What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-08-08 · 50 added, 49 removed, 135 unchanged (42% of the section changed)

33 unchanged sentences

We have invested significantly in the expansion of our technology platforms through our own internal development to ensure we continue to provide the market with leading-edge solutions that are seamless to deploy and perform flawlessly.

Having previously built an R&D organization in Singapore to develop new product offerings that will meet the market’s growing demand for touch technology and smart surfaces, in 2020 we relocated a majority of our R&D and product development efforts to Camarillo, California, where we have established a Global Product Development and Materials Science Center.

Combined with the advanced and proprietary facilities in Silicon Valley and Scotland that were acquired in connection with the acquisitions of SPEC and KWJ and Calman, we believe this will allow us to grow our business and be more closely aligned with current and future top-tier customers.

Having previously built an R&D organization in Singapore to develop new product offerings to meet the market’s growing demand for touch technology and smart surfaces, in 2020 we relocated a majority of our R&D and product development efforts to Camarillo, California, where we have established a Global Product Development and Materials Science Center.

Combined with the advanced and proprietary facilities in Silicon Valley and Scotland that were acquired in connection with the acquisitions of SPEC/KWJ and Calman, we believe this will allow us to grow our business and be more closely aligned with current and future top-tier customers.

We also plan to explore potential strategic relationships with companies and technology institutes that will support our growth initiatives.

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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)

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Net income (loss)

Comparison of Three Months Ended June 30, 2024 and 2023

Comparison of Three Months Ended September 30, 2024 and 2023

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

Three months ended June 30,

Three Months Ended September 30,

(in thousands, except percentages)

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We currently have products with life cycles that have exceeded 20 years and are ongoing.

Revenues were down in the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 for sales to customers in the medical, industrial, and consumer markets into which we sell our custom products, while revenues for sales of our standard products were up marginally in the second quarter of 2024 compared to the prior year.

Revenues were down in the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 for sales to customers in the medical and industrial markets into which we sell our custom products, and also for our standard products, while revenues for sales of our custom products to customers in the consumer market were up marginally.

Fluctuations in our revenue result from variations in the trends and timing of shipments of our products which are impacted by fluctuations in customer demand.

In the second quarter of 2024, we experienced lower demand from certain of our larger force-sensor customers in the medical, industrial, and consumer markets compared to the second quarter of 2023.

In the third quarter of 2024, we experienced lower demand from certain of our larger force-sensor customers in the medical and industrial markets compared to the third quarter of 2023, and we also experienced delays in fulfilment of orders from one of our larger customers of our membrane printed electronics products made in our Calman subsidiary.

In all markets, the timing of orders from our customers is not always predictable and can be concentrated in varying periods to coincide with our customers’ project and building 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 were down during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 due primarily to lower revenues and also in part to changes in product and customer mix.

Three months ended June 30,

Gross profit and gross margin percentage were down during the three months ended September 30, 2024 compared to the three months ended September 30, 2023 due primarily to lower revenues and also in part to changes in product and customer mix.

Three Months Ended September 30,

(in thousands, except percentages)

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Engineering and R&D expenses consist primarily of compensation expenses for employees engaged in research, design and development activities, plus 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 products and 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, 2024 were down compared to the three months ended June 30, 2023 due to decreased engineering employee and consultant compensation costs, offset in part by increased intangible asset amortization expense.

Three months ended June 30,

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

Engineering and R&D costs for the three months ended September 30, 2024 were down compared to the three months ended September 30, 2023 due to decreased engineering employee and consultant compensation costs.

Three Months Ended September 30,

(in thousands, except percentages)

Selling, general and administrative

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

Selling, general and administrative costs for the three months ended June 30, 2024 were up compared to the three months ended June 30, 2023 due to increased intangible asset amortization expense due to the Calman acquisition, partly offset by lower sales and administrative compensation expense on lower headcount and lower professional services expenses.

Three months ended June 30,

Selling, general and administrative costs for the three months ended September 30, 2024 were up compared to the three months ended September 30, 2023 attributable to increased intangible asset amortization expense due to the Calman acquisition, partly offset by lower sales and administrative compensation expense on lower headcount and lower professional services expenses.

