What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-10 compared with 2021-11-12 · 84 added, 161 removed, 151 unchanged (62% of the section changed)

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We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Each of the terms the “Company,” “Identiv,” “we” and “us” as used herein refers collectively to Identiv, Inc.

Each of the terms the “Company,” “Identiv,” “we,” “us” and “our” as used herein refers collectively to Identiv, Inc.

and its wholly-owned subsidiaries, unless otherwise stated.

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Our financial performance depends on the pace, scope and depth of end-user adoption of our RFID products in multiple industries.

That pace, scope and depth accelerated during 2020 causing large fluctuations in our operating results.

During 2020, we saw several events that we believe are opening up the third wave of RFID deployments which is occurring at a much faster pace of growth than historically.

Such pace, scope and depth accelerated during 2020, causing large fluctuations in our operating results.

During 2021, we believe RFID deployments occurred at a much faster pace of growth than historically.

We believe significant improvement in chip capabilities at lower costs, combined with the incorporation of the full NFC Data Exchange Format (“NDEF”) protocol by Apple in its iPhone 12 and iOS 14, has accelerated the opportunities for product engineers to integrate RFID into their products to create new and more engaging customer experiences, product reliability and performance.

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In contrast, if our RFID sales exceed expectations, then our revenue and profitability may be positively affected.

Given the uncertainties of the specific timing of our new customer deployments, we cannot assure you that we have appropriate inventory and capacity levels or that we will not experience inventory shortfalls or overages in the future.

We mitigate those risks by being deeply embedded in our customers design cycle, working with our chip partners on long lead time components, managing our limited capital equipment needs within a short cycle and future proofing our facilities with the most recent expansion to accommodate several scenarios for growth potential.

We attempt to mitigate those risks by being deeply embedded in our customers design cycle, working with our chip partners on long lead time components, managing our limited capital equipment needs within a short cycle and future proofing our facilities to accommodate several scenarios for growth potential.

If end users with sizable projects change or delay them, we may experience significant fluctuation in revenue on a quarterly or annual basis, and we anticipate that uncertainty to continue to characterize our business for the foreseeable future.

Seasonality and Other Factors

In our business overall, we may experience variations in demand for our offerings from quarter to quarter, and typically experience a stronger demand cycle in the second half of our fiscal year.

In our business overall, we experience variations in demand for our offerings from quarter to quarter, and typically experience a stronger demand cycle in the second half of our fiscal year.

Sales of our physical access control solutions and related products to U.S.

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in the first half, and in particular, the first quarter of the year, with higher sales typically in the second half of each year.

In Asia-Pacific, with fiscal year-ends in March and June, order demand can be higher in the first quarter as customers attempt to complete projects before the end of the fiscal year.

In the Asia-Pacific, with fiscal year-ends in March and June, order demand can be higher in the first quarter as customers attempt to complete projects before the end of the fiscal year.

Accordingly, our net revenue levels in the first quarter each year often depend on the relative strength of project completions and sales mix between our U.S.

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In addition to the general seasonality of demand, overall U.S.

Federal Government expenditure patterns have a significant effect on demand for our products due to the significant portion of revenue that are typically sourced from U.S.

Federal Government expenditure patterns have a significant effect on demand for our products due to the significant portion of revenue that is typically sourced from U.S.

Federal Government agencies.

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If there are changes in government purchasing policies or budgetary constraints, there could be implications for our growth prospects and operating results.

If we are unable to meet end-user or customer volume or performance expectations, then our business prospects may be adversely affected.

If we are unable to meet end-user or customer volume or performance expectations, then our business prospects and operating results may be adversely affected.

Effects of the COVID-19 Pandemic on our Business.

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Results of Operations

The following table includes net revenue and net profit information by business segment and reconciles gross profit to income (loss) before income tax provision (in thousands).

Three Months Ended September 30,

Nine Months Ended September 30,

The following table includes net revenue and net profit information by business segment and reconciles gross profit to loss before income tax provision (in thousands).

