What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-09 compared with 2023-08-10 · 54 added, 49 removed, 143 unchanged (42% of the section changed)

51 unchanged sentences

The percentages in the table are based on net revenues.

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except percentages)

8 unchanged sentences

Income (loss) before income taxes

Income tax expense (benefit)

Income tax expense

Net income (loss)

Comparison of Three Months Ended June 30, 2023 and 2022

Comparison of Three Months Ended September 30, 2023 and 2022

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

Three Months Ended June 30,

Three Months Ended September 30,

(in thousands, except percentages)

We sell our custom products into the industrial, medical, consumer and automotive markets.

We sell our custom products into the industrial, medical and consumer markets.

We sell our standard products through various distribution networks.

4 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 June 30, 2023 compared to the same quarter in 2022 in the industrial and medical markets, and for our standard products, and were down in the consumer and automotive markets.

The increase in revenue from our industrial market customers is due to increased shipments to these customers for use in their ongoing product lines resulting from increased demand by their customers, and also due to sales to new industrial market customers resulting from our acquisitions of SPEC/KWJ and Calman.

The increase in revenue from our medical market customers is primarily due to a continued increase in orders from and shipments to our largest medical customer, whose purchasing volume has increased as demand for installations of their products in hospital settings has continued to increase following the COVID-19 pandemic, and also due to sales to new medical market customers resulting from our acquisitions of SPEC/KWJ and Calman.

The increase in revenue for our standard products is primarily due to the addition of new customers resulting from our acquisitions of SPEC/KWJ and Calman.

Revenues were up in the three months ended September 30, 2023 compared to the same quarter in 2022 in the industrial and medical markets and for our standard products, and were down in the consumer and automotive markets.

The increase in revenue from our industrial market customers is due to increased demand from customers in this market and also due to sales to new industrial market customers resulting from our acquisitions of SPEC/KWJ and Calman.

The increase in revenue from our medical market customers is primarily due to sales to new medical market customers resulting from our acquisitions of SPEC/KWJ and Calman.

The increase in revenue for our standard products is also primarily due to the addition of new customers resulting from our acquisitions of SPEC/KWJ and Calman.

The decrease in revenue from our consumer market customers is primarily due to fluctuations in the timing of receipt and

fulfilment of orders from some of our larger consumer products customers.

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 demand and production plans.

Three Months Ended June 30,

Three Months Ended September 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 June 30, 2023 were up compared to the three months ended June 30, 2022 due primarily to higher revenues (resulting in large part from our acquisitions of SPEC/KWJ and Calman), lower materials and components costs on certain orders, and favorable changes in product and customer mix.

Three Months Ended June 30,

Gross profit during the three months ended September 30, 2023 was up compared to the three months ended September 30, 2022 due primarily to higher revenues (resulting from our acquisitions of SPEC/KWJ and Calman).

Gross margin percentage declined slightly due to changes in product and customer mix.

Three Months Ended September 30,

(in thousands, except percentages)

1 unchanged sentence

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 standard sensor solutions, as well as custom design development aimed at addressing our customers’ unique design challenges.

Engineering and R&D costs for the three months ended June 30, 2023 were up compared to the three months ended June 30, 2022 in absolute amounts but approximately the same as a percentage of revenue;

the increase was due to increased engineering employee headcount following our acquisition of SPEC/KWJ in December 2022, approximately $82,000 of non-cash amortization expense on intangible assets acquired in the SPEC/KWJ acquisition in the current year period, and increased prototyping and product-development activities this year as compared to the prior year.

Three Months Ended June 30,

Our R&D team focuses both on internal design development in support of our technology roadmap and in order to develop our standard sensor solutions, as well as custom design development aimed at addressing our customers’ unique design challenges.

Engineering and R&D costs for the three months ended September 30, 2023 were up compared to the three months ended September 30, 2022 due to increased engineering employee headcount following our acquisition of SPEC/KWJ in December 2022, the inclusion in the current year period of approximately $26,000 of non-cash amortization expense on intangible assets acquired in the SPEC/KWJ acquisition, and increased prototyping and product-development activities this year as compared to the prior year.

