What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-12 compared with 2021-05-13 · 45 added, 37 removed, 112 unchanged (42% of the section changed)

18 unchanged sentences

Despite our limited new IC product development efforts, we believe our current hardware and software/firmware product portfolio positions us for future growth and profitability.

We incurred net losses of approximately $1.4 million for the three months ended March 31, 2021 and $3.8 million and $2.6 million for the years ended December 31, 2020 and 2019, respectively, and had an accumulated deficit of approximately $244.0 million as of March 31, 2021.

We incurred net losses of approximately $2.6 million for the six months ended June 30, 2021 and $3.8 million and $2.6 million for the years ended December 31, 2020 and 2019, respectively, and had an accumulated deficit of approximately $245.2 million as of June 30, 2021.

These and prior year losses have resulted in significant negative cash flows for almost a decade and have necessitated that we raise substantial amounts of additional capital during this period.

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The Order impacted our ability to produce and ship our IC products in the second half of March 2020, as certain of our vendors in the San Francisco Bay Area closed in accordance with the Order.

In April 2020, we resumed shipments of our IC products, as we and our vendors are supporting shipment of components for critical infrastructure, as defined by the federal government;

however, our employees are still generally restricted from visiting our customer and vendor sites, and we are unable to conduct certain product testing and development activities.

In April 2020, we resumed shipments of our IC products, as we and our vendors are supporting shipment of components for critical infrastructure.

We remain diligent in continuing to identify and manage risks to our business given the changing uncertainties related to COVID-19.

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We expect that the impacts of the COVID-19 pandemic will continue to have a negative impact on our revenues for the remainder of 2021, although we are not in a position to quantify such impacts.

In addition, we have and continue to experience longer lead times for certain components used to manufacture our IC products.

In addition, we have and continue to experience shortages and longer lead times for certain components used to manufacture our IC products.

While we believe that our operations personnel are currently in a position to meet expected customer demand levels in the coming quarters, we recognize that unpredictable events could create difficulties in the months ahead.

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The continued spread of COVID-19 has also led to disruption and volatility in the global capital markets.

During the quarter ended March 31, 2021, we were able to raise additional capital and make full repayment of our convertible notes payable (see discussion below under Liquidity and in Notes 8 and 9 to the condensed consolidated financial statements included in Part I, Item I of this Form 10-Q), however, if we need to raise additional capital to support operations in the future, we may be unable to access the capital markets and additional capital may only be available to us on terms that could be significantly detrimental to our existing stockholders and to our business.

During the six months ended June 30, 2021, we were able to raise additional capital and make full repayment of our convertible notes payable (see discussion below under Liquidity and in Notes 8 and 9 to the condensed consolidated financial statements included in Part I, Item I of this Form 10-Q), however, if we need to raise additional capital to support operations in the future, we may be unable to access the capital markets and additional capital may only be available to us on terms that could be significantly detrimental to our existing stockholders and to our business.

For additional information on risks that could impact our future results, please refer to “Risk Factors” in Part II, Item 1A.

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Our significant accounting policies and estimates are disclosed in Note 1 of the “Notes to Consolidated Financial Statements” in our annual report on Form 10-K for the year ended December 31, 2020.

As of March 31, 2021, there have been no material changes to our significant accounting policies and estimates.

As of June 30, 2021, there have been no material changes to our significant accounting policies and estimates.

Results of Operations

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Percentage of total net revenue

Product revenue increased for the three months ended March 31, 2021 compared with the same period of 2020 primarily due to higher sales of our Bandwidth Engine 2 products, partially offset by decreases in our LineSpeed product sales.

Product -six months ended

Percentage of total net revenue

Product revenue decreased for the three and months ended June 30, 2021 compared with the same period of 2020 primarily due to lower sales of our Bandwidth Engine 2 and LineSpeed IC products.

(dollar amounts in thousands)

1 unchanged sentence

Percentage of total net revenue

Royalty and other -six months ended

Percentage of total net revenue

Royalty and other includes license, royalty and related revenues generated from licensing agreements.

The decrease in royalty and other revenue for the three months ended March 31, 2021 compared with the same period of 2020 was primarily due to a decrease in royalty revenue for one licensee.

The decrease in royalty and other revenue for the three and six months ended June 30, 2021 compared with the same period of 2020 was due to a decrease in royalty revenues and $0.1 million of non-recurring license revenues recognized during the three months ended June 30, 2020.