Three Months Ended March 31,

Gross profit margin

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General and administrative

Decrease in fair value of earnout liability

Restructuring and severance

Total operating expenses:

Income (loss) from operations

Loss from operations

Non-operating income (expense):

Interest expense, net

Gain on forgiveness of Paycheck Protection Program note

Gain on investment

Foreign currency losses, net

Income (loss) before income tax provision

Foreign currency gains, net

Loss before income tax benefit (provision)

Geographic net revenue based on each customer’s ship-to location is as follows (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Europe and the Middle East

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Europe and the Middle East

Net revenue for the three months ended September 30, 2021 was $29.1 million, an increase of 17% compared with $24.9 million for the comparable period of 2020 .

Net revenue in the Americas was $19.7 million for the three months ended September 30, 2021, an increase of 31% compared to $15.1 million for the comparable period of 2020.

Net revenue in Europe, the Middle East, and Asia-Pacific was $9.4 million for the three months ended September 30, 2021, a decrease of 4% compared with the comparable period of 2020.

Net revenue for the nine months ended September 30, 2021 was $75.3 million, an increase of 21% compared with $62.1 million for the comparable period of 2020 .

Net revenue in the Americas was $49.0 million for the nine months ended September 30, 2021, an increase of 15% compared to $42.6 million for the comparable period of 2020.

Net revenue in Europe, the Middle East, and Asia-Pacific was $26.2 million for the nine months ended September 30, 2021, an increase of 35% compared with the comparable period of 2020 .

Net revenue for the three months ended March 31, 2022 was $25.1 million, an increase of 13% compared with $22.2 million for the comparable period of 2021 .

Net revenue in the Americas was $16.9 million for the three months ended March 31, 2022, an increase of 12% compared to $15.1 million for the comparable period of 2021.

Net revenue in Europe, the Middle East, and the Asia-Pacific was approximately $8.2 million for the three months ended March 31, 2022, an increase of 16% compared with the comparable period of 2021.

Identity Segment

Net revenue in our Identity segment was $18.7 million for the three months ended September 30, 2021, an increase of 21% compared with $15.4 million for the comparable period of 2020.

For the nine months ended September 30, 2021, n et revenue in this segment was $47.2 million , an increase of 28% compared with $36.9 million for the comparable period of 2020.

Net revenue in this segment for the three and nine months ended September 30, 2021 represented 64% and 63%, respectively, of our net revenue, compared to 62% and 59% in the comparable periods of the prior year .

Net revenue in the Americas was $10.2 million for the three months ended September 30, 2021, an increase of 64% compared with $6.2 million for the comparable period of 2020.

For the nine months ended September 30, 2021 net revenue in the Americas was $23.4 million, an increase of 20% compared with $19.5 million for the comparable period of 2020.

The increases were primarily due to higher sales of RFID transponder products and smart card readers associated with the increased demand for transponder and smart card reader products beginning in the second quarter of 2020 with shelter in place actions underway which drove the need for more work from home technologies.

In addition, sales of access cards increased in the nine months ended September 30, 2021 as sales to commercial consumers in select market verticals, including retail, banking and travel, began to rebound in 2021.

Net revenue in Europe, the Middle East, and the Asia-Pacific for the three months ended September 30, 2021 was $8.6 million, a decrease of 7% compared with $9.2 million in the comparable period of 2020, while net revenue for the nine months ended September 30, 2021 was $23.8 million, an increase of 37% compared with $17.5 million in the comparable period of 2020.

The decrease in the three months ended September 30, 2021 compared to the comparable period of 2020 was primarily attributable to the timing of project rollout schedules associated with RFID transponder sales to mobile phone and consumer products contract manufacturers in the Asia-Pacific, with a substantial portion of the products delivered in the first half of 2021 compared to the comparable period of 2020.

The increase in the nine months ended September 30, 2021 is due to higher sales of RFID transponder products to mobile phone and consumer products contract manufacturers noted above.

Sales of RFID and NFC products and smart card readers comprise a significant proportion of our net revenue in these regions.

RFID transponder products comprised approximately 70% and 67% of net revenue in these regions for the three and nine months ended September 30, 2021, respectively, compared to 72% and 62% in the comparable periods of the prior year.

Smart card reader products comprised 20% and 22% of net revenue in these regions for the three and nine months ended September 30, 2021, respectively, compared to 19% and 26% in the comparable periods of the prior year .

Net revenue in our Identity segment, which represented 58% of our net revenue, was $14.6 million for the three months ended March 31, 2022, an increase of 7% compared with $13.7 million for the comparable period of 2021.