Three Months Ended September 30,

(in thousands, except percentages)

1 unchanged sentence

Other income (expense) 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) for the three months ended June 30, 2024 was comprised of $14,000 of interest income, and $2,000 of foreign currency transaction gains, while other income (expense), net for the three months ended June 30, 2023 was comprised of $31,000 of interest income, and $33,000 of foreign currency transaction gains.

Income tax expense as a percentage of pre-tax income/loss was 3.4% for the three months ended June 30, 2024 versus 18.9% for the comparable period in the prior year.

Other income (expense) for the three months ended September 30, 2024 was comprised of $14,000 of interest income, offset by $33,000 of foreign currency transaction losses, while other income (expense) for the three months ended September 30, 2023 was comprised of $31,000 of interest income, offset by $5,000 of foreign currency transaction losses.

Income tax expense as a percentage of pre-tax income/loss was 5.7% for the three months ended September 30, 2024 versus 89.4% for the comparable period in the prior year.

Our income tax expense is impacted by the mix of domestic and foreign pre-tax earnings and losses, permanent differences between book income/loss and taxable income/loss, and our ability to utilize net operating loss carryovers (“NOLs”).

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statutory tax rate of 21% from quarter to quarter.

The effective tax rates for both of the three-month periods ended June 30, 2024 and 2023 were impacted by the amount of our foreign pre-tax income and the tax expense thereon while not realizing a benefit on our domestic pre-tax loss due to the valuation allowance on our domestic NOLs.

The effective tax rates for both of the three-month periods ended September 30, 2024 and 2023 were impacted by the amount of our foreign pre-tax income and the tax expense thereon while not realizing a benefit on our domestic pre-tax loss due to the valuation allowance on our domestic NOLs.

Discrete tax events may cause our effective rate to fluctuate on a quarterly basis.

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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, 2024 and 2023

Comparison of Nine Months Ended September 30, 2024 and 2023

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 down in the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 for sales to customers in the medical, industrial, and consumer markets into which we sell our custom products, while revenues for sales of our standard products were up in the 2024 period compared to the prior year.

Revenues were down in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 for sales to customers in the medical, industrial, and consumer markets into which we sell our custom products, while revenues for sales of our standard products were up in the 2024 period compared to the prior year.

Fluctuations in our revenue result from variations in the trends and timing of shipments of our products which are impacted by fluctuations in customer demand.

In the first half of 2024, we experienced lower demand from certain of our larger force-sensor customers in the medical, industrial, and consumer markets compared to the first half of 2023.

During the first nine months of 2024, we experienced lower demand from certain of our larger force-sensor customers in the medical, industrial, and consumer markets compared to the first nine months of 2023, and we also experienced delays in fulfilment of orders from one of our larger customers of our membrane printed electronics products made in our Calman subsidiary.

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

Six months ended June 30,

Nine Months Ended September 30,

(in thousands, except percentages)

Gross profit and gross margin percentage were down during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 due primarily to lower revenues and also in part to changes in product and customer mix.

Six months ended June 30,

Gross profit and gross margin percentage were down during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due primarily to lower revenues and also in part to 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, 2024 were down compared to the six months ended June 30, 2023 due to decreased engineering employee and consultant compensation costs, offset in part by increased intangible asset amortization expense.

Six months ended June 30,

Engineering and R&D costs for the nine months ended September 30, 2024 were down compared to the nine months ended September 30, 2023 due to decreased engineering employee and consultant compensation costs.

Nine Months Ended September 30,

(in thousands, except percentages)

Selling, general and administrative

Selling, general and administrative costs for the six months ended June 30, 2024 were up compared to the six months ended June 30, 2023 due to increased intangible asset amortization expense due to the Calman acquisition, partly offset by lower sales and administrative compensation expense on lower headcount and lower professional services expenses.

Six months ended June 30,

Selling, general and administrative costs for the nine months ended September 30, 2024 were up compared to the nine months ended September 30, 2023 attributable to increased intangible asset amortization expense due to the Calman acquisition, partly offset by lower sales and administrative compensation expense on lower headcount and lower professional services expenses.

Nine Months Ended September 30,

(in thousands, except percentages)

Other income (expense), net

Other income (expense) for the six months ended June 30, 2024 was comprised of $32,000 of interest income, and $16,000 of foreign currency transaction gains, while other income (expense) for the six months ended June 30, 2023 was comprised of $98,000 of interest income, and $30,000 of foreign currency transaction gains.

