What changed in this filing

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Item 1. Financial Statements

2023-11-09 compared with 2023-08-10 · 102 added, 91 removed, 506 unchanged (28% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

(in thousands, except par value)

22 unchanged sentences

Preferred stock, $ 0.01 par value:

1,000 shares authorized, 200 shares of Series A Convertible Preferred Stock issued and outstanding at both June 30, 2023 and December 31, 2022 ($ 5.0 million liquidation preference)

1,000 shares authorized, 200 shares of Series A Convertible Preferred Stock issued and outstanding at both September 30, 2023 and December 31, 2022 ($ 5.0 million liquidation preference)

Common stock, $ 0.001 par value:

30,000 shares authorized, 6,591 shares issued and outstanding at June 30, 2023;

30,000 shares authorized, 6,574 shares issued and outstanding at September 30, 2023;

6,610 shares issued and outstanding at December 31, 2022

7 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except per share data)

9 unchanged sentences

Income tax expense

Net income (loss)

Net income (loss) applicable to common stockholders

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

Net income (loss)

Other comprehensive income (loss), net of tax:

7 unchanged sentences

Stockholders’

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Income (Loss)

(in thousands)

Balance at March 31, 2023

Balance at June 30, 2023

Net income (loss)

Preferred stock dividends

Foreign currency translation adjustment

Stock-based compensation expense

Repurchases of common stock

Balance at June 30, 2023

Balance at September 30, 2023

Preferred Stock

1 unchanged sentence

Stockholders’

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Income (Loss)

1 unchanged sentence

Balance at December 31, 2022

Net income (loss)

Preferred stock dividends

Foreign currency translation adjustment

Stock-based compensation expense

Repurchases of common stock

Balance at June 30, 2023

Balance at September 30, 2023

Preferred Stock

1 unchanged sentence

Stockholders’

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Income (Loss)

(in thousands)

Balance at March 31, 2022

Balance at June 30, 2022

Preferred stock dividends

Foreign currency translation adjustment

Balance at June 30, 2022

Stock-based compensation expense

Balance at September 30, 2022

Preferred Stock

1 unchanged sentence

Stockholders’

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Income (Loss)

3 unchanged sentences

Foreign currency translation adjustment

Balance at June 30, 2022

Stock-based compensation expense

Balance at September 30, 2022

See accompanying notes to these unaudited condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

3 unchanged sentences

Unrealized and realized (gains) on marketable securities

Stock-based compensation expense

Adjustment to reconcile operating lease expense to cash paid

9 unchanged sentences

Purchases of marketable securities

Proceeds from sales of marketable securities

Purchases of property, plant and equipment

4 unchanged sentences

Net cash used in financing activities

Effect of exchange rate changes on cash, cash equivalents and restricted cash

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

Cash, cash equivalents and restricted cash, beginning of period

Cash, cash equivalents and restricted cash, end of period

Reconciliation of cash, cash equivalents and restricted cash, end of period:

Effect of exchange rate changes on cash and cash equivalents

Net (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Restricted cash, end of period

Cash, cash equivalents and restricted cash, end of period

Supplemental disclosure of cash flow information:

81 unchanged sentences

The benefits of tax deductions in excess of recognized compensation cost are reported as a financing cash flow.

As of June 30, 2023, there were no stock-based compensation awards outstanding.

As of September 30, 2023, there were no stock-based compensation awards outstanding.

Other Income (Expense)

22 unchanged sentences

Basic earnings per share is computed by dividing net income (loss) applicable to common stockholders (i.e., net income (loss) adjusted for preferred stock dividends declared or accumulated) by the weighted average number of common shares outstanding during the period.

Diluted earnings per share is computed by dividing net income (loss) by the weighted average number of diluted common shares, which is inclusive of common stock equivalents from unexercised stock options, unvested restricted stock units, and shares issuable upon conversion of convertible preferred stock.

Unexercised stock options, unvested restricted stock units, and convertible preferred stock are considered to be common stock equivalents if, using the treasury stock method, they are determined to be dilutive.

Diluted earnings per share is computed by dividing net income (loss) applicable to common stockholders by the weighted average number of diluted common shares, which includes common stock equivalents from, if applicable, and if dilutive, unexercised stock options, unvested restricted stock units, and shares issuable upon conversion of convertible preferred stock.