Net revenue in this segment in the Americas for the three months ended March 31, 2022 was comparable to the same period of 2021.

Net revenue in this segment in Europe, the Middle East, and the Asia-Pacific increased 15% for the three months ended March 31, 2022 compared with the comparable period of 2021 due to higher sales of RFID transponder products to mobile phone and consumer products contract manufacturers and higher sales of smart card readers.

Premises Segment

Net revenue in our Premises segment was $10.4 million for the three months ended September 30, 2021 , an increase of 10% compared with $9.4 million for the comparable period of 2020.

For the nine months ended September 30, 2021, n et revenue in this segment was $28.1 million , an increase of 12% compared with $25.1 million for the comparable period of 2020.

Net revenue in our Premises segment for the three and nine months ended September 30, 2021 represented 36% and 37%, respectively, of our net revenue, compared to 38% and 41% in the comparable periods of the prior year .

Net revenue in the Americas was $9.5 million for the three months ended September 30, 2021, an increase of 7% compared with $8.9 million for the comparable period of 2020.

For the nine months ended September 30, 2021 net revenue in the Americas was $25.7 million, an increase of 11% compared with $23.1 million for the comparable period of 2020.

The increases were primarily due to a rebound in sales of Hirsch Velocity hardware and software products to consumers in select commercial verticals, growth in sales to the federal government, and higher sales of video technology and analytics software products .

Net revenue from our Premises solution for security programs within various U.S.

government agencies and commercial customers for access control and video solutions, as well as reader, controller and appliance products, in the three and nine months ended September 30, 2021 represented 48% and 52%, respectively, of our net revenue in the Americas.

Net revenue in Europe, the Middle East, and Asia-Pacific for the three months ended September 30, 2021 was $0.9 million, an increase of 50 % compared $0.6 million with the comparable period of 2020 , while net revenue for the nine months ended September 30, 2021 was $2.4 million, an increase of 17% compared with $2.

0 million in the comparable period of 2020 .

The increase s in these regions are primarily project driven and can vary period to period.

Net revenue in our Premises segment, which represented 42% of our net revenue, was $10.5 million for the three months ended March 31, 2022 , an increase of 23% compared with $8.5 million for the comparable period of 2021.

Net revenue in this segment in the Americas for the three months ended March 31, 2022 increased 22% compared with the comparable period of 2021 due to higher sales of Hirsch Velocity hardware and software products to consumers in select commercial verticals.

Net revenue in this segment across Europe, the Middle East, and the Asia-Pacific increased 31% compared with the comparable period of 2021.

The increases in these regions are primarily project driven and can vary period to period.

As a general trend, U.S.

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sales organization and our sales presence in Washington D.C.

More recently, in response to the new needs for health and safety in the physical security market overall, due to the COVID-19 pandemic, we have released products to address these trends.

During 2020, we launched our contact tracing downloadable extension for our Velocity access system, our occupancy tracking system based on our 3VR platform, our MobilisID touchless reader and our temperature tracking tag.

In addition, with the economic impact of the COVID-19 pandemic continuing to create uncertainty for our customers, we have released several products which are subscription based and which allow payments over time for our physical access and video solutions as a service.

Gross Profit and Gross Margin

Gross profit for the three months ended September 30, 2021 was $11.1 million, or 38% of net revenue, compared with $9.9 million, or 40% of net revenue in the comparable period of 2020.

Gross profit for the nine months ended September 30, 2021 was $27.7 million, or 37% of net revenue, compared with $25.1 million, or 40% of net revenue in the comparable period of 2020.

Gross profit for the three months ended March 31, 2022 was $9.0 million, or 36% of net revenue, compared with $7.7 million, or 35% of net revenue in the comparable period of 2021.

Gross profit represents net revenue less direct cost of product sales, manufacturing overhead, other costs directly related to preparing the product for sale including freight, scrap, inventory adjustments and amortization, where applicable.

Identity Segment

In our Identity segment, gross profit in the three and nine months ended September 30, 2021 was $5.2 million and $12.1 million, respectively.

Gross profit in the three and nine months ended September 30, 2020 was $4.7 million and $11.3 million, respectively.

Gross profit margins in this segment decreased to 28% in the three months ended September 30, 2021 from 30% in the comparable period of 2020 and decreased to 26% in the nine months ended September 30, 2021 from 31% in the comparable period of 2020.

