What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-09 compared with 2020-08-10 · 49 added, 47 removed, 127 unchanged (43% of the section changed)

56 unchanged sentences

We have implemented an aggressive intellectual property strategy and are continuing to pursue patent protection for new innovations.

As of July 30, 2020, we had more than 65 pending patent applications in the U.S.

As of October 29, 2020, we had more than 122 pending patent applications in the U.S.

Additionally, the U.S.

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The outbreak of COVID-19 has delayed adoption of our technology by potential customers who temporarily shut down their workforce and supply chain based in China, and who continue to evaluate their future prospects and business models, including partnerships with us.

For example, in one case, the outbreak earlier in the spring delayed the launch of a new product that incorporates our technology.

Further delays in this or other products could result from the pandemic.

For example, in one case, the outbreak delayed the spring launch of a new product that incorporates our technology.

Further delays in this or other products could result from the ongoing pandemic.

These changes are due in part to changes in how business is conducted as a result of the pandemic, including state executive orders, local shelter-in-place orders, government-imposed quarantines and work-from-home policies in China, the United States, and elsewhere.

We have implemented work-from-home policies for our employees that will likely be in place until the end of the year.

We have implemented work-from-home policies for our employees that will likely be in place through the end of the year and possibly longer.

The effects of state executive orders, local shelter-in-place orders, government-imposed quarantines and our work-from-home policies could negatively impact productivity, disrupt our research and development or other operations, and delay the planned launch of our customers’ new products that incorporate our technology, the magnitude of which will depend, in part, on the length and severity of the continuing restrictions and other limitations on our ability to conduct our business in the ordinary course.

22 unchanged sentences

Results of Operations

Three Months Ended June 30, 2020 and 2019

During the three months ended June 30, 2020 and 2019, we recorded revenue of $114,375 and $47,500, respectively.

Operating Expenses

Research and development expenses include costs associated with our efforts to develop our technology, including personnel compensation, consulting, engineering supplies and components, intellectual property costs, regulatory expense and general office expenses specifically related to the research and development department.

Sales and marketing expenses include costs associated with selling and marketing our technology to our customers, including

personnel compensation, public relations, graphic design, tradeshow, engineering supplies utilized by the sales team and general office expenses specifically related to the sale and marketing department.

General and administrative expenses include costs for general and corporate functions, including personnel compensation, facility fees, travel, telecommunications, insurance, professional fees, consulting fees, general office expenses, and other overhead.

Three Months Ended September 30, 2020 and 2019

During the three months ended September 30, 2020 and 2019, we recorded revenue of $61,500 and $40,500, respectively.

Operating Expenses and Loss from Operations.

Operating expenses are made up of research and development, sales and marketing, general and administrative expenses and cost of services revenue.

Losses from operations for the three months ended June 30, 2020 and 2019 were $8,212,640 and $9,946,656, respectively.

Losses from operations for the three months ended September 30, 2020 and 2019 were $7,560,058 and $8,302,069, respectively.

Research and Development Costs.

Research and development costs were $ 4, 330 , 43 3 and $ 5 , 515 , 017 , respectively, for the three months ended June 30 , 2020 and 2019 .

The decrease of $ 1 , 184 , 584 is primarily due to a n $ 867,935 decrease in compensation, consisting of a $ 538,759 decrease in payroll costs and a $ 329,176 decrease in stock-based compensation from a lower headcount within the department, a $121,436 decrease in depreciation and a $102,950 decrease in engineering supplies, components and chip development costs due to project timing.

Research and development costs were $4,003,642 and $5,190,056, respectively, for the three months ended September 30, 2020 and 2019.

The decrease of $1,186,414 is primarily due to an $444,185 decrease in compensation, consisting of a $212,364 decrease in payroll costs and a $231,822 decrease in stock-based compensation from a lower headcount within the department, a $357,521 decrease in legal costs pertaining to patent and intellectual property management, a $243,629 decrease in engineering supplies, components and chip development costs due to project timing, an $83,995 decrease in depreciation and a $71,655 decrease in regulatory testing expense.