Three Months Ended September 30,

(in thousands, except percentages)

1 unchanged sentence

Selling, general and administrative expenses consist primarily of compensation expenses for employees in the sales, marketing, finance and executive functions, legal and other professional fees, communication expenses and facilities costs.

Selling, general and administrative expenses for the three months ended June 30, 2023 were up compared to the three months ended June 30, 2022 due to increased employee headcount following our acquisitions of SPEC/KWJ in December 2022 and Calman in March 2023, and increased legal and other professional fees.

Three Months Ended June 30,

Selling, general and administrative expenses for the three months ended September 30, 2023 were up compared to the three months ended September 30, 2022 due to increased employee headcount following our acquisitions of SPEC/KWJ in December 2022 and Calman in March 2023.

Three Months Ended September 30,

(in thousands, except percentages)

1 unchanged sentence

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 income and expenses.

Other income (expense), net for the three months ended June 30, 2023 was comprised of $27,000 of foreign currency transaction gains, $31,000 of interest income, and $6,000 of other non-operating income, while other income (expense), net for the three months ended June 30, 2022 was comprised of $225,000 of gains on marketable securities, and $117,000 of foreign currency transaction gains.

Three Months Ended June 30,

Other income (expense), net for the three months ended September 30, 2023 was comprised of $31,000 of interest income and $5,000 of foreign

currency transaction losses, while other income (expense), net for the three months ended September 30, 2022 was comprised of $181,000 of gains on marketable securities, $24,000 of foreign currency transaction gains, and $2,000 of other non-operating income.

Three Months Ended September 30,

(in thousands, except percentages)

3 unchanged sentences

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

statutory rate of 21% primarily due to a significant portion of our consolidating earnings being recorded in the jurisdictions of China (25% tax rate) and the United Kingdom (25% tax rate), and to a lesser extent in Singapore (17% tax rate), and Hong Kong (21% tax rate), while our domestic losses do not benefit our effective tax rate due to the valuation allowance.

statutory rate of 21% primarily due to a significant portion of our consolidating earnings being recorded in the jurisdictions of China (25% tax rate) and the United Kingdom (25% tax rate), while our domestic losses do not benefit our effective tax rate due to the valuation allowance.

State income taxes also have an impact in the U.S.

6 unchanged sentences

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, 2023 and 2022

Comparison of Nine Months Ended September 30, 2023 and 2022

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

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands, except percentages)

Revenues were up in the six months ended June 30, 2023 compared to the first half of 2022 in the industrial, and medical markets, and for our standard products, and were down in the consumer and automotive markets.

Revenues were up in the nine months ended September 30, 2023 compared to the first nine months of 2022 in the industrial and medical markets, and for our standard products, and were down in the consumer and automotive markets.

The increase in revenue from our industrial market customers is due to increased shipments resulting from increased demand by customers in this market, and also due to sales to new industrial market customers resulting from our acquisitions of SPEC/KWJ and Calman.

The increase in revenue from our medical market customers is primarily due to a continued increase in orders from and shipments to our largest medical customer, whose purchasing volume increased following the COVID-19 pandemic, and also due to sales of our force-sensing technologies to new medical market customers and also due to sales of our new gas-sensing and membrane keypads products resulting from our acquisitions of SPEC/KWJ and Calman.

The increase in revenue for our standard products is primarily due to the addition of new customers resulting from our acquisitions of SPEC/KWJ and Calman.

The decrease in revenue from our consumer market customers is primarily due to fluctuations in the timing of receipt and fulfilment of orders from some of our larger consumer products customers, and cyclicality in their product designs that cause our products to be included in or excluded from their programs from time to time.

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 demand and production plans.