The decreases were primarily attributable to near-term investments in technology and manufacturing processes and systems, as well as changes in product mix, with a higher proportion of lower margin RFID transponder product sales in 2021 compared to the comparable period in 2020.

In our Identity segment, gross profit was $3.2 million in the three months ended March 31, 2022 compared with $3.4 million in the comparable period of 2021.

Gross profit margins in the Identity segment decreased to 22% in the three months ended March 31, 2022 from 25% in the comparable period of 2021.

The decrease in gross profit margins was primarily attributable to continued investments in technology and manufacturing processes and systems and changes in product mix, with a higher proportion of lower margin RFID transponder product sales.

Premises Segment

In our Premises segment, gross profit was $5.9 million in the three months ended September 30, 2021 compared with $5.2 million in the comparable period of 2020.

Gross profit margins in this segment increased to 57% in the three months ended September 30, 2021 from 55% in the comparable period of 2020 primarily due to product mix, with higher sales of higher margin video analytics software compared to the comparable period in 2020.

Gross profit was $15.5 million in the nine months ended September 30, 2021 compared with $13.8 million in the comparable period of 2020.

Gross profit margins in this segment in the nine months ended September 30, 2021 were comparable to the comparable period in 2020.

In our Premises segment, gross profit was $5.8 million in the three months ended March 31, 2022 compared with $4.3 million in the comparable period of 2021.

Gross profit margins in the Premises segment increased to 55% in the three months ended March 31, 2022 from 51% in the comparable period of 2021 primarily due to product mix as well as the impact resulting from our focus on operational efficiencies.

We expect there will be variation in our total gross profit from period to period, as our gross profit has been and will continue to be affected primarily by varying mix among our products.

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Operating Expenses

Information about our operating expenses for the three and nine months ended September 30, 2021 and 2020 is set forth below (dollars in thousands).

Information about our operating expenses for the three months ended March 31, 2022 and 2021 is set forth below (dollars in thousands).

Research and Development

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Research and development

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We focus the bulk of our research and development activities on the continued development of existing products and the development of new offerings for emerging market opportunities.

Research and development expenses for the three and nine months ended September 30, 2021 decreased compared to the comparable prior year periods primarily due to lower headcount and related costs, partially offset by higher external contractor costs.

Research and development expenses for the three months ended March 31, 2022 increased compared to the comparable prior year period primarily due to higher headcount and related costs as well as higher stock-based compensation costs associated with PSUs.

Selling and Marketing

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Selling and marketing

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Selling and marketing expenses consist primarily of employee compensation as well as amortization expense of certain intangible assets, customer lead generation activities, tradeshow participation, advertising and other marketing and selling costs.

Selling and marketing expenses for the three months ended September 30, 2021 increased compared to the comparable prior year period primarily due to higher tradeshow and advertising costs, partially offset by lower headcount and related costs and lower amortization expense associated with intangible assets that were fully amortized in the fourth quarter of 2020.

Selling and marketing expenses for the nine months ended September 30, 2021 decreased compared to the prior year period primarily due to the lower intangible asset amortization noted above, and higher recruiting fees in the prior year period.

These decreases were partially offset by higher tradeshow and advertising costs in 2021.

Selling and marketing expenses for the three months ended March 31, 2022 increased compared to the comparable prior year period primarily due to higher salaries and benefits costs and as well as higher trade show and related costs.

General and Administrative

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

General and administrative

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General and administrative expenses consist primarily of compensation expenses for employees performing administrative functions, and professional fees incurred for legal, auditing and other consulting services.

General and administrative expenses for the three and nine months ended September 30, 2021 increased compared to the prior year periods primarily due t o higher professional fees and external contractor costs, as well as an increase in bad debt expense.

Decrease in Fair Value of Earnout Liability

Three Months Ended September 30,

Nine Months Ended September 30,

Decrease in fair value of earnout liability

The decrease in earnout consideration expense of $261,000 during the nine months ended September 30, 2020 was attributable to the decrease in the fair value of the earnout liability associated with a prior acquisition, representing the settlement date fair value of the shares issued and the recorded earnout liability.

Restructuring and Severance

Three Months Ended September 30,

Nine Months Ended September 30,

General and administrative expense for the three months ended March 31, 2022 increased compared to the prior year period primarily due t o higher headcount and related costs as well as higher external contractor costs.