Sales and Marketing Costs.

Sales and marketing costs for the three months ended June 30, 2020 and 2019 were $1,438,904 and $1,143,910, respectively.

The increase of $294,994 is primarily due to a $273,339 increase in compensation, consisting of a $176,949 increase in payroll costs and a $96,390 increase in stock-based compensation from a higher headcount within the department, a $70,013 increase in consulting and third party services, partially offset by an $86,317 decrease in travel, meals and entertainment as a result of COVID-19 restrictions.

Sales and marketing costs for the three months ended September 30, 2020 and 2019 were $1,500,068 and $1,242,105, respectively.

The increase of $257,963 is primarily due to a $238,945 increase in payroll costs from a higher headcount within the department, a $111,938 increase in consulting and third party services, partially offset by an $93,185 decrease in travel, meals and entertainment as a result of COVID-19 restrictions.

General and Administrative Expenses.

General and administrative costs for the three months ended June 30, 2020 and 2019 were $2,470,683 and $3,335,229, respectively.

The decrease of $864,546 is primarily due to a $495,240 decrease in stock-based compensation due to certain equity awards reaching full expense amortization during the previous year and forfeitures of awards from former board members, a $345,519 decrease in legal expense and a $66,799 decrease in travel, meals and entertainment as a result of COVID-19 restrictions, partially offset by a $97,552 increase in insurance premiums.

Cost of Services Revenue.

During the three months ended June 30, 2020 and 2019, we recorded cost of services revenue of $86,995 and $0, respectively.

These costs are related to our contract services performed for Dialog.

General and administrative costs for the three months ended September 30, 2020 and 2019 were $2,117,848 and $1,910,408, respectively.

The increase of $207,440 is primarily due to a $109,910 increase in stock-based compensation due to the issuance of equity awards to newly appointed board members during the preceding 12 months, a $346,683 increase in legal expense and an $89,357 increase in insurance premiums, partially offset by a $150,670 decrease in recruiting costs, a $70,581 decrease in accounting and auditing fees, a $54,496 decrease in travel, meals and entertainment as a result of COVID-19 restrictions, a $32,393 decrease in payroll costs and a $22,048 decrease in depreciation.

In t e r e s t Income .

In t e r e s t income fo r t h e three m on t h s e nd e d June 30, 2020 w a s $7,974 a s c o m p a r e d t o interest income of $142,660 fo r t h e three m on t h s e nd e d June 30, 2019 .

In t e r e s t income fo r t h e three m on t h s e nd e d September 30, 2020 w a s $3,221 a s c o m p a r e d t o interest income of $117,842 fo r t h e three m on t h s e nd e d September 30, 2019 .

The decrease of $114,621 is primarily due to lower savings interest rates and a lower average cash balance.

N e t L o ss .

A s a r e s u l t o f t h e a bov e , n e t l o s s fo r t h e three m on t h s e nd e d June 30, 2020 was $8,204,666 a s c o m p a r e d t o $9,803,996 fo r t h e three m on t h s e nd e d June 30, 2019 .

Six Months Ended June 30, 2020 and 2019

During the six months ended June 30, 2020 and 2019, we recorded revenue of $175,850 and $114,000, respectively.

A s a r e s u l t o f t h e a bov e , n e t l o s s fo r t h e three m on t h s e nd e d September 30, 2020 was $7,556,837 a s c o m p a r e d t o $8,184,227 fo r t h e three m on t h s e nd e d September 30, 2019 .

Nine Months Ended September 30, 2020 and 2019

During the nine months ended September 30, 2020 and 2019, we recorded revenue of $237,350 and $154,500, respectively.

Operating Expenses and Loss from Operations.

Operating expenses are made up of research and development, sales and marketing, general and administrative expenses and cost of services revenue.

Losses from operations for the six months ended June 30, 2020 and 2019 were $16,866,315 and $21,042,197, respectively.

