What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-05-13 compared with 2020-11-16 · 85 added, 109 removed, 129 unchanged (60% of the section changed)

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We have achieved this through strategic technological acquisitions as well as by internal product development.

During the first quarter of 2020 , we announced two new additions to our COLLABORATE Versa family of products.

COLLABORATE® Versa Room CT, provides all the equipment and accessories needed for exceptional room cloud-based conferencing.

At the heart of the system, is the USB audio-enabled Beamforming Mic Array Ceiling Tile (BMA CTH).

Thanks to its onboard processing, the BMA CTH performs acoustic echo cancellation, noise cancellation, and beam selection, so no external DSP mixer is required.

The array’s adaptive steering (think of it as smart switching) provides impeccable room coverage.

The Versa Room CT brings cost-effective professional conferencing audio to small and mid-sized meeting rooms.

COLLABORATE Versa Lite CT is a USB audio enabled BMA CTH room solution.

This solution dramatically enhances the audio experience for any cloud-collaboration application such as COLLABORATE Space, Zoom™, Microsoft® Teams, and Webex™, without the need for a DSP mixer.

The system can be easily and quickly configured using ClearOne’s CONSOLE® AI Lite software with Audio Intelligence™ and Auto Connect™.

A laptop or a desktop PC can be connected to the BMA CTH directly through the USB port on the USB Expander to share room audio.

The included 50 -foot CAT 6 cable connects the USB Expander to the BMA CTH.

During the first quarter of 2021, we announced two new powerful cameras that enhance the ease and visual quality of online collaboration beyond the capabilities of integrated laptop and PC cameras.

With the new ClearOne UNITE® 10, the company’s most affordable camera ever, and the feature-rich ClearOne UNITE 50 4K AF that includes Auto-Framing technology for automatic single- or multi-person capture, everyone can take on the new year with the confidence provided by stunning video that puts them in the best possible light.

We recognized that millions of people were expected to use video collaboration tools, for the first time, and the rapid societal shift to home-based and remote work left a lot of people desiring higher quality video solutions to ensure they make a good impression and enjoy reliable, clear and efficient communication.

For users who want to upgrade from the basic camera included in their laptop or PC, ClearOne has lowered the barrier of entry with its most affordable webcam ever, the UNITE 10.

The small, powerful webcam supports up to 1080p video quality and offers autofocus.

The UNITE 10 can capture five-megapixel images with a field of view up to 87 degrees, while major competitors at this price point only achieve 78-degree field of view.

The UNITE 10 attaches any PC or laptop with a simple mounting bracket, and a 1.5m USB-A cable ensures simple connection to most modern computers.

The UNITE 10 is also available to dealers and distributors in 20 packs for commercial sale.

The new UNITE 50 4K AF camera is a major upgrade over traditional webcams and introduces ClearOne’s new Auto-Framing technology that automatically frames meeting participants to maximize screen use through intelligent image algorithms and ePTZ automation (electronic pan, tilt and zoom).

With 4K video quality at 30 Hz, auto-focus capability, 4x digital zoom, more than 8 megapixels of total resolution and an ultra-wide 110-degree field of view, the UNITE 50 4K AF ePTZ is equally capable of delivering incredible image quality from a home office as it is at capturing all participants in an office boardroom.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

During February 2020, we announced a new Touch-Panel Controller, a highly intuitive 10 -inch touch-screen device, designed for ClearOne’s CONVERGE® Pro 2 audio DSP mixers as well as COLLABORATE Live video conferencing room systems.

The camera can be controlled through an IR remote, further simplifying use and enabling real-time control of pan, tilt and zoom to provide greater control when capturing multi-person meeting environments.

A standard damping mount ensures fast, easy installation, while an included USB 3.0 cable provides both power and video.

Both new ClearOne cameras enable life-like video quality to web-based conferencing applications including ClearOne’s COLLABORATE® Space, WebEx™, Google Meet, Zoom™, GoToMeeting™, and Microsoft® Teams.