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands, except percentages)

Gross profit during the six months ended June 30, 2023 was up compared to the six months ended June 30, 2022 due to higher revenues (resulting in large part from our acquisitions of SPEC/KWJ and Calman), while gross margin percentage was down due to higher materials and components costs on certain orders and unfavorable changes in product and customer mix.

Six Months Ended June 30,

Gross profit during the nine months ended September 30, 2023 was up compared to the nine months ended September 30, 2022 due to higher revenues (resulting in large part from our acquisitions of SPEC/KWJ and Calman), while gross margin percentage was down due to higher materials and components costs on certain orders and unfavorable changes in product and customer mix.

Nine Months Ended September 30,

(in thousands, except percentages)

Engineering, research and development

Engineering and R&D costs for the six months ended June 30, 2023 were up compared to the six months ended June 30, 2022 due to increased engineering employee headcount following our acquisition of SPEC/KWJ in December 2022, approximately $82,000 of non-cash amortization expense on intangible assets acquired in the SPEC/KWJ acquisition in the current year period, and increased prototyping and product-development activities this year as compared to the prior year.

Six Months Ended June 30,

Engineering and R&D costs for the nine months ended September 30, 2023 were up compared to the nine months ended September 30, 2022 due to increased engineering employee headcount following our acquisition of SPEC/KWJ in December 2022, the inclusion in the current year period of approximately $108,000 of non-cash amortization expense on intangible assets acquired in the SPEC/KWJ acquisition, and increased prototyping and product-development activities this year as compared to the prior year.

Nine Months Ended September 30,

(in thousands, except percentages)

Selling, general and administrative

Selling, general and administrative expenses for the six months ended June 30, 2023 were up compared to the six months ended June 30, 2022 due to increased employee headcount following our acquisitions of SPEC/KWJ in December 2022 and Calman in March 2023, and increased legal and other professional fees.

Six Months Ended June 30,

Selling, general and administrative expenses for the nine months ended September 30, 2023 were up compared to the nine months ended September 30, 2022 due to increased employee headcount following our acquisitions of SPEC/KWJ in December 2022 and Calman in March 2023, and increased legal and other professional fees.

Nine Months Ended September 30,

(in thousands, except percentages)

Other income (expense), net

Other income (expense), net for the six months ended June 30, 2023 was comprised of $24,000 of foreign currency transaction gains, and $98,000 of interest income, and $6,000 of other non-operating income, while other income (expense), net for the six months ended June 30, 2022 was comprised of $381,000 of gains on marketable securities, $115,000 of foreign currency transaction gains, and $1,000 of other non-operating income.

Six Months Ended June 30,

Other income (expense), net for the nine months ended September 30, 2023 was comprised of $129,000 of interest income, $19,000 of foreign currency transaction gains, and $6,000 of other non-operating income, while other income (expense), net for the nine months ended September 30, 2022 was comprised of $562,000 of gains on marketable securities, $139,000 of foreign currency transaction gains, and $3,000 of other non-operating income.

Nine Months Ended September 30,

(in thousands, except percentages)

4 unchanged sentences

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 June 30, 2023, we had cash and cash equivalents of $5.1 million, working capital of $8.3 million and no indebtedness.

As of September 30, 2023, we had cash and cash equivalents of $5.2 million, working capital of $8.0 million and no indebtedness.

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

16 unchanged sentences

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

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

3 unchanged sentences

Net Cash Provided By (Used In) Operating Activities

For the six months ended June 30, 2023, the $245,000 of cash used in operating activities was attributable to net income of $190,000, adjusted for non-cash charges of $194,000 and offset by cash used in changes in operating assets and liabilities of $629,000.

Accounts receivable increased from $1.2 million at December 31, 2022 to $2.1 million at June 30, 2023 due to higher shipments during the second quarter of 2023 compared to the second quarter of 2022, and the addition of accounts receivable from our March 2023 acquisition of Calman.

For the nine months ended September 30, 2023, the $155,000 of cash provided by operating activities was attributable to net income of $65,000, adjusted for non-cash charges of $292,000 and offset by cash used in changes in operating assets and liabilities of $202,000.