Losses from operations for the nine months ended September 30, 2020 and 2019 were $24,426,373 and $29,344,266, respectively.

Research and Development Costs.

Research and development costs were $8,905,736 and $12,315,695, respectively, for the six months ended June 30, 2020 and 2019.

The decrease of $3,409,959 is primarily due to a $2,521,821 decrease in compensation, consisting of a $1,637,070 decrease in payroll costs and an $884,751 decrease in stock-based compensation from a lower headcount within the department, a $631,844 decrease in engineering supplies, components and chip development costs due to project timing, a $211,874 decrease in depreciation, a $125,324 decrease in consulting fees and an $84,468 decrease in regulatory testing fees, partially offset by a $212,714 increase in legal fees pertaining to patents and intellectual property.

Research and development costs were $12,909,378 and $17,505,571, respectively, for the nine months ended September 30, 2020 and 2019.

The decrease of $4,596,373 is primarily due to a $2,966,006 decrease in compensation, consisting of a $1,849,434 decrease in payroll costs and an $1,116,573 decrease in stock-based compensation from a lower headcount within the department, an $875,473 decrease in engineering supplies, components and chip development costs due to project timing, a $295,869 decrease in depreciation, a $156,123 decrease in regulatory testing fees, a $144,808 decrease in legal fees pertaining to patents and intellectual property and a $136,101 decrease in consulting fees.

Sales and Marketing Costs.

Sales and marketing costs for the six months ended June 30, 2020 and 2019 were $2,886,813 and $2,743,362, respectively.

The increase of $143,451 is primarily due to a $156,813 increase in compensation, consisting of a $73,013 increase in payroll costs and an $83,800 increase in stock-based compensation from a higher headcount within the department and a $262,271 increase in consulting and third party services, partially offset by a $101,265 decrease in tradeshow expenses, a $91,665 decrease in supplies utilized for customer demonstrations and an $86,317 decrease in travel, meals and entertainment as a result of COVID-19 restrictions.

Sales and marketing costs for the nine months ended September 30, 2020 and 2019 were $4,386,881 and $3,985,467, respectively.

The increase of $401,414 is primarily due to a $390,737 increase in compensation, consisting of a $311,958 increase in payroll costs and an $78,779 increase in stock-based

compensation from a higher headcount within the department , a $ 374 , 209 increase in consulting and third party services, a $64,126 increase in recruiting costs and a $47,553 increase in rent expense, partially offset by a $ 244 , 655 decrease in travel, meals and entertainment as a result of COVID-19 restrictions, a $124,394 decrease in engineering supplies and components used by the sales and marketing staff and a $113,522 decrease in tradeshow expenses,

General and Administrative Expenses.

General and administrative costs for the six months ended June 30, 2020 and 2019 were $5,123,077 and $6,097,140, respectively.

The decrease of $974,063 is primarily due to a $926,955 decrease in compensation, consisting of a $822,168 decrease in stock-based compensation due to

certain equity awards reaching full expense amortization during the previous year and a $ 104 , 786 decrease in payroll costs , a $327,138 decrease in legal costs, a $74,650 decrease in travel, meals and entertainment as a result of COVID-19 restrictions and a $51,399 decrease in general office expenses, partially offset by a $206,116 increase in accounting and auditing fees, a $155,653 increase in insurance premiums and a $112,570 increase in consulting expense.

General and administrative costs for the nine months ended September 30, 2020 and 2019 were $7,240,925 and $8,007,548, respectively.

The decrease of $766,623 is primarily due to a $849,438 decrease in compensation, consisting of a $712,258 decrease in stock-based compensation due to certain equity awards reaching full expense amortization during the previous year and a $137,179 decrease in payroll costs, a $196,366 decrease in recruiting costs, a $129,147 decrease in travel, meals and entertainment as a result of COVID-19 restrictions and a $73,431 decrease in general office expenses, partially offset by a $245,011 increase in insurance premiums, a $149,385 increase in consulting fees and a $135,535 increase in accounting and auditing fees.

Cost of Services Revenue.

During the six months ended June 30, 2020 and 2019, we recorded cost of services revenue of $126,539 and $0, respectively.

During the nine months ended September 30, 2020 and 2019, we recorded cost of services revenue of $126,539 and $0, respectively.

These costs are related to our contract services performed for Dialog.

In t e r e s t Income .

In t e r e s t income fo r t h e six m on t h s e nd e d June 30, 2020 w a s $63,913 a s c o m p a r e d t o interest income of $218,733 fo r t h e six m on t h s e nd e d June 30, 2019 .

In t e r e s t income fo r t h e nine m on t h s e nd e d September 30, 2020 w a s $67,134 a s c o m p a r e d t o interest income of $336,575 fo r t h e nine m on t h s e nd e d September 30, 2019 .

The decrease of $269,441 is primarily due to lower savings interest rates and a lower average cash balance.

N e t L o ss .

A s a r e s u l t o f t h e a bov e , n e t l o s s fo r t h e six m on t h s e nd e d June 30, 2020 was $16,802,402 a s c o m p a r e d t o $20,823,464 fo r t h e six m on t h s e nd e d June 30, 2019 .

A s a r e s u l t o f t h e a bov e , n e t l o s s fo r t h e nine m on t h s e nd e d September 30, 2020 was $24,359,239 a s c o m p a r e d t o $29,007,691 fo r t h e nine m on t h s e nd e d September 30, 2019 .

L i q u i d it y a n d Cap it a l R e s o ur ces

During the six months ended June 30, 2020 and 2019, we recorded revenue of $175,850 and $114,000, respectively.

We incurred net losses of $16,802,402 and $20,823,464 for the six months ended June 30, 2020 and 2019, respectively.

Net cash used in operating activities was $13,215,844 and $14,423,911 for the six months ended June 30, 2020 and 2019, respectively.

We are currently meeting our liquidity requirements through the proceeds from securities offerings that raised net proceeds of $23,319,156 in March 2019, $4,557,693 during the fourth quarter 2019, $5,506,880 during the first quarter 2020 and $9,216,611 during the second quarter 2020, along with payments received under product development projects.

We believe our current cash on hand, together with anticipated revenues and potential financing, will be sufficient to fund our operations into August 2021.

During the nine months ended September 30, 2020 and 2019, we recorded revenue of $237,350 and $154,500, respectively.

We incurred net losses of $24,359,239 and $29,007,691 for the nine months ended September 30, 2020 and 2019, respectively.

Net cash used in operating activities was $19,435,940 and $20,968,817 for the nine months ended September 30, 2020 and 2019, respectively.

We believe our current cash on hand, together with anticipated revenues and funds raised from the at-the-market (“ATM”) finance offering will be sufficient to fund our operations into November 2021.

Although we intend to continue our research and development activities, there can be no assurance that our available resources will be sufficient to enable us to generate revenues sufficient to sustain operations.

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There is no assurance that such financing would be available on terms that we would find acceptable, or at all.

During the six months ended June 30, 2020, cash flows used in operating activities were $13,215,844, consisting of a net loss of $16,802,402, less non-cash expenses aggregating $4,975,428 (principally stock-based compensation of $4,346,206, amortization of operating lease right-of-use assets of $378,593 and depreciation and amortization expense of $217,629), a $429,460 decrease in accrued expenses, a $341,064 decrease in operating lease liabilities, a $330,537 decrease in accounts payable, a $212,727 increase in prepaid expenses and other current assets and a $75,082 increase in accounts receivable.

During the six months ended June 30, 2019, cash flows used in operating activities were $14,423,911, consisting of a net loss of $20,823,464, less non-cash expenses aggregating $6,739,398 (principally stock-based compensation of $5,969,325 and depreciation and amortization expense of $476,863), a $534,124 decrease in accounts payable, partially offset by a $332,767 increase in accrued expenses.

During the six months ended June 30, 2020 and 2019, cash flows used in investing activities were $0 and $172,811, respectively.

The cash used in investing activities for the six months ended June 30, 2019 primarily consisted of leasehold improvements related to the construction of a regulatory testing chamber within our office space.

During the six months ended June 30, 2020, cash flows provided by financing activities were $14,940,695, which consisted of $14,723,491 in net proceeds from the sale of shares of our common stock to the public in an ATM offering and $217,204 in proceeds from contributions to the ESPP.

During the six months ended June 30, 2019, cash flows provided by financing activities were $23,698,482, which consisted of $23,319,156 in net proceeds from a private offering of shares and warrants pursuant to a shelf registration, $400,103 in proceeds from the exercise of stock options and $318,589 in proceeds from contributions to the ESPP, partially offset by $339,366 in shares withheld for the payment of payroll taxes for the delivery of RSUs and PSUs.

During the nine months ended September 30, 2020, cash flows used in operating activities were $19,435,940, consisting of a net loss of $24,359,239, less non-cash expenses aggregating $7,209,398 (principally stock-based compensation of $6,318,948, amortization of operating lease right-of-use assets of $570,460 and depreciation and amortization expense of $286,990), an $818,306 decrease in accrued expenses, a $626,053 decrease in accounts payable, $514,167 decrease in operating lease liabilities and a $331,367 increase in prepaid expenses and other current assets.

During the nine months ended September 30, 2019, cash flows used in operating activities were $20,968,817, consisting of a net loss of $29,007,691, less non-cash expenses aggregating $9,320,848 (principally stock-based compensation of $8,069,000, depreciation and amortization expense of $652,266 and amortization of operating lease right-of-use assets of $599,582), a $556,150 decrease in accounts payable, a $494,768 decrease in operating lease liabilities and a $174,603 decrease in accrued expenses.

During the nine months ended September 30, 2020 and 2019, cash flows used in investing activities were $7,302 and $183,935, respectively.

The cash used in investing activities for the nine months ended September 30, 2020 consisted of the purchase of new lab equipment.

The cash used in investing activities for the nine months ended September 30, 2019 primarily consisted of leasehold improvements related to the construction of a regulatory testing chamber.

During the nine months ended September 30, 2020, cash flows provided by financing activities were $15,062,387, which consisted of $14,723,491 in net proceeds from the sale of shares of our common stock to the public in an ATM offering and $338,896 in proceeds from contributions to the ESPP.

During the nine months ended September 30, 2019, cash flows provided by financing activities were $23,846,291, which consisted of $23,319,156 in net proceeds from a private offering

of shares and warrants pursuant to a shelf registration, $466,398 in proceeds from contributions to the ESPP and $400,103 in proceeds from the exercise of stock options, partially offset by $339,366 in shares withheld for the payment of payroll taxes for the delivery of RSUs and PSUs.

Research and development of new technologies is, by its nature, unpredictable.

2 unchanged sentences

Off Balance Sheet Transactions

As of June 30, 2020, we did not have any off-balance sheet transactions.

As of September 30, 2020, we did not have any off-balance sheet transactions.

Material Changes in Specified Contractual Obligations

A table of our specified contractual obligations was provided in the Management’s Discussion and Analysis of Financial Condition and Results of Operation of our most recent Annual Report on Form 10-K.

There were no material changes outside the ordinary course of our business in the specified contractual obligations during the three months ended June 30, 2020.

There were no material changes outside the ordinary course of our business in the specified contractual obligations during the three months ended September 30, 2020.

Quantitative and Qualitative Disclosure About Market Risk

There has been no material change in our exposure to market risk during the three months ended June 30, 2020.

There has been no material change in our exposure to market risk during the three months ended September 30, 2020.

Please refer to "Quantitative and Qualitative Disclosures about Market Risk" contained in Part II, Item 7A of our Form 10-K for the year ended December 31, 2019 for a discussion of our exposure to market risk.

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