During February 2021, we expanded the applications for our BMA 360 Beamforming Microphone Array Ceiling Tile with the addition of a new Voice Lift feature that allows its impeccable audio to be locally amplified and heard throughout classrooms, lecture halls, and large meeting rooms.

announced a new Touch-Panel Controller, a highly intuitive 10 -inch touch-screen device, designed for ClearOne’s CONVERGE® Pro 2 audio DSP mixers as well as COLLABORATE Live video conferencing room systems.

Paired with CONVERGE Pro 2 DSP mixers, users can make and receive PSTN and/or VoIP conference calls, and multiparty calls with the easy-to-use on-screen dial pad.

When paired with COLLABORATE Live, users can make and receive video calls as well as manage content sharing options.

COLLABORATE Space, our powerful cloud-based collaboration solution, added two new valuable features - webinar hosting and Web RTC.

COLLABORATE Space Pro and Enterprise meeting plans can be upgraded to include the new Webinar feature allowing session hosts to conduct video and audio presentations for up to 1000 participants.

The new Web RTC feature works with all popular browsers including Microsoft Edge, Google Chrome, Safari and Mozilla Firefox.

The new Web RTC feature enables users to easily join full-featured COLLABORATE Space audio and video meetings using a browser with no downloads or plug-ins required.

Users can accept meeting, webinar, and classroom invitations and join with a single click;

easily sharing and viewing content within a browser window.

COLLABORATE Space also added a feature where Microsoft Teams users can now enjoy a richer collaboration than that available within the Teams environment today.

This richer collaboration experience includes better video quality, support for multiple cameras, support for multiple displays, and a persistent meeting space where chats, audio and video recordings, documents, meeting minutes, whiteboard sessions, and more can be shared in private or public channels for later access.

Users can easily initiate a Space video meeting or join an existing Space video meeting within the MS Teams environment.

During April 2020, we introduced UNITE 20 Pro Webcam, which easily mounts on a PC or laptop to provide full 1080 p 30 image with an ultra wide-angle field-of-view up to 120 °.

A super-high signal-to-noise ratio and advanced 2 D and 3 D noise reduction provides superior desktop camera video quality.

During July 2020, we were awarded a significant new patent relating to beamforming microphone array technology by the US Patent and Trademark Office.

ClearOne’s innovative new patent, US Patent No.

10,728,653 (the “’653 Patent”), describes a ceiling tile microphone that includes beamforming, acoustic echo cancellation, and adaptive acoustic processing that automatically adjusts to a room configuration.

There is no language in the claims of the new patent limiting its scope to flush-mounted ceiling tile beamforming microphone arrays, as opposed to non-flush mounted ceiling tile beamforming microphone arrays.

The ’653 Patent is a member of a family of patents and applications that includes US Patent No.

That patent family includes issued patents and patent applications that cover ceiling tile and wall tile embodiments of beamforming microphone arrays, as well as augmentation of beamforming microphone arrays with non-beamforming microphones.

During the first nine months of 2020 , we continued our efforts, primarily through litigation, to stop the infringement of our strategic patents.

ClearOne’s powerful breakthrough technologies, FiBeam™ and DsBeam™, already found on the BMA 360, enable exceptional new levels of Voice Lift performance.

FiBeam technology makes the BMA 360 the world’s first truly wideband, frequency-invariant beamforming mic array that provides the ultimate in natural and full-fidelity sound.

DsBeam provides unparalleled sidelobe depth below -40 dB, resulting in superior rejection of reverb and noise and providing superb clarity and intelligibility.

With the addition of the new Voice Lift feature, the BMA 360 offers everything desired in a beamforming microphone array ceiling tile—superior beamformed audio, echo cancellation, noise cancellation, auto-mixing, power amplifiers, and camera-tracking functions.

The ClearOne architecture offers easy setup and configuration for foolproof installation which benefits AV practitioners.

End-users also benefit from the BMA 360’s reduced overall system cost for maximum return on investment.

Each BMA 360 can have up to four Voice Lift zones to provide a simple and intuitive way to drive multiple speaker groups, allowing everyone to easily hear and be heard.

Built-in 4 channel power amplifiers make wiring simple, convenient, and provide a large cost savings.

ClearOne’s innovative combination of built-in power amplifiers and mix-minus zones makes the Voice Lift feature extremely simple to create and deploy.

