What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-14 compared with 2022-08-12 · 73 added, 95 removed, 151 unchanged (53% of the section changed)

53 unchanged sentences

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.

District Court in August 2019 granting our request for a preliminary injunction to prevent Shure from manufacturing, marketing, and selling its competing ceiling microphone array in an infringing configuration is an incredibly valuable ruling for ClearOne and its business.

The decision validates the strength and importance of ClearOne’s intellectual property rights, recognizes ClearOne’s innovations in this space, and stops Shure from further infringing the Graham patent (U.S.

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 the way for ClearOne’s recovery from the immense harm inflicted by Shure'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.

On September 1, 2020, the U.S.

District Court of Northern Illinois held that "Shure has violated the preliminary injunction order and is found in contempt because it designed the MXA910-A in such a way that allows it to be easily installed flush in most ceiling grids".

The Court also opined that, "[t]he record is clear and convincing that Shure - through its design choices - violated the injunction order by allowing integrators to install the MXA910-A in the enjoined flush configuration." Ultimately, the Court ordered that "Shure shall no longer manufacture, market, or sell the MXA910...".

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

Shure expanded the original litigation in the U.S.

District Court of North Illinois to the District of Delaware, where Shure filed claims for patent infringement, including of a design patent, and trade libel against ClearOne.

In May 2020 and January 2021, we secured an important pair of wins, defeating Shure’s requests first for a temporary restraining order and then a preliminary injunction, allowing us to continue selling our ground-breaking audio-conferencing products.

In addition to defeating Shure’s requests for preliminary injunctive relief, we also obtained a stay of the proceedings with respect to the only other asserted patent.

During November 2021, after a three-day jury trial, ClearOne obtained a complete victory against claims asserted by Shure, when the jury returned a verdict of no infringement and invalidated the asserted patent.

In February 2022 we claimed another legal victory over Shure.

The Patent Trial and Appeal Board (PTAB) of the United States Patent and Trademark Office (PTO) issued a final written decision confirming the patentability of all claims of ClearOne’s important U.S.

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 resulting in the latest in a long string of defeats for Shure.

Throughout 2022, we have continued our efforts to protect our intellectual property rights, primarily through litigation.

See Part II, Item 1.

Legal Proceedings.

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 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.

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 being higher than last year.

Overall revenue decreased by 10% in the third quarter of 2022 when compared to the third 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 decreased by 3% during the first nine months of 2022 when compared to revenue in the first nine months of 2021 due to decrease in revenue from video products, which was largely offset by an increase in revenues from audio conferencing products and microphones.

Despite the negative consequences of global supply chain issues and the infringement of our patents on professional installed products, our new solutions incorporating Beamforming Microphone Array Ceiling Tile ("BMA-CT") continued to result in overall Beamforming Microphone Array ("BMA") revenue being 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-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.

Our revenue performance in 2022-Q3 was also impacted negatively due to our inability to source adequate inventory to meet the demand for professional audio products and BMA due to the ongoing transition of manufacturing of our products from China to Singapore by our EMS provider and the 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.

Our gross profit margin increased modestly to 41.0% during the third quarter of 2022 from 40.8% during the third quarter of 2021.

Our gross profit margin decreased to 38.7% during the first nine months of 2022 compared to 42.6% during the first nine months of 2021.

Net loss decreased from $2.2 million in the third quarter of 2021 to $1.2 million in the third quarter of 2022 .

Our net loss decreased from $5.4 million in the first nine-month of 2021 to $3.5 million in the first nine-month of 2022.

The decrease in net loss was mainly due to (a) the recognition of $1.5 million in gain from the forgiveness of CARES Act Paycheck Protection Program Loan and (b) a decrease of $1.9 million in operating expenses after excluding amortization costs relating to our capitalized patent defense costs, which were partially offset by (c) decrease in absolute gross profit dollars as a result of reduced gross margin, and (d) increased amortization costs relating to our capitalized patent defense costs.

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

Industry conditions

We operate in a very dynamic and highly competitive industry which is dominated on the one hand by a few players with respect to certain products like traditional video conferencing appliances while on the other influenced heavily by a fragmented reseller market consisting of numerous regional and local players.

