What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-12 compared with 2022-05-19 · 92 added, 63 removed, 154 unchanged (50% of the section changed)

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One of only seven winners in this prestigious award program, the DIALOG 10 USB is the industry’s only pro-quality single-channel wireless microphone system with USB connectivity for webcasting and cloud-based collaboration such as Microsoft Teams, Zoom, WebEx, and GotoMeeting.

DIALOG 10 USB won its second award in May 2022 by winning the 2022 Top New Technology (TNT) Award in the Microphone category.

In June 2022, at Infocomm 2022 in Las Vegas, Nevada, DIALOG 10 USB won two additional awards - Commercial Integrator 2022 BEST Award in the Microphones category and 2022 Sound & Video Contractor Magazine Infocomm Best in Market Award.

During January, at the Las Vegas Customer Electronics Show, CES 2022, the world’s most influential annual tech event, our home office Aura™ Xceed™ BMA was singled out for exceptional innovation with a CES Picks Award, presented by Residential Systems magazine.

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

During the first three months of 2022, we continued our efforts, primarily through litigation, to stop the infringement of our strategic patents.

In early March 2022, we were awarded a new patent titled “Conferencing Apparatus”, that describes, among other things, a beamforming microphone array with acoustic echo cancellation and a set of configurable fixed beams.

The patent goes on to describe performing a direction of arrival determination, and in response to that determination, selecting one or more of those fixed beams for audio transmission.

In early April 2022, a ClearOne patent issued titled “Ceiling Tile Microphone,” that claims, among other things, a ceiling tile beamforming microphone that is powered through Power over Ethernet (PoE).

Later in the same month another ClearOne patent was granted, also titled “Ceiling Tile Microphone,” that claims, among other things, a ceiling tile microphone that includes beamforming, acoustic echo cancellation, and auto voice tracking.

In May 2022, for the sixth time since its groundbreaking debut in 2020, the ClearOne BMA 360 microphone has been recognized by the world’s most discerning AV buyers with the prestigious Best in Market Award at ISE 2022.

The microphone was one of only three winners in this year’s award program.

The Best in Market Award program is presented by leading industry publication Sound & Video Contractor at Integrated Systems Europe (ISE), the world’s largest AV and systems integration show.

The program recognizes the most innovative technology within the AV industry, and the judges include respected AV and IT managers, directors, engineers, industry consultants and integrators.

During the first six months of 2022, we continued our efforts, primarily through litigation, to stop the infringement of our strategic patents.

We believe the decision by the U.S.

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10,728,653 (the “’653 Patent”).

The ’653 Patent covers aspects of ClearOne’s revolutionary innovations in BMAs and relates to “a ceiling tile combined with [a] beamforming microphone array” that includes acoustic echo cancellation and “adaptive acoustic processing that automatically adjusts to a room configuration.” Shortly after the ’653 patent was issued in mid-2020, Shure initiated the case in yet another attempt to disrupt ClearOne’s patent rights, but the PTAB rejected each and every one of Shure’s seven challenges and is the latest in a long string of defeats for Shure.

In 2019, the U.S.

District Court for the Northern District of Illinois preliminarily enjoined Shure from infringing a different ClearOne patent, U.S.

9,813,806, and then in 2020 held Shure in contempt of that injunction in case no.

In November 2021, a jury in a different court, the U.S.

District Court for the District of Delaware, found a Shure design patent asserted against ClearOne to be invalid and not infringed.

The ’653 Patent covers aspects of ClearOne’s revolutionary innovations in BMAs and relates to “a ceiling tile combined with [a] beamforming microphone array” that includes acoustic echo cancellation and “adaptive acoustic processing that automatically adjusts to a room configuration.” Shortly after the ’653 patent was issued in mid-2020, Shure initiated the case in yet another attempt to disrupt ClearOne’s patent rights, but the PTAB rejected each and every one of Shure’s seven challenges resulting in the latest in a long string of defeats for Shure.

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

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 7% in the first quarter of 2022 when compared to the first quarter of 2021, primarily due to a significant increase in revenues from microphones followed by an increase in revenues from audio conferencing products and partially offset by a decrease in revenues from video 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") 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 certain of 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.

Our revenue performance in 2022-Q1 was also impacted negatively due to the raw material supply shortages that have affected the global manufacturing of high tech products as well as due to logistics bottlenecks.

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.

Overall revenue decreased by 5% in the second quarter of 2022 when compared to the second quarter of 2021, primarily due to a significant decrease in revenues from video products and a further decrease in revenues from microphones, which were partially offset by an increase in revenues from audio conferencing products.