The BMA 360, now with Voice Lift, sets another industry standard for exceptional mic pickup distance and system gain.

During the first three months of 2021 , we continued our efforts, primarily through litigation, to stop the infringement of our strategic patents.

We also continued our programs to cut costs and to speed up product development that we believe will enable us to get back to a growth path.

Overall revenue increased by 40 % in the third quarter of 2020 when compared to the third quarter of 2019 , primarily due to an increase in revenue from video products, microphones and personal audio conferencing products offset partially by a decrease in revenue from our professional audio products.

Despite the negative impact of COVID- 19 and the infringement of our patents by Shure on all professional installed products our new solutions incorporating Beamforming Microphone Array Ceiling Tile ("BMA-CT") resulted in overall Beamforming Microphone Array ("BMA") revenue continued to be significantly higher than last year.

However, revenue from BMA products as well as from our pro audio products are far below the levels prior to infringement of our patents.

Our revenue performance reflects an impact of the on-going harm of infringement of ClearOne’s patents despite the preliminary injunction granted against Shure as we believe Shure continues to infringe our patents and violates the preliminary injunction.

Overall revenue increased by 23 % in the first quarter of 2021 when compared to the first quarter of 2020 , primarily due to an increase in revenue from all major product categories with video products generating the highest revenue growth.

Video products continue to enjoy high revenue growth primarily due to significant demand from work from home and learn from home market.

Despite the negative impact of COVID- 19 and the infringement of our patents by Shure on all professional installed products, our new solutions incorporating Beamforming Microphone Array Ceiling Tile ("BMA-CT") continued to result in overall Beamforming Microphone Array ("BMA") revenue to be significantly higher than last year.

However, revenue from BMA products as well as from our pro audio products are still far below the levels prior to infringement of our patents.

Our revenue is negatively impacted due to on-going harm of infringement of ClearOne’s patents despite the preliminary injunction granted against Shure as we believe Shure continues to infringe our patents and violates the preliminary injunction.

The patent infringement also has negatively impacted directly the revenue from ClearOne’s other products not related to the infringed patents not withstanding a significant growth in revenue from video products this quarter.

Our gross profit margin decreased to 41.8 % during the third quarter of 2020 from 42.3 % during the third quarter of 2019 .

Net loss decreased from $ 2.0 million in the third quarter of 2019 to $ 1.3 million in the third quarter of 2020 .

The decrease was mainly due to increase in gross margin through higher revenue and reduction in operating costs.

During the first nine months ended September 30, 2020 our revenues increased by 10 % when compared to the nine months ended September 30, 2019 .

The increase in revenues were largely due to increase in revenue from video products partially offset by declines in revenue from microphones and audio conferencing products.

Our gross profit margin increased to 43.8 % during the first nine months of 2020 from 43.7 % during the same nine months of 2019 .

Net loss decreased from $ 6.4 million in the first nine months of 2019 to $ 5.0 million in the first nine months of 2020 .

The decrease was mainly due to reduction in operating costs and increased gross margin.

Our gross profit margin decreased to 42.7 % during the first quarter of 2021 from 49.5 % during the first quarter of 2020 .

Net loss decreased from $ 1.8 million in the first quarter of 2020 to $ 1.7 million in the first quarter of 2021 .

The decrease was mainly due to reduction in operating costs and increase in absolute gross profit dollars through higher revenue.

We believe the decision by the U.S.

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However, we are not getting the full benefits of the Court’s extraordinary remedy in the form of the preliminary injunction granted against Shure with respect to infringement of our ’ 806 Patent as we believe that Shure is still infringing ClearOne’s patent.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

On September 1, 2020, the U.S.

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ClearOne’s motion to accuse Shure’s MXA910-US of infringing the ’806 Patent is still pending with the Court.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Industry conditions

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Despite our strong leadership position in the installed professional audio conferencing market, we face challenges to revenue growth due to the limited size of the market and pricing pressures from new competitors attracted to the commercial market due to higher margins.

Revenue from our video products are critical to our long-term growth due to significantly larger available market space for video products.

We face intense competition in this market from well-established market leaders, emerging players rich with marketing funds and information technology giants offering free products and services.