We operate in a very dynamic and highly competitive industry which is dominated on the one hand by a few players with respect to certain products like video conferencing appliances while on the other influenced heavily by a fragmented reseller market consisting of numerous regional and local players.

The industry is also characterized by venture capitalist funded start-ups and private companies willing to fund cumulative cash losses in order to gain market share and achieve certain non-financial goals.

15 unchanged sentences

Dollar denominated prices of our products less competitive.

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.

2 unchanged sentences

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.

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 nine months of 2022.

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

1 unchanged sentence

Deferred Product Revenue

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

Deferred product revenue increased to $73 thousand on September 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 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,

Results of Operations for the three and nine months ended September 30, 2022

The following table sets forth certain items from our unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2022 (“ 2022 - Q3 ”) ("2022-YTD") and 2021 (" 2021 - Q3 ") ("2021-YTD") , respectively, together with the percentage of total revenue which each such item represents:

Three months ended September 30,

Nine months ended September 30,

(dollars in thousands)

11 unchanged sentences

Our revenue decreased to $6.3 million in 2022-Q3 compared to $7.0 million in 2021-Q3 primarily due to a 59% decline in video products and a 7% decline in microphones, which were partially offset by a 10% 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 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.

Our revenues, especially with respect to BMA and professional audio conferencing products were negatively impacted by our inability to source adequate inventory to meet the demand for professional audio products and BMA due to the ongoing transition of manufacturing of our products from China to Singapore by our EMS provider.

Our wireless mics and traditional ceiling mics registered significant revenue increases in 2022-Q3.

The audio conferencing category as a whole increased mainly due to a significantly strong revenue performance of our professional mixers while other categories declined in revenues.

Video products suffered declines in 2022-Q3 compared to 2021-Q3 due to lack of demand for video cameras as well as video conferencing equipment.

During the third quarter of 2022, revenues from Americas declined by 5% primarily due to decreased revenues from Latin America.

During 2022-Q3 revenues from the Asia Pacific, including the Middle East, India and Australia decline by 5% primarily due to declines in revenues from all sub-markets except the Middle East, Japan and Korea, with the Middle East showing significant increase in revenues.

Finally, revenues from Europe and Africa decreased significantly by 31% in 2022-Q3 primarily due to decreases across all the sub-markets except Southern Europe.

During the nine months ended September 30, 2022 our revenues decreased from $21.8 million to $21.2 million compared to the same period in 2021 due to revenue from video products decreasing by 36 %, microphones increasing by 4%, and audio conferencing increasing by 9%.

The increase in revenue from microphones was due to growth in revenues from all categories of microphones.

The audio conferencing category as a whole increased mainly due to a strong revenue performance by our professional mixers.

During 2022-YTD Americas declined by 4%, Asia Pacific, including the Middle East and India increased by 7% and Europe and Africa declined by 12%.

India, the Middle East and Northern Europe led in revenue growth while Latina America, 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.

1 unchanged sentence

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 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, 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 .

Our gross profit margin increased from 40.8% during 2021-Q3 to 41.0 % during 2022 -Q3 .

The gross profit margin was negatively impacted due to increases in material costs due to continuing supply chain constraints and an increase in inventory obsolescence, which were partially offset by reduced freight, tariff costs and overhead costs.

Our gross profit margin decreased from 42.6% during 2021 -YTD to 38.7% during 2022-YTD.

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

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

6 unchanged sentences

Total operating expenses were $3.7 million in 2022-Q3 compared to $4.9 million in 2021-Q3.

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

Total operating expenses were $12.8 million for 2022-YTD compared to $14.3 million for 2021-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.

1 unchanged sentence

S&M expenses in 2022-Q3 decreased to $1.2 million from $1.7 million for 2021-Q3.

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 .

The decrease was primarily due to decreases in employment expenses and consultant expenses due to a reduction in the headcount and due to decrease in commissions paid to employees and consultants.

S&M expenses for 2022-YTD decreased to $4.3 million from $5.0 million for 2021-YTD.

The decrease was primarily due to decreases in employment expenses and consultant expenses due to a reduction in the headcount and due to decrease in commissions paid to employees and consultants.

This overall decrease was partially offset by increase in trade-show related costs.

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 decreased to $0.9 million in 2022-Q3 compared to $1.5 million for 2021-Q3.

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.

The decrease was primarily due to reduction in employment expenses due to reduction in the headcount and a decrease in project-related expenses.

