What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-19 compared with 2024-08-20 · 72 added, 48 removed, 136 unchanged (47% of the section changed)

15 unchanged sentences

but the sales, support, returns, and overhead costs associated with products sold to retailers also tended to be higher.

Our cash and cash equivalents balance on June 30, 2024 was $0.6 million compared to $0.7 million on December 31, 2023.

On June 30, 2024, we had no outstanding borrowings and working capital of negative $0.7 million.

Our cash and cash equivalents balance on September 30, 2024 was $0.2 million compared to $0.7 million on December 31, 2023.

On September 30, 2024, we had no outstanding borrowings and working capital of negative $0.8 million.

The Company’s ability to maintain adequate levels of liquidity depends in part on our ability to sell inventory on hand and collect related receivables.

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The Company continues to experience losses, which in part is due to declining revenues.

In the three and six months ended June 30, 2024 and 2023, we generated net sales of $0 million and $7.2 million, respectively, and $0.6 million and $17.9 million, respectively.

In the three and nine months ended September 30, 2024 and 2023, we generated net sales of $0 million and $6.7 million, respectively, and $0.6 million and $24.6 million, respectively.

Our most recent Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on April 12, 2024, provides additional information about our business and operations.

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Our critical accounting policies and estimates, which are revenue recognition, product returns, inventory valuation and costs of goods sold, warrants, valuation of deferred tax assets are described under “Critical Accounting Policies and Estimates” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2023.

For the six months ended June 30, 2024, there have been no significant changes in our critical accounting policies and estimates.

For the nine months ended September 30, 2024, there have been no significant changes in our critical accounting policies and estimates.

Results of Operations

The following table sets forth certain financial data derived from our condensed consolidated statements of operations for the three months ended June 30, 2024 and 2023, presented in absolute dollars and as a percentage of net sales, with dollars and percentage change period over period:

The following table sets forth certain financial data derived from our condensed consolidated statements of operations for the three months ended September 30, 2024 and 2023, presented in absolute dollars and as a percentage of net sales, with dollars and percentage change period over period:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentage data)

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Income tax expense (benefit)

Comparison of the three and six months ended June 30, 2024 to the three and six months ended June 30, 2023

The following table sets forth our revenues by product and the changes in revenues for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023:

Comparison of the three and nine months ended September 30, 2024 to the three and nine months ended September 30, 2023

The following table sets forth our revenues by product and the changes in revenues for the three and nine months ended September 30, 2024, as compared to the three and nine months ended September 30, 2023:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentage data)

1 unchanged sentence

Other network products

The majority of the Company’s revenues by geographic area are earned in North America for the three and six months ended June 30, 2023.

Our total net sales decreased year-over-year by $7.2 million or 100% in the three months ended June 30, 2024 and by $17.3 million or 296.0% in the six months ended June 30, 2024.

The majority of the Company’s revenues by geographic area are earned in North America for the three and nine months ended September 30, 2023.

Our total net sales decreased year-over-year by $6.7 million or 100% in the three months ended September 30, 2024 and by $24.0 million or 97.4% in the nine months ended September 30, 2024.

The decrease in net sales is directly attributable to decreased sales of Motorola branded cable modems and gateways.

In 2023, we primarily generated our sales by selling cable modems and gateways.

Sales related to SaaS offerings were $0 thousand and $74 thousand in the three months ended June 30, 2024 and 2023, respectively, and $0 thousand and $160 thousand in the six months ended June 30, 2024, respectively.

The decrease in other category of $233 thousand in the three months ended June 30, 2024 compared to the three months ended in June 30, 2023 and the decrease of $324 thousand in the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 is primarily due to a reduction in DSL and MoCA products due to a refocus on new product introductions.

Sales related to SaaS offerings were $0 thousand and $3 thousand in the three months ended September 30, 2024 and 2023, respectively, and $0 thousand and $164 thousand in the nine months ended September 30, 2024 and 2023, respectively.