We expect our strategy of combining COLLABOATE Space, our cloud-based video conferencing product with COLLABORATE Live, our appliance-based media collaboration product, UNITE, our high-quality professional cameras, and our high-end audio conferencing technology will generate high growth in the near future.

We believe we are also well positioned with our COLLABORATE Versa solutions incorporated with BMA-CT to capitalize on the acceleration of replacing large meeting rooms with huddle rooms.

Our video products and beamforming microphone arrays, especially BMA-CT and the newly introduced BMA 360 are critical to our long term growth.

We face intense competition in this market from well-established market leaders as well as emerging players rich with marketing funds.

We expect our strategy of combining curated audio solutions with our high quality professional cameras, and our high-end audio conferencing technology will generate high growth in the near future.

We derive a major portion of our revenue (approximately 38% for the year ended December 31, 2020 ) from international operations and expect this trend to continue in the future.

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Dollar denominated prices of our products less competitive.

I n December 2019, a novel strain of coronavirus (“COVID- 19 ”) was first reported in Wuhan, China.

The COVID- 19 pandemic has continued to spread and has already caused severe global disruptions.

The extent of COVID- 19 ’s effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic, all of which are uncertain and difficult to predict considering the rapidly evolving landscape.

If the pandemic continues to evolve into a severe worldwide health crisis, the disease could have a material adverse effect on our business, results of operations, financial condition and cash flows and adversely impact the trading price of our common stock.

During the third quarter of 2020, we saw an increase in revenue in U.S.A.

that we believe a portion of which was attributable to government stimulus programs relating to COVID-19 and a utilization of our products by a growing remote workforce.

Given the uncertainty of the COVID-19 pandemic, the company does not believe these results were indicative of any trend, and there remains great uncertainty and unpredictability in how the COVID-19 pandemic and government responses to it will continue to impact our business.

In December 2019, a novel strain of coronavirus (“COVID-19”) started spreading from China and was declared a pandemic.

The COVID-19 pandemic caused severe global disruptions and had varying impact on our business.

The installed audio conferencing market was negatively impacted due to lockdowns, postponement of projects and restrictions on installers to visit commercial sites.

On the other hand, COVID-19 generated higher than normal demand for our video products and personal conferencing products due to the significant expansion of work-from-home market.

The extent of COVID-19’s effect on our operational and financial performance will depend on future developments, including the vaccination rate, effectiveness of vaccines especially on novel strains of COVID-19, government regulations, etc., all of which are uncertain and difficult to predict considering the rapidly evolving landscape.

If the pandemic continues to be a severe worldwide health crisis, the disease could have a material adverse effect on our business, results of operations, financial condition and cash flows and adversely impact the trading price of our common stock.

Deferred Revenue

Deferred revenue remained almost the same at $ 0.16 million at September 30, 2020 compared to $ 0.17 million at December 31, 2019 .

Deferred revenue decreased to $ 78 thousand at March 31, 2021 compared to $ 123 thousand at December 31, 2020 .

A detailed discussion of our results of operations follows below.

Results of Operations for the three and nine months ended September 30, 2020

The following table sets forth certain items from our unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2020 (“ 2020 - Q 3 ”) (" 2020 -YTD") and 2019 (" 2019 - Q 3 ") (" 2019 -YTD") , respectively, together with the percentage of total revenue which each such item represents:

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Three months ended September 30,

Nine months ended September 30,

Results of Operations for the three months ended March 31, 2021

The following table sets forth certain items from our unaudited condensed consolidated statements of operations for the three months ended March 31, 2021 (“ 2021 - Q1 ”) and 2020 (" 2020 - Q1 "), respectively, together with the percentage of total revenue which each such item represents:

Three months ended March 31,

(dollars in thousands)

Percentage Change 2020

Percentage Change 2021 vs 2020

Cost of goods sold

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Operating loss

Other income (expense), net

Interest expense net of other income

Loss before income taxes

Provision for income taxes

Our revenue increased to $8.4 million in 2020 -Q 3 compared to $6.0 million in 2019 -Q 3 primarily due to a 263% increase in video products revenue and 11% increase in microphones revenue partially offset by 5% decline in audio conferencing products revenue.