R&D expenses decreased to $3.4 million in 2022-YTD, from $4.3 million in 2021-YTD.

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

G&A expenses remained almost the same at $1.7 million in 2021-Q3 and 2022-Q3.

The reduction in employee related expenses were partially offset by an increase in amortization costs relating to our capitalized patent defense costs.

G&A expenses increased from $5.0 million in 2021-YTD to $5.1 million in 2022-YTD.

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

Other income (expense), net

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

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 .

Other income during the first nine months of 2022 includes $1.5 million recognized on the gain arising from the CARES Act Paycheck Protection Program loan forgiveness.

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

I nterest expense decreased to $0.1 million in 2022-Q3 compared to $0.2 million in 2021-Q3.

Interest expense decreased to $0.3 million in 2022 -YTD compared to $0.4 million in 2021-YTD .

Provision for income taxes

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 .

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

Provision for income taxes recognized for 2022-Q3 and 2022-YTD primarily relates to foreign jurisdictions .

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

LIQUIDITY AND CAPITAL RESOURCES

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.

As of September 30, 2022, our cash and cash equivalents were approximately $1.5 million compared to $1.1 million as of December 31, 2021.

Our working capital was $ 19.3 million and $18.0 million as of September 30, 2022 and December 31, 2021, respectively.

Net cash used in opera ting activities was approximately $2.1 million in 2022 -YTD , an inc rease of cash used in operating activities of approximately $0.6 million from $1.5 million of cash provided by operating activities in 2021-YTD.

The increase in cash outflow was due to a negative change in operating assets and liabilities of $0.7 million, partially offset by a decrease in net loss by $0.2 million after adjusting for non-cash charges.

Net cash provided by investing activities were $2.3 million in 2022-YTD compared to net cash used in investing activities of $4.2 million in 2021-YTD, a change in cash flow of $ 6.4 million.

The change in cash flow was primarily due to (a) an increase in proceeds from sale of marketable securities net of any purchases in 2021-YTD to $1.5 million, and (b) a decrease in capitalized patent defense costs by $4.9 million .

Net cash provided by financing activities in 2022-YTD was $0.2 million, comprised primarily of a $0.8 million refund of the CARES Act Paycheck Protection Program Loan with interest offset by $0.5 million repayment of principal amounts due on senior convertible notes.

In comparison, cash provided by financing activities was $11.0 million in 2021-YTD, which consisted primarily of issuance of common stock and borrowing through issuance of short-term notes partially offset by repayment of a portion of senior convertible debt.

Capitalization of patent defense costs .

1 unchanged sentence

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 2022- Q2 we spent $0.3 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 $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.

District Court in August 2019 granting our request for a preliminary injunction to prevent our competitor from manufacturing, marketing, and selling its competing ceiling microphone array in an infringing configuration is an incredibly valuable ruling for ClearOne and its business.

We believe that the decision validates the strength and importance of ClearOne’s intellectual property rights, recognizes ClearOne’s innovations in this space, and stops our competitor from further infringing our Graham patent (U.S.

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 the way for ClearOne’s recovery from the immense harm inflicted by our competitor's infringement of our valuable patents.

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.

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.

During the nine months ended September 30, 2022 we spent $0.6 million on legal costs related to the defense of our patents and capitalized the entire amount.

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

See Part II, Item1.

Legal Proceedings.

We have already spent approximately $28.8 million from 2016 through September 30, 2022 towards this litigation and may be required to spend more to continue our legal defense.

As of September 30, 2022 , our cash and cash equivalents were approximately $1.5 million compared to $ 1.1 million as of December 31, 2021.

Our working capital was $19.3 million as of September 30, 2022 .

Net cash used in operating activities was $2.1 million for the nine months ended September 30, 2022 , an increase of $0.6 million from $1.5 million of cash used in operating activities in the nine months ended September 30, 2021 .

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

3 unchanged sentences

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, 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;

1 unchanged sentence

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 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.

As of September 30, 2022 , we had open purchase orders of approximately $2.2 million mostly for purchase of inventory.

As of September 30, 2022 , we had inventory totaling $12.7 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 .

1 unchanged sentence

Contractual Obligations and Commitments

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

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

Payment Due by Period

15 unchanged sentences

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