Restructuring and Severance Charges

Three Months Ended March 31,

Restructuring and severance

Restructuring expenses incurred during the three and nine months ended September 30, 2021 consists of facility rental related costs of $67,000 and $523,000, respectively, and severance related costs of $32,000 and $238,000, respectively.

Facility rental related costs during the nine months ended September 30, 2021, included a charge of $281,000 resulting from the impairment of a right-of-use operating lease asset for office space we vacated in the first quarter of 2021.

Restructuring expenses incurred during the three and nine months ended September 30, 2020 consists of severance related costs of $145,000 and $229,000, respectively, and facility rental related costs associated with office space from a prior acquisition of $18,000 and $1,416,000, respectively, which included a charge of $1,199,000 associated with the impairment of the right-of-use operating lease asset, which was subleased, but went into default due to non-payment of rent beginning April 1, 2020.

Sublease income of $198,000 was received in the first quarter of 2020, however, since the first quarter of 2020, no rental payments have been received.

During the three months ended March 31, 2022, we entered into a settlement agreement associated with outstanding rental payments due the landlord on leased office space in San Francisco, California.

As a result of the settlement, we recorded a net credit of $153,000 representing the difference between amounts accrued and the settlement amount.

The settlement credit was partially offset by severance related costs of $13,000.

Non-operating Income (Expense)

Information about our non-operating income (expense) for the three and nine months ended September 30, 2021 and 2020 is set forth below (dollars in thousands).

Three Months Ended September 30,

Nine Months Ended September 30,

Information about our non-operating income (expense) for the three months ended March 31, 2022 and 2021 is set forth below (dollars in thousands).

Three Months Ended March 31,

Interest expense, net

Gain on forgiveness of Paycheck Protection Program note

Gain on investment

Foreign currency losses, net

Foreign currency gains, net

Interest expense, net consists of interest on financial liabilities, amortization of debt issuance costs, and interest accretion expense for a liability on a contractual payment obligation arising from our acquisition of Hirsch Electronics Corporation.

The decrease in interest expense for the three and nine months ended September 30, 2021 compared to the comparable periods of 2020 was primarily attributable to lower borrowings outstanding under our revolving loan facility with our lender, and lower amounts outstanding under our contractual payment obligation.

See Note 7, Contractual Payment Obligation and Note 8, Financial Liabilities , in the accompanying notes to our unaudited condensed consolidated financial statements for more information.

On May 7, 2021, the principal and accrued interest amounts outstanding of approximately $2.9 million under our promissory note pursuant to the Paycheck Protection Program had been forgiven.

As a result, we recorded a gain on forgiveness of the promissory note of $2.9 million in the second quarter of 2021.

Gain on investment of $611,000 in the third quarter of 2021 was from the proceeds received in connection with the acquisition of a private company that we had invested in, which had been fully impaired and had no carrying value.

The decrease in interest expense for the three months ended March 31, 2022 compared to the comparable period of 2021 was attributable to lower borrowings outstanding under our revolving loan facility with our lender (which was fully paid down in August 2021), and lower amounts outstanding under our contractual payment obligations (all amounts outstanding had been paid as of December 31, 2021).

Changes in currency valuation in the periods mainly were the result of exchange rate movements between the U.S.

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Our foreign currency gains and losses primarily result from the valuation of current assets and liabilities denominated in a currency other than the functional currency of the respective entity in the local financial statements.

Income Tax Provision

Three Months Ended September 30,

Nine Months Ended September 30,

Income tax provision

Income Tax Benefit (Provision)

Three Months Ended March 31,

Income tax benefit (provision)

Effective tax rate

As of September 30, 2021, our deferred tax assets are fully offset by a valuation allowance.

As of March 31, 2022, our deferred tax assets are fully offset by a valuation allowance.

Accounting Standards Codification (“ASC”) 740, Income Taxes , provides for the recognition of deferred tax assets if realization of such assets is more likely than not.

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If it is later determined that a portion or all of the valuation allowance is not required, it generally will be a benefit to the income tax provision in the period such determination is made.

We recorded an income tax provision during the three and nine months ended September 30, 2021 and 2020.

The effective tax rates for the three and nine months ended September 30, 2021 and 2020 differ from the federal statutory rate of 21% primarily due to a change in valuation allowance, and the provision or benefit in certain foreign jurisdictions, which are subject to higher tax rates.