Unexercised stock options and unvested restricted stock units are considered to be common stock equivalents if, using the treasury stock method, they are determined to be dilutive.

Convertible preferred stock is considered to be common stock equivalents if, using the if-converted method, they are determined to be dilutive.

Under the two-class method of determining earnings for each class of stock, we consider the dividend rights and participating rights in undistributed earnings for each class of stock.

32 unchanged sentences

Subsequent Events

We have evaluated subsequent events through August 10, 2023, being the date these condensed consolidated financial statements were issued.

We have evaluated subsequent events through November 9, 2023, being the date these condensed consolidated financial statements were issued.

Note 2 – Details of Certain Financial Statement Components

Inventories, stated at the lower of cost or net realizable value, consisted of the following:

September 30,

(in thousands)

4 unchanged sentences

Property, plant and equipment, net, consisted of the following:

September 30,

Property, plant and equipment, net

4 unchanged sentences

Total property, plant and equipment, net

Depreciation expense totaled $ 46,000 and $ 50,000 for the three months ended June 30, 2023 and 2022, respectively.

Depreciation expense totaled $ 83,000 and $ 102,000 for the six months ended June 30, 2023 and 2022, respectively.

Depreciation expense totaled $ 42,000 and $ 48,000 for the three months ended September 30, 2023 and 2022, respectively.

Depreciation expense totaled $ 125,000 and $ 150,000 for the nine months ended September 30, 2023 and 2022, respectively.

Intangible assets, net consisted of the following:

September 30,

Intangible assets, net

8 unchanged sentences

Total intangible assets, net

Amortization expense totaled $ 94,000 and $ 13,000 for the three months ended June 30, 2023 and 2022, respectively.

Amortization expense totaled $ 106,000 and $ 28,000 for the six months ended June 30, 2023 and 2022, respectively.

Amortization expense totaled $ 36,000 and $ 14,000 for the three months ended September 30, 2023 and 2022, respectively.

Amortization expense totaled $ 142,000 and $ 42,000 for the nine months ended September 30, 2023 and 2022, respectively.

Future amortization expense on existing intangible assets is as follows:

3 unchanged sentences

Accrued liabilities consisted of the following:

September 30,

Accrued liabilities

9 unchanged sentences

The Asset Purchase Agreement contains customary representations, warranties and covenants, including non-competition covenants.

Under the terms of the Asset Purchase Agreement, the purchase price for both companies’ assets is $ 2,000,000 plus the amount by which the combined companies’ net working capital at closing is more than $ 1,350,000 .

Under the terms of the Asset Purchase Agreement, the purchase price for both companies’ assets was $ 2,000,000 plus the amount by which the combined companies’ net working capital at closing was more than $ 1,350,000 .

At closing, the purchase price was preliminarily calculated as $ 2,269,000 , of which $ 1,519,000 was paid to SPEC/KWJ, and $ 750,000 was paid into escrow against purchase price adjustments and potential claims for breaches of representations and warranties by SPEC/KWJ or the equity holders.

5 unchanged sentences

Accounts payable and accrued liabilities

Net identifiable assets acquired

Net identifiable tangible assets acquired

Developed technology

5 unchanged sentences

Net assets acquired

After our December 31, 2022 and March 31, 2023 financial statements were issued, the valuation report for the acquired intangible assets was completed.

Based on the results of that valuation report, we have revised the preliminarily allocated $ 650,000 of goodwill to be allocated as follows:

$ 50,000 property and equipment, $ 134,000 developed technology, $ 96,000 customer relationships, $ 47,000 trademarks and tradenames, $ 29,000 in-process research and development, $ 26,000 non-compete agreements, $ 22,000 order backlog, and $ 246,000 goodwill.

In addition, the changes in these provisional amounts resulted in an increase in amortization expense and accumulated amortization of $ 82,000 recorded in the three months ended June 30, 2023, of which $ 12,000 relates to the three months ended December 31, 2022, and $ 37,000 relates to the three months ended March 31, 2023.

The fair value of accounts receivable is equal to the $ 306,000 gross contractual amount, as we expect the entire balance to be collectible.

4 unchanged sentences

The Share Purchase Agreement contains customary representations, warranties and covenants, including non-competition covenants on the part of the sellers, who continue to be employed by Calman.

