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Item 2. Management’s Discussion and Analysis

2022-08-16 compared with 2022-05-16 · 52 added, 27 removed, 84 unchanged (48% of the section changed)

64 unchanged sentences

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 March 31, 2022 and 2021

During the three months ended March 31, 2022 and 2021, we recorded revenue of $215,961 and $145,065, respectively.

Three Months Ended June 30 , 2022 and 2021

During the three months ended June 30, 2022 and 2021, we recorded revenue of $232,971 and $184,960, respectively.

The increase of $48,011 is primarily due to an increase in production-level systems revenue.

Costs and Expenses and Loss from Operations.

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

Losses from operations for the three months ended March 31, 2022 and 2021 were $7,155,544 and $8,527,787, respectively.

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

Losses from operations for the three months ended June 30, 2022 and 2021 were $7,064,798 and $11,016,839, respectively.

Cost of Revenue.

Cost of revenue was $203,249 and $0, respectively, for the three months ended March 31, 2022 and 2021.

For the three months ended March 31, 2022, cost of revenue is for our production-level systems that are sold to customers.

We did not incur any cost of revenue during the three months ended March 31, 2021.

Cost of revenue was $271,384 and $0, respectively, for the three months ended June 30, 2022 and 2021.

For the three months ended June 30, 2022, cost of revenue is for our production-level systems that are sold to customers.

We did not incur any cost of revenue during the three months ended June 30, 2021.

Research and Development Costs.

Research and development costs were $3,527,146 and $4,591,244, respectively, for the three months ended March 31, 2022 and 2021.

The decrease of $1,064,098 is primarily due to a $1,110,774 decrease in compensation, consisting of a $796,234 decrease in stock-based compensation, primarily due to equity awards becoming fully vested during the previous year and a lower headcount within the department, a $314,540 decrease in payroll costs due to a lower headcount within the department and a $66,880 decrease in legal fees associated with patents and intellectual property, partially offset by a $77,120 increase in chip design and engineering supplies and components.

Research and development costs were $3,209,910 and $6,103,694, respectively, for the three months ended June 30, 2022 and 2021.

The decrease of $2,893,784 is primarily due to a $2,723,973 decrease in compensation, consisting of a $2,221,752 decrease in stock-based compensation, primarily due to equity awards becoming fully vested during the previous year and the transfer of the current CEO to the General and Administrative Department late last year after his promotion and a $502,221 decrease in payroll costs due to a lower headcount within the department and a $255,204 decrease in chip design and engineering supplies and components, partially offset by an $87,200 increase in recruiting fees.

Sales and Marketing Costs.

Sales and marketing costs for the three months ended March 31, 2022 and 2021 were $1,613,590 and $1,794,212, respectively.

The decrease of $180,622 is primarily due to a $331,133 decrease in compensation, consisting of a $268,570 decrease in stock-based compensation, primarily due to equity awards becoming fully vested during the previous year and a lower headcount within the department, a $62,563 decrease in payroll costs due to a lower headcount within the department and an $84,544 decrease in public relations, consulting and third party services expenses, partially offset by a $213,873 increase in tradeshow costs and a $30,126 increase in engineering components used by the sales and marketing staff.

Sales and marketing costs for the three months ended June 30, 2022 and 2021 were $1,158,092 and $2,441,357, respectively.

The decrease of $1,283,265 is primarily due to a $1,204,406 decrease in compensation, consisting of a $978,015 decrease in stock-based compensation, primarily due to equity awards becoming fully vested during the previous year and a lower headcount within the department and a $226,391 decrease in payroll costs due to a lower headcount within the department, a $72,994 decrease in legal fees and a $71,697 decrease in public relations, consulting and third party services expenses, partially offset by an $88,720 increase in recruiting fees.

General and Administrative Expenses.

General and administrative costs for the three months ended March 31, 2022 and 2021 were $2,027,520 and $2,287,396, respectively.

The decrease of $259,876 is primarily due to a $441,302 decrease in compensation, consisting of a $284,516 decrease in stock-based compensation from forfeited equity awards and a lower headcount within the department, a $156,786 decrease in payroll costs due to a lower headcount within the department and an $87,781 decrease in legal and accounting fees, partially offset by a $109,994 increase in recruiting expense, a $61,717 increase in investor relations, consulting and third party services expenses, a $57,169 increase in insurance premiums and a $47,698 increase in annual stockholder meeting costs and stockholder transfer fees.

General and administrative costs for the three months ended June 30, 2022 and 2021 were $2,024,939 and $2,656,748, respectively.