Overall revenue increased by 1% during the first six months of 2022 when compared to revenue in the first six months of 2021 due to increases in revenues from audio conferencing products and microphones, which were partially offset by a decrease in revenues from video products.

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.

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The patent infringement also has negatively impacted directly the revenue from ClearOne’s other products not related to the infringed patents.

Our gross profit margin decreased to 37.3% during the first quarter of 2022 from 42.7% during the first quarter of 2021.

Net loss increased from $1.7 million in the first quarter of 2021 to $2.0 million in the first quarter of 2022 .

The increase in net loss was mainly due to (a) decrease in absolute gross profit dollars as a result of reduced gross margin, and (b) increased amortization costs relating to our capitalized patent defense costs.

Our revenue performance in 2022-Q2 and the first six months of 2022 was also impacted negatively due to increased costs associated with the electronic raw material supply shortages that have affected the global manufacturing of high tech products.

We expect these supply shortages and associated increased costs to continue through at least the end of 2022.

Our gross profit margin decreased to 38.1% during the second quarter of 2022 from 44.3% during the second quarter of 2021.

Our gross profit margin decreased to 37.7% during the first six months of 2022 compared to 43.5% during the first six months of 2021.

Net loss decreased from $1.6 million in the second quarter of 2021 to $0.3 million in the second quarter of 2022 .

Our net loss decreased from $3.2 million in the first half of 2021 to $2.2 million in the first half of 2022.

The decrease in net loss was mainly due to the recognition of $1.5 million in gain from the forgiveness of CARES Act Paycheck Protection Program Loan, which was partially offset by (a) decrease in absolute gross profit dollars as a result of reduced gross margin, and (b) increased amortization costs relating to our capitalized patent defense costs.

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

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Our competitors vary within each product category.

Our installed professional audio conferencing products, which is our flagship product category, continue to be ahead of the competition despite the reduction in revenues.

Our strength in this space is largely due to our fully integrated suite of products consisting of DSP mixers, wide range of professional microphone products and video collaboration products.

Our installed professional audio conferencing products, which are our flagship product category, continue to be ahead of the competition despite the reduction in revenues.

Our strength in this space is largely due to our fully integrated suite of products consisting of DSP mixers, a wide range of professional microphone products and video collaboration products.

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.

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

Our video products and beamforming microphone arrays, especially the 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.

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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 keeps evolving and depends on multiple factors including the severity and infectiousness of current and future virus strains, 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.

Supply chain disruptions resulting from COVID-19 have caused significant fluctuations in our costs of goods resulting in a reduction of our gross margins in 2021 and in the first quarter of 2022.

We expect for these fluctuations to continue in 2022.

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.

The installed audio conferencing market was negatively impacted due to lockdowns, postponement of projects and restrictions on the ability of 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 the work-from-home market.

The extent of COVID-19’s effect on our operational and financial performance keeps evolving and depends on multiple factors including the severity and infectiousness of current and future virus strains, the 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.

Supply chain disruptions primarily resulting from COVID-19 have caused significant fluctuations in our costs of goods resulting in a reduction of our gross margins in the first half of 2022.

We expect these fluctuations to continue through at least the end of 2022.

If the global economy’s recovery from the pandemic continues to experience supply chain disruptions, it 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 Product Revenue

Deferred product revenue decreased to $46 thousand on March 31, 2022 compared to $54 thousand on December 31, 2021.

Deferred product revenue decreased to $43 thousand on June 30, 2022 compared to $54 thousand on December 31, 2021.

A detailed discussion of our results of operations follows below.

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

Results of Operations for the three months ended March 31, 2022

The following table sets forth certain items from our unaudited condensed consolidated statements of operations for the three months ended March 31, 2022 (“ 2022 - Q1 ”) and 2021 (" 2021 - Q1 ") , respectively, together with the percentage of total revenue which each such item represents:

Three months ended March 31,

Results of Operations for the three and six months ended June 30, 2022

The following table sets forth certain items from our unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2022 (“ 2022 - Q2 ”) ("2022-H1") and 2021 (" 2021 - Q2 ") ("2021-H1") , respectively, together with the percentage of total revenue which each such item represents:

Three months ended June 30,

Six months ended June 30,

(dollars in thousands)

Change Favorable (Adverse) in %

Cost of goods sold

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Operating loss

Interest expense net of other income

Other income (expense), net

Loss before income taxes

Provision for income taxes

Our revenue increased to $7.5 million in 2022-Q1 compared to $7.0 million in 2021-Q1 primarily due to a 23% increase in microphones and a 13% increase in audio conferencing products partially offset by a 22% decrease in video products.