Income tax expense as a percentage of pre-tax income/loss was 3.1% for the six months ended June 30, 2024 versus 47.4% for the comparable period in the prior year.

Other income (expense) for the nine months ended September 30, 2024 was comprised of $46,000 of interest income, offset by $17,000 of foreign currency transaction losses, while other income (expense) for the nine months ended September 30, 2023 was comprised of $129,000 of interest income, and $25,000 of foreign currency transaction gains.

Income tax expense as a percentage of pre-tax income/loss was 4.0% for the nine months ended September 30, 2024 versus 78.0% for the comparable period in the prior year.

The effective tax rates for both of the six-month periods ended June 30, 2024 and 2023 were impacted by the amount of our foreign pre-tax income and the tax expense thereon while not realizing a benefit on our domestic pre-tax loss due to the valuation allowance on our domestic NOLs.

The effective tax rates for both of the nine-month periods ended September 30, 2024 and 2023 were impacted by the amount of our foreign pre-tax income and the tax expense thereon while not realizing a benefit on our domestic pre-tax loss due to the valuation allowance on our domestic NOLs.

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 June 30, 2024, we had cash and cash equivalents of $4.0 million, working capital of $6.9 million and no indebtedness.

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

As of September 30, 2024, we had cash and cash equivalents of $3.8 million, working capital of $6.5 million and no indebtedness.

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

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

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

Net cash (used in) operating activities

Net cash provided by (used in) operating activities

Net cash (used in) investing activities

Net cash (used in) financing activities

Net Cash (Used In) Operating Activities

For the six months ended June 30, 2024, the $76,000 of cash used in operating activities was attributable to net loss of $1,048,000, adjusted for non-cash charges of $395,000 and cash provided by changes in operating assets and liabilities of $577,000.

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 decreased from $2.2 million at December 31, 2023 to $1.5 million at June 30, 2024 due to lower shipments during the second quarter of 2024 compared to the fourth quarter of 2023.

Net Cash Provided By (Used In) Operating Activities

For the nine months ended September 30, 2024, the $144,000 of cash used in operating activities was attributable to net loss of $1,571,000, adjusted for non-cash charges of $638,000 and cash provided by changes in operating assets and liabilities of $789,000.

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 decreased from $2.2 million at December 31, 2023 to $1.2 million at September 30, 2024 due to lower shipments during the third quarter of 2024 compared to the fourth quarter of 2023.

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

Inventories increased slightly from $2.5 million at December 31, 2023 to $2.6 million at June 30, 2024.

Inventories were unchanged from December 31, 2023 to September 30, 2024 at $2.5 million.

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

Prepaid expenses and other current assets decreased from $381,000 at December 31, 2023 to $303,000 at June 30, 2024 due primarily to the timing of making prepayments versus when the benefits of those prepayments are consumed.

Accounts payable, accrued liabilities, and accrued income taxes were unchanged from December 31, 2023 to June 30, 2024 at $1.2 million;

Prepaid expenses and other current assets decreased from $381,000 at December 31, 2023 to $243,000 at September 30, 2024 due primarily to the timing of making prepayments versus when the benefits of those prepayments are consumed.

Accounts payable, accrued liabilities, and accrued income taxes decreased from $1.2 million at December 31, 2023 to $903,000 at September 30, 2024;

the balances of these working capital liabilities fluctuate due to the timing of purchases and payments on inventories and other accruals of employee compensation and outside services.

Net Cash (Used In) Investing Activities

Net cash used in investing activities for the six months ended June 30, 2024 consisted of $20,000 of purchases of property, plant, and equipment.

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 $32,000 of purchases of property, plant, and equipment.

Net cash used in investing activities for the nine months ended September 30, 2024 consisted of $107,000 of purchases of property, plant, and equipment.

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 of purchases of property, plant, and equipment.

Net Cash (Used In) Financing Activities

Net cash used in financing activities of $200,000 for the six months ended June 30, 2024 consisted of payment of dividends on our Preferred Stock.

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 29,104 shares of common stock and $200,000 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, 2024 consisted of payment of dividends on our Preferred Stock.

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 56,430 shares of common stock and $300,000 used for payments of dividends on our Preferred Stock.

Off-Balance Sheet Arrangements

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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