Margin

Gross profit margins as a percentage of sales for the first quarter ended March 31, 2023, were approximately 26.1% compared with 22.4% for the same quarter last year.

Gross profit margins as a percentage of sales for the second quarter ended June 30, 2023, were approximately 27.4% compared with 14.2% for the same quarter last year.

For the six-month period ended June 30, 2023, gross profit margins were approximately 26.8%, compared with 17.1% for the same period last year.

Our cost of products and gross profit margins are primarily derived from material, labor and overhead costs, product mix, manufacturing volumes and pricing.

Gross profit margins for the quarter ended March 31, 2023, increased compared with the same period last year, primarily due to improvement in production volumes related to supply shortages, material costs, including electronic components, and to a lesser degree, easing of escalated freight costs.

During recent quarters, worldwide shortages of materials, including semiconductors and integrated circuits, have resulted in limited supplies, which in turn, extended lead times and resulted in higher costs for certain components used in our products.

Accordingly, we have experienced delivery delays and increased costs within our supply chain.

While the progression and duration of these shortages is not known with certainty, we are monitoring a number of critical components for product cost improvement, but the shortages may last for several quarters for a small number of components.

The impact on our operations of such shortages and increased product costs is uncertain, but could potentially impact our future sales, gross profit margins, manufacturing, operations and financial results.

Gross profit margins for the quarter ended June 30, 2023, increased compared with the same period last year, primarily due to improvement in production volumes related to supply shortages, material costs, including electronic components, and to a lesser degree, easing of escalated freight costs.

During the year ended December 31, 2022, worldwide shortages of materials, including semiconductors and integrated circuits resulted in limited supplies, which in turn, extended lead times and resulted in higher costs for certain components used in our products.

Accordingly, we experienced delivery delays and increased costs within our supply chain.

While the progression and duration of these shortages is not known with certainty, we monitored a number of critical components for product cost improvement and have experienced improvement to pre-pandemic levels.

We utilize a combination of internal manufacturing capabilities and contract manufacturing relationships for production efficiencies and to manage material and labor costs.

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SG&A expenses consist of marketing, sales, commissions, engineering, product development, management information systems, accounting, headquarters, and non-cash share-based employee compensation expenses.

SG&A expenses for the first quarter ended March 31, 2023, totaled approximately $5.9 million (31.4% of sales), compared with approximately $4.9 million (74.7% of sales) for the same quarter last year.

Engineering and product development expenses for the first quarter of 2023 totaled approximately $2.4 million (12.9% of sales), compared with approximately $2.3 million (35.1% of sales) for the same quarter of last year.

The increase in engineering expenses is attributed primarily to ongoing product design and development activities, particularly prototyping, for the new BKR series radios.

SG&A expenses for the second quarter ended June 30, 2023, totaled approximately $6.0 million (31.5% of sales), compared with approximately $5.4 million (44.6% of sales) for the same quarter last year.

For the six months ended June 30, 2023, SG&A expenses increased by $1.6 million, or 15.0%, to approximately $11.9 million (31.5% of sales), compared with approximately $10.3 million (55.2% of sales), for the six-month period last year.

Engineering and product development expenses for the second quarter of 2023 totaled approximately $2.6 million (13.7% of sales), compared with approximately $2.3 million (12.1% of sales) for the same quarter of last year.

For the six months ended June 30, 2023, engineering and product development expenses totaled approximately $5.0 million (13.3% of sales), compared with approximately $4.6 million (24.6% of sales) for the six month period last year.

The increase in engineering expenses is attributed primarily to ongoing product design and development activities, particularly for the new BKR 9000 series radio introduced during the second quarter 2023.

Most of these activities are being performed by our internal engineering team and are their primary focus, combined with sustaining engineering support of our existing products.

The precise date for developing and introducing new products is uncertain and can be impacted by, among other things, supply chain shortages and certain component lead times in coming months and quarters.

Marketing and selling expenses for the first quarter of 2023 totaled approximately $1.5 million (8.2% of sales), compared with approximately $1.0 million (14.8% of sales) for the first quarter last year.