Under the terms of the Share Purchase Agreement, the purchase price is GB£ 4,127,000 (approximately $ 4,912,000 ), of which GB£ 3,627,000 (approximately $ 4,317,000 ) was paid at closing and the remaining GB£ 500,000 (approximately $ 595,000 ) is being held back for up to nine months against potential claims for breaches of representations and warranties (subject to certain deductibles and caps).

Under the terms of the Share Purchase Agreement, the purchase price was GB£ 4,127,000 (approximately $ 4,912,000 ), of which GB£ 3,627,000 (approximately $ 4,317,000 ) was paid at closing and the remaining GB£ 500,000 (approximately $ 595,000 ) is being held back for up to nine months against potential claims for breaches of representations and warranties (subject to certain deductibles and caps).

The purchase price was subject to adjustment based on the extent, if any, to which Calman’s net working capital at closing was more or less than GB£ 600,000 (approximately $ 714,000 ), which resulted in additional purchase consideration of approximately GB£ 1,292,000 (approximately $ 1,538,000 ).

7 unchanged sentences

Lease liabilities

Net identifiable assets acquired

Net identifiable tangible assets acquired

Net assets acquired

2 unchanged sentences

The goodwill is not expected to be deductible for income tax purposes.

The following represents the pro forma consolidated statement of operations as if both SPEC/KWJ and Calman had been included in our consolidated results for the periods ended June 30, 2023 and 2022 (unaudited):

Three Months Ended June 30,

Six Months Ended June 30,

The following represents the pro forma consolidated statement of operations as if both SPEC/KWJ and Calman had been included in our consolidated results for the periods ended September 30, 2023 and 2022 (unaudited):

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

5 unchanged sentences

The specific identification method is used to determine realized gains and losses on AFS securities.

During the three months ended June 30, 2023 and 2022, we purchased $ 0 and $ 3.8 million of marketable securities, respectively, and we sold $ 0 of marketable equity securities in each period.

During the six months ended June 30, 2023 and 2022, we purchased $ 0 and $ 6.0 million of marketable securities, respectively, and we sold $ 0 of marketable equity securities in each period.

During the three months ended June 30, 2023 and 2022, gross realized and unrealized gains were $ 0 and $ 318,000 , respectively, and gross realized and unrealized losses were $ 0 in each period.

During the six months ended June 30, 2023 and 2022, gross realized and unrealized gains were $ 0 and $ 225,000 , respectively, and gross realized and unrealized losses were $ 0 in each period.

As of June 30, 2023, we had no marketable equity securities.

During the three months ended September 30, 2023 and 2022, we purchased $ 0 and $ 0 of marketable securities, respectively, and we sold $ 0 and $ 15,000 of marketable equity securities, respectively.

During the nine months ended September 30, 2023 and 2022, we purchased $ 0 and $ 6.0 million of marketable securities, respectively, and we sold $ 0 and $ 15,000 of marketable equity securities, respectively.

During the three months ended September 30, 2023 and 2022, gross realized and unrealized gains were $ 0 and $ 2,000 , respectively, and gross realized and unrealized losses were $ 0 and $ 0 , respectively.

During the nine months ended September 30, 2023 and 2022, gross realized and unrealized gains were $ 0 and $ 2,000 , respectively, and gross realized and unrealized losses were $ 0 and $ 0 , respectively.

As of September 30, 2023, we had no marketable equity securities.

Note 5 – Earnings Per Share

Basic earnings per share is computed by dividing net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding during the period.

Diluted earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period, plus the dilutive effect of outstanding stock options, restricted stock units, and common shares issuable upon conversion of convertible preferred stock using the treasury stock method.

Diluted earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period, plus the dilutive effect of any dilutive securities.

The following table sets forth the computation of basic and diluted earnings per share:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(in thousands, except per share data)

Net income (loss)

Preferred stock dividends

6 unchanged sentences

Shares subject to anti-dilutive Series A Convertible Preferred Stock excluded from calculation

200,000 shares of Series A Convertible Preferred Stock convertible into 400,000 shares of common stock were outstanding but were not included in the computation of diluted earnings (loss) per share for the periods presented because the $ 12.50 conversion price per share was greater than the average market price of the common stock for the applicable period.

