What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-20 compared with 2023-11-13 · 59 added, 77 removed, 57 unchanged (70% of the section changed)

14 unchanged sentences

● our ability to develop new products and technologies;

● our estimates of our expenses, ongoing losses, future revenue and capital requirements, including our

● our estimates of our expenses, ongoing losses, future revenue and capital requirements, including

our needs for additional financing;

24 unchanged sentences

We are seeking to reshape the world of electronics with our disruptive organic thin-film transistors (“OTFTs”) that have the potential to drive the next generation of displays.

Our patented TRUFLEX® semiconductor and dielectric inks, or electronic polymers, are used to make a new type of transistor that could potentially revolutionize the display industry.

Our inks enable low temperature printing processes that are compatible with existing manufacturing infrastructure to deliver low-cost displays that outperform existing technologies.

Our patented TRUFLEX® semiconductor and dielectric inks, or electronic polymers, can be used to make a new type of transistor that could have the potential to revolutionize the display industry.

Our inks enable low temperature printing processes that are compatible with existing manufacturing infrastructure to deliver low-cost displays that outperform existing technology.

Our electronic polymer platform can be used in a number of display technologies including microLED, miniLED and AMOLED displays for next generation televisions, laptops, augmented reality (“AR”) and virtual reality (“VR”) headsets, smartwatches, and smartphones.

We develop our materials at its research and development facility in Manchester, UK, our semiconductor manufacturing processes at the Centre for Process Innovation (CPI) at Sedgefield, UK and retain a field application office in Taiwan.

We develop our materials at our research and provide prototyping services at the Centre for Process Innovation (“CPI”) at Sedgefield, UK.

We have a field application office in Taiwan.

We have an extensive IP portfolio including 125 granted patents across 19 patent families and 40 codified trade secrets.

Since our inception in 2009, we have devoted substantial resources to the research and development of materials and production processes for the manufacture of organic thin film transistors and the enhancement of our intellectual property.

Our loss before income taxes was $3.0 million and $4.0 million for the three months ended September 30, 2023 and 2022, and $7.1 million and $10.4 million for the nine months ended September 30, 2023 and 2022, respectively.

As of September 30, 2023, our accumulated deficit was $93.7 million.

Our loss before income taxes was $1.7 million and $2.1 million for the three months ended March 31, 2024 and 2023, respectively.

As of March 31, 2024, our accumulated deficit was $103.9 million.

Substantially all our operating losses have resulted from expenses incurred in connection with research and development activities and from general and administrative costs associated with our operations.

Results of Operations for the three and nine months ended September 30, 2023

Three months ended September 30, 2023 compared with three months ended September 30, 2022

Results of Operations for the three months ended March 31, 2024

Three months ended March 31, 2024 compared with three months ended March 31, 2023

Revenue and Cost of revenue

Revenues were $3.0 thousand in the three months ended September 30, 2023, compared with $26.0 thousand in the same period of 2022.

Cost of revenue was $1.0 thousand in the three months ended September 30, 2023, compared with $26.0 thousand in the same period of 2022.

The decrease is mainly the results of less unit sales in 2023 compared to 2022.

Both revenues and related cost of revenue for the three months ended September 30, 2023 and 2022 are a result of sales of organic thin-film transistor ( OTFT) backplanes and TRUFLEX® materials for customer assessment and development purposes.

We did not have any revenue or cost of revenue in the three months ended March 31, 2024.

We had revenue of $16.0 thousand and cost of revenue of $16.0 thousand in the same period of 2023.

Both revenues and related cost

of revenue for three months ended March 31, 2023 are a result of sales of OTFT backplanes and TRUFLEX® materials for customer assessment and development purposes.

Other operating income

Other operating income was $0.3 million in the three months ended September 30, 2023, compared to $0.3 million in the same period of 2022.

Other operating income was $0.2 million in the three months ended March 31, 2024, compared to $0.3 million in the same period of 2023.