The decrease of $631,809 is primarily due to a $482,890 decrease in compensation, consisting of a $452,432 decrease in stock-based compensation from forfeited equity awards and a lower headcount within the department and a $30,458 decrease in payroll costs due to a lower headcount within the department, a $128,942 decrease in legal and accounting fees and a $77,556 decrease in annual meeting costs, partially offset by a $47,970 increase in recruiting fees.

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 March 31, 2022 w a s $2,826 a s c o m p a r e d t o interest income of $2,024 fo r t h e three m on t h s e nd e d March 31, 2021 .

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, 2022 w a s $47,049 a s c o m p a r e d t o interest income of $1,010 fo r t h e three m on t h s e nd e d June 30, 2021 .

The increase of $46,039 is primarily due to higher savings interest rates.

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 March 31, 2022 was $7,152,718 a s c o m p a r e d t o $8,525,763 fo r t h e three m on t h s e nd e d March 31, 2021 .

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, 2022 was $7,017,749 a s c o m p a r e d t o $11,015,829 fo r t h e three m on t h s e nd e d June 30, 2021 .

Six Months Ended June 30, 2022 and 2021

During the six months ended June 30, 2022 and 2021, we recorded revenue of $448,932 and $330,025, respectively.

The increase is primarily from sales to our production-level customer.

Costs and Expenses and Loss from Operations.

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

Losses from operations for the six months ended June 30, 2022 and 2021 were $14,220,342 and $19,544,626, respectively.

Cost of Revenue.

Cost of revenue was $474,633 and $0, respectively, for the six months ended June 30, 2022 and 2021.

For the six months ended June 30, 2022, cost of revenue is for our production-level systems that are sold to customers.

We did not incur any cost of revenue during the six months ended June 30, 2021.

Research and Development Costs.

Research and development costs were $6,737,056 and $10,694,938, respectively, for the six months ended June 30, 2022 and 2021.

The decrease of $3,957,882 is primarily due to a $3,834,747 decrease in compensation, consisting of a $3,017,986 decrease in stock-based compensation from the recognition of PSU award expense in 2021 and the transfer of the current CEO to the General and Administrative department towards the end of 2021 after his promotion and $816,761 decrease in payroll costs from a lower headcount within the department, a $267,023 decrease in consulting and third party expense and a $178,084 decrease in engineering

supplies, components and chip development costs due to project timing, partially offset by a $112,850 increase in recruiting fees and an $89,221 increase in postage.

Sales and Marketing Costs.

Sales and marketing costs for the six months ended June 30, 2022 and 2021 were $2,771,682 and $4,235,569, respectively.

The decrease of $1,463,887 is primarily due to a $1,535,539 decrease in compensation, consisting of a $1,246,585 decrease in stock-based compensation from the recognition of PSU award expense during 2021 and a lower headcount within the department and a $288,954 decrease in payroll costs from a lower headcount within the department, a $156,242 decrease in public relations, consulting and third party services expense, a $90,087 decrease in legal fees and a $63,633 decrease in marketing and promotional expenses, partially offset by a $228,424 increase in tradeshow expense and an $88,720 increase in recruiting fees.

General and Administrative Expenses.

General and administrative costs for the six months ended June 30, 2022 and 2021 were $4,052,459 and $4,944,144, respectively.

The decrease of $891,685 is primarily due to a $924,192 decrease in compensation, consisting of a $736,948 decrease in stock-based compensation from the recognition of PSU award expense during 2021 and a $187,244 decrease in payroll costs from a lower headcount within the department, a $258,951 decrease in legal fees, a $45,309 decrease in rent and a $41,308 decrease in annual meeting costs, partially offset by a $157,964 increase in recruiting fees, a $42,228 increase in accounting and audit fees, a $38,202 increase in insurance premiums, a $37,279 increase in travel costs and a $32,627 increase in training, dues and subscriptions.

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, 2022 w a s $49,875 a s c o m p a r e d t o interest income of $3,034 fo r t h e six m on t h s e nd e d June 30, 2021 .

The increase of $46,841 is primarily due to higher savings interest rates.

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, 2022 was $14,170,467 a s c o m p a r e d t o $ 19,541,592 fo r t h e six m on t h s e nd e d June 30, 2021 .

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

During the three months ended March 31, 2022 and 2021, we recorded revenue of $215,961 and $145,065, respectively.

We incurred net losses of $7,152,718 and $8,525,763 for the three months ended March 31, 2022 and 2021, respectively.

Net cash used in operating activities was $6,356,971 and $5,976,550 for the three months ended March 31, 2022 and 2021, respectively.