Note 6 – Stockholders’ Equity

4 unchanged sentences

In May 2023, the Company’s board of directors approved a Stock Repurchase Program to repurchase up to 100,000 shares of the Company’s common stock.

During the three months ended June 30, 2023, the Company repurchased 13,903 shares for an aggregate purchase price of approximately $ 127,000 .

During the three and nine months ended September 30, 2023, the Company repurchased 18,217 and 32,120 shares, respectively, for aggregate purchase prices of approximately $ 173,000 and $ 300,000 , respectively.

Note 7 – Significant Customers, Concentrations of Credit Risk, and Geographic Information

We manage and operate our business through one operating segment.

Net revenues from customers equal to or greater than 10% of total net revenues are as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

* Less than 10% of total net revenues

Net revenues by geographic area are as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

7 unchanged sentences

Accounts receivable balances are monitored on an ongoing basis, and accounts deemed to have credit risk are fully reserved.

At June 30, 2023, two customers accounted for 29 % and 18 % of total accounts receivable.

At September 30, 2023, two customers accounted for 26 % and 17 % of total accounts receivable.

At December 31, 2022, two customers accounted for 20 % and 13 % of total accounts receivable.

Our allowance for doubtful accounts was $ 0 at both June 30, 2023 and December 31, 2022.

Our allowance for doubtful accounts was $ 0 at both September 30, 2023 and December 31, 2022.

Our long-lived assets were geographically located as follows:

September 30,

(in thousands)

5 unchanged sentences

Bronson, our Chairman of the Board, President and Chief Executive Officer, is also the President, Chief Executive Officer and a director of Qualstar.

Hoffman, our Chief Financial Officer, is also the Chief Financial Officer of Qualstar.

Hoffman, our Chief Financial Officer, was also previously the Chief Financial Officer of Qualstar.

Bronson, together with BKF Capital Group, Inc.

(OTCMKTS:BKFG) which he controls, has a controlling interest in both Interlink and Qualstar.

We have a facilities agreement with Qualstar to allow Qualstar to use of a portion of our Irvine, California and Los Angeles, California office facilities, for which we have agreed to split substantially all rent and lease-related costs on an apportioned basis according to the approximate relative usage levels by each entity.

(OTCMKTS:BKFG) which he controls, have a controlling interest in both Interlink and Qualstar.

We have a facilities agreement with Qualstar to allow Qualstar to use of a portion of our Irvine, California office facility, and also our former Los Angeles, California office facility, for which we have agreed to split substantially all rent and lease-related costs on an apportioned basis according to the approximate relative usage levels by each entity.

Qualstar also has a facilities agreement with us to allow us to use of a portion of its Camarillo, California office and warehouse facility, for which we have agreed to split substantially all rent and lease-related costs on an apportioned basis according to the approximate relative usage levels by each entity.

2 unchanged sentences

Transactions with Qualstar and its subsidiaries are as follows:

Three Months Ended June 30,

Three Months Ended September 30,

(in thousands)

Balance at April 1,

Balance at July 1,

Billed (or accrued) to Qualstar by Interlink

2 unchanged sentences

Paid by Interlink to Qualstar

Balance at June 30,

Six Months Ended June 30,

Balance at September 30,

Nine Months Ended September 30,

(in thousands)

4 unchanged sentences

Paid by Interlink to Qualstar

Balance at June 30,

Balance at September 30,

BKF Capital Group (OTCMKTS:BKFG)

9 unchanged sentences

Transactions with BKF Capital and its subsidiaries are as follows:

Three Months Ended June 30,

Three Months Ended September 30,

(in thousands)

Balance at April 1,

Balance at July 1,

Billed (or accrued) to BKF Capital by Interlink

2 unchanged sentences

Paid by Interlink to BKF Capital

Balance at June 30,

Six Months Ended June 30,

Balance at September 30,

Nine Months Ended September 30,

(in thousands)

4 unchanged sentences

Paid by Interlink to BKF Capital

Balance at June 30,

Balance at September 30,

Note 9 – Income Taxes

1 unchanged sentence

Our effective income tax rates are generally higher than the blended statutory tax rates of the jurisdictions in which we operate due to having incurred income tax expense on taxable income in certain jurisdictions, while not being able to benefit from losses in other jurisdictions for which our net operating loss carryovers (“NOLs”) are subject to valuation allowance.

