What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-11 compared with 2022-05-05 · 70 added, 35 removed, 129 unchanged (45% of the section changed)

37 unchanged sentences

and global customers on developing, engineering, prototyping and implementing our advanced HMI and sensing solutions.

We also maintain a small embedded software and IoT application development center in Singapore, and we expect to launch an engineering, research and development center in the United Kingdom in 2022.

We also maintain a small embedded software and IoT application development center in Singapore, and we expect to launch an engineering, research and development center in the United Kingdom.

We manufacture all our products in our printed electronics manufacturing facility in Shenzhen, China, which has been in operation since 2006.

16 unchanged sentences

The percentages in the table are based on net revenues.

Three months ended March 31

Three months ended June 30,

Six months ended June 30,

(in thousands, except percentages)

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Other income (expense), net

Income (loss) before income taxes

Income before income taxes

Income tax expense (benefit)

Net income (loss)

Comparison of Three Months Ended March 31, 2022 and 2021

Comparison of Three Months Ended June 30, 2022 and 2021

Revenue, net by the markets we serve is as follows:

Three months ended March 31,

Three months ended June 30,

(in thousands, except percentages)

6 unchanged sentences

We currently have products with life-cycles that have exceeded twenty years and are ongoing.

Revenues were up in the three months ended March 31, 2022 compared to the three months ended March 31, 2021 in the industrial and medical markets and for our standard products, and were down in the consumer market.

The increase in revenue from our industrial market customers is due to increased shipments to by these customers for use in their ongoing product lines resulting from increased demand by their customers.

The increase in revenue from our medical market customers is primarily due to an increase in orders from and shipments to our largest medical customer, whose purchasing volume has increased as COVID-19 restrictions on their hospital installations have begun to subside.

Revenues were up in the three months ended June 30, 2022 compared to the three months ended June 30, 2021 in the industrial and medical markets, and were down in the consumer markets and for our standard products.

The increase in revenue from our industrial market customers was due to increased purchasing volume by these customers for use in their ongoing product lines resulting from changes in demand by their customers.

The increase in revenue from our medical market customers is due to a continued increase in orders from and shipments to our largest medical customer, whose purchasing volume has increased as COVID-19 restrictions on their hospital installations have begun to subside.

The decrease in revenue from our consumer market customers is primarily due to a design change by one of our largest consumer products customers.

During the 2022 period, we also sold products in the automotive market for the first time since 2018, as we are again pursuing a program with an automotive manufacturer.

During 2022, we also sold products in the automotive market for the first time since 2018, as we are again pursuing a program with an automotive manufacturer.

In all markets, the timing of orders from our customers is not always predictable and can be concentrated in varying periods during the year to coincide with their project and building plans.

Three months ended March 31,

Three months ended June 30,

(in thousands, except percentages)

Our gross profit and gross margin percentage are impacted by various factors including product mix, customer mix, sales volume, and fluctuations in our cost of revenues, which are comprised of material costs, direct and indirect production labor costs, warehousing and logistics costs, facilities costs, and other costs related to production activities.

Gross profit and gross margin percentage during the three months ended March 31, 2022 were up compared to the three months ended March 31, 2021 due to an increase in revenue, favorable changes in product and customer mix, and production efficiencies.

Three months ended March 31,

Gross profit and gross margin percentage during the three months ended June 30, 2022 were down compared to the three months ended June 30, 2021 due primarily to higher materials and components costs on certain orders, and an increase in production labor costs due to higher production levels and expanded labor hours.

Three months ended June 30,

(in thousands, except percentages)

Engineering, research and development

Engineering and R&D expenses consist primarily of compensation expenses for employees engaged in research, design and development activities, and the cost of those employees’ indirect supplies and allocation of facilities expenses.

Engineering and R&D expenses consist primarily of compensation expenses for employees engaged in research, design and product development activities, and the cost of those employees’ indirect supplies and allocation of facilities expenses.

Our R&D team focuses both on internal design development in order to develop our HMI solutions, as well as design development aimed at addressing our customers’ unique design challenges.

Engineering and R&D costs for the three months ended March 31, 2022 were up compared to the three months ended March 31, 2021 due to increased engineering headcount and increased prototyping and product-development activities.

Three months ended March 31,

Engineering and R&D costs for the three months ended June 30, 2022 were up compared to the three months ended June 30, 2021 due to increased engineering employee headcount and increased prototyping and product-development activities that coincide with supporting new and expanded customer programs and new products.

Three months ended June 30,

(in thousands, except percentages)

1 unchanged sentence

Selling, general and administrative expenses consist primarily of compensation expenses, legal and other professional fees, facilities expenses and communication expenses.