Cost of Net Revenue and Gross Profit

2 unchanged sentences

Percentage of total net revenue

Cost of net revenue -six months ended

Percentage of total net revenue

(dollar amounts in thousands)

1 unchanged sentence

Percentage of total net revenue

Gross profit -six months ended

Percentage of total net revenue

Cost of net revenue is primarily comprised of direct and indirect costs related to the sale of our IC products.

Cost of net revenue decreased for the three months ended March 31, 2021 when compared with the same period in 2020, primarily due to decreased shipment volumes of our LineSpeed product which was only partially offset by the increase of our Bandwidth Engine products that have lower production costs.

Gross profit increased for the three months ended March 31, 2021 compared with the same period of 2020 due to the increase in gross profit attributable to the increases in product revenues.

As a percentage of net revenue, gross profit

in creased due to higher gross margins on our product sales and higher royalty and other revenue , which generally has no associated cost.

Cost of net revenue decreased for the three and six months ended June 30 , 20 21 when compared with the same period s in 2020, primarily due to decreased shipment volumes of our LineSpeed and Bandwidth Engine IC products .

Gross profit decreased for the three and six months ended June 30, 2021 compared with the same period of 2020 due to the decrease in gross profit attributable to the decreases in revenues.

Research and Development

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Percentage of total net revenue

Our research and development expenses include costs related to the development of our IC and VAE IP products.

Research and development -six months ended

Percentage of total net revenue

Our research and development expenses include costs related to the development of our IC products and VAE IP.

We expense research and development costs as they are incurred.

The increase for the three months ended March 31, 2021 compared with the same period of 2020 was primarily due to increases in personnel costs due to new hires and increases in consulting costs for development of our VAE products.

We expect that total research and development expenses will increase in 2021 compared with 2020 as we incur increased development costs for our VAE products.

The increase for the three and six months ended June 30, 2021 compared with the same period of 2020 was primarily due to increases in personnel costs due to headcount increases and increases in consulting costs for development of our VAE-IP.

We expect that total research and development expenses will increase in 2021 compared with 2020 as we incur increased development costs for our VAE IP.

Selling, General and Administrative

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Percentage of total net revenue

SG&A -six months ended

Percentage of total net revenue

Selling, general and administrative, or SG&A, expenses consist primarily of personnel and related overhead costs for sales, marketing, finance, human resources and general management.

The decrease for the three months ended March 31, 2021 compared with the same period of 2020 was primarily due to decreases in professional services and facilities and travel costs, partially offset by increased legal and personnel costs.

The increase for the three and six months ended June 30, 2021 compared with the same period of 2020 was primarily due to increases in legal, consulting and professional services fees.

We expect total SG&A expenses to remain relatively consistent for the remainder of 2021.

3 unchanged sentences

Percentage of total net revenue

Interest expense - six months ended

Percentage of total net revenue

Interest expense consisted of interest expense on our senior secured convertible notes (the Notes).

4 unchanged sentences

Changes in Financial Condition

As of March 31, 2021, we had cash, cash equivalents and short-term investments of $11.1 million and working capital of $10.9 million.

As of June 30, 2021, we had cash, cash equivalents and investments of $23.1 million and working capital of $19.9 million.

We believe that cash generated from our liquidity sources will be sufficient to meet both our short-term and long-term working capital and capital expenditure needs for the foreseeable future.

Net cash used in operating activities was $ 1.

0 million for the first three months of 20 2 1 , which primarily resulted from our net loss of $ 1.4 million , which was partially offset by $0.

3 million i n net changes in assets and liabilities and non-cash charges of $0.

Net cash used in operating activities was $2.8 million for the first six months of 2021, which primarily resulted from our net loss of $2.6 million, adjusted for a $0.6 million of gains for debt extinguishment, which was partially offset by $0.2 million in net changes in assets and liabilities and non-cash charges of $0.2 million.

The changes in assets and liabilities primarily related to the timing of accounts receivable collections, purchases of inventory and other vendor payables and prepayments.

Net cash used in operating activities was $0.7 million for the first three months of 2020, which primarily resulted from our net loss of $1.4 million, which was partially offset by $0.5 million in net changes in assets and liabilities and non-cash charges of $0.1 million of stock-based compensation, depreciation and amortization expenses and $0.1 million of accrued interest.

The changes in assets and liabilities primarily related to the timing of customer collections, and inventory and other vendor payables and prepayments.

Net cash used in investing activities of $1.6 million for the three months ended March 31, 2021 represented purchases of short-term investments.

Net cash provided by investing activities for the three months ended March 31, 2020 was mainly due to the proceeds from the maturities of short-term investments of $0.3 million.