Income tax expense as a percentage of income/loss before income taxes was 18.9 % for the three months ended June 30, 2023 versus 41.4 % for the comparable quarter in the prior year.

Income tax expense as a percentage of income before income taxes was 47.4 % for the six months ended June 30, 2023 versus 30.2 % for the first half of the prior year.

Income tax expense as a percentage of income/loss before income taxes was 89.3 % for the three months ended September 30, 2023 versus 64.7 % for the comparable quarter in the prior year.

Income tax expense as a percentage of income before income taxes was 78.0 % for the nine months ended September 30, 2023 versus 31.8 % for the first nine months of the prior year.

We experienced an ownership change under IRC Section 382 in 2010.

2 unchanged sentences

Certain state jurisdictions within which we operate contain similar provisions and limitations.

As of June 30, 2023, all of the remaining federal and state NOLs are subject to annual limitations due to the 2010 ownership change.

As of September 30, 2023, all of the remaining federal and state NOLs are subject to annual limitations due to the 2010 ownership change.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets.

We analyzed our need to record a valuation allowance against our otherwise recognizable net deferred tax assets in the federal, state and foreign jurisdictions, and we determined that a valuation allowance on federal and state deferred tax assets was necessary at both June 30, 2023 and December 31, 2022, while no valuation allowance on foreign deferred tax assets was necessary at both June 30, 2023 and December 31, 2022.

We analyzed our need to record a valuation allowance against our otherwise recognizable net deferred tax assets in the federal, state and foreign jurisdictions, and we determined that a valuation allowance on federal and state deferred tax assets was necessary at both September 30, 2023 and December 31, 2022, while no valuation allowance on foreign deferred tax assets was necessary at both September 30, 2023 and December 31, 2022.

The amount of deferred tax assets considered realizable could be adjusted in future periods if estimates of future taxable income during the carryforward period are reduced or increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for future profitability.

1 unchanged sentence

We have elected to account for GILTI as a period cost if and when occurred, rather than recognizing deferred taxes for basis differences expected to reverse.

Of the $ 5.1 million of our cash balance at June 30, 2023, $ 1.3 million was held by our foreign subsidiaries.

Of our $5.2 million cash balance at September 30, 2023, $ 1.6 million was held by our foreign subsidiaries.

If these funds are needed for our operations in the U.S., we have several methods to repatriate the funds without significant tax effects, including repayment of intercompany loans or distributions of previously taxed income.

7 unchanged sentences

The rate implicit in each lease is not readily determinable, and we therefore use our incremental borrowing rate to determine the present value of the lease payments.

The weighted average incremental borrowing rate used to determine the initial value of right-of-use (“ROU”) assets and lease liabilities capitalized during the six months ended June 30, 2023 was 5.5 %, and during the six months ended June 30, 2022 was 7.0 %.

The weighted average incremental borrowing rate used to determine the initial value of right-of-use (“ROU”) assets and lease liabilities capitalized during the nine months ended September 30, 2023 was 5.5 %, and during the nine months ended September 30, 2022 was 7.0 %.

ROU assets for operating leases are periodically reduced by impairment losses.

We use the long-lived assets impairment guidance in ASC Subtopic 360-10, Property, Plant and Equipment – Overall , to determine whether a ROU asset is impaired, and if so, the amount of the impairment loss to recognize.

As of June 30, 2023, we have not recognized any impairment losses for our ROU assets.

As of September 30, 2023, we have not recognized any impairment losses for our ROU assets.

We monitor for events or changes in circumstances that require a reassessment of our leases.

1 unchanged sentence

In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in profit or loss.

In June 2020, we entered into a sublease agreement to lease 4,351 square feet of office space in Irvine, California for approximately $ 6,000 per month with 3 percent annual increases, plus common area maintenance costs.

The lease term began July 1, 2020 and ended May 31, 2023.

In June 2023, we entered into a lease agreement to lease 1,560 square feet of office space in Irvine, California for approximately $ 4,000 per month for a term commencing June 2023 and ending May 2024.

Our Irvine, California office is used for executive offices, sales, finance and administration.

We previously occupied a different 4,351 square-foot office space in Irvine, California from June 2020 to May 2023 under a sublease agreement for approximately $ 6,000 per month, plus common area maintenance costs.