Selling, general and administrative costs for the three months ended March 31, 2022 were up compared to the three months ended March 31, 2021 due to increased costs of professional services, and the prior year having included the $186 thousand benefit from forgiveness of the PPP loan.

Three months ended March 31,

Selling, general and administrative costs for the three months ended June 30, 2022 were substantially unchanged compared to the three months ended June 30, 2021.

Three months ended June 30,

(in thousands, except percentages)

Other income (expense), net

Other income (expense), net consists of non-operating income and expenses, such as gains and losses on marketable securities, foreign currency transaction gains and losses, interest income and expense, and other non-operating items.

Other income (expense), net for the three months ended June 30, 2022 was comprised of $225 thousand of unrealized gains on marketable securities, and $117 thousand of foreign currency transaction gains, while other income (expense), net for the three months ended June 30, 2021 was comprised of $18 thousand of foreign currency transaction losses, and $11 thousand of other non-operating expenses.

Three months ended June 30,

(in thousands, except percentages)

Income tax expense (benefit)

Income tax expense (benefit) reflects statutory tax rates in the jurisdictions in which we operate adjusted for permanent book/tax differences.

Our effective tax rate is directly affected by the relative proportions of revenue and income before taxes in the jurisdictions in which we operate.

Our effective tax rate is directly affected by the relative proportions of earnings and losses in the jurisdictions in which we operate, including our current limitation on realizing tax benefits on domestic losses due to the valuation allowance on our domestic net operating loss carryforward.

Based on the expected mix of domestic and foreign earnings, we anticipate our effective tax rate to remain similar to the U.S.

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could have significant effects, positive and negative, on our effective tax rate, and on our deferred tax assets and liabilities.

Comparison of Six Months Ended June 30, 2022 and 2021

Revenue, net by the markets we serve is as follows:

Six months ended June 30,

(in thousands, except percentages)

Revenues were up in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 in the industrial and medical markets and for our standard products, and were down in the consumer markets.

The increase in revenue from our industrial market customers was due to increased purchasing volume by and shipments to these customers.

The increase in revenue from our medical market customers is due to a continued increase in shipments to our largest medical customer, whose purchasing volume has increased as COVID-19 restrictions have begun to subside.

The decrease in revenue from our consumer market customers is primarily due to a design change by one of our largest consumer products customers.

During 2022, we also sold products in the automotive market for the first time since 2018, as we are again pursuing a program with an automotive manufacturer.

In all markets, the timing of orders from our customers is not always predictable and can be concentrated in varying periods during the year to coincide with their project and building plans.

Six months ended June 30

(in thousands, except percentages)

Gross profit during the six months ended June 30, 2022 was up compared to the six months ended June 30, 2021 due to an increase in revenue, while gross margin percentage was down in the corresponding period due primarily to higher materials and components costs on certain orders, and an increase in production labor costs due to higher production levels and expanded labor hours.

Six months ended June 30,

(in thousands, except percentages)

Engineering, research and development

Engineering and R&D costs for the six months ended June 30, 2022 were up compared to the three months ended June 30, 2021 due to increased engineering employee headcount and increased prototyping and product-development activities that coincide with supporting new and expanded customer programs and new products.

Six months ended June 30,

(in thousands, except percentages)

Selling, general and administrative

Selling, general and administrative costs for the six months ended June 30, 2022 were up compared to the six months ended June 30, 2021 due to increased costs of professional services, as well as prior year having included a $186 thousand benefit from forgiveness of the PPP loan.

Six months ended June 30,

(in thousands, except percentages)

Other income (expense), net

Other income (expense), net for the six months ended June 30, 2022 was comprised of $381 thousand of unrealized gains on marketable securities, $115 thousand of foreign currency transaction gains, and $1 thousand of other non-operating expenses, while other income (expense), net for the six months ended June 30, 2021 was comprised of $8 thousand of foreign currency transaction losses, and $11 thousand of other non-operating expenses.

Six months ended June 30,

(in thousands, except percentages)

Income tax expense (benefit)

Income tax expense (benefit) reflects statutory tax rates in the jurisdictions in which we operate adjusted for permanent book/tax differences.

Our effective tax rate is directly affected by the relative proportions of earnings and losses in the jurisdictions in which we operate.

Liquidity and Capital Resources

Cash requirements for working capital and capital expenditures have been funded from cash balances on hand, cash generated from operations, and sales of equity securities.

As of March 31, 2022, we had cash and cash equivalents of $8.1 million, working capital of $12.2 million and no indebtedness.

As of June 30, 2022, we had cash and cash equivalents of $4.4 million, working capital of $12.0 million and no indebtedness.

Cash and cash equivalents consist of cash and money market funds.

3 unchanged sentences

or foreign taxes to repatriate these funds.