The primary source of the income is related to a research grant and research and development tax credits.

The decrease is mainly due to a reduction in the allowable research and development expenses and a lowering of the tax credit rate to be applied to the allowable expenses of which both went into effect on April 1, 2023.

Operating expenses

Operating expenses were $3.0 million for the three months ended September 30, 2023, compared to $2.7 million in the same period of 2022, an increase of $0.3 million.

Research and development expenses are incurred for the development of TRUFLEX® inks to make OTFT circuits and consists primarily of payroll and technical development costs.

The research and development expenses represent 53.1% and 49.2% of the total operating expenses for the three months ended September 30, 2023 and 2022, respectively.

Research and development expenses increased $0.2 million for the three months ended September 30, 2023 compared to the same period for the prior year.

This increase was mainly due personnel severance expenses and technical service fees.

Operating expenses were $2.7 million for the three months ended March 31, 2024, compared to $2.8 million in the same period of 2023, a decrease of $0.1 million.

Research and development expenses are incurred for the development of TRUFLEX® inks to make OTFT circuits and consist primarily of payroll and technical development costs.

The research and development expenses represent 48.1% and 45.3% of the total operating expenses for the three months ended March 31, 2024 and 2023, respectively.

Research and development expenses decreased $3 thousand for the three months ended March 31, 2024 compared to the same period for the prior year.

This decrease is primarily related to lower personnel expenses due to a reduction in force in 2023 offset in part by higher technical service costs.

Selling, general and administrative expenses consist primarily of payroll and professional services such as accounting, legal services and investor relations .

These expenses represent 42.9% and 50.8% of our total operating expenses for the three months ended September 30, 2023 and 2022, respectively.

Selling, general and administrative expenses decreased by $0.1 million for the three months ended September 30, 2023 compared to the same period for the prior year.

This decrease was primarily a result of a reductions in investor relations expenses.

Non-Operating income/(expense)

We recorded a gain of $0.5 million related to the valuation of the warrant liability for the three months ended September 30, 2023.

There were no similar gains or losses during the same period of the prior year.

We recorded losses on foreign currency transactions related to intercompany loans of $0.8 million for the three months ended September 30, 2023 compared to the losses of $1.5 million for the three months ended September 30, 2022.

The decrease of $0.7 million is related to favorable changes in the exchange rates.

Nine months ended September 30, 2023 compared with nine months ended September 30, 2022

Revenue and Cost of revenue

Revenues were $27.0 thousand in the nine months ended September 30, 2023, compared with $60.0 thousand in the same period of 2022.

Cost of revenue was $23.0 thousand in the nine months ended September 30, 2023, compared with $50.0 thousand in the same period of 2022.

The decrease is mainly the results of less unit sales in 2023 compared to 2022.

Both revenues and related cost of revenue for the nine months ended September 30, 2023 and 2022 are a result of sales of organic thin-film transistor ( OTFT) backplanes and TRUFLEX® materials for customer assessment and development purposes.

Other operating income

Other operating income was $0.7 million and $0.9 million the nine months ended September 30, 2023 and 2022.

The primary source of the other operating income is related to a research grant and research and development tax credits.

Operating expenses

Operating expenses for the nine months ended September 30, 2023 were $8.3 million compared to $8.2 million in the same period of 2022.

Research and development expenses are incurred for the development of TRUFLEX® inks to make OTFT circuits and consists primarily of payroll and technical development costs.

Research and development expenses were $4.1 million and $4.2 million for the nine months ended September 30, 2023 and 2022.

The decrease of $0.1 million is primarily due to the reduction of personnel and professional service fee expenses.

The research and development expenses represents 49.4% and 50.9% of total operating expenses for the nine months ended September 30, 2023 and 2022, respectively.

Selling, general and administrative expenses consist primarily of payroll and professional services such as accounting, legal services and investor relations , These expenses represent 48.4% and 49.1% of our total operating expenses for the nine months ended September 30, 2023 and 2022, respectively.