The increase for the three-month period ended March 31, 2023, is primarily attributable to increases in activities in support of anticipated sales growth from new products and customers.

Other general and administrative expenses for the first quarter 2023 totaled approximately $1.9 million (10.3% of sales), compared with approximately $1.6 million (24.8% of sales) for the same quarter last year.

The increase in general and administrative expenses for the three months ending March 31, 2023, is attributed primarily to corporate and headquarters staffing in support of strategic initiatives.

Marketing and selling expenses for the second quarter of 2023 totaled approximately $1.5 million (8.0% of sales), compared with approximately $1.1 million (5.8% of sales) for the second quarter last year.

For the six months ended June 30, 2023, marketing and selling expenses increased approximately $1.0 million, or 47.5%, to approximately $3.1 million (8.1% of sales), compared with approximately $2.1 million (11.1% of sales) for the same period last year.

The increases for the quarter and six month period ended June 30, 2023, primarily reflect increases in staffing, travel and go-to-market activities in support of anticipated sales growth from new products and customers.

Other general and administrative expenses for the second quarter 2023 totaled approximately $1.9 million (9.8% of sales), compared with approximately $2.0 million (10.5% of sales) for the same quarter last year.

For the six months ended June 30, 2023, general and administrative expenses totaled approximately $3.8 million (10.1% of sales), compared with approximately $3.6 million (19.4% of sales) for the six month period last year.

The increase in general and administrative expenses for the quarter and six months ended June 30, 2023, is attributed primarily to corporate and headquarters staffing in support of strategic initiatives.

Operating Loss

The operating loss for the first quarter ended March 31, 2023, totaled approximately $1.0 million (5.3% of sales), compared with approximately $3.4 million (52.3% of sales) for last year’s first quarter.

The operating loss for the quarter ended March 31, 2023, is attributed to lower gross profit margins related to operating costs and somewhat to increased strategic initiative costs.

The operating loss for the second quarter ended June 30, 2023, totaled approximately $0.8 million (4.1% of sales), compared with approximately $3.7 million (30.4% of sales) for last year’s second quarter.

For the six months ended June 30, 2023, our operating loss totaled approximately $1.8 million (4.7% of sales), compared with approximately $7.1 million (38.1% of sales) for the six month period last year.

The operating loss for the quarter and six months ended June 30, 2023, is somewhat attributed to lower than historical gross profit margins related to operating costs and increased product introduction and strategic initiative costs.

Other (Expense) Income

We recorded net interest expense of approximately $144,000 for the first quarter ended March 31, 2023, compared with approximately $15,000 for the first quarter of last year.

We recorded net interest expense of approximately $155,000 for the second quarter ended June 30, 2023, compared with approximately $24,000 for the second quarter of last year.

For the six months ended June 30, 2023, net interest expense totaled approximately $298,000, compared with net interest expense of approximately $39,000 for the six month period last year.

Net interest expense was primarily the result our Line of Credit and equipment financing.

For the first quarter ended March 31, 2023, we recognized an unrealized loss of approximately $0.1 million on our investment in FG Holdings, compared with an unrealized loss of approximately $0.5 million in FG Financial Group, Inc.

made through FG 1347 Holdings, LP for the first quarter last year.

We recorded no tax expense or benefit for the quarter ended March 31, 2023, compared with no income tax provision for the first quarter last year.

For the second quarter ended June 30, 2023, we recognized an unrealized loss of approximately $0.4 million on our investment in FG Holdings, compared with an unrealized loss of approximately $0.6 million in FG Financial Group, Inc.

made through FG 1347 Holdings, LP for the second quarter last year.

For the six months ended June 30, 2023, we recognized an unrealized loss of approximately $0.5 million on our investment compared with an unrealized loss of approximately $1.1 million for the same period last year.

We recorded no tax expense or benefit for the quarter and six months ended June 30, 2023, compared with no income tax provision for the second quarter and six month period last year.