The decrease in other category of $244 thousand in the three months ended September 30, 2024 compared to the three months ended in September 30, 2023 and the decrease of $567 thousand in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 is primarily due to a reduction in DSL and MoCA products.

Generally, our lower sales outside North America reflect the fact that cable modems are sold successfully through retailers in the U.S.

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentage data)

Gross profit decreased in the three months ended June 30, 2024, compared to the three months ended in the prior fiscal year period, primarily due to insufficient sales levels necessary to cover fixed costs and certain variable costs.

Gross profit decreased in the six months ended June 30, 2024, compared to the six months ended in the prior fiscal year period, primarily due to inventory reserves applied during the period ended June 30, 2024.

For the remainder of fiscal 2024, we expect gross margin to decrease due to our ongoing expense incurred to support customer accounts.

Gross profit decreased in the three months ended September 30, 2024, compared to the three months ended in the prior fiscal year period, primarily due to insufficient sales levels necessary to cover fixed costs and certain variable costs.

Gross profit decreased in the nine months ended September 30, 2024, compared to the nine months ended in the prior fiscal year period, primarily due decreased sales of Motorola branded cable modems and gateways.

For the remainder of fiscal 2024, we expect gross margin to decrease in sales of Motorola branded cable modems and gateways.

Our cost of goods sold, as a percentage of net sales, can vary significantly based upon factors such as:

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentage data)

Selling and marketing

Selling and marketing expenses decreased in the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, primarily due to reductions in personnel expenses by $0.5 million, marketing campaigns by $1.2 million, Motorola royalty fees of $1.7 million, and other sales support costs of $0.1 million.

Selling and marketing expenses decreased in the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, primarily due to reductions in personnel expenses by $1.1 million, marketing campaigns by $2.2 million, Motorola royalty fees of $3.4 million, and other sales support costs of $0.5 million.

For the remainder of the fiscal year 2024, we expect our selling and marketing expenses to decrease compared to first half of 2024.

Selling and marketing expenses decreased in the three months ended September 30, 2024, as compared to the three months ended September 30, 2023, primarily due to reductions in personnel expenses by $0.3 million, Motorola royalty fees of $1.7 million, and other sales support costs of $0.1 million.

Selling and marketing expenses decreased in the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023, primarily due to reductions in personnel expenses by $1.4 million, marketing campaigns by $2.2 million, Motorola royalty fees of $5.1 million, and other sales support costs of $0.6 million.

For the remainder of the fiscal year 2024, we expect our selling and marketing expenses to decrease compared to the first three quarters of 2024.

Expenses may fluctuate depending on sales levels achieved as certain expenses, and are determined based upon the net sales achieved.

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentage data)

General and administrative

General and administrative expenses decreased $0.6 million in the three months ended June 2024 as compared to the three months ended June 30, 2023 primarily due to a decrease in personnel expenses of $0.3 million and software subscriptions of $0.3 million.

General and administrative expenses decreased $0.9 million in the six months ended June 2024 as compared to the six months ended June 30, 2023 primarily due to a decrease in personnel expenses of $0.8 million and professional fees of $0.1 million.

General and administrative expenses decreased $0.3 million in the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 primarily due to a decrease in professional fees of $0.3 million and software subscriptions of $0.1 million.

General and administrative expenses decreased $1.2 million in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 primarily due to a decrease in personnel expenses of $0.8 million and professional fees of $0.4 million.

Future general and administrative expense increases or decreases in absolute dollars are difficult to predict due to the lack of visibility of certain costs, including legal costs associated with defending claims against us, and other factors.

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentage data)

Research and development

The decrease of $1.1 million in the three months ended June 2024 as compared to the three months ended June 30, 2023 was primarily due to decreases in personnel expenses of $0.8 million, contract labor of $0.1 million, professional fees of $0.1 million, and other support costs of $0.1 million.