Selling, general and administrative expenses were $4.0 million for the nine months ended September 30, 2023, as compared to $4.0 million for the nine months ended September 30, 2022.

Losses on foreign currency transactions related to operating expense were $0.2 million for the nine months ended September 30, 2023.

These expenses represent 51.4% and 50.8% of our total operating expenses for the three months ended March 31, 2024 and 2023, respectively.

Selling, general and administrative expenses decreased by $71 thousand for the three months ended March 31, 2024 compared to the same period for the prior year.

This decrease was primarily a result of a decrease in professional service fees related to investor relation consulting costs.

Non-Operating income/(expense)

Issuance costs of $0.2 million allocated to the warrant liability were expensed in full during the nine months ended September 30, 2023.

The majority of costs were legal, placement and consulting fees specifically related to the private placement transaction.

We recorded a gain of $0.5 million related to the valuation of the warrant liability for the nine months ended September 30, 2023.

We recorded a gain of $0.8 million related to the valuation of the warrant liability for the three months ended March 31, 2024.

There were no similar gains or losses during the same period of the prior year.

We recorded gains on foreign currency transactions related to intercompany loans of $0.2 million for the nine months ended September 30, 2023 compared to the losses of $3.1 million for the nine months ended September 30, 2022.

The increase of $3.3 million is related to the favorable changes in the exchange rates.

Liquidity and Capital Resources

To date, we have funded our liquidity and capital requirements primarily with proceeds from the private sale of our equity and debt securities and borrowing against our research and development credits.

As of September 30, 2023, our cash and cash equivalents were $11.2 million compared with $4.2 million as of December 31, 2022.

The increase of $7.0 million is due to net proceeds of $12.7 million received related to the June 2023 PIPE financing and was offset by cash usage of $5.6 million related to operating activities.

We believe that our existing cash as of September 30, 2023 will be sufficient to fund our operations through for the next twelve months if we continue to spend to our forecast, and that we may require additional capital funding to continue our operations and research and development activity thereafter.

Our capital commitments over the next twelve months include (a) $1.5 million to satisfy accounts payable and accrued expenses and (b) $0.2 million to satisfy the lease liabilities.

Additional capital commitments beyond the next twelve months include $0.1 million of lease liabilities.

As of March 31, 2024, our cash and cash equivalents were $7.3 million compared with $8.8 million as of December 31, 2023.

We believe this will be sufficient to fund our operating expenses and capital expenditure requirements into June 2025.

It is possible this period could be shortened if there are any significant increases in spending or more rapid progress of development programs than anticipated.

Our future viability is dependent on our ability to raise additional capital to fund our operations.

We will need to obtain additional funds to satisfy our operational needs and to fund our sales and marketing efforts, research and development expenditures, and business development activities.

Until such time, if ever, as we can generate sufficient cash through revenue, management’s plans are to finance our working capital requirements through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements.

If we raise additional funds by issuing equity securities, our existing security holders will likely experience dilution.

If we borrow money, the incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict our operations.

If we enter into a collaboration, strategic alliance or other similar arrangement, we may be forced to give up valuable rights.

There can be no assurance however that such financing will be available in sufficient amounts, when and if needed, on acceptable terms or at all.

The precise amount and timing of the funding needs cannot be determined accurately at this time, and will depend on a number of factors, including the market demand for the Company’s products and services, the quality of product development efforts, management of working capital, and continuation of normal payment terms and conditions for purchase of services.

If we are unable to substantially increase revenues, reduce expenditures, or otherwise generate cash flows for operations, then we will need to raise additional funding.

Cash Flow from Operating Activities

Net cash used in operating activities was $1.6 million for the three months ended March 31, 2024, compared to $2.4 million for the three months ended March 31, 2023, a decrease of $0.8 million.

The decrease is primarily related to the timing of payments made to vendors.