We recorded an income tax benefit during the three months ended March 31, 2022.

The effective tax rates for the three months ended March 31, 2022 and 2021 differ from the federal statutory rate of 21% primarily due to a change in valuation allowance, and the provision or benefit in certain foreign jurisdictions, which are subject to higher tax rates.

Liquidity and Capital Resources

As of September 30, 2021, our working capital, defined as current assets less current liabilities, was $53.4 million, an increase of $41.5 million compared to $11.9 million as of December 31, 2020.

As of September 30, 2021, our cash balance was $29.2 million.

Sale of Common Stock

On April 7, 2021, we sold an aggregate of 3,779,342 shares of our common stock at a public offering price of $10.65 per share in an underwritten public offering.

We received net proceeds of approximately $37.7 million from the sale of the common stock in the public offering, after deducting the underwriting discount and other offering related expenses of $2.5 million.

East West Bank

As of March 31, 2022, our working capital, defined as current assets less current liabilities, was $51.3 million, a decrease of $0.5 million compared to $51.9 million as of December 31, 2021.

As of March 31, 2022, our cash and cash equivalents balance was $27.6 million.

On February 8, 2017, we entered into a Loan and Security Agreement with East West Bank (“EWB”).

Following subsequent amendments, on February 8, 2021, we amended and restated the Loan and Security Agreement in its entirety (the “Loan and Security Agreement”).

The Loan and Security Agreement provides for a $20.0 million revolving loan facility subject to a borrowing base and a $4.0 million non-formula revolving loan facility that is not subject to a borrowing base.

The Loan and Security Agreement provided for a $20.0 million revolving loan facility subject to a borrowing base and a $4.0 million non-formula revolving loan facility that was not subject to a borrowing base.

Advances under the revolving loan facility, as amended on April 30, 2021, bear interest at a per annum rate equal to the prime rate.

The maturity date of the main revolving loan facility is February 8, 2023.

Our obligations under the Loan and Security Agreement are collateralized by substantially all of our assets.

As of September 30, 2021, there were no amounts outstanding under our Loan and Security Agreement.

See Note 8, Financial Liabilities in the accompanying notes to our unaudited condensed consolidated financial statements for more information.

April 21 Funds

On May 5, 2020, we issued secured subordinated promissory notes in an aggregate principal amount of $4.0 million (the “Notes”) to 21 April Fund, LP and 21 April Fund, Ltd.

(collectively referred to as the “April 21 Funds”) pursuant to a Note and Warrant Purchase Agreement entered into with the April 21 Funds (the “Note Purchase Agreement”).

The Notes were collateralized by our assets, but subordinate to our obligations to EWB under the Loan and Security Agreement.

Proceeds from the sale of the Notes were only to be used for expenses incurred by us in connection with our provisions of goods and services under a statement of work with a third party.

The Notes had an initial term of nine months and did not bear interest during that period.

However, if the Notes were not repaid on or before the nine-month anniversary of issuance, (a) the Notes would thereafter bear interest of 8% per annum, payable quarterly, and (b) additional warrants to purchase common stock would be issuable to the April 21 Funds for each month all or a portion of the Notes remained unpaid.

In the event the Notes were not paid in full by the first anniversary of their issuance, May 5, 2021, they would thereafter bear interest of 12% per annum, payable quarterly, and additional warrants would be issuable to the April 21 Funds.

On February 5, 2021, we entered into an amendment to our secured subordinated promissory note with April 21 Funds, which extended the initial term of the Notes to March 31, 2021.

As a result of the amendment, if the Notes were repaid on or before March 31, 2021, we would incur no further interest on the Notes, or be obligated to issue additional warrants.

On March 31, 2021, April 21 Funds waived any additional warrants issuable, and interest payable, to April 21 Funds through May 5, 2021.

On April 13, 2021, we repaid the remaining principal amount outstanding of $2.8 million.

Paycheck Protection Program

On April 9, 2020, we entered into a promissory note (the “PPP Note”) under the Paycheck Protection Program established under Section 1102 of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act.

The PPP Note was dated April 8, 2020 with EWB.

We borrowed a principal amount of approximately $2.9 million.

The interest on the PPP Note was 1.0% per annum.