During the six months ended June 30, 2022 and 2021, we recorded revenue of $448,932 and $330,025, respectively.

We incurred net losses of $14,170,467 and $19,541,592 for the six months ended June 30, 2022 and 2021, respectively.

Net cash used in operating activities was $13,453,948 and $12,537,690 for the six months ended June 30, 2022 and 2021, respectively.

We are currently meeting our liquidity requirements through the proceeds of securities offerings that raised net proceeds of $53,556,202 during 2020 and $27,043,751 during the fourth quarter of 2021, proceeds from contributions to the ESPP and payments received from customers.

We believe our cash on hand as of March 31, 2022, together with anticipated revenues, will be sufficient to fund our operations through May 2023.

We believe our cash on hand as of June 30, 2022, together with anticipated revenues, will be sufficient to fund our operations through August 2023.

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 will be available on terms that we would find acceptable, or at all.

During the three months ended March 31, 2022, cash flows used in operating activities were $6,356,971, consisting of a net loss of $7,152,718, less non-cash expenses aggregating $1,053,761 (principally stock-based compensation of $796,906, decrease in amortization of operating lease right-of-use assets of $186,736 and depreciation and amortization expense of $70,119), a $271,044 de crease in accounts payable, a $203,010 decrease in operating lease liabilities and a $180,535 decrease in accrued expenses, partially offset by a $443,216 decrease in prepaid expenses and other current assets.

During the three months ended March 31, 2021, cash flows used in operating activities were $5,976,550, consisting of a net loss of $8,525,763, less non-cash expenses aggregating $2,406,914 (principally stock-based compensation of $2,146,226, decrease in amortization of operating lease right-of-use assets of $195,914 and depreciation and amortization expense of $64,774), a $210,212 decrease in operating lease liabilities, a $105,491 increase in prepaid expenses and other current assets and an $80,925 increase in accounts receivable, partially offset by a $353,928 increase in accounts payable and a $179,999 increase in accrued expenses.

During the three months ended March 31, 2022 and 2021, cash flows used in investing activities were $44,489 and $111,727, respectively.

The cash used in investing activities for the three months ended March 31, 2022 consisted of the purchase of new engineering software licenses.

The cash used in investing activities for the three months ended March 31, 2021 consisted of the purchase of new testing equipment and engineering software.

During the three months ended March 31, 2022, cash flows provided by financing activities were $104,217, which consisted of entirely of proceeds from contributions to the ESPP.

During the three months ended March 31, 2021, cash flows provided by financing activities were $117,013, which consisted entirely of proceeds from contributions to the ESPP.

During the six months ended June 30, 2022, cash flows used in operating activities were $13,453,948, consisting of a net loss of $14,170,467, less non-cash expenses aggregating $1,977,108 (principally stock-based compensation of $1,460,693, amortization of operating lease right-of-use assets of $371,604 and depreciation and amortization expense of $127,311), a $403,029 decrease in operating lease liabilities, a $391,009 increase in prepaid expenses and other current assets, a $230,619 decrease in accrued severance expense, a $197,025 decrease in accounts payable, a $52,153 increase in inventory and a $50,554 decrease in accrued expenses, partially offset by a $55,819 decrease in accounts receivable.

During the six months ended June 30, 2021, cash flows used in operating activities were $12,537,690, consisting of a net loss of $19,541,592, less non-cash expenses aggregating $6,894,871 (principally stock-based compensation of $6,374,550, amortization of operating lease right-of-use assets of $393,936 and depreciation and amortization expense of $126,385) and a $555,702 increase in accounts payable, partially offset by a $422,533 decrease in operating lease liabilities and a $46,120 increase in accounts receivable.

During the six months ended June 30, 2022 and 2021, cash flows used in investing activities were $112,509 and $203,004, respectively.

The cash used in investing activities for the six months ended June 30, 2022 consisted of the purchase of new testing equipment and engineering software.

The cash used in investing activities for the six months ended June 30, 2021 consisted of the purchase of new testing equipment and engineering software.

During the six months ended June 30, 2022, cash flows provided by financing activities were $164,728, which consisted of entirely of proceeds from contributions to the ESPP.

During the six months ended June 30, 2021, cash flows provided by financing activities were $237,247, which consisted entirely of proceeds from contributions to the ESPP.

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

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Quantitative and Qualitative Disclosure About Market Risk

There has been no material change in our exposure to market risk during the three months ended March 31, 2022.

There has been no material change in our exposure to market risk during the three months ended June 30, 2022.

See "Quantitative and Qualitative Disclosures about Market Risk" in Part II, Item 7A of our Form 10-K for the year ended December 31, 2021 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