Audio Conferencing category as a whole declined despite significant increase in revenues from personal conferencing products.

Microphones growth continued to be led by our new solutions incorporating BMA-CT.

During the third quarter of 2020 , revenues from North America and Europe and Africa increased by 92% and 27%, respectively, while revenues from Asia Pacific, including the Middle East declined by 41%.

Overall USA, Canada and parts of Europe registered impressive growths, while the Middle East and Japan saw significant declines.

During the nine months ended September 30, 2020 our revenues increased from $ 18.7 million to $ 20.5 million to compared to the same period in 2019 due to an increase in video products by 59%, partially offset by decline in other product categories, namely audio conferencing by 4% and microphones category by 1%.

Even though m icrophones category declined in revenue our BMA products led by new solutions incorporating BMA-CT had significant growth compared to nine months ended September 2019.

During the nine months ended September 30, 2020 revenues in Americas increased by 29% compared to the same period in 2019 .

Revenues in the Asia Pacific, including the Middle East declined by 28% and the revenues in Europe and Africa increased by 13%.

We believe, although there can be no assurance, that we will return to a growth path if we are able to successfully implement our strategic initiatives focused on product innovation, cost reduction and defense of our intellectual property.

Our revenue increased to $ 7.0 million in 2021 -Q1 compared to $ 5.7 million in 2020 -Q1 primarily due to a 130% increase in video products revenue, followed by a 10% increase in microphones revenue and a 2% increase in audio conferencing products revenue.

Video products continue to enjoy successes primarily due to growth in demand from work from home and learn from home markets.

Audio Conferencing category as a whole increased mainly due to a strong revenue performance of our professional mixers despite decreases in other product groups within audio conferencing category.

Microphones growth continued to be led by our new solutions incorporating BMA-CT and BMA 360 even though our traditional ceiling mics suffered a revenue decline.

During the first quarter of 2021 , all major region groups enjoyed revenue growth.

Revenues from North America, Europe and Africa and Asia Pacific, including the Middle East increased by 5%, 57% and 33%, respectively.

Korea, Japan, the Middle East, South Asia, parts of Southern Europe and Latin America registered impressive revenue growth, while Canada and China saw revenue declines.

USA registered modest growth.

We believe, although there can be no assurance, that we can sustain our revenue growth and return to generating operating profits through our strategic initiatives namely product innovation, cost reduction and defense of our intellectual property.

Costs of Goods Sold and Gross Profit

Cost of goods sold includes expenses associated with finished goods purchased from outsourced manufacturers, the repackaging of our products, our manufacturing and operations organization, property and equipment depreciation, warranty expense, freight expense, royalty payments, and the allocation of overhead expens es.

Our gross profit margin remained fairly consistent at 41.8 % during 2020 - Q3 compared to 42.3 % during 2019 - Q3 .

Our gross profit margin declined from 49.5 % during 2020 - Q1 to 42.7 % during 2021 - Q1 .

The gross profit margin was negatively impacted due to increase in share of lower margin products in the revenue mix, increased freight and tariff costs and increased inventory obsolescence costs, partially offset by a decrease in overhead costs as a percentage of revenue.

Our gr oss profit margin remained fairly consistent at 43.8 % during 2020 -YTD from 43.7 % during 2019 -YTD.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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We hold long-term inventory and if we are unable to sell our long-term inventory, our profitability might be affected by inventory write-offs and price mark-downs.

Our long-term inventory includes approximately $ 1.3 million of wireless microphone-related finished goods and assemblies, $ 1.6 million of Converge Pro and Beamforming microphone array products, $ 0.4 million of network media streaming products and about $ 2.2 million of raw materials that will be used for manufacturing professional audio conferencing products.

Our long-term inventory includes approximately $ 0.8 million of wireless microphone-related finished goods and assemblies, $ 0.8 million of Converge Pro and Beamforming microphone array products, $ 0.3 million of network media streaming products, $0.4 million of tabletop conferencing products and about $ 1.7 million of raw materials that will be used primarily for manufacturing professional audio conferencing products.

Any business changes that are adverse to these product lines could potentially impact our ability to sell our long-term inventory in addition to our current inventory.