The PPP Note was payable two years from the date of the PPP Note, and there was no prepayment penalty.

All interest which accrues during the initial six months of the loan period was deferred and payable on the maturity date of the PPP Note.

Notes issued under the CARES Act may be eligible for forgiveness in whole or in part in accordance with Small Business Administration rules established for the Paycheck Protection Program.

On May 7, 2021, the principal and accrued interest amounts outstanding of approximately $2.9 million under our promissory note pursuant to the Paycheck Protection Program had been forgiven.

As a result, we recorded a gain on forgiveness of the PPP Note debt of $2.9 million in the second quarter of 2021.

The non-formula revolving loan facility terminated on February 7, 2022.

On April 14, 2022, we amended the Loan and Security Agreement, replacing the $20.0 million revolving loan facility subject to a borrowing base with a non-formula revolving loan facility with no borrowing base requirement and a maturity date of February 8, 2023.

In addition, the interest rate was lowered from prime to prime minus 0.25% , and certain financial covenants were amended.

As of March 31, 2022, there were no amounts outstanding and we were in compliance with all financial covenants under the Loan and Security Agreement.

As our previously unremitted earnings have been subjected to U.S.

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We have access to the cash held outside the United States to fund domestic operations and obligations without any material income tax consequences.

As of September 30, 2021, the amount of cash included at such subsidiaries was $5.2 million.

As of March 31, 2022, the amount of cash included at such subsidiaries was $4.5 million.

We have not, nor do we anticipate the need to, repatriate funds to the United States to satisfy domestic liquidity needs arising in the ordinary course of business, including liquidity needs associated with our domestic debt service requirements.

While we recorded net income during the period, we have historically incurred operating losses and negative cash flows from operating activities, and we may incur losses in the future.

As of September 30, 2021, we had a total accumulated deficit of $407.1 million.

We believe our existing cash balance, together with cash generated from operations and available credit under our Loan and Security Agreement will be sufficient to satisfy our working capital needs to fund operations for the next twelve months.

We have historically incurred operating losses and negative cash flows from operating activities, and we may continue to incur losses in the future.

As of March 31, 2022, we had an accumulated deficit of $410.0 million.

During the three months ended March 31, 2022, we had a net loss of $1.0 million.

We believe our existing cash and cash equivalents, together with cash generated from operations and available credit under our Loan and Security Agreement will be sufficient to satisfy our working capital needs to fund operations for the next twelve months.

We may also use cash to acquire or invest in complementary businesses, technologies, services or products that would change our cash requirements.

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Debt or any equity securities issued also may provide for rights, preferences or privileges senior to those of holders of our common stock.

The terms of debt securities issued or borrowings could impose significant restrictions on our operations.

The terms of debt securities issued or loans could impose significant restrictions on our operations.

The incurrence of additional indebtedness or the issuance of certain debt or equity securities could result in increased fixed payment obligations and could also result in restrictive covenants, such as limitations on our ability to incur additional debt or issue additional equity, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely affect our ability to conduct our business.

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If we are not able to secure additional funding when needed, we may have to curtail or reduce the scope of our business or forgo potential business opportunities.

The following summarizes our cash flows for the nine months ended September 30 , 20 2 1 and 20 20 (in thousands):

Nine Months Ended September 30,

Net cash provided by (used in) operating activities

The following summarizes our cash flows for the three months ended March 31 , 20 2 2 and 20 2 1 (in thousands):

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by financing activities

Effect of exchange rates on cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Net cash provided by (used in) financing activities

Effect of exchange rates on cash, cash equivalents, and restricted cash

Net increase (decrease) in cash, cash equivalents, and restricted cash

Cash, cash equivalents, and restricted cash at beginning of period

Cash, cash equivalents, and restricted cash at end of period

Cash flows from operating activities

Cash provided by operating activities for the nine months ended September 30, 2021 of less than $0.1 million was primarily due to net income of $3.5 million , and adjustments for certain non-cash items of $0.4 million, consisting primarily of depreciation, amortization, amortization of debt issuance costs, stock-based compensation, gain on forgiveness of the Paycheck Protection Program note and impairment of a right-of-use operating lease asset, offset by a decrease in cash from net changes in operating assets and liabilities of $3.9 million.