The decrease of $2.6 million in the six months ended June 2024 as compared to the six months ended June 30, 2023 was primarily due to decreases in personnel expenses of $1.8 million, contract labor of $0.2 million, professional fees of $0.2 million, and certification and other costs of $0.4 million.

For the remainder of the fiscal year 2024, we expect research and development expenses to decrease compared to the first half of 2024.

The decrease of $0.7 million in the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 was primarily due to decreases in personnel expenses of $0.5 million, professional fees of $0.1 million, and other support costs of $0.1 million.

The decrease of $3.2 million in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 was primarily due to decreases in personnel expenses of $2.3 million, contract labor of $0.2 million, professional fees of $0.2 million, and certification and other costs of $0.5 million.

For the remainder of the fiscal year 2024, we expect research and development expenses to decrease compared to the first three quarters of 2024.

Research and development expenses may fluctuate depending on the timing and number of development activities and could vary significantly as a percentage of net sales, depending on actual net sales achieved in any given year.

1 unchanged sentence

Our principal sources of liquidity are cash and cash equivalents.

As of June 30, 2024, we had cash and cash equivalents of $0.6 million as compared to $0.7 million on December 31, 2023.

On June 30, 2024, we had no borrowings outstanding and working capital of negative $0.7 million.

As of September 30, 2024, we had cash and cash equivalents of $0.2 million as compared to $0.7 million on December 31, 2023.

On September 30, 2024, we had no borrowings outstanding and working capital of negative $0.8 million.

We have funded our operations and financing activities primarily through sale of preferred stock.

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Fluctuations in our working capital due to timing differences of our cash receipts and cash disbursements also impact our cash inflows and outflows.

Our consolidated financial statements, as of June 30, 2024, were prepared under the assumption that we will continue as a going concern.

Our consolidated financial statements, as of September 30, 2024, were prepared under the assumption that we will continue as a going concern.

The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

However, substantial doubt exists about our ability to continue as a going concern, and we will require additional liquidity to continue operations beyond the next 12 months.

Our consolidated financial statements as of June 30, 2024, do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if we were unable to continue as a going concern.

Our consolidated financial statements as of September 30, 2024, do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if we were unable to continue as a going concern.

If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our financial statements, and it is likely that investors will lose all or part of their investment.

The following table presents our cash flows for the periods presented:

Three Six Ended

September 30,

Cash provided by (used in) operating activities

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Cash Flows from Operating Activities.

Cash used from operating activities of $2.9 million during the six months ended June 30, 2024 reflected our net loss of $3.7 million, adjusted for non-cash expenses, consisting primarily of $426 thousand of stock-based compensation expense, $215 thousand in depreciation and amortization expense, and $2.2 million in vendor forgiveness, net of asset transfers.

Uses of cash included a decrease in accounts payable of $3.1 million.

Sources of cash included primarily a decrease of accounts receivable of $731 thousand, inventories of $404 thousand, and accrued expenses of $16 thousand.

Cash provided by operating activities of $2.5 million during the six months ended June 30, 2023 reflected our net loss of $9.7 million, adjusted for non-cash expenses, consisting primarily of $0.2 million of stock-based compensation expense and $0.3 million in depreciation and amortization expense.

Uses of cash included an increase in accrued expenses of $2.3 million.

Sources of cash included primarily a decrease of accounts receivable of $0.8 million, inventories of $6.9 million, increase in accounts payable of $5.9 million, increase in prepaid expenses of $0.1 million, and increase in deferred revenue of $0.1 million.

Cash used from operating activities of $3.8 million during the nine months ended September 30, 2024 reflected our net loss of $4.4 million, adjusted for non-cash expenses, consisting primarily of $432 thousand of stock-based compensation expense, $290 thousand in depreciation and amortization expense, and $2.2 million in vendor forgiveness, net of asset transfers.

Uses of cash included a decrease in accounts payable of $3.1 million and accrued expenses of $394 thousand.