Our income tax provision is based on management’s estimate of the effective tax rate for the full year.

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As a result, we may experience significant fluctuations in the effective book tax rate (that is, tax expense divided by pre-tax book income) from period to period.

As of March 31, 2023, our net deferred tax assets totaled approximately $4.1 million, and were primarily derived from research and development tax credits, operating loss carryforwards and deferred revenue.

As of June 30, 2023, our net deferred tax assets totaled approximately $4.1 million, and were primarily derived from research and development tax credits, operating loss carryforwards and deferred revenue.

In order to fully utilize the net deferred tax assets, we will need to generate sufficient taxable income in future years.

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Based on our analysis of all available evidence, both positive and negative, we have concluded that we do not have the ability to generate sufficient taxable income in the necessary period to utilize the entire benefit for the deferred tax assets.

Accordingly, we established a valuation allowance of $3.4 million as of both March 31, 2023 and December 31, 2022.

Accordingly, we established a valuation allowance of $4.1 million as of both June 30, 2023, and December 31, 2022.

We cannot presently estimate what, if any, changes to the valuation of our deferred tax assets may be deemed appropriate in the future.

If we incur future losses, it may be necessary to record additional valuation allowance related to the deferred tax assets recognized as of March 31, 2023.

If we incur future losses, it may be necessary to record additional valuation allowance related to the deferred tax assets recognized as of June 30, 2023.

Liquidity and Capital Resources

For the three months ended March 31, 2023, net cash provided by operating activities totaled approximately $0.6 million, compared with cash used by operating activities of approximately $3.3 million for the same period last year.

Cash provided by operating activities for the three months ended March 31, 2023, was primarily related to a net loss which was offset by increased accounts payable and deferred revenues.

For the first quarter of 2023, we had a net loss of approximately $1.3 million, compared with a net loss of approximately $3.9 million for the same quarter last year.

Gross inventories increased during the quarter ended March 31, 2023, by approximately $0.6 million compared with approximately $4.2 million for the same quarter last year.

Accounts payable for the quarter ended March 31, 2023, increased approximately $1.2 million, compared with an increase of approximately $1.4 million for last year’s first quarter, primarily due to increased material and component purchases related to the increased production volumes for 2023 and to delays and shortages within our supply chain for the same period of 2022.

The increases for both inventories and accounts payable were attributed primarily to material and component availability combined with extended supplier lead times and planned new product introductions.

Accounts receivable increased approximately $0.2 million during the first quarter ended March 31, 2023, compared with a decrease of approximately $3.5 million for last year’s first quarter.

The increase was primarily due to higher sales in 2023 and customer collections combined with decreased sales during the first quarter of 2022.

Prepaid expenses decreased during the first quarter by approximately $0.2 million compared with an increase of $0.9 million for last year’s first quarter.

The increases in prepaid expenses for the first quarter last year were attributed primarily to supply chain material availability combined with extended supplier lead times.

Depreciation and amortization totaled approximately $0.4 million for the first quarter ended March 31, 2023, compared with approximately $0.3 million for last year’s first quarter.

For the six months ended June 30, 2023, net cash provided by operating activities totaled approximately $1.5 million, compared with cash used by operating activities of approximately $5.3 million for the same period last year.

Cash provided by operating activities for the six months ended June 30, 2023, was primarily related to a reduction in accounts receivable and an increase in deferred revenues, which was partially offset by decrease in accounts payable.

Cash used in operating activities for the six months ended June 30, 2022, was primarily related to a net loss and increased inventory, which were partially offset by increased accounts payable, a decrease in accounts receivable and an unrealized loss in marketable securities.

For the first six months of 2023, we had a net loss of approximately $2.6 million, compared with a net loss of approximately $8.3 million for the same period last year.

Accounts receivable decreased approximately $1.4 million during the six months ended June 30, 2023, compared with a decrease of approximately $1.7 million for the same period last year.

Accounts payable for the quarter ended June 30, 2023, decreased approximately $0.3 million, compared with an increase of approximately $3.9 million for the first six months last year, primarily due to delays and shortages within our supply chain for the same period of 2022.