Microphones growth continued to be led by our new solutions incorporating BMA-CT and BMA 360 while our traditional ceiling mics also enjoyed a significant revenue increase.

Audio Conferencing category as a whole increased mainly due to a strong revenue performance of our professional mixers and personal audio conferencing products.

Our revenue decreased to $7.4 million in 2022-Q2 compared to $7.7 million in 2021-Q2 primarily due to a 31% decline in video products and a 3% decline in microphones, which were partially offset by a 6% increase in audio conferencing.

Despite the overall decline in m icrophones, our BMA-CT and BMA 360 solutions continue to exhibit growth while our traditional ceiling mics suffered significant revenue decrease.

Audio Conferencing category as a whole increased mainly due to a significantly strong revenue performance of our professional mixers.

Video products suffered declines in 2022-Q2 compared to 2021-Q2 due to lack of demand for video products.

During the first quarter of 2022, revenues from Americas increased by 6% primarily due to increased revenues from USA despite significant revenue decreases from Latin America and Canada, while revenues from Asia Pacific, including the Middle East, India and Australia decreased by 6% primarily due to overall decrease in revenues from all regions except India and China, and revenues from Europe and Africa increased by 33% primarily due to significant revenue increases from all parts of Europe except central Europe.

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.

During the second quarter of 2022, revenues from Americas declined by 13% primarily due to decreased revenues from USA despite revenue increases from Latin America and Canada, while revenues from Asia Pacific, including the Middle East, India and Australia increased by a significant 37% primarily due to overall increase in revenues from India, the Middle East and Japan, and revenues from Europe and Africa decreased by 25% primarily due to significant revenue decrease from Southern Europe.

During the six months ended June 30, 2022 our revenues increased from $14.8 million to $14.9 million compared to same period in 2021 due to revenues from microphones increasing by 9%, video products decreasing by 26% and audio conferencing increasing by 9%.

The increase in revenue from microphones continued to be led by our BMA-CT and BMA 360 solutions.

Audio Conferencing category as a whole increased mainly due to a strong revenue performance by our professional mixers.

During 2022-H1 Americas declined by 3%, Asia Pacific, including the Middle East and India increased by 13% and Europe and Africa declined by 5%.

India, the Middle East and Northern Europe led in revenue growth while USA, China and Southern Europe suffered major revenue decreases.

We believe, although there can be no assurance, that we can 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

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Our gross profit margin decreased from 44.3% during 2021-Q2 to 38.1 % during 2022 -Q2 .

The gross profit margin was negatively impacted due to increase in material costs due to continuing supply chain constraints, and increased freight and tariff costs, which were partially offset by the absence of inventory obsolescence costs in 2022-Q1.

The gross profit margin was negatively impacted due to increase in material costs due to continuing supply chain constraints, which was partially offset by reduced freight and tariff costs and a decrease in inventory obsolescence costs in 2022-Q2.

Our gross profit margin decreased from 43.5% during 2021-H1 to 37.7% during 2022-H1.

The gross profit margin decreased primarily due to increase in material costs due to continuing supply chain constraints, which was partially offset by reduced freight and tariff costs and a decrease in inventory obsolescence costs in 2022-H1 .

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 $0.6 million of wireless microphone-related finished goods and assemblies, $0.3 million of Converge Pro and Beamforming microphone array products, $0.1 million of network media streaming products, $0.6 million of video products, and about $1.7 million of raw materials that will be used primarily for manufacturing professional audio conferencing products.

Our long-term inventory includes approximately $0.5 million of wireless microphone-related finished goods and assemblies, $0.3 million of Converge Pro and Beamforming microphone array products, $0.7 million of video products, and $1.4 million of raw materials that will be used primarily for manufacturing professional audio conferencing products and BMA microphones.

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 in 2022-Q2 compared to $4.9 million in 2021-Q2.

Total operating expenses were $9.1 million for 2022-H1 compared to $9.4 million for 2021-H1.

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

Sales and Marketing - S&M expenses include selling, customer service, and marketing expenses such as employee-related costs, allocations of overhead expenses, trade shows, and other advertising and selling expenses.

S&M expenses in 2022-Q1 remained almost unchanged at $1.6 million when compared to 2021-Q1.

The decrease in employment expenses and consultant expenses due to a reduction in the headcount were offset by an increase in employee travel and benefits expenses and increase in advertising expenses.

S&M expenses in 2022-Q2 decreased to $1.6 million from $1.8 million for 2021-Q2.