Sources of cash included primarily a decrease of accounts receivable of $731 thousand and inventories of $404 thousand.

Cash provided by operating activities of $3.7 million during the nine months ended September 30, 2023 reflected our net loss of $16.5 million, adjusted for non-cash expenses, consisting primarily of $0.3 million of stock-based compensation expense and $0.4 million in depreciation and amortization expense.

Uses of cash included a decrease in accounts receivable of $0.1 million and accrued expenses of $3.0 million.

Sources of cash included primarily a decrease of inventories of $14.9 million, increase in accounts payable of $7.4 million, increase in prepaid expenses of $0.2 million, and increase in deferred revenue of $0.2 million.

Cash Flows from Investing Activities.

During the six months ended June 30, 2024, the Company had no cash flows generated or used by investing activities.

During the six months ended June 30, 2023, $162 thousand was used to purchase equipment and $220 thousand was used for certification costs.

During the nine months ended September 30, 2024, the Company had no cash flows generated or used by investing activities.

During the nine months ended September 30, 2023, $162 thousand was used to purchase equipment and $220 thousand was used for certification costs.

Cash Flows from Financing Activities.

Cash provided from financing activities during the six months ended June 30, 2024 consisted of proceeds from issuance of preferred stock of $2.8 million.

Cash used in financing activities during the six months ended June 30, 2023 consisted of repayment of $2.3 million on the borrowings under our SVB line-of-credit.

Cash provided from financing activities during the nine months ended September 30, 2024 consisted of proceeds from issuance of preferred stock of $2.8 million and issuance of common stock of $0.5 million.

Cash used in financing activities during the nine months ended September 30, 2023 consisted of repayment of $3.9 million on the borrowings under our SVB line-of-credit.

Future Liquidity Needs

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We expect that our product sales and the resulting operating loss, as well as the status of each of our product development programs, will significantly impact our cash management decisions.

At June 30, 2024, we believe our current cash and cash equivalents may not be sufficient to fund working capital requirements, capital expenditures and operations during the next twelve months.

At September 30, 2024, we believe our current cash and cash equivalents may not be sufficient to fund working capital requirements, capital expenditures and operations during the next twelve months.

Our ability to continue as a going concern will depend on our ability to obtain additional equity or debt financing, attain further operating efficiencies, reduce or contain expenditures and increase revenues.

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We cannot guarantee that such funding will be available in needed quantities or on terms favorable to us, if at all.

At June 30, 2024, we have Federal and state net operating loss carry forwards of approximately $79.2 million and $47.9 million, respectively, available to reduce future taxable income.

At September 30, 2024, we have Federal and state net operating loss carry forwards of approximately $79.4 million and $48.0 million, respectively, available to reduce future taxable income.

A valuation allowance has been established for the full amount of deferred income tax assets as management has concluded that it is more-likely than-not that the benefits from such assets will not realize the benefits of our deferred tax assets.

As a result, as of June 30, 2024 and December 31, 2023, we recorded a full valuation allowance against our net deferred tax assets.

As a result, as of September 30, 2024 and December 31, 2023, we recorded a full valuation allowance against our net deferred tax assets.

Commitments and Contractual Obligations

During the six months ended June 30, 2024, except as otherwise disclosed in this Form 10-Q, there were no material changes to our capital commitments and contractual obligations from those disclosed in our Form 10-K for the year ended December 31, 2023.

During the nine months ended September 30, 2024, except as otherwise disclosed in this Form 10-Q, there were no material changes to our capital commitments and contractual obligations from those disclosed in our Form 10-K for the year ended December 31, 2023.

Off-Balance Sheet Arrangements

We did not have any material off-balance sheet arrangements as of June 30, 2024.

We did not have any material off-balance sheet arrangements as of September 30, 2024.

See Note 7 to the accompanying consolidated financial statements for additional disclosure.

2 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