Accounts receivable increased from $1.2 million at December 31, 2022 to $1.6 million at September 30, 2023 due to higher shipments during the third quarter of 2023 compared to the third quarter of 2022, and the addition of accounts receivable from our March 2023 acquisition of Calman.

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

Inventories increased from $2.1 million at December 31, 2022 to $2.9 million at June 30, 2023.

Inventories increased from $2.1 million at December 31, 2022 to $2.9 million at September 30, 2023.

Inventory balances fluctuate depending on the timing of materials purchases and product shipments, and also increased due to our March 2023 acquisition of Calman.

Prepaid expenses and other current assets decreased from $321,000 at December 31, 2022 to $252,000 at June 30, 2023 due primarily to the receipt of the amount collected from the SPEC/KWJ acquisition escrow resulting from the reduction in the purchase price upon finalization of their closing-date working capital.

Accounts payable and accrued liabilities increased from $841,000 at December 31, 2022 to $1,566,000 at June 30, 2023, primarily due to purchase consideration that remains payable to the prior owners of Calman, and also due to the timing of payment for purchases of materials, compensation accruals, and other outside services, and to the addition of Calman’s accounts payable and accrued liabilities to our consolidated balances.

For the six months ended June 30, 2022, the $28,000 of cash provided by operating activities was attributable to net income of $254,000, adjusted for non-cash charges of $126,000 and unrealized gains on marketable securities of $381,000 and cash provided by changes in operating assets and liabilities of $29,000.

Prepaid expenses and other current assets decreased from $321,000 at December 31, 2022 to $226,000 at September 30, 2023 due primarily to the receipt of the amount collected from the SPEC/KWJ acquisition escrow resulting from the reduction in the purchase price upon finalization of their closing-date working capital.

Accounts payable and accrued liabilities increased from $841,000 at December 31, 2022 to $1.4 million at September 30, 2023, primarily due to purchase consideration that remains payable to the prior owners of Calman, offset by other factors such as the timing of payment for purchases of materials, compensation accruals, and other outside services, and the addition of Calman’s accounts payable and accrued liabilities to our consolidated balances.

For the nine months ended September 30, 2022, the $385,000 of cash used in operating activities was attributable to net income of $260,000, adjusted for non-cash charges of $201,000 and unrealized gains on marketable securities of $562,000 and cash used in changes in operating assets and liabilities of $284,000.

Net Cash Used In Investing Activities

Net cash used in investing activities of $4.3 million for the six months ended June 30, 2023 consisted of $4.3 million used to acquire the equity interests of Calman (which is net of $1.6 million of cash acquired), and a minor amount 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 $9,000 of property, plant, and equipment.

Net Used In Financing Activities

Net cash used in financing activities of $377,000 for the six months ended June 30, 2023 consisted of $177,000 used for repurchases of 19,403 shares of common stock and $200,000 used for payments of dividends on our Preferred Stock.

Net cash used in financing activities of $200,000 for the six months ended June 30, 2022 was for payments of dividends on our Preferred Stock.

Net cash used in investing activities of $4.3 million for the nine months ended September 30, 2023 consisted of $4.3 million used to acquire the equity interests of Calman (which is net of $1.6 million of cash acquired), and $44,000 used for purchases of property, plant, and equipment.

Net cash used in investing activities of $6.0 million for the nine months ended September 30, 2022 consisted of purchases of $6.0 million of marketable securities (net of sales) and $9,000 of property, plant, and equipment.

Net Cash Used In Financing Activities

Net cash used in financing activities of $650,000 for the nine months ended September 30, 2023 consisted of $350,000 used for repurchases of 32,120 shares of common stock and $300,000 used for payments of dividends on our Preferred Stock.

Net cash used in financing activities of $300,000 for the nine months ended September 30, 2022 was for payments of dividends on our Preferred Stock.

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