The decreases in employment expenses and consultant expenses due to a reduction in the headcount were offset by an increase in trade-show related expenses.

S&M expenses for 2022-H1 decreased to $3.1 million from $3.3 million for 2021-H1.

The decreases in employment expenses and consultant expenses due to a reduction in the headcount were offset by increases in trade-show related expenses and advertising .

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 increased marginally to $1.4 million in 2022-Q1 compared to $1.3 million for 2021-Q1.

The increase was primarily due to increases in R&D project expenses, legal expenses, and employee benefits, which were partially offset by reduction in employment expenses due to reduction in the headcount.

R&D expenses decreased to $1.2 million in 2022-Q2 compared to $1.5 million for 2021-Q2.

The decrease was primarily due to reduction in employment expenses due to reduction in the headcount.

R&D expenses decreased to $2.5 million in 2022-H1, from $2.8 million in 2021-H1.

The decrease in employment expenses due to reduction in the headcount was partially offset by increase in project-related expenses.

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 finance and human resources teams.

G&A expenses increased marginally from $1.7 million in 2021-Q1 to $1.8 million in 2022- Q1 .

The increase was primarily due to increased amortization costs relating to our capitalized patent defense costs, which were partially offset by a reduction in legal expenses and consulting expenses.

G&A expenses remained the same at $1.7 million in 2021-Q2 and 2022- Q2 .

The increase in amortization costs relating to our capitalized patent defense costs were partially offset by a reduction in legal expenses and consulting expenses.

G&A expenses increased from $3.3 million in 2021-H1 to $3.5 million in 2022-H1.

The increases in amortization costs relating to our capitalized patent defense costs and insurance costs were partially offset by decreases in legal expenses and consulting expenses .

Other income (expense), net

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

Other income remained immaterial during the first quarter of 2022 and 2021.

Other income in 2022-Q2 and 2022-H1 includes $1.5 million recognized on the gain arising from the CARES Act Paycheck Protection Program loan forgiveness.

Other items remained immaterial during the second quarter of 2022 and 2021.

I nterest expense almost remained unchanged at $0.1 million in 2022-Q2 when compared to 2021-Q2.

Interest expense remained consistent at $0.2 million in 2022 - H1 and 2021-H1 .

Provision for income taxes

During the first quarters of 2022 and 2021, we did not recognize any benefit from the losses incurred due to setting up of a full valuation allowance.

Provision for income taxes recognized in the first quarter of 2022 relates to foreign jurisdictions .

During the six months ended of 2022 and 2021, we did not recognize any benefit from the losses incurred due to setting up of a full valuation allowance.

Provision for income taxes recognized for 2022-Q2 and 2022-H1 primarily relates to foreign jurisdictions .

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

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2022, our cash and cash equivalents were approximately $1.4 million compared to $1.1 million as of December 31, 2021.

Our working capital was $ 19.3 million and $18.0 million as of March 31, 2022 and December 31, 2021, respectively.

Net cash used in opera ting activities was approximately $1.0 million in 2022 -Q1 , an inc rease of cash used in operating activities of approximately $1.0 million compared to 2021-Q1.

The increase in cash outflow was due to (a) a negative change in operating assets and liabilities of $0.5 million, (b) a decrease in non-cash charges by $0.2 million and (c) an increase in net loss by $0.3 million.

Net cash provided by investing activities was $1.8 million in 2022-Q1 compared to net cash used in investing activities of $1.7 million in 2021-Q1, a change in cash flow of $ 3.4 million.

The change in cash flow was primarily due to (a) an increase in proceeds from sale of marketable securities net of any purchases from $0.1 million in 2021-Q1 to $2.0 million in 2022-Q1, and (b) a decrease in capitalized patent defense costs by $1.5 million .

Net cash used in financing activities in 2022-Q1 was $0.4 million consisting primarily of repayment of principal amounts due on senior convertible notes and Paycheck Protection Program Loans compared to cash used in financing activities of $86 thousand in 2021-Q1, which consisted primarily of repayment of principal amounts due on senior convertible notes.

As of June 30, 2022, our cash and cash equivalents were approximately $1.2 million compared to $1.1 million as of December 31, 2021.

Our working capital was $ 20.2 million and $18.0 million as of June 30, 2022 and December 31, 2021, respectively.

Net cash used in opera ting activities was approximately $2.7 million in 2022 -H1 , an inc rease of cash used in operating activities of approximately $3.7 million from $1.0 million of cash provided by operating activities in 2021-H1.