Gross inventories increased during the six months ended June 30, 2023, by approximately $0.7 million compared with approximately $5.6 million for the same period last year.

The increases for both inventories and accounts payable during the first six months of 2022 were attributed primarily to material and component availability combined with extended supplier lead times.

Prepaid expenses decreased during the first six months of 2023 by approximately $0.3 million compared with a decrease of $0.4 million for the same period last year.

Depreciation and amortization totaled approximately $0.8 million for the six months ended June 30, 2023, compared with approximately $0.7 million for the same period last year.

Depreciation and amortization are primarily related to manufacturing and engineering equipment.

The unrealized loss on securities for the first quarter ended March 31, 2023, totaled approximately $0.1 million, compared with an unrealized loss of approximately $0.5 million for the first quarter last year.

For additional information pertaining to our investment in securities, refer to Note 1 (Condensed Consolidated Financial Statements) and Note 6 (Investments) to the condensed consolidated financial statements included in this report.

Cash used in investing activities for the quarter ended March 31, 2023, totaled approximately $0.6 million, compared with approximately $0.3 million for last year’s first quarter.

The unrealized loss on investments for the six months ended June 30, 2023, totaled approximately $0.5 million, compared with an unrealized loss of approximately $1.1 million for the same period last year.

For additional information pertaining to our investments, refer to Note 1 (Condensed Consolidated Financial Statements) and Note 6 (Investments) to the condensed consolidated financial statements included in this report.

Cash used in investing activities for the six months ended June 30, 2023, totaled approximately $0.9 million, compared with approximately $0.7 million for the same period last year.

The cash used for both periods was attributed primarily to the purchase of engineering and manufacturing related equipment.

For the quarter ended March 31, 2023, cash of approximately $0.9 million was provided by financing activities, compared with cash used in financing activities of approximately $0.6 million for last year’s first quarter.

During the first quarter of 2023 we received cash of approximately $20.8 million from debt, net of repayments totaling approximately $19.9 million, while for last year’s first quarter, we paid a quarterly dividend of approximately $0.5 million and repayment of debt of $0.1 million.

Our cash and cash equivalents balance on March 31, 2023, was approximately $2.8 million.

We believe these funds, combined with anticipated cash generated from operations and borrowing availability under our ISPA Agreement, are sufficient to meet our working capital requirements for the foreseeable future.

For the six months ended June 30, 2023, cash of approximately $0.1 million was provided by financing activities, compared with cash provided by financing activities of approximately $1.3 million for the same period last year.

During the first six months of 2023, we received cash of approximately $40.7 million from debt, net of repayments totaling approximately $40.6 million, while for the same period last year, we received proceeds of approximately $2.5 million from our revolving credit facility and notes payable partially offset by loan and revolving credit facility repayments of approximately $0.1 million and paid quarterly dividends of approximately $1.0 million.

Our cash and cash equivalents balance on June 30, 2023, was approximately $2.7 million.

We believe these funds, combined with anticipated cash generated from operations and borrowing availability under the IPSA, are sufficient to meet our working capital requirements for the foreseeable future.

We may, depending on a variety of factors, including market conditions for capital raises, the trading price of our common stock and opportunities for uses of any proceeds, engage in public or private offerings of equity or debt securities to increase our capital resources.

However, financial and economic conditions, which could be impacted by the current inflationary environment, COVID-19 pandemic and current geopolitical tension, could limit our access to credit and impair our ability to raise capital, if needed, on acceptable terms or at all.

However, financial and economic conditions, which could be impacted by the current inflationary environment and current geopolitical tension, could limit our access to credit and impair our ability to raise capital, if needed, on acceptable terms or at all.

Critical Accounting Policies

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These estimates and assumptions, if incorrect, could adversely impact our operations and financial position.

There were no changes to our critical accounting policies during the three months ended March 31, 2023.

There were no changes to our critical accounting policies during the three months ended June 30, 2023.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis