What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-08 compared with 2023-08-10 · 70 added, 69 removed, 168 unchanged (45% of the section changed)

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

In August 2023, we showcased our full range of conferencing, collaboration, and communications solutions at CEDIA 2023 held in Denver, Colorado.

During the event, we highlighted the CHAT® 150 BT Speakerphone (USB and Bluetooth speakerphone), Versa® Mediabar™ (video soundbar), UNITE® 60 (4K ePTZ wide-angle tracking camera), COLLABORATE® Versa® Pro CT (product bundle consisting of Huddle DSP and BMA CTH beamforming mic array ceiling tile), COLLABORATE® Versa® Lite CT (USB Plug-N-Play beamforming mic array ceiling tile), and COLLABORATE® Versa® 60 (product bundle consisting of CHAT® 150 USB speakerphone, a UNITE® 60 wide angle 4K ePTZ camera, and a VERSA USB Hub).

In September 2023, our new DIALOG® UVHF Wireless Microphone System was named a winner in the Higher Education category of the 2023 Tech & Learning Magazine Awards of Excellence.

The annual Tech & Learning Awards of Excellence program, conducted by leading educational technology publication Tech & Learning, recognizes innovation in the edtech industry and celebrates the most impressive products and solutions that support learning environments.

We 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 26% in the second quarter of 2023 when compared to the second quarter of 2022, primarily due to a significant decrease in revenues from all product categories, especially microphones.

The revenue decline was primarily due to our continued 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 electronics manufacturing services provider and due to the decline in demand for video products.

We expect the challenges with the manufacturing transition from China to Singapore to ease in the second half of 2023 as we have seen improvement in product deliveries in the second quarter of 2023 when compared to the first quarter of 2023.

Our revenue performance in 2023-Q2 was also partially 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 in various degrees to continue through at least the end of 2023.

Our gross profit margin decreased to 33.7% during the second quarter of 2023 from 38.1% during the second quarter of 2022.

Our gross profit margin decreased to 32.7% during the first six months of 2023 compared to 37.7% during the first six months of 2022.

Gross Profit margin decreased year over year mainly due to increase in administration and overhead costs as a percentage of revenue and increase in inventory obsolescence costs.

Net loss increased from $0.3 million in the second quarter of 2022 to $1.0 million in the second quarter of 2023 .

The increase in net loss was mainly due to (a) the recognition in 2022-Q2 of $1.5 million in gain from the forgiveness of CARES Act Paycheck Protection Program Loan in 2022-Q2 , and (b) a decrease in revenues and associated gross margin, partially offset by (c) a decrease in operating expenses and increase in interest income.

Net loss decreased from $2.2 million for the first half of 2022 to $1.9 million for the first half of 2023.

The decrease was mainly due to (a) a recognition of $1.35 million from a one-time legal settlement of a contract dispute, (b) significant reduction in operating expenses, and (c) increase in interest income, partially reduced by (d) reduced revenue and associated gross margin, and (e) recognition of $1.5 million gain from the forgiveness of CARES Act Paycheck Protection Program Loan in 2022-Q2.

Overall revenue decreased by 22 % in the third quarter of 2023 when compared to the third quarter of 2022 , primarily due to a significant decrease in revenues from audio conferencing category.

The revenue decline was partially due to our continued 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 electronics manufacturing services provider .

The revenue decline was also caused by significantly reduced demand for our products in many regions including USA, Europe, the Middle East and China when compared to 2022-Q3 revenues.

We expect the challenges with the manufacturing transition from China to Singapore to resolve in the fourth quarter of 2023 as we have seen improvement in product deliveries in the second and third quarters of 2023 when compared to the first quarter of 2023.

Our revenue performance in 2023-Q3 also was to a small extent impacted negatively due to increased costs associated with the electronic raw materials that have affected the global manufacturing of high tech products.

We expect these increased costs in various degrees to continue through 2023 and 2024.

Our gross profit margin decreased to 33.1 % during the third quarter of 2023 from 41.0 % during the third quarter of 2022 .

Our gross profit margin decreased to 32.8 % during the first nine months of 2023 compared to 38.7 % during the first nine months of 2022 .

Gross Profit margin decreased year over year mainly due to increase in administration and overhead costs as a percentage of revenue and change in the revenue mix of the products.

Net loss increased from $ 1.2 million in the third quarter of 2022 to $ 1.4 million in the third quarter of 2023 .

The increase in net loss was mainly due to (a) a decrease in revenues and associated gross margin, partially offset by (b) a decrease in operating expenses and (c) an increase in interest income.

Net loss decreased from $ 3.5 million for the first nine months of 2022 to $ 3.2 million for the first nine months of 2023 .

We believe, although there can be no assurance, that we can return to generating operating profits through our strategic initiatives namely product innovation and cost reduction.

Industry conditions

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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.

It has become increasingly important to have higher interoperability with other products in the audio visual market as well as with leading video conferencing service providers like Microsoft and Zoom .

It has become increasingly important to have higher interoperability with other products in the audio visual market as well as certifications from leading video conferencing service providers like Microsoft and Zoom .

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

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We expect our strategy of making our products more interoperable with other audio-visual products, continuing to improve the quality of our high-end audio conferencing products and microphones, and offering a wide range of innovative professional cameras will generate high growth in the near future.

We derive a significant portion of our revenue (approximately 52% in 2022 ) from international operations and expect this trend to continue in the future.

We derive a significant portion of our revenue (approximately 56% in the first nine months of 2023) from international operations and expect this trend to continue in the future.

Most of our revenue from ou tside the U.S.

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On the other hand, COVID- 19 generated higher than normal demand in 2020 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.

The extent of COVID- 19 ’s effect on our operational and financial performance 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.

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 2022 .

We expect these fluctuations to continue in 2023 .

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.

If the pandemic resurfaces 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 Product Revenue

Deferred product revenue decreased to $52 thousand on June 30, 2023 compared to $63 thousand on December 31, 2022.

Deferred product revenue decreased to $ 38 thousand on September 30, 2023 compared to $ 63 thousand on December 31, 2022 .

A detailed discussion of our results of operations follows below.

Results of Operations for the three and six months ended June 30, 2023

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

The following table sets forth certain items from our unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2023 (“ 2023 - Q 2 ”) ("2023-H 1 ") and 2022 (" 2022 - Q 2 ") ("2022-H 1 ") , 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, 2023

The following table sets forth certain items from our unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2023 (“ 2023 - Q3 ”) (" 2023 -YTD") and 2022 (" 2022 - Q3 ") (" 2022 -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)

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Provision for income taxes

Our revenue decreased to $5.5 million in 2023-Q2 compared to $7.4 million in 2022-Q2 due to a 14% decline in microphones, a 48% decline in video products, and a 30% decline in audio conferencing.

Except for premium audio conferencing, which constitutes a small percentage of our revenue all other product categories suffered revenue declines year over year.

Revenues from BMA and professional audio conferencing products were negatively impacted by our inability to source adequate inventory to meet the demand for these products despite a robust backlog of orders, due to the ongoing transition of manufacturing of our products from China to Singapore by our electronics manufacturing services provider.

Our traditional ceiling mics, personal audio conferencing products, video cameras and video conferencing equipment suffered revenue declines due to lack of demand.

During the second quarter of 2023, revenues from Americas increased by 6% while all other regions suffered revenue loss.

During 2023-Q2 revenues from the Asia Pacific, including the Middle East, India and Australia declined by 32%.

Finally, revenues from Europe and Africa declined significantly by 75% in 2023-Q2.

During the six months ended June 30, 2023 our revenues decreased from $14.9 million to $9.7 million compared to the same period in 2022 due to revenues from microphones decreasing by 36%, video products decreasing by 52% and audio conferencing decreasing by 28%.

We believe, although there can be no assurance, that we can return to generating operating profits through our strategic initiatives namely product innovation and cost reduction.

Our revenue decreased to $ 4.9 million in 2023 - Q3 compared to $ 6.3 million in 2022 - Q3 due to a 42% decline in audio conferencing, a 5 % decline in microphones, and a 14% increase in video products.

Except for BMA and some video products, all other product categories suffered revenue declines year over year.

Revenues from BMA and professional audio conferencing products were partially negatively impacted by our inability to source adequate inventory to meet the demand for these products, due to the ongoing transition of manufacturing of our products from China to Singapore by our electronics manufacturing services provider.

Our traditional ceiling mics, personal audio conferencing products, and video cameras suffered revenue declines due to lack of demand.

During the third quarter of 2023 , revenues from Asia including India and the Middle East as a whole increased by 2% while all other regions suffered revenue loss.

During 2023 - Q3 revenues from Americas declined by 26% and from Europe and Africa declined significantly by 57 %.

During the nine months ended September 30, 2023 our revenues decreased from $ 21.2 million to $ 14.6 million compared to the same period in 2022 due to revenues from microphones decreasing by 27%, video products decreasing by 39% and audio conferencing decreasing by 33%.

Costs of Goods Sold and Gross Profit

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Our gross profit margin decreased from 41.0 % during 2022 - Q3 to 33.1 % during 2023 - Q3 .

The gross profit margin was negatively impacted due to increases in material costs mainly due to an increase in administration and overhead costs as a percentage of revenue and increase in inventory obsolescence costs .

Our gross profit margin decreased from 37.7% during 2022 -H1 to 32.7 % during 2023 -H1.

The gross profit margin decreased primarily due to increase in material costs mainly due to an increase in administration and overhead costs as a percentage of revenue and increase in inventory obsolescence costs .

The gross profit margin was negatively impacted due to increases in material costs mainly due to an increase in administration and overhead costs as a percentage of revenue and a negative change in the revenue mix of the products partially offset by reduced inventory obsolescence costs .

Our gross profit margin decreased from 38.7 % during 2022 -YTD to 32.8 % during 2023 -YTD.

T he gross profit margin was negatively impacted due to increases in material costs mainly due to an increase in administration and overhead costs as a percentage of revenue and a negative change in the revenue mix of the products partially offset by reduced inventory obsolescence costs .

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

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Total operating expenses in 2023 - Q3 was $ 3.1 million compared to $ 3.7 million in 2022 - Q3 .

Total operating expenses were $6.7 million for 2023-H 1 compared to $9.1 million for 2022-H 1 .

Total operating expenses were $ 9.8 million for the nine months ended September 30, 2023 compared to $ 12.8 million for the nine months ended September 30, 2022 .

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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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 2023-Q2 decreased to $1.3 million from $1.6 million for 2022-Q2.

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

S&M expenses in 2023 -H 1 decreased to $ 2.5 million from $ 3.1 million for 2022 -H 1 .

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

S&M expenses in 2023 - Q3 decreased marginally to $ 1.1 million from $ 1.2 million for 2022 - Q3 .

The decrease was primarily due to decreases in employment expenses and commissions paid to independent reps partially offset by increases in trade-show related expenses and employees benefit costs.

S&M expenses in the first nine months ended September 30, 2023 decreased to $ 3.6 million from $ 4.3 million for nine months ended September 30, 2022 .

The decrease was primarily due to (a) decreases in employment expenses and consultant expenses due to a reduction in headcount, (b) a decrease in commissions paid to employees and consultants, and (c) a decrease in marketing expenses related to advertising, partially offset by (d) an 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 2023-Q2 compared to $1.2 million for 2022-Q2.

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

R&D expenses decreased to $ 1.9 million in 2023 -H 1 compared to $ 2.5 million for 2022 -H 1 .

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

R&D expenses remained at $ 0.9 million in 2023 - Q3 and 2022 - Q3 .

R&D expenses decreased to $ 2.8 million in the nine months ended September 30, 2023 compared to $ 3.4 million for the nine months ended September 30, 2022 .

The decrease was primarily due to (a) a decline in project-related expenses, (b) decreased employment expenses due to a reduction in the headcount, and (c) a decline in allocated expenses, partially offset by (d) an increase in employee benefits and (e) an increase in legal expenses related to securing patents.

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.

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The reduction was primarily due to (i) a decrease in amortization costs relating to our capitalized patent defense costs, which was fully amortized in 2022-Q 4 , (ii) a decrease in legal expenses, (iii) and a decrease in employment-related expenses.

G&A expenses decreased to $ 2.3 million in 2023 -H 1 compared to $ 3.5 million in 2022 -H 1 .

The reduction was primarily due to (i) a decrease in amortization costs relating to our capitalized patent defense costs, which was fully amortized in 2022-Q 4 , (ii) a decline in audit fees, (iii) and a decline in employment-related expenses, partially offset by (iv) increase in insurance expenses .

G&A expenses decreased to $ 3.4 million in 2023 -YTD compared to $ 5.1 million in 2022 -YTD.

The reduction was primarily due to (i) a decrease in amortization costs relating to our capitalized patent defense costs, which was fully amortized in 2022-Q 4 , (ii) a decline in legal fees, (iii) and a decline in employment-related expenses, partially offset by (iv) an increase in insurance expenses and (v) an increase in investor relations expenses .

Interest Expense

I nterest expense remained almost the same at $ 0.1 million in 2023 - Q3 and 2022 - Q3 .

I nterest expense increased to $ 0.5 million in 2023 -YTD compared to $ 0.3 million in 2022 -YTD primarily due to interest associated with the prepayment of the $ 2 million bridge loan in January 2023.

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

Other income (expense), net

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Other income for 2023 - Q3 included $0.24 million of interest income received on marketable securities.

Other income in 2022-Q2 and 2022-H1 included $1.5 million in gain from the forgiveness of CARES Act Paycheck Protection Program Loan.

2023-H1 included a receipt of $1.35 million from a one-time legal settlement of a contract dispute and $0.8 million of interest income received on marketable securities.

All other items not discussed herein included in other income remained immaterial during 2023-H1, 2022-H1, 2023-Q2 and 2022-Q2 .

I nterest expense remained almost the same at $0.1 million in 2023-Q2 and 2022-Q2.

I nterest expense increased to $ 0.4 million in 2023 - Q 1 compared to $ 0.2 million in 2022 - Q1 primarily due to interest associated with the prepayment of the $2 million bridge loan in January 2023.

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

During 2022-Q3 there was no interest income.

Other income in 2022-YTD included $1.5 million in gain from the forgiveness of CARES Act Paycheck Protection Program Loan.

2023-YTD included a receipt of $1.34 million from a one-time legal settlement of a contract dispute and $1.0 million of interest income received on marketable securities.

All other items not discussed herein included in other income remained immaterial during 2023-YTD, 2022-YTD, 2023-Q3 and 2022-Q3 .

Provision for income taxes

During each of the six months ended June 30, 2023 and 2022, we did not recognize any benefit from the losses incurred due to setting up a full valuation allowance.

During each of the nine months ended September 30, 2023 and 2022 , we did not recognize any benefit from the losses incurred due to setting up a full valuation allowance.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2023, our cash and cash equivalents were approximately $15.1 million compared to $1.0 million as of December 31, 2022.

Our working capital was $ 37.5 million and $69.3 million as of June 30, 2023 and December 31, 2022, respectively.

Net cash provided by opera ting activities was approximately $52.9 million in 2023 -Q2 , an inc rease of cash provided by ope rating activities of approximately $55.6 million from $2.7 million of cash used by operating activities in 2022-Q2.

As of September 30, 2023 , our cash and cash equivalents were approximately $ 13.7 million compared to $ 1.0 million as of December 31, 2022 .

Our working capital was $ 36.7 million and $ 69.3 million as of September 30, 2023 and December 31, 2022 , respectively.

Net cash provided by opera ting activities was approximately $ 51.1 million in the nine months ended September 30, 2023 , an inc rease of net cash provided by ope rating activities of approximately $ 53.2 million from $ 2.1 million of net cash used by operating activities in the nine months ended September 30, 2022 .

The increase in cash inflow was primarily due to $55 million in receipts from legal settlements, the receipt of $4.5 million from the return of a bond deposited with a court, and a $1.3 million refund of income taxes with interest.

These receipts were partially offset by operating losses and $6.7 million in income tax payments.

Net cash used in investing activities in 2023-Q2 was $7.4 million compared to $2.4 million of net cash provided by investing activities in 2022-Q2.

The increase in cash used in investing activities was primarily due to increase in purchase of marketable securities (net of sales) by $4.0 million and increase in purchase of property and equipment by $0.3 million.

Net cash used in investing activities in the nine months ended September 30, 2023 was $ 6.8 million compared to $ 2.3 million of net cash provided by investing activities in the nine months ended September 30, 2022 .

The increase in cash used in investing activities was primarily due to an increase in purchases of marketable securities (net of sales) by $9.3 million and an increase in purchase of property and equipment by $0.3 million.

These increases were partially offset by the elimination of capitalized legal expenses of $0.6 million.

Net cash used in financing activities in 2023-Q2 was $31.4 million, comprised primarily of dividend distributions of $29.0 million, repayment of the bridge loan of $2 million and $0.5 million payments of principal amounts due on senior convertible debt.

This compares to $0.4 million used in principal amounts due on senior convertible debt and a receipt of $0.8 million in loan repayments refunded upon forgiveness of CARES Act Paycheck Protection Program loan in 2022-Q2.

As of June 30, 2023 , our cash and cash equivalents were approximately $15.1 million compared to $1.0 million as of December 31, 2022 .

Our working capital was $37.5 million as of June 30, 2023 .

Net cash provided by operating activities was $52.9 million for the six months ended June 30, 2023 , an increase of $55.6 million compared to $2.7 million of cash used in operating activities for the six months ended June 30, 2022 .

The company announced and paid in May 2023 a special one -time cash dividend of $ 1.00 per share or eligible warrant totaling $29.0 million.

The Company also paid approximately $6.5 million towards income taxes in April 2023.

The Company believes that the Company's core strategies of product innovation and prudent cost management will bring the company back to profitability in the future.

The Company believes, although there can be no assurance, that the current cash position and effective management of working capital will provide the liquidity needed to meet our operating needs through at least August 10, 2024 .

Net cash used in financing activities in the nine months ended September 30, 2023 was $ 31.7 million, comprised primarily of dividend distributions of $ 29.0 million, repayment of the bridge loan of $2.0 million and $0.7 million payments of principal amounts due on senior convertible debt.

This compares to $0.5 million used in payments of principal amounts due on senior convertible debt and a receipt of $0.8 million in loan repayments refunded upon forgiveness of CARES Act Paycheck Protection Program loan in the nine months ended September 30, 2022 .

As of September 30, 2023 , our cash and cash equivalents were approximately $ 13.7 million compared to $ 1.0 million as of December 31, 2022 .

Our working capital was $ 36.7 million as of September 30, 2023 .

The Company believes, although there can be no assurance, that the current cash position and effective management of working capital, will provide the liquidity needed to meet our operating needs through at least November 8, 2024 .

The Company also believes that its strong portfolio of intellectual property and its solid brand equity in the market will enable it to raise additional capital if and when needed to meet its short and long-term financing needs;

however, there can be no assurance that, if needed, the Company will be successful in obtaining the necessary funds through equity or debt financing.

however, there can be no assurance that, if needed, the Company will be successful in obtaining the necessary funds through equity or debt financing on favorable terms or at all.

If the Company needs additional capital and is unable to secure financing, it may be required to further reduce expenses, or delay product development and enhancement.

As of June 30, 2023 , we had open purchase orders of approximately $2.1 million mostly for the purchase of inventory.

As of June 30, 2023 , we had inventory totaling $10.9 million, of which non-current inventory accounted for $3.4 million.

As of September 30, 2023 , we had open purchase orders of approximately $ 3.6 million mostly for the purchase of inventory.

As of September 30, 2023 , we had inventory totaling $ 11.5 million, of which non-current inventory accounted for $ 2.9 million.

This compares to total inventories of $ 11.7 million, which includes non-current inventory of $ 2.7 million as of December 31, 2022 .

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Contractual Obligations and Commitments

The following table summarizes our contractual obligations as of June 30, 2023 (in millions):

The following table summarizes our contractual obligations as of September 30, 2023 (in millions):

Payment Due by Period

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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