The increase in cash outflow was due to a negative change in operating assets and liabilities of $2.8 million, and increase in net loss by $0.9 million after adjusting for non-cash charges.

Net cash provided by investing activities was $2.4 million in 2022-H1compared to net cash used in investing activities of $2.5 million in 2021-H1, a change in cash flow of $ 4.9 million.

The change in cash flow was primarily due to (a) an increase in proceeds from sale of marketable securities net of any purchases from $0.9 million in 2021-H1 to $3.0 million in 2022-H2, and (b) a decrease in capitalized patent defense costs by $2.7 million .

Net cash provided by financing activities in 2022-H1 was a $0.4 million, comprised of a $0.8 million refund of the CARES Act Paycheck Protection Program Loan with interest offset by $0.4 million repayment of principal amounts due on senior convertible notes compared to cash used in financing activities of $0.2 million in 2021-H1, which consisted primarily of repayment of principal amounts due on senior convertible notes.

Capitalization of patent defense costs .

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

We have already spent approximately $28.3 million from 2016 through March 31, 2022 towards this litigation and may be required to spend more to continue our legal defense.

We have already spent approximately $28.7 million from 2016 through June 30, 2022 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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9,813,806) pending a full trial.

Although there can be no assurance of any outcome of a full trial, we believe this ruling will help pave way for ClearOne’s recovery from the immense harm inflicted by our competitor's infringement of our valuable patents.

Although there can be no assurance of any outcome of a full trial, we believe this ruling will help pave the way for ClearOne’s recovery from the immense harm inflicted by our competitor's infringement of our valuable patents.

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.

During September 2020, the U.S District Court of Northern Illinois held Shure in contempt for marketing and selling their new design in violation of the preliminary injunction.

We have been actively engaged in preserving cash by suspending our dividend program and allowing our share repurchase program to expire in 2018 and implementing company-wide cost reduction measures.

We have also raised additional capital of $9.9 million (net of issuance costs) in 2018 by issuing common stock, $2.7 million (net of issuances costs) in 2019 by issuing senior convertible notes, $1.5 million in April 2020 by borrowing through Paycheck Protection Program, $4.8 million (net of issuances costs) in September 2020 by issuing common stock and warrants, $2.0 million in July 2021 by issuing short-term debt which repaid through issue of common stock in January 2022, and $9.3 million (net of issuances costs) in September 2021 by issuing common stock and warrants.

As of June 30, 2022 , our cash and cash equivalents were approximately $ 1,203 compared to $ 1,071 as of December 31, 2021 .

Our working capital was $ 20,162 as of June 30, 2022 .

Net cash used in operating activities was $ 2,692 for the six months ended June 30, 2022 , an increase of $ 3,677 from $ 985 of cash provided by operating activities in the six months ended June 30, 2021 .

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

We have already spent approximately $ 28,653 from 2016 through June 30, 2022 towards this litigation and may be required to spend more to continue our legal defense.

In order to maintain liquidity, we have been actively engaged in preserving cash by implementing company-wide cost reduction measures and raising additional capital.

We raised additional capital in 2019 by issuing senior convertible notes, in 2020 by borrowing through the CARES Act Paycheck Protection Program and issuing common stock and warrants and in 2021 by issuing short-term notes and issuing common stock and warrants.

In January 2022, we issued $ 2,000 in common stock as consideration for the cancellation and termination of the short-term notes.

In addition, we have been generating additional cash as our inventory levels are brought down to historical levels.

We also believe that our core strategies of product innovation and prudent cost management will bring us back to profitability 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 May 19, 2023.

We believe, although there can be no assurance, that all of these measures and effective management of working capital, including collecting on the income tax receivable balance, will provide the liquidity needed to meet our operating needs through at least August 12, 2023.

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.

As of March 31, 2022, we had open purchase orders of approximately $4.8 million mostly for purchase of inventory.

As of March 31, 2022, we had inventory totaling $13.1 million, of which non-current inventory accounted for $3.2 million.

As of June 30, 2022 , we had open purchase orders of approximately $6.4 million mostly for purchase of inventory.

As of June 30, 2022 , we had inventory totaling $12.8 million, of which non-current inventory accounted for $3.0 million.

This compares to total inventories of $13.6 million and non-current inventory of $3.6 million as of December 31, 2021 .

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Contractual Obligations and Commitments

The following table summarizes our contractual obligations as of March 31, 2022 (in millions):

The following table summarizes our contractual obligations as of June 30, 2022 (in millions):

Payment Due by Period

Senior convertible notes

Payroll Protection Plan loan

Operating lease obligations

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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