Cash used in operating activities for the nine months ended September 30, 2020 of $5.3 million was primarily due to net loss of $4.4 million, a decrease in cash from net changes in operating assets and liabilities of $6.9 million, partially offset by adjustments for certain non-cash items of $6.0 million, consisting primarily of impairment of right-of-use operating lease assets, decrease in fair value of earnout liability, depreciation, amortization, amortization of debt issuance costs, and stock-based compensation.

Cash used in operating activities for the three months ended March 31, 2022 was primarily due to net loss of $1.0 million, a decrease in cash from net changes in operating assets and liabilities of $0.4 million, offset by adjustments for certain non-cash items of $1.4 million, consisting primarily of depreciation, amortization and stock-based compensation.

Cash used in operating activities for the three months ended March 31, 2021 was primarily due to net loss of $1.5 million, a decrease in cash from net changes in operating assets and liabilities of $0.5 million, and adjustments for certain non-cash items of $1.6 million, consisting primarily of depreciation, amortization, stock-based compensation, and impairment of a right-of-use operating lease asset.

Cash flows from investing activities

Cash used in investing activities for the nine months ended September 30, 2021 of $1.3 million was primarily due to $1.9 million of capital investment expenditures in our manufacturing facility in Singapore and our research and development facility in Germany, partially offset by $0.6 million related to the proceeds from an investment.

Cash used in investing activities for the nine months ended September 30, 2020 of $0.9 million related primarily to capital investment expenditures in our manufacturing facility in Singapore.

Cash used in investing activities for the three months ended March 31, 2022 and 2021 was $0.5 million and $1.1 million, respectively, which related to capital expenditures in our manufacturing facility in Singapore and our research and development facility in Germany.

Cash flows from financing activities

Cash provided by financing activities during the nine months ended September 30, 2021 was primarily due to net proceeds of $37.7 million received from the sale of common stock in our underwritten public offering, partially offset by net repayments under our revolving loan facility of $14.6 million, repayments of April 21 Funds promissory notes of $2.8 million and taxes paid related to net share settlement of restricted stock units of $0.9 million.

Cash provided by financing activities during the nine months ended September 30, 2020 was primarily due to the issuance of secured subordinated promissory notes to April 21 Funds of $4.0 million, proceeds received under the Payment Protection Program of $2.9 million , and net borrowings under our revolving loan and term loan facilities of $2.7 million , partially offset by taxes paid related to net share settlement of restricted stock units of $0.6 million.

Cash used in financing activities during the three months ended March 31, 2022 was $0.4 million, which related to net share settlement of restricted stock units.

Cash provided by financing activities during the three months ended March 31, 2021 was primarily due to net borrowings under our revolving loan facility of $2.2 million, partially offset by taxes paid related to net share settlement of restricted stock units of $0.3 million.

Off-Balance Sheet Arrangements

We have not entered into off-balance sheet arrangements, or issued guarantees to third parties, except as disclosed in Note 7, Contractual Payment Obligation .

We have not entered into off-balance sheet arrangements, or issued guarantees to third parties.

Climate Change

We believe that neither climate change, nor governmental regulations related to climate change, have had any material effect on our business, financial condition or results of operations.

We believe that neither climate change, nor governmental regulations related to climate change, have had a material effect on our business, financial condition or results of operations.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

The preparation of these financial statements requires management to establish accounting policies that contain estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes.

The preparation of these condensed consolidated financial statements requires management to establish accounting policies that contain estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes.

These policies relate to revenue recognition, inventory, income taxes, goodwill, intangible and long-lived assets and stock-based compensation.

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Despite our intention to establish accurate estimates and assumptions, actual results may differ from these estimates under different assumptions or conditions.

During the three months ended September 30, 2021, management believes there have been no significant changes to the items that we disclosed within our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2020.

During the three months ended March 31, 2022, management believes there have been no significant changes to the items that we disclosed within our critical accounting policies and estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021.

Recent Accounting Pronouncements

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10b5-1 Trading Plans

From time to time, we expect our executive officers and directors will enter into written trading plans pursuant to Rule 10b5-1 of the Securities and Exchange Act of 1934.

Quantitative and Qualitative Disclosures About Market Risk

Not required.

From time to time, our executive officers and directors have, and we expect they will in the future, enter into written trading plans pursuant to Rule 10b5-1 of the Securities and Exchange Act of 1934.

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