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Total operating expenses were $ 4.5 million for 2021 - Q1 compared to $ 4.6 million for 2020 - Q1 .

Total operating expenses were $ 13.7 million for 2020 - YTD compared to $ 14.8 million for 2019 - YTD .

The following contains a more detailed discussion of expenses related to sales and marketing, research and product development, general and administrative, and other items.

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S&M expenses for 2021 - Q1 decreased to $ 1.6 million from $ 1.7 million for 2020 - Q1 .

The decrease was mainly due to decreases in trade-show related expenses, demonstration inventory costs and employee t ravel related expenses partially offset by an increase in sales commissions.

S&M expenses for 2020 - YTD decreased to $ 4.9 million from $ 6.1 million for 2019 - YTD .

The decrease was mainly due to decreases in trade-show related expenses, demonstration inventory costs and employee travel related expenses partially offset by an increase in sales commissions.

The decrease was mainly due to decreases in trade-show related expenses, and employee t ravel related expenses partially offset by an increase in sales commissions.

Research and Product Development - R&D expenses include research and development, product line management, engineering services, and test and application expenses, including employee-related costs, outside services, expensed materials, depreciation, and an allocation of overhead expenses.

R&D expenses were approximately $ 1.5 million for 2020 - Q3 , as compared to $ 1.4 million for 2019 - Q3 .

The increase was primarily due to increases in legal costs related to intellectual property .

R&D expenses remained consistent with approximately $ 4.3 million for 2020 - YTD , and 2019 - YTD .

R&D expenses remained almost the same at $ 1.3 million for both quarters compared.

General and Administrative - G&A expenses include employee-related costs, professional service fees, allocations of overhead expenses, litigation costs, and corporate administrative costs, including costs related to financing and human resources.

G&A expenses increased slightly from $ 1.5 million in 2020 - Q1 to $ 1.7 million in 2021 - Q1 .

The increase was primarily due to increases in legal expenses and depreciation and amortization expenses.

G&A expenses increased slightly from $ 4.3 million in 2019 - YTD to $ 4.5 million in 2020 - YTD .

The increase was primarily due to increases in legal expenses and depreciation and amortization expenses partially offset by decline in audit and accounting fees.

The increase was primarily due to increases in depreciation and amortization expenses.

Other income (expense), net

Other income (expense), net includes interest income and foreign currency changes.

Other income remained immaterial during the third quarter of 2020 and 2019 as well as during 2020-YTD and 2019 - YTD.

Interest expense in the third quarter of 2020 was $108 thousand compared to no interest expense in the third quarter of 2019 .

Most of the interest expense was incurred due to issuance of senior convertibles notes with a face value of $ 3.0 million in December 2019.

Interest Expense in 2020 -YTD was $325 thousand compared to no interest expense in 2019 -YTD.

Most of the interest expense was incurred due to issuance of senior convertibles notes with a face value of $ 3.0 million in December 2019.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Other income remained immaterial during the first quarter of 2021 and 2020 .

Interest expense remained almost the same at $0.1 million for both periods compared.

Provision for income taxes

During 2020 - YTD , we did not recognize any benefit from the losses incurred due to setting up of full valuation allowance.

Provision for income taxes recognized for 2020 - Q3 and 2020 - YTD relates to foreign jurisdictions .

During the first quarters of 2021 and 2020 , we did not recognize any benefit from the losses incurred due to setting up of full valuation allowance.

Provision for income taxes recognized in the first quarter of 2021 relates to foreign jurisdictions .

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2020 , our cash and cash equivalents were approximately $ 5.6 million compared to $ 4.1 million as of December 31, 2019 .

Our working capital was $ 15.6 million and $ 18.9 million as of September 30, 2020 and December 31, 2019 , respectively.

Net cash used by opera ting activities was approximately $ 0.3 million in 2020 - YTD , a decrease of cash used of approximately $ 6.3 million from $ 6.6 million of cash used in operating activities in 2019 - YTD .

The increase in cash inflow was due to positive change in operating assets and liabilities of $4.4 million, increase in non-cash charges by $0.5 million and a decrease in net loss by $1.4 million.