However, our intent is to permanently reinvest these funds outside the U.S.

and our current plans do not demonstrate a need to repatriate cash to fund our U.S.

We have outstanding 200,000 shares of our 8.0% Series A Convertible Preferred Stock that has an aggregate liquidation preference of $5.0 million, for which we pay, when, as and if declared by our board of directors, monthly cumulative cash dividends at an annual rate of 8.0%, which is equivalent to $0.16667 per month and $2.00 per annum per share, based on a per share liquidation preference of $25.00.

9 unchanged sentences

Our cash flows from operating, investing and financing activities are summarized as follows:

Three Months Ended

Six Months Ended

(in thousands)

Net cash used in operating activities

Net cash provided by operating activities

Net cash used in investing activities

Net cash used in financing activities

Net Cash Used In Operating Activities

For the three months ended March 31, 2022, the $367 thousand of cash used in operating activities was attributable to net income of $142 thousand, adjusted for non-cash charges of $64 thousand, unrealized gains on marketable securities of $156 thousand, and cash used in changes in operating assets and liabilities of $417 thousand.

For the three months ended March 31, 2021, the $1 thousand of cash used in operating activities was attributable to net loss of $43 thousand, adjusted for non-cash charges of $71 thousand, non-cash gain on forgiveness of PPP loan of $186 thousand, and cash provided by changes in operating assets and liabilities of $157 thousand.

Accounts receivable increased from $1.080 million at December 31, 2021 to $1.300 million at March 31, 2022 due to higher shipments during the first quarter of 2022 compared to the fourth quarter of 2021.

Net Cash Provided By Operating Activities

For the six months ended June 30, 2022, the $28 thousand of cash provided by operating activities was attributable to net income of $254 thousand, adjusted for non-cash charges of $126 thousand, unrealized gains on marketable securities of $381 thousand, and cash provided by changes in operating assets and liabilities of $29 thousand.

Accounts receivable decreased from $1.1 million at December 31, 2021 to $719 thousand at June 30, 2022 due to higher collections the first half of 2022 compared to the fourth quarter of 2021.

Many of our customers pay promptly and accounts receivable is generally related to the most recent shipments.

Inventories decreased slightly from $814 thousand at December 31, 2021 to $799 thousand at March 31, 2022.

Inventories increased from $814 thousand at December 31, 2021 to $1.0 million at June 30, 2022.

Inventory balances fluctuate depending on the timing of materials purchases and product shipments.

Prepaid expenses and other current assets were relatively unchanged at $388 thousand at March 31, 2022 compared to $391 thousand at December 31, 2021.

Accounts payable and accrued liabilities decreased from $845 thousand at December 31, 2021 to $584 thousand at March 31, 2022, primarily due to the timing of payment for purchases of materials, compensation accruals, and other outside services.

Prepaid expenses and other current assets increased from $391 thousand at December 31, 2021 to $475 thousand at June 30, 2022.

The balance of our prepaid expenses and other assets fluctuates with the timing of payments of insurance premiums, advances, and estimated income taxes.

Accounts payable and accrued liabilities decreased from $845 thousand at December 31, 2021 to $660 thousand at June 30, 2022, primarily due to the timing of payment for purchases of materials, compensation accruals, and other outside services.

For the six months ended June 30, 2021, the $234 thousand of cash provided by operating activities was attributable to net income of $20 thousand, adjusted for non-cash charges of $164 thousand, non-cash gain on forgiveness of PPP loan of $186 thousand, and cash provided by changes in operating assets and liabilities of $236 thousand.

Net Cash Used In Investing Activities

Net cash used in investing activities of $2.185 million for the three months ended March 31, 2022 consisted of purchases of $2.179 million of marketable securities and $6 thousand of property, plant, and equipment.

Net cash used in investing activities of $12 thousand for the three months ended March 31, 2021 consisted of purchases of property, plant, and equipment.

Net cash used in investing activities of $6.0 million for the six months ended June 30, 2022 consisted of purchases of $6.0 million of marketable securities and $9 thousand of property, plant, and equipment.

Net cash used in investing activities of $142 thousand for the six months ended June 30, 2021 consisted of purchases of property, plant, and equipment.

Net Used In Financing Activities

Net cash used in financing activities of $100 thousand for the three months ended March 31, 2022 consisted of payment of dividends on our Series A Convertible Preferred Stock.

There was no cash provided by or used in financing activities during the three months ended March 31, 2021.

Net cash used in financing activities of $200 thousand for the six months ended June 30, 2022 consisted of payment of dividends on our Series A Convertible Preferred Stock.

There was no cash provided by or used in financing activities during the six months ended June 30, 2021.

Off-Balance Sheet Arrangements

3 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