We lease a 14,476 square-foot manufacturing facility and administrative office in Shenzhen, China.

2 unchanged sentences

In February 2023, we renewed this lease for the period March 2023 through February 2024 for approximately $ 18,000 per month.

We lease an approximately 9,800 square-foot manufacturing facility and administrative offices in Irvine, Scotland for approximately $ 5,000 per month (with a 50 % discount through October 2023).

We lease a 9,800 square-foot manufacturing facility and administrative offices in Irvine, Scotland for approximately $ 5,000 per month (with a 50 % discount through October 2023).

This lease term ends February 2028, with an option for us to terminate the lease in February 2025.

5 unchanged sentences

This lease term ends November 2024.

We sublease on a month-to-month basis approximately 1,000 square-feet of office space in Los Angeles, California for approximately $ 1,000 per month.

As of June 30, 2023, we had current and long-term lease liabilities of $ 157,000 and $ 77,000 , respectively, and right-of-use assets of $ 225,000 .

As of September 30, 2023, we had current and long-term lease liabilities of $ 141,000 and $ 54,000 , respectively, and right-of-use assets of $ 181,000 .

As of December 31, 2022, we had current and long-term lease liabilities of $ 131,000 and $ 46,000 , respectively, and right of use assets of $ 172,000 .

Future imputed interest as of June 30, 2023 totaled $ 14,000 .

The weighted average remaining lease term of our leases as of June 30, 2023 is 1.1 years.

Future imputed interest as of September 30, 2023 totaled $ 10,000 .

The weighted average remaining lease term of our leases as of September 30, 2023 is 0.9 years.

Future minimum lease payments under non-cancellable operating leases that have remaining non-cancellable lease terms in excess of one year are as follows:

5 unchanged sentences

Present value of lease liabilities

During the three months ended June 30, 2023, we incurred approximately $ 129,000 in operating lease costs, of which $ 52,000 is included in cost of revenue and $ 77,000 is included in operating expenses in our condensed consolidated statements of operations.

During the three months ended June 30, 2022, we incurred approximately $ 61,000 in operating lease costs, of which $ 30,000 is included in cost of revenue and $ 31,000 is included in operating expenses in our condensed consolidated statements of operations.

During the six months ended June 30, 2023, we incurred approximately $ 250,000 in operating lease costs, of which $ 96,000 is included in cost of revenue and $ 154,000 is included in operating expenses in our condensed consolidated statements of operations.

During the six months ended June 30, 2022, we incurred approximately $ 122,000 in operating lease costs, of which $ 62,000 is included in cost of revenue and $ 60,000 is included in operating expenses in our condensed consolidated statements of operations.

We are not party to any legal proceedings as of June 30, 2023.

During the three months ended September 30, 2023, we incurred approximately $ 129,000 in operating lease costs, of which $ 54,000 is included in cost of revenue and $ 75,000 is included in operating expenses in our condensed consolidated statements of operations.

During the three months ended September 30, 2022, we incurred approximately $ 67,000 in operating lease costs, of which $ 33,000 is included in cost of revenue and $ 34,000 is included in operating expenses in our condensed consolidated statements of operations.

During the nine months ended September 30, 2023, we incurred approximately $ 379,000 in operating lease costs, of which $ 149,000 is included in cost of revenue and $ 230,000 is included in operating expenses in our condensed consolidated statements of operations.

During the nine months ended September 30, 2022, we incurred approximately $ 189,000 in operating lease costs, of which $ 94,000 is included in cost of revenue and $ 95,000 is included in operating expenses in our condensed consolidated statements of operations.

We are not party to any legal proceedings as of September 30, 2023.

We are occasionally involved in legal proceedings in the ordinary course of business, including actions against us which assert or may assert claims or seek to impose fines and penalties in substantial amounts.

2 unchanged sentences

We generally warrant our products against defects for one year from date of shipment, with certain exceptions in which the warranty period can extend to more than one year based on contractual agreements.

Our warranty reserves are established at the time of sale and are updated throughout the warranty period based upon numerous factors including historical warranty return rates and claim costs over various warranty periods.

Our warranty reserves are established at the

time of sale and are updated throughout the warranty period based upon numerous factors including historical warranty return rates and claim costs over various warranty periods.

Historically, our warranty returns have not been material.

35 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 1. Financial Statements