Net cash used in investing activities was $ 4.4 million for 2020 - YTD compared to net cash used in investing activities of $ 2.6 million during the 2019 - YTD , an increase in cash used of $ 1.8 million.

The increase in cash used in investing activities was primarily due to an increase in capitalized patent defense costs by $2.4 million partially offset by a decrease in net cash outflows from marketable securities of approximately $ 0.6 million

As of March 31, 2021 , our cash and cash equivalents were approximately $ 2.0 million compared to $ 3.8 million as of December 31, 2020 .

Our working capital was $ 19.5 million and $ 22.2 million as of March 31, 2021 and December 31, 2020 , respectively.

Net cash used by opera ting activities was approximately $ 13 thousand in 2021 - Q1 , a decrease of cash provided of approximately $ 544 thousand from $ 531 thousand of cash provided by operating activities in 2020 - Q1 .

The decrease in cash inflow was due to a negative change in operating assets and liabilities of $1,034 thousand, partially offset by an increase in non-cash charges by $298 thousand and a decrease in net loss by $192 thousand.

Net cash used in investing activities was almost the same at $ 1.7 million for 2021 - Q1 and 2021-Q1.

Net cash used in financing activities was in 2021-Q1 was $86 thousand compared to cash provided of $3 thousand in 2020-Q1.

The decrease in cash flow of $89 thousand is due to repayment of principal amounts due on senior convertible notes.

Capitalization of patent defense costs .

We capitalize external legal costs incurred in the defense of our patents when we believe that a significant, discernible increase in value will result from the defense and a successful outcome of the legal action is probable.

When we capitalize patent defense costs we amortize the costs over the remaining estimated useful life of the patent, which is 15 to 17 years.

During 2020 - YTD we spent $5.6 million on legal costs related to the defense of our patents and capitalized the entire amount.

When we capitalize patent defense costs we amortize the costs over the remaining estimated useful life of the patents,which is 15 to 17 years.

During 2021 - Q1 we spent $1.7 million on legal costs related to the defense of our patents and capitalized the entire amount.

We are currently pursuing all available legal remedies to defend our strategic patents from infringement.

We have already spent approximately $19.2 million from 2016 through September 30, 2020 towards this litigation and may be required to spend more to continue our legal defense.

We have already spent approximately $22.0 million from 2016 through March 31, 2021 towards this litigation and may be required to spend more to continue our legal defense.

We believe the decision by the U.S.

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We also believe that the measures taken by us will yield higher revenues in the future.

We believe, although there can be no assurance, that all of these measures and effective management of working capital will provide the liquidity needed to meet our operating needs through at least through November 16, 2021.

We also believe that our strong portfolio of intellectual property and our solid brand equity in the market will enable us to raise additional capital if and when needed to meet our short and long-term financing needs;

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If we need additional capital and are unable to secure financing, we may be required to further reduce expenses, delay product development and enhancement, or revise our strategy regarding ongoing litigation.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

At September 30, 2020 , we had open purchase orders of approximately $ 3.8 million mostly for purchase of inventory.

At September 30, 2020 , we had inventory totaling $ 14.1 million, of which non-current inventory accounted for $ 6.3 million.

At March 31, 2021 , we had open purchase orders of approximately $4.5 million mostly for purchase of inventory.

At March 31, 2021 , we had inventory totaling $ 13.9 million, of which non-current inventory accounted for $ 4.1 million.

This compares to total inventories of $ 15.1 million and non-current inventory of $ 4.6 million as of December 31, 2020 .

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Contractual Obligations and Commitments

The following table summarizes our contractual obligations as of September 30, 2020 (in millions):

The following table summarizes our contractual obligations as of March 31, 2021 (in millions):

Payment Due by Period

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our results of operations and financial position are based upon our unaudited consolidated financial statements included under Item 1 of this Form 10-Q, which have been prepared in conformity with accounting principles generally accepted in the United States.

Our discussion and analysis of our results of operations and financial position are based upon our unaudited condensed consolidated financial statements included under Item 1 of this Form 10-Q, which have been prepared in conformity with accounting principles generally accepted in the United States.

We review the accounting policies used in reporting our financial results on a regular basis.

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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