Contractual Payment Obligations

Our principal commitments primarily consist of obligations under leases for office space and purchase commitments in the normal course of business for research & development facilities and services, communications infrastructure, and administrative services.

We expect to fund these commitments from our cash balances and working capital.

Critical Accounting Estimates

We allocated part of the proceeds of private placement of the Series A-1 and Series A-2 Preferred Stock to warrant liability relating to the warrants issued in connection with the transaction.

The valuations of the

warrants were determined using option pricing models.

These models use inputs such as the underlying price of the shares issued at the measurement date, volatility, risk free interest rate and expected life of the instrument.

We have classified the warrants as a long-term liability due to certain provisions relating to the holders’ ability to exercise the warrants beyond twelve months of the reporting date and has accounted for them as derivative instruments in accordance with ASC 815, adjusting the fair value at the end of each reporting period.

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim reporting.

Other than the accounting for the valuation of warrant liability, during the three and nine months ended September 30, 2023, there were no material changes to our critical accounting policies as reported in the 10-K.

A description of certain accounting policies that may have a significant impact on amounts reported in the financial statements is disclosed in Note 3 to the audited consolidated financial statements contained in the 10-K.

Warrant Liability

We account for our outstanding warrants in accordance with the guidance contained in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815-40, Derivatives and Hedging, under which warrants that do not meet the criteria for equity treatment must be recorded as liabilities.

In accordance with that guidance, we have classified our outstanding warrants as liabilities at their fair value and adjust the warrants to fair value in respect of each reporting period.

The valuation of the warrant liability is determined using an option pricing model.

This model uses inputs such as the underlying price of the shares issued at the measurement date, expected volatility, risk free interest rate and expected life of the instrument.

Since our common stock was not publicly traded until February 2022 there has been insufficient volatility data available.

We prepare our consolidated financial statements in accordance with U.S.

generally accepted accounting principles, which require our management to make estimates that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the balance sheet dates, as well as the reported amounts of revenues and expenses during the reporting periods.

To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected.

We base our estimates on our own historical experience and other assumptions that we believe are reasonable after taking account of our circumstances and expectations for the future based on available information.

We evaluate these estimates on an ongoing basis.

We consider an accounting estimate to be critical if:

(i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.

Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors.

In addition, there are other items within our financial statements that require estimation but are not deemed critical as defined above.

Changes in estimates used in these and other items could have a material impact on our financial statements.

Fair Value Measurements

GAAP emphasizes that fair value is a market-based measurement, not an entity-specific measurement.

Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability.

As a basis for considering market participant assumptions in fair value measurements, GAAP establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Our fair value measurements are generally related to a warrant liability and amendments to preferred stock.

The models used for these fair value calculations use inputs such as the underlying price of the shares issued at the measurement date, expected volatility, risk free interest rate and expected life of the instrument.

Since our common stock is so thinly traded there is insufficient volatility data available.

Accordingly, we have used an expected volatility based on historical common stock volatility of our peers.

In addition, we have used the probability of uplisting as an input in the model to determine the fair value of the warrant liability as certain features of the warrants will be eliminated or adjusted upon an uplisting.

We will adjust the fair value of the warranty liability at the end of each reporting period.

Issuance Costs

We have assessed the issuance cost in connection with the issuance of an equity offering.

ASC 340-10-S99-1 states that specific incremental costs directly attributable to a proposed or actual offering of equity securities may properly be deferred and charged against the gross proceeds of the offering.

Analogizing to that guidance, specific incremental costs directly attributable to the issuance of an equity contract to be classified in equity should generally be recorded as a reduction in equity.

However, issuance costs for equity contracts that are classified as a liability are required to be expensed immediately.

The issuance costs are allocated to the equity and liability components of the underlying transaction on a basis of the allocated fair value of the gross proceeds in the overall transactions.

Quantitative and Qualitative Disclosures about Market Risk

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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