Net cash provided by financing activities of $6.3 million for the three months ended March 31, 2021 primarily consisted of $6.8 million in net proceeds received from the registered direct offering of our common stock completed in February 2021 and $2.5 million of proceeds from the exercise of warrants to purchase shares of common stock at a price of $2.40 per share.

We used approximately $3 million of these proceeds to repay in full the outstanding balance of our senior secured convertible notes.

There were minimal cash flows used in financing activities during the three months ended March 31, 2020.

Net cash used in operating activities was $1.2 million for the first six months of 2020, which primarily resulted from our net loss of $2.0 million, which was partially offset by $0.5 million in net changes in assets and liabilities and non-cash charges of $0.2 million of stock-based compensation, depreciation and amortization expenses and $0.1 million of accrued interest.

The changes in assets and liabilities primarily related to the timing of accounts receivable collections, and inventory and other vendor payables and prepayments.

Net cash used in investing activities of $9.6 million for the six months ended June 30, 2021 represented purchases of investments.

Net cash provided by investing activities for the six months ended June 30, 2020 was mainly due to the proceeds from maturities of short-term investments of $0.3 million.

Net cash provided by financing activities of $20.0 million for the six months ended June 30, 2021 primarily consisted of $6.8 million and $12.0 million in net proceeds received from the registered direct offerings of our common stock completed in February 2021 and June 2021, respectively, and $4.2 million of proceeds from the exercise of warrants to purchase shares of common stock at a price of $2.40 per share.

We used approximately $3 million of these proceeds to repay in full the outstanding balance of the Notes.

Net cash provided by financing activities of $2.2 million for the six months ended June 30, 2020 primarily consisted of $1.6 million in net proceeds received from the sale of common stock in a registered direct offering of securities completed in April 2020 and $0.6 million of proceeds from an unsecured loan under the Paycheck Protection Program.

Our future liquidity and capital requirements are expected to vary from quarter-to-quarter, depending on numerous factors, including:

level of revenue;

cost, timing and success of technology development efforts, especially for our VAE products;

cost, timing and success of technology development efforts, especially for our VAE IP;

inventory levels, timing of product shipments and length of billing and collection cycles;

2 unchanged sentences

costs of acquiring other businesses and integrating the acquired operations.

whether the PPP Note is substantially forgiven.

Working Capital

Our primary need for liquidity is to fund working capital requirements of our businesses, capital expenditures and for general corporate purposes.

Our primary need for liquidity is to fund working capital requirements of our business and capital expenditures, as well as for general corporate purposes.

We expect our cash expenditures to exceed receipts in 2021, as our revenues will not be sufficient to offset our working capital requirements.

During the three months ended March 31, 2021, we received proceeds of $2.5 million from the exercise of common stock warrants, and we used $1.5 million of these proceeds to repay a portion of the principal balance of our senior secured convertible notes.

In February 2021, we completed a registered direct offering of securities that generated net proceeds of approximately $6.8 million.

During the six months ended June 30, 2021, we completed two registered direct offerings of our common stock that generated net proceeds of approximately $18.8 million.

Also, during 2021, we received proceeds of $4.2 million from the exercise of common stock warrants.

During the three months ended June 30,2021, we repaid in full the outstanding principal balance of our Notes.

In May 2020, we entered into a Promissory Note with Wells Fargo Bank, N.A.

in an aggregate principal amount of approximately $0.6 million (the PPP Note), pursuant to the Paycheck Protection Program (the PPP) under the CARES Act.

In March 2021 we applied for forgiveness of the PPP Note under the terms of the PPP.

No assurance is provided that we will obtain forgiveness of the PPP Note in whole or in part, but we believe we have used the proceeds in accordance with the PPP.

(the Lender) in an aggregate principal amount of approximately $0.6 million (the PPP Note), pursuant to the Paycheck Protection Program (the PPP) under the CARES Act.

In March 2021, we applied for forgiveness of the PPP Note under the terms of the PPP, and, in May 2021, we obtained forgiveness of the full amount of the PPP Note from the Lender.

As a result of these activities, at June 30, 2021, we had approximately $23.1 million in cash and investments and no debt.

In the event that additional financing is required through sales of our equity securities, our stockholders would suffer dilution of their equity ownership, and we may be required to accept other terms that could be significantly detrimental to our existing stockholders and to our business.

If we engage in debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness, prohibit us from paying dividends, repurchasing our stock or making investments, and force us to maintain specified liquidity or other ratios, any of which could be significantly detrimental

to our business, operating results and financial condition.

If we need additional capital and cannot raise it on acceptable terms, we may not